MIGUEL MAPALO, ET AL., petitioners, vs. MAXIMO MAPALO, ET AL., respondents.
(a) dismissing the complaint in Civil Case No. 11991;
BENGZON, J.P., J.:
The spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered owners, with Torrens
title certificate O.C.T. No. 46503, of a 1,635-square-meter residential land in Manaoag, Pangasinan. Said spouses-
owners, out of love and affection for Maximo Mapalo — a brother of Miguel who was about to get married —
decided to donate the eastern half of the land to him. O.C.T. No. 46503 was delivered. As a result, however, they
were deceived into signing, on October 15, 1936, a deed of absolute sale over the entire land in his favor. Their
signatures thereto were procured by fraud, that is, they were made to believe by Maximo Mapalo and by the
attorney who acted as notary public who "translated" the document, that the same was a deed of donation in
Maximo's favor covering one-half (the eastern half) of their land. Although the document of sale stated a
consideration of Five Hundred (P500.00) Pesos, the aforesaid spouses did not receive anything of value for the
land. The attorney's misbehaviour was the subject of an investigation but its result does not appear on record.
However we took note of the fact that during the hearing of these cases said notary public was present but did not
take the witness stand to rebut the plaintiffs' testimony supporting the allegation of fraud in the preparation of the
document.
Following the execution of the afore-stated document, the spouses Miguel Mapalo and Candida Quiba immediately
built a fence of permanent structure in the middle of their land segregating the eastern portion from its western
portion. Said fence still exists. The spouses have always been in continued possession over the western half of
the land up to the present.
Not known to them, meanwhile, Maximo Mapalo, on March 15, 1938, registered the deed of sale in his favor and
obtained in his name Transfer Certificate of Title No. 12829 over the entire land. Thirteen years later on October
20, 1951, he sold for P2,500.00 said entire land in favor of Evaristo, Petronila Pacifico and Miguel all surnamed
Narciso. The sale to the Narcisos was in turn registered on November 5, 1951 and Transfer Certificate of Title No.
11350 was issued for the whole land in their names.
The Narcisos took possession only of the eastern portion of the land in 1951, after the sale in their favor was
made. On February 7, 1952 they filed suit in the Court of First Instance of Pangasinan (Civil Case No. 1191) to be
declared owners of the entire land, for possession of its western portion; for damages; and for rentals. It was
brought against the Mapalo spouses as well as against Floro Guieb and Rosalia Mapalo Guieb who had a house
on the western part of the land with the consent of the spouses Mapalo and Quiba.
The Mapalo spouses filed their answer with a counterclaim on March 17, 1965, seeking cancellation of the Transfer
Certificate of Title of the Narcisos as to the western half of the land, on the grounds that their (Mapalo spouses)
signatures to the deed of sale of 1936 was procured by fraud and that the Narcisos were buyers in bad faith. They
asked for reconveyance to them of the western portion of the land and issuance of a Transfer Certificate of Title
in their names as to said portion.
In addition, the Mapalo spouses filed on December 16, 1957 their own complaint in the Court of First Instance of
Pangasinan (Civil Case No. U-133) against the aforestated Narcisos and Maximo Mapalo. They asked that the
deeds of sale of 1936 and of 1951 over the land in question be declared null and void as to the western half of
said land.
Judge Amado Santiago of the Court of First Instance of Pangasinan located in the municipality of Urdaneta tried
the two cases jointly. Said court rendered judgment on January 18, 1961, as follows:
WHEREFORE, judgment is hereby rendered as follows, to wit:
(b) declaring Exhibit A, plaintiffs in Case No. 11991 and Exhibit 1, defendants in Case No. U-133 as a
donation only over the eastern half portion of the above-described land, and as null and void with respect
to the western half portion thereof;
(c) declaring as null and void and without legal force and effect Transfer Certificate of Title No. 12829
issued in favor of Maximo Mapalo as regards the western half portion of the land covered therein;
(d) declaring as null and void Transfer Certificate of Title No. 11350 in the names of the Narcisos insofar
as the western half portion of the land covered therein is concerned;
(e) ordering the spouses Mapalo and Quiba and the Narcisos to have the above-described land be
subdivided by a competent land surveyor and that the expenses incident thereto be borne out by said
parties pro rata;
(f) ordering the Register of Deeds of Pangasinan to issue in lieu of Transfer Certificate of Title No. 11350
two new titles upon completion of the subdivision plan, one in favor of the spouses Miguel Mapalo and
Candida Quiba covering the western half portion and another for the Narcisos covering the eastern half
portion of the said land, upon payment of the legal fees; meanwhile the right of the spouses Mapalo and
Quiba is hereby ordered to be annotated on the back of Transfer Certificate of Title No. 11350; and
(g) sentencing Maximo Mapalo and the Narcisos to pay the costs.
IT IS SO ORDERED.
The Narcisos appealed to the Court of Appeals. In its decision on May 28, 1963, the Court of Appeals reversed
the judgment of the Court of First Instance, solely on the ground that the consent of the Mapalo spouses to the
deed of sale of 1936 having been obtained by fraud, the same was voidable, not void ab initio, and, therefore, the
action to annul the same, within four years from notice of the fraud, had long prescribed. It reckoned said notice
of the fraud from the date of registration of the sale on March 15, 1938. The Court of First Instance and the Court
of Appeals are therefore unanimous that the spouses Mapalo and Quiba were definitely the victims of fraud. It was
only on prescription that they lost in the Court of Appeals.
From said decision of the Court of Appeals, the Mapalo spouses appealed to this Court.
And here appellants press the contention that the document dated October 15, 1936, purporting to sell the entire
land in favor of Maximo Mapalo, is void, not merely voidable, as to the western portion of the land for being
absolutely simulated or fictitious.
Starting with fundamentals, under the Civil Code, either the old or the new, for a contract to exist at all, three
essential requisites must concur: (1) consent, (2) object, and (3) cause or consideration. 1 The Court of Appeals is
right in that the element of consent is present as to the deed of sale of October 15, 1936. For consent was
admittedly given, albeit obtained by fraud. Accordingly, said consent, although defective, did exist. In such case,
the defect in the consent would provide a ground for annulment of a voidable contract, not a reason for nullity ab
initio.
The parties are agreed that the second element of object is likewise present in the deed of October 15, 1936,
namely, the parcel of land subject matter of the same.
Not so, however, as to the third element of cause or consideration. And on this point the decision of the Court of
Appeals is silent.
As regards the eastern portion of the land, the Mapalo spouses are not claiming the same, it being their stand that
they have donated and freely given said half of their land to Maximo Mapalo. And since they did not appeal from
the decision of the trial court finding that there was a valid and effective donation of the eastern portion of their
land in favor of Maximo Mapalo, the same pronouncement has become final as to them, rendering it no longer
proper herein to examine the existence, validity efficacy of said donation as to said eastern portion.1äwphï1.ñët
Now, as to the western portion, however, the fact not disputed herein is that no donation by the Mapalo spouses
obtained as to said portion. Accordingly, we start with the fact that liberality as a cause or consideration does not
exist as regards the western portion of the land in relation to the deed of 1936; that there was no donation with
respect to the same.
It is reduced, then, to the question whether there was an onerous conveyance of ownership, that is, a sale, by
virtue of said deed of October 15, 1936, with respect to said western portion. Specifically, was there a cause or
consideration to support the existence of a contrary of sale?
The rule under the Civil Code, again be it the old or the new, is that contracts without a cause or consideration
produce no effect whatsoever.2 Nonetheless, under the Old Civil Code, the statement of a false consideration
renders the contract voidable, unless it is proven that it is supported by another real and licit consideration.3 And
it is further provided by the Old Civil Code that the action for annulment of a contract on the ground of falsity of
consideration shall last four years, the term to run from the date of the consummation of the contract. 4
Accordingly, since the deed of sale of 1936 is governed by the Old Civil Code, it should be asked whether its case
is one wherein there is no consideration, or one with a statement of a false consideration. If the former, it is void
and inexistent; if the latter, only voidable, under the Old Civil Code. As observed earlier, the deed of sale of 1936
stated that it had for its consideration Five Hundred (P500.00) Pesos. In fact, however, said consideration was
totally absent. The problem, therefore, is whether a deed which states a consideration that in fact did not exist, is
a contract without consideration, and therefore void ab initio, or a contract with a false consideration, and therefore,
at least under the Old Civil Code, voidable.
According to Manresa, what is meant by a contract that states a false consideration is one that has in fact a real
consideration but the same is not the one stated in the document. Thus he says:
En primer lugar, nor interesa recordar la diferencia entre simulacion y el contrato con proposito
fraudulento. Este aunque ilicito es real; mas el primero es falso en realidad, aunque se le presente como
verdadero. (Manresa, Codigo Civil, Tomo VIII, Vol. II, p. 354.)
And citing a decision of the Supreme Court of Spain on the matter, Manresa further clarifies the difference of false
cause and no cause, thus:
Insiste en el distingo con mas detenida descripcion la sentencia de 25 de mayo de 1944, en la que se
argumenta:
Si bien es elemento fundamental de todo negocio, la declaracion de voluntad substracto de una
voluntad efectiva, y la existencia de una causa que leconfiera significado juridico señalando la finalidad
que con este se persigue, no ha de deducirse de esta doctrina, fundamentalmente recogida en el
articulo 1.261 y concordantes del Codigo civil, que cualquier falta de adecuacion entre cualquier
incongruencia entre la causa expresada y la verdadera, y, en general, entre la estructuracion y la
finalidad economica; hayan de producir la ineficacia del negocio, pues por el contrario, puede este ser
valido y producir sus efectos tanto en el caso de la mera disonancia entre el medio juridico adoptado y
el fin practico perseguido, por utilizacion de una via oblicua o combinacion de formas juridicas
entrelazadas que permita la obtencion de un resultado no previsto en los cuadros de la ley — negocios
indirectos y negocios fiduciarlos, validos cuando no envuelven fraude de ley, como en el caso de la
verdadera disconformidad entre la apariencia del acto y su real contenido, preparada deliberadamente
por las partes — negocio simulado — , ya que, cuando esta divergencia implica no una ausencia total
de voluntad y de acto real, sino mera ocultacion de un negocio verdadero bajo la falsa apariencia de
un negocio fingido "sirulacion relativa", la ineficacia de la forma externa simulada, no es obstaculo para
la posible validez del negocio disimulado que contiene, en tanto este ultimo sea licito y reuna no solo
los requisitos generales, sino tambien los que corresponden a su naturaleza especial, doctrina, en
obligada aplicacion de los preceptos de nuestra Ley civil, especialmente en su art. 1.276, que, al
establecer el principio de nulidad de los contratos en los que se hace expresion de una causa falsa,
deja a salvo el caso de que esten fundados en otra verdadera y licita. (Manresa, Codigo Civil, Tomo
VIII, Vol. II pp. 357-358)
Sanchez Roman says:
Ya hemos dicho que la intervencion de causa en los contratos es necesaria, y que sin ellos son nulos;
solo se concibe que un hombre perturbado en su razon pueda contratar sin causa. ...
Por la misma razon de la necesidad de la intervencion de causa en el contrato, es preciso que esta
sea verdadera y no supuesta, aparente o figurada. Que la falsedad de la causa vicia el consentimiento
y anula el contrato, es, no solo doctrina indudable de Derecho Cientifico sino tambien de antiguo
Derecho de Castilla, que en multitud de leyes asi lo declararon. (Sanchez Roman, Derecho Civil, Tomo
IV, p. 206.).
In a clearer exposition of the above distinction, Castan states:
2.º. La causa ha de ser verdadera. La causa falsa puede ser erronea o simulada. Es erronea como dice
Giorgi, la causa que tiene por base la credulidad en un hecho no existente; y simulada la que tiene
lugar cuando se hace aparecer artificiosamente una distinta de la verdadera. La erronea produce
siempre la inexistencia del contrato; la simulada no siempre produce este efecto, porque puede suceder
que la causa oculta, pero verdadera, baste para sostener el contrato. De acuerdo con esta doctrina,
dice el art. 1.276 de nuestro Codigo que "la expresion de una causa falsa en los contratos dara lugar a
la nulidad, si no se probase que estaban fundados en otra verdadera y licita". (Castan Derecho Civil
Español, Tomo II, pp. 618-619)
From the foregoing it can be seen that where, as in this case, there was in fact no consideration, the statement of
one in the deed will not suffice to bring it under the rule of Article 1276 of the Old Civil Code as stating a false
consideration. Returning to Manresa:
Figurando en nuestro Derecho positivo la causa, como un elemento esential del contrato, es
consecuencia ineludible, se reputar simulada la entrega del precio en la compraventa de autos, el que
haya que declararla nula por inexistente haciendose aplicacion indebida de art. 1.276 por el Tribunal
sentenciador al cohonestar la falta de precio admitiendo se pueda tratar de una donacion, ya que la
 recta aplicacion del citado precepto exige que los negocios simulados, o sea con causa falsa, se of dominion on the part of their vendor Maximo Mapalo over the whole land and also of the flaw of his
justifique la verdadera y licita en que se funda el acto que las partes han querido ocultar y el title thereto. Under this situation, the Narcisos may be considered purchasers in value but certainly not
cumplimiento de las formalidades impuestas por la Ley y, cual dice la sentencia de 3 de marzo de 1932, as purchasers in good faith. ... (pp. 97-98, Record on Appeal.)
esta rigurosa doctrina ha de ser especialmente impuesta en la donaciones puras y simples; de los que
deduce que la sentencia recurrida al no decretar la nulidad instada por falta de causa, incide en la
And said finding — which is one of fact — is found by us not a bit disturbed by the Court of Appeals. Said the
infraccion de los articulos 1.261, 1.274, 1.275 y 1.276 del Codigo Civil. (Sentencia de 22 de febrero de
Court of Appeals:
1940). (Manresa, Codigo Civil, Tomo VIII, Vol. II, p. 356)

In view of the conclusion thus reached, it becomes unnecessary to pass on the other errors
In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil. 921, is squarely applicable
assigned. Suffice it to say that, on the merits the appealed decision could have been upheld under
herein. In that case we ruled that a contract of purchase and sale is null and void and produces no effect
Article 1332 of the new Civil Code and the following authorities: Ayola vs. Valderrama Lumber
whatsoever where the same is without cause or consideration in that the purchase price which appears thereon
Manufacturers Co., Inc., 49 O.G. 980, 982; Trasporte vs. Beltran, 51 O.G. 1434, 1435; Cortez vs. Cortez,
as paid has in fact never been paid by the purchaser to the vendor.
CA-G.R. No. 18451-R, August 8, 1961; Castillo vs. Laberinto, CA-G.R. No. 18118-R, December 20,
1961; and 13 C.J. 372-373, as well as the several facts and circumstances appreciated by the trial court
Needless to add, the inexistence of a contract is permanent and incurable and cannot be the subject of as supporting appellees' case.
prescription. In the words of Castan: "La inexistencia es perpetua e insubsanable no pudiendo ser objecto de
confirmacion ni prescripcion (Op. cit., p. 644.) In Eugenio v. Perdido, 97 Phil. 41, 42-43, involving a sale dated
thereby in effect sustaining — barring only its ruling on prescription — the judgment and findings of the trial court,
1932, this Court, speaking through Justice Cesar Bengzon, now Chief Justice, stated:
including that of bad faith on the part of the Narcisos in purchasing the land in question. We therefore see no need
to further remand this case to the Court of Appeals for a ruling on this point, as appellees request in their brief in
Under the existing classification, such contract would be "inexisting" and "the action or defense for the event we hold the contract of 1936 to be inexistent as regards the western portion of the land.
declaration" of such inexistence "does not prescribe". (Art. 1410, New Civil Code). While it is true that
this is a new provision of the New Civil Code, it is nevertheless a principle recognized since Tipton vs.
In view of defendants' bad faith under the circumstances we deem it just and equitable to award, in plaintiffs' favor,
Velasco, 6 Phil. 67 that "mere lapse of time cannot give efficacy to contracts that are null and void".
attorneys' fees on appeal, in the amount of P1,000.00 as prayed for in the counterclaim.

Anent the matter of whether the Narcisos were purchasers in good faith, the trial court in its decision resolved this
Wherefore, the decision of the Court of Appeals is hereby reversed and set aside, and another one is hereby
issue, thus:
rendered affirming in toto the judgment of the Court of First Instance a quo, with attorney's fees on appeal in favor
of appellants in the amount of P1,000.00, plus the costs, both against the private appellees. So ordered.
With regard to the second issue, the Narcisos contend that they are the owners of the above-described
property by virtue of the deed of sale (Exh. B, plaintiffs in 11991 and Exh. 2, defendants in U-133)
IMELDA ONG, ET AL., petitioners vs. ALFREDO ONG, ET AL., respondents.
executed in their favor by Maximo Mapalo, and further claim that they are purchasers for value and in
good faith. This court, however, cannot also give weight and credit on this theory of the Narcisos on the
following reasons: Firstly, it has been positively shown by the undisputed testimony of Candida Quiba RELOVA, J.:
that Pacifico Narciso and Evaristo Narciso stayed for some days on the western side (the portion in
question) of the above-described land until their house was removed in 1940 by the spouses Mapalo
and Quiba; secondly, Pacifica Narciso admitted in his testimony in chief that when they bought the This is a petition for review on certiorari of the decision, dated June 20, 1984, of the Intermediate Appellate Court,
property, Miguel Mapalo was still in the premises in question (western part) which he is occupying and in AC-G.R. No. CV-01748, affirming the judgment of the Regional Trial Court of Makati, Metro Manila. Petitioner
his house is still standing thereon; and thirdly, said Pacifico Narciso when presented as a rebuttal and Imelda Ong assails the interpretation given by respondent Appellate Court to the questioned Quitclaim Deed.
sub-rebuttal witness categorically declared that before buying the land in question he went to the house
of Miguel Mapalo and Candida Quiba and asked them if they will permit their elder brother Maximo to Records show that on February 25, 1976 Imelda Ong, for and in consideration of One (P1.00) Peso and other
sell the property. valuable considerations, executed in favor of private respondent Sandra Maruzzo, then a minor, a Quitclaim Deed
whereby she transferred, released, assigned and forever quit-claimed to Sandra Maruzzo, her heirs and assigns,
Aside from the fact that all the parties in these cases are neighbors, except Maximo Mapalo the all her rights, title, interest and participation in the ONE-HALF (½) undivided portion of the parcel of land,
foregoing facts are explicit enough and sufficiently reveal that the Narcisos were aware of the nature particularly described as follows:
and extent of the interest of Maximo Mapalo their vendor, over the above-described land before and at
the time the deed of sale in their favor was executed. A parcel of land (Lot 10-B of the subdivision plan (LRC) Psd 157841, being a portion of Lot
10, Block 18, Psd-13288, LRC (GLRC) Record No. 2029, situated in the Municipality of
Makati, Province of Rizal, Island of Luzon ... containing an area of ONE HUNDRED AND
Upon the aforestated declaration of Pacifico Narciso the following question arises: What was the
necessity, purpose and reason of Pacifico Narciso in still going to the spouses Mapalo and asked them TWENTY FIVE (125) SQUARE METERS, more or less.
to permit their brother Maximo to dispose of the above-described land? To this question it is safe to
state that this act of Pacifico Narciso is a conclusive manifestation that they (the Narcisos) did not only On November 19, 1980, Imelda Ong revoked the aforesaid Deed of Quitclaim and, thereafter, on January 20,
have prior knowledge of the ownership of said spouses over the western half portion in question but that 1982 donated the whole property described above to her son, Rex Ong-Jimenez.
they also have recognized said ownership. It also conclusively shows their prior knowledge of the want
On June 20, 1983, Sandra Maruzzo, through her guardian (ad litem) Alfredo Ong, filed with the Regional Trial
Court of Makati, Metro Manila an action against petitioners, for the recovery of ownership/possession and
nullification of the Deed of Donation over the portion belonging to her and for Accounting.
In their responsive pleading, petitioners claimed that the Quitclaim Deed is null and void inasmuch as it is
equivalent to a Deed of Donation, acceptance of which by the donee is necessary to give it validity. Further, it is
averred that the donee, Sandra Maruzzo, being a minor, had no legal personality and therefore incapable of
accepting the donation.
Upon admission of the documents involved, the parties filed their responsive memoranda and submitted the case
for decision.
On December 12, 1983, the trial court rendered judgment in favor of respondent Maruzzo and held that the
Quitclaim Deed is equivalent to a Deed of Sale and, hence, there was a valid conveyance in favor of the latter.
Petitioners appealed to the respondent Intermediate Appellate Court. They reiterated their argument below and,
in addition, contended that the One (P1.00) Peso consideration is not a consideration at all to sustain the ruling
that the Deed of Quitclaim is equivalent to a sale.
On June 20, 1984, respondent Intermediate Appellate Court promulgated its Decision affirming the appealed
judgment and held that the Quitclaim Deed is a conveyance of property with a valid cause or consideration; that
the consideration is the One (P1.00) Peso which is clearly stated in the deed itself; that the apparent inadequacy
is of no moment since it is the usual practice in deeds of conveyance to place a nominal amount although there is
a more valuable consideration given.
Not satisfied with the decision of the respondent Intermediate Appellate Court, petitioners came to Us questioning
the interpretation given by the former to this particular document.
On March 15, 1985, respondent Sandra Maruzzo, through her guardian ad litem Alfredo Ong, filed an Omnibus
Motion informing this Court that she has reached the age of majority as evidenced by her Birth Certificate and she
prays that she be substituted as private respondent in place of her guardian ad litem Alfredo Ong. On April 15,
1985, the Court issued a resolution granting the same.
A careful perusal of the subject deed reveals that the conveyance of the one- half (½) undivided portion of the
above-described property was for and in consideration of the One (P 1.00) Peso and the other valuable
considerations (emphasis supplied) paid by private respondent Sandra Maruzzo through her representative,
Alfredo Ong, to petitioner Imelda Ong. Stated differently, the cause or consideration is not the One (P1.00) Peso
alone but also the other valuable considerations. As aptly stated by the Appellate Court-
... although the cause is not stated in the contract it is presumed that it is existing unless the
debtor proves the contrary (Article 1354 of the Civil Code). One of the disputable
presumptions is that there is a sufficient cause of the contract (Section 5, (r), Rule 131, Rules
of Court). It is a legal presumption of sufficient cause or consideration supporting a contract
even if such cause is not stated therein (Article 1354, New Civil Code of the Philippines.) This
presumption cannot be overcome by a simple assertion of lack of consideration especially
when the contract itself states that consideration was given, and the same has been reduced
into a public instrument with all due formalities and solemnities. To overcome the presumption
of consideration the alleged lack of consideration must be shown by preponderance of
evidence in a proper action. (Samanilla vs, Cajucom, et al., 107 Phil. 432).
The execution of a deed purporting to convey ownership of a realty is in itself prima facie evidence of the existence
of a valuable consideration, the party alleging lack of consideration has the burden of proving such allegation.
(Caballero, et al. vs. Caballero, et al., (CA), 45 O.G. 2536).
Moreover, even granting that the Quitclaim deed in question is a donation, Article 741 of the Civil Code provides
that the requirement of the acceptance of the donation in favor of minor by parents of legal representatives applies
only to onerous and conditional donations where the donation may have to assume certain charges or burdens
(Article 726, Civil Code). The acceptance by a legal guardian of a simple or pure donation does not seem to be
necessary (Perez vs. Calingo, CA-40 O.G. 53). Thus, Supreme Court ruled in Kapunan vs. Casilan and Court of
Appeals, (109 Phil. 889) that the donation to an incapacitated donee does not need the acceptance by the lawful
representative if said donation does not contain any condition. In simple and pure donation, the formal acceptance
is not important for the donor requires no right to be protected and the donee neither undertakes to do anything
nor assumes any obligation. The Quitclaim now in question does not impose any condition.
The above pronouncement of respondent Appellate Court finds support in the ruling of this Court in Morales
Development Co., Inc. vs. CA, 27 SCRA 484, which states that "the major premise thereof is based upon the fact
that the consideration stated in the deeds of sale in favor of Reyes and the Abellas is P1.00. It is not unusual,
however, in deeds of conveyance adhering to the Anglo-Saxon practice of stating that the consideration given is
the sum of P1.00, although the actual consideration may have been much more. Moreover, assuming that said
consideration of P1.00 is suspicious, this circumstance, alone, does not necessarily justify the inference that Reyes
and the Abellas were not purchasers in good faith and for value. Neither does this inference warrant the conclusion
that the sales were null and void ab initio. Indeed, bad faith and inadequacy of the monetary consideration do not
render a conveyance inexistent, for the assignor's liberality may be sufficient cause for a valid contract (Article
1350, Civil Code), whereas fraud or bad faith may render either rescissible or voidable, although valid until
annulled, a contract concerning an object certain entered into with a cause and with the consent of the contracting
parties, as in the case at bar."
WHEREFORE. the appealed decision of the Intermediate Appellate Court should be, as it is hereby AFFIRMED,
with costs against herein petitioners. SO ORDERED.
ISAAC BAGNAS, ENCARNACION BAGNAS, SILVESTRE BAGNAS MAXIMINA BAGNAS, SIXTO BAGNAS
and AGATONA ENCARNACION, petitioners, vs. HON. COURT OF APPEALS, ROSA L. RETONIL TEOFILO
ENCARNACION, and JOSE B. NAMBAYAN respondents.
NARVASA, J.:
The facts underlying this appeal by certiorari are not in dispute. Hilario Mateum of Kawit, Cavite, died on March
11, 1964, single, without ascendants or descendants, and survived only by collateral relatives, of whom petitioners
herein, his first cousins, were the nearest. Mateum left no will, no debts, and an estate consisting of twenty-nine
parcels of land in Kawit and Imus, Cavite, ten of which are involved in this appeal. 1
On April 3, 1964, the private respondents, themselves collateral relatives of Mateum though more remote in degree
than the petitioners, 2 registered with the Registry of Deeds for the Province of Cavite two deeds of sale purportedly
executed by Mateum in their (respondents') favor covering ten parcels of land. Both deeds were in Tagalog, save
for the English descriptions of the lands conveyed under one of them; and each recited the reconsideration of the
sale to be" ... halagang ISANG PISO (Pl.00), salaping Pilipino, at mga naipaglingkod, ipinaglilingkod sa aking
kapakanan ..." ("the sum of ONE PESO Pl.00), Philippine Currency, and services rendered, being rendered and
to be rendered for my benefit"). One deed was dated February 6,1963 and covered five parcels of land, and the
other was dated March 4, 1963, covering five other parcels, both, therefore, antedating Mateum's death by more
than a year. 3 It is asserted by the petitioners, but denied by the respondents, that said sales notwithstanding,
Mateum continued in the possession of the lands purportedly conveyed until his death, that he remained the
declared owner thereof and that the tax payments thereon continued to be paid in his name. 4 Whatever the truth, principally or subsidiarily to the terms of said deeds, the latter had and have no actionable right to question those
however, is not crucial. What is not disputed is that on the strength of the deeds of sale, the respondents were transfers.
able to secure title in their favor over three of the ten parcels of land conveyed thereby. 5
On the other hand, if said deeds were void ab initio because to all intents and purposes without consideration,
On May 22,1964 the petitioners commenced suit against the respondents in the Court of First Instance of Cavite, then a different legal situation arises, and quite another result obtains, as pointed out by the eminent civil law
seeking annulment of the deeds of sale as fictitious, fraudulent or falsified, or, alternatively, as donations void for authority, Mr. Justice J.B.L. Reyes who, in his concurring opinion in Armentia, said:
want of acceptance embodied in a public instrument. Claiming ownership pro indiviso of the lands subject of the
deeds by virtue of being intestate heirs of Hilario Mateum, the petitioners prayed for recovery of ownership and
I ... cannot bring myself to agree to the proposition that the heirs intestate would have no legal
possession of said lands, accounting of the fruits thereof and damages. Although the complaint originally sought
standing to contest the conveyance made by the deceased if the same were made without
recovery of all the twenty-nine parcels of land left by Mateum, at the pre-trial the parties agreed that the controversy
any consideration, or for a false and fictitious consideration. For under the Civil Code of the
be limited to the ten parcels subject of the questioned sales, and the Trial Court ordered the exclusion of the
Philippines, Art. 1409, par. 3, contracts with a cause that did not exist at the time of the
nineteen other parcels from the action. 6 Of the ten parcels which remained in litigation, nine were assessed for
transaction are inexistent and void from the beginning. The same is true of contracts stating
purposes of taxation at values aggregating P10,500 00. The record does not disclose the assessed value of the
a false cause (consideration) unless the persons interested in upholding the contract should
tenth parcel, which has an area of 1,443 square meters. 7
prove that there is another true and lawful consideration therefor. (lbid., Art. 1353).

In answer to the complaint, the defendants (respondents here) denied the alleged fictitious or fraudulent character
If therefore the contract has no causa or consideration, or the causa is false and fictitious (and
of the sales in their favor, asserting that said sales were made for good and valuable consideration; that while "...
no true hidden causa is proved) the property allegedly conveyed never really leaves the
they may have the effect of donations, yet the formalities and solemnities of donation are not required for their
patrimony of the transferor, and upon the latter's death without a testament, such property
validity and effectivity, ... that defendants were collateral relatives of Hilario Mateum and had done many good
would pass to the transferor's heirs intestate and be recoverable by them or by the
things for him, nursing him in his last illness, which services constituted the bulk of the consideration of the sales;
Administrator of the transferor's estate. In this particular regard, I think Concepcion vs. Sta.
and (by way of affirmative defense) that the plaintiffs could not question or seek annulment of the sales because
Ana, 87 Phil. 787 and Sobs vs. Chua Pua Hermanos, 50 Phil. 536, do not correctly state the
they were mere collateral relatives of the deceased vendor and were not bound, principally or subsidiarily,
present law, and must be clarified.
thereby. 8

After the plaintiffs had presented their evidence, the defendants filed a motion for dismissal in effect, a demurrer
to the evidence reasserting the defense set up in their answer that the plaintiffs, as mere collateral relatives of
Hilario Mateum, had no light to impugn the latter's disposition of his properties by means of the questioned
conveyances and submitting, additionally, that no evidence of fraud maintaining said transfers had been
presented. 9
The Trial Court granted the motion to dismiss, holding (a) on the authority of Armentia vs. Patriarca, 10 that the
plaintiffs, as mere collateral relatives, not forced heirs, of Hilario Mateum, could not legally question the disposition
made by said deceased during his lifetime, regardless of whether, as a matter of objective reality, said dispositions
were valid or not; and (b) that the plaintiffs evidence of alleged fraud was insufficient, the fact that the deeds of
sale each stated a consideration of only Pl.00 not being in itself evidence of fraud or simulation. 11
On appeal by the plaintiffs to the Court of Appeals, that court affirmed, adverting with approval to the Trial Court's
reliance on the Armentia ruling which, it would appear, both courts saw as denying, without exception, to
collaterals, of a decedent, not forced heirs, the right to impugn the latter's dispositions inter vivos of his property.
The Appellate Court also analyzed the testimony of the plaintiffs' witnesses, declared that it failed to establish
fraud of any kind or that Mateum had continued paying taxes on the lands in question even after executing the
deeds conveying them to the defendants, and closed with the statement that "... since in duly notarized and
registered deeds of sale consideration is presumed, we do not and it necessary to rule on the alternative
allegations of the appellants that the said deed of sale were (sic) in reality donations. 12
One issue clearly predominates here. It is whether, in view of the fact that, for properties assuredly worth in actual
value many times over their total assessed valuation of more than P10,000.00, the questioned deeds of sale each
state a price of only one peso (P1.00) plus unspecified past, present and future services to which no value is
assigned, said deeds were void or inexistent from the beginning ("nulo") or merely voidable, that is, valid until
annulled. If they were only voidable, then it is a correct proposition that since the vendor Mateum had no forced
heirs whose legitimes may have been impaired, and the petitioners, his collateral relatives, not being bound either
To be sure the quoted passage does not reject and is not to be construed as rejecting
the Concepcion and Solis rulings 13 as outrightly erroneous, far from it. On the contrary, those rulings undoubtedly
read and applied correctly the law extant in their time: Art. 1276 of the Civil Code of 1889 under which the statement
of a false cause in a contract rendered it voidable only, not void ab initio. In observing that they "... do not correctly
state the present law and must be clarified," Justice Reyes clearly had in mind the fact that the law as it is now
(and already was in the time Armentia) no longer deems contracts with a false cause, or which are absolutely
simulated or fictitious, merely voidable, but declares them void, i.e., inexistent ("nulo") unless it is shown that they
are supported by another true and lawful cause or consideration. 14 A logical consequence of that change is the
juridical status of contracts without, or with a false, cause is that conveyances of property affected with such a vice
cannot operate to divest and transfer ownership, even if unimpugned. If afterwards the transferor dies the property
descends to his heirs, and without regard to the manner in which they are called to the succession, said heirs may
bring an action to recover the property from the purported transferee. As pointed out, such an action is not founded
on fraud, but on the premise that the property never leaves the estate of the transferor and is transmitted upon his
death to heirs, who would labor under no incapacity to maintain the action from the mere fact that they may be
only collateral relatives and bound neither principally or subsidiarily under the deed or contract of conveyance.
In Armentia the Court determined that the conveyance questioned was merely annullable not void ab initio, and
that the plaintiff s action was based on fraud vitiating said conveyance. The Court said:
Hypothetically admitting the truth of these allegations (of plaintiffs complaint), the conclusion
is irresistible that the sale is merely voidable. Because Marta Armentia executed the
document, and this is not controverted by plaintiff. Besides, the fact that the vendees were
minors, makes the contract, at worst, annullable by them, Then again, inadequacy of
consideration does not imply total want of consideration. Without more, the parted acts of
Marta Armentia after the sale did not indicate that the said sale was void from the being.
The sum total of all these is that, in essence, plaintiffs case is bottomed on fraud, which
renders the contract voidable.
It therefore seems clear that insofar as it may be considered as setting or reaffirming precedent, Armentia only
ruled that transfers made by a decedent in his lifetime, which are voidable for having been fraudulently made or
obtained, cannot be posthumously impugned by collateral relatives succeeding to his estate who are not principally
or subsidiarily bound by such transfers. For the reasons already stated, that ruling is not extendible to transfers
which, though made under closely similar circumstances, are void ab initio for lack or falsity of consideration.
The petitioners here argue on a broad front that the very recitals of the questioned deeds of sale reveal such want
or spuriousness of consideration and therefore the void character of said sales. They:
1. advert to a decision of the Court of Appeals in Montinola vs. Herbosa (59 O.G. No. 47, pp, 8101, 8118) holding
that a price of P l.00 for the sale of things worth at least P20,000.00 is so insignificant as to amount to no price at
all, and does not satisfy the law which, while not requiring for the validity of a sale that the price be adequate,
prescribes that it must be real, not fictitious, stressing the obvious parallel between that case and the present one
in stated price and actual value of the property sold;
2. cite Manresa to the same effect: that true price, which is essential to the validity of a sale, means existent, real
and effective price, that which does not consist in an insignificant amount as, say, P.20 for a house; that it is not
the same as the concept of a just price which entails weighing and measuring, for economic equivalence, the
amount of price against all the factors that determine the value of the thing sold; but that there is no need of such
a close examination when the immense disproportion between such economic values is patent a case of
insignificant or ridiculous price, the unbelievable amount of which at once points out its inexistence; 15
3. assert that Art. 1458 of the Civil Code, in prescribing that a sale be for a ... price certain in money or its equivalent
... requires that "equivalent" be something representative of money, e.g., a check or draft, again citing Manresa 16 to
the effect that services are not the equivalent of money insofar as said requirement is concerned and that a
contract is not a true sale where the price consists of services or prestations;
4. once more citing Manresa 17 also point out that the "services" mentioned in the questioned deeds of sale are
not only vague and uncertain, but are unknown and not susceptible of determination without the necessity of a
new agreement between the parties to said deeds.
Without necessarily according all these assertions its full concurrence, but upon the consideration alone that the
apparent gross, not to say enormous, disproportion between the stipulated price (in each deed) of P l.00 plus
unspecified and unquantified services and the undisputably valuable real estate allegedly sold worth at least
P10,500.00 going only by assessments for tax purposes which, it is well-known, are notoriously low indicators of
actual value plainly and unquestionably demonstrates that they state a false and fictitious consideration, and no
other true and lawful cause having been shown, the Court finds both said deeds, insofar as they purport to be
sales, not merely voidable, but void ab initio.
Neither can the validity of said conveyances be defended on the theory that their true causa is the liberality of the
transferor and they may be considered in reality donations 18 because the law 19 also prescribes that donations of
immovable property, to be valid, must be made and accepted in a public instrument, and it is not denied by the
respondents that there has been no such acceptance which they claim is not required. 20
The transfers in question being void, it follows as a necessary consequence and conformably to the concurring
opinion in Armentia, with which the Court fully agrees, that the properties purportedly conveyed remained part of
the estate of Hilario Mateum, said transfers notwithstanding, recoverable by his intestate heirs, the petitioners
herein, whose status as such is not challenged.
The private respondents have only themselves to blame for the lack of proof that might have saved the questioned
transfers from the taint of invalidity as being fictitious and without ilicit cause; proof, to be brief, of the character
and value of the services, past, present, and future, constituting according to the very terms of said transfers the
principal consideration therefor. The petitioners' complaint (par. 6) 21 averred that the transfers were "... fraudulent,
fictitious and/or falsified and (were) ... in reality donations of immovables ...," an averment that the private
respondents not only specifically denied, alleging that the transfers had been made "... for good and valuable
consideration ...," but to which they also interposed the affirmative defenses that said transfers were "... valid,
binding and effective ...," and, in an obvious reference to the services mentioned in the deeds, that they "... had
done many good things to (the transferor) during his lifetime, nursed him during his ripe years and took care of
him during his previous and last illness ...," (pars. 4, 6, 16 and 17, their answer).lâwphî1.ñèt 22 The onus, therefore,
of showing the existence of valid and illicit consideration for the questioned conveyances rested on the private
respondents. But even on a contrary assumption, and positing that the petitioners initially had the burden of
showing that the transfers lacked such consideration as they alleged in their complaint, that burden was shifted to
the private respondents when the petitioners presented the deeds which they claimed showed that defect on their
face and it became the duty of said respondents to offer evidence of existent lawful consideration.
As the record clearly demonstrates, the respondents not only failed to offer any proof whatsoever, opting to rely
on a demurrer to the petitioner's evidence and upon the thesis, which they have maintained all the way to this
Court, that petitioners, being mere collateral relatives of the deceased transferor, were without right to the
conveyances in question. In effect, they gambled their right to adduce evidence on a dismissal in the Trial Court
and lost, it being the rule that when a dismissal thus obtained is reversed on appeal, the movant loses the right to
present evidence in his behalf. 23
WHEREFORE, the appealed Decision of the Court of Appeals is reversed. The questioned transfers are declared
void and of no force or effect. Such certificates of title as the private respondents may have obtained over the
properties subject of said transfers are hereby annulled, and said respondents are ordered to return to the
petitioners possession of an the properties involved in tills action, to account to the petitioners for the fruits thereof
during the period of their possession, and to pay the costs. No damages, attorney's fees or litigation expenses are
awarded, there being no evidence thereof before the Court. SO ORDERED.
MORALES DEVELOPMENT COMPANY, INC., petitioner, vs. THE COURT OF APPEALS and
HERMENEGILDO DESEO and SOCORRO DESEO respondents.
CONCEPCION, C.J.:
Petitioner, Morales Development Co., Inc, — hereafter referred to as Morales — seeks the review on certiorari of
a decision of the Court of Appeals reversing that of the Court of First Instance of the Province of Quezon.
Hermenegildo Deseo and Socorro Deseo, respondents herein and plaintiffs below, brought this action to annul
a sale to Morales of lot No. 2488 of the Cadastral Survey of Catanauan, Province of Quezon, and to secure the
registration of a deed of conveyance of said lot in their (Deseos') favor.
Lot No. 2488 used to belong to Enrique P. Montinola and was covered by Transfer Certificate of Title No. T-
15687 of the Register of Deeds of said province, in his name. Alleging that his owner's duplicate copy of said
certificate had been lost, Montinola succeeded in securing, from the Court above mentioned, an order for the
issuance of a second owner's duplicate, with which he managed to sell the lot, on September 24, 1954, to Pio
Reyes. Upon registration of the deed of sale to the latter, said TCT No. T-15687 was cancelled and, in lieu thereof,
TCT No. 21036, in the name of Reyes, was issued on November 18, 1954, Lupo Abella, married to Felisa Aguilar
— hereafter referred to as the Abellas — purchased the land from Reyes, whereupon the deed of conveyance, actual consideration may have been much more. Moreover, assuming that said consideration of P1.00 is
executed by Reyes, was registered and the Abellas got TCT No. 21037 in their name, upon cancellation of said suspicious, this circumstance, alone, does not necessarily justify the inference that Reyes and the Abellas were
TCT No. 21036. About seven (7) months later, or on June 16, 1955, the Abellas sold the land, for P7,000, — of not purchasers in good faith and for value. Neither does this inference warrant the conclusion that the sales were
which P4,500 was then paid — to the Deseos, who immediately took possession of the property. null and void ab initio. Indeed, bad faith and inadequacy of the monetary consideration do not render a conveyance
inexistent, for the assignor's liberality may be sufficient cause for a valid contract 1 , whereas fraud or bad faith may
render either rescissible or voidable although valid until annulled, a contract concerning an object certain, entered
It appears, however, that the first owner's duplicate of TCT No. T-15687 was either never lost or subsequently
into with a cause and with the consent of the contracting parties, as in the case at bar. 2 What is more, the
found by Montinola, who, making use of it, mortgaged C, the lot in question, before February 21, 1956, to the
aforementioned conveyance may not be annulled, in the case at bar, inasmuch as Reyes and the Abellas are not
Philippine National Bank, for P700. Then, on the date last mentioned, Montinola sold the property to Morales, for
parties therein.
P2,000, from which the sum due to the Bank was deducted. Upon presentation of the deed of sale in favor of
Morales, the latter was advised by the office of the Register of Deeds of Quezon that said TCT No. T-15687 had
already been cancelled and the property sold, first, to Pio Reyes, and, then, to the Abellas. Thereupon, Morales Upon the other hand, the Deseos had bought the land in question for value and in good faith, relying upon the
filed a petition for the annulment and cancellation of the second owner's copy of TCT No. T-15687. After due notice transfer certificate of title in the name of their assignors, the Abellas. The sale by the latter to the former preceded
to Reyes and the Abellas, but not to the Deseos, said petition was granted on March 12, 1956. the purchase made by Morales, by about eight (8) months, and the Deseos took immediate possession of the
land, which was actually held by them at the time of its conveyance to Morales by Montinola, and is in the
possession of the Deseos, up to the present. Then, again TCT No. T-15687, in the name of Montinola, had been
Having been unable, in view of these developments, to register the deed of conveyance executed by the Abellas,
cancelled over a year before he sold the property to Morales, who, in turn, was informed of this fact, what it sought
the Deseos commenced, in the court aforementioned, the present action against Morales, for the annulment of
to register the deed of conveyance in its favor. It should be noted, also, that TCT No. 21037, in the name of the
the subsequent sale thereto by Montinola, and the registration of said deed of conveyance in their (Deseos) favor,
Abellas, on which the Deseos had relied in buying the lot in dispute, has not been ordered cancelled.lawphi1.ñet
alleging that the same enjoys preference over the sale to Morales, the Deseos having, prior thereto, bought lot
No. 2488 in good faith and for value, and having been first in possession of said lot, likewise, in good faith.
Since the object of this litigation is a registered land and the two (2) buyers thereof have so far been unable to
register the deeds of conveyance in their respective favor, it follows that "the ownership" of said lot "pertain(s)" —
Upon the other hand, Morales claimed to have a better right upon the ground that it (Morales) had bought the
pursuant to Article 1544 of our Civil Code 3 — to the Deseos, as the only party who took possession thereof in
property in good faith and for value, relying upon the first owner's duplicate copy of TCT No. T-15687, unlike the
good faith. 4
Deseos, whose predecessor in interest, Pio Reyes, had relied upon the second owner's duplicate, which —
Morales alleged had been secured fraudulently, and that the sale to Reyes and that made by the latter to the
Abellas are null and void, because both sales took place under suspicious circumstances, so that — Morales Morales argues that it was not enough for the Deseos to have gone to the office of the Register of Deeds and
concluded — they (Reyes and the Abellas) were not purchasers in good faith and for value. found therein that there were no flaws in the title of the Abellas, and that the Deseos should have, also, ascertained
why the Abellas had paid only P1.00 to Reyes, and why the latter had paid the same amount to Montinola. To
begin with, the Deseos did not know that said sum was the consideration paid by the Abellas to Reyes and by
After appropriate proceedings, the court of first instance sustained the contention of Morales and rendered
Reyes to Montinola. Secondly, the Deseos were not bound to check the deeds of conveyance by Reyes to the
judgment in its favor, which, on appeal taken by the Deseos, was reversed by the Court of Appeals. The dispositive
Abellas, and by Montinola to Reyes. Having found that the owner's duplicate copy of TCT No. 21037, in the name
part of the latter's decision reads:
of the Abellas, was a genuine copy of the original on file with the Office of the Register of Deeds, the Deseos were
fully justified in relying upon said TCT No. 21037, and had no legal obligation to make farther investigation.
WHEREFORE, the judgment appealed from is hereby reversed and another one entered in favor of
the plaintiffs (Deseos) and against the defendant (Morales) declaring said plaintiffs to be the lawful and
Thirdly, were we to adopt the process of reasoning advocated by Morales, the result would still be adverse
absolute owners of Lot No. 2489 of the Cadastral Survey of Catanauan, Quezon, covered by Transfer
thereto. Indeed, if it were not sufficient for the Deseos to verify in said office the genuineness of the owner's
Certificate of Title No. T-21037 of the Office of the Register of Deeds of Quezon; declaring the deed of
duplicate of TCT No. 21037, much less would Morales have been justified in relying upon Montinola's copy of TCT
sale executed by Enrique P. Montinola in favor of defendant covering the same property as null and
No, T-15687 in his name. In fact, had Morales, at least gone to the Office of the Register of Deeds as the Deseos
void; ordering the Register of Deeds of Quezon to register the deed of sale executed by the spouses
did — before purchasing the property in dispute, Morales would have found out, not only that TCT No. T-15687
Lupo Abella and Felisa Aguilar in favor of the plaintiffs dated June 16, 1955, marked Exhibit A, without
had long been cancelled, but, also, that the property had been previously sold by Montinola to Reyes and by
cost, not having prayed for in the brief for the appellants.
Reyes to the Abellas. In short, the negligence of Morales was the proximate cause of the resulting wrong, and,
hence, Morales should be the party to suffer its consequences. 5
Hence, the present petition for review on certiorari by Morales, which insists that the Court of Appeals should
have upheld its (Morales') contention adverted to above. We, however, find therein no merit.
WHEREFORE, the appealed decision of the Court of Appeals should be, as it is hereby affirmed, with costs
against petitioner herein, Morales Development Company, Inc. It is so ordered.
Morales maintains that the sale by Montinola to Reyes and that later made by Reyes to the Abellas are
"suspicious"; that, consequently, Reyes and the Abellas were not purchasers in good faith and for value; and that
REPUBLIC OF THE PHILIPPINES, petitioner, vs. PHILIPPINE RESOURCES DEVELOPMENT CORPORATION
these two (2) premises, in turn, lead to the conclusion that both sales are "null and void."
and the COURT OF APPEALS, respondents.

This syllogism is obviously faulty. The major premise thereof is based upon the fact that the consideration stated
PADILLA, J.:
in the deeds of sale in favor of Reyes and the Abellas is P1.00. It is not unusual, however, in deeds of conveyance
adhering to the Anglo-Saxon practice of stating that the consideration given is the sum of P1.00, although the
This is a petition under Rule 46 to review a judgment rendered by the Court of Appeals,in CA-GR No. 15767-R,
Philippine Resources Development Corporation vs. The Hon. Judge Magno Gatmaitan et al.
The findings of the Court of Appeals are, as follows.
It appears that on May 6, 1955, the Republic of the Philippines in representation of the Bureau of Prisons
instituted against Macario Apostol and the Empire Insurance Co. a complaint docketed as Civil Case
No. 26166 of the Court of First instance of Manila. The complaint alleges as the first cause of action,
that defendant Apostol submitted the highest bid the amount P450.00 per ton for the purchase of 100
tons of Palawan Almaciga from the Bureau of Prisons; that a contract therefor was drawn and by virtue
of which, Apostol obtained goods from the Bureau of Prisons valued P15,878.59; that of said account,
Apostol paid only P691.10 leaving a balane obligation of P15,187.49. The complaint further averes, as
second cause of action, that Apostol submitted the best bid with the Bureau of Prisons for the purchase
of three million board feet of logs at P88.00 per 1,000 board feet; that a contract was executed between
the Director of Prisons and Apostol pursuant to which contract Apostol obtained deliveries of logs valued
at P65.830.00, and that Apostol failed to pay a balance account Of P18,827.57. All told, for the total
demand set forth in complaint against Apostol is for P34,015.06 with legal interests thereon from January
8, 1952. The Empire lnsurance Company was included in the complaint having executed a performance
bond of P10,000.00 in favor of Apostol.
In his answer, Apostol interposed payment as a defense and sought the dismissal of the complaint.
On July 19, 1955, the Philippine Resources Development Corporation moved to intervene, appending
to its motion, the complaint in the intervention of even date. The complaint recites that for sometime
prior to Apostol's transactions the corporate had some goods deposited in a warehouse at 1201 Herran,
Manila; that Apostol, then the president of the corporation but without the knowledge or consent of the
stockholders thereof, disposed of said goods by delivering the same to the Bureau of Prisons of in an
attempt to settle his personal debts with the latter entity; that upon discovery of Apodol's act, the
corporation took steps to recover said goods by demanding from the Bureau of Prisons the return
thereof; and that upon the refusal of the Bureau to return said goods, the corporation sought leave to
intervene in Civil Case No. 26166.
As aforestated, His Honor denied the motion for intervention and thereby issued an order to this effect
on July 23, 1955. A motion for the reconsideration of said order was filed by the movant corporation and
the same was likewise denied by His Honor on August 18, 1955 . . . (Annex L.).
On 3 September 1955, in a petition for a writ of certiorari filed in the Court of Appeals, the herein respondent
corporation prayed for the setting aside of the order of the Court of First Instance that had denied the admission
of its complaint-in-intervention and for an order directing the latter Court to allow the herein respondent corporation
to intervene in the action (Annex G). On 12 December 1955 the Court of Appeals set aside the order denying the
motion to intervene and ordered the respondent court to admit the herein respondent corporation's complaint-in-
intervention with costs against Macario Apostol.
On 9 January 1956 the Republic of the Philippines filed this petition in this Court for the purpose stated at the
beginning of this opinion.
The Goverment contends that the intervenor has no legal interest in the matter in litigation, because the action
brought in the Court of First Instance of Manila against Macario Apostol and the Empire Insurance Company (Civil
Case No. 26166, Annex A) is just for the collection from the defendant Apostol of a sum of money, the unpaid
balance of the purchase price of logs and almaciga bought by him from the Bureau of Prisons, whereas the
intervenor seeks to recover ownership and possession of G. I. sheets, black sheets, M. S. plates, round bars and
G. I. pipes that it claims its owns-an intervention which would change a personal action into one ad rem and would
unduly delay the disposition of the case.
The Court of Appeals held that:
Petitioner ardently claims that the reason behind its motion to intervene is the desire to protect its rights
and interests over some materials purportedly belonging to it; that said material were unauthorizedly
and illegally assigned and delivered to the Bureau of Prisons by petitioning corporation's president
Macario Apostol in payment of the latter's personal accounts with the said entity; and that the Bureau of
Prisons refused to return said materials despite petitioner's demands to do so.
Petitioner refers to the particulars recited in Apostol's answer dated July 12, 1955 to the effect that
Apostol had paid unto the Bureau of Prisons his accounts covered, among others, by BPPO 1077 for
the sum of P4,638.40 and BPPO 1549 for the amount of P4,398.54. Petitioner moreover, points to the
State of Paid and Unpaid accounts of Apostol dated January 16, 1954 prepared by the accounting of
officer of the Bureau of Prisons (Annex B. Complaint in Intervention), wherein it appears that the
aforementioned accounts covered respectively by BPPO Nos. 1077 for 892 pieces of GI sheets and
1549 for 399 pieces of GI pipes in the total sum of P9,036.94 have not been credited to Apostol's account
in view of lack of supporting papers; and that according to the reply letter of the Undersecretary of
Justice, said GI sheets and pipes were delivered by Macario Apostol to the Bureau of Prisons allegedly
in Apostol's capacity as owner and that the black iron sheets were delivered by Apostol as President of
the petitioner corporation.
Respondents, on the other hand, assert that the subject matter of the original litigation is a sum of money
allegedly due to the Bureau of Prisons from Macario Apostol and not the goods or the materials
reportedly turned over by Apostol as payment of his private debts to the Bureau of Prisons and the
recovery of which is sought by the petitioner; and that for this reason, petitioner has no legal interest in
the very subject matter in litigation as to entitle it to intervene.
We find no merit in respondents' contention. It is true that the very subject matter of the original case is
a sum of money. But it is likewise true as borne out by the records, that the materials purportedly
belonging to the petitioner corporation have been assessed and evaluated and their price equivalent in
terms of money have been determined; and that said materials for whatever price they have been
assigned by defendant now respondent Apostol as tokens of payment of his private debts with the
Bureau of Prisons. In view of these considerations, it becomes enormously plain in the event the
respondent judge decides to credit Macario Apostol with the value of the goods delivered by the latter
to the Bureau of Prisons, the petitioner corporation stands to be adversely affected by such judgment.
The conclusion, therefore, is inescapable that the petitioner possesses a legal interest in the matter in
litigation and that such interest is of an actual, material, direct and immediate nature as to entitle
petitioner to intervene.
xxx xxx xxx
Section 3 of Rule 13 of the Rules of Court endows the lower Court with discretion to allow or disapprove
the motion for intrvention (Santarromana et al. vs. Barrios, 63 Phil. 456); and that in the exercise of such
discretion, the court shall consider whether or not the intervention will unduly delay or prejudice the
adjudicatio of the rights of the original parties and whether or not the intervenors the rights may be fully
protected in a separate proceeding. The petitioner in the instant case positively authorized to a separate
action against any of all the respondents. But considering that the resolution of the issues raised in and
enjoined by the pleadings in the main case, would virtally affect the rights not only the original parties
 but also of the berein petitioner: that far from unduly delaying or prejudicing the adjudication of the rights The judgment under review is affirmed, without pronouncements as to costs.
of the original parties or bringing about confusion in the original case, the adnission of the complaint in
intervention would help clarify the vital issue of the true and real ownership of the materials involved,
TOYOTA SHAW, INC., petitioner, vs. COURT OF APPEALS and LUNA L. SOSA, respondents.
besides preventing an abhorrent munltiplicity of suit, we believe that the motion to intervene should be
given due to cause.
DAVIDE, JR., J.:
We find no reason for disturbing the foregoing pronouncements. The Government argues that "Price . . . is always
paid in terms of money and the supposed payment beeing in kind, it is no payment at all, "citing Article 1458 of At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which was
the new Civil Code. However, the same Article provides that the purschaser may pay "a price certain in money signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:
or its equivalent," which means that they meant of the price need not be in money. Whether the G.I. sheets, black
sheets, M. S. Plates, round bars and G. I. pipes claimed by the respondent corporation to belong to it and delivered
to the Bureau of Prison by Macario Apostol in payment of his account is sufficient payment therefore, is for the AGREEMENTS BETWEEN MR. SOSA
court to pass upon and decide after hearing all the parties in the case. Should the trial court hold that it is as to & POPONG BERNARDO OF TOYOTA
SHAW, INC.
credit Apostol with the value or price of the materials delivered by him, certainly the herein respondent corporation
would be affected adversely if its claim of ownership of such sheets, plates, bars and pipes is true.
1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG
BERNARDO) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where
The Government reiterates in its original stand that counsel appearing for the respondent corporation has no
authority to represent it or/and sue in its behalf, the Court of Appeals held that: the unit will be used on the 19th of June.

2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.
Respondents aver also that petitioner lacks legal capacity to sue and that its counsel is acting merely in
an individual capacity without the benefit of the corporate act authorizing him to bring sue. In this
connection, respondents invoked among others section 20 of Rule 127 which provision, in our opinion, 3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA
squarely disproves their claim as by virtue thereof, the authority of petitioner's counsel is pressumed. SHAW, INC. on the 17th of June at 10 a.m,
Withal, the claim of the counsel for the petitioner that a resolution to proceed against Apostol, had been
unanonimously adopted by the stockholders of the corporation, has not been refuted.
(
S
Evidently, petitioner is a duly organized corporation with offices at the Samanillo Building and that as g
such, it is endowed with a personality distinct and separate from that of its president or stockholders. It d
has the right to bring suit to safeguard its interests and ordinarily, such right is exercised at the instance .
of the president. However, under the circumstance now obtaining, such right properly devolves upon )
the other officers of the corporations as said right is sought to be exercised against the president himself P
who is the very object of the intended suit. O
P
The power of a corporation to sue and be sued in any court1 is lodged in the board of directors which exercises it O
corporater powers,2 and not in the president, as contended by the Government. The "motion for admission of N
complaint in intervention" (Annex C) and the "complaint in intervention" attached thereto, signed by counsel and G
B
filed in the Court of First Instance begin with the following statement: "COMES NOW the above-name Intervenor,
by its undersigned counsel, . . . , "and underneath his typewritten name is affixed the description" Counsel for the E
Intervenor." As counsels authority to appeal for the respondent corporation was newer questioned in the Court of R
N
First Instance, it is to be pressumed that he was properly authorized to file the complaint in intervention and appeal
for his client.1 It was only in the Court of Appeals where his authority to appear was questioned. As the Court of A
Appeals was satisfied that counsel was duly authorized by his client to file the complaint does in intervention and R
D
to appear in its behalf, hte resolution of the Court of Appeals on this point should not be disturbed.
O
.
Granting that counsel has not been actually authorized by the board of directors to appear for and in behalf of the
respondent corporation, the fact that counsel is the secretary treasurer of the respondent corporation and member
of the board of directors; and that the other members of the board, namely, Macario Apostol, the president, and Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale,
his wife Pacita R. Apostol, who shuold normally initiate the action to protect the corporate properties and in interest binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees?
The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for
are the ones to be adversely affected thereby, a single stockholder under such circumstances may sue in behalf
of the corporation.2 Counsel as a stockholder and director of the respondent corporation may sue in its behalf and review on certiorari.
file the complaint in intervention in the proper court.
The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the
pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa)
are as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a
seller's market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota
Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to
the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales
representative of Toyota.
Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family,
and a balikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would
celebrate his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car,
he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m.
on 17 June 1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of
Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid
by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of
Toyota and B.A. Finance pertaining to the application for financing.
The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They
met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed
under the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with
home address at No. 2316 Guijo Street, United Parañaque II; that the model series of the vehicle is a "Lite Ace
1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cash
outlay of P100,000.00 broken down as follows:
a) downpayment — P 53,148.00
b) insurance — P 13,970.00
c) BLT registration fee — P 1,067.00
CHMO fee — P 2,715.00
service fee — P 500.00
accessories — P 29,000.00
and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not
filled-up. It also contains the following pertinent provisions:
CONDITIONS OF SALES
1. This sale is subject to availability of unit.
2. Stated Price is subject to change without prior notice, Price prevailing and in effect at time
of selling will apply. . . .
Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.
On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready
for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert
met Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied
for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because
"nasulot ang unit ng ibang malakas."
Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance
of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and
earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase
price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa
refused.
After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be
refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of
P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with the
reservation, "without prejudice to our future claims for damages."
Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded
the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid
it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to
take legal action. 6 The second, dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel, demanded
one million pesos representing interest and damages, again, with a warning that legal action would be taken if
payment was not made within three days.7 Toyota's counsel answered through a letter dated 27 November
1989 8 refusing to accede to the demands of Sosa. But even before this answer was made and received by Sosa,
the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint
against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He
alleges, inter alia, that:
9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff
suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because:
(i) he and his family were constrained to take the public transportation from Manila to Lucena
City on their way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to
Marinduque in order to avoid the inconvenience of taking public transportation; and (iii) his
relatives, friends, neighbors and other provincemates, continuously irked him about "his
Brand-New Toyota Lite Ace — that never was." Under the circumstances, defendant should
be made liable to the plaintiff for moral damages in the amount of One Million Pesos
(P1,000,000.00). 10
In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo
had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal
capacity. As special and affirmative defenses, it alleged that: the VSP did not state date of delivery; Sosa had not
completed the documents required by the financing company, and as a matter of policy, the vehicle could not and
would not be released prior to full compliance with financing requirements, submission of all documents, and
execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was
improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory
counterclaims.
After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992
a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG
BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the
vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already
reserved for him.
As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the
extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not
volunteer any information as to the company's sales policy and guidelines because they are internal
matters." 13 Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment
was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is
an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding
him out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the defendant
Toyota Shaw, Inc. and hence bound the defendants." 15
The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched
reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it
disposed as follows:
WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the
plaintiff and against the defendant:
1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for
moral damages;
2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for
exemplary damages;
3. ordering the defendant to pay the sum of P30,000.00 attorney's fees
plus P2,000.00 lawyer's transportation fare per trip in attending to the
hearing of this case;
4. ordering the defendant to pay the plaintiff the sum of P2,000.00
transportation fare per trip of the plaintiff in attending the hearing of this
case; and
5. ordering the defendant to pay the cost of suit.
SO ORDERED.
Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was docketed as
CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the Court of Appeals affirmed in toto the
appealed decision.
Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of
the ponencia and also the following related issues: (a) whether or not the standard VSP was the true and
documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not
Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the
consideration and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota acted in
good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for
damages.
We find merit in the petition.
Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract
of sale.
Article 1458 of the Civil Code defines a contract of sale as follows:
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.
A contract of sale may be absolute or conditional.
and Article 1475 specifically provides when it is deemed perfected:
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.
What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract
of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative
obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the
downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract
of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But
nothing was mentioned about the full purchase price and the manner the installments were to be paid.
This Court had already ruled that a definite agreement on the manner of payment of the price is an essential
element in the formation of a binding and enforceable contract of sale. 18 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. Definiteness as to the price is an essential element of a binding agreement to sell
personal property. 19
Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa
did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz.,
AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF
TOYOTA SHAW, INC.
that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had
the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and
hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable
diligence to know the extent of Bernardo's authority as an
agent20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the agent.21
At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a
contract of sale. There are three stages in the contract of sale, namely:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining,
ending at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on
the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon
in the contract.22
The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be
emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be
paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A.
Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP.
Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No.
1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the
Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose
of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by
discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases,
chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and
industrial machinery, business and office machines and equipment, appliances and other movable property." 23
Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus
involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on
installment, the seller who assigns the notes or discounts them with a financing company, and the financing
company which is subrogated in the place of the seller, as the creditor of the installment buyer. 24 Since B.A.
Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis.
We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it
suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and
returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the
vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed
afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the
Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989.
However, in paragraph 7 of his complaint, Sosa solemnly states:
On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative,
Mr. Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle
will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day
instead. Plaintiff and his son went to defendant's office on June 17 1989 at 2:00 p.m. in order
to pick-up the vehicle but the defendant for reasons known only to its representatives, refused
and/or failed to release the vehicle to the plaintiff. Plaintiff demanded for an explanation, but
nothing was given; . . . (Emphasis supplied). 25
The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no
demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any
legally indemnifiable injury.
The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis.
Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends,
townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he
suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject
matter of talks during his celebration that he may not have paid for it, and this created an impression against his
business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should
not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase
price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet.
Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory
damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or
corrective damages are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated, or compensatory damages.
Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision,
and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 26 No such explicit
determination thereon was made in the body of the decision of the trial court. No reason thus exists for such an
award.
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV
NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are
REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim therein
is likewise DISMISSED.
No pronouncement as to costs. SO ORDERED.
LORENZO VELASCO AND SOCORRO J. VELASCO, petitioners, vs. HONORABLE COURT OF APPEALS and
MAGDALENA ESTATE, INC., respondents.
CASTRO, J.:
This is a petition for certiorari and mandamus filed by Lorenzo Velasco and Socorro J. Velasco (hereinafter referred
to as the petitioners) against the resolution of the Court of Appeals dated June 28, 1969 in CA-G.R. 42376, which
ordered the dismissal of the appeal interposed by the petitioners from a decision of the Court of First Instance of
Quezon City on the ground that they had failed seasonably to file their printed record on appeal.
Under date of November 3, 1968, the Court of First Instance of Quezon City, after hearing on the merits, rendered
a decision in civil case 7761, dismissing the complaint filed by the petitioners against the Magdalena Estate, Inc.
(hereinafter referred to as the respondent) for the purpose of compelling specific performance by the respondent
of an alleged deed of sale of a parcel of residential land in favor of the petitioners. The basis for the dismissal of
the complaint was that the alleged purchase and sale agreement "was not perfected".
On November 18, 1968, after the perfection of their appeal to the Court of Appeals, the petitioners received a
notice from the said court requiring them to file their printed record on appeal within sixty (60) days from receipt of
said notice. This 60-day term was to expire on January 17, 1969.
Allegedly under date of January 15, 1969, the petitioners allegedly sent to the Court of Appeals and to counsel for
the respondent, by registered mail allegedly deposited personally by its mailing clerk, one Juanito D. Quiachon, at
the Makati Post Office, a "Motion For Extension of Time To File Printed Record on Appeal." The extension of time
was sought on the ground "of mechanical failures of the printing machines, and the voluminous printing jobs now
pending with the Vera Printing Press. ..."
On February 10, 1969, the petitioners filed their printed record on appeal in the Court of Appeals. Thereafter, the
petitioners received from the respondent a motion filed on February 8, 1969 praying for the dismissal of the appeal
on the ground that the petitioners had failed to file their printed record on appeal on time. Acting on the said motion
to dismiss the appeal, the Court of Appeals, on February 25, 1969, issued the following resolution:
Upon consideration of the motion of counsel for defendant-appellee praying on the grounds
therein stated that the appeal be dismissed in accordance with Rules of Court, and of the
opposition thereto filed by counsel for plaintiff-appellants, the Court RESOLVED to DENY the
said motion to dismiss.
Upon consideration of the registry-mailed motion of counsel for plaintiffs appellants praying
on the grounds therein stated for an extension of 30 days from January 15, 1969 within which
to file the printed record on appeal, the Court RESOLVED to GRANT the said motion and the
printed record on appeal which has already been filed is ADMITTED.
On March 11, 1969, the respondent prayed for a reconsideration of the above-mentioned resolution, averring that
the Court of Appeals had been misled bythe petitioners' "deceitful allegation that they filed the printed record on
appeal within the reglementary period," because according to a certification issued by the postmaster of Makati,
Rizal, the records of the said post office failed to reveal that on January 15, 1969 — the date when their motion
for extension of time to file the printed record on appeal was supposedly mailed by the petitioners — there was
any letter deposited there by the petitioners' counsel. The petitioners opposed the motion for reconsideration. They
submitted to the appellate court the registry receipts (numbered 0215 and 0216), both stampled January 15, 1969,
which were issued by the receiving clerk of the registry section of the Makati Post Office covering the mails for the
disputed motion for extension of time to file their printed record on appeal and the affidavit of its mailing clerk
Juanito D. Quiachon, to prove that their motion for extension was timely filed and served on the Court of Appeals
and the respondent, respectively. After several other pleadings and manifestations were filed by the parties relative
to the issue raised by the respondent's above-mentioned motion for reconsideration, the Court of Appeals
promulgated on June 28, 1969, its questioned resolution, the dispositive portion of which reads as follows:
WHEREFORE, the motion for reconsideration filed on March 11, 1969 is granted and appeal
interposed by plaintiff-appellants from the judgment of the court below is hereby dismissed
for their failure to file their printed Record on Appeal within the period authorized by this Court.
Atty. Patrocino R. Corpuz [counsel of the petitioner] is required to show cause within ten (10)
days from notice why he should not be suspended from the practice of his necessary
investigation against Juanito D. Quiachon of the Salonga, Ordoñez, Yap, Sicat & Associates
Law Office, Suite 319 337 Rufino Building, Ayala Avenue, Makati Post Office, to file the
appropriate criminal action against them as may be warranted in the premises, and to report
to this Court within thirty (30) days the action he has taken thereon.
The foregoing desposition was based on the following findings of the Court of Appeals:
An examination of the Rollo of this case, particularly the letter envelope on page 26 thereof,
reveals that on January 15, 1969, plaintiffs supposedly mailed via registered mail from the
Post Office of Makati, Rizal their motion for extension of 30 days from that date to file their
printed Record on Appeal, under registered letter No. 0216. However, in an official
certification, the Postmaster of Makati states that the records of his office disclose: (a) that
there were no registered letters Nos. 0215 and 0216 from the Salonga, Ordoñez, Yap, Sicat
& Associates addressed to Atty. Abraham F. Sarmiento, 202 Magdalena Building, España
Ext., Quezon City, and to the Court of Appeals, Manila, respectively, that were posted in the
Post Office of Makati, Rizal, on January 15, 1969; (b) that there is a registered letter numbered
215 but that the same was posted on January 3, 1969 by Enriqueta Amada of 7 Angel, Pasillo
F-2, Cartimar, Pasay City, as sender, and Giral Amasan of Barrio Cabuniga-an, Sto. Niño,
Samar, as addressee; and that there is also a registered letter numbered 216; but that the
same was likewise posted on January 3, 1969 with E.B.A. Construction of 1049 Belbar
Building, Metropolitan, Pasong Tamo, Makati, as sender, and Pres. R. Nakaya of the United
Pacific Trading Co., Ltd., 79, 6 Chamo, Nakatu, Yokohari, Japan, as addressee; (c) that on
January 15, 1969, the registered letters posted at the Makati Post Office were numbered
consecutively from 1001-2225, inclusive, and none of these letters was addressed to Atty.
Abraham F. Sarmiento of to the Court of Appeals; (d) that in Registry Bill Book No. 30 for
Quezon City as well as that Manila, corresponding to February 7, 1969, there are entries
covering registered letters Nos. 0215 and 0216 for dispatch to Quezon City and Manila,
respectively; however, such registry book for February 7, 1969 shows no letters with such
numbers posted on the said date.
The Acting Postmaster of the Commercial Center Post Office of Makati, Rizal, further certifies
that "Registry Receipts Nos. 0215 and 0216 addressed to Atty. Abraham F. Sarmiento of the
Magdalena Estate, Quezon City and the Honorable Court of Appeals, respectively, does not
appear in our Registry Record Book which was allegedly posted at this office on January 15,
1969."
From the foregoing, it is immediately apparent that the motion for extension of time to file their
Record on Appeal supposedly mailed by the plaintiffs on January 15, 1969 was not really
mailed on that date but evidently on a date much later than January 15, 1969. This is further
confirmed by the affidavit of Flaviano Malindog, a letter carrier of the Makati Post Office, which
defendant attached as Annex 1 to its supplemental reply to plaintiffs' opposition to the motion
for reconsideration. In his said affidavit, Malindog swore among others:
'That on February 7, 1969, between 12:00 o'clock noon and 1:00 o'clock
in the afternoon, JUANITO D. QUIACHON approached me at the Makati
Post Office and talked to me about certain letters which his employer had
asked him to mail and that I should help him do something about the
matter; but I asked him what they were all about, and he told me that they
were letters for the Court of Appeals and for Atty. Abraham Sarmiento
and that his purpose was to show that they were posted on January 15,
1969; that I inquired further, and he said that the letters were not so
important and that his only concern was to have them post maker
January 15, 1969;
'That believing the word of JUANITO D. QUIACHON that the letters were
not really important I agreed to his request; whereupon, I got two (2)
registry receipts from an old registry receipt booklet which is no longer
being used and I numbered them 0215 for the letter addressed to Atty.
Abraham Sarmiento in Quezon City and 0216 for the letter addressed to
the Court of Appeals, Manila; that I placed the same numbering on the
respective envelopes containing the letters; and that I also post maker
them January 15, 1969;
'That to the best of my recollection I wrote the correct date of posting,
February 7, 1969, on the back of one or both of the registry receipts
above mentioned;
 'That the correct date of posting, February 7, 1969 also appears in the
Registry Bill Books for Quezon City and Manila where I entered the
subject registered letters;
Of course, plaintiff's counsel denies the sworn statement of Malindog and even presented the
counter-affidavit of one of his clerk by the name of Juanito D. Quiachon. But between
Malindog, whose sworn statement is manifestly a declaration against interest since he can be
criminally prosecuted for falsification on the basis thereof, and that of Quiachon, whose
statement is self-serving, we are very much inclined to give greater weight and credit to the
former. Besides, plaintiffs have not refuted the facts disclosed in the two (2) official
certifications above mentioned by the Postmakers of Makati, Rizal. These two (2)
certifications alone, even without to move this Court to reconsider its resolution of February
25, 1969 and order the dismissal of this appeal.
On September 5, 1969, after the rendition of the foregoing resolution, the Court of Appeals promulgated another,
denying the motion for reconsideration of the petitioner, but, at the same time, accepting as satisfactory the
explanation of Atty. Patrocino R. Corpuz why he should not be suspended from the practice of the legal profession.
On September 20, 1969, the First Assistant Fiscal of Rizal notified the Court of Appeals that he had found a prima
facie case against Flaviano C. Malindog and would file the corresponding information for falsification of public
documents against him. The said fiscal, however, dismissed the complaint against Quiachon for lack of sufficient
evidence. The information subsequently filed against Malindog by the first Assistance Fiscal of Rizal reads as
follow:
That on or about the 7th day of February 1969, in the municipality of Makati, province of Rizal,
and a place within the jurisdiction of this Honorable Court, the above-named accused,
conspiring and confederating together and mutually helping and aiding with John Doe, whose
true identity and present whereabout is still unknown, did then and there willfully, unlawfully
and feloniously falsify two registry receipts which are public documents by reason of the fact
that said registry receipts are printed in accordance with the standard forms prescribed by the
Bureau of Posts, committed as follows: the above-named accused John Doe, on the date
above-mentioned approached and induced the accused Malindog, a letter-carrier at the
Makati Post Office, to postmark on Abraham Sarmiento in Quezon City, and the other to the
Court of Appeals, Manila, and the accused Malindog, acceding to the inducement of, and in
conspiracy with, his co-accused John Doe, did then and there willfully and feloniously falsify
said registry receipts of the Makati Post Office on January 15, 1969, thereby making it appear
that the said sealed envelopes addressed to Atty. Sarmiento and the Court of Appeals were
actually posted, and causing it to appear that the Postmaster of Makati participated therein
by posting said mail matters on January 15, 1969, when in truth and in fact he did not so
participate.
The petitioner contend that in promulgating its questioned resolution, the Court of Appeals acted without or in
excess of jurisdiction, or with such whimsical and grave abuse of discretion as to amount to lack of jurisdiction,
because (a) it declared that the motion for extension of time to file the printed record on appeal was not mailed on
January 15, 1969, when, in fact, it was mailed on the record on appeal was filed only on February 10, 1969, beyond
the time authorized by the appellate court, when the truth is that the said date of filing was within the 30-day
extension granted by it; (c) the adverse conclusion of the appellate court are not supported by the records of the
case, because the said court ignored the affidavit of the mailing clerk of the petitioners' counsel, the registry
receipts and postmarked envelopes (citing Henning v. Western Equipment, 62 Phil. 579, and Caltex Phil., Inc. v.
Katipunan Labor Union, 52 O.G. 6209), and, instead, chose to rely upon the affidavit of the mail carrier Malindog,
which affidavit was prepared by counsel for the respondent at the affiant himself so declared at the preliminary
investigation at the Fiscal's office which absolved the petitioners' counsel mailing clerk Quiachon from any criminal
liability; (d) section 1, Rule 50 of the Rules of Court, which enumerates the grounds upon which the Court of
Appeals may dismiss an appeal, does not include as a ground the failure to file a printed record on appeal; (e) the
said section does not state either that the mismailing of a motion to extend the time to file the printed record on
appeal, assuming this to be the case, may be a basis for the dismissal of the appeal; (f) the Court of Appeals has
no jurisdiction to revoke the extention of time to file the printed record on appeal it had granted to the petitioners
based on a ground not specified in section 1, Rule 50 of the Rules of Court; and (g) the objection to an appeal
may be waived as when the appellee has allowed the record on appeal to be printed and approved (citing Moran,
Vol. II, p. 519).
Some of the objections raised by the petitioners to the questioned resolution of the Court of Appeals are obviously
matters involving the correct construction of our rules of procedure and, consequently, are proper subjects of an
appeal by way of certiorari under Rule 45 of the Rules of Court, rather than a special civil action for certiorari under
Rule 65. The petitioners, however, have correctly appreciated the nature of its objections and have asked this
Court to treat the instant petition as an appeal by way of certiorari under Rule 45 "in the event ... that this Honorable
Supreme Court should deem that an appeal is an adequate remedy ..." The nature of the case at bar permits, in
our view, a disquisition of both types of assignments.
We do not share the view of the petitioners that the Court of Appeals acted without or in excess of jurisdiction or
gravely abused its discretion in promulgating the questioned resolution.
While it is true that stamped on the registry receipts 0215 and 0215 as well as on the envelopes covering the mails
in question is the date "January 15, 1969," this, by itself, does not establish an unrebuttable presumption of the
fact of date of mailing. Henning and Caltex, cited by the petitioners, are not in point because the specific adjective
issue resolved in those cases was whether or not the date of mailing a pleading is to be considered as the date of
its filing. The issue in the case at bar is whether or not the motion of the petitioners for extension of time to file the
printed record on appeal was, in point of fact, mailed (and, therefore, filed) on January 15, 1969.
In resolving this issue in favor of the respondent, this Court finds, after a careful study and appraisal of the
pleadings, admissions and denials respectively adduced and made by the parties, that the Court of Appeals did
not gravely abuse its discretion and did not act without or in excess of its jurisdiction. We share the view of the
appellate court that the certifications issued by the two postmasters of Makati, Rizal and the sworn declaration of
the mail carrier Malindog describing how the said registry receipts came to be issued, are worthy of belief. It will
be observed that the said certifications explain clearly and in detail how it was improbable that the petitioners'
counsel in the ordinary course of official business, while Malindog's sworn statement, which constitutes a very
grave admission against his own interest, provides ample basis for a finding that where official duty was not
performed it was at the behest of a person interested in the petitioners' side of the action below. That at the
preliminary investigation at the Fiscal's office, Malindog failed to identify Quiachon as the person who induced him
to issue falsified receipts, contrary to what he declared in his affidavit, is of no moment since the findings of the
inquest fiscal as reflected in the information for falsification filed against Malindog indicate that someone did induce
Malindog to make and issue false registry receipts to the counsel for the petitioners.
This Court held in Bello vs. Fernando1 that the right to appeal is nota natural right nor a part of due process; it is
merely a statutory privilege, and may be exercised only in the manner provided by law. In this connection, the
Rule of Court expressly makes it the duty of an appellant to file a printed record on appeal with the Court of Appeals
within sixty (60) record on appeal approved by the trial court has already been received by the said court. Thus,
section 5 of Rule 46 states:
Sec. 5. Duty of appellant upon receipt of notice. — It shall be the duty of the appellant within
fifteen (15) days from the date of the notice referred to in the preceding section, to pay the
clerk of the Court of Appeals the fee for the docketing of the appeal, and within sixty (60) days
 from such notice to submit to the court forty (40) printed copies of the record on appeal,
together with proof of service of fifteen (15) printed copies thereof upon the appelee.
As the petitioners failed to comply with the above-mentioned duty which the Rules of Court enjoins, and
considering that, as found by the Court of Appeals, there was a deliberate effort on their part to mislead the said
Court in grating them an extension of time within which to file their printed record on appeal, it stands to reason
that the appellate court cannot be said to have abused its discretion or to have acted without or in excess of its
jurisdiction in ordering the dismissal of their appeal.
Our jurisprudence is replete with cases in which this Court dismissed an appeal on grounds not mentioned
specifically in Section 1, Rule 50 of the Rules of Court. (See, for example, De la Cruz vs. Blanco, 73 Phil. 596
(1942); Government of the Philippines vs. Court of Appeals, 108 Phil. 86 (1960); Ferinion vs. Sta. Romana, L-
25521, February 28, 1966, 16 SCRA 370, 375).
It will likewise be noted that inasmuch as the petitioners' motion for extension of the period to file the printed record
on appeal was belated filed, then, it is as though the same were non-existent, since as this Court has already
stated in Baquiran vs. Court of Appeals,2 "The motion for extension of the period for filing pleadings and papers in
court must be made before the expiration of the period to be extended." The soundness of this dictum in matters
of procedure is self-evident. For, were the doctrine otherwise, the uncertainties that would follow when litigants
are left to determine and redetermine for themselves whether to seek further redress in court forthwith or take their
own sweet time will result in litigations becoming more unreable than the very grievances they are intended to
redness.
The argument raised by the petitioner — that the objection to an appeal maybe waived, as when the appellee
allows the record on appeal to be printed and approved — is likewise not meritorious considering that the
respondent did file a motion in the Court of Appeals on February 8, 1969 praying for the dismissal of the below of
the petitioners had not yet filed their record on appeal and, therefore, must be considered to have abandoned their
appeal.
In further assailing the questioned resolution of the Court of Appeals, the petitioners also point out that on the
merits the equities of the instant case are in their favor. A reading of the record, however, persuades us that the
judgment a quo is substantially correct and morally just.
The appealed decision of the court a quo narrates both the alleged and proven facts of the dispute between the
petitioners and the respondent, as follows:
This is a suit for specific performance filed by Lorenzo Velasco against the Magdalena Estate,
Inc. on the allegation that on November 29, 1962 the plaintiff and the defendant had entered
into a contract of sale (Annex A of the complaint) by virtue of which the defendant offered to
sell the plaintiff and the plaintiff in turn agreed to buy a parcel of land with an area of 2,059
square meters more particularly described as Lot 15, Block 7, Psd-6129, located at No. 39
corner 6th Street and Pacific Avenue, New Manila, this City, for the total purchase price of
P100,000.00.
It is alleged by the plaintiff that the agreement was that the plaintiff was to give a down
payment of P10,000.00 to be followed by P20,000.00 and the balance of P70,000.00 would
be paid in installments, the equal monthly amortization of which was to be determined as soon
as the P30,000.00 down payment had been completed. It is further alleged that the plaintiff
paid down payment of P10,000.00 on November 29, 1962 as per receipt No. 207848 (Exh.
"A")and that when on January 8, 1964 he tendered to the defendant the payment of the
additional P20,000.00 to complete the P30,000.00 the defendant refused to accept and that
eventually it likewise refused to execute a formal deed of sale obviously agreed upon. The
plaintiff demands P25,000.00 exemplary damages, P2,000.00 actual damages and
P7,000.00 attorney's fees.
The defendant, in its Answer, denies that it has had any direct dealings, much less, contractual
relations with the plaintiff regarding the property in question, and contends that the alleged
contract described in the document attached to the complaint as Annex A is entirely
unenforceable under the Statute of Frauds; that the truth of the matter is that a portion of the
property in question was being leased by a certain Socorro Velasco who, on November 29,
1962, went to the office of the defendant indicated her desire to purchase the lot; that the
defendant indicated its willingness to sell the property to her at the price of P100,000.00 under
the condition that a down payment of P30,000.00 be made, P20,000.00 of which was to be
paid on November 31, 1962, and that the balance of P70,000.00 including interest a 9% per
annum was to be paid on installments for a period of ten years at the rate of P5,381.32 on
June 30 and December of every year until the same shall have been fully paid; that on
November 29, 1962 Socorro Velasco offered to pay P10,000.00 as initial payment instead of
the agreed P20,000.00 but because the amount was short of the alleged P20,000.00 the
same was accepted merely as deposited and upon request of Socorro Velasco the receipt
was made in the name of her brother-in-law the plaintiff herein; that Socorro Velasco failed to
complete the down payment of P30,000.00 and neither has she paid any installments on the
balance of P70,000.00 up to the present time; that it was only on January 8, 1964 that Socorro
Velasco tendered payment of P20,000.00, which offer the defendant refused to accept
because it had considered the offer to sell rescinded on account of her failure to complete the
down payment on or before December 31, 1962.
The lone witness for the plaintiff is Lorenzo Velasco, who exhibits the receipt, Exhibits A,
issued in his favor by the Magdalena Estate, Inc., in the sum of P10,000.00 dated November
29, 1962. He also identifies a letter (Exh. B)of the Magdalena Estate, Inc. addressed to him
and his reply thereto. He testifies that Socorro Velasco is his sister-in-law and that he had
requested her to make the necessary contacts with defendant referring to the purchase of the
property in question. Because he does not understand English well, he had authorized her to
negotiate with the defendant in her whenever she went to the office of the defendant, and as
a matter of fact, the receipt for the P10,000.00 down payment was issued in his favor. The
plaintiff also depends on Exhibit A to prove that there was a perfected follows: "Earnest money
for the purchase of Lot 15, Block 7, Psd-6129, Area 2,059 square meters including
improvements thereon — P10,000.00." At the bottom of Exhibit A the following appears:
"Agreed price: P100,000.00, P30,000.00 down payment, bal. in 10 years."
To prove that the Magdalena Estate, Inc. had been dealing all along with him and not with his
sister-in-law and that the Magdalena Estate, Inc. knew very well that he was the person
interested in the lot in question and not his sister-in-law, the plaintiff offers in evidence five
checks all drawn by him in favor of Magdalena Estate, Inc. for payment of the lease of the
property. ....
There does not seem to be any dispute regarding the fact that the Velasco family was leasing
this property from the Magdalena Estate, Inc. since December 29, 1961; that the Velasco
family sometime in 1962 offered to purchase the lot as a result of which Lorenzo Velasco thru
Socorro Velasco made the P10,000.00 deposit or, in the language of the defendant 'earnest
money or down payment' as evidenced by Exhibit A. The only matter that remains to be
decided is whether the talks between the Magdalena Estate, Inc. and Lorenzo Velasco either
directly or thru his sister-in-law Socorro Velasco ever ripened into a consummated sale. It is
 the position of the defendant (1) that the sale was never consummated and (2) that the
contract is unenforceable under the Statute of Frauds.
The court a quo agreed with the respondent's (defendant therein) contention that no contract of sale was perfected
because the minds of the parties did not meet "in regard to the manner of payment." The court a quo appraisal of
this aspect of the action below is correct. The material averments contained in the petitioners' complaint
themselves disclose a lack of complete "agreement in regard to the manner of payment" of the lot in question. The
complaint states pertinently:
4. That plaintiff and defendant further agreed that the total down payment shall by P30,000.00,
including the P10,000.00 partial payment mentioned in paragraph 3 hereof, and that upon
completion of the said down payment of P30,000.00, the balance of P70,000.00 shall be said
by the plaintiff to the defendant in 10 years from November 29, 1962;
5. That the time within the full down payment of the P30,000.00 was to be completed was not
specified by the parties but the defendant was duly compensated during the said time prior to
completion of the down payment of P30,000.00 by way of lease rentals on the house existing
thereon which was earlier leased by defendant to the plaintiff's sister-in-law, Socorro J.
Velasco, and which were duly paid to the defendant by checks drawn by plaintiff.
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 unforceable contract of sale.3 The fact, therefore, that the petitioners delivered to the respondent the sum of
P10,000 as part of the down-payment 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.
ACCORDINGLY, the instant petitioner is hereby denied. No pronouncement as to costs.
Barredo, J.: The petitioners having clearly and without sufficient justification failed to prosecute their appeal within
the period allowed by the rules, I vote to deny the petition, and consistently with my view already expressed on
previous occasions, any discussion of the merits of the appeal is unwarranted, particularly, in instances like the
present, wherein the same does not appear to me, upon cursory examination to be beyond doubt..
Separate Opinions
TEEHANKEE, J., dissenting:
I dissent from the main opinion penned by Mr. Justice Castro affirming the appellate court's dismissal of petitioner'
pending appeal before it because of late submittal of the printed record on appeal (by 24 days), on appeal — when
the appeal was indisputably timely perfected — does not call for the imposition of the capital penalty of dismissal
of the appeal.
As in my separate opinion in Sison vs. Gatchalian1 promulgated just a few weeks earlier, I must note with
gratification the special pains taken in the main opinion to discuss nevertheless the substance and merit of the
aborted appeal and to record the Court's policy in such cases (of dismissal of appeals timely perfected for failure
to comply with certain requirements of the Rules) of invariably satisfying itself that there is "a rational basis for the
result by the trial court"2 in the judgment sought to be reviewed by the appeal.
In the case at bar, however, I believe that the merits and equities invoked by petitioners-appellants in support of
their action for specific performance of their agreement with respondent for the purchase of the parcel of land
described in the complaint for the "agreement price (of): P10,000.00, P30,000.00 down payment, bal. in 10 years"
(which is a matter of mathematical computation), with petitioners having admittedly made a down payment of
P10,000.00 as "earnest money" which was accepted by respondent and continuing to pay respondent lease
rentals for the time taken to complete the full down payment pending formalization of their contract, deserve a full-
dress consideration of the appeal and legal principles involved with a decision on the merits of the case itself.
Since two other members of the Court, viz, Justices Barredo and Antonio, have reserved their opinions on the
merits of the appeals, as stated in their respective concurrences, I further consider this to be a case where the
paramount considerations of substantial justice must take precedence over the lateness (by 24 days) in the
submittal of the printed record on appeal — which in no way can be claimed to have prejudiced the substantial
rights of respondent or delayed the cause of the administration of justice — and that accordingly, such a technical
trangression on counsel's part should not result in the drastic forfeiture of petitioners' right of appeal and of securing
a possible of the adverse verdict of the lower court.
As stated by Chief Justice Concepcion for the Court in Concepcion vs. Payatas Estate Improvements Co.,
Inc.,3 "After all, pleadings, as well as remedial laws, should by construed literally, in order that litigants may have
ample opportunity to prove their respective claims, and that a possible denial of substantial justice, due to legal
technicalities, may be avoided." This is but the very mandate of the Rules of Court: that they be "liberally construed
in order to promote their object and to assist the determination of every action and proceeding" 4 and that "All
pleadings shall be liberally construed so as to do substantial justice."5
Here, the 60-day period for petitioners appellants "to submit .... forty (40) printed copies of the record on appeal"
from notice on November 18, 1968 of receipt of the original typewritten record on appeal" from notice on November
18, 1968 of receipt of the original typewritten record on appeal in the appellate court 6 was to expire on January
17, 1969. Petitioners submitted their printed record on appeal on the 24th day after such expiry date, viz, on viz,
on February 10, 1969.
The appellate court admitted the printed record on appeal as per its original resolution of February 25, 1969
denying respondent's motion to dismiss the appeal, wherein it granted the registry-mailed motion of petitioners'
counsel for a 30-day extension from January 15, 1969 within which to submit the same. Counsel's ground for such
extension was from ground for such extension machines and voluminous printing jobs of the Vera Pinting Press,
which they had contracted to do the printing job.
Upon complaint of respondent, however, that petitioners' counsel, through its mailing clerk Juanito D. Quiachon,
had deceived the appellate court into believing that their motion for extension had been registry mailed January
15, 1969 when actually it was so mailed late only on February 7, 1969, as borne out by the affidavit of Flaviano
Malindog, a said post office — which the appellate court believed as against Quiachon's counter-affidavit to the
contrary — the said court as per its resolution of June 28, 1969 granted respondent's motion for reconsideration
and ordered the dismissal of petitioners' appeal "for their failure to file their printed record on appeal within the
period authorized by this court."
In the same resolution, Atty. Patrocino R. Corpus, as petitioners' counsel, was required to show cause "why he
should not be suspended from the practice of his profession for deceit, falsehood and violation of his sworn duty
to the Court," but subsequently, the appellate court as per its resolution of September 5, 1969 accepted as
satisfactory said counsel's explanation and disclaimer of any wrongdoing.
Acting upon the appellate court's directive to investigate the incident for the filing of appropriate criminal action
against Quiachon and Malindog, the Rizal provincial fiscal found a prima facie case against Malindog (the letter-
carrier) and charged him in the corresponding information for falsification of public documents but dismissed the
complaint against Quiachon (the mailing clerk of petitioners' counsel) for lack of sufficient evidence since Malindog
could not identify Quiachon ass the person who induced him to issue falsified registry receipts.
I concur with the main opinion in its ruling upholding the appellate court's factual findings, which I don't consider
to be reviewable by this Court, grounded as they are on substantial evidence. Hence, for purposes of this review,
such factual findings must be postulated, to wit, that the printed record on appeal was submitted 24 days late on
February 10, 1969, that there was a deliberate effort on the part of an unknown person (John Doe in the in
information) — not petitioners nor their counsel nor Quiachon, the mailing clerk — to induce Malindog to make
and issue false registry receipts that showed that petitioners' counsel's motion for a 30-day extension to submit
the printed record on appeal was filed timely on January 15, 1959 rather late(by 21 days) on February 7, 1969.
The general issue of law that confronts us then is this: is the 60-day period for submitting the printed record on
appeal mandatory and jurisdictional or is this merely a procedural period on appeal (owing to a valid reason of
mechanical failures and pressure of work of the printer) regardless of whether a motion for extension of time to
submit the printed record on appeal was in fact filed or filed out of time after expiration of the original 60-day period,
may in the appellate court's sound discretion in the interest of justice and equity be nevertheless allowed and
appeal heard and decided on its merits?
The 60-day period for submitting the printed record on appeal is obviously imposed as a procedural rule, under
Rule 46, section 5, like many other time limitations imposed by the Rule of Court as indispensable to the prevention
of needless dalays and necessary to the orderly and speedy discharge of judicial business. 7
But this 60-day period for submitting the printed record on appeal is to be distinguished from a court of first instance
judgment under Rule 41, section 3, where failure to file the necessary notice, bond and record on appeal within
the said 30-day period, if not duly extended, is fatal and calls for dismissal of the unperfected appeal under Rule
41, section 13.
Here, the appeal had been long and timely duly perfected by petitioners. What is merely involved here is late filing
(by 24 days) of the printed copies of the record on appeal, which this Court has held in Ever Ice Drop Factory vs.
Court of Appeals8 as "not indispensable to the jurisdiction of the appellate courts, the sole purpose of such printing
being convenience in the handling, keeping and reading of the record on appeal."
In the cited case of Ever, the Court applied the salutary rule of overlooking procedural deficiencies in the interest
of substantial justice and set aside the appellate court's dismissal of the appeal (for non-inclusion in the joint record
on appeal of the appellants' notice of appeal and date of receipt of the appealed decision on appeal"), ruling that
"Inasmuch as Rule 41 is in that portion of the rules pertaining to the stage of the appeal process taking place in
the trial court, it is but logical that the frame of reference, when the completeness of a record on appeal, as therein
provided, is in question, must be the contents of said record as filed with said court, and not necessarily those of
the printed one filed with the appellant court."
As applied to the case at bar, therefore, I vote for the granting of the petition and to demand the appeal to the
appellate court for disposition and decision of the merits, for the following considerations, in addition to those
stated above and in my separate opinion in Sison, supra: —
— Since the use of the false registry receipts appears in no way to be the making of petitioners themselves, who
as clients may be presumed to be entirely unaware of the procedural requirements and of their counsel's action
or inaction in complying therewith, the imposition of the capital of dismissal of petitioners' appeal is unduly severe;
— Such a harsh penalty appears to be in derogation of the interest and purpose of the Rules of Court — the proper
and just determination of a litigation. No substantial right of respondent has been prejudiced by the late submittal
of the late submittal of the printed record, whereas petitioners' appeal would be forfeited through no fault or
negligence on their part; — While clients are generally bound by the actions or mistakes of their counsels, here
no fault or wrongdoing has been attributed to either petitioners or their counsel. Their counsel's late submittal of
the brief and of the corresponding motions for extension (by less than a month's time) is not rank failure to comply
with the rule's requirements;
— The specific rule (Rule 46, section 5) does not provided for dismissal of the appeal for failure to submit
the printed record on appeal whereas section 7 of the rule prohibits "alternations, omissions or additions to the
printed record" and does provide that "a violation of this prohibition shall be a ground for dismissal of the appeal."
— Even Rule 50, section 1 which provides that the appellate court may dismissal pending appeal for certain
specific infractions of the rules, e.g. failure to pay the docketing fee or to file appellant's brief on time or
"unauthorized alterations, omissions or additions in the printed record on appeal" (paragraph(e)) or want of specific
assignment of errors or of page references to the record in appellant's brief, merely confers a power, not a duty,
upon the mandatory, upon the said court to exercise its power to dismiss an appeal and dismissal has been
ordered sparingly and only in extreme cases warranting dismissal;
— Withal, this Court may dismiss an appeal even on grounds not specifically mentioned in Rule 50, section 1, as
where the wanton or inexcusable conduct of appellant in not complying with the rules warrants such dismissal. 9
But the Rules certainly do not authorize dismissal of a duly perfected appeal within the original 60-day period,
such failure not being wanton or inexcusable. Yet such failure to file the printed record on appeal within the 60-
day period (which was filed late by 24 days and had already been admitted) was the only ground stated by the
appellate court for its peremptory dismissal of the appeal;
— Thus, the appellate court did not sustain respondent's contention that petitioners through counsel had deceived
it through knowing use of the false registry receipts, since it exonerated counsel of any complicity. One gets the
impression that the unnamed person had perhaps induced Malindog to issue the false receipts to cover up some
neglect or fault on Quiachon's part in not having timely mailed counsel's extension motion, but neither the appellate
court nor the fiscal made any such Quiachon was responsible for the deception, it does not seem fair to penalize
petitioners with dismissal of their appeal;
— The appellate court thus disregarded the harmless error rule as provided in Rule 51, section 5 that "no error or
defect in any ruling or order ... [such as its first order admitting the printed record on appeal in the belief that
petitioners' motion for extension had been timely filed] .... is ground.... for setting aside, modifying or otherwise
disturbing a judgment or order, unless refusal to take such action appears to the court inconsistent with substantial
justice. The court at every stage of the proceeding must disregard any error or defect which does not affect
the substantial rights of the parties;" 10
— Since the enactment as of September 9, 1968 of Republic Act 5440 providing that in most cases as specified
therein, 11 review by this Court of final judgments and decrees of inferior courts shall be by petition for writ
of certiorari — and no longer by record on appeal — some parties-appellants aggrieved by adverse to submit their
appeals to this Court by means of records on appeal as approved by the lower court, contrary to the act's mandate
that they should by presented by means of "petition .... filed and served in the form required for petitions for review
by certiorari of decisions of the Court of Appeals." 12 Strictly speaking, such an error although abetted by the trial
court's act of approving a record on appeal that is not required by the Act, could be considered fatal to the appeal.
But following paramount considerations of substantial justice in preference to transgressions of form, as stressed
in Sonora vs. Tongoy, 13 "the Court has been liberal in the implementation of Republic Act 5440 and instead of
dismissing appeals coming up to Us by record on appeal, We have allowed the appellants to file the corresponding
petition(for review by certiorari) provided the appeal by record on appeal had been duly perfected within the
reglementary period. 14
— This is to stress that even though the provision of Republic Act 5440 that such appeals shall be only on petitions
for review by petitions by certiorari and no longer as a matter of right by record on appeal is of a mandatory
character, this Court has nevertheless adopted a liberal construction and chosen to apply the principle of
substantial justice in favor of one whose appeal was actually perfected on time rather than to sacrifice substance
to form. In the language of Sonora, vis a vis the case at bar, "it is less than fair for respondents to attempt to cut
off (petitioners') right to appeal by invoking the literal meaning of the language of the rules, disregarding their wise
and practical construction already laid down by the Supreme Court." 15
— In sensu contrario, applying the same principles of substantial justice the Court has in many cases seeking
mandamus or reinstatement of disallowed appeals (although timely made) looked at the "substantive merits" of
the proposed appeal and where "there is hardly any prospect of its being ultimately sucessful," denied mandamus,
ruling as in Espiritu vs. CFI of Cavite 16 that" this Court has already ruled on several occasions, since as early
as De la Cruz vs. Blanco, 73 Phil. 596 that mandamus to compel approval and certification of an appeal, even if
otherwise well grounded, procedurally speaking, has to be appeal itself, and 'it would serve no useful purpose to
reinstate' the same." Lucas vs. Mariano 17 was to the same effect with the Court sustaining therein petitioner's
submittal "that from the point of view of the time of the taking of the appeal, petitioners, We are sufficiently
convinced that their claim of title has no chance of being sustained even if other and further proceedings were to
be held in the court below;" and
— Finally, adherence to a liberal construction of the procedural rules in order to attain their objective of substantial
justice and of avoiding possible denials of substantial justice due to procedural technicalities does not mean non-
enforcement of the Rules of Court which are universally recognized to be necessary to the orderly and speedy
discharge of judicial business with the least delay. Compliance with the rules, which are not of mandatory character
(such as the period for perfecting appeals, failure to observe which results in the automatic penalty of loss of the
right to appeal) but of directory character to provide time tables and prevent needless delay in readying a duly
perfected appeal for consideration and decision (such as the 60-day period for submittal of the printed record on
appeal involved here, periods for filling of briefs and transcripts, through the imposition of appropriate disciplinary
admonition or offending counsel, ranging from an contempt to even more drastic measures of administrative
proceedings for disbarment against him, depending upon the gravity of the offense.
LOURDES ONG LIMSON, petitioner, vs. COURT OF APPEALS, SPOUSES LORENZO DE VERA and
ASUNCION SANTOS-DE VERA, TOMAS CUENCA, JR. and SUNVAR REALTY DEVELOPMENT
CORPORATION, respondents.
BELLOSILLO, J.:
Filed under Rule 45 of the Rules of Court this Petition for Review on Certiorari seeks to review, reverse and set
aside the Decision1 of the Court of Appeals dated 18 May 1998 reversing that of the Regional Trial Court dated 30
June 1993. The petitioner likewise assails the Resolution2 of the appellate court of 19 October 1998 denying
petitioner’s Motion for Reconsideration.
Petitioner Lourdes Ong Limson, in her 14 may 1979 Complaint filed before the trial court,3 alleged that in July 1978
respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera, through their agent Marcosa Sanchez,
offered to sell to petitioner a parcel of land consisting of 48, 260 square meters, more or less, situated in Barrio
San Dionisio, Parañaque, Metro Manila; that respondent spouses informed her that they were the owners of the
subject property; that on 31 July 1978 she agreed to buy the property at the price of P34.00 per square meter and
gave the sum of P20,000.00 to respondent spouses as "earnest money;" that respondent spouses signed a receipt
therefor and gave her a 10-day option period to purchase the property; that respondent Lorenzo de Vera then
informed her that the subject property was mortgaged to Emilio Ramos and Isidro Ramos; that respondent Lorenzo
de Vera asked her to pay the balance of the purchase price to enable him and his wife to settle their obligation
with the Ramoses.1âwphi1.nêt
Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5 August 1978 at the
Office of the Registry of deeds of Makati, Metro Manila, to consummate the transaction but due to the failure of
respondent Asuncion Santos-de Vera and the Ramoses to appear, no transaction was formalized. In a second
meeting scheduled on 11 August 1978 she claimed that she was willing and ready to pay the balance of the
purchase price but the transaction again did not materialize as respondent spouses failed to pay the back taxes
of subject property. Subsequently, on 23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera three
(3) checks in the total amount of P36, 170.00 for the settlement of the back taxes of the property and for the
payment of the quitclaims of the three (3) tenants of subject land. The amount was purportedly considered part of
purchase price and respondent Lorenzo de Vera signed the receipts therefor.
Petitioner alleged that on 5 September 1978 she was surprised to learn from the agent of respondent spouses
that the property was the subject of a negotiation for the sale to respondent Sunvar Realty Development
Corporation (SUNVAR) represented by respondent Tomas Cuenca, Jr. On 15 September 1978 petitioner
discovered that although respondent spouses purchased the property from the Ramoses on 20 March 1970 it was
only on 15 September 1978 that TCT No. S-72946 covering the property was issued to respondent spouses. As
a consequence, she file on the same day an affidavit of Adverse Claim with the Office of the Registry of Deeds of
Makati, Metro, which was annotated on TCT No. S-72946. She also claimed that on the same day she informed
respondent Cuenca of her "contract" to purchase the property.
The Deed of Sale between respondent spouses and respondent SUNVAR was executed on 15 September 1978
and TCT N0. S-72377 was issued in favor of the latter on 26 September 1978 with the adverse Claim of petitioner
annotated thereon. Petitioner claimed that when respondent spouses sold the property in dispute to SUNVAR, her
valid and legal right to purchase it was ignored if not violated. Moreover, she maintained that SUNVAR was in bad
faith, as it knew of her "contract" to purchase the subject property fro respondent spouse.
Finally, for the alleged unlawful and unjust acts of respondent spouses, which caused her damage, prejudice and
injury, petitioner claimed that the Deed of Sale, should be annuled and TCT No. S-72377 in the name of
respondent SUNVAR canceled and TCT No. S-72946 restored. She also insisted that a Deed of Sale between
her an respondent spouses be now executed upon her payment of the balance of the purchase price agreed upon,
plus damages and attorney’s fees.
In their Answer4 respondent spouses maintained that petitioner had no sufficient cause of action against them; that
she was not the real party in interest; that the option to buy the property had long expired; that there was no
perfected contract to sell between them; and, that petitioner had no legal capacity to sue. Additionally, respondent
spouses claimed actual, moral and exemplary damages, and attorney’s fees against petitioner.
On the other hand, respondents SUNVAR and Cuenca, in their Answer5 alleged that petitioner was not the proper
party in interest and/or had no cause of action against them. But, even assuming that petitioner was the proper
party in interest, they claimed that she could only be entitled to the return of any amount received by respondent
spouses. In the alternative, they argued that petitioner had lost her option to buy the property for failure to comply
with the terms and conditions of the agreement as embodied in the receipt issued therefor. Moreover, they
contended that at the time of the execution of the Deed of Sale and the payment of consideration to respondent
spouses, they "did not know nor was informed" of petitioner’s interest or claim over the subject property. They
claimed furthermore that it was only after the signing of the Deed of Sale and the payment of the corresponding
amounts to respondent spouses that they came to know of the claim of petitioner as it was only then that they
were furnished copy to the title to the properly where the Adverse Claim of petitioner was annotated. Consequently,
they also instituted a Cross-Claim against respondent spouses for bad faith in encouraging the negotiations
between them without telling them of the claim of petitioner. The same respondents maintained that had they
known of the claim of petitioner, they would not have initiated negotiations with respondent spouses for the
purchase of the property. Thus, they prayed for reimbursement of all amounts and monies received from them by
respondent spouses, attorney’s fees and expenses for litigation in the event that the trial court should annul the
Deed of Sale and deprive them of their ownership and possessio of the subject land.
In their Answer to the Cross-Claim6 of respondents SUNVAR and Cuenca, respondent spouses insisted that they
negotiated with the former only after expiration of the option period given to petitioner and her failure with her
commitments thereunder. Respondent spouses contended that they acted legally and validly, in all honesty and
good faith. According to them, respondent SUNVAR made a verification of the title with the office of the register of
Deeds of Metro Manila District IV before the execution of the Deed of Absolute Sale. Also, they claimed that
the Cross-Claim was written executed by respondent SUNVAR in their favor. Thus, respondent spouses prayed
for actual damages for the unjustified filling of the Cross-Claim, moral damages for the mental anguish and similar
injuries they suffered by reason thereof, exemplary damages "to prevent others from emulation the bad example"
of respondents SUNVAR and Cuenca, plus attorney’s fees.
After a protracted trial and reconstitution of the court records due to the fire that razed the Pasay City Hall on 18
January 1992, the Regional Trial Court rendered its 30 June 1993 Decision 7 in favor of petitioner. It ordered (a)
the annulment and rescission of the Deed of Absolute Sale executed on 15 September 1978 by respondent
spouses in favor of respondent SUNVAR; (b) the cancellation and revocation of TCT No. S-75377 of the Registry
of Deeds, Makati, Metro Manila, issued in the name of respondent Sunvar Realty Development Corporation, and
the restoration or reinstatement of TCT No. S-72946 of the same Registry issued in the name of respondent
spouses; (c) respondent spouses to execute a deed of sale conveying ownership of the property covered by TCT
No. S-72946 in favor of petitioner upon her payment of the balance of the purchase price agreed upon; and, (d)
respondent spouses to pay petitioner P50,000.00 as and for attorney’s fees, and to pay the costs.
On appeal, the Court of Appeals completely reversed the decision of the trial court. It ordered (a) the Register of
Deeds of Makati City to lift the Adverse Claim and such other encumbrances petitioner might have filed or caused
to be annotated on TCT No. S-75377; and, (b) petitioner to pay (1) respondent SUNVAR P50,000.00 as nominal
damages, P30,000.00 as exemplary damages and P20,000 as attorney’s fees; (2) respondent spouses,
P15,000.00 as nominal damages, P10,000.00 as exemplary damages and P10,000.00 as attorney’s fees; and,
(3) the costs.
Petitioner timely filed a Motion for Reconsideration which was denied by the Court of Appeals on 19 October 1998.
Hence, this petition.
At issue for resolution by the Court is the nature of the contract entered into between petitioner Lourdes Ong
Limson on one hand, and respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera on the other.
The main argument of petitioner is that there was a perfected contract to sell between her and respondent spouses.
On the other hand, respondent spouses and respondents SUNVAR and Cuenca argue that what was perfected
between petitioner and respondent spouses was a mere option.
A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to the conclusion that the
agreement between the parties was a contract of option and not a contract to sell.
An option, as used in the law of sales, is a continuing offer or contract by which the owner sitpulates with another
that the latter shall have the right to buy the property at a fixed price within a time certain, or under, or in compliance
with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale.
It is also sometimes called an "unaccepted offer." An option is not itself a purchase, but merely secures the
privilege to buy.8 It is not a sale of property but a sale of right to purchase.9 It is simply a contract by which the
owner of property agrees with another person that he shall have the right to buy his property at a fixed price within
a certain time. He does not sell his land; he does not then agree to sell it; but he does not sell something, i.e., the
right or privilege to buy at the election or option of the other party.10 Its distinguishing characteristic is that it imposes
no binding obligation on the person holding the option, aside from the consideration for the offer. Until
acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to,
or any interest or right in the subject matter, but is merely a contract by which the owner of the property gives the
optionee the right or privilege of accepting the offer and buying the property on certain terms. 11
On the other hand, a contract, like a contract to sell, involves the meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render some service. 12 Contracts, in general,
are perfected by mere consent,13 which is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute.14
The Receipt15 that contains the contract between petitioner and respondent spouses provides –
Received from Lourdes Limson the sum of Twenty Thousand Peso (P20,000.00) under Check No.
22391 dated July 31, 1978 as earnest money with option to purchase a parcel of land owned by Lorenzo
de Vera located at Barrio San Dionisio, Municipality of Parañaque, Province of Rizal with an area of
forty eight thousand two hundred sixty square meters more or less at the price of Thirty Four Pesos
(34.00)16 cash subject to the condition and stipulation that have been agreed upon by the buyer and me
which will form part of the receipt. Should the transaction of the property not materialize not on the fault
of the buyer, I obligate myself to return the full amount of P20,000.00 earnest money with option to buy
or forfeit on the fault of the buyer. I guarantee to notify the buyer Lourdes Limson or her representative
and get her conformity should I sell or encumber this property to a third person. This option to buy is
good within ten (10) days until the absolute deed of sale is finally signed by the parties or the failure of
the buyer to comply with the terms of the option to buy as herein attached.
In the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be discharged
by looking to the words they used to project that intention in their contracts, all the words standing alone. 17 The
above Receipt readily shows that respondent spouses and petitioner only entered into a contract of option; a
contract by which respondent spouses agreed with petitioner that the latter shall have the right to buy the former's
property at a fixed price of P34.00 per square meter within ten (10) days from 31 July 1978. Respondent spouses
did not sell their property; they did not also agree to sell it; but they sold something, i.e., the privilege to buy at the
election or option of petitioner. The agreement imposed no binding obligation on petitioner, aside from the
consideration for the offer.
The consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as "earnest money."
However, a careful examination of the words used indicated that the money is not earnest money but option
money. "Earnest money" and "option money" are not the same but distinguished thus; (a) earnest money is part
of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b)
earnest money given only where there is already a sale, while option money applies to a sale not yet perfected;
and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer
gives option money, he is not required to buy,18 but may even forfeit it depending on the terms of the option.
There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase price. Moreover, it
was not shown that there was a perfected sale between the parties where earnest money was given. Finally, when
petitioner gave the "earnest money" the Receipt did not reveal that she was bound to pay the balance of the
purchase price. In fact, she could even forfeit the money given if the terms of the option were not met. Thus, the
P20,000.00 could only be money given as consideration for the option contract. That the contract between the
parties is one of option is buttressed by the provision therein that should the transaction of the provision therein
that should the transaction of the property not materialize without fault of petitioner as buyer, respondent Lorenzo the property was already set at P34.00 per square meter and payment of the mortgage could every well be left to
de Vera obligates himself to return the full amount of P20,000.00 "earnest money" with option to buy or forfeit the respondent spouses.
same on the fault of petitioner. It is further bolstered by the provision therein that guarantees petitioner that she or
her representative would be notified in case the subject property was sold or encumbered to a third person. Finally,
Petitioner further claims that when respondent spouses sent her a telegram demanding full payment of the
the Receipt provided for a period within which the option to buy was to be exercised, i.e., "within ten (10) days"
purchase price on 14 September 1978 it was an acknowledgment of their contract to sell, thus denying them the
from 31 July 1978.
right to claim otherwise.

Doubtless, the agreement between respondent spouses and petitioner was an "option contract" or what is
We do not agree. As explained above, there was no contract to sell between petitioner and respondent spouses
sometimes called an "unaccepted offer." During the option period the agreement was not converted into a bilateral
to speak of. Verily, the telegram could not operate to estop them from claiming that there was such contract
promise to sell and to buy where both respondent spouses and petitioner were then reciprocally bound to comply
between them and petitioner. Neither could it mean that respondent spouses extended the option period. The
with their respective undertakings as petitioner did not timely, affirmatively and clearly accept the offer of
telegram only showed that respondent spouses were willing to give petitioner a chance to buy subject property
respondent spouses.
even if it no longer exclusive.

The rule is that except where a formal acceptance is not required, although the acceptance must be affirmatively
The option period having expired and acceptance was not effectively made by petitioner, the purchase of subject
and clearly made and evidenced by some acts or conduct communicated to the offeror, it may be made either in
property by respondent SUNVAR was perfectly valid and entered into in good faith. Petitioner claims that in August
a formal or an informal manner, and may be shown by acts, conduct or words by the accepting party that clearly
1978 Hermigildo Sanchez, the son of respondent spouses’ agent, Marcosa Snachez, informed Marixi Prieto, a
manifest a present intention or determination to accept the offer to buy the property of respondent spouses within
member of the Board of Directors of respondent SUNVAR, that the property was already sold to petitioner. Also,
the 10-day option period. The only occasion within the option period when petitioner could have demonstrated her
petitioner maintains that on 5 September 1978 respondent Cuenca met with her and offered to buy the property
acceptance was on 5 August 1978 when, according to her, she agreed to meet respondent spouses and the
from her at P45.00 per square meter. Petitioner contends that these incidents, including the annotation of
Ramoses at the Office of the Registrar of Deeds of Makati. Petitioner’s agreement to meet with respondent
her Adverse Claim on the title of subject property on 15 September 1978 show that respondent SUNVAR was
spouses presupposes an invitation from the latter, which only emphasizes their persistence in offering the property
aware of the perfected sale between her and respondent spouses, thus making respondent SUNVAR a buyer in
to the former. But whether that showed acceptance by petitioner of the offer is hazy and dubious.
bad faith.

On or before 10 August 1978, the last day of the option period, no affirmative or clear manifestation was made by
petitioner to accept the offer. Certainly, there was no concurrence of private respondent spouses’ offer and
petitioner’s acceptance thereof within the option period. Consequently, there was no perfected contract to sell
between the parties.
On 11 August 1978 the option period expired and the exclusive right of petitioner to buy the property of respondent
spouses ceased. The subsequent meetings and negotiations, specifically on 11 and 23 August 1978, between the
parties only showed the desire of respondent spouses to sell their property to petitioner. Also, on 14 September
1978 when respondent spouses sent a telegram to petitioner demanding full payment of the purchase price on
even date simply demonstrated an inclination to give her preference to buy subject property. Collectively, these
instances did not indicate that petitioner still had the exclusive right to purchase subject property. Verily, the
commencement of negotiations between respondent spouses and respondent SUNVAR clearly manifested that
their offer to sell subject property to petitioner was no longer exclusive to her.
We cannot subscribe to the argument of petitioner that respondent spouses extended the option period when they
extended the authority of their until 31 August 1978. The extension of the contract of agency could not operate to
extend the option period between the parties in the instant case. The extension must not be implied but categorical
and must show the clear intention of the parties.1âwphi1.nêt
As to whether respondent spouses were at fault for the non-consummation of their contract with petitioner, we
agree with the appellate court that they were not to be blammed. First, within the option period, or on 4 August
1978, it was respondent spouses and not petitioner who initiated the meeting at the Office of The Register of
Deeds of Makati. Second, that the Ramoses filed to appear on 4 August 1978 was beyond the control of
respondent spouses. Third, the succeeding meetings that transpired to consummate the contract were all beyond
the option period and, as declared by the Court of Appeals, the question of who was at fault was already
immaterial. Fourth, even assuming that the meetings were within the option period, the presence of petitioner was
not enough as she was not even prepared to pay the purchase price in cash as agreed upon. Finally, even without
the presence of the Ramoses, petitioner could have easily made the necessary payment in cash as the price of
Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978, are immaterial as they were
beyond the option period given to petitioner. On the other hand, the referral to sometime in August 1978 in the
testimony of Hermigildo Sanchez as emphasized by petitioner in her petition is very vague. It could be within or
beyond the option period. Clearly then, even assuming that the meeting with Marixi Prieto actually transpired, it
could not necessarily mean that she knew of the agreement between petitioner and respondent spouses for the
purchase of subject property as the meeting could have occurred beyond the option period. In which case, no bad
faith could be attributed to respondent SUNVAR. If, on the other hand, the meeting was within the option period,
petitioner was remiss in her duty to prove so. Necessarily, we are left with the conclusion that respondent SUNVAR
bought subject property from respondent spouses in good faith, for value and without knowledge of any flaw or
defect in its title.
The appellate court awarded nominal and exemplary damages plus attorney’s fees to respondent spouses and
respondent SUNVAR. But nominal damages are adjudicated to vindicate or recognize the right of the plaintiff that
has been violated or invaded by the defendant.19 In the instant case, the Court recognizes the rights of all the
parties and finds no violation or invasion of the rights of respondents by petitioner. Petitioner, in filing her complaint,
only seeks relief, in good faith, for what she believes she was entitled to and should not be awarded to respondents
as they are imposed only by way of example or correction for the public good and only in addition to the moral,
temperate, liquidated or compensatory damages.20 No such kinds of damages were awarded by the Court of
Appeals, only nominal, which was not justified in this case. Finally, attorney’s fees could not also be recovered as
the Court does not deem it just and equitable under the circumtances.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals ordering the Register of Deeds of
Makati City to lift the adverse claim and such other encumbrances petitioners Lourdes Ong Limson may have filed
or caused to be annotated on TCT No. S-75377 is AFFIRMED, with the MODIFICATION that the award of nominal
and exemplary damages as well as attorney’s fees is DELETED. SO ORDERED.
SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES ALFREDO HUANG and GRACE
HUANG, respondents.
 DECISION On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner had not yet
acted on her counter-offer. This prompted Atty. Dauz to propose a four-month period of amortization.
MENDOZA, J.:
On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994 within which
1 to exercise her option to purchase the property, adding that within that period, "[we] hope to finalize [our]
This is a petition for review of the decision, dated April 8, 1997, of the Court of Appeals which reversed the decision
agreement on the matter."4 Her request was granted.
of the Regional Trial Court, Branch 153, Pasig City dismissing the complaint brought by respondents against
petitioner for enforcement of a contract of sale.
On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty. Dauz
informing her that because the parties failed to agree on the terms and conditions of the sale despite the extension
The facts are not in dispute.
granted by petitioner, the latter was returning the amount of ₱1 million given as "earnest-deposit."5

Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and sale of
On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within five
real properties. Part of its inventory are two parcels of land totalling 1, 738 square meters at the corner of Meralco
days of a deed of sale covering the properties. Respondents attempted to return the "earnest-deposit" but
Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-82395 and
petitioner refused on the ground that respondents’ option to purchase had already expired.
PT-82396 of the Register of Deeds of Pasig City.

On February 21, 1994, the properties were offered for sale for ₱52,140,000.00 in cash. The offer was made to
Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a letter 2 dated March
24, 1994, Atty. Dauz signified her clients’ interest in purchasing the properties for the amount for which they were
offered by petitioner, under the following terms: the sum of ₱500,000.00 would be given as earnest money and
the balance would be paid in eight equal monthly installments from May to December, 1994. However, petitioner
refused the counter-offer.
On March 29, 1994, Atty. Dauz wrote another letter3 proposing the following terms for the purchase of the
properties, viz:
This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq. meters. For this
purpose, we are enclosing herewith the sum of ₱1,000,000.00 representing earnest-deposit money, subject to the
following conditions.
1. We will be given the exclusive option to purchase the property within the 30 days from date of your
acceptance of this offer.
2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will secure
the necessary Management and Board approvals; and we initiate the documentation if there is mutual
agreement between us.
On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner before the
Regional Trial Court, Branch 133, Pasig City where it was docketed as Civil Case No. 64660.
Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the complaint alleging that (1)
the alleged "exclusive option" of respondent spouses lacked a consideration separate and distinct from the
purchase price and was thus unenforceable and (2) the complaint did not allege a cause of action because there
was no "meeting of the minds" between the parties and, therefore, no perfected contract of sale. The motion was
opposed by respondents.
On December 12, 1994, the trial court granted petitioner’s motion and dismissed the action. Respondents filed a
motion for reconsideration, but it was denied by the trial court. They then appealed to the Court of Appeals which,
on April 8, 1997, rendered a decision6 reversing the judgment of the trial court. The appellate court held that all the
requisites of a perfected contract of sale had been complied with as the offer made on March 29, 1994, in
connection with which the earnest money in the amount of ₱1 million was tendered by respondents, had already
been accepted by petitioner. The court cited Art. 1482 of the Civil Code which provides that "[w]henever 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." The fact the parties had not agreed on the mode of payment did not affect the contract as such is not
an essential element for its validity. In addition, the court found that Sobrecarey had authority to act in behalf of
petitioner for the sale of the properties.7
Petitioner moved for reconsideration of the trial court’s decision, but its motion was denied. Hence, this petition.

3. In the event that we do not come to an agreement on this transaction, the said amount of
₱1,000,000.00 shall be refundable to us in full upon demand. . . .
Isidro A. Sobrecarey, petitioner’s vice-president and operations manager for corporate real estate, indicated his
conformity to the offer by affixing his signature to the letter and accepted the "earnest-deposit" of ₱1 million. Upon
request of respondent spouses, Sobrecarey ordered the removal of the "FOR SALE" sign from the properties.
Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994, Sobrecarey
informed Atty. Dauz that petitioner was willing to sell the subject properties on a 90-day term. Atty. Dauz countered
with an offer of six months within which to pay.
Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of sale between
the parties because the March 29, 1994 letter of respondents, which petitioner accepted, merely resulted in an
option contract, albeit it was unenforceable for lack of a distinct consideration. Petitioner argues that the absence
of agreement as to the mode of payment was fatal to the perfection of the contract of sale. Petitioner also disputes
the appellate court’s ruling that Isidro A. Sobrecarey had authority to sell the subject real properties. 8
Respondents were required to comment within ten (10) days from notice. However, despite 13 extensions totalling
142 days which the Court had given to them, respondents failed to file their comment. They were thus considered
to have waived the filing of a comment.
The petition is meritorious.
In holding that there is a perfected contract of sale, the Court of Appeals relied on the following findings: (1) earnest was nothing more than offers and counter-offers which did not amount to any final arrangement containing the
money was allegedly given by respondents and accepted by petitioner through its vice-president and operations essential elements of a contract of sale. While the parties already agreed on the real properties which were the
manager, Isidro A. Sobrecarey; and (2) the documentary evidence in the records show that there was a perfected objects of the sale and on the purchase price, the fact remains that they failed to arrive at mutually acceptable
contract of sale. terms of payment, despite the 45-day extension given by petitioner.

With regard to the alleged payment and acceptance of earnest money, the Court holds that respondents did not The appellate court opined that the failure to agree on the terms of payment was no bar to the perfection of the
give the ₱1 million as "earnest money" as provided by Art. 1482 of the Civil Code. They presented the amount sale because Art. 1475 only requires agreement by the parties as to the price of the object. This is error. In Navarro
merely as a deposit of what would eventually become the earnest money or downpayment should a contract of v. Sugar Producers Cooperative Marketing Association, Inc.,14 we laid down the rule that the manner of payment
sale be made by them. The amount was thus given not as a part of the purchase price and as proof of the perfection of the purchase price is an essential element before a valid and binding contract of sale can exist. Although the
of the contract of sale but only as a guarantee that respondents would not back out of the sale. Respondents in Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment
fact described the amount as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,9 it was held: of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of
Appeals,15 agreement on 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.16 In Velasco v. Court of Appeals,17 the parties to a
. . . While the ₱5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show that the
proposed sale had already agreed on the object of sale and on the purchase price. By the buyer’s own admission,
same was in the concept of the earnest money contemplated in Art. 1482 of the Civil Code, invoked by petitioner,
however, the parties still had to agree on how and when the downpayment and the installments were to be paid.
as signifying perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the record, We
It was held:
are more inclined to believe that the said ₱5,000.00 were paid in the concept of earnest money as the term was
understood under the Old Civil Code, that is, as a guarantee that the buyer would not back out, considering that it
is not clear that there was already a definite agreement as to the price then and that petitioners were decided to . . . Such being the situation, it can not, therefore, be said that a definite and firm sales agreement between the
buy 6/7 only of the property should respondent Javellana refuse to agree to part with her 1/7 share. 10 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
In the present case, the ₱1 million "earnest-deposit" could not have been given as earnest money as contemplated
P10,000 as part of the down-payment that they had to pay cannot be considered as sufficient proof of the
in Art. 1482 because, at the time when petitioner accepted the terms of respondents’ offer of March 29, 1994, their
perfection of any purchase and sale agreement between the parties herein under Art. 1482 of the new Civil Code,
contract had not yet been perfected. This is evident from the following conditions attached by respondents to their
as the petitioners themselves admit that some essential matter - the terms of the payment - still had to be mutually
letter, to wit: (1) that they be given the exclusive option to purchase the property within 30 days from acceptance
covenanted.18
of the offer; (2) that during the option period, the parties would negotiate the terms and conditions of the purchase;
and (3) petitioner would secure the necessary approvals while respondents would handle the documentation.
Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the
contract of sale which establishes the existence of a perfected sale.
The first condition for an option period of 30 days sufficiently shows that a sale was never perfected.1âwphi1 As
petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to an
option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30 days In the absence of a perfected contract of sale, it is immaterial whether Isidro A. Sobrecarey had the authority to
from the date of acceptance of the offer. Such option giving respondents the exclusive right to buy the properties enter into a contract of sale in behalf of petitioner. This issue, therefore, needs no further discussion.
within the period agreed upon is separate and distinct from the contract of sale which the parties may enter. 11 All
that respondents had was just the option to buy the properties which privilege was not, however, exercised by
WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents’ complaint is DISMISSED.
them because there was a failure to agree on the terms of payment. No contract of sale may thus be enforced by
SO ORDERED.
respondents.

VILLONCO REALTY COMPANY, plaintiff-appellee and EDITH PEREZ DE TAGLE, intervenor-appellee,

Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the second
vs. BORMAHECO, INC., FRANCISCO N. CERVANTES and ROSARIO N. CERVANTES, defendants-appellants.
paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is
Meer, Meer & Meer for plaintiff-appellee.
binding upon the promisor only if the promise is supported by a distinct consideration. Consideration in an option
contract may be anything of value, unlike in sale where it must be the price certain in money or its equivalent.
There is no showing here of any consideration for the option. Lacking any proof of such consideration, the option AQUINO, J.:
is unenforceable.
This action was instituted by Villonco Realty Company against Bormaheco, Inc. and the spouses Francisco N.
Equally compelling as proof of the absence of a perfected sale is the second condition that, during the option Cervantes and Rosario N. Cervantes for the specific performance of a supposed contract for the sale of land and
period, the parties would negotiate the terms and conditions of the purchase. The stages of a contract of sale are the improvements thereon for one million four hundred thousand pesos. Edith Perez de Tagle, as agent, intervened
as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in order to recover her commission. The lower court enforced the sale. Bormaheco, Inc. and the Cervantes
in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the spouses, as supposed vendors, appealed.
essential elements of the sale which are 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.12 In the present case, the parties never got This Court took cognizance of the appeal because the amount involved is more than P200,000 and the appeal
past the negotiation stage. The alleged "indubitable evidence"13 of a perfected sale cited by the appellate court was perfected before Republic Act No. 5440 took effect on September 9, 1968. The facts are as follows:
Francisco N. Cervantes and his wife, Rosario P. Navarra-Cervantes, are the owners of lots 3, 15 and 16 located (3) That this sale is to be consummated only after I shall have also
at 245 Buendia Avenue, Makati, Rizal with a total area of three thousand five hundred square meters (TCT Nos. consummated my purchase of another property located at Sta. Ana,
43530, 43531 and 43532, Exh. A, A-1 and A-2). The lots were mortgaged to the Development Bank of the Phil Manila;
(DBP) on April 21, 1959 as security for a loan of P441,000. The mortgage debt was fully paid on July 10, 1969.
(4) That if my negotiations with said property will not be consummated
Cervantes is the president of Bormaheco, Inc., a dealer and importer of industrial and agricultural machinery. The by reason beyond my control, I will return to you your deposit of P100,000
entire lots are occupied by the building, machinery and equipment of Bormaheco, Inc. and are adjacent to the and the sale of my property to you will not also be consummated; and
property of Villonco Realty Company situated at 219 Buendia Avenue.
(5) That final negotiations on both properties can be definitely known after
In the early part of February, 1964 there were negotiations for the sale of the said lots and the improvements 45 days.
thereon between Romeo Villonco of Villonco Realty Company "and Bormaheco, Inc., represented by its president,
Francisco N. Cervantes, through the intervention of Edith Perez de Tagle, a real estate broker".
If the above terms is (are) acceptable to your Board, please issue out the said earnest money
in favor of Bormaheco, Inc., and deliver the same thru the bearer, Miss Edith Perez de Tagle.
In the course of the negotiations, the brothers Romeo Villonco and Teofilo Villonco conferred with Cervantes in
his office to discuss the price and terms of the sale. Later, Cervantes "went to see Villonco for the same reason
Very truly
until some agreement" was arrived at. On a subsequent occasion, Cervantes, accompanied by Edith Perez de
yours,
Tagle, discussed again the terms of the sale with Villonco.

SGD.
During the negotiations, Villonco Realty Company assumed that the lots belonged to Bormaheco, Inc. and that
FRANCIS
Cervantes was duly authorized to sell the same. Cervantes did not disclose to the broker and to Villonco Realty
CO N.
Company that the lots were conjugal properties of himself and his wife and that they were mortgaged to the DBP.
CERVANT
ES
Bormaheco, Inc., through Cervantes, made a written offer dated February 12, 1964, to Romeo Villonco for the President
sale of the property. The offer reads (Exh. B):
The property mentioned in Bormaheco's letter was the land of the National Shipyards & Steel Corporation
BORMAHECO, INC. (Nassco), with an area of twenty thousand square meters, located at Punta, Sta. Ana, Manila. At the bidding held
on January 17, 1964 that land was awarded to Bormaheco, Inc., the highest bidder, for the price of P552,000. The
Nassco Board of Directors in its resolution of February 18, 1964 authorized the General Manager to sign the
February 12,1964
necessary contract (Exh. H).

Mr. Romeo
On February 28, 1964, the Nassco Acting General Manager wrote a letter to the Economic Coordinator, requesting
Villonco Villonco Building
approval of that resolution. The Acting Economic Coordinator approved the resolution on March 24, 1964 (Exh.
Buendia Avenue
1).
Makati, Rizal.

In the meanwhile, Bormaheco, Inc. and Villonco Realty Company continued their negotiations for the sale of the
Dear Mr. Villonco:
Buendia Avenue property. Cervantes and Teofilo Villonco had a final conference on February 27, 1964. As a result
of that conference Villonco Realty Company, through Teofilo Villonco, in its letter of March 4, 1964 made a revised
This is with reference to our telephone conversation this noon on the matter of the sale of our counter- offer (Romeo Villonco's first counter-offer was dated February 24, 1964, Exh. C) for the purchase of the
property located at Buendia Avenue, with a total area of 3,500 sq. m., under the following property. The counter-offer was accepted by Cervantes as shown in Exhibit D, which is quoted below:
conditions:
VILLONCO REALTY COMPANY
(1) That we are offering to sell to you the above property at the price of V. R. C. Building
P400.00 per square meter; 219 Buendia Avenue, Makati,
Rizal, Philippines
(2) That a deposit of P100,000.00 must be placed as earnest money on
the purchase of the above property which will become part payment of March 4, 1964
the property in the event that the sale is consummated;
Mr. Francisco Cervantes.
Bormaheco, Inc.
245 Buendia Avenue VILLONC
Makati, Rizal O

Dear Mr. Cervantes: CONFORME:

In reference to the letter of Miss E. Perez de Tagle dated February 12th and 26, 1964 in
respect to the terms and conditions on the purchase of your property located at Buendia Ave.,
Makati, Rizal, with a total area of 3,500 sq. meters., we hereby revise our offer, as follows:
1. That the price of the property shall be P400.00 per sq. m., including the improvements
thereon;
2. That a deposit of P100,000.00 shall be given to you as earnest money which will become
as part payment in the event the sale is consummated;
3. This sale shall be cancelled, only if your deal with another property in Sta. Ana shall not be
consummated and in such case, the P100,000-00 earnest money will be returned to us with
a 10% interest p.a. However, if our deal with you is finalized, said P100,000.00 will become
as part payment for the purchase of your property without interest:
4. The manner of payment shall be as follows:
a. P100,000.00 earnest money and
650,000.00 as part of the down payment, or
P750,000.00 as total down payment
BORMAHECO, INC.
(Sgd.) FRANCISCO CERVANTES
That this sale shall be subject to favorable consummation of a property in Sta. Ana we are
negotiating.
(Sgd.) FRANCISCO CERVANTES
The check for P100,000 (Exh. E) mentioned in the foregoing letter-contract was delivered by Edith Perez de Tagle
to Bormaheco, Inc. on March 4, 1964 and was received by Cervantes. In the voucher-receipt evidencing the
delivery the broker indicated in her handwriting that the earnest money was "subject to the terms and conditions
embodied in Bormaheco's letter" of February 12 and Villonco Realty Company's letter of March 4, 1964 (Exh. E-
1; 14 tsn).
Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six days after the signing of the contract of sale,
Exhibit D, Cervantes returned the earnest money, with interest amounting to P694.24 (at ten percent per annum).
Cervantes cited as an excuse the circumstance that "despite the lapse of 45 days from February 12, 1964 there
is no certainty yet" for the acquisition of the Punta property (Exh. F; F-I and F-2). Villonco Realty Company refused
to accept the letter and the checks of Bormaheco, Inc. Cervantes sent them by registered mail. When he rescinded
the contract, he was already aware that the Punta lot had been awarded to Bormaheco, Inc. (25-26 tsn).

Edith Perez de Tagle, the broker, in a letter to Cervantes dated March 31, 1964 articulated her shock and surprise
b. The balance is payable as follows:
at Bormaheco's turnabout. She reviewed the history of the deal and explained why Romeo Villonco could not
P100,000.00 after 3 months
agree to the rescission of the sale (Exh. G).**
125,000.00 -do-
212,500.00 -do-
P650,000.00 Total Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter, alleged that the forty-five day period had
already expired and the sale to Bormaheco, Inc. of the Punta property had not been consummated. Cervantes
said that his letter was a "manifestation that we are no longer interested to sell" the Buendia Avenue property to
As regards to the other conditions which we have discussed during our last conference on
Villonco Realty Company (Annex I of Stipulation of Facts). The latter was furnished with a copy of that letter.
February 27, 1964, the same shall be finalized upon preparation of the contract to sell.*

In a letter dated April 7, 1964 Villonco Realty Company returned the two checks to Bormaheco, Inc., stating that
If the above terms and conditions are acceptable to you, kindly sign your conformity
the condition for the cancellation of the contract had not arisen and at the same time announcing that an action
hereunder. Enclosed is our check for ONE HUNDRED THOUSAND (P100,000.00) PESOS,
for breach of contract would be filed against Bormaheco, Inc. (Annex G of Stipulation of Facts).1äwphï1.ñët
MBTC Check No. 448314, as earnest money.

On that same date, April 7, 1964 Villonco Realty Company filed the complaint (dated April 6) for specific
Very truly yours,
performance against Bormaheco, Inc. Also on that same date, April 7, at eight-forty-five in the morning, a notice
of lis pendens was annotated on the titles of the said lots.
VILLONC
O
Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded the defense that the perfection of the contract
REALTY
of sale was subject to the conditions (a) "that final acceptance or not shall be made after 45 days" (sic) and (b)
COMPAN
that Bormaheco, Inc. "acquires the Sta. Ana property".
Y
(Sgd.)
TEOFILO
On June 2, 1964 or during the pendency of this case, the Nassco Acting General Manager wrote to Bormaheco,
Inc., advising it that the Board of Directors and the Economic Coordinator had approved the sale of the Punta lot
to Bormaheco, Inc. and requesting the latter to send its duly authorized representative to the Nassco for the signing
of the deed of sale (Exh. 1).
The deed of sale for the Punta land was executed on June 26, 1964. Bormaheco, Inc. was represented by
Cervantes (Exh. J. See Bormaheco, Inc. vs. Abanes, L-28087, July 31, 1973, 52 SCRA 73).
In view of the disclosure in Bormaheco's amended answer that the three lots were registered in the names of the
Cervantes spouses and not in the name of Bormaheco, Inc., Villonco Realty Company on July 21, 1964 filed an
amended complaint impleading the said spouses as defendants. Bormaheco, Inc. and the Cervantes spouses
filed separate answers.
As of January 15, 1965 Villonco Realty Company had paid to the Manufacturers' Bank & Trust Company the sum
of P8,712.25 as interests on the overdraft line of P100,000 and the sum of P27.39 as interests daily on the same
loan since January 16, 1965. (That overdraft line was later settled by Villonco Realty Company on a date not
mentioned in its manifestation of February 19, 1975).
Villonco Realty Company had obligated itself to pay the sum of P20,000 as attorney's fees to its lawyers. It claimed
that it was damaged in the sum of P10,000 a month from March 24, 1964 when the award of the Punta lot to
Bormaheco, Inc. was approved. On the other hand, Bormaheco, Inc. claimed that it had sustained damages of
P200,000 annually due to the notice of lis pendens which had prevented it from constructing a multi-story building
on the three lots. (Pars. 18 and 19, Stipulation of Facts).1äwphï1.ñët
Miss Tagle testified that for her services Bormaheco, Inc., through Cervantes, obligated itself to pay her a three
percent commission on the price of P1,400,000 or the amount of forty-two thousand pesos (14 tsn).
After trial, the lower court rendered a decision ordering the Cervantes spouses to execute in favor of Bormaheco,
Inc. a deed of conveyance for the three lots in question and directing Bormaheco, Inc. (a) to convey the same lots
to Villonco Realty Company, (b) to pay the latter, as consequential damages, the sum of P10,000 monthly from
March 24, 1964 up to the consummation of the sale, (c) to pay Edith Perez de Tagle the sum of P42,000 as
broker's commission and (d) pay P20,000 as to attorney's fees (Civil Case No. 8109).
Bormaheco, Inc. and the Cervantes spouses appealed. Their principal contentions are (a) that no contract of sale
was perfected because Cervantes made a supposedly qualified acceptance of the revised offer contained in
Exhibit D, which acceptance amounted to a counter-offer, and because the condition that Bormaheco, inc. would
acquire the Punta land within the forty-five-day period was not fulfilled; (2) that Bormaheco, Inc. cannot be
compelled to sell the land which belongs to the Cervantes spouses and (3) that Francisco N. Cervantes did not
bind the conjugal partnership and his wife when, as president of Bormaheco, Inc., he entered into negotiations
with Villonco Realty Company regarding the said land.
We hold that the appeal, except as to the issue of damages, is devoid of merit.
"By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver
a determining thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may
be absolute or conditional" (Art. 1458, Civil Code).
"The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts" (Art. 1475, Ibid.).
"Contracts are perfected by mere consent, and from that moment 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" (Art. 1315, Civil Code).
"Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes
a counter-offer" (Art. 1319, Civil Code). "An acceptance may be express or implied" (Art. 1320, Civil Code).
Bormaheco's acceptance of Villonco Realty Company's offer to purchase the Buendia Avenue property, as shown
in Teofilo Villonco's letter dated March 4, 1964 (Exh. D), indubitably proves that there was a meeting of minds
upon the subject matter and consideration of the sale. Therefore, on that date the sale was perfected. (Compare
with McCullough vs. Aenlle & Co., 3 Phil. 285; Goyena vs. Tambunting, 1 Phil. 490). Not only that Bormaheco's
acceptance of the part payment of one hundred ,thousand pesos shows that the sale was conditionally
consummated or partly executed subject to the purchase by Bormaheco, Inc. of the Punta property. The
nonconsummation of that purchase would be a negative resolutory condition (Taylor vs. Uy Tieng Piao, 43 Phil.
873).
On February 18, 1964 Bormaheco's bid for the Punta property was already accepted by the Nassco which had
authorized its General Manager to sign the corresponding deed of sale. What was necessary only was the approval
of the sale by the Economic Coordinator and a request for that approval was already pending in the office of that
functionary on March 4, 1964.
Bormaheco, Inc. and the Cervantes spouses contend that the sale was not perfected because Cervantes allegedly
qualified his acceptance of Villonco's revised offer and, therefore, his acceptance amounted to a counter-offer
which Villonco Realty Company should accept but no such acceptance was ever transmitted to Bormaheco, Inc.
which, therefore, could withdraw its offer.
That contention is not well-taken. It should be stressed that there is no evidence as to what changes were made
by Cervantes in Villonco's revised offer. And there is no evidence that Villonco Realty Company did not assent to
the supposed changes and that such assent was never made known to Cervantes.
What the record reveals is that the broker, Miss Tagle, acted as intermediary between the parties. It is safe to
assume that the alleged changes or qualifications made by Cervantes were approved by Villonco Realty Company
and that such approval was duly communicated to Cervantes or Bormaheco, Inc. by the broker as shown by the
fact that Villonco Realty Company paid, and Bormaheco, Inc. accepted, the sum of P100,000 as earnest money
or down payment. That crucial fact implies that Cervantes was aware that Villonco Realty Company had accepted
the modifications which he had made in Villonco's counter-offer. Had Villonco Realty Company not assented to
those insertions and annotations, then it would have stopped payment on its check for P100,000. The fact that
Villonco Realty Company allowed its check to be cashed by Bormaheco, Inc. signifies that the company was in
conformity with the changes made by Cervantes and that Bormaheco, Inc. was aware of that conformity. Had
those insertions not been binding, then Bormaheco, Inc. would not have paid interest at the rate of ten percent per
annum, on the earnest money of P100,000.
The truth is that the alleged changes or qualifications in the revised counter — offer (Exh. D) are not material or
are mere clarifications of what the parties had previously agreed upon.
Thus, Cervantes' alleged insertion in his handwriting of the figure and the words "12th and" in Villonco's counter-
offer is the same as the statement found in the voucher-receipt for the earnest money, which reads: "subject to
the terms and conditions embodied in Bormaheco's letter of Feb. 12, 1964 and your letter of March 4, 1964" (Exh.
E-1).
Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of Villonco's revised counter-offer and
substituted for it the word "another" so that the original phrase, "Nassco's property in Sta. Ana", was made to read
as "another property in Sta. Ana". That change is trivial. What Cervantes did was merely to adhere to the wording
of paragraph 3 of Bormaheco's original offer (Exh. B) which mentions "another property located at Sta. Ana." His
obvious purpose was to avoid jeopardizing his negotiation with the Nassco for the purchase of its Sta. Ana property
by unduly publicizing it.
It is noteworthy that Cervantes, in his letter to the broker dated April 6, 1964 (Annex 1) or after the Nassco property
had been awarded to Bormaheco, Inc., alluded to the "Nassco property". At that time, there was no more need of
concealing from the public that Bormaheco, Inc. was interested in the Nassco property.
Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum) after the word "interest" in that same
paragraph 3 of the revised counter-offer (Exh. D) could not be categorized as a major alteration of that counter-
offer that prevented a meeting of the minds of the parties. It was understood that the parties had contemplated a
rate of ten percent per annum since ten percent a month or semi-annually would be usurious.
Appellants Bormaheco, Inc. and Cervantes further contend that Cervantes, in clarifying in the voucher for the
earnest money of P100,000 that Bormaheco's acceptance thereof was subject to the terms and conditions
embodied in Bormaheco's letter of February 12, 1964 and your (Villonco's) letter of March 4, 1964" made
Bormaheco's acceptance "qualified and conditional".
That contention is not correct. There is no incompatibility between Bormaheco's offer of February 12, 1964 (Exh.
B) and Villonco's counter-offer of March 4, 1964 (Exh. D). The revised counter-offer merely amplified Bormaheco's
original offer.
The controlling fact is that there was agreement between the parties on the subject matter, the price and the mode
of payment and that part of the price was paid. "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" (Art. 1482, Civil Code).
"It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be a
binding acceptance. 'So long as it is clear that the meaning of the acceptance is positively and unequivocally to
accept the offer, whether such request is granted or not, a contract is formed.' " (Stuart vs. Franklin Life Ins. Co.,
165 Fed. 2nd 965, citing Sec. 79, Williston on Contracts).
Thus, it was held that the vendor's change in a phrase of the offer to purchase, which change does not essentially
change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer (Stuart
vs. Franklin Life Ins. Co., supra).
The instant case is not governed by the rulings laid down in Beaumont vs. Prieto, 41 Phil. 670, 985, 63 L. Ed. 770,
and Zayco vs. Serra, 44 Phil. 326. In those two cases the acceptance radically altered the offer and, consequently,
there was no meeting of the minds of the parties.
Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo Zayco his sugar central for P1,000,000 on
condition that the price be paid in cash, or, if not paid in cash, the price would be payable within three years
provided security is given for the payment of the balance within three years with interest. Zayco, instead of
unconditionally accepting those terms, countered that he was going to make a down payment of P100,000, that
Serra's mortgage obligation to the Philippine National Bank of P600,000 could be transferred to Zayco's account
and that he (plaintiff) would give a bond to secure the payment of the balance of the price. It was held that the
acceptance was conditional or was a counter-offer which had to be accepted by Serra. There was no such
acceptance. Serra revoked his offer. Hence, there was no perfected contract.
In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan Hacienda owned by Benito Legarda,
who had empowered Valdes to sell it. Borck was given three months from December 4, 1911 to buy the hacienda
for P307,000. On January 17, 1912 Borck wrote to Valdes, offering to purchase the hacienda for P307,000 payable
on May 1, 1912. No reply was made to that letter. Borck wrote other letters modifying his proposal. Legarda refused
to convey the property.
It was held that Borck's January 17th letter plainly departed from the terms of the offer as to the time of payment
and was a counter-offer which amounted to a rejection of Valdes' original offer. A subsequent unconditional
acceptance could not revive that offer.
The instant case is different from Laudico and Harden vs. Arias Rodriguez, 43 Phil. 270 where the written offer to
sell was revoked by the offer or before the offeree's acceptance came to the offeror's knowledge.
Appellants' next contention is that the contract was not perfected because the condition that Bormaheco, Inc.
would acquire the Nassco land within forty-five days from February 12, 1964 or on or before March 28, 1964 was
not fulfilled. This contention is tied up with the following letter of Bormaheco, Inc. (Exh. F):
BORMAHECO, INC.
March 30, 1964
Villonco Realty Company
V.R.C. Building
219 Buendia Ave.,
Makati, Rizal
Gentlemen:
We are returning herewith your earnest money together with interest thereon at 10% per
annum. Please be informed that despite the lapse of the 45 days from February 12, 1964
there is no certainty yet for us to acquire a substitute property, hence the return of the
earnest money as agreed upon.
Very truly yours,
SGD.
FRANCIS
CO N.
CERVANT
ES
President
 Encl.: P.N.B. Check No. 112994 J
P.N.B. Check No. 112996J
That contention is predicated on the erroneous assumption that Bormaheco, Inc. was to acquire the Nassco land
within forty-five days or on or before March 28, 1964.
The trial court ruled that the forty-five-day period was merely an estimate or a forecast of how long it would take
Bormaheco, Inc. to acquire the Nassco property and it was not "a condition or a deadline set for the defendant
corporation to decide whether or not to go through with the sale of its Buendia property".
The record does not support the theory of Bormaheco, Inc. and the Cervantes spouses that the forty-five-day
period was the time within which (a) the Nassco property and two Pasong Tamo lots should be acquired, (b) when
Cervantes would secure his wife's consent to the sale of the three lots and (c) when Bormaheco, Inc. had to decide
what to do with the DBP encumbrance.
That affirmative defense is inconsistent with the other aforequoted incoherent statement in its third answer that
"the final negotiations (acceptance) will have to be made by defendant within 45 days from said acceptance" (31
Record on Appeal).1äwphï1.ñët
Thus, Bormaheco's three answers and paragraph 5 of his offer of February 12, 1964 do not sustain at all its theory
that the Nassco property should be acquired on or before March 28, 1964. Its rescission or revocation of its
acceptance cannot be anchored on that theory which, as articulated in its pleadings, is quite equivocal and unclear.
It should be underscored that the condition that Bormaheco, Inc. should acquire the Nassco property was fulfilled.
As admitted by the appellants, the Nassco property was conveyed to Bormaheco, Inc. on June 26, 1964. As early
as January 17, 1964 the property was awarded to Bormaheco, Inc. as the highest bidder. On February 18, 1964
the Nassco Board authorized its General Manager to sell the property to Bormaheco, Inc. (Exh. H). The Economic
Coordinator approved the award on March 24, 1964. It is reasonable to assume that had Cervantes been more
assiduous in following up the transaction, the Nassco property could have been transferred to Bormaheco, Inc. on
or before March 28, 1964, the supposed last day of the forty-five-day period.

Cervantes in paragraph 3 of his offer of February 12, 1964 stated that the sale of the Buendia lots would be
The appellants, in their fifth assignment of error, argue that Bormaheco, Inc. cannot be required to sell the three
consummated after he had consummated the purchase of the Nassco property. Then, in paragraph 5 of the same
lots in question because they are conjugal properties of the Cervantes spouses. They aver that Cervantes in
offer he stated "that final negotiations on both properties can be definitely known after forty-five days" (See Exh.
dealing with the Villonco brothers acted as president of Bormaheco, Inc. and not in his individual capacity and,
B).
therefore, he did not bind the conjugal partnership nor Mrs. Cervantes who was allegedly opposed to the sale.

It is deducible from the tenor of those statements that the consummation of the sale of the Buendia lots to Villonco
Those arguments are not sustainable. It should be remembered that Cervantes, in rescinding the contract of sale
Realty Company was conditioned on Bormaheco's acquisition of the Nassco land. But it was not spelled out that
and in returning the earnest money, cited as an excuse the circumstance that there was no certainty in
such acquisition should be effected within forty-five days from February 12, 1964. Had it been Cervantes' intention
Bormaheco's acquisition of the Nassco property (Exh. F and Annex 1). He did not say that Mrs. Cervantes was
that the forty-five days would be the period within which the Nassco land should be acquired by Bormaheco, then
opposed to the sale of the three lots. He did not tell Villonco Realty Company that he could not bind the conjugal
he would have specified that period in paragraph 3 of his offer so that paragraph would read in this wise: "That
partnership. In truth, he concealed the fact that the three lots were registered "in the name of FRANCISCO
this sale is to be consummated only after I shall have consummated my purchase of another property located at
CERVANTES, Filipino, of legal age, married to Rosario P. Navarro, as owner thereof in fee simple". He certainly
Sta. Ana, Manila within forty-five days from the date hereof ." He could have also specified that period in his
led the Villonco brothers to believe that as president of Bormaheco, Inc. he could dispose of the said lots. He
"conforme" to Villonco's counter-offer of March 4, 1964 (Exh. D) so that instead of merely stating "that this sale
inveigled the Villoncos into believing that he had untrammelled control of Bormaheco, Inc., that Bormaheco, Inc.
shall be subject to favorable consummation of a property in Sta. Ana we are negotiating" he could have said: "That
owned the lots and that he was invested with adequate authority to sell the same.
this sale shall be subject to favorable consummation within forty-five days from February 12, 1964 of a property in
Sta. Ana we are negotiating".
Thus, in Bormaheco's offer of February 12, 1964, Cervantes first identified the three lots as "our property" which
"we are offering to sell ..." (Opening paragraph and par. 1 of Exh. B). Whether the prounoun "we" refers to himself
No such specification was made. The term of forty-five days was not a part of the condition that the Nassco
and his wife or to Bormaheco, Inc. is not clear. Then, in paragraphs 3 and 4 of the offer, he used the first person
property should be acquired. It is clear that the statement "that final negotiations on both property can be definitely
and said: "I shall have consummated my purchase" of the Nassco property; "... my negotiations with said property"
known after 45 days" does not and cannot mean that Bormaheco, Inc. should acquire the Nassco
and "I will return to you your deposit". Those expressions conveyed the impression and generated the belief that
property within forty-five days from February 12, 1964 as pretended by Cervantes. It is simply a surmise that after
the Villoncos did not have to deal with Mrs. Cervantes nor with any other official of Bormaheco, Inc.
forty-five days (in fact when the forty-five day period should be computed is not clear) it would be known whether
Bormaheco, Inc. would be able to acquire the Nassco property and whether it would be able to sell the Buendia
property. That aforementioned paragraph 5 does not even specify how long after the forty-five days the outcome The pleadings disclose that Bormaheco, Inc. and Cervantes deliberately and studiously avoided making the
of the final negotiations would be known. allegation that Cervantes was not authorized by his wife to sell the three lots or that he acted merely as president
of Bormaheco, Inc. That defense was not interposed so as not to place Cervantes in the ridiculous position of
having acted under false pretenses when he negotiated with the Villoncos for the sale of the three lots.
It is interesting to note that in paragraph 6 of Bormaheco's answer to the amended complaint, which answer was
verified by Cervantes, it was alleged that Cervantes accepted Villonco's revised counter-offer of March 4, 1964
subject to the condition that "the final negotiations (acceptance) will have to be made by defendant within 45 Villonco Realty Company, in paragraph 2 of its original complaint, alleged that "on February 12, 1964, after some
days from said acceptance" (31 Record on Appeal). If that were so, then the consummation of Bormaheco's prior negotiations, the defendant (Bormaheco, Inc.) made a formal offer to sell to the plaintiff the property of the
purchase of the Nassco property would be made within forty-five days from March 4, 1964. said defendant situated at the abovenamed address along Buendia Avenue, Makati, Rizal, under the terms of the
letter-offer, a copy of which is hereto attached as Annex A hereof", now Exhibit B (2 Record on Appeal).
What makes Bormaheco's stand more confusing and untenable is that in its three answers it invariably articulated
the incoherent and vague affirmative defense that its acceptance of Villonco's revised counter-offer was That paragraph 2 was not, repeat, was not denied by Bormaheco, Inc. in its answer dated May 5, 1964. It did not
conditioned on the circumstance "that final acceptance or not shall be made after 45 days" whatever that means. traverse that paragraph 2. Hence, it was deemed admitted. However, it filed an amended answer dated May 25,
1964 wherein it denied that it was the owner of the three lots. It revealed that the three lots "belong and are
registered in the names of the spouses Francisco N. Cervantes and Rosario N. Cervantes."
The three answers of Bormaheco, Inc. contain the following affirmative defense:
13. That defendant's insistence to finally decide on the proposed sale of the land in question
after 45 days had not only for its purpose the determination of its acquisition of the said Sta.
Ana (Nassco) property during the said period, but also to negotiate with the actual and
registered owner of the parcels of land covered by T.C.T. Nos. 43530, 43531 and 43532 in
question which plaintiff was fully aware that the same were not in the name of the defendant
(sic; Par. 18 of Answer to Amended Complaint, 10, 18 and 34, Record on Appeal).
In that affirmative defense, Bormaheco, Inc. pretended that it needed forty- five days within which to acquire the
Nassco property and "to negotiate" with the registered owner of the three lots. The absurdity of that pretension
stands out in bold relief when it is borne in mind that the answers of Bormaheco, Inc. were verified by Cervantes
and that the registered owner of the three lots is Cervantes himself. That affirmative defense means that Cervantes
as president of Bormaheco, Inc. needed forty-five days in order to "negotiate" with himself (Cervantes).
The incongruous stance of the Cervantes spouses is also patent in their answer to the amended complaint. In that
answer they disclaimed knowledge or information of certain allegations which were well-known to Cervantes as
president of Bormaheco, Inc. and which were admitted in Bormaheco's three answers that were verified by
Cervantes.
It is significant to note that Bormaheco, Inc. in its three answers, which were verified by Cervantes, never pleaded
as an affirmative defense that Mrs. Cervantes opposed the sale of the three lots or that she did not authorize her
husband to sell those lots. Likewise, it should be noted that in their separate answer the Cervantes spouses never
pleaded as a defense that Mrs. Cervantes was opposed to the sale of three lots or that Cervantes could not bind
the conjugal partnership. The appellants were at first hesitant to make it appear that Cervantes had committed the
skullduggery of trying to sell property which he had no authority to alienate.
It was only during the trial on May 17, 1965 that Cervantes declared on the witness stand that his wife was opposed
to the sale of the three lots, a defense which, as already stated, was never interposed in the three answers of
Bormaheco, Inc. and in the separate answer of the Cervantes spouses. That same viewpoint was adopted in
defendants' motion for reconsideration dated November 20, 1965.
But that defense must have been an afterthought or was evolved post litem motam since it was never disclosed
in Cervantes' letter of rescission and in his letter to Miss Tagle (Exh. F and Annex 1). Moreover, Mrs. Cervantes
did not testify at the trial to fortify that defense which had already been waived for not having been pleaded (See
sec. 2, Rule 9, Rules of Court).
Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and his wife and the fact that the three
lots were entirely occupied by Bormaheco's building, machinery and equipment and were mortgaged to the DBP
as security for its obligation, and considering that appellants' vague affirmative defenses do not include Mrs.
Cervantes' alleged opposition to the sale, the plea that Cervantes had no authority to sell the lots strains the rivets
of credibility (Cf. Papa and Delgado vs. Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21 Phil. 31).
"Obligations arising from contracts have the force of law between the contracting parties and should be complied
with in good faith" (Art. 1159, Civil Code). Inasmuch as the sale was perfected and even partly executed,
Bormaheco, Inc., and the Cervantes spouses, as a matter of justice and good faith, are bound to comply with their
contractual commitments.
Parenthetically, it may be observed that much misunderstanding could have been avoided had the broker and the
buyer taken the trouble of making some research in the Registry of Deeds and availing themselves of the services
of a competent lawyer in drafting the contract to sell.
Bormaheco, Inc. and the Cervantes spouses in their sixth assignment of error assail the trial court's award to
Villonco Realty Company of consequential damage amounting to ten thousand pesos monthly from March 24,
1964 (when the Economic Coordinator approved the award of the Nassco property to Bormaheco, Inc.) up to the
consummation of the sale. The award was based on paragraph 18 of the stipulation of facts wherein Villonco
Realty Company "submits that the delay in the consummation of the sale" has caused it to suffer the
aforementioned damages.
The appellants contend that statement in the stipulation of facts simply means that Villonco Realty Company
speculates that it has suffered damages but it does not mean that the parties have agreed that Villonco Realty
Company is entitled to those damages.
Appellants' contention is correct. As rightly observed by their counsel, the damages in question were not
specifically pleaded and proven and were "clearly conjectural and speculative".
However, appellants' view in their seventh assignment of error that the trial court erred in ordering Bormaheco,
Inc. to pay Villonco Realty Company the sum of twenty thousand pesos as attorney's fees is not tenable. Under
the facts of the case, it is evident that Bormaheco, Inc. acted in gross and evident bad faith in refusing to satisfy
the valid and just demand of Villonco Realty Company for specific performance. It compelled Villonco Realty
Company to incure expenses to protect its interest. Moreover, this is a case where it is just and equitable that the
plaintiff should recover attorney's fees (Art. 2208, Civil Code).
The appellants in their eighth assignment of error impugn the trial court's adjudication of forty-two thousand pesos
as three percent broker's commission to Miss Tagle. They allege that there is no evidence that Bormaheco, Inc.
engaged her services as a broker in the projected sale of the three lots and the improvements thereon. That
allegation is refuted by paragraph 3 of the stipulation of facts and by the documentary evidence. It was stipulated
that Miss Tagle intervened in the negotiations for the sale of the three lots. Cervantes in his original offer of
February 12, 1964 apprised Villonco Realty Company that the earnest money should be delivered to Miss Tagle,
the bearer of the letter-offer. See also Exhibit G and Annex I of the stipulation of facts.
We hold that the trial court did not err in adjudging that Bormaheco, Inc. should pay Miss Tagle her three percent
commission.
WHEREFORE, the trial court's decision is modified as follows:
1. Within ten (10) days from the date the defendants-appellants receive notice from the clerk of the lower court
that the records of this case have been received from this Court, the spouses Francisco N. Cervantes and Rosario
P. Navarra-Cervantes should execute a deed conveying to Bormaheco, Inc. their three lots covered by Transfer
Certificate of Title Nos. 43530, 43531 and 43532 of the Registry of Deeds of Rizal.
2. Within five (5) days from the execution of such deed of conveyance, Bormaheco, Inc. should execute in favor
of Villonco Realty Company, V. R. C. Building, 219 Buendia Avenue, Makati, Rizal a registerable deed of sale for
the said three lots and all the improvements thereon, free from all lien and encumbrances, at the price of four
hundred pesos per square meter, deducting from the total purchase price the sum of P100,000 previously paid by
Villonco Realty Company to Bormaheco, Inc.
3. Upon the execution of such deed of sale, Villonco Realty Company is obligated to pay Bormaheco, Inc. the
balance of the price in the sum of one million three hundred thousand pesos (P1,300,000).
4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty Company twenty thousand pesos (P20,000) as attorney's
fees and (b) to pay Edith Perez de Tagle the sum of forty-two thousand pesos (P42,000) as commission. Costs
against the defendants-appellants.
SO ORDERED.
Separate Opinions
BARREDO, J., concurring:
The comprehensive and well prepared opinion of Mr. Justice Aquino deserves concurrence and I do not hesitate
to accord my assent to it. The only purpose of the following lines is to express my personal view regarding two
basic points which I feel should be thoroughly emphasized.
1. I am not for giving the letter proposal of appellant Francisco Cervantes to Romeo Villonco of February 12, 1964,
Exhibit B, any decisive importance. To my mind, it has no more legal significance than what is appears to be — a
mere unaccepted proposal. Accordingly, to my mind, paragraph (5) thereof to the effect that "final negotiations on
both properties can be definitely known after 45 days" has no relevance in the disposition of this case, there being
nothing in the record to show that the same was accepted by appellee.
What to me is the actual contract between appellee and appellant Francisco Cervantes is the counter-offer signed
by Teofilo Villonco and addressed to the latter of March 4, 1964, Exhibit D, which does not even make any
reference to the above-mentioned proposal of Cervantes of February 12, 1964, even as it mentions specifically
the letters of the agent, Miss E. Perez de Tagle, of February 12 and 26, 1964. The last paragraph of said Exhibit
D reads thus: "If the above terms and conditions are acceptable to you, kindly sign your conformity hereunder.
Enclosed is our check for One Hundred Thousand (P100,000) Pesos, M.B.T.C. Cheek No. 448314, as earnest
money." And it is undisputed that Francisco Cervantes did affix his signature in the place indicated for his
conformity, albeit under the typewritten words, Bormaheco, Inc. It is also a fact that on the same date, the stipulated
P100,000 earnest money was received by Cervantes.
It is true that in the voucher-receipt evidencing the delivery of the earnest money, the agent, Miss Tagle, indicated
in her own handwriting that the same was "subject to the terms and conditions embodied in Bormaheco's letter of
February 12, 1974 and Villonco Realty Company's letter of March 4, 1974," but it is my considered opinion that
such reservation cannot be understood as comprehending reference to the above-quoted paragraph (5) of the
proposal of February 12, for the simple reason that since the parties had in fact continued negotiating after
February 12 until the final conference of February 27, Cervantes must be deemed as having intended his signing
of his conformity to the letter of March 4 to be the formalization of the "final negotiations" referred to in said
paragraph (5), thereby rendering said provision of no further consequence. It should be noted that, to be sure, as
said paragraph (5) was worded, the idea it conveyed was that Cervantes was just making a mere tentative offer
which he would finalize only after 45 days, and so, when he signed Villonco's counter-offer of March 4 and
accepted the P100,000 earnest money tendered therein, no other significance could be given to such acts than
that they were meant to finalize and perfect the transaction in advance of the 45-day waiting period originally
proposed by him. Indeed, in the addendum written and signed by Cervantes himself (not by the agent) to the
March 4 letter, all that he stated was that "this sale shall be subject to favorable consummation of a property in
Sta. Ana we are negotiating", and this was none other than the Nassco property which the Nassco Board
authorized its manager on February 18, 1964 to sell to appellants who had won the award the day before. In other
words, when Cervantes signed the space for his conformity to the terms of that letter of March 4, he already knew
or must have known that the acquisition of the Nassco property was already an impending certainty and must
have cared less about what had become an unnecessary waiting period, hence the omission of any mention
thereof by him in his addendum.
My conclusion, therefore, is that said acts of Cervantes of signing his conformity to Villonco's counter-offer of
March 4 and accepting the P100,000 earnest money therein offered resulted in a completely perfected contract of
sale between the parties per Article 1482 of the Civil Code, needing only the execution of the corresponding deed
of sale for its consummation and subject solely to the negative resolutory condition that the "sale shall be cancelled,
only if your (Cervantes') deal with another property in Sta. Ana (indisputably the Nassco transaction) shall not be
consummated", without stipulating anymore a period for such consummation, since evidently, with the sale thereof
having been authorized already by the Nassco Board on February 18, 1964, the Villoncos must have been made
to understand or they did understand that such consummation was inexorably forthcoming. In fact, the Nassco
Board already approved on March 3, 1964 not only the award but the actual sale of the property to appellants, and
the Economic Coordinator gave his sanction thereto on March 24 following. Thus, as of March 3, one day before
Cervantes accepted Villonco's counter-offer, nothing more was left to formalize the transaction with Nassco except
that approval of the Economic Coordinator.
I cannot believe that Cervantes did not have up-to-date information of the progress of his transactions with Nassco.
Actually, from the legal standpoint, he was under obligation, if only in consequence of his offer of February 12 and
his continuous conversations and negotiations with the Villoncos up to the signing of their agreement on March 4,
to keep constant and close tract thereof in order that he might be able to inform the parties he was dealing with of
the real status thereof, the finalization of the same being a material factor in the accomplishment of their common
purpose. Withal, equity would assume that he did what ought to have been done by him in taking ordinary care of
his concerns, which he is presumed to have taken, according to Section 5 (d) of rule 131. Under these
circumstances, I am amply persuaded that he must have been aware of the favorable actuations of the Nassco
authorities all the while that he was dealing with appellee up to March 4, the day after the Nassco Board approved
the sale. Accordingly, I hold that when he gave his conformity to the counter-offer of the Villoncos of March 4, he
was already fully confident his transaction with Nassco would eventually materialize.
What is worse is that assuming that the 45-day period invoked by him could be considered in this discussion, it
would be inequitable to allow him to take advantage thereof in the light of the circumstances extant in the record.
It cannot be denied that, as already stated, the Economic Coordinator approved the Nassco transaction on March
24, 1964. Anyone would know, and much more so Cervantes who was directly interested therein and must have
been anxiously and even excitedly waiting for it, that that was the last requisite for the inevitable execution of the
deed of sale in his favor. One has to be very naive and it would be contrary to the ordinary course of human
experience and business practices for anyone to concede to appellants that when Cervantes wrote his letter to
Villonco Realty Company of March 30, 1964 stating that "despite the lapse of 45 days from February 12, 1964,
there is no certainty yet for us to acquire a substitute property", he did not even have the slightest inkling of the
favorable action of the Economic Coordinator of March 24. The same or more may be said relative to his letter to
Miss Tagle of as late as April 6, 1964 wherein he alleged that the forty-five day period had already expired and
the sale to Bormaheco, Inc. of the Punta (Nassco) property had not been consummated as of then and that,
therefore, his letter was a "manifestation that we are no longer interested to sell" the Buendia property to the
Villoncos.
I have no doubt whatsoever that the whole trouble here is that after Cervantes had already signed his conformity
and received earnest money on March 4, he had a change of heart, perhaps dictated by reasons of better
economic advantage, and banking on the idea, albeit erroneous, that he could utilize paragraph (5) of his letter of
February 12 as a escape door through which he could squeeze out of the perfected contract with the Villoncos,
he opted to actually back out and break with them thru his letters of March 30 to them and of April 6 to the agent,
Miss Tagle. The Court would certainly be sanctioning a deliberate mala fide breach of a contract already definitely
perfected were it to buy the theory of non-perfection appellants are lamely pressing on Us. No amount of
rationalization can convince me that the Villoncos had agreed to any 45-day suspensive condition for the perfection
of the agreement, but even on the remote assumption that they did, I would hold as I do hold that the purchase of
the Nassco property by appellants was virtually consummated, from the viewpoint of the spirit and intent of the
contract here in question, on March 24, 1964, when the Economic Coordinator approved the same and nothing
else remained to be done to formalize it except the actual execution of the deed of sale which in fact took place
on June 26, 1964, hence, Cervantes had no more excuse for further delaying compliance with his agreement with
the Villoncos. In other words, for all legal purposes, assuming hypothetically the plausibility of the theory of
appellants about a 45-day waiting period, the negative resolutory condition arising from said theory became
inoperative four days before said 45 days expired. After the approval of the sale by the Economic Coordinator,
there was nothing anymore that could impede the formal conveyance of the Nassco property to appellants, other
than their own desistance, and even that might have been legally controversial if Nassco insisted otherwise.
Reading all the communications exchanged between the parties, the conclusion therefrom is inevitable that the
45-day period stipulation was inextricably tied up with appellants' being able to acquire the Nassco property. In
other words, Cervantes merely wanted to be sure that they would get the Nassco property before proceeding with
the sale of the Buendia property. To construe the 45-day stipulation as giving Cervantes the absolute right to
disregard the Villoncos entirely until after the 45 days had expired is to render the whole of Cervantes' letter of
February 12 as totally meaningless, legally non-existent and as deceitfully farcical. Consequently, the acquisition
of the Nassco property having actually eventualized, it cannot lie in the lips of Cervantes to claim that he may not
be compelled to proceed with the transaction. To view the situation otherwise is to condone resort to ambiguity as
a means of deception and informality in contractual obligations, which in my opinion is contrary to the elementary
requirements of candidness and honest dealing between responsible contracting parties, and in that sense
offensive to public policy.
2. The contention of appellants that inasmuch as in actual fact the Buendia property contemplated in the contract
is the conjugal property of Cervantes spouses and that since in dealing with the Villoncos, Cervantes acted as
President of Bormaheco, Inc., the appellee cannot have any right to compel the conveyance to them thereof is in
my view definitely puerile. It is predicated on duplicity and smacks of utter bad faith.
I do not find in the evidence before Us adequate basis for accepting the suggestion that Francisco Cervantes
acted for and in behalf of Bormaheco, Inc. in his dealing with the Villoncos. The mere fact that he signed his letter
of February 12, 1964 over the title of President, there being no showing that he was duly authorized to make the
offer therein contained in the name of the corporation, did not convert it into a corporate act. The language of the
letter which is conspicuously sprinkled with the pronoun I used by Cervantes to refer to himself rather than
exclusively the pronoun we does not so indicate. Besides, Cervantes is undisputably the registered owner with his
wife of the property therein mentioned, and being evidently conscious, as he ought to have been of this fact, he
knew his act would be ultra vires and void, if he were to act for the corporation. He was the manager of the conjugal
partnership and he knew it was only in that capacity that he could in good faith give validity to his representation,
assuming the conformity of his wife. Unless Cervantes wants Us to hold that he deliberately negotiated with the
Villoncos clothed in dubious garments of authority precisely to afford him the opportunity to repudiate at his
convenience any agreement they may enter into with him. I am for holding as I do hold that Bormaheco, Inc. had
nothing to do with the transaction here in controversy. In any event, if Cervantes may held to have acted for
Bormaheco, Inc., in spite of the absence of evidence of any authority for him to do so, it must be because
Bormaheco, Inc. is Cervantes himself, and there being no proof to the contrary, the corporate shield of Bormaheco,
Inc. may be deemed pierced in order to prevent any further fraudulent implications in his actuations. Moreover, it
may be observed that the March 4 letter of Teofilo Villonco was not addressed to Bormaheco, Inc. but to Francisco
Cervantes and it does not even mention his being President of that corporation.
Anent the requirement of consent of Mrs. Cervantes under Article 166 of the Civil Code, I consider any defense
along this line as unavailing to the appellants in this case. As very ably discussed in the main opinion of Mr. Justice
Aquino, the answer of the defendants, make no reference at all to any lack of such consent. And considering that
the subsequent testimony of Cervantes to the effect that his wife opposed the transaction cannot cure such
omission, if only because any husband in the circumstances revealed in the record is estopped from setting up
such a defense (cf Riobo vs. Hontiveros, 21 Phil. 31; Papi vs. Montenegro, 54 Phil. 531; see Civil Law by Reyes
& Puno, 1964 ed. p. 192), and that from her silence in her answer in this respect Mrs. Cervantes may either be
presumed to have given her consent thereto or to have ratified the same (Montederamos vs. Ynonoy, 56 Phil. 457;
Castañeda vs. Samson, 43 Phil. 751), it is obvious that the belated invocation of this defense now should be
deemed in fact and in law as an unacceptable and ineffective afterthought. Besides, it appearing that the sale of
the Buendia property was purposely to enable the spouses to acquire the Nassco property, I have grave doubts
as to the application of Article 166 to the sale here in dispute. I believe that the disposition by a husband prohibited
by the Code unless consented to by the wife refers to a transaction outrightly prejudicial to the partnership and
cannot comprehend a sale made precisely for its benefit and causing no loss thereto beyond the ordinary risks of
misjudgment of a manager acting in good faith.
IN VIEW OF THE FOREGOING, I would not even require the formality of the serial execution of instruments by
the Cervantes spouses and Bormaheco, Inc. In the view I have taken above, it would be legally feasible for the
sale to the Villonco Realty Property to be made directly by the spouses. But I would not insist in the modification
of the dispositive portion of the judgment, since the result would be the same anyway.
LORENZO ZAYCO, DIONISIO INZA, and SEVERINO LIZARRAGA, plaintiffs-appellants, vs. SALVADOR
SERRA, VENANCIO CONCEPCION, and PHIL. C. WHITAKER, defendants-appellees.
AVANCEÑA, J.:
On November 7, 1918, the plaintiff, Lorenzo Zayco, and the defendant, Salvador Serra, entered into a contract,
the pertinent clauses of which are following:
1. That the party of the first part shall give the party of the second part an option to buy the Palma
Central for the sum of one million pesos (P1,000,000).
xxx xxx xxx
4. That in the case the purchase of the Palma Central is made and the party of the second part cannot
pay the whole price in cash, then he will be given a period not exceeding three years within which to
make the full payment, computed from the day of the execution of the contract of sale, provided that the
party of the second part gives a security or bond to the satisfaction of the party of the first part to
guarantee the payment of the balance of the purchase price, with interest thereon at a reasonable rate.
xxx xxx xxx
6. That this option of the party of the second part to purchase the Palma Central, or to become a partner
of, or join, the party of the first, expires on the 30th of June, 1919.
7. That hereafter, in case of the sale of the Palma Central, or the formation of a partnership to operate
the same, the party of the second part shall have preference to make such sale, or become a partner,
over any other persons desiring to purchase the central or enter into partnership.
Under date of June 28, 1919, the plaintiff, Lorenzo Zayco, through his attorney, wrote a letter (Exhibit A) to the
defendant, Salvador Serra, accepting the foregoing contract and placing at his disposal a cash order of the Bank
of the Philippine Islands of Iloilo in the amount of P100,000, in part payment of the price of the Palma Central and
Estate. In this letter, notice was also given to Serra that the Philippine National Bank agreed to transfer his long
term loan of P600,000, to the account of Zayco and to hold the latter responsible for all the amounts had and
received on account of this loan, Serra to be completely relieved from all responsibility arising therefrom. Offer
was further made in this letter to give the bond required by the contract of November 7, 1918, to secure the
payment of the balance of the price of the Palma Central and Estate. The letter ended with a demand by Zayco
on Serra to execute the deed of sale. Serra had knowledge of this letter on June 30, 1919, as may be inferred
from his answer bearing that date (Exhibit C). On the following 15th of July, Serra wrote to Zayco's attorney, stating
that the option contract of November 7, 1918, was cancelled and annulled.
On the same day, June 30, 1919, Zayco brought suit against Serra to compel him to execute the deed of sale and
conveyance of the Palma Central and Estate and to pay, in addition, P500,000 as damages.
It might be well to make a brief statement of the proceedings had thereafter until the holding of the trial.
To this complaint the defendant demurred on the ground, among others, that the contract of November 7, 1918,
does not specify the part of the price that was to be paid in cash and the part that was to be paid within a period
not exceeding three years.
Before the court could pass upon this demurrer, Zayco filed an amended complaint on September 9, 1919, which
was later withdrawn, and substituted by another one dated October 21, 1919.
To this amended complaint of October 21, 1919, another demurrer was filed, one of its grounds being the same
as that alleged in the first demurrer, to wit, that the contract of November 7, 1918, does not stipulate what part of
the price was to be in cash and what part within a period not exceeding three years. The court sustained this
demurrer and granted the plaintiff a period within which to amend his complaint.
On January 23, 1920, the last amended complaint was filed in which, for the first time, an allegation is made that
subsequent to the contract of November 7, 1918, and prior to June 28, 1919, a stipulation was made by the plaintiff,
Zayco, and the defendant, Serra, that the sum to be paid in cash on account of the total price of the sale was
P100,000.
A demurrer was also interposed to this last amended complaint, which was overruled.
The defendant filed his answer on February 27, 1920, containing a general and specific denial of all and each of
the allegations of the complaint and a special defense consisting in that the contract of November 7, 1918, did not
specify a sufficient consideration on the part of the plaintiff Zayco.
On March 19, 1920, the plaintiff filed a supplemental complaint in which Philip Whitaker, Venancio Concepcion,
and Eusebio R. de Luzuriaga were included as defendants, and it was alleged that, without the knowledge of the
plaintiff Zayco, the defendant Serra sold the Palma Central and Estate to said Messrs. Philip Whitaker, Venancio
Concepcion, and Eusebio R. de Luzuriaga on January 29, 1920, for the sum of P1,500,000 on the terms and
conditions specified in said contract. It is prayed in this complaint that, at all events, the plaintiff Zayco be declared
entitled to purchase from the defendant, Serra, the Palma Central and Estate on the same terms and conditions
as those of the sale to Messrs. Whitaker, Concepcion, and Luzuriaga.
Later Mr. Eusebio R. de Luzuriaga was excluded from this complaint. The plaintiff Zayco having assigned his rights
to Dionisio Inza and Severino Lizarraga, these parties were admitted to intervene as plaintiffs. The cause having
been tried, the court below rendered judgment absolving the defendants from the complaint.
By the terms of the contract of November 7, 1918, Zayco was granted the right: (a) To purchase the Palma
Central and Estate until June 30, 1919, and (b) have preference, after that date, over any other purchaser making
the same terms.
The court below holds that this contract of November 7, 1918, has no consideration and is, for this reason, null
and void. This conclusion, however, is not supported by the evidence.
It is true that the contract does not state any consideration on the part of Serra, but it is presumed that there is a
consideration in all contracts (art. 1277, Civ. Code). Besides, a consideration can be proved and, in this case,
there is evidence showing its existence.
The Palma Central was in competition with the Bearin Central of Lizarraga Hermanos and both were doing their
best to gain the greater number of supporters, which, as is well-known, constitutes the basis and measures of their
development. Zayco owned an estate containing 350 hectares used for cultivating cane, situated between both
centrals is such a way as to constitute an opening to them from the adjacent estates. Owing to this circumstance,
Zayco has been the subject of solicitations of both centrals, each making the most favorable offers to win him.
Lizarraga Hermanos went so far as to offer to remit his debt, amounting to P40,000, if he became a supporter of
their central. Serra, in turn, offered to give him 60 per cent of the sugar of his cane milled in the Palma
Central instead of 55 per cent, as allowed by the other centrals, and besides, they promised to assist him in
acquiring this central. Zayco, at last, decided to become, as he in fact became, a supporter of the Palma Central.
All this, which preceded and led to the execution of the contract of November 7, 1918, is evidently a sufficient
consideration to give life to the contract. It meant, on the part of Zayco, the waiver of positive benefits which he
would have obtained from Lizarraga Hermanos. It meant at the same time, on the part of Serra, an expansion of
his central and the consequent increase in his production and profit. Under such circumstance Zayco's support to
the Palma Central was a prestation of thing or service which positively benefited Serra.
As has been stated, Zayco prays in this action that Serra be compelled to sell to him the Palma Central in
accordance with the contract to sell of November 7, 1918. It having been determined that there exists a
consideration for this contract, the same is binding upon the parties.
However, it is not necessary to view the question from this standpoint. It can be taken for granted, as contended
by the defendants, that the option contract was not valid for lack of consideration. But it was, at least, an offer to
sell, which was accepted by letter, and of this acceptance the offerer had knowledge before said offer was
withdrawn. The concurrence of both acts — the offer and the acceptance — could at all events have generated a
contract, if none there was before (arts. 1254 and 1262 of the Civil Code).
However, Zayco's acceptance, as his letter of June 28, 1919, indicates, could not, in itself, convert the offer of sale
made by Serra in the document of November 7, 1918, into a perfect contract. In order for the acceptance to have
this effect, it must be plain and unconditional, and it will not be so if it involves any new proposal, for in that case
it would not mean conformity with the offer, which is what gives rise to the generation of the contract. The letter of
acceptance of Zayco lacks these requisites.
It should be noted that, according to the terms of the offer, in case the total of the agreed price of P1,000,000
could not be paid in cash, the balance was to be paid within a period not exceeding three years. This means that
a part of this price was to be paid in cash. But the amount of this first payment was not determined. Consequently,
when Zayco accepted the offer, tendering the sum of P100,000 as first payment, his acceptance involved a
proposal, not contained in the offer, that this precisely, and not any other, should be the amount of the first
payment. This proposal, in turn, required acceptance on the part of Serra. For this reason, Zayco's acceptance
did not imply conformity with the offer of Serra, but only when the latter shall, in turn, have accepted his proposal
that the amount to be paid in cash was P100,000. Not only was this not accepted by Serra, but Serra cancelled
his offer on July 15, 1919.
An attempt was made to prove the allegation contained in the last amended complaint to the effect that subsequent
to the execution of the contract November 7, 1918, Zayco and Serra agreed, as a suppletory stipulation, that the
amount of the first payment to be made in cash should be P100,000. It is said that this stipulation is contained in
a letter sent by Serra to Zayco. This letter, however, was not introduced in evidence, but was alleged to have been
lost, and secondary evidence of its contents was presented which consisted in the testimonies of Zayco, his son,
Rafael, and Antonio Velez. Upon examination of the testimony of these witnesses, the same is found so uncertain
and contradictory on many points affecting their veracity as not to be considered sufficient to prove either the loss
of the alleged letter, or its existence and contents. Moreover, it is strange, if that stipulation ever existed, that
Zayco, in accepting the offer, not only agreed to pay P100,000 in cash, but agreed also, as part of his acceptance,
to assume Serra's obligations in connection with the credit of P600,000 given him by the National Bank. It is
stranger still that this stipulation, being so important a part of the contract, was not alleged in the original complaint,
and notwithstanding that in the demurrer to this complaint attention was called to the fact that this stipulation was
lacking, this allegation was not made in the two successive amended complaints but only in the fourth, after the
court had sustained the demurrer filed on this ground.
Our conclusion is that the acceptance made by Zayco of Serra's offer was not sufficient to give life to a contract
and is no ground for compelling Serra to execute the sale offered.
As to plaintiff's claim that they have preference over the defendants, Messrs. Venancio Concepcion and Phil. C.
Whitaker in the purchase of the Palma Central, two members of this court and the writer of this opinion believe
that the plaintiffs are entitled to this preference, but the majority of the court hold otherwise, for the reason that the
plaintiffs have not formally offered to repay the defendant Concepcion and Whitaker incurred under the contract.
For the foregoing reasons, the judgment appealed from is affirmed with the costs against the appellants. So
ordered.
ANTONIO ENRIQUEZ DE LA CAVADA, plaintiff-appellee, vs. ANTONIO DIAZ, defendant-appellant.
JOHNSON, J.:
From that judgment the defendant appealed and made several assignment of error.
It appears from the record that on the 15th day of November, 1912, the defendant and the plaintiff entered into the
following "contract of option:"
(EXHIBIT A.)
CONTRACT OF OPTION.
I, the undersigned, Antonio Diaz, of legal age, with personal registration certificate Number F-855949,
issued at Pitogo, Tayabas, January 16, 1912, and temporarily residing in Manila, P. I., do hereby grant
an option to Antonio Enriquez to purchase my hacienda at Pitogo consisting of 100 and odd hectares,
within the period necessary for the approval and issuance of a Torrens title thereto by the Government
for which he may pay me either the sum of thirty thousand pesos (P30,000), Philippine currency, in
cash, or within the period of six (6) years, beginning with the date of the purchase, the sum of forty
thousand pesos (P40,000), Philippine currency, at six per cent interest per annum, with due security for
the payment of the said P40,000 in consideration of the sale to him of my property described as follows,
to wit:
About one hundred hectares of land in Pitogo, Tayabas, containing about 20,000 coconut trees and
10,000 nipa-palm trees, all belonging to me, which I hereby sell to Antonio Enriquez de la Cavada for
seventy thousand pesos, under the conditions herein specified.
I declare that Antonio Enriquez is the sole person who has, and shall have, during the period of this
option, the right to purchase the property above-mentioned.
I likewise declare that Antonio Enriquez shall be free to resell the said property at whatever price he
may desire, provided that he should comply with the stipulations covenanted with me.
In witness of my entire conformity with the foregoing, I hereunto affix my signature, in Manila, P. I., this
15th day of November, 1912.

This action was instituted by the plaintiff for the purpose of requiring the defendant to comply with a certain (Sgd.) Antonio Diaz.
"contract of option" to purchase a certain piece or parcel of land described in said contract and for damages for a
noncompliance with said contract. After the close of the trial the Honorable James A. Ostrand, judge, rendered a
judgment the dispositive part of which is as follows: Signed in the presence of:

Wherefore, it is hereby ordered and adjudged that the defendant, within the period of thirty days from (Sgd.) J. VALDS DIAZ.
the date upon which this decision becomes final, convey to the plaintiff a good and sufficient title in fee
simple to the land described in decrees Nos. 13909 and 13919 of the Court of Land Registration, upon (EXHIBIT B.)
payment or legal tender of payment by said plaintiff of the sum of thirty thousand pesos (P30,000) in
cash, and upon said plaintiff giving security approved by this court for the payment within the term of 6
years from the date of the conveyance for the additional sum of forty thousand pesos (P40,000) with P. I., November 15, 1912.
interest at the rate of 6 per cent per annum.

It is further ordered and adjudged that in the event of the failure of the defendant to execute the
Sr. Don ANTONIO DIAZ,
conveyance as aforesaid, the plaintiff have and recover judgment against him, the said defendant, for
Calle Victoria, No. 125, W. C., Manila, P. I.
the sum of twenty thousand pesos (P20,000), with interest at the rate of six per cent (6 per cent per
annum from the date upon which the conveyance should have been made). It is so ordered.
 DEAR SIR: I have the honor to inform you that, in conformity with the letter of option in my favor of even
date, I will buy your coconut plantation in Pitogo, containing one hundred hectares, together with all the
coconut and nipa-palm trees planted thereon, under the following conditions:
1. I shall send a surveyor to survey the said property, and to apply to the Government for a Torrens title
therefore, and, if the expenses incurred for the same should not exceed P1,000, I shall pay the P500
and you the other P500; Provided, however, that you shall give the surveyor all necessary assistance
during his stay at the hacienda.
2. I shall pay the purchase price to you in conformity with our letter of option of this date, and after the
Torrens title shall have been officially approved.
Yours respectfully,
(Sgd.) A. ENRIQUEZ
I acknowledge receipt of, and conform with, the foregoing.
(Sgd.) ANTONIO DIAZ
It appears from the record that soon after the execution of said contract, and in part compliance with the terms
thereof, the defendant presented two petitions in the Court of Land Registration (Nos. 13909 and 13919), each for
the purpose of obtaining the registration of a part of the "Hacienda de Pitogo." Said petitions were granted, and
each parcel as registered and a certificate of title was issued for each part under the Torrens system to the
defendant herein. Later, and pretending to comply with the terms of said contract, the defendant offered to transfer
to the plaintiff one of said parcels only, which was a part of said "hacienda." The plaintiff refused to accept said
certificate for a part only of said "hacienda" upon the ground (a) that it was only a part of the "Hacienda de Pitogo,"
and (b) under the contract (Exhibits A and B) he was entitled to a transfer to him all said "hacienda."
The theory of the defendant is that the contract of sale of said "Hacienda de Pitogo" included only 100 hectares,
more or less, of said "hacienda," and that by offering to convey to the plaintiff a portion of said "hacienda"
composed of "100 hectares, more or less," he thereby complied with the terms of the contract. The theory of the
plaintiff is that he had purchased all of said "hacienda," and that the same contained, at least, 100 hectares, more
or less. The lower court sustained the contention of the plaintiff, to wit, that the sale was a sale of the "Hacienda
de Pitogo" and not a sale of a part of it, and rendered a judgment requiring the defendant to comply with the terms
of the contract by transferring to the plaintiff, by proper deeds of conveyance, all said "hacienda," or to pay in lieu
thereof the sum of P20,000 damages, together with 6 per cent interest from the date upon which said conveyance
should have been made.
After issue had been joined between the plaintiff and defendant upon their pleadings, they entered into the
following agreement with reference to the method of presenting their proof:
The attorneys for the parties in this case make the following stipulations:
1. Each of the litigating parties shall present his evidence before Don Felipe Canillas, assistant clerk of
the Court of First Instance of Manila, who, for such purpose, should be appointed commissioner.
2. Said commissioner shall set a day and hour for the presentation of the evidence above-mentioned,
both oral and documentary, and in the stenographic notes shall have record entered of all objections
made to the evidence by either party, in order that they may afterwards be decided by the court.
3. The transcription of the stenographic notes, containing the record of the evidence taken, shall be paid
for in equal shares by both parties.
4. At the close of the taking of the evidence, each of the parties shall file his brief in respect to such
evidence, whereupon the case as it then stands shall be submitted to the decision of the court.
The parties request the court to approve this agreement in the part thereof which refers to the
proceedings in this case.
Manila, P. I., December 21, 1914.
(Sgd.) ANTONIO V. HERRERO. (Sgd.) ALFREDO CHICOTE.
Approved:
(Sgd.) GEO. R. HARVEY,
Judge.
Said agreement was approved by the lower court, and proof was taken in accordance therewith. The defendant-
appellant now alleges, giving several reasons therefor, that the proof was improperly practiced, and that the judge
was without authority o decide the cause upon proof taken in the manner agreed upon by the respective parties.
The defendant-appellant makes no contention that he was not permitted to present all the proof he desired to
present. He makes no contention that he has been prejudiced in any manner whatsoever by virtue of the method
agreed upon for taking the testimony.
There is nothing in the law nor in public policy which prohibits the parties in a civil litigation from making the
agreement above quoted. While the law concedes to parties litigant, generally, the right to have their proof taken
in the presence of the judge, such right is a renounceable one. In a civil action the parties litigant have a right to
agree, outside of the court, upon the facts in litigation. Under certain conditions the parties litigant have a right to
take the depositions of witnesses and submit the sworn statements in that form to the court. The proof, as it was
submitted to the court in the present case, by virtue of said agreement, was, in effect, in the form of a deposition
of the various witnesses presented. Having agreed to the method of taking the proof, and the same having been
taking in compliance with said agreement, it is now too late, there being no law to the contrary, for them to deny
and repudiate the effect of their agreement. (Biunas vs. Mora, R. G. No. 11464, March 11, 1918; Behr vs. Levy
Hermanos, R. G. No 12211, March 19, 1918.1)
Not only is there no law prohibiting the parties from entering into an agreement to submit their proof to the court
in civil actions as was done in the present case, but it may be a method highly convenient, not only to the parties,
but to busy courts. The judgment of the lower court, therefore, should not be modified or reversed on account of
the first assignment of error.
In the second assignment of error, the appellant alleges (a) that the lower court committed an error in declaring
the contract (Exhibits A and B) a valid obligation, for the reason that it not been admitted in evidence, and (b) that
the same was null for a failure of consideration. Upon the first question, an examination of the proof shows that
said contract (Exhibits A and B) was offered in evidence and admitted as proof without objection. Said contract
was, therefore, properly presented to the court as proof. Not only was the contract before the court by reason of
its having been presented in evidence, but the defendant himself made said contract an integral part of his
pleadings. The defendant admitted the execution and delivery of the contract, and alleged that he made an effort
to comply with its terms. His only defense is that he sold to the plaintiff a part of the "hacienda" only and that he
offered, in compliance with the terms of the contract, to convey to the plaintiff all of the land which he had promised
to sell.
With reference to the second objection, to wit, that there was no consideration for said contract it may be said (a)
that the contract was for the sale of a definite parcel of land; (b) that it was reduced to writing; (c) that the defendant
promised to convey to the plaintiff said parcel of land; (d) that the plaintiff promised to pay therefor the sum of
P70,000 in the manner prescribed in said contract; (e) that the defendant admitted the execution and delivery of
the contract and alleged that he made an effort to comply with the same (par. 3 of defendant's answer) and
requested the plaintiff to comply with his part of the contract; and (f) that no defense or pretension was made in
the lower court that there was no consideration for his contract. Having admitted the execution and delivery of the
contract, having admitted an attempt to comply with its terms, and having failed in the court below to raise any
question whatsoever concerning the inadequacy of consideration, it is rather late, in the face of said admissions,
to raise that question for the first time in this court. The only dispute between the parties in the lower court was
whether or not the defendant was obliged to convey to the plaintiff all of said "hacienda." The plaintiff insisted that
his contract entitled him to a conveyance of all of said "hacienda." The defendant contended that he had complied
with the terms of his contract by offering to convey to the plaintiff a part of the said "hacienda" only. That was the
only question presented to the lower court and that was the only question decided.
A promise made by one party, if made in accordance with the forms required by the law, may be a good
consideration (causa) for a promise made by another party. (Art. 1274, Civil Code.) In other words, the
consideration (causa) need not pass from one to the other at the time the contract is entered into. For example, A
promises to sell a certain parcel of land to B for the sum of P70,000. A, by virtue of the promise of B to pay
P70,000, promises to sell said parcel of land to B for said sum, then the contract is complete, provided they have
complied with the forms required by the law. The consideration need not be paid at the time of the promise. The
one promise is a consideration for the other. Of course, A cannot enforce a compliance with the contract and
require B to pay said sum until he has complied with his part of the contract. In the present case, the defendant
promised to convey the land in question to the plaintiff as soon as the same could be registered. The plaintiff
promised to pay to the defendant P70,000 therefor in accordance with the terms of their contract. The plaintiff
stood ready to comply with his part of the contract. The defendant, even though he had obtained a registered title
to said parcel of land, refused to comply with his promise. All of the conditions of the contract on the part of the
defendant had been concluded, except delivering the deeds of transfer. Of course, if the defendant had been
unable to obtain a registration of his title, or if he had violated the terms of the alleged optional contract by selling
the same to some other person than the plaintiff, then he might have raised the objection that he had received
nothing from the plaintiff for the option which he had conceded. That condition, of course, would have presented
a different question from the one which we have before us. The said contract (Exhibits A and B) was not, in fact,
an "optional contract" as that phrase is generally used. Reading the said contract from its four corners it is clearly
as absolute promise to sell a definite parcel of land for a fixed price upon definite conditions. The defendant
promised to convey to the plaintiff the land in question as soon as the same was registered under the Torrens
system, and the plaintiff promised to pay to the defendant the sum of P70,000, under the conditions named, upon
the happening of that event. The contract was not, in fact, what is generally known as a "contract of option." It
differs very essentially from a contract of option. An optional contract is a privilege existing in one person, for which
he had paid a consideration, which gives him the right to buy, for example, certain merchandise of certain specified
property, from another person, if he chooses, at any time within the agreed period, at a fixed price. The contract
of option is a separate and distinct contract from the contract which the parties may enter into upon the
consummation of the option. A consideration for an optional contract is just as important as the consideration for
any other kind of contract. If there was no consideration for the contract of option, then it cannot be entered any
more than any other contract where no consideration exists. To illustrate, A offers B the sum of P100,000 for the
option of buying his property within the period of 30 days. While it is true that the conditions upon which A promises
to buy the property at the end of the period mentioned are usually fixed in the option, the consideration for the
option is an entirely different consideration from the consideration of the contract with reference to which the option
exists. A contract of option is a contract by virtue of the terms of which the parties thereto promise and obligate
themselves to enter into contract at a future time, upon the happening of certain events, or the fulfillment of certain
conditions.
Upon the other hand, suppose that the defendant had complied with his part of the contract and had tendered the
deeds of transfer of the "Hacienda de Pitogo" in accordance with its terms and had demanded the payments
specified in the contract, and the plaintiff refused to comply — what then would have been the rights of the
defendant? Might he not have successfully maintained an action for the specific performance of the contract, or
for the damages resulting from the breach of said contract? When the defendant alleged that he had complied
with his part of the contract (par. 3 of defendant's answer) and demanded that the plaintiff should immediately
comply with his part of the same, he evidently was laying the foundation for an action for damages, the nullification
or a specific compliance with the contract.
The appellant contends that the contract which he made was not with the plaintiff but with Rosenstock, Elser and
Co. That question was not presented in the court below. The contract in question shows, upon its face, that the
defendant made the same with the plaintiff, Not having raised the question in the court below, and having admitted
the execution and delivery of the contract in question with the plaintiff, we are of the opinion that his admission is
conclusive upon that question (par. 1 of special defense of defendant's answer) and need not be further discussed.
The appellant further contends that the action was premature, for the reason that the plaintiff had not paid nor
offered to pay the price agreed upon, under the conditions named, for the land in question. That question was not
raised in the court below, which fact, ordinarily, would be a sufficient answer to the contention of the appellant. It
may be added, however, that the defendant could not demand the payment until he had offered the deeds of
conveyance, in accordance with the terms of his contract. He did not offer to comply with the terms of his contract.
True it is that he offered to comply partially with the terms of the contract, but not fully. While the payment must
be simultaneous with the delivery of the deeds of conveyance, the payment need not be made until the deed of
conveyance is offered. The plaintiff stood ready and willing to perform his part of the contract immediately upon
the performance on the part of the defendant. (Arts. 1258 and 1451 of Civil Code.)
In the fifth assignment of error the appellant contends that the lower court committed an error in not declaring that
the defendant was not obligated to sell the "Hacienda de Pitogo" to the plaintiff "por incumplimiento, renuncia
abandono y negligencia del mismo demandante, etc." (For nonfulfillment, renunciation, abandonment and
negligence of plaintiff himself, etc.) That question was not presented to the court below. But even though it had
been the record shows that the plaintiff, at all times, insisted upon a compliance with the terms of the contract on
the part of the defendant, standing ready to comply with his part of the same.
The appellant contends in his sixth assignment of error that the plaintiff had not suffered the damages complained
of, to wit, in the sum of P20,000. The only proof upon the question of damages suffered by the plaintiff for the
noncompliance with the terms of the contract in question on the part of the defendant is that the plaintiff, in
contemplation of the compliance with the terms of the contract on the part of the defendant, entered into a contract
with a third party to sell the said "hacienda" at a profit of P30,000. That proof is not disputed. No attempt was made
in the lower court to deny that fact. The proof shows that the person with whom the plaintiff had entered into a
conditional sale of the land in question had made a deposit for the purpose of guaranteeing the final consummation
of that contract. By reason of the failure of the defendant to comply with the contract here in question, the plaintiff
was obliged to return the sum deposited by said third party with a promise to pay damages. The record does not
show why the plaintiff did not ask for damages in the sum of P30,000. He asked for a judgment only in the sum of
P20,000. He now asks that the judgment of the lower court be modified and that he be given a judgment for
P30,000. Considering the fact that he neither asked for a judgment for more than P20,000 nor appealed from the
judgment of the lower court, his request now cannot be granted. We find no reason for modifying the judgment of
the lower court by virtue of the sixth assignment of error.
In the seventh assignment of error the appellant contends that the contract of sale was not in effect a contract of
sale. He alleges that the contract was, in fact, a contract by virtue of which the plaintiff promised to find a buyer
for the parcel of land in question; that the plaintiff was not in fact the purchaser; that the only obligation that the
plaintiff assumed was to find some third person who would purchase the land from the defendant. Again, it would
be sufficient to say, in answer to that assignment of error, that no contention of that nature was presented in the
court below, and for that reason it is improperly presented now for the first time. In addition, however, it may be
added that the defendant, in his answer, admitted that he not only sold the land in question, but offered to transfer
the same to the plaintiff, in compliance with the contract. (See answer of defendant.)
In the eighth assignment of error the appellant contends that the lower court committed an error in its order
requiring him to convey to the plaintiff the "Hacienda de Pitogo," for the reason that the plaintiff had not demanded
a transfer of said property, and for the additional reason that a portion of said "hacienda" had already been sold
to a third person. With reference to the first contention, the record clearly shows that the plaintiff was constantly
insisting upon a compliance with the terms of the contract, to wit, a conveyance to him of the "Hacienda de Pitogo"
by the defendant. Naturally, he refused, under the contract, to accept a conveyance of a part only of said
"hacienda." With reference to the second contention, it may be said that the mere fact that the defendant had sold
a part of the "hacienda" to other persons, is no sufficient reason for not requiring a strict compliance with the terms
of his contract with the plaintiff, or to answer in damages for his failure. (Arts. 1101 and 1252 of the Civil Code.)
In view of the foregoing, and after a consideration of the facts and the law applicable thereto, we are persuaded
that there is no reason given in the record justifying a modification or reversal of the judgment of the lower court.
The same is, however, hereby affirmed, with costs. So ordered.
SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners, vs. THE HON. COURT OF APPEALS
AND SPOUSES MACARIA LABINGISA REYES AND ROBERTO REYES, respondents.
DEED OF OPTION
This Deed of Option, entered into in the City of Manila, Philippines, this 11th day of November, 1971,
by and between Macaria Labing-isa, of age, married to Roberto Reyes, likewise of age, and both
resideing on Reparo St., Baesa, Caloocan City, on the one hand, and on the other hand the spouses
Julio Villamor and Marina V. Villamor, also of age and residing at No. 552 Reparo St., corner Baesa
Road, Baesa, Caloocan City.
WITNESSETH
That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an area of 600 square
meters, more or less, more particularly described in TCT No. (18431) 18938 of the Office of the Register
of Deeds for the province of Rizal, issued in may name, I having inherited the same from my deceased
parents, for which reason it is my paraphernal property;
That I, with the conformity of my husband, Roberto Reyes, have sold one-half thereof to the aforesaid
spouses Julio Villamor and Marina V. Villamor at the price of P70.00 per sq. meter, which was greatly
higher than the actual reasonable prevailing value of lands in that place at the time, which portion, after
segregation, is now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan, issued
on August 17, 1971 in the name of the aforementioned spouses vendees;
That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor, agreed to buy
the said one-half portion at the above-stated price of about P70.00 per square meter, is because I, and
my husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half portion still
owned by me and now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan,
whenever the need of such sale arises, either on our part or on the part of the spouses (Julio) Villamor
and Marina V. Villamor, at the same price of P70.00 per square meter, excluding whatever improvement
may be found the thereon;

That I am willing to have this contract to sell inscribed on my aforesaid title as an encumbrance upon
MEDIALDEA, J.:
the property covered thereby, upon payment of the corresponding fees; and

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. No. 24176 entitled,
That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the above provisions of
"Spouses Julio Villamor and Marina Villamor, Plaintiffs-Appellees, versus Spouses Macaria Labing-isa Reyes and
this Deed of Option.
Roberto Reyes, Defendants-Appellants," which reversed the decision of the Regional Trial Court (Branch 121) at
Caloocan City in Civil Case No. C-12942.
IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila, Philippines, by all the
persons concerned, this 11th day of November, 1971.
The facts of the case are as follows:

JULIO VILLAMOR MACARIA LABINGISA

Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa, Caloocan City, as evidenced
by Transfer Certificate of Title No. (18431) 18938, of the Register of Deeds of Rizal.
With My Conformity:
In July 1971, Macaria sold a portion of 300 square meters of the lot to the Spouses Julio and Marina and Villamor
for the total amount of P21,000.00. Earlier, Macaria borrowed P2,000.00 from the spouses which amount was MARINA VILLAMOR ROBERTO REYES
deducted from the total purchase price of the 300 square meter lot sold. The portion sold to the Villamor spouses
is now covered by TCT No. 39935 while the remaining portion which is still in the name of Macaria Labing-isa is
covered by TCT No. 39934 (pars. 5 and 7, Complaint). On November 11, 1971, Macaria executed a "Deed of Signed in the Presence Of:
Option" in favor of Villamor in which the remaining 300 square meter portion (TCT No. 39934) of the lot would be
sold to Villamor under the conditions stated therein. The document reads: MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO
 ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES)
CITY OF MANILA ) S.S.
At the City of Manila, on the 11th day of November, 1971, personally appeared before me Roberto
Reyes, Macaria Labingisa, Julio Villamor and Marina Ventura-Villamor, known to me as the same
persons who executed the foregoing Deed of Option, which consists of two (2) pages including the page
whereon this acknowledgement is written, and signed at the left margin of the first page and at the
bottom of the instrument by the parties and their witnesses, and sealed with my notarial seal, and said
parties acknowledged to me that the same is their free act and deed. The Residence Certificates of the
parties were exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila on Jan. 27, 1971,
and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria Labingisa, A-3339130 and B-1266104,
both issued at Caloocan City on April 15, 1971, their joint Tax Acct. Number being 3028-767-6; Julio
Villamor, A-804, issued at Manila on Jan. 14, 1971, and B-138, issued at Manila on March 1, 1971; and
Marina Ventura-Villamor, A-803, issued at Manila on Jan. 14, 1971, their joint Tax Acct. Number being
608-202-6.
ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971
Doc. No. 1526;
Page No. 24;
Book No. 38;
Series of 1971. (pp. 25-29, Rollo)
According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to repurchase the lot sold
by them to the Villamor spouses but Marina Villamor refused and reminded them instead that the Deed of Option
in fact gave them the option to purchase the remaining portion of the lot.
The Villamors, on the other hand, claimed that they had expressed their desire to purchase the remaining 300
square meter portion of the lot but the Reyeses had been ignoring them. Thus, on July 13, 1987, after conciliation
proceedings in the barangay level failed, they filed a complaint for specific performance against the Reyeses.
On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor spouses, the dispositive portion
of which states:
WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs
and against the defendants ordering the defendant MACARIA LABING-ISA REYES and ROBERTO
REYES, to sell unto the plaintiffs the land covered by T.C.T No. 39934 of the Register of Deeds of
Caloocan City, to pay the plaintiffs the sum of P3,000.00 as and for attorney's fees and to pay the cost
of suit.
The counterclaim is hereby DISMISSED, for LACK OF MERIT.
SO ORDERED. (pp. 24-25, Rollo)
Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court of Appeals on the
following assignment of errors:
1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11, 1971 BETWEEN THE
PLAINTIFF-APPELLEES AND DEFENDANT-APPELLANTS IS STILL VALID AND BINDING DESPITE
THE LAPSE OF MORE THAN THIRTEEN (13) YEARS FROM THE EXECUTION OF THE CONTRACT;
2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS OBSCURE WORDS AND
STIPULATIONS WHICH SHOULD BE RESOLVED AGAINST THE PLAINTIFF-APPELLEES WHO
UNILATERALLY DRAFTED AND PREPARED THE SAME;
3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE INTENTION AND PURPOSE
OF THE PARTIES DESPITE ADVERSE, CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE
PLAINTIFF-APPELLEES;
4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT OF THEIR IGNORANCE
PLACING THEM AT A DISADVANTAGE IN THE DEED OF OPTION;
5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN FAVOR OF THE
DEFENDANT-APPELLANTS; and
6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-APPELLEES THE AMOUNT
OF P3,000.00 FOR AND BY WAY OF ATTORNEY'S FEES. (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision reversing the decision of the trial court and
dismissing the complaint. The reversal of the trial court's decision was premised on the finding of respondent court
that the Deed of Option is void for lack of consideration.
The Villamor spouses brought the instant petition for review on certiorari on the following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PHRASE WHENEVER THE
NEED FOR SUCH SALE ARISES ON OUR (PRIVATE RESPONDENT) PART OR ON THE PART OF
THE SPOUSES JULIO D. VILLAMOR AND MARINA V. VILLAMOR' CONTAINED IN THE DEED OF
OPTION DENOTES A SUSPENSIVE CONDITION;
II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A
CONDITION, THE COURT OF APPEALS ERRED IN NOT FINDING, THAT THE SAID CONDITION
HAD ALREADY BEEN FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A
CONDITION, THE COURT OF APPEALS ERRED IN HOLDING THAT THE IMPOSITION OF SAID
CONDITION PREVENTED THE PERFECTION OF THE CONTRACT OF SALE DESPITE THE
EXPRESS OFFER AND ACCEPTANCE CONTAINED IN THE DEED OF OPTION;
IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF OPTION IS VOID FOR
LACK OF CONSIDERATION;
 V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT CONSIDERATION IS
NECESSARY TO SUPPORT THE DEED OF OPTION DESPITE THE EXPRESS OFFER AND
ACCEPTANCE CONTAINED THEREIN. (p. 12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby the private respondents
agreed to sell their lot to petitioners "whenever the need of such sale arises, either on our part (private
respondents) or on the part of Julio Villamor and Marina Villamor (petitioners)." The court a quo, rule that the Deed
of Option was a valid written agreement between the parties and made the following conclusions:
xxx xxx xxx
It is interesting to state that the agreement between the parties are evidence by a writing, hence, the
controverting oral testimonies of the herein defendants cannot be any better than the documentary
evidence, which, in this case, is the Deed of Option (Exh. "A" and "A-a")
The law provides that when the terms of an agreement have been reduced to writing it is to be
considered as containing all such terms, and therefore, there can be, between the parties and their
successors in interest no evidence of their terms of the agreement, other than the contents of the writing.
... (Section 7 Rule 130 Revised Rules of Court) Likewise, it is a general and most inflexible rule that
wherever written instruments are appointed either by the requirements of law, or by the contract of the
parties, to be the repositories and memorials of truth, any other evidence is excluded from being used,
either as a substitute for such instruments, or to contradict or alter them. This is a matter both of principle
and of policy; of principle because such instruments are in their nature and origin entitled to a much
higher degree of credit than evidence of policy, because it would be attended with great mischief if those
instruments upon which man's rights depended were liable to be impeached by loose collateral
evidence. Where the terms of an agreement are reduced to writing, the document itself, being
constituted by the parties as the expositor of their intentions, it is the only instrument of evidence in
respect of that agreement which the law will recognize so long as it exists for the purpose of evidence.
(Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy, W.R. 68, cited in Francisco's Rules of Court,
Vol. VII Part I p. 153) (Emphasis supplied, pp. 126-127, Records).
The respondent appellate court, however, ruled that the said deed of option is void for lack of consideration. The
appellate court made the following disquisitions:
Plaintiff-appellees say they agreed to pay P70.00 per square meter for the portion purchased by them
although the prevailing price at that time was only P25.00 in consideration of the option to buy the
remainder of the land. This does not seem to be the case. In the first place, the deed of sale was never
produced by them to prove their claim. Defendant-appellants testified that no copy of the deed of sale
had ever been given to them by the plaintiff-appellees. In the second place, if this was really the condition
of the prior sale, we see no reason why it should be reiterated in the Deed of Option. On the contrary,
the alleged overprice paid by the plaintiff-appellees is given in the Deed as reason for the desire of the
Villamors to acquire the land rather than as a consideration for the option given to them, although one
might wonder why they took nearly 13 years to invoke their right if they really were in due need of the
lot.
At all events, the consideration needed to support a unilateral promise to sell is a dinstinct one, not
something that is as uncertain as P70.00 per square meter which is allegedly 'greatly higher than the
actual prevailing value of lands.' A sale must be for a price certain (Art. 1458). For how much the portion
conveyed to the plaintiff-appellees was sold so that the balance could be considered the consideration
for the promise to sell has not been shown, beyond a mere allegation that it was very much below
P70.00 per square meter.
The fact that plaintiff-appellees might have paid P18.00 per square meter for another land at the time of
the sale to them of a portion of defendant-appellant's lot does not necessarily prove that the prevailing
market price at the time of the sale was P18.00 per square meter. (In fact they claim it was P25.00). It
is improbable that plaintiff-appellees should pay P52.00 per square meter for the privilege of buying
when the value of the land itself was allegedly P18.00 per square meter. (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the essential reason
which moves the contracting parties to enter into the contract." The cause or the impelling reason on the part of
private respondent executing the deed of option as appearing in the deed itself is the petitioner's having agreed
to buy the 300 square meter portion of private respondents' land at P70.00 per square meter "which was greatly
higher than the actual reasonable prevailing price." This cause or consideration is clear from the deed which
stated:
That the only reason why the spouses-vendees Julio Villamor and Marina V. Villamor agreed to buy the
said one-half portion at the above stated price of about P70.00 per square meter, is because I, and my
husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half portion still
owned by me ... (p. 26, Rollo)
The respondent appellate court failed to give due consideration to petitioners' evidence which shows that in 1969
the Villamor spouses bough an adjacent lot from the brother of Macaria Labing-isa for only P18.00 per square
meter which the private respondents did not rebut. Thus, expressed in terms of money, the consideration for the
deed of option is the difference between the purchase price of the 300 square meter portion of the lot in 1971
(P70.00 per sq.m.) and the prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or P18.00)
though not specifically stated in the deed of option, was ascertainable. Petitioner's allegedly paying P52.00 per
square meter for the option may, as opined by the appellate court, be improbable but improbabilities does not
invalidate a contract freely entered into by the parties.
The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an optional contract
is a privilege existing in one person, for which he had paid a consideration and which gives him the right to buy,
for example, certain merchandise or certain specified property, from another person, if he chooses, at any time
within the agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the
"deed of option" signed by the parties, We will notice that the first part covered the statement on the sale of the
300 square meter portion of the lot to Spouses Villamor at the price of P70.00 per square meter "which was higher
than the actual reasonable prevailing value of the lands in that place at that time (of sale)." The second part stated
that the only reason why the Villamor spouses agreed to buy the said lot at a much higher price is because the
vendor (Reyeses) also agreed to sell to the Villamors the other half-portion of 300 square meters of the land. Had
the deed stopped there, there would be no dispute that the deed is really an ordinary deed of option granting the
Villamors the option to buy the remaining 300 square meter-half portion of the lot in consideration for their having
agreed to buy the other half of the land for a much higher price. But, the "deed of option" went on and stated that
the sale of the other half would be made "whenever the need of such sale arises, either on our (Reyeses) part or
on the part of the Spouses Julio Villamor and Marina V. Villamor. It appears that while the option to buy was
granted to the Villamors, the Reyeses were likewise granted an option to sell. In other words, it was not only the
Villamors who were granted an option to buy for which they paid a consideration. The Reyeses as well were
granted an option to sell should the need for such sale on their part arise.
In the instant case, the option offered by private respondents had been accepted by the petitioner, the promise, in
the same document. The acceptance of an offer to sell for a price certain created a bilateral contract to sell and
buy and upon acceptance, the offer, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua
Mian Tek, 102 Phil. 948). Demandabilitiy may be exercised at any time after the execution of the deed. In Sanchez
v. Rigos, No. L-25494, June 14, 1972, 45 SCRA 368, 376, We held:
 In other words, since there may be no valid contract without a cause of consideration, the promisory is
not bound by his promise and may, accordingly withdraw it. Pending notice of its withdrawal, his
accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.
A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price. From that moment, the parties may
reciprocally demand perform of contracts." Since there was, between the parties, a meeting of minds upon the
object and the price, there was already a perfected contract of sale. What was, however, left to be done was for
either party to demand from the other their respective undertakings under the contract. It may be demanded at
any time either by the private respondents, who may compel the petitioners to pay for the property or the
petitioners, who may compel the private respondents to deliver the property.
However, the Deed of Option did not provide for the period within which the parties may demand the performance
of their respective undertakings in the instrument. The parties could not have contemplated that the delivery of the
property and the payment thereof could be made indefinitely and render uncertain the status of the land. The
failure of either parties to demand performance of the obligation of the other for an unreasonable length of time
renders the contract ineffective.
Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within ten (10) years. The
Deed of Option was executed on November 11, 1971. The acceptance, as already mentioned, was also accepted
in the same instrument. The complaint in this case was filed by the petitioners on July 13, 1987, seventeen (17)
years from the time of the execution of the contract. Hence, the right of action had prescribed. There were
allegations by the petitioners that they demanded from the private respondents as early as 1984 the enforcement
of their rights under the contract. Still, it was beyond the ten (10) years period prescribed by the Civil Code. In the
case of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and subscribing to the observations of the
court a quo held, thus:
... Assuming that Rosa Ganayo, the oppositor herein, had the right based on the Agreement to Convey
and Transfer as contained in Exhibits '1' and '1-A', her failure or the abandonment of her right to file an
action against Pulmano Molintas when he was still a co-owner of the on-half (1/2) portion of the 10,000
square meters is now barred by laches and/or prescribed by law because she failed to bring such action
within ten (10) years from the date of the written agreement in 1941, pursuant to Art. 1144 of the New
Civil Code, so that when she filed the adverse claim through her counsel in 1959 she had absolutely no
more right whatsoever on the same, having been barred by laches.
It is of judicial notice that the price of real estate in Metro Manila is continuously on the rise. To allow the petitioner
to demand the delivery of the property subject of this case thirteen (13) years or seventeen (17) years after the
execution of the deed at the price of only P70.00 per square meter is inequitous. For reasons also of equity and
in consideration of the fact that the private respondents have no other decent place to live, this Court, in the
exercise of its equity jurisdiction is not inclined to grant petitioners' prayer.
ACCORDINGLY, the petition is DENIED. The decision of respondent appellate court is AFFIRMED for reasons
cited in this decision. Judgement is rendered dismissing the complaint in Civil Case No. C-12942 on the ground
of prescription and laches. SO ORDERED.
RUPERTO SORIANO, ET AL., plaintiffs-appellees, vs. BASILIO BAUTISTA, ET AL., defendants. BASILIO
BAUTISTA and SOFIA DE ROSAS, defendants-appellants.
G.R. No. L-17457 December 29, 1962
BASILIO BAUTISTA, ET AL., plaintiffs, BASILIO BAUTISTA and SOFIA DE ROSAS, plaintiffs-appellants, vs.
RUPERTO SORIANO, ET AL., defendants appellees.
MAKALINTAL, J.:
The judgment appealed from, rendered on March 10, 1959 by the Court of First Instance of Rizal, after a joint trial
of both cases mentioned in the caption, orders "the spouses Basilio Bautista and Sofia de Rosas to execute a
deed of sale covering the property in question in favor of Ruperto Soriano and Olimpia de Jesus upon payment
by the latter of P1,650.00 which is the balance of the price agreed upon, that is P3,900.00, and the amount
previously received by way of loan by the said spouses from the said Ruperto Soriano and Olimpia de Jesus, to
pay the sum of P500.00 by way of attorney's fees, and to pay the costs.
Appellants Basilio Bautista and Sofia de Rosas have adopted in their appeal brief the following factual findings of
the trial court:
Spouses Basilio Bautista and Sofia de Rosas are the absolute and registered owners of a parcel of land,
situated in the municipality of Teresa, province of Rizal, covered by Original Certificate of Title No. 3905,
of the Register of Deeds of Rizal and particularly described as follow:
A parcel of land (lot No. 4980) of the Cadastral Survey of Teresa; situated in the municipality
of Teresa; bounded on the NE. by Lot No. 5004; on the SE. by Lots Nos. 5003 and 4958; on
the SW. by Lot 4949; and the W. and NW by a creek .... Containing the area of THIRTY
THOUSAND TWO HUNDRED TWENTY TWO (30,222) square meters, more or less. Date of
Survey, December 1913-June, 1914. (Full technical description appears on Original
Certificate of Title No. 3905.)lawphil.net
That, on May 30, 1956, the said spouses for and in consideration of the sum of P1,800, signed a
document entitled "Kasulatan Ng Sanglaan" in favor of Ruperto Soriano and Olimpia de Jesus, under
the following terms and conditions:
1. Na ang sanglaang ito ay magpapatuloy lamang hanggang dalawang (2) taon pasimula sa
araw na lagdaan ang kasunduang ito, at magpapalampas ng dalawang panahong ani o ani
agricola.
2. Na ang aanihin ng bukid na isinangla ay mapupunta sa pinagsanglaan bilang pakinabang
ng nabanggit na halagang inutang.
3. Na ang buwis sa pamahalaan ng lupang ito ay ang magbabayad ay ang Nagsangla o
mayari.
4. Na ang lupang nasanglang ito ay hindi na maaaring isangla pang muli sa ibang tao ng
walang pahintulot ang Unang Pinagsanglaan.
5. Na pinagkasunduan din dinatnan na sakaling magkaroon ng kakayahan ang
Pinagsanglaan ay maaaring bilhin ng patuluyan ng lupang nasanglang ito kahit anong araw
 sa loob ng taning na dalawang taon ng sanglaan sa halagang Tatlong Libo at Siam na Raan
Piso (P3,900.00), salaping Pilipino na pinagkaisahan.
6. Na sakaling ang pagkakataon na ipinagkaloob ng Nagsangla sa sinundang talata ay hindi
maisagawa ng Pinagsanglaan sa Kawalan ng maibayad at gayon din naman ang Nagsangla
na hindi magbalik ang halagang inutang sa taning na panahon, ang sanglaan ito ay lulutasin
alinsunod sa itinatagubilin ng batas sa bagay-bagay ng sanglaan, na ito ay ang tinatawag na
(FORECLOSURE OF MORTGAGES, JUDICIAL OR EXTRA JUDICIAL). Maaring makapili
ng hakbang ang Pinagsanglaan, alinsunod sa batas o kaya naman ay pagusapan ng
dalawang parte ang mabuting paraan ng paglutas ng bagay na ito.
That simultaneously with the signing of the aforementioned deed, the spouses Basilio Bautista and Sofia
de Rosas transferred the possession of the said land to Ruperto Soriano and Olimpia de Jesus who
have been and are still in possess of the said property and have since that date been and cultivating
the said land and have enjoyed and are still enjoying the produce thereof to the exclusion of all other
persons. Sometimes after May 30, 1956, the spouses Basilio Bautista and Sofia de Rosas received
from Ruperto Soriano and Olimpia de Jesus, the sum of P450.00 pursuant to the condition agreed upon
in the aforementioned document for which no receipt issued and which was returned by the spouses
sometime on May 31, 1958. On May 13, 1958, a certain Atty. Angel O. Ver wrote a letter to the spouses
Bautista whose letter has been marked Annex 'B' of the stipulation of facts informing the said spouses
that his clients Ruperto Soriano and Olimpia de Jesus have decided to buy the parcel of land in question
pursuant to paragraph 5 of the document in question, Annex "A".
The spouses inspite of the receipt of the letter refused comply with the demand contained therein. On
May 31, 1958, Ruperto Soriano and Olimpia de Jesus filed before this Court Civil Case No. 5023,
praying that plaintiffs be allowed to consign or deposit with the Clerk of Court the sum of P1,650 as the
balance of the purchase price of the parcel of land question and that after due hearing, judgment be
rendered considering the defendants to execute an absolute deed of sale of said property in their favor,
plus damages.
On June 9, 1958, spouses Basilio Bautista and Sofia Rosas filed a complaint against Ruperto Soriano
and Olimpia de Jesus marked as Annexed 'B' of the Stipulation of Facys, which case after hearing was
dismissed for lack of jurisdiction On August 5, 1959, the spouses Bautista and De Rosas again filed a
case in the Court of First Instance against Soriano and De Jesus asking this Court to order the
defendants to accept the payment of the principal obligation and release the mortgage and to make an
accounting of the harvest for the harvest seasons (1956-1957). The two cases, were by agreement of
the parties assigned to one branch so that they can be tried jointly.
The principal issue in this case is whether, having seasonably advised appellants that they had decided to be the
land in question pursuant to paragraph 5 of the instrument of mortgage, appellees are entitled to special
performance consisting of the execution by appellants the corresponding deed of sale. As translated, paragraph
5 states: "That it has likewise been agreed that if the financial condition of the mortgagees will permit, they may
purchase said land absolutely on any date within the two-year term of this mortgage at the agreed price of
P3,900.00."
Appellants contend that, being mortgagors, they can not be deprived of the right to redeem the mortgaged
property, because such right is inherent in and inseparable from this kind of contract. The premise of the contention
is not entirely accurate. While the transaction is undoubtedly a mortgage and contains the customary stipulation
concerning redemption, it carries the added special provision aforequoted, which renders the mortgagors' right to
redeem defeasible at the election of the mortgagees. There is nothing illegal or immoral in this. It is simply an
option to buy, sanctioned by Article 1479 of the Civil Code, which states: "A promise to buy and sell a determinate
thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from
the price."
In this case the mortgagor's promise to sell is supported by the same consideration as that of the mortgage itself,
which is distinct from that which would support the sale, an additional amount having been agreed upon to make
up the entire price of P3,900.00, should the option be exercised. The mortgagors' promise was in the nature of a
continuing offer, non-withdrawable during a period of two years, which upon acceptance by the mortgagees gave
rise to a perfected contract of purchase and sale. Appellants cite the case of Iñigo vs. Court of Appeals, L-5572,
O.G. No. 11, 5281, where we held that a stipulation in a contract of mortgage to sell the property to the mortgagee
does not bind the same but creates only a personal obligation on the part of the mortgagor. The citation instead
of sustaining appellant's position, confirms that of appellees, who are not here enforcing any real right to the
disputed land but are rather seeking to obtain specific performance of a personal obligation, namely, the execution
of a deed of sale for the price agreed upon, the corresponding amount to cover which was duly deposited in court
upon the filing of the complaint.
Reference is made in appellants' brief to the fact that they tendered the sum of P1,800.00 to redeem mortgage
before they filed their complaint in civil case No. 99 in the Justice of the Peace Court of Morong, Rizal. That tender
was ineffective for the purpose intended. In the first place it must have been made after the option to purchase
had been exercised by appellees (Civil Case No. 99 was filed on June 9, 1958, only to be dismissed for lack of
jurisdiction); and secondly, appellants' to redeem could be defeated by appellees' preemptive right to purchase
within the period of two years from May 30, 1956. As already noted, such right was availed of appellants were
accordingly notified by letter dated May 13, 1958, which was received by them on the following May 22. Offer and
acceptance converged and gave to a perfected and binding contract of purchase and sale.
The judgment appealed from is affirmed, with costs.
ADELFA PROPERTIES, INC., petitioner, vs. COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and
SALUD JIMENEZ, respondents.
REGALADO, J.:
The main issues presented for resolution in this petition for review on certiorari of the judgment of respondent
Court of appeals, dated April 6, 1993, in CA-G.R. CV No. 347671 are (1) whether of not the "Exclusive Option to
Purchase" executed between petitioner Adelfa Properties, Inc. and private respondents Rosario Jimenez-
Castañeda and Salud Jimenez is an option contract; and (2) whether or not there was a valid suspension of
payment of the purchase price by said petitioner, and the legal effects thereof on the contractual relations of the
parties.
The records disclose the following antecedent facts which culminated in the present appellate review, to wit:
1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the registered co-owners of
a parcel of land consisting of 17,710 square meters, covered by Transfer Certificate of Title (TCT) No.
309773,2 situated in Barrio Culasi, Las Piñas, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said parcel of land,
specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng
Lupa."3 Subsequently, a "Confirmatory Extrajudicial Partition Agreement" 4 was executed by the Jimenezes,
wherein the eastern portion of the subject lot, with an area of 8,855 square meters was adjudicated to Jose and
Dominador Jimenez, while the western portion was allocated to herein private respondents.
3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from private
respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" 5 was executed between
petitioner and private respondents, under the following terms and conditions:
1. The selling price of said 8,655 square meters of the subject property is TWO MILLION
EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY
(P2,856,150.00)
2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC. as an option
money shall be credited as partial payment upon the consummation of the sale and the
balance in the sum of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED
FIFTY PESOS (P2,806,150.00) to be paid on or before November 30, 1989;
3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in
accordance with paragraph 2 hereof, this option shall be cancelled and 50% of the option
money to be forfeited in our favor and we will refund the remaining 50% of said money upon
the sale of said property to a third party;
4. All expenses including the corresponding capital gains tax, cost of documentary stamps
are for the account of the VENDORS, and expenses for the registration of the deed of sale in
the Registry of Deeds are for the account of ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of title issued to respondent Salud Jimenez had
been lost, a petition for the re-issuance of a new owner's copy of said certificate of title was filed in court through
Atty. Bayani L. Bernardo, who acted as private respondents' counsel. Eventually, a new owner's copy of the
certificate of title was issued but it remained in the possession of Atty. Bernardo until he turned it over to petitioner
Adelfa Properties, Inc.
4. Before petitioner could make payment, it received summons6 on November 29, 1989, together with a copy of a
complaint filed by the nephews and nieces of private respondents against the latter, Jose and Dominador Jimenez,
and herein petitioner in the Regional Trial Court of Makati, docketed as Civil Case No. 89-5541, for annulment of
the deed of sale in favor of Household Corporation and recovery of ownership of the property covered by TCT No.
309773.7
the same matter but this time reducing the amount from P500,000.00 to P300,000.00, and this was also rejected
by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus, on February
28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive option to purchase as Entry
No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional Sale 10 in favor of
Emylene Chua over the same parcel of land for P3,029,250, of which P1,500,000.00 was paid to private
respondents on said date, with the balance to be paid upon the transfer of title to the specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of the dismissal
of the case against them, petitioner was willing to pay the purchase price, and he requested that the corresponding
deed of absolute sale be executed. 11 This was ignored by private respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a check for
P25,000.00 representing the refund of fifty percent of the option money paid under the exclusive option to
purchase. Private respondents then requested petitioner to return the owner's duplicate copy of the certificate of
title of respondent Salud Jimenez. 12 Petitioner failed to surrender the certificate of title, hence private respondents
filed Civil Case No. 7532 in the Regional Trial Court of Pasay City, Branch 113, for annulment of contract with
damages, praying, among others, that the exclusive option to purchase be declared null and void; that defendant,
herein petitioner, be ordered to return the owner's duplicate certificate of title; and that the annotation of the option
contract on TCT No. 309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint
in intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement entered into by
the parties was merely an option contract, and declaring that the suspension of payment by herein petitioner
constituted a counter-offer which, therefore, was tantamount to a rejection of the option. It likewise ruled that herein
petitioner could not validly suspend payment in favor of private respondents on the ground that the vindicatory
action filed by the latter's kin did not involve the western portion of the land covered by the contract between
petitioner and private respondents, but the eastern portion thereof which was the subject of the sale between
petitioner and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the
exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and ordered
petitioner to pay damages and attorney's fees to private respondents, with costs.

5. As a consequence, in a letter dated November 29, 1989, petitioner informed private respondents that it would
13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and held that the failure
hold payment of the full purchase price and suggested that private respondents settle the case with their nephews
of petitioner to pay the purchase price within the period agreed upon was tantamount to an election by petitioner
and nieces, adding that ". . . if possible, although November 30, 1989 is a holiday, we will be waiting for you and
not to buy the property; that the suspension of payment constituted an imposition of a condition which was actually
said plaintiffs at our office up to 7:00 p.m."8 Another letter of the same tenor and of even date was sent by petitioner
a counter-offer amounting to a rejection of the option; and that Article 1590 of the Civil Code on suspension of
to Jose and Dominador Jimenez.9 Respondent Salud Jimenez refused to heed the suggestion of petitioner and
payments applies only to a contract of sale or a contract to sell, but not to an option contract which it opined was
attributed the suspension of payment of the purchase price to "lack of word of honor."
the nature of the document subject of the case at bar. Said appellate court similarly upheld the validity of the deed
of conditional sale executed by private respondents in favor of intervenor Emylene Chua.
6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract with private
respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No. 1437-4 and entry No. 1438-
In the present petition, the following assignment of errors are raised:
4, respectively.

1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the agreement
7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his capacity as
entered into by petitioner and private respondents was strictly an option contract;
petitioner's counsel, and to inform the latter that they were cancelling the transaction. In turn, Atty. Bernardo offered
to pay the purchase price provided that P500,000.00 be deducted therefrom for the settlement of the civil case.
This was rejected by private respondents. On December 22, 1989, Atty. Bernardo wrote private respondents on
2. Granting arguendo that the agreement was an option contract, respondent court of Appeals acted with grave
abuse of discretion in grievously failing to consider that while the option period had not lapsed, private respondents
could not unilaterally and prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully the attendant
facts and circumstances when it made the conclusion of law that Article 1590 does not apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale in favor of
appellee Ma. Emylene Chua and the award of damages and attorney's fees which are not only excessive, but also
without in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads
to the conclusion that the agreement between the parties is a contract to sell, and not an option contract or a
contract of sale.
I and that task is, of course, to be discharged by looking to the words they used to project that intention in their
1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this juncture to briefly
discourse on the rationale behind our treatment of the alleged option contract as a contract to sell, rather than a
contract of sale. The distinction between the two is important for in contract of sale, the title passes to the vendee
upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the
vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is
retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and
failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming
effective. Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that
title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the
right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. 15
There are two features which convince us that the parties never intended to transfer ownership to petitioner except
upon the full payment of the purchase price. Firstly, the exclusive option to purchase, although it provided for
automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does not
mention that petitioner is obliged to return possession or ownership of the property as a consequence of non-
payment. There is no stipulation anent reversion or reconveyance of the property to herein private respondents in
the event that petitioner does not comply with its obligation. With the absence of such a stipulation, although there
is a provision on the remedies available to the parties in case of breach, it may legally be inferred that the parties
never intended to transfer ownership to the petitioner to completion of payment of the purchase price.
In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had fully paid the
price. Article 1478 of the civil code does not require that such a stipulation be expressly made. Consequently, an
implied stipulation to that effect is considered valid and, therefore, binding and enforceable between the parties. It
should be noted that under the law and jurisprudence, a contract which contains this kind of stipulation is
considered a contract to sell.
Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is bolstered by
the fact that the deed of absolute sale would have been issued only upon the payment of the balance of the
purchase price, as may be gleaned from petitioner's letter dated April 16, 1990 16 wherein it informed private
respondents that it "is now ready and willing to pay you simultaneously with the execution of the corresponding
deed of absolute sale."
Secondly, it has not been shown there was delivery of the property, actual or constructive, made to herein
petitioner. The exclusive option to purchase is not contained in a public instrument the execution of which would
have been considered equivalent to delivery. 17 Neither did petitioner take actual, physical possession of the
property at any given time. It is true that after the reconstitution of private respondents' certificate of title, it remained
in the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein
petitioner. Normally, under the law, such possession by the vendee is to be understood as a delivery.18 However,
private respondents explained that there was really no intention on their part to deliver the title to herein petitioner
with the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title only
because he was their counsel in the petition for reconstitution. We have no reason not to believe this explanation
of private respondents, aside from the fact that such contention was never refuted or contradicted by petitioner.
2. Irrefragably, the controverted document should legally be considered as a perfected contract to sell. On this
particular point, therefore, we reject the position and ratiocination of respondent Court of Appeals which, while
awarding the correct relief to private respondents, categorized the instrument as "strictly an option contract."
The important task in contract interpretation is always the ascertainment of the intention of the contracting parties
contract, all the words not just a particular word or two, and words in context not words standing alone. 19 Moreover,
judging from the subsequent acts of the parties which will hereinafter be discussed, it is undeniable that the
intention of the parties was to enter into a contract to sell. 20 In addition, the title of a contract does not necessarily
determine its true nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive Option to
Purchase" is not controlling where the text thereof shows that it is a contract to sell.
An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another
that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance
with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale.
It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the
privilege to buy. 22 It is not a sale of property but a sale of property but a sale of the right to purchase. 23 It is simply
a contract by which the owner of property agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he
does sell something, that it is, the right or privilege to buy at the election or option of the other party. 24 Its
distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from
the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer,
or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the
owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain
terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons whereby one binds
himself, with respect to the other, to give something or to render some service. 26 Contracts, in general, are
perfected by mere consent, 27 which is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. 28
The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It states the
terms and conditions on which the owner is willing to sell the land, if the holder elects to accept them within the
time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon
becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer
bound by his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely the relative
rights and obligations of both parties at the time of its execution. The offer and the acceptance are concurrent,
since the minds of the contracting parties meet in the terms of the agreement. 29
A perusal of the contract in this case, as well as the oral and documentary evidence presented by the parties,
readily shows that there is indeed a concurrence of petitioner's offer to buy and private respondents' acceptance
thereof. The rule is that except where a formal acceptance is so required, although the acceptance must be
affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it
may be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the
accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus,
acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of
sale. 30
The records also show that private respondents accepted the offer of petitioner to buy their property under the
terms of their contract. At the time petitioner made its offer, private respondents suggested that their transfer
certificate of title be first reconstituted, to which petitioner agreed. As a matter of fact, it was petitioner's counsel,
Atty. Bayani L. Bernardo, who assisted private respondents in filing a petition for reconstitution. After the title was
reconstituted, the parties agreed that petitioner would pay either in cash or manager's check the amount of
P2,856,150.00 for the lot. Petitioner was supposed to pay the same on November 25, 1989, but it later offered to
make a down payment of P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30,
1989. Private respondents agreed to the counter-offer made by petitioner. 31 As a result, the so-called exclusive
option to purchase was prepared by petitioner and was subsequently signed by private respondents, thereby
creating a perfected contract to sell between them.
It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the acceptance
thereof was absolute and without any condition or qualification. The agreement as to the object, the price of the
property, and the terms of payment was clear and well-defined. No other significance could be given to such acts
that than they were meant to finalize and perfect the transaction. The parties even went beyond the basic
requirements of the law by stipulating that "all expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the vendors, and expenses for the registration of the deed of sale in
the Registry of Deeds are for the account of Adelfa properties, Inc." Hence, there was nothing left to be done
except the performance of the respective obligations of the parties.
We do not subscribe to private respondents' submission, which was upheld by both the trial court and respondent
court of appeals, that the offer of petitioner to deduct P500,000.00, (later reduced to P300,000.00) from the
purchase price for the settlement of the civil case was tantamount to a counter-offer. It must be stressed that there
already existed a perfected contract between the parties at the time the alleged counter-offer was made. Thus,
any new offer by a party becomes binding only when it is accepted by the other. In the case of private respondents,
they actually refused to concur in said offer of petitioner, by reason of which the original terms of the contract
continued to be enforceable.
The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that is, the
payment of the purchase price. The contract did not simply give petitioner the discretion to pay for the property. 32 It
will be noted that there is nothing in the said contract to show that petitioner was merely given a certain period
within which to exercise its privilege to buy. The agreed period was intended to give time to herein petitioner within
which to fulfill and comply with its obligation, that is, to pay the balance of the purchase price. No evidence was
presented by private respondents to prove otherwise.
The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not
the agreement could be specifically enforced. 33 There is no doubt that the obligation of petitioner to pay the
purchase price is specific, definite and certain, and consequently binding and enforceable. Had private
respondents chosen to enforce the contract, they could have specifically compelled petitioner to pay the balance
of P2,806,150.00. This is distinctly made manifest in the contract itself as an integral stipulation, compliance with
which could legally and definitely be demanded from petitioner as a consequence.
This is not a case where no right is as yet created nor an obligation declared, as where something further remains
to be done before the buyer and seller obligate themselves. 34 An agreement is only an "option" when no obligation
rests on the party to make any payment except such as may be agreed on between the parties as consideration
to support the option until he has made up his mind within the time specified. 35 An option, and not a contract to
purchase, is effected by an agreement to sell real estate for payments to be made within specified time and
providing forfeiture of money paid upon failure to make payment, where the purchaser does not agree to purchase,
to make payment, or to bind himself in any way other than the forfeiture of the payments made. 36 As hereinbefore
discussed, this is not the situation obtaining in the case at bar.
While there is jurisprudence to the effect that a contract which provides that the initial payment shall be totally
forfeited in case of default in payment is to be considered as an option contract, 37 still we are not inclined to
conform with the findings of respondent court and the court a quo that the contract executed between the parties
is an option contract, for the reason that the parties were already contemplating the payment of the balance of the
purchase price, and were not merely quoting an agreed value for the property. The term "balance," connotes a
remainder or something remaining from the original total sum already agreed upon.
In other words, the alleged option money of P50,000.00 was actually earnest money which was intended to form
part of the purchase price. The amount of P50,000.00 was not distinct from the cause or consideration for the sale
of the property, but was itself a part thereof. It is a statutory rule that whenever earnest money is given in a contract
of sale, it shall be considered as part of the price and as proof of the perfection of the contract. 38 It constitutes an
advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer
to the seller to bind the bargain.

At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's sole purpose
There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the
was to settle the civil case in order that it could already comply with its obligation. In fact, it was even indicative of
purchase price, while option money ids the money given as a distinct consideration for an option contract; (b)
a desire by petitioner to immediately comply therewith, except that it was being prevented from doing so because
earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected;
of the filing of the civil case which, it believed in good faith, rendered compliance improbable at that time. In
and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives
addition, no inference can be drawn from that suggestion given by petitioner that it was totally abandoning the
option money, he is not required to buy. 39
original contract.

The aforequoted characteristics of earnest money are apparent in the so-called option contract under review, even
More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase price within the
though it was called "option money" by the parties. In addition, private respondents failed to show that the payment
agreed period was attributed by private respondents to "lack of word of honor" on the part of the former. The
of the balance of the purchase price was only a condition precedent to the acceptance of the offer or to the exercise
reason of "lack of word of honor" is to us a clear indication that private respondents considered petitioner already
of the right to buy. On the contrary, it has been sufficiently established that such payment was but an element of
bound by its obligation to pay the balance of the consideration. In effect, private respondents were demanding or
the performance of petitioner's obligation under the contract to sell. 40
exacting fulfillment of the obligation from herein petitioner. with the arrival of the period agreed upon by the parties,
petitioner was supposed to comply with the obligation incumbent upon it to perform, not merely to exercise an
option or a right to buy the property. II
1. This brings us to the second issue as to whether or not there was valid suspension of payment of the purchase
price by petitioner and the legal consequences thereof. To justify its failure to pay the purchase price within the
agreed period, petitioner invokes Article 1590 of the civil Code which provides:
Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing
acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory
action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor
has caused the disturbance or danger to cease, unless the latter gives security for the return
of the price in a proper case, or it has been stipulated that, notwithstanding any such
contingency, the vendee shall be bound to make the payment. A mere act of trespass shall
not authorize the suspension of the payment of the price.
Respondent court refused to apply the aforequoted provision of law on the erroneous assumption that the true
agreement between the parties was a contract of option. As we have hereinbefore discussed, it was not an option
contract but a perfected contract to sell. Verily, therefore, Article 1590 would properly apply.
Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties herein
involved only the eastern half of the land subject of the deed of sale between petitioner and the Jimenez brothers,
it did not, therefore, have any adverse effect on private respondents' title and ownership over the western half of
the land which is covered by the contract subject of the present case. We have gone over the complaint for
recovery of ownership filed in said case 41 and we are not persuaded by the factual findings made by said courts.
At a glance, it is easily discernible that, although the complaint prayed for the annulment only of the contract of
sale executed between petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein
plaintiffs' share in that parcel of land specifically covered by TCT No. 309773. In other words, the plaintiffs therein
were claiming to be co-owners of the entire parcel of land described in TCT No. 309773, and not only of a portion
thereof nor, as incorrectly interpreted by the lower courts, did their claim pertain exclusively to the eastern half
adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the balance of the purchase price by reason
of the aforesaid vindicatory action filed against it. The assurance made by private respondents that petitioner did
not have to worry about the case because it was pure and simple harassment 42 is not the kind of guaranty
contemplated under the exceptive clause in Article 1590 wherein the vendor is bound to make payment even with
the existence of a vindicatory action if the vendee should give a security for the return of the price.
2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and hold that private
respondents may no longer be compelled to sell and deliver the subject property to petitioner for two reasons, that
is, petitioner's failure to duly effect the consignation of the purchase price after the disturbance had ceased; and,
secondarily, the fact that the contract to sell had been validly rescinded by private respondents.
The records of this case reveal that as early as February 28, 1990 when petitioner caused its exclusive option to
be annotated anew on the certificate of title, it already knew of the dismissal of civil Case No. 89-5541. However,
it was only on April 16, 1990 that petitioner, through its counsel, wrote private respondents expressing its
willingness to pay the balance of the purchase price upon the execution of the corresponding deed of absolute
sale. At most, that was merely a notice to pay. There was no proper tender of payment nor consignation in this
case as required by law.
The mere sending of a letter by the vendee expressing the intention
pay, without the accompanying payment, is not considered a valid tender of payment. 43 Besides, a mere tender
of payment is not sufficient to compel private respondents to deliver the property and execute the deed of absolute
sale. It is consignation which is essential in order to extinguish petitioner's obligation to pay the balance of the
purchase price. 44 The rule is different in case of an option contract 45 or in legal redemption or in a sale with right
to repurchase, 46 wherein consignation is not necessary because these cases involve an exercise of a right or
privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment would
be sufficient to preserve the right or privilege. This is because the provisions on consignation are not applicable
when there is no obligation to pay. 47 A contract to sell, as in the case before us, involves the performance of an
obligation, not merely the exercise of a privilege of a right. consequently, performance or payment may be effected
not by tender of payment alone but by both tender and consignation.
Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased with the dismissal
of the civil case filed against it. Necessarily, therefore, its obligation to pay the balance again arose and resumed
after it received notice of such dismissal. Unfortunately, petitioner failed to seasonably make payment, as in fact
it has deposit the money with the trial court when this case was originally filed therein.
By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to and did
announce the rescission of the contract through its letter to petitioner dated July 27, 1990. That written notice of
rescission is deemed sufficient under the circumstances. Article 1592 of the Civil Code which requires rescission
either by judicial action or notarial act is not applicable to a contract to sell. 48 Furthermore, judicial action for
rescission of a contract is not necessary where the contract provides for automatic rescission in case of
breach,49 as in the contract involved in the present controversy.
We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that the right to rescind
is not absolute, being ever subject to scrutiny and review by the proper court. It is our considered view, however,
that this rule applies to a situation where the extrajudicial rescission is contested by the defaulting party. In other
words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the
debtor impugns the declaration, it shall be subject to judicial determination51 otherwise, if said party does not
oppose it, the extrajudicial rescission shall have legal effect. 52
In the case at bar, it has been shown that although petitioner was duly furnished and did receive a written notice
of rescission which specified the grounds therefore, it failed to reply thereto or protest against it. Its silence thereon
suggests an admission of the veracity and validity of private respondents' claim. 53 Furthermore, the initiative of
instituting suit was transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in
the contract. 54 But then, the records bear out the fact that aside from the lackadaisical manner with which petitioner
treated private respondents' latter of cancellation, it utterly failed to seriously seek redress from the court for the
enforcement of its alleged rights under the contract. If private respondents had not taken the initiative of filing Civil
Case No. 7532, evidently petitioner had no intention to take any legal action to compel specific performance from
the former. By such cavalier disregard, it has been effectively estopped from seeking the affirmative relief it now
desires but which it had theretofore disdained.
WHEREFORE, on the foregoing modificatory premises, and considering that the same result has been reached
by respondent Court of Appeals with respect to the relief awarded to private respondents by the court a quo which
we find to be correct, its assailed judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED. SO ORDERED.
NICOLAS SANCHEZ, Plaintiff-Appellee, vs. SEVERINA RIGOS, Defendant-Appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
to
CONCEPCION, C.J.:
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the
case to Us, upon the ground that it involves a question purely of law.chanroblesvirtualawlibrarychanrobles virtual
law library
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an
instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to
Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose,
province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of said
province, within two (2) years from said date with the understanding that said option shall be deemed "terminated
and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch
as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by
Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija
and commenced against the latter the present action, for specific performance and damages.
After the filing of defendant's answer - admitting some allegations of the complaint, denying other allegations
thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell, and
the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void" - on
February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment on the
pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos
to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs.
Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by Mrs.
Rigos. This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor
if the promise is supported by a consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed
to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of which was annexed
to said pleading as Annex A thereof and is quoted on the margin. 1Hence, plaintiff maintains that the promise
contained in the contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479.
Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not
true that the latter had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear
out plaintiff's allegation to this effect. What is more, since Annex A has been made "an integral part" of his
complaint, the provisions of said instrument form part "and parcel" 2of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract
to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by
the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant
"agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there
is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by
a consideration "distinct from the price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and
this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted, however,
that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in
particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article 1479
is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the concurrence
of a condition, namely, that the promise be "supported by a consideration distinct from the price." Accordingly, the
promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of
said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff
herein has not even alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the
absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings,
plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as March 14,
1908, it had been held, in Bauermann v. Casas, 3that:
One who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, and
without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of
all the material and relevant allegations of the opposing party, and to rest his motion for judgment on those
allegations taken together with such of his own as are admitted in the pleadings. (La Yebana Company vs. Sevilla,
9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa 4and Mercy's Incorporated v. Herminia Verde.
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6from which We quote:
The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of
P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in
support thereof it invokes article 1479 of the new Civil Code. The article provides:
"ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor
if the promise is supported by a consideration distinct from the price."
On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by any
consideration, that option became binding on appellant when the appellee gave notice to it of its acceptance, and
that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such
withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn any
time before acceptance by communicating such withdrawal, except when the option is founded upon consideration
as something paid or promised."
There is no question that under article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to
sell," as used in said article, to be valid must be "supported by a consideration distinct from the price." This is
clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only
binding if supported by consideration. In other words, "an accepted unilateral promise can only have a binding
effect if supported by a consideration which means that the option can still be withdrawn, even if accepted, if the
same is not supported by any consideration. It is not disputed that the option is without consideration. It can This view has the advantage of avoiding a conflict between Articles 1324 - on the general principles on contracts
therefore be withdrawn notwithstanding the acceptance of it by appellee. - and 1479 - on sales - of the Civil Code, in line with the cardinal rule of statutory construction that, in construing
different provisions of one and the same law or code, such interpretation should be favored as will reconcile or
harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process
It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that,
of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision
when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before
in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10holding that Art. 1324 is modified by Art.
acceptance" except when the option is founded upon consideration, but this general rule must be interpreted
1479 of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored,
as modified by the provision of article 1479 above referred to, which applies to "a promise to buy and
unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is
sell" specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a
more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported
consideration distinct from the price.
by or founded upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement
the same principle.
We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be
withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities,
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine
we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we
laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view adhered to in
are prevented from applying them in view of the specific provision embodied in article 1479. While under the "offer
the Southwestern Sugar & Molasses Co. case should be deemed abandoned or modified. WHEREFORE, the
of option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has
decision appealed from is hereby affirmed, with costs against defendant-appellant Severina Rigos. It is so
been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to
ordered.Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.
withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative
duty is to apply it unless modified by Congress.
Separate Opinions
8
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, decided later
that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9saw no distinction between Articles 1324 ANTONIO, J., concurring:
and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon
here was involved, treating such promise as an option which, although not binding as a contract in itself for lack
I concur in the opinion of the Chief Justice.
of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance.
Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:
I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar & Molasses Co. vs.
Atlantic Gulf and Pacific Co., 1which holds that an option to sell can still be withdrawn, even if accepted, if the same
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to
is not supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian
exercise his option within the specified time. After accepting the promise and before he exercises his option, the
Tek, 2holding that "an option implies ... the legal obligation to keep the offer (to sell) open for the time specified;"
holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case, however, upon
that it could be withdrawn before acceptance, if there was no consideration for the option, but once the "offer to
accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso
sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations
facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was
of a purchaser. In other words, if the option is given without a consideration, it is a mere offer to sell, which is not
not a mere option then; it was a bilateral contract of sale. Lastly, even supposing that Exh. A granted an option
binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of
which is not binding for lack of consideration, the authorities hold that:
sale. The concurrence of both acts - the offer and the acceptance - could in such event generate a contract. While
the law permits the offeror to withdraw the offer at any time before acceptance even before the period has expired,
"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until some writers hold the view, that the offeror can not exercise this right in an arbitrary or capricious manner. This is
accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even upon the principle that an offer implies an obligation on the part of the offeror to maintain in such length of time as
though the option was not supported by a sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See to permit the offeree to decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without
also 27 Ruling Case Law 339 and cases cited.) being liable for damages which the offeree may suffer. A contrary view would remove the stability and security of
business transactions.
"It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of
consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the acceptance the offerer In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of
had knowledge before said offer was withdrawn. The concurrence of both acts - the offer and the acceptance - Pl,510.00 before any withdrawal from the contract has been made by the Defendant (Severina Rigos)." Since
could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)." Rigos' offer sell was accepted by Sanchez, before she could withdraw her offer, a bilateral reciprocal contract - to
(Zayco vs. Serra, 44 Phil. 331.) sell and to buy - was generated.

In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound AQUILINO NIETES, petitioner, vs. HON. COURT OF APPEALS & DR. PABLO C. GARCIA, respondents.
by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.
CONCEPCION, C.J.:

Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of Appeals.
It appears that, on October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia entered into a "Contract Instead of paying the lessor in the manner set forth in paragraph 2 of said contract, Nietes had, as of August 4,
of Lease with Option to Buy," pursuant to the terms and conditions set forth in the deed Exhibits A and A-1, (also, 1961, made payments as follows:
marked as Exhibit 2) namely:
October 6,1960 ....................................... P18,957.00 (Exh. D)
That the LESSOR is an owner of the ANGELES EDUCATIONAL INSTITUTE situated at
Angeles, Pampanga, a school which is duly recognized by the Government;
November 23, 1960 ................................. 300.00 (Exh. E)

That the lessor agrees to lease the above stated school to the LESSEE under the following
December 21, 1960 ................................. 200.00 (Exh. F)
terms and conditions:

January 14, 1961 ..................................... 500.00 (Exh. G)

1. That the term will be for a period of five (5) years;

February 16, 1961 ................................... 3,000.00 (Exh. H)

2. That the price of the rent is FIVE THOUSAND PESOS (P5,000) per year payable in the
following manners:
March 12, 1961 ....................................... 1,000.00 (Exh. I)
a. That the amount of FIVE THOUSAND FIVE HUNDRED PESOS
(P5,500) will be paid upon the execution of this Contract of Lease; March 13, 1961 ....................................... 700.00 (Exh. J)

b. That the amount of FOUR THOUSAND FIVE HUNDRED PESOS August 4, 1961 ........................................ 100.00 (Exh. K) _________
(P4,500) is payable on or before the 30th day of October, 1959;
TOTAL ..................................... P24,757.00
c. That the remaining balance of FIFTEEN THOUSAND PESOS
(P15,000) will be paid on or before March 30, 1960;
Moreover, Nietes maintains that, on September 4, 1961, and December 13, 1962, he paid Garcia the additional
sums of P3,000 and P2,200, respectively, for which Garcia issued receipts Exhibit B and C, reading:
3. That all improvements made during the lease by the LESSEE will be owned by the LESSOR
after the expiration of the term of this Contract of Lease;
Received the amount of (P3,000.00) Three Thousand Pesos from Mrs. Nietes as per advance
pay for the school, the contract of lease being paid.
4. That the LESSOR agrees to give the LESSEE an option to buy the land and the school
building, for a price of ONE HUNDRED THOUSAND PESOS (P100,000) within the period of
the Contract of Lease; (Sgd.) PABLO GARCIA (Exh. B)

To Whom it May Concern:

5. That should the LESSEE buy the lot, land and the school building within the stipulated
period, the unused payment for the Contract of Lease will be considered as part payment for
the sale of the land and school;
6. That an inventory of all properties in the school will be made on March 31, 1960;
This is to certify that I received the sum of Two Thousand Two Hundred Pesos, Philippine
Currency, from Mrs. Catherine R. Nietes as the partial payment on the purchase of the
property as specified on the original contract of "Contract of Lease with the First Option to
Buy" originally contracted and duly signed.

6A. That the term of this Contract will commence in June 1960 and will terminate in June
1965; (Sgd.) DR. PABLO GARCIA (Exh. C)

7. That the LESSEE will be given full control and responsibilities over all the properties of the On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter Exhibit 1 (also Exhibit V) stating:
school and over all the supervisions and administrations of the school;
The Director
8. That the LESSEE agrees to help the LESSOR to collect the back accounts of students Philippine Institute of Electronics
incurred before the execution of this contract. Angeles, Pampanga

Sir:
I regret to inform you that our client, Dr. Pablo Garcia, desires to rescind your contract, dated
19 October 1959 because of the following:
1. That you had not maintained the building, subject of the lease contract in good condition.
2. That you had not been using the original name of the school — Angeles Institute, thereby
extinguishing its existence in the eyes of the public and injuring its prestige.
3. That through your fault, no inventory has been made of all properties of the school.
4. That up to this time, you had not collected or much less helped in the collection of back
accounts of former students.
This is to remind you that the foregoing obligations had been one, if not, the principal moving
factors which had induced the lessor in agreeing with the terms embodied in your contract of
lease, without which fulfillment, said contract could not have come into existence. It is not
simply one of those reminders that we make mention, that our client under the circumstances,
is not only entitled to a rescission of the contract. He is likewise entitled to damages — actual,
compensatory and exemplary.
In view of the serious nature of the breach which warrant and sanction drastic legal remedies
against you, we earnestly request you to please see the undersigned at the above-named
address two days from receipt hereof. Otherwise, if we shall not hear from you, the foregoing
will serve notice on your part to vacate the premises within five (5) days to be counted from
date of notice.
Very truly yours,
(Sgd.) VICTOR T. LLAMAS, JR.
to which counsel for Nietes replied in the following language:
Atty. Victor T. Llamas, Jr.
Victor Llamas Law Office
Corner Rivera-Zamora Streets
Dagupan City
Dear Sir:
Your letter dated July 31, 1964 addressed to my client, the Director of the Philippine Institute
of Electronics, Angeles City, has been referred to me and in reply, please, be informed that
my client has not violated any provision of the CONTRACT OF LEASE WITH OPTION TO
BUY, executed by him as LESSEE and Dr. Pablo Garcia as LESSOR. For this reason, there
is no basis for rescission of the contract nor of the demands contained in your letter.
In this connection, I am also serving this formal notice upon your client Dr. Pablo Garcia, thru
you, that my client Mr. AQUILINO T. NIETES will exercise his OPTION to buy the land and
building subject matter of the lease and that my said client is ready to pay the balance of the
purchase price in accordance with the contract. Please, inform Dr. Pablo Garcia to make
available the land title and execute the corresponding Deed of Sale pursuant to this notice,
and that if he fails to do so within fifteen (15) days from the receipt of this letter, we shall take
the corresponding action to enforce the agreement.
Truly yours,
(Sgd.) CONRADO V. DEL ROSARIO
Counsel for Mr. Aquilino T. Nietes
Angeles City
On July 26, 1965, Nietes deposited with the branch office of the Agro-Industrial Bank in Angeles City checks
amounting to P84,860.50, as balance of the purchase price of the property, but he withdrew said sum of
P84,860.50 on August 12, 1965, after the checks had been cleared. On August 2, 1965, he commenced the
present action, in the Court of First Instance of Pampanga, for specific performance of Dr. Garcia's alleged
obligation to execute in his (Nietes') favor a deed of absolute sale of the leased property, free from any lien or
encumbrance whatsoever, he having meanwhile mortgaged it to the People's Bank and Trust Company, and to
compel him (Garcia) to accept whatever balance of the purchase price is due him, as well as to recover from him
the aggregate sum of P90,000 by way of damages, apart from attorney's fees and the costs.
Dr. Garcia filed an answer admitting some allegations of the complaint and denying other allegations thereof, as
well as setting up a counterclaim for damages in the sum of P150,000.
After due trial, said court rendered its decision, the dispositive part of which reads:
WHEREFORE, in view of the preponderance of evidence in favor of the plaintiff and against
the defendant, judgment is hereby rendered ordering the latter to execute the Deed of
Absolute Sale of property originally leased together with the school building and other
improvements thereon which are covered by the contract, Annex "A", upon payment of the
former of the balance (whatever be the amount) of the stipulated purchase price; to free the
said property from any mortgage or encumbrance and deliver the title thereto to the plaintiff
free from any lien or encumbrance, and should said defendant fail to do so, the proceeds from
the purchase price be applied to the payment of the encumbrance so that the title may be
conveyed to the plaintiff; to pay the plaintiff the sum of P1,000.00 as attorney's fees, and the
cost of this suit.
Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial court had neither dismissed the
complaint nor upheld his counterclaim and failed to order Nietes to vacate the property in question, and Nietes
insofar as the trial court had granted him no more than nominal damages in the sum of P1,000, as attorney's fees.
After appropriate proceedings, a special division of Court of Appeals rendered its decision, on October 18, 1969,
affirming, in effect, that of the trial court, except as regards said attorney's fees, which were eliminated. The
dispositive part of said decision of the Court of Appeals reads:
WHEREFORE, with the modification that the attorney's fees awarded by the trial court in favor of the plaintiff is
eliminated, the appealed judgment is hereby affirmed in all other respects, and the defendant is ordered to execute
the corresponding deed of sale for the school building and lot in question in favor of the plaintiff upon the latter's
full payment of the balance of the purchase price. The costs of this proceedings shall be taxed against the
defendant-appellant.
On motion for reconsideration of defendant Garcia, said special division set aside its aforementioned decision and
rendered another one, promulgated on March 10, 1970 reversing the appealed decision of the court of first
instance, and dismissing the complaint of Nietes, with costs again him. Hence, the present petition of Nietes for
review certiorari of the second decision of the Court of Appeals, dated March 10, 1970, to which petition We gave
due course.
Said decision of the Court of Appeals, reversing that of the Court of First Instance, is mainly predicated upon the
theory that, under the contract between the parties, "the full purchase price must be paid before the option counsel
be exercised," because "there was no need nor sense providing that "the unused payment for the Contract Lease
will be considered as part payment for the sale the land and school'" inasmuch as "otherwise there is substantial
amount from which such unused rental could be deducted"; that the statement in the letter, Exhibit L, of Nietes,
dated August 7, 1964, to the effect that he "will exercise his OPTION to buy the land and building," indication that
he did not consider the receipts, Exhibits B and for P3,000 and P2,200, respectively, "as an effective exercise of
his option to buy"; that the checks for P84,860.50 deposited by Nietes with the Agro-Industrial Development Bank,
did not constitute a proper tender of payment, which, at any rate, was "made beyond the stipulated 5-year period";
that such deposit "was not seriously made, because on August 12, 1965, the same was withdrawn from the Bank
and ostensibly remains in the lessee's hand"; and that "the fact that such deposit was made by the lessee shows
that he himself believed that he should have paid the entire amount of the purchase price before he could avail of
the option to buy, otherwise, the deposit was a senseless gesture ... ."
Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him "were part of the price of the contract of
lease between the parties which were paid late and not within the periods and/or schedules fixed by the contract
(Annex A.)." What is more, on the witness stand, Garcia claimed that he did "not know" whether the signatures on
Exhibits B and C — the receipt for P3,000 and P2,200, respectively — were his, and even said that he was
"doubtful" about it.
This testimony is manifestly incredible, for a man of his intelligence — a Doctor of Medicine and the owner of an
educational institution — could not possibly "not know" or entertain doubts as to whether or not the aforementioned
signatures are his and the payments therein acknowledged had been received by him. His dubious veracity
becomes even more apparent when we consider the allegations in paragraph (4) of his answer — referring to
paragraphs 5 and 6 of the complaint alleging, inter alia, the aforementioned partial payments of P3,000 and
P2,200, on account of the stipulated sale price — to the effect that said sums " paid to the herein defendant were
part of the price of the contract of lease." In other words, payment of said sums of P3,000 and P2,200 is admitted in
said answer. Besides, the rentals for the whole period of the lease aggregated P25,000 only, whereas said sums
of P3,000 and P2,200, when added to the payments previously made by Nietes, give a grand total of P29,957.00,
or P4,957 in excess of the agreed rentals for the entire period of five years. Thus, Dr. Garcia was less than truthful
when he tried to cast doubt upon the fact of payment of said sums of P3,000 and P2,200, as well as when he
claimed that the same were part of the rentals collectible by him.
We, likewise, find ourselves unable to share the view taken by the Court of Appeals. Neither the tenor of the
contract Exhibits A and A-1 (also Exhibit 2) nor the behaviour of Dr. Garcia — as reflected in the receipts Exhibits
B and C — justifies such view. The contract does not say that Nietes had to pay the stipulated price of
P100,000 before exercising his option to buy the property in question. Accordingly, said option is governed by the
general principles on obligations, pursuants to which:
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.1
In the case of an option to buy, the creditor may validly and effectively exercise his right by merely advising the
debtor of the former's decision to buy and expressing his readiness to pay the stipulated price, provided that the
same is available and actually delivered to the debtor upon execution and delivery by him of the corresponding
deed of sale. Unless and until the debtor shall have done this the creditor is not and cannot be in default in the
discharge of his obligation to pay.2 In other words, notice of the creditor's decision to exercise his option to buy
need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property
upon performance of his part of the agreement. Nietes need not have deposited, therefore, with the Agro-Industrial
Bank checks amounting altogether to P84,860.50 on July 26, 1965, and the withdrawal thereof soon after does
not and cannot affect his cause of action in the present case. In making such deposit, he may have had the intent
to show his ability to pay the balance of the sum due to Dr. Garcia as the sale price of his property. In short, said
deposit and its subsequent withdrawal cannot affect the result of the present case.
Nietes was entitled to exercise his option to buy "within the period of the Contract of Lease," which — pursuant to
paragraph 6-A of said contract — commenced "in June 1960" and was to "terminate in June 1965." As early as
September 4, 1961, or well "within the period of the Contract of Lease," Nietes had paid Dr. Garcia the following
sums:
October 6, 1960 ............................ P18,957.00 (Exh. D)
November 23, 1960 ....................... 300.00 (Exh E)
December 21, 1960 ....................... 200.00 (Exh. F)
January 14, 1961 ........................... 500.00 (Exh. G)
February 16, 1961 ......................... 3,000.00 (Exh. H)
March 12, 1961 ............................. 1,000.00 (Exh. I)
March 13, 1961 ............................. 700.00 (Exh. J)
August 4, 1961 ............................... 100.00 (Exh. K)
September 4, 1961 ......................... 3,000.00 (Exh. B)
________
TOTAL ............................... P27,757.00
It is true that Nietes was bound, under the contract, to pay P5,500 on October 19, 1959, P4,500 on or before
October 30, 1959, and P15,000 on or before March 30, 1960, or the total sum of P25,000, from October 19, 1959
to March 30, 1960, whereas his first payment was not made until October 10, 1960, when he delivered the sum of
P18,957 to Dr. Garcia, and the latter had by August 4, 1961, received from the former the aggregate sum of
P24,757. This is, however, P243.00 only less than the P25,000 due as of March 30, 1960, so that Nietes may be
considered as having complied substantially with the terms agreed upon. Indeed, Dr. Garcia seems to have either
agreed thereto or not considered that Nietes had thereby violated the contract, because the letter of the former,
dated July 31, 1964, demanding rescission of the contract, did not mention said acts or omissions of Nietes among
his alleged violations thereof enumerated in said communication. In fact, when, on September 4, 1961, Mrs. Nietes
turned over the sum of P3,000 to Dr. Garcia, he issued the receipt Exhibit B, stating that said payment had been
made "as per advance pay for the school, the Contract of Lease being paid" — in other words, in accordance or
conformity with said contract. Besides, when, on December 13, 1962, Mrs. Nietes delivered the additional sum of
P2,200, Dr. Garcia issued a receipt accepting said amount "as the partial payment on the purchase price of the
property as specified on the original contract," thus further indicating that the payment, in his
opinion, conformed with said contract, and that, accordingly, the same was in full force and effect.
In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had received the total sum of P27,757, or
P2,757 in excess of the P25,000 representing the rentals for the entire period of the lease, and over P21,200 in
excess of the rentals for the unexpired portion of the lease, from September 4, 1961 to June 1965. This
circumstance indicates clearly that Nietes had, on September 4, 1961, chosen to exercise and did exercise then
his option to buy. What is more, this is borne out by the receipt issued by Dr. Garcia for the payment of P2,200,
on December 13, 1962, to which he referred therein as a "partial payment on the purchase of the property as
specified on the original contract of 'Contract of Lease with the First Option to Buy' ... ."
Further confirmation is furnished by the letter of Nietes, Exhibit L, of August 1964 — also, within the period of the
lease — stating that he "will exercise his OPTION to buy the land and building subject matter of the lease." It is
not correct to construe this expression — as did the appealed decision — as implying that the option had not been
or was not yet being exercised, or as a mere announcement of the intent to avail of it at some future time. This
interpretation takes said expression out of the context of Exhibit L, which positively states, also, that Nietes "is
ready to pay the balance of the purchase price in accordance with the contract," and requests counsel for Dr.
Garcia to inform or advise him "to make available the land title and execute the corresponding Deed of Sale
pursuant to this notice, and that if he fails to do so within fifteen (15) days ... we shall take the corresponding action
to enforce the agreement." Such demand and said readiness to pay the balance of the purchase price leave no
room for doubt that, as stated in Exhibit L, the same is "a formal notice" that Nietes had exercised his option, and
expected Dr. Garcia to comply, within fifteen (15) days, with his part of the bargain. Surely, there would have been
no point for said demand and readiness to pay, if Nietes had not yet exercised his option to buy.
The provision in paragraph 5 of the Contract, to the effect that "should the LESSEE" choose to make use of his
option to buy "the unused payment for the Contract of Lease will be considered as payment for the sale of the land
and school, "simply means that the rental paid for the unused portion of the lease shall be applied to and deducted
from the sale price of P100,000 to be paid by Nietes at the proper time — in other words, simultaneously with the
delivery to him of the corresponding deed of sale, duly executed by Dr. Garcia.
It is, consequently, Our considered opinion that Nietes had validly and effectively exercised his option to buy the
property of Dr. Garcia, at least, on December 13, 1962, when he acknowledged receipt from Mrs. Nietes of the
sum of P2,200 then delivered by her "in partial payment on the purchase of the property" described in the "Contract
of Lease with Option to Buy"; that from the aggregate sum of P29,957.00 paid to him up to that time, the sum of
P12,708.33 should be deducted as rental for the period from June 1960 to December 13, 1962, or roughly thirty
(30) months and a half, thereby leaving a balance of P17,248.67, consisting of P12,291.67, representing the
rentals for the unused period of the lease, plus P4,957.00 paid in excess of said rental and advanced solely on
account of the purchase price; that deducting said sum of P17,248.67 from the agreed price of P100,000.00, there
results a balance of P82,751.33 which should be paid by Nietes to Dr. Garcia, upon execution by the latter of the
corresponding deed of absolute sale of the property in question, free from any lien or encumbrance whatsoever,
in favor of Nietes, and the delivery to him of said deed of sale, as well as of the owner's duplicate of the certificate
of title to said property; and that Dr. Garcia should indemnify Nietes in the sum of P2,500 as and for attorney's
fees.
Thus modified, the decision of the Court of First Instance of Pampanga is hereby affirmed in all other respects,
and that of the Court of Appeals reversed, with costs against respondent herein, Dr. Pablo C. Garcia. It is so
ordered.
SPOUSES CIPRIANO VASQUEZ and VALERIANA GAYANELO, petitioners, vs. HONORABLE COURT OF
APPEALS and SPOUSES MARTIN VALLEJERA and APOLONIA OLEA, respondents.
GUTIERREZ, JR., J.:
This petition seeks to reverse the decision of the Court of Appeals which affirmed the earlier decision of the
Regional Trial Court, 6th Judicial Region, Branch 56, Himamaylan, Negros Occidental in Civil Case No. 839 (for
specific performance and damages) ordering the petitioners (defendants in the civil case) to resell Lot No. 1860
of the Cadastral Survey of Himamaylan, Negros Occidental to the respondents (plaintiffs in the civil case) upon
payment by the latter of the amount of P24,000.00 as well as the appellate court's resolution denying a motion for
reconsideration. In addition, the appellate court ordered the petitioners to pay the amount of P5,000.00 as
necessary and useful expenses in accordance with Article 1616 of the Civil Code.
The facts of the case are not in dispute. They are summarized by the appellate court as follows:
On January 15, 1975, the plaintiffs-spouses (respondents herein) filed this action against the
defendants-spouses (petitioners herein) seeking to redeem Lot No. 1860 of the Himamaylan Cadastre
which was previously sold by plaintiffs to defendants on September 21, 1964.
The said lot was registered in the name of plaintiffs. On October 1959, the same was leased by plaintiffs
to the defendants up to crop year 1966-67, which was extended to crop year 1968-69. After the
execution of the lease, defendants took possession of the lot, up to now and devoted the same to the
cultivation of sugar.
On September 21, 1964, the plaintiffs sold the lot to the defendants under a Deed of Sale for the amount
of P9,000.00. The Deed of Sale was duly ratified and notarized. On the same day and along with the
execution of the Deed of Sale, a separate instrument, denominated as Right to Repurchase (Exh. E),
was executed by the parties granting plaintiffs the right to repurchase the lot for P12,000.00, said Exh.
E likewise duly ratified and notarized. By virtue of the sale, defendants secured TCT No. T-58898 in
their name. On January 2, 1969, plaintiffs sold the same lot to Benito Derrama, Jr., after securing the
defendants' title, for the sum of P12,000.00. Upon the protestations of defendant, assisted by counsel,
the said second sale was cancelled after the payment of P12,000.00 by the defendants to Derrama.
Defendants resisted this action for redemption on the premise that Exh. E is just an option to buy since
it is not embodied in the same document of sale but in a separate document, and since such option is
not supported by a consideration distinct from the price, said deed for right to repurchase is not binding
upon them.
After trial, the court below rendered judgment against the defendants, ordering them to resell lot No.
1860 of the Himamaylan Cadastre to the plaintiffs for the repurchase price of P24,000.00, which amount
combines the price paid for the first sale and the price paid by defendants to Benito Derrama, Jr.
Defendants moved for, but were denied reconsideration. Excepting thereto, defendants-appealed, . . .
(Rollo, pp. 44-45)
The petition was given due course in a resolution dated February 12, 1990.
The petitioners insist that they can not be compelled to resell Lot No. 1860 of the Himamaylan Cadastre. They
contend that the nature of the sale over the said lot between them and the private respondents was that of an
absolute deed of sale and that the right thereafter granted by them to the private respondents (Right to
Repurchase, Exhibit "E") can only be either an option to buy or a mere promise on their part to resell the property.
They opine that since the "RIGHT TO REPURCHASE" was not supported by any consideration distinct from the
purchase price it is not valid and binding on the petitioners pursuant to Article 1479 of the Civil Code.
The document denominated as "RIGHT TO REPURCHASE" (Exhibit E) provides:
RIGHT TO REPURCHASE
KNOW ALL MEN BY THESE PRESENTS:
I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses Martin Vallejera and Apolonia Olea, their
heirs and assigns, the right to repurchase said Lot No. 1860 for the sum of TWELVE THOUSAND
PESOS (P12,000.00), Philippine Currency, within the period TEN (10) YEARS from the agricultural year
1969-1970 when my contract of lease over the property shall expire and until the agricultural year 1979-
1980.
IN WITNESS WHEREOF, I have hereunto signed my name at Binalbagan, Negros Occidental, this 21st
day of September, 1964.
SGD. CIPRIANO VASQUEZ
SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS
(Rollo, p. 47)
The Court of Appeals, applying the principles laid down in the case of Sanchez v. Rigos, 45 SCRA 368 [1972]
decided in favor of the private respondents.
In the Sanchez case, plaintiff-appellee Nicolas Sanchez and defendant-appellant Severino Rigos executed a
document entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed . . . to sell" to
Sanchez for the sum of P1,510.00, a registered parcel of land within 2 years from execution of the document with
the condition that said option shall be deemed "terminated and lapsed," if "Sanchez shall fail to exercise his right
to buy the property" within the stipulated period. In the same document, Sanchez" . . . hereby agree and conform
with all the conditions set forth in the option to purchase executed in my favor, that I bind myself with all the terms
and conditions." (Emphasis supplied) The notarized document was signed both by Sanchez and Rigos.
After several tenders of payment of the agreed sum of P1,510.00 made by Sanchez within the stipulated period
were rejected by Rigos, the former deposited said amount with the Court of First Instance of Nueva Ecija and filed
an action for specific performance and damages against Rigos.
The lower court rendered judgment in favor of Sanchez and ordered Rigos to accept the sum judicially consigned
and to execute in Sanchez' favor the requisite deed of conveyance. Rigos appealed the case to the Court of
Appeals which certified to this Court on the ground that it involves a pure question of law.
This Court after deliberating on two conflicting principles laid down in the cases of Southwestern Sugar and
Molasses Co. v. Atlantic Gulf and Pacific Co., (97 Phil. 249 [1955]) and Atkins, Kroll & Co., Inc. v. Cua Hian Tek,
102 Phil. 948 [1958]) arrived at the conclusion that Article 1479 of the Civil Code which provides: ––
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon
the promissory if the promise is supported by a consideration distinct from the price.
and Article 1324 thereof which provides:
Art. 1324. When the offerer has allowed the offerer a certain period to accept, the offer may be withdrawn
at any time before acceptance by communicating such withdrawal, except when the option is founded
upon a consideration, as something paid or promised.
should be reconciled and harmonized to avoid a conflict between the two provisions. In effect, the Court
abandoned the ruling in the Southwestern Sugar and Molasses Co. case and reiterated the ruling in the Atkins,
Kroll and Co. case, to wit:
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, (102 Phil. 948, 951-
952) decided later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., (supra) saw
no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral
promise to sell similar to the one sued upon here was involved, treating such promise as an option
which, although not binding as a contract in itself for lack of separate consideration, nevertheless
generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate
Justice, later Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree
should decide to exercise his option within the specified time. After accepting the promise and
before he exercises his option, the holder of the option is not bound to buy. He is free either
to buy or not to buy later. In this case however, upon accepting herein petitioner's offer a
bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the
obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It
was not a mere option then; it was bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack of
consideration, the authorities hold that
If the option is given without a consideration, it is a mere offer of a contract of sale, which is
not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes
a binding contract of sale, even though the option was not supported by a sufficient
consideration . . . (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and
cases cited.)
This Court affirmed the lower court's decision although the promise to sell was not supported by a consideration
distinct from the price. It was obvious that Sanchez, the promisee, accepted the option to buy before Rigos, the
promisor, withdrew the same. Under such circumstances, the option to purchase was converted into a bilateral
contract of sale which bound both parties.
In the instant case and contrary to the appellate court's finding, it is clear that the right to repurchase was not
supported by a consideration distinct from the price. The rule is that the promisee has the burden of proving such
consideration. Unfortunately, the private respondents, promisees in the right to repurchase failed to prove such
consideration. They did not even allege the existence thereof in their complaint. (See Sanchez v. Rigos supra)
Therefore, in order that the Sanchez case can be applied, the evidence must show that the private respondents
accepted the right to repurchase.
The record, however, does not show that the private respondents accepted the "Right to Repurchase" the land in
question. We disagree with the appellate court's finding that the private respondents accepted the "right to
repurchase" under the following circumstances: . . as evidenced by the annotation and registration of the same on
the back of the transfer of certificate of title in the name of appellants. As vividly appearing therein, it was signed
by appellant himself and witnessed by his wife so that for all intents and purposes the Vasquez spouses are
estopped from disregarding its obvious purpose and intention."
The annotation and registration of the right to repurchase at the back of the certificate of title of the petitioners can
not be considered as acceptance of the right to repurchase. Annotation at the back of the certificate of title of
registered land is for the purpose of binding purchasers of such registered land. Thus, we ruled in the case of Bel
Air Village Association, Inc. v. Dionisio (174 SCRA 589 [1989]), citing Tanchoco v. Aquino (154 SCRA 1 [1987]),
and Constantino v. Espiritu (45 SCRA 557 [1972]) that purchasers of a registered land are bound by the
annotations found at the back of the certificate of title covering the subject parcel of land. In effect, the annotation
of the right to repurchase found at the back of the certificate of title over the subject parcel of land of the private
respondents only served as notice of the existence of such unilateral promise of the petitioners to resell the same
to the private respondents. This, however, can not be equated with acceptance of such right to repurchase by the
private respondent.
Neither can the signature of the petitioners in the document called "right to repurchase" signify acceptance of the
right to repurchase. The respondents did not sign the offer. Acceptance should be made by the promisee, in this
case, the private respondents and not the promisors, the petitioners herein. It would be absurd to require the
promisor of an option to buy to accept his own offer instead of the promisee to whom the option to buy is given.
Furthermore, the actions of the private respondents –– (a) filing a complaint to compel re-sale and their demands
for resale prior to filing of the complaint cannot be considered acceptance. As stated in Vda. de Zulueta v.
Octaviano (121 SCRA 314 [1983]):
And even granting, arguendo that the sale was a pacto de retro sale, the evidence shows that Olimpia,
through her lawyer, opted to repurchase the land only on 16 February 1962, approximately two years
beyond the stipulated period, that is not later than May, 1960.
If Olimpia could not locate Aurelio, as she contends, and based on her allegation that the contract
between her was one of sale with right to repurchase, neither, however, did she tender the redemption
price to private respondent Isauro, but merely wrote him letters expressing her readiness to repurchase
the property.
It is clear that the mere sending of letters by the vendor expressing his desire to repurchase the property
without accompanying tender of the redemption price fell short of the requirements of law. (Lee v. Court
of Appeals, 68 SCRA 197 [1972])
Neither did petitioner make a judicial consignation of the repurchase price within the agreed period.
In a contract of sale with a right of repurchase, the redemptioner who may offer to make the repurchase
on the option date of redemption should deposit the full amount in court . . . (Rumbaoa v. Arzaga, 84
Phil. 812 [1949])
To effectively exercise the right to repurchase the vendor a retro must make an actual and simultaneous
tender of payment or consignation. (Catangcatang v. Legayada, 84 SCRA 51 [1978])
The private respondents' ineffectual acceptance of the option to buy validated the petitioner's refusal to sell the
parcel which can be considered as a withdrawal of the option to buy.
We agree with the petitioners that the case of Vda. de Zulueta v. Octaviano, (supra) is in point.
Stripped of non-essentials the facts of the Zulueta case are as follows: On November 25, 1952 (Emphasis
supplied) Olimpia Fernandez Vda. de Zulueta, the registered owner of a 5.5 hectare riceland sold the lot to private
respondent Aurelio B. Octaviano for P8,600.00 subject to certain terms and conditions. The contract was an
absolute and definite sale. On the same day, November 25, 1952, (Emphasis supplied) the vendee, Aurelio signed
another document giving the vendor Zulueta the "option to repurchase" the property at anytime after May 1958
but not later than May 1960. When however, Zulueta tried to exercise her "option to buy" the property, Aurelio
resisted the same prompting Zulueta to commence suit for recovery of ownership and possession of the property
with the then Court of First Instance of Iloilo.
The trial court ruled in favor of Zulueta. Upon appeal, however, the Court of Appeals reversed the trial court's
decision.
We affirmed the appellate court's decision and ruled:
The nature of the transaction between Olimpia and Aurelio, from the context of Exhibit "E" is not a sale
with right to repurchase. Conventional redemption takes place "when the vendor reserves the right to
repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other
stipulations which may have been agreed upon. (Article 1601, Civil Code).
In this case, there was no reservation made by the vendor, Olimpia, in the document Exhibit "E" the
"option to repurchase" was contained in a subsequent document and was made by the vendee,
Aurelio. Thus, it was more of an option to buy or a mere promise on the part of the vendee, Aurelio, to
resell the property to the vendor, Olimpia. (10 Manresa, p. 311 cited in Padilla's Civil Code Annotated,
Vol. V, 1974 ed., p. 467) As held in Villarica v. Court of Appeals (26 SCRA 189 [1968]):
The right of repurchase is not a right granted the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can
no longer reserve the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some other right like the
option to buy in the instant case. . . (Emphasis supplied)
The appellate court rejected the application of the Zulueta case by stating:
. . . [A]s found by the trial court from which we quote with approval below, the said cases involve the
lapse of several days for the execution of separate instruments after the execution of the deed of sale,
while the instant case involves the execution of an instrument, separate as it is, but executed on the
same day, and notarized by the same notary public, to wit:
A close examination of Exh. "E" reveals that although it is a separate document in itself, it is far different
from the document which was pronounced as an option by the Supreme Court in the Villarica case. The
 option in the Villarica case was executed several days after the execution of the deed of sale. In the We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost
present case, Exh. "E" was executed and ratified by the same notary public and the Deed of Sale of Lot verbatim the basis of the statement of facts as rendered by the petitioners in their pleadings:
No. 1860 by the plaintiffs to the defendants were notarized by the same notary public and entered in the
same page of the same notarial register . . .
Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon
located at Claro M Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name
The latter case (Vda. de Zulueta v. Octaviano, supra), likewise involved the execution of the separate by the Register of Deeds of Manila.
document after an intervention of several days and the question of laches was decided therein, which
is not present in the instant case. That distinction is therefore crucial and We are of the opinion that the
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of
appellee's right to repurchase has been adequately provided for and reserved in conformity with Article
a portion of Carmelo's property particularly described, to wit:
1601 of the Civil Code, which states:

A PORTION OF THE SECOND FLOOR of the two-storey building,

Conventional redemption shall take place when the vendor reserves the right to repurchase the thing
situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square
sold, with the obligation to comply with the provision of Article 1616 and other stipulations which may
meters.
have been agreed upon. (Rollo, pp. 46-47)

THE SECOND FLOOR AND MEZZANINE of the two-storey building,

Obviously, the appellate court's findings are not reflected in the cited decision.1âwphi1 As in the instant case, the
situated at C.M. Recto Avenue, Manila, with a floor area of 150 square
option to repurchase involved in the Zulueta case was executed in a separate document but on the same date that
meters.
the deed of definite sale was executed.

for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair
While it is true that this Court in the Zulueta case found Zulueta guilty of laches, this, however, was not the primary
thereafter constructed on the leased property a movie house known as "Maxim Theatre."
reason why this Court disallowed the redemption of the property by Zulueta. It is clear from the decision that the
ruling in the Zulueta case was based mainly on the finding that the transaction between Zulueta and Octaviano
was not a sale with right to repurchase and that the "option to repurchase was but an option to buy or a mere Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with
promise on the part of Octaviano to resell the property to Zulueta. Carmelo for the lease of another portion of Carmelo's property, to wit:

In the instant case, since the transaction between the petitioners and private respondents was not a sale with right A PORTION OF THE SECOND FLOOR of the two-storey building,
to repurchase, the private respondents cannot avail of Article 1601 of the Civil Code which provides for situated at C.M. Recto Avenue, Manila, with a floor area of 1,064 square
conventional redemption. meters.

WHEREFORE, the petition is GRANTED. The questioned decision and resolution of the Court of Appeals are THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 839 of the then Court of First Instance of MEZZANINE of the two-storey building situated at C.M. Recto Avenue,
Negros Occidental 12th Judicial District Branch 6 is DISMISSED. No costs. SO ORDERED. Manila, with a floor area of 300 square meters and bearing street
numbers 1871 and 1875,
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners, vs. MAYFAIR
THEATER, INC., respondent. for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up
another movie house known as "Miramar Theatre" on this leased property.
HERMOSISIMA, JR., J.:
Both contracts of lease provides (sic) identically worded paragraph 8, which reads:
1
Before us is a petition for review of the decision of the Court of
Appeals2 involving questions in the resolution of which the respondent appellate court analyzed and That if the LESSOR should desire to sell the leased premises, the
interpreted particular provisions of our laws on contracts and sales. In its assailed decision, the LESSEE shall be given 30-days exclusive option to purchase the same.
respondent court reversed the trial court3 which, in dismissing the complaint for specific performance
with damages and annulment of contract,4 found the option clause in the lease contracts entered into
by private respondent Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann, In the event, however, that the leased premises is sold to someone other
Inc. (hereafter, Carmelo) to be impossible of performance and unsupported by a consideration and the than the LESSEE, the LESSOR is bound and obligated, as it hereby
binds and obligates itself, to stipulate in the Deed of Sale hereof that the
subsequent sale of the subject property to petitioner Equatorial Realty Development, Inc. (hereafter,
Equatorial) to have been made without any breach of or prejudice to, the said lease contracts. 5 purchaser shall recognize this lease and be bound by all the terms and
conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President During the pre-trial conference held on January 23, 1979, the parties stipulated on the
of Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire following:
Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to
buy the whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter
1. That there was a deed of sale of the contested premises by the
was willing to buy the property for Six to Seven Million Pesos.
defendant Carmelo . . . in favor of defendant Equatorial . . .;

Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974,
2. That in both contracts of lease there appear (sic) the stipulation
Mayfair replied through a letter stating as follows:
granting the plaintiff exclusive option to purchase the leased premises
should the lessor desire to sell the same (admitted subject to the
It appears that on August 19, 1974 your Mr. Henry Pascal informed our contention that the stipulation is null and void);
client's Mr. Henry Yang through the telephone that your company desires
to sell your above-mentioned C.M. Recto Avenue property.
3. That the two buildings erected on this land are not of the condominium
plan;
Under your company's two lease contracts with our client, it is uniformly
provided:
4. That the amounts stipulated and mentioned in paragraphs 3 (a) and
(b) of the contracts of lease constitute the consideration for the plaintiff's
8. That if the LESSOR should desire to sell the leased premises the occupancy of the leased premises, subject of the same contracts of
LESSEE shall be given 30-days exclusive option to purchase the same. lease, Exhibits A and B;
In the event, however, that the leased premises is sold to someone other
than the LESSEE, the LESSOR is bound and obligated, as it is (sic)
xxx xxx xxx
herebinds (sic) and obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this lease and be bound by all
the terms and conditions hereof (sic). 6. That there was no consideration specified in the option to buy
embodied in the contract;
Carmelo did not reply to this letter.
7. That Carmelo & Bauermann owned the land and the two buildings
erected thereon;
On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest
in acquiring not only the leased premises but "the entire building and other improvements if
the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of 8. That the leased premises constitute only the portions actually occupied
the second letter. by the theaters; and

Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and 9. That what was sold by Carmelo & Bauermann to defendant Equatorial
building, which included the leased premises housing the "Maxim" and "Miramar" theatres, to Realty is the land and the two buildings erected thereon.
Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00.
xxx xxx xxx
In September 1978, Mayfair instituted the action a quo for specific performance and
annulment of the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as
special and affirmative defense (a) that it had informed Mayfair of its desire to sell the entire After assessing the evidence, the court a quo rendered the appealed decision, the decretal
C.M. Recto Avenue property and offered the same to Mayfair, but the latter answered that it portion of which reads as follows:
was interested only in buying the areas under lease, which was impossible since the property
was not a condominium; and (b) that the option to purchase invoked by Mayfair is null and WHEREFORE, judgment is hereby rendered:
void for lack of consideration. Equatorial, in its Answer, pleaded as special and affirmative
defense that the option is void for lack of consideration (sic) and is unenforceable by reason
of its impossibility of performance because the leased premises could not be sold separately (1) Dismissing the complaint with costs against the plaintiff;
from the other portions of the land and building. It counterclaimed for cancellation of the
contracts of lease, and for increase of rentals in view of alleged supervening extraordinary (2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00
devaluation of the currency. Equatorial likewise cross-claimed against co-defendant Carmelo by way of attorney's fees on its counterclaim;
for indemnification in respect of Mayfair's claims.
 (3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per An accepted unilateral promise to buy or to sell a determine thing for a
month as reasonable compensation for the use of areas not covered by price certain is binding upon the promissor if the promise is supported by
the contract (sic) of lease from July 31, 1979 until plaintiff vacates said a consideration distinct from the price.
area (sic) plus legal interest from July 31, 1978; P70,000 00 per month
as reasonable compensation for the use of the premises covered by the
The plaintiff cannot compel defendant Carmelo to comply with the promise unless the former
contracts (sic) of lease dated (June 1, 1967 from June 1, 1987 until
establishes the existence of a distinct consideration. In other words, the promisee has the
plaintiff vacates the premises plus legal interest from June 1, 1987;
burden of proving the consideration. The consideration cannot be presumed as in Article
P55,000.00 per month as reasonable compensation for the use of the
1354:
premises covered by the contract of lease dated March 31, 1969 from
March 30, 1989 until plaintiff vacates the premises plus legal interest from
March 30, 1989; and P40,000.00 as attorney's fees; Although the cause is not stated in the contract, it is presumed that it
exists and is lawful unless the debtor proves the contrary.
(4) Dismissing defendant Equatorial's crossclaim against defendant
Carmelo & Bauermann. where consideration is legally presumed to exists. Article 1354 applies to contracts in general,
whereas when it comes to an option it is governed particularly and more specifically by Article
1479 whereby the promisee has the burden of proving the existence of consideration distinct
The contracts of lease dated June 1, 1967 and March 31, 1969 are
from the price. Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court
declared expired and all persons claiming rights under these contracts
said:
are directed to vacate the premises.6

(1) Article 1354 applies to contracts in general, whereas the second

The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to
paragraph of Article 1479 refers to sales in particular, and, more
be an option clause which however cannot be deemed to be binding on Carmelo because of lack of
specifically, to an accepted unilateral promise to buy or to sell. In other
distinct consideration therefor.
words, Article 1479 is controlling in the case at bar.

The court a quo ratiocinated:

(2) In order that said unilateral promise may be binding upon the
promissor, Article 1479 requires the concurrence of a condition, namely,
Significantly, during the pre-trial, it was admitted by the parties that the option in the contract that the promise be supported by a consideration distinct from the price.
of lease is not supported by a separate consideration. Without a consideration, the option is
therefore not binding on defendant Carmelo & Bauermann to sell the C.M. Recto property to
Accordingly, the promisee cannot compel the promissor to comply with
the former. The option invoked by the plaintiff appears in the contracts of lease . . . in effect
the promise, unless the former establishes the existence of said distinct
there is no option, on the ground that there is no consideration. Article 1352 of the Civil Code,
consideration. In other words, the promisee has the burden of proving
provides:
such consideration. Plaintiff herein has not even alleged the existence
thereof in his complaint. 7
Contracts without cause or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good
It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M. Recto
custom, public order or public policy.
property to the former.

Contracts therefore without consideration produce no effect whatsoever. Article 1324

Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent
provides:
Court of Appeals. Respondent appellate court reversed the court a quo and rendered judgment:

When the offeror has allowed the offeree a certain period to accept, the
1. Reversing and setting aside the appealed Decision;
offer may be withdrawn at any time before acceptance by communicating
such withdrawal, except when the option is founded upon consideration,
as something paid or promised. 2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to Equatorial the
amount of P11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering
Equatorial Realty Development, Inc. to accept such payment;
in relation with Article 1479 of the same Code:

3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc.
A promise to buy and sell a determine thing for a price certain is
to execute the deeds and documents necessary for the issuance and transfer of ownership
reciprocally demandable.
to Mayfair of the lot registered under TCT Nos. 17350, 118612, 60936, and 52571; and
 4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as adjudged,
declaring the Deed of Absolute Sale between the defendants-appellants Carmelo &
Bauermann, Inc. and Equatorial Realty Development, Inc. as valid and binding upon all the
parties.8
Rereading the law on the matter of sales and option contracts, respondent Court of Appeals
differentiated between Article 1324 and Article 1479 of the Civil Code, analyzed their application to the
facts of this case, and concluded that since paragraph 8 of the two lease contracts does not state a fixed
price for the purchase of the leased premises, which is an essential element for a contract of sale to be
perfected, what paragraph 8 is, must be a right of first refusal and not an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second
paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an offeror which the offeree may or may not accept
within a certain period. Under this article, the offer may be withdrawn by the offeror before the
expiration of the period and while the offeree has not yet accepted the offer. However, the
offer cannot be withdrawn by the offeror within the period if a consideration has been promised
or given by the offeree in exchange for the privilege of being given that period within which to
accept the offer. The consideration is distinct from the price which is part of the offer. The
contract that arises is known as option. In the case of Beaumont vs. Prieto, 41 Phil. 670, the
Supreme court, citing Bouvier, defined an option as follows: "A contract by virtue of which A,
in consideration of the payment of a certain sum to B, acquires the privilege of buying from or
selling to B, certain securities or properties within a limited time at a specified price," (pp. 686-
7).
and protect Mayfair in its rights as lessee in case Carmelo should decide, during the term of
the lease, to sell the leased property. This intention of the parties is achieved in two ways in
accordance with the stipulation. The first is by giving Mayfair "30-days exclusive option to
purchase" the leased property. The second is, in case Mayfair would opt not to purchase the
leased property, "that the purchaser (the new owner of the leased property) shall recognize
the lease and be bound by all the terms and conditions thereof."
In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving
Mayfair "30-days exclusive option to purchase the (leased premises)," was meant to provide
Mayfair the opportunity to purchase and acquire the leased property in the event that Carmelo
should decide to dispose of the property. In order to realize this intention, the implicit obligation
of Carmelo once it had decided to sell the leased property, was not only to notify Mayfair of
such decision to sell the property, but, more importantly, to make an offer to sell the leased
premises to Mayfair, giving the latter a fair and reasonable opportunity to accept or reject the
offer, before offering to sell or selling the leased property to third parties. The right vested in
Mayfair is analogous to the right of first refusal, which means that Carmelo should have
offered the sale of the leased premises to Mayfair before offering it to other parties, or, if
Carmelo should receive any offer from third parties to purchase the leased premises, then
Carmelo must first give Mayfair the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he
made the telephone call to Mr. Yang in 1974. Mr. Pascal thus testified:
Q Can you tell this Honorable Court how you made
the offer to Mr. Henry Yang by telephone?

Article 1479, second paragraph, on the other hand, contemplates of an "accepted unilateral A I have an offer from another party to buy the
promise to buy or to sell a determinate thing for a price within (which) is binding upon the property and having the offer we decided to make
promisee if the promise is supported by a consideration distinct from the price." That an offer to Henry Yang on a first-refusal basis. (TSN
"unilateral promise to buy or to sell a determinate thing for a price certain" is called an offer. November 8, 1983, p. 12.).
An "offer", in laws, is a proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil. 217).
To constitute a legal offer, the proposal must be certain as to the object, the price and other
and on cross-examination:
essential terms of the contract (Art. 1319, Civil Code).

Q When you called Mr. Yang on August 1974 can

Based on the foregoing discussion, it is evident that the provision granting Mayfair "30-days
you remember exactly what you have told him in
exclusive option to purchase" the leased premises is NOT AN OPTION in the context of Arts.
connection with that matter, Mr. Pascal?
1324 and 1479, second paragraph, of the Civil Code. Although the provision is certain as to
the object (the sale of the leased premises) the price for which the object is to be sold is not
stated in the provision Otherwise stated, the questioned stipulation is not by itself, an "option" A More or less, I told him that I received an offer from
or the "offer to sell" because the clause does not specify the price for the subject property. another party to buy the property and I was offering
him first choice of the enter property. (TSN,
November 29, 1983, p. 18).
Although the provision giving Mayfair "30-days exclusive option to purchase" cannot be legally
categorized as an option, it is, nevertheless, a valid and binding stipulation. What the trial
court failed to appreciate was the intention of the parties behind the questioned proviso. We rule, therefore, that the foregoing interpretation best renders effectual the intention of the
parties.9
xxx xxx xxx
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the requirement
of distinct consideration indispensable in an option contract, has no application, respondent appellate
The provision in question is not of the pro-forma type customarily found in a contract of lease.
court also addressed the claim of Carmelo and Equatorial that assuming arguendo that the option is
Even appellees have recognized that the stipulation was incorporated in the two Contracts of
valid and effective, it is impossible of performance because it covered only the leased premises and not
Lease at the initiative and behest of Mayfair. Evidently, the stipulation was intended to benefit
the entire Claro M. Recto property, while Carmelo's offer to sell pertained to the entire property in THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED
question. The Court of Appeals ruled as to this issue in this wise: IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN IT
GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE
COMPLAINT.
We are not persuaded by the contentions of the defendants-appellees. It is to be noted that
the Deed of Absolute Sale between Carmelo and Equatorial covering the whole Claro M.
Recto property, made reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571. IV
Based on the information submitted by Mayfair in its appellant's Brief (pp. 5 and 46) which
has not been controverted by the appellees, and which We, therefore, take judicial notice of
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT
the two theaters stand on the parcels of land covered by TCT No. 17350 with an area of
OF APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION XII, PARTICULARLY
622.10 sq. m and TCT No. 118612 with an area of 2,100.10 sq. m. The existence of four
JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE MOTIONS IN THE "COMPLETION
separate parcels of land covering the whole Recto property demonstrates the legal and
PROCESS" AND TO STILL RESOLVE THE MERITS OF THE CASE IN THE "DECISION
physical possibility that each parcel of land, together with the buildings and improvements
STAGE".11
thereof, could have been sold independently of the other parcels.

At the time both parties executed the contracts, they were aware of the physical and structural
conditions of the buildings on which the theaters were to be constructed in relation to the
remainder of the whole Recto property. The peculiar language of the stipulation would tend
to limit Mayfair's right under paragraph 8 of the Contract of Lease to the acquisition of the
leased areas only. Indeed, what is being contemplated by the questioned stipulation is a
departure from the customary situation wherein the buildings and improvements are included
in and form part of the sale of the subjacent land. Although this situation is not common,
especially considering the non-condominium nature of the buildings, the sale would be valid
and capable of being performed. A sale limited to the leased premises only, if hypothetically
assumed, would have brought into operation the provisions of co-ownership under which
Mayfair would have become the exclusive owner of the leased premises and at the same time
a co-owner with Carmelo of the subjacent land in proportion to Mayfair's interest over the
premises sold to it.10
Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the
decision of respondent Court of Appeals on the basis of the following assigned errors:
We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this
case in the Court of Appeals. Suffice it to say that in our Resolution, 12 dated December 9, 1992, we
already took note of this matter and set out the proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a
letter-complaint to this Court alleging certain irregularities and infractions committed by certain
lawyers, and Justices of the Court of Appeals and of this Court in connection with case CA-
G.R. CV No. 32918 (now G.R. No. 106063). This partakes of the nature of an administrative
complaint for misconduct against members of the judiciary. While the letter-complaint arose
as an incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the disposition thereof
should be separate and independent from Case G.R. No. 106063. However, for purposes of
receiving the requisite pleadings necessary in disposing of the administrative complaint, this
Division shall continue to have control of the case. Upon completion thereof, the same shall
be referred to the Court En Banc for proper disposition.13

I This court having ruled the procedural irregularities raised in the fourth assigned error of Carmelo and
Equatorial, to be an independent and separate subject for an administrative complaint based on
misconduct by the lawyers and justices implicated therein, it is the correct, prudent and consistent
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION
course of action not to pre-empt the administrative proceedings to be undertaken respecting the said
CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL
irregularities. Certainly, a discussion thereupon by us in this case would entail a finding on the merits as
PROVISO. IN DOING SO THE COURT OF APPEALS DISREGARDED THE CONTRACTS
to the real nature of the questioned procedures and the true intentions and motives of the players
OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND
therein.
THE ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR STIPULATION OF
FACTS.
In essence, our task is two-fold: (1) to define the true nature, scope and efficacy of paragraph 8
stipulated in the two contracts of lease between Carmelo and Mayfair in the face of conflicting findings
II
by the trial court and the Court of Appeals; and (2) to determine the rights and obligations of Carmelo
and Mayfair, as well as Equatorial, in the aftermath of the sale by Carmelo of the entire Claro M. Recto
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS property to Equatorial.
ERRED IN DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN (18)
YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS RIGHT OF
Both contracts of lease in question provide the identically worded paragraph 8, which reads:
FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE
EXERCISE OF SUCH OPTION TO 30 DAYS FROM NOTICE.
That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-
days exclusive option to purchase the same.
III
 In the event, however, that the leased premises is sold to someone other than the LESSEE, But the two definitions above cited refer to the contract of option, or, what amounts to the
the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the same thing, to the case where there was cause or consideration for the obligation, the subject
Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the of the agreement made by the parties; while in the case at bar there was no such cause or
terms and conditions thereof.14 consideration. 16 (Emphasis ours.)

We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for The rule so early established in this jurisdiction is that the deed of option or the option clause in a
a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract contract, in order to be valid and enforceable, must, among other things, indicate the definite price at
of a right of first refusal. which the person granting the option, is willing to sell.

As early as 1916, in the case of Beaumont vs. Prieto,15 unequivocal was our characterization of an Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per square
option contract as one necessarily involving the choice granted to another for a distinct and separate meter upon failure to make the purchase within the time specified;17 in one other case we freed the landowner
consideration as to whether or not to purchase a determinate thing at a predetermined fixed price. from her promise to sell her land if the prospective buyer could raise P4,500.00 in three weeks because such
option was not supported by a distinct consideration;18 in the same vein in yet one other case, we also invalidated
an instrument entitled, "Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack of
It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December
consideration;19 and as an exception to the doctrine enumerated in the two preceding cases, in another case, we
4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff
ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not without
Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the
consideration for in reciprocal contracts, like lease, the obligation or promise of each party is the consideration for
period of three months and for its assessed valuation, a grant which necessarily implied the
that of the other. 20 In all these cases, the selling price of the object thereof is always predetermined and specified
offer or obligation on the part of the defendant Valdes to sell to Borck the said hacienda during
in the option clause in the contract or in the separate deed of option. We elucidated, thus, in the very recent case
the period and for the price mentioned . . . There was, therefore, a meeting of minds on the
of Ang Yu Asuncion vs. Court of Appeals21 that:
part of the one and the other, with regard to the stipulations made in the said document. But
it is not shown that there was any cause or consideration for that agreement, and this omission
is a bar which precludes our holding that the stipulations contained in Exhibit E is a contract . . . In sales, particularly, to which the topic for discussion about the case at bench belongs,
of option, for, . . . there can be no contract without the requisite, among others, of the cause the contract is perfected when a person, called the seller, obligates himself, for a price certain,
for the obligation to be established. to deliver and to transfer ownership of a thing or right to another, called the buyer, over which
the latter agrees. Article 1458 of the Civil Code provides:
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following
language: 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.
A contract by virtue of which A, in consideration of the payment of a
certain sum to B, acquires the privilege of buying from, or selling to B,
certain securities or properties within a limited time at a specified price. A contract of sale may be absolute or conditional.
(Story vs. Salamon, 71 N.Y., 420.)
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably
From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 the ownership of the thing sold in retained until the fulfillment of a positive suspensive
Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken: condition (normally, the full payment of the purchase price), the breach of the condition will
prevent the obligation to convey title from acquiring an obligatory force. . . .
An agreement in writing to give a person the option to purchase lands
within a given time at a named price is neither a sale nor an agreement An unconditional mutual promise to buy and sell, as long as the object is made determinate
to sell. It is simply a contract by which the owner of property agrees with and the price is fixed, can be obligatory on the parties, and compliance therewith may
another person that he shall have the right to buy his property at a fixed accordingly be exacted.
price within a certain time. He does not sell his land; he does not then
agree to sell it; but he does sell something; that is, the right or privilege
An accepted unilateral promise which specifies the thing to be sold and the price to be paid,
to buy at the election or option of the other party. The second party gets
when coupled with a valuable consideration distinct and separate from the price, is what may
in praesenti, not lands, nor an agreement that he shall have lands, but
properly be termed a perfected contract of option. This contract is legally binding, and in sales,
he does get something of value; that is, the right to call for and receive
it conforms with the second paragraph of Article 1479 of the Civil Code, viz:
lands if he elects. The owner parts with his right to sell his lands, except
to the second party, for a limited period. The second party receives this
right, or, rather, from his point of view, he receives the right to elect to Art. 1479. . . .
buy.
 An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by
a consideration distinct from the price. (1451a).
Observe, however, that the option is not the contract of sale itself. The optionee has the right,
but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted
before a breach of the option, a bilateral promise to sell and to buy ensues and both parties
are then reciprocally bound to comply with their respective undertakings.
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise
(policitacion) is merely an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. These relations,
until a contract is perfected, are not considered binding commitments. Thus, at any time prior
to the perfection of the contract, either negotiating party may stop the negotiation. The offer,
at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation,
such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico
vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer,
the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still
free and has the right to withdraw the offer before its acceptance, or if an acceptance has
been made, before the offeror's coming to know of such fact, by communicating that
withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102
Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479,
modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see
also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc. vs. Remolado, 135 SCRA 409;
Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of
the Civil Code which ordains 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."
(2) If the period has a separate consideration, a contract of "option" deemed perfected, and it
would be a breach of that contract to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself; and it is to be distinguished from the projected
main agreement (subject matter of the option) which is obviously yet to be concluded. If, in
fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by
the optionee-offeree, the latter may not sue for specific performance on the proposed contract
("object" of the option) since it has failed to reach its own stage of perfection. The optioner-
offeror, however, renders himself liable for damages for breach of the opinion. . .
In the light of the foregoing disquisition and in view of the wording of the questioned provision in the two
lease contracts involved in the instant case, we so hold that no option to purchase in contemplation of
the second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said
lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal to
Mayfair and is not an option contract. It also correctly reasoned that as such, the requirement of a
separate consideration for the option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts which
would bring them into the ambit of the usual offer or option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price.
It is a separate and distinct contract from that which the parties may enter into upon the consummation
of the option. It must be supported by consideration.22 In the instant case, the right of first refusal is an
integral part of the contracts of lease. The consideration is built into the reciprocal obligations of the
parties.
To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by
Article 1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render in effectual
or "inutile" the provisions on right of first refusal so commonly inserted in leases of real estate nowadays.
The Court of Appeals is correct in stating that Paragraph 8 was incorporated into the contracts of lease
for the benefit of Mayfair which wanted to be assured that it shall be given the first crack or the first
option to buy the property at the price which Carmelo is willing to accept. It is not also correct to say that
there is no consideration in an agreement of right of first refusal. The stipulation is part and parcel of the
entire contract of lease. The consideration for the lease includes the consideration for the right of first
refusal. Thus, Mayfair is in effect stating that it consents to lease the premises and to pay the price
agreed upon provided the lessor also consents that, should it sell the leased property, then, Mayfair
shall be given the right to match the offered purchase price and to buy the property at that price. As
stated in Vda. De Quirino vs. Palarca,23 in reciprocal contract, the obligation or promise of each party is
the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph
8 to be that of a contractual grant of the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and
Equatorial.
The different facts and circumstances in this case call for an amplification of the precedent in Ang Yu
Asuncion vs. Court of Appeals.24
First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have
the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did
recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974.
There was an exchange of letters evidencing the offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair's
right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the
full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance
within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned negotiations, kept a low
profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M Recto property to
Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question
rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial
was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts.
As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the Petitioners assert the alleged impossibility of performance because the entire property is indivisible
Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason property. It was petitioner Carmelo which fixed the limits of the property it was leasing out. Common
of injury to third persons, like creditors. The status of creditors could be validly accorded the sense and fairness dictate that instead of nullifying the agreement on that basis, the stipulation should
Bonnevies for they had substantial interests that were prejudiced by the sale of the subject be given effect by including the indivisible appurtenances in the sale of the dominant portion under the
property to the petitioner without recognizing their right of first priority under the Contract of right of first refusal. A valid and legal contract where the ascendant or the more important of the two
Lease. parties is the landowner should be given effect, if possible, instead of being nullified on a selfish pretext
posited by the owner. Following the arguments of petitioners and the participation of the owner in the
attempt to strip Mayfair of its rights, the right of first refusal should include not only the property specified
According to Tolentino, rescission is a remedy granted by law to the contracting parties and
in the contracts of lease but also the appurtenant portions sold to Equatorial which are claimed by
even to third persons, to secure reparation for damages caused to them by a contract, even
petitioners to be indivisible. Carmelo acted in bad faith when it sold the entire property to Equatorial
if this should be valid, by means of the restoration of things to their condition at the moment
without informing Mayfair, a clear violation of Mayfair's rights. While there was a series of exchanges of
prior to the celebration of said contract. It is a relief allowed for the protection of one of the
letters evidencing the offer and counter-offers between the parties, Carmelo abandoned the negotiations
contracting parties and even third persons from all injury and damage the contract may cause,
without giving Mayfair full opportunity to negotiate within the 30-day period.
or to protect some incompatible and preferent right created by the contract. Rescission implies
a contract which, even if initially valid, produces a lesion or pecuniary damage to someone
that justifies its invalidation for reasons of equity. Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be
authorized to exercise its right of first refusal under the contract to include the entirety of the indivisible
property. The boundaries of the property sold should be the boundaries of the offer under the right of
It is true that the acquisition by a third person of the property subject of the contract is an
first refusal. As to the remedy to enforce Mayfair's right, the Court disagrees to a certain extent with the
obstacle to the action for its rescission where it is shown that such third person is in lawful
concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion
possession of the subject of the contract and that he did not act in bad faith. However, this
vs. Court of Appeals should be modified, if not amplified under the peculiar facts of this case.
rule is not applicable in the case before us because the petitioner is not considered a third
party in relation to the Contract of Sale nor may its possession of the subject property be
regarded as acquired lawfully and in good faith. As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by
bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair.
In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the
the contract of lease prior to the sale. Equatorial's knowledge of the stipulations therein should have
petitioner cannot be deemed a purchaser in good faith for the record shows that it categorically
cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice
admitted it was aware of the lease in favor of the Bonnevies, who were actually occupying the
its own interests.
subject property at the time it was sold to it. Although the Contract of Lease was not annotated
on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso,
the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set
more binding than presumed notice by registration. aside or rescinded. All of these matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate into endless litigation. The facts of
the case and considerations of justice and equity require that we order rescission here and now.
A purchaser in good faith and for value is one who buys the property of another without notice
Rescission is a relief allowed for the protection of one of the contracting parties and even third persons
that some other person has a right to or interest in such property and pays a full and fair price
from all injury and damage the contract may cause or to protect some incompatible and preferred right
for the same at the time of such purchase or before he has notice of the claim or interest of
by the contract.26 The sale of the subject real property by Carmelo to Equatorial should now be rescinded
some other person in the property. Good faith connotes an honest intention to abstain from
considering that Mayfair, which had substantial interest over the subject property, was prejudiced by the
taking unconscientious advantage of another. Tested by these principles, the petitioner
sale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity to
cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property
negotiate within the 30-day stipulated period.27
by the Bonnevies and such knowledge should have cautioned it to look deeper into the
agreement to determine if it involved stipulations that would prejudice its own interests.
This Court has always been against multiplicity of suits where all remedies according to the facts and
the law can be included. Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price at
The petitioner insists that it was not aware of the right of first priority granted by the Contract
which Mayfair could have purchased the property is, therefore, fixed. It can neither be more nor less.
of Lease. Assuming this to be true, we nevertheless agree with the observation of the
There is no dispute over it. The damages which Mayfair suffered are in terms of actual injury and lost
respondent court that:
opportunities. The fairest solution would be to allow Mayfair to exercise its right of first refusal at the
price which it was entitled to accept or reject which is P11,300,000.00. This is clear from the records.
If Guzman-Bocaling failed to inquire about the terms of the Lease
Contract, which includes Par. 20 on priority right given to the Bonnevies,
To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the
it had only itself to blame. Having known that the property it was buying
latter of the disputed property would be unjust and unkind to Mayfair because it is once more compelled
was under lease, it behooved it as a prudent person to have required
to litigate to enforce its right. It is not proper to give it an empty or vacuous victory in this case. From the
Reynoso or the broker to show to it the Contract of Lease in which Par.
viewpoint of Carmelo, it is like asking a fish if it would accept the choice of being thrown back into the
20 is contained.25
river. Why should Carmelo be rewarded for and allowed to profit from, its wrongdoing? Prices of real
 estate have skyrocketed. After having sold the property for P11,300,000.00, why should it be given I am of the considered view (like Mr. Justice Jose A. R. Melo) that the Court in this case should categorically
another chance to sell it at an increased price? recognize Mayfair's right of first refusal under its contract of lease with Carmelo and Bauermann, Inc. (hereafter,
Carmelo) and, because of Carmelo's and Equatorial's bad faith in riding "roughshod" over Mayfair's right of first
refusal, the Court should order the rescission of the sale of the Claro M. Recto property by the latter to Equatorial
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to
(Art. 1380-1381[3], Civil Code). The Court should, in this same case, to avoid multiplicity of suits, likewise allow
execute because a contract over the right of first refusal belongs to a class of preparatory juridical
Mayfair to effectively exercise said right of first refusal, by paying Carmelo the sum of P11,300,000.00 for the
relations governed not by the law on contracts but by the codal provisions on human relations. This may
entire subject property, without any need of instituting a separate action for damages against Carmelo and/or
apply here if the contract is limited to the buying and selling of the real property. However, the obligation
Equatorial.
of Carmelo to first offer the property to Mayfair is embodied in a contract. It is Paragraph 8 on the right
of first refusal which created the obligation. It should be enforced according to the law on contracts
instead of the panoramic and indefinite rule on human relations. The latter remedy encourages I do not agree with the proposition that, in addition to the aforesaid purchase price, Mayfair should be required to
multiplicity of suits. There is something to execute and that is for Carmelo to comply with its obligation pay a compounded interest of 12% per annum of said amount computed from 1 August 1978. Under the Civil
to the property under the right of the first refusal according to the terms at which they should have been Code, a party to a contract may recover interest as indemnity for damages in the following instances:
offered then to Mayfair, at the price when that offer should have been made. Also, Mayfair has to accept
the offer. This juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8 of the two
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs
leases can be executed according to their terms.
in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in which is six per cent per annum.
mind that both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a
contract entered into with Mayfair. It sold the property to Equatorial with purpose and intend to withhold
Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for
any notice or knowledge of the sale coming to the attention of Mayfair. All the circumstances point to a
breach of contract.
calculated and contrived plan of non-compliance with the agreement of first refusal.

There appears to be no basis in law for adding 12% per annum compounded interest to the purchase
On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice
price of P11,300,000.00 payable by Mayfair to Carmelo since there was no such stipulation in writing
and full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and
between the parties (Mayfair and Carmelo) but, more importantly, because Mayfair neither incurred in
Equatorial took unconscientious advantage of Mayfair.
delay in the performance of its obligation nor committed any breach of contract. Indeed, why should
Mayfair be penalized by way of making it pay 12% per annum compounded interest when it was Carmelo
Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the which violated Mayfair's right of first refusal under the contract?
grant of interests. The vendor received as payment from the vendee what, at the time, was a full and
fair price for the property. It has used the P11,300,000.00 all these years earning income or interest
The equities of the case support the foregoing legal disposition. During the intervening years between 1 August
from the amount. Equatorial, on the other hand, has received rents and otherwise profited from the use
1978 and this date, Equatorial (after acquiring the C.M. Recto property for the price of P11,300,000.00) had been
of the property turned over to it by Carmelo. In fact, during all the years that this controversy was being
leasing the property and deriving rental income therefrom. In fact, one of the lessees in the property was Mayfair.
litigated, Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the property.
Carmelo had, in turn, been using the proceeds of the sale, investment-wise and/or operation-wise in its own
Mayfair is under no obligation to pay any interests arising from this judgment to either Carmelo or
business.
Equatorial.

WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in
CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners
Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded;
petitioner Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the
purchase price. The latter is directed to execute the deeds and documents necessary to return
ownership to Carmelo and Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow
Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED
Separate Opinions
It may appear, at first blush, that Mayfair is unduly favored by the solution submitted by this opinion, because the
price of P11,300,000.00 which it has to pay Carmelo in the exercise of its right of first refusal, has been subjected
to the inroads of inflation so that its purchasing power today is less than when the same amount was paid by
Equatorial to Carmelo. But then it cannot be overlooked that it was Carmelo's breach of Mayfair's right of first
refusal that prevented Mayfair from paying the price of P11,300,000.00 to Carmelo at about the same time the
amount was paid by Equatorial to Carmelo. Moreover, it cannot be ignored that Mayfair had also incurred
consequential or "opportunity" losses by reason of its failure to acquire and use the property under its right of first
refusal. In fine, any loss in purchasing power of the price of P11,300,000.00 is for Carmelo to incur or absorb on
account of its bad faith in breaching Mayfair's contractual right of first refusal to the subject property.
ACCORDINGLY, I vote to order the rescission of the contract of sale between Carmelo and Equatorial of the Claro
M. Recto property in question, so that within thirty (30) days from the finality of the Court's decision, the property
should be retransferred and delivered by Equatorial to Carmelo with the latter simultaneously returning to
Equatorial the sum of P11,300, 000.00.

PADILLA, J., concurring:

I also vote to allow Mayfair to exercise its right of first refusal, by paying to Carmelo the sum of P11,300,000.00
without interest for the entire subject property, within thirty (30) days from re-acquisition by Carmelo of the titles to
the property, with the corresponding obligation of Carmelo to sell and transfer the property to Mayfair within the
same period of thirty (30) days.
PANGANIBAN, J., concurring:
In the main, I concur with the ponencia of my esteemed colleague, Mr. Justice Regino C. Hermosisima, Jr.,
especially with the following doctrinal pronouncements:
1. That while no option to purchase within the meaning of the second paragraph of Article
1479 of the Civil Code was given to Mayfair Theater, Inc. ("Mayfair"), under the two lease
contracts a right of first refusal was in fact granted, for which no separate consideration is
required by law to be paid or given so as to make it binding upon Carmelo & Bauermann, Inc.
("Carmelo");
2. That such right was violated by the latter when it sold the entire property to Equatorial
Realty Development, Inc. ("Equatorial") on July 30, 1978, for the sum of P11,300,000.00;
3. That Equatorial is a buyer in bad faith as it was aware of the lease contracts, its own lawyers
having studied said contracts prior to the sale; and
4. That, consequently, the contract of sale is rescissible.
5. That, finally, under the proven facts, the right of first refusal may be enforced by an action
for specific performance.
There appears to be unanimity in the Court insofar as items 1, 2 and 3 above are concerned. It is in items 4 and
5 that there is a marked divergence of opinion. Hence, I shall limit the discussion in this Separate Concurring
Opinion to such issues, namely: Is the contract of sale between Carmelo and Equatorial rescissible, and corollarily,
may the right of first refusal granted to Mayfair be enforced by an action for specific performance?
It is with a great amount of trepidation that I respectfully disagree with the legal proposition espoused by two
equally well-respected colleagues, Mme. Justice Flerida Ruth P. Romero and Mr. Justice Jose C. Vitug — who
are both acknowledged authorities on Civil Law — that a breach of the covenanted right of first refusal, while
warranting a suit for damages under Article 19 of the Civil Code, cannot sanction an action for specific performance
without thereby negating the indispensable element of con-sensuality in the perfection of contracts.
Ang Yu Asuncion Not In Point
1
Such statement is anchored upon a pronouncement in Ang Yu Asuncion vs. CA, which was penned by Mr.
Justice Vitug himself. I respectfully submit, however, that that case turned largely on the issue of whether or not
the sale of an immovable in breach of a right of first refusal that had been decreed in a final judgment would justify
the issuance of certain orders of execution in the same case. The validity of said orders was the subject of the
attack before this Court. These orders had not only directed the defendants to execute a deed of sale in favor of
the plaintiffs, when there was nothing in the judgment itself decreeing it, but had also set aside the sale made in
breach of said right of first refusal and even canceled the title that had been issued to the buyer, who was not a
party to the suit and had obviously not been given its day in court. It was thus aptly held:
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a
"right of first refusal" in favor of petitioners. The consequence of such a declaration entails no
more than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners
are aggrieved by the failure of private respondents to honor the right of first refusal, the
remedy is not a writ of execution on the judgment, since there is none to execute, but an
action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
purchaser of the property, has acted in good faith or bad faith and whether or not it should, in
any case, be considered bound to respect the registration of the lis pendens in Civil Case No.
87-41058 are matters that must be independently addressed in appropriate
proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be
held subject to the writ of execution issued by respondent Judge, let alone ousted from the
ownership and possession of the property, without first being duly afforded its day in court.2
In other words, the question of whether specific performance of one's right of first refusal is available as a remedy
in case of breach thereof was not before the Supreme Court at all in Ang Yu Asuncion. Consequently, the
pronouncements there made bearing on such unlitigated question were mere obiter. Moreover, as will be shown
later, the pronouncement that a breach of the right of first refusal would not sanction an action for specific
performance but only an action for damages (at p. 615) is at best debatable (and in my humble view, imprecise or
incorrect), on top of its being contradicted by extant jurisprudence.
Worth bearing in mind is the fact that two juridical relations, both contractual, are involved in the instant case: (1)
the deed of sale between the petitioners dated July 30, 1978, and (2) the contract clause establishing Mayfair's
right of first refusal which was violated by said sale.
With respect to the sale of the property, Mayfair was not a party. It therefore had no personality to sue for its
annulment, since Art. 1397 of the Civil Code provides, inter alia, that "(t)he action for the annulment of contracts
may be instituted by all who are thereby obliged principally or subsidiarily."
But the facts as alleged and proved clearly in the case at bar make out a case for rescission under Art. 1177, in
relation to Art. 1381(3), of the Civil Code, which pertinently read as follows:
Art. 1177. The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter for the
same purpose, save those which are inherent in his person; they may also impugn the acts
which the debtor may have done to defraud them.
Art. 1381. The following contracts are rescissible:
xxx xxx xxx
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect
the claims due them;
xxx xxx xxx
(emphasis supplied)
The term "creditors" as used in these provisions of the Civil Code is broad enough to include the obligee under an
option contract3 as well as under a right of first refusal, sometimes known as a right of first priority. 4 Thus, in Nietes,
the Supreme Court, speaking through then Mr. Chief Justice Roberto Concepcion, repeatedly referred to the
grantee or optionee as "the creditor" and to the grantor or optioner as "the debtor". 5 In any case, the personal
elements of an obligation are the active and passive subjects thereof, the former being known as creditors or
obligees and the latter as debtors or obligors.6 Insofar as the right of first refusal is concerned, Mayfair is the
obligee or creditor.
As such creditor, Mayfair had, therefore, the right to impugn the sale in question by way of accion pauliana under
the last clause of Art. 1177, aforequoted, because the sale was an act done by the debtor to defraud him of his
right to acquire the property.7 Rescission was also available under par. 3, Art. 1381, abovequoted, as was
expressly held in Guzman, Bocaling & Co., a case closely analogous to this one as it was also an action brought
by the lessee to enforce his "right of first priority" — which is just another name for the right of first refusal — and
to annul a sale made by the lessor in violation of such right. In said case, this Court, speaking through Mr. Justice
Isagani A. Cruz, affirmed the invalidation of the sale and the enforcement of the lessee's right of first priority this
wise:8
The petitioner argues that assuming the Contract of Sale to be voidable, only the parties
thereto could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed
that private respondents are strangers to that agreement and therefore have no personality
to seek its annulment.
The respondent court correctly held that the Contract of Sale was not voidable but rescissible.
Under Article(s) 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless
be subsequently rescinded by reason of injury to third persons, like creditors. The status of
creditors could be validly accorded the Bonnevies for they had substantial interests that were
prejudiced by the sale of the subject property to the petitioner without recognizing their right
of first priority under the Contract of Lease. (emphasis supplied)
By the same token, the status of a defrauded creditor can, and should, be granted to Mayfair, for it certainly had
substantial interests that were prejudiced by the sale of the subject property to petitioner Equatorial in open
violation of Mayfair's right of first refusal under its existing contracts with Carmelo.
In fact, the parity between that case and the present one does not stop there but extends to the crucial and critical
fact that there was manifest bad faith on the part of the buyer. Thus, in Guzman, this Court affirmed in toto the
appealed judgment of the Court of Appeals which, in turn, had affirmed the trial court's decision insofar as it
invalidated the deed of sale in favor of the petitioner-buyer, cancelled its TCT, and ordered the lessor to execute
a deed of sale over the leased property in favor of the lessee for the same price and "under the same terms and
conditions", aside from affirming as well the damages awarded, but at a reduced amount. 9 In other words, the
aggrieved party was allowed to acquire the property itself.
The inescapable conclusion from all of the foregoing is not only that rescission is the proper remedy but also —
and more importantly — that specific performance was actually used and given free rein as an effective remedy
to enforce a right of first refusal in the wake of its violation, in the cited case of Guzman.
On the other hand, and as already commented on above, the pronouncement in Ang Yu Asuncion to the effect
that specific performance is unavailable to enforce a violated right of first refusal is at best a debatable legal
proposition, aside from being contradicted by extant jurisprudence. Let me explain why.
The consensuality required for a contract of sale is distinct from, and should not be confused with, the
consensuality attendant to the right of first refusal itself. While indeed, prior to the actual sale of the property to
Equatorial and the filing of Mayfair's complaint for specific performance, no perfected contract of sale involving the
property ever existed between Carmelo as seller and Mayfair as buyer, there already was, in law and in fact, a
perfected contract between them which established a right of first refusal, or of first priority.
Specific Performance Is
Viable Remedy
The question is: Can this right (of first refusal) be enforced by an action for specific performance upon a showing
of its breach by an actual sale of the property under circumstances showing palpable bad faith on the part of both
seller and buyer?
The answer, I respectfully submit, should be 'yes'.
As already noted, Mayfair's right of first refusal in the case before us is embodied in an express covenant in the
lease contracts between it as lessee and Carmelo as lessor, hence the right created is one springing from
contract. 10 Indubitably, this had the force of law between the parties, who should thus comply with it in good
faith. 11 Such right also established a correlative obligation on the part of Carmelo to give or deliver to Mayfair a
formal offer of sale of the property in the event Carmelo decides to sell it. The decision to sell was eventually
made. But instead of giving or tendering to Mayfair the proper offer to sell, Carmelo gave it to its now co-petitioner,
Equatorial, with whom it eventually perfected and consummated, on July 30, 1978, an absolute sale of the
property, doing so within the period of effectivity of Mayfair's right of first refusal. Less than two months later, or in
September 1978, with the lease still in full force, Mayfair filed the present suit.
Worth stressing at this juncture is the fact that Mayfair had the right to require that the offer to sell the property be
sent to it by Carmelo, and not to anybody else. This was violated when the offer was made to Equatorial. Under
its covenant with Carmelo, Mayfair had the right, at that point, to sue for either specific performance or rescission,
with damages in either case, pursuant to Arts. 1165 and 1191, Civil Code. 12 An action for specific performance
and damages seasonably filed, fortified by a writ of preliminary injunction, would have enabled Mayfair to prevent
the sale to Equatorial from taking place and to compel Carmelo to sell the property to Mayfair for the same terms
and price, for the reason that the filing of the action for specific performance may juridically be considered as a
solemn, formal, and unqualified acceptance by Mayfair of the specific terms of the offer of sale. Note that by that
time, the price and other terms of the proposed sale by Carmelo had already been determined, being set forth in
the offer of sale that had wrongfully been directed to Equatorial.
As it turned out, however, Mayfair did not have a chance to file such suit, for it learned of the sale to Equatorial
only after it had taken place. But it did file the present action for specific performance and for invalidation of the
wrongful sale immediately after learning about the latter act. The act of promptly filing this suit, coupled with the
fact that it is one for specific performance, indicates beyond cavil or doubt Mayfair's unqualified acceptance of the
misdirected offer of sale, giving rise, thereby, to a demandable obligation on the part of Carmelo to execute the
corresponding document of sale upon the payment of the price of P11,300,000.00. In other words, the principle of
consensuality of a contract of sale should be deemed satisfied. The aggrieved party's consent to, or acceptance
of, the misdirected offer of sale should be legally presumed in the context of the proven facts.
To say, therefore, that the wrongful breach of a right of first refusal does not sanction an action for specific
performance simply because, factually, there was no meeting of the minds as to the particulars of the sale since
ostensibly no offer was ever made to, let alone accepted by, Mayfair, is to ignore the proven fact of presumed
consent. To repeat, that consent was deemed given by Mayfair when it sued for invalidation of the sale and for
specific performance of Carmelo's obligation to Mayfair. Nothing in the law as it now stands will be violated, or
even simply emasculated, by this holding. On the contrary, the decision in Guzman supports it.
Moreover, under the Civil Code provisions on the nature, effect and kinds of obligations,13 Mayfair's right of first
refusal may be classified as one subject to a suspensive condition — namely, if Carmelo should decide to sell the
leased premises during the life of the lease contracts, then it should make an offer of sale to Mayfair. Futurity and
uncertainty, which are the essential characteristics of a condition, 14 were distinctly present. Before the decision to
sell was made, Carmelo had absolutely no obligation to sell the property to Mayfair, nor even to make an offer to
sell, because in conditional obligations, where the condition is suspensive, the acquisition of rights depends upon
the happening of the event which constitutes the condition. 15 Had the decision to sell not been made at all, or had
it been made after the expiry of the lease, the parties would have stood as if the conditional obligation had never
existed. 16 But the decision to sell was in fact made. And it was made during the life and efficacy of the lease.
Undoubtedly, the condition was duly fulfilled; the right of first refusal effectively accrued and became enforceable;
and correlatively, Carmelo's obligation to make and send the offer to Mayfair became immediately due and
demandable. 17 That obligation was to deliver to Mayfair an offer to sell a determinate thing for a determinate price.
As things turned out, a definite and specific offer to sell the entire property for the price of P11,300,000.00 was
actually made by Carmelo — but to the wrong party. It was that particular offer, and no other, which Carmelo
should have delivered to Mayfair, but failed to deliver. Hence, by the time the obligation of Carmelo accrued
through the fulfillment of the suspensive condition, the offer to sell had become a determinate thing.
Art. 1165 of the Civil Code, earlier quoted in footnote 12, indicates the remedies available to the creditor against
the debtor, when it provides that "(w)hen what is to be delivered is a determinate thing, the creditor, in addition to
the right granted him by article 1170, may compel the debtor to make the delivery," clearly authorizing not only the
recovery of damages under Art. 1170 but also an action for specific performance.
But even assuming that Carmelo's prestation did not involve the delivery of a determinate offer but only a generic
one, the second paragraph of Art. 1165 explicitly gives to the creditor the right "to ask that the obligation be
complied with at the expense of the debtor." The availability of an action for specific performance is thus clear and
beyond doubt. And the correctness of Guzman becomes all the more manifest.
Upon the other hand, the obiter in Ang Yu Asuncion is further weakened by the fact that the jurisprudence upon
which it supposedly rests — namely, the cases of Madrigal & CO. vs. Stevenson & Co. 18 and Salonga
vs. Farrales 19 — did NOT involve a right of first refusal or of first priority. Nor did those two cases involve an option
to buy. In Madrigal, plaintiff sued defendant for damages claiming wrongful breach of an alleged contract of sale
of 2,000 tons of coal. The case was dismissed because "the minds of the parties never met upon a contract of
sale by defendant to plaintiff", 20 each party having signed the broker's memorandum as buyer, erroneously
thinking that the other party was the seller! In Salonga, a lessee, who was one of several lessees ordered by final
judgment to vacate the leased premises, sued the lessor to compel the latter to sell the leased premises to him,
but his suit was not founded upon any right of first refusal and was therefore dismissed on the ground that there
was no perfected sale in his favor. He just thought that because the lessor had decided to sell and in fact sold
portions of the property to her other lessees, she was likewise obligated to sell to him even in the absence of a
perfected contract of sale. In fine, neither of the two cases cited in support of the legal proposition that a breach
of the right of first refusal does not sanction an action for specific performance but, at best, only one for damages,
provides such support.
Finally, the fact that what was eventually sold to Equatorial was the entire property, not just the portions leased to
Mayfair, is no reason to deprive the latter of its right to receive a formal and specific offer. The offer of a larger
property might have led Mayfair to reject the offer, but until and unless such rejection was actually made, its right
of first refusal still stood. Upon the other hand, an acceptance by Mayfair would have saved all concerned the
time, trouble, and expense of this protracted litigation. In any case, the disquisition by the Court of Appeals on this
point can hardly be faulted; in fact, it amply justifies the conclusions reached in its decision, as well as the
dispositions made therein.
IN VIEW OF THE FOREGOING, I vote to DENY the petition and to AFFIRM the assailed Decision.
ROMERO, J., concurring and dissenting:
I share the opinion that the right granted to Mayfair Theater under the identical par 8 of the June 1, 1967 and
March 31, 1969 contracts constitute a right of first refusal.
An option is a privilege granted to buy a determinate thing at a price certain within a specified time and is usually
supported by a consideration which is why, it may be regarded as a contract in itself. The option results in a
perfected contract of sale once the person to whom it is granted decides to exercise it. The right of first refusal is
unlike an option which requires a certainty as to the object and consideration of the anticipated contract. When
the right of first refusal is exercised, there is no perfected contract of sale because the other terms of the sale have
yet to be determined. Hence, in case the offeror reneges on his promise to negotiate with offeree, the latter may
only recover damages in the belief that a contract could have been perfected under Article 19 of the New Civil
Code.
I beg to disagree, however, with the majority opinion that the contract of sale entered into by Carmelo and
Bauermann, Inc. and Equatorial Realty Inc., should be rescinded. Justice Hermosisima, in citing Art. 1381 (3) as
ground for recission apparently relied on the case of Guzman, Bocaling and Co. v. Bonnevie (206 SCRA 668
[1992]) where the offeree was likened to the status of a creditor. The case, in citing Tolentino, stated that rescission
is a remedy granted by law to contracting parties and even to third persons, to secure reparation for damages
caused to them by a contract, even if this should be valid, by means of restoration of things to their condition prior
to celebration of the contract. It is my opinion that "third persons" should be construed to refer to the wards,
creditors, absentees, heirs and others enumerated under the law who are prejudiced by the contract sought to be
rescinded.
It should be borne in mind that rescission is an extreme remedy which may be exercised only in the specific
instances provided by law. Article 1381 (3) specifically refers to contracts undertaken in fraud of creditors when
the latter cannot in any manner collect the claims due them. If rescission were allowed for analogous cases, the
law would have so stated. While Article 1381 (5) itself says that rescission may be granted to all other contracts
specially declared by law to be subject to rescission, there is nothing in the law that states that an offeree who
failed to exercise his right of refusal because of bad faith on the part of the offeror may rescind the subsequent
contract entered into by the offeror and a third person. Hence, there is no legal justification to rescind the contract
between Carmelo and Bauermann, Inc. and Equatorial Realty.
Neither do I agree with Justice Melo that Mayfair Theater should pay Carmelo and Bauermann, Inc. the amount
of P11,300,000.00 plus compounded interest of 12% p.a. Justice Melo rationalized that had Carmelo and
Bauermann sold the property to Mayfair, the latter would have paid the property for the same price that Equatorial
bought it. It bears emphasis that Carmelo and Bauermann, Inc. and Mayfair never reached an agreement as to
the price of the property in dispute because the negotiations between the two parties were not pursued to its very
end. We cannot, even for reasons of equity, compel Carmelo to sell the entire property to Mayfair at
P11,300,000.00 without violating the consensual nature of contracts.
I vote, therefore, not to rescind the contract of sale entered into by Carmelo and Bauermann, Inc. and Equatorial
Realty Development Corp.
VITUG, J., dissenting:
I share the opinion that the right granted to Mayfair Theater, Inc., is neither an offer nor an option but merely a
right of first refusal as has been so well and amply essayed in the ponencia of our distinguished colleague Mr.
Justice Regino C. Hermosisima, Jr.
Unfortunately, it would seem that Article 1381 (paragraph 3) of the Civil Code invoked to be the statutory authority Justice Panganiban opines that the pronouncement in Ang Yu, i.e., that a breach of the right of first refusal does
for the rescission of the contract of sale between Carmelo & Bauermann, Inc., and Equatorial Realty Development, not sanction an action for specific performance but only an action for damages, "is at best debatable (. . . imprecise
Inc., has been misapplied. The action for rescission under that provision of the law, unlike in the resolution of or incorrect), on to top of its being contradicted by extant jurisprudence." He then comes up with the novel
reciprocal obligations under Article 1191 of the Code, is merely subsidiary and relates to the specific instance proposition that "Mayfair's right of first refusal may be classified as one subject to a suspensive condition —
when a debtor, in an attempt to defraud his creditor, enters into a contract with another that deprives the creditor namely, if Carmelo should decide to sell the leased premises during the life of the lease contracts, then it should
to recover his just claim and leaves him with no other legal means, than by rescission, to obtain reparation. Thus, make an offer of sale to Mayfair," presumably enforceable by action for specific performance.
the rescission is only to the extent necessary to cover the damages caused (Article 1384, Civil Code) and,
consistent with its subsidiary nature, would require the debtor to be an indispensable party in the action (see
It would be perilous a journey, first of all, to try to seek out a common path for such juridical relations as contracts,
Gigante vs. Republic Savings Bank, 135 Phil. 359).
options, and rights of first refusal since they differ, substantially enough, in their concepts, consequences and legal
implications. Very briefly, in the area on sales particularly, I borrow from Ang Yu, a unanimous decision of the
The concept of a right of first refusal as a simple juridical relation, and so governed (basically) by the Civil Code's Supreme Court En Banc, which held:
title on "Human Relations," is not altered by the fact alone that it might be among the stipulated items in a separate
document or even in another contract. A "breach" of the right of first refusal can only give rise to an action for
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
damages primarily under Article 19 of the Civil Code, as well as its related provisions, but not to an action for
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of
specific performance set out under Book IV of the Code on "Obligations and Contracts." That right, standing by
the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be
itself, is far distant from being the obligation referred to in Article 1159 of the Code which would have the force of
brought within the purview of an option under the second paragraph of Article 1479,
law sufficient to compel compliance per se or to establish a creditor-debtor or obligee-obligor relation between the
aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an
parties. If, as it is rightly so, a right of first refusal cannot even be properly classed as an offer or as an option,
offer would require, among other things, a clear certainty on both the object and the cause or
certainly, and with much greater reason, it cannot be the equivalent of, nor be given the same legal effect as, a
consideration of the envisioned contract. In a right of first refusal, while the object might be
duly perfected contract. It is not possible to cross out, such as we have said in Ang Yu Asuncion vs. Court of
made determinate, the exercise of the right, however, would be dependent not only on the
Appeals (238 SCRA 602), the indispensable element of consensuality in the perfection of contracts. It is basic that
grantor's eventual intention to enter into a binding juridical relation with another but also on
without mutual consent on the object and on the cause, a contract cannot exist (Art. 1305, Civil Code); corollary
terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at
to it, no one can be forced, least of all perhaps by a court, into a contract against his will or compelled to perform
best be so described as merely belonging to a class of preparatory juridical relations governed
thereunder.
not by contracts (since the essential elements to establish the vinculum juris would still be
indefinite and inconclusive) but by, among other laws of general application, the pertinent
It is sufficiently clear, I submit, that, there being no binding contract between Carmelo and Mayfair, neither the scattered provisions of the Civil Code on human conduct.
rescission of the contract between Carmelo and Equatorial nor the directive to Carmelo to sell the property to
Mayfair would be legally appropriate.
An obligation, and so a conditional obligation as well (albeit subject to the occurrence of the condition), in its
context under Book IV of the Civil Code, can only be "a juridical necessity to give, to do or not to do" (Art. 1156,
My brief disquisition should have ended here except for some personal impressions expressed by my esteemed Civil Code), and one that is constituted by law, contracts, quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil
colleague, Mr. Justice Artemio V. Panganiban, on the Ang Yu decision which perhaps need to be addressed. Code) which all have their respective legal significance rather well settled in law. The law certainly must have
meant to provide congruous, albeit contextual, consequences to its provisions. Interpretare et concordore legibus
est optimus interpretendi. As a valid source of an obligation, a contract must have the concurrence of (a) consent
The discussion by the Court in Ang Yu on the right of first refusal is branded as a mere obiter dictum. Justice
of the contracting parties, (b) object certain (subject matter of the contract) and (c) cause (Art. 1318, Civil Code).
Panganiban states: The case "turned largely on the issue of whether or not the sale of an immovable in breach of
These requirements, clearly defined, are essential. The consent contemplated by the law is that which is
a right of first refusal that had been decreed in a final judgment would justify the issuance of certain orders of
manifested by the meeting of the offer and of the acceptance upon the object and the cause of the obligation. The
execution in the same case. . . . . In other words, the question of whether specific performance of one's right of
offer must be certain and the acceptance absolute (Article 1319 of the Civil Code). Thus, a right of first refusal
first refusal is available as a remedy in case of breach thereof was not before the Supreme Court at all in Ang Yu
cannot have the effect of a contract because, by its very essence, certain basic terms would have yet to be
Asuncion."
determined and fixed. How its "breach" be also its perfection escapes me. It is only when the elements concur that
the juridical act would have the force of law between the contracting parties that must be complied with in good
Black defines an obiter dictum as "an opinion entirely unnecessary for the decision of the case" and thus "are not faith (Article 1159 of the Civil Code; see also Article 1308, of the Civil Code), and, in case of its breach, would
binding as precedent." (Black's Law Dictionary, 6th edition, 1990). A close look at the antecedents of Ang Yu as allow the creditor or obligee (the passive subject) to invoke the remedy that specifically appertains to it.
found by the Court of Appeals and as later quoted by this Court would readily disclose that the "right of first refusal"
was a major point in the controversy. Indeed, the trial and the appellate courts had rule on it. With due respect, I
The judicial remedies, in general, would, of course, include: (a) The principal remedies (i) of specific performance
would not deem it "entirely unnecessary" for this Court to itself discuss the legal connotation and significance of
in obligations to give specific things (Articles 1165 and 1167 of the Civil Code), substitute performance in an
the decreed (confirmatory) right of first refusal. I should add that when the ponencia recognized that, in the case
obligation to do or to deliver generic things (Article 1165 of the Civil Code) and equivalent performance for
of Buen Realty Development Corporation (the alleged purchaser of the property), the latter could not be held
damages (Articles 1168 and 1170 of the Civil Code); and (ii) of rescission or resolution of reciprocal obligations;
subject of the writ of execution and be ousted from the ownership and possession of the disputed property without
and (b) the subsidiary remedies that may be availed of when the principal remedies are unavailable or ineffective
first affording it due process, the Court decided to simply put a cap in the final disposition of the case but it could
such as (i) accion subrogatoria or subrogatory action (Article 1177 of the Civil Code; see also Articles 1729 and
not have intended to thereby mitigate the import of its basic ratio decidendi.
1893 of the Civil Code); and (ii) accion pauliana or rescissory action (Articles 1177 and 1381 of the Civil Code).
And, in order to secure the integrity of final judgments, such ancillary remedies as attachments, replevin,
garnishments, receivership, examination of the debtor, and similar remedies, are additionally provided for in
procedural law.
Might it be possible, however, that Justice Panganiban was referring to how Ang Yu could relate to the instant
case for, verily, his remark, earlier quoted, was followed by an extensive discussion on the factual and case milieu
of the present petition? If it were, then I guess it was the applicability of the Ang Yu decision to the instant case
that he questioned, but that would not make Ang Yu "imprecise" or "incorrect."
Justice Panganiban would hold the Ang Yu ruling to be inconsistent with Guzman, Bocaling &
Co. vs. Bonnevie (206 SCRA 668). I would not be too hasty in concluding similarly. In Guzman, the stipulation
involved, although loosely termed a "right of first priority," was, in fact, a contract of option. The provision in the
agreement there stated:
20. — In case the LESSOR desires or decides to sell the leased property, the LESSEES shall
be given a first priority to purchase the same, all things and considerations being equal.(At
page 670; emphasis supplied.)
In the above stipulation, the Court ruled, in effect, that the basic terms had been
adequately, albeit briefly, spelled out with the lease consideration being deemed likewise to be the
essential cause for the option. The situation undoubtedly was not the same that prevailed in Ang Yu or,
for that matter, in the case at bar. The stipulation between Mayfair Theater, Inc., and Carmelo &
Bauermann, Inc., merely read:
That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-
days exclusive option to purchase the same.
The provision was too indefinite to allow it to even come close to within the area of the Guzman ruling.
Justice Panganiban was correct in saying that the "cases of Madrigal & Co. vs. Stevenson & Co. and Salonga vs.
Farrales (cited in Ang Yu) did NOT involve a right of first refusal or of first priority. Nor did those two cases involve
an option to buy." The two cases, to set the record straight, were cited, not because they were thought to involve
a right of first refusal or an option to buy but to emphasize the indispensability of consensuality over the object and
cause of contracts in their perfection which would explain why, parallel therewith, Articles 1315 and 1318 of the
Civil Code were also mentioned.
One final note: A right of first refusal, in its proper usage, is not a contract; when parties instead make certain the
object and the cause thereof and support their understanding with an adequate consideration, that juridical relation
is not to be taken as just a right of first refusal but as a contract in itself (termed an "option"). There is, unfortunately,
in law a limit to an unabated use of common parlance.
With all due respect, I hold that the judgment of the trial court, although not for all the reasons it has advanced,
should be REINSTATED.
PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, vs. COURT OF APPEALS, CATALINA L.
SANTOS, represented by her attorney-in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents.
PANGANIBAN, J.:
Do allegations in a complaint showing violation of a contractual right of "first option or priority to buy the properties
subject of the lease" constitute a valid cause of action? Is the grantee of such right entitled to be offered the same
terms and conditions as those given to a third party who eventually bought such properties? In short, is such right
of first refusal enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court in resolving this petition for review under Rule 45 of
the Rules of Court challenging the Decision 1 of the Court of Appeals 2 promulgated on March 29, 1993, in CA-
G.R. CV No. 34987 entitled "Parañaque Kings Enterprises, Inc. vs. Catalina L. Santos, et al.," which affirmed the
order 3 of September 2, 1991, of the Regional Trial Court of Makati, Branch 57, 4 dismissing Civil Case No. 91-
786 for lack of a valid cause of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a complaint, 5
which is
reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of
the Philippines, with principal place of business of (sic) Dr. A. Santos Avenue, Parañaque,
Metro Manila, while defendant Catalina L. Santos, is of legal age, widow, with residence and
postal address at 444 Plato Street, Ct., Stockton, California, USA, represented in this action
by her attorney-in-fact, Luz B. Protacio, with residence and postal address at No, 12, San
Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a general power of
attorney. Defendant David A. Raymundo, is of legal age, single, with residence and postal
address at 1918 Kamias Street, Damariñas Village, Makati, Metro Manila, where they (sic)
may be served with summons and other court processes. Xerox copy of the general power of
attorney is hereto attached as Annex "A".
2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at (sic)
Parañaque, Metro Manila with transfer certificate of title nos. S-19637, S-19638 and S-19643
to S-19648. Xerox copies of the said title (sic) are hereto attached as Annexes "B" to "I",
respectively.
3. On November 28, 1977, a certain Frederick Chua leased the above-described property
from defendant Catalina L. Santos, the said lease was registered in the Register of Deeds.
Xerox copy of the lease is hereto attached as Annex "J".
4. On February 12, 1979, Frederick Chua assigned all his rights and interest and participation
in the leased property to Lee Ching Bing, by virtue of a deed of assignment and with the
conformity of defendant Santos, the said assignment was also registered. Xerox copy of the
deed of assignment is hereto attached as Annex "K".
5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased
property to Parañaque Kings Enterprises, Incorporated by virtue of a deed of assignment and
with the conformity of defendant Santos, the same was duly registered, Xerox copy of the
deed of assignment is hereto attached as Annex "L".
6. Paragraph 9 of the assigned leased (sic) contract provides among others that:
 "9. That in case the properties subject of the lease agreement are sold 16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner
or encumbered, Lessors shall impose as a condition that the buyer or is defendant Raymundo. Xerox copy of the letter is hereto attached as Annex "W".
mortgagee thereof shall recognize and be bound by all the terms and
conditions of this lease agreement and shall respect this Contract of
17. From the preceding facts it is clear that the sale was simulated and that there was a
Lease as if they are the LESSORS thereof and in case of sale, LESSEE
collusion between the defendants in the sales of the leased properties, on the ground that
shall have the first option or priority to buy the properties subject of the
when plaintiff wrote a letter to defendant Santos to rectify the error, she immediately have
lease;"
(sic) the property reconveyed it (sic) to her in a matter of twelve (12) days.

7. On September 21, 1988, defendant Santos sold the eight parcels of land subject of the
18. Defendants have the same counsel who represented both of them in their exchange of
lease to defendant David Raymundo for a consideration of FIVE MILLION (P5,000,000.00)
communication with plaintiff's counsel, a fact that led to the conclusion that a collusion exist
PESOS. The said sale was in contravention of the contract of lease, for the first option or
(sic) between the defendants.
priority to buy was not offered by defendant Santos to the plaintiff. Xerox copy of the deed of
sale is hereto attached as Annex "M".
19. When the property was still registered in the name of defendant Santos, her collector of
the rental of the leased properties was her brother-in-law David Santos and when it was
8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the
transferred to defendant Raymundo the collector was still David Santos up to the month of
sale of the properties to defendant Raymundo, the said letter was personally handed by the
June, 1990. Xerox copies of cash vouchers are hereto attached as Annexes "X" to "HH",
attorney-in-fact of defendant Santos, Xerox copy of the letter is hereto attached as Annex "N".
respectively.

9. Upon learning of this fact plaintiff's representative wrote a letter to defendant Santos,
20. The purpose of this unholy alliance between defendants Santos and Raymundo is to
requesting her to rectify the error and consequently realizing the error, she had it reconveyed
mislead the plaintiff and make it appear that the price of the leased property is much higher
to her for the same consideration of FIVE MILLION (P5,000,000.00) PESOS. Xerox copies of
than its actual value of FIVE MILLION (P5,000,000.00) PESOS, so that plaintiff would
the letter and the deed of reconveyance are hereto attached as Annexes "O" and "P".
purchase the properties at a higher price.

10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum of
21. Plaintiff has made considerable investments in the said leased property by erecting a two
FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make good
(2) storey, six (6) doors commercial building amounting to THREE MILLION (P3,000,000.00)
of the offer, but therefore (sic) the said period expired another letter came from the counsel
PESOS. This considerable improvement was made on the belief that eventually the said
of defendant Santos, containing the same tenor of (sic) the former letter. Xerox copies of the
premises shall be sold to the plaintiff.
letters are hereto attached as Annexes "Q" and "R".

22. As a consequence of this unlawful act of the defendants, plaintiff will incurr (sic) total loss
11. On May 8, 1989, before the period given in the letter offering the properties for sale
of THREE MILLION (P3,000,000.00) PESOS as the actual cost of the building and as such
expired, plaintiff's counsel wrote counsel of defendant Santos offering to buy the properties
defendants should be charged of the same amount for actual damages.
for FIVE MILLION (P5,000,000.00) PESOS. Xerox copy of the letter is hereto attached as
Annex "S".
23. As a consequence of the collusion, evil design and illegal acts of the defendants, plaintiff
in the process suffered mental anguish, sleepless nights, bismirched (sic) reputation which
12. On May 15, 1989, before they replied to the offer to purchase, another deed of sale was
entitles plaintiff to moral damages in the amount of FIVE MILLION (P5,000,000.00) PESOS.
executed by defendant Santos (in favor of) defendant Raymundo for a consideration of NINE
MILLION (P9,000,000.00) PESOS. Xerox copy of the second deed of sale is hereto attached
as Annex "T". 24. The defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner
and as a deterrent to the commission of similar acts, they should be made to answer for
exemplary damages, the amount left to the discretion of the Court.
13. Defendant Santos violated again paragraph 9 of the contract of lease by executing a
second deed of sale to defendant Raymundo.
25. Plaintiff demanded from the defendants to rectify their unlawful acts that they committed,
but defendants refused and failed to comply with plaintiffs just and valid and (sic) demands.
14. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiff's
Xerox copies of the demand letters are hereto attached as Annexes "KK" to "LL", respectively.
offer to buy or two days after she sold her properties. In her reply she stated among others
that the period has lapsed and the plaintiff is not a privy (sic) to the contract. Xerox copy of
the letter is hereto attached as Annex "U". 26. Despite repeated demands, defendants failed and refused without justifiable cause to
satisfy plaintiff's claim, and was constrained to engaged (sic) the services of undersigned
counsel to institute this action at a contract fee of P200,000.00, as and for attorney's fees,
15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the fact
exclusive of cost and expenses of litigation.
that plaintiff is the assignee of all rights and interest of the former lessor. Xerox copy of the
letter is hereto attached as Annex "V".
 PRAYER The inescapable result of the foregoing considerations point to no other conclusion than that
the Complaint actually does not contain any valid cause of action and should therefore be as
it is hereby ordered DISMISSED. The Court finds no further need to consider the other
WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the plaintiff and
grounds of estoppel and laches inasmuch as this resolution is sufficient to dispose the
against defendants and ordering that:
matter. 6

a. The Deed of Sale between defendants dated May

Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court, and further reasoned
15, 1989, be annulled and the leased properties be
that:
sold to the plaintiff in the amount of P5,000,000.00;

. . . . Appellant's protestations that the P15 million price quoted by appellee Santos was
b. Dependants (sic) pay plaintiff the sum of
reduced to P9 million when she later resold the leased properties to Raymundo has no valid
P3,000,000.00 as actual damages;
legal moorings because appellant, as a prospective buyer, cannot dictate its own price and
forcibly ram it against appellee Santos, as owner, to buy off her leased properties considering
c. Defendants pay the sum of P5,000,000.00 as the total absence of any stipulation or agreement as to the price or as to how the price should
moral damages; be computed under paragraph 9 of the lease contract, . . . . 7

d. Defendants pay exemplary damages left to the
discretion of the Court;
e. Defendants pay the sum of not less than
P200,000.00 as attorney's fees.
Plaintiff further prays for other just and equitable
reliefs plus cost of suit.
Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds of lack of
cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of action.
It ratiocinated thus:
Upon the very face of the plaintiff's Complaint itself, it therefore indubitably appears that the
defendant Santos had verily complied with paragraph 9 of the Lease Agreement by twice
offering the properties for sale to the plaintiff for ~1 5 M. The said offers, however, were plainly
rejected by the plaintiff which scorned the said offer as "RIDICULOUS". There was therefore
a definite refusal on the part of the plaintiff to accept the offer of defendant Santos. For in
acquiring the said properties back to her name, and in so making the offers to sell both by
herself (attorney-in-fact) and through her counsel, defendant Santos was indeed
conscientiously complying with her obligation under paragraph 9 of the Lease Agreement. . .
..
xxx xxx xxx
This is indeed one instance where a Complaint, after barely commencing to create a cause
of action, neutralized itself by its subsequent averments which erased or extinguished its
earlier allegations of an impending wrong. Consequently, absent any actionable wrong in the
very face of the Complaint itself, the plaintiffs subsequent protestations of collusion is bereft
or devoid of any meaning or purpose. . . . .
8
Petitioner moved for reconsideration but was denied in an order dated August 20, 1993.
Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the Issuance of Restraining Order and/or
Writ of Preliminary Injunction and to Hold Respondent David A. Raymundo in Contempt of Court." 9 The motion
sought to enjoin respondent Raymundo and his counsel from pursuing the ejectment complaint filed before the
barangay captain of San Isidro, Parañaque, Metro Manila; to direct the dismissal of said ejectment complaint or of
any similar action that may have been filed; and to require respondent Raymundo to explain why he should not
be held in contempt of court for forum-shopping. The ejectment suit initiated by respondent Raymundo against
petitioner arose from the expiration of the lease contract covering the property subject of this case. The ejectment
suit was decided in favor of Raymundo, and the entry of final judgment in respect thereof renders the said motion
moot and academic.
Issue
The principal legal issue presented before us for resolution is whether the aforequoted complaint alleging breach
of the contractual right of "first option or priority to buy" states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the complaint because
it in fact had not just one but at least three (3) valid causes of action, to wit: (1) breach of contract, (2) its right of
first refusal founded in law, and (3) damages.
Respondents Santos and Raymundo, in their separate comments, aver that the petition should be denied for not
raising a question of law as the issue involved is purely factual — whether respondent Santos complied with
paragraph 9 of the lease agreement — and for not having complied with Section 2, Rule 45 of the Rules of Court,
requiring the filing of twelve (12) copies of the petitioner's brief. Both maintain that the complaint filed by petitioner
before the Regional Trial Court of Makati stated no valid cause of action and that petitioner failed to substantiate
its claim that the lower courts decided the same "in a way not in accord with law and applicable decisions of the
Supreme Court"; or that the Court of Appeals has "sanctioned departure by a trial court from the accepted and
usual course of judicial proceedings" so as to merit the exercise by this Court of the power of review under Rule
45 of the Rules of Court. Furthermore, they reiterate estoppel and laches as grounds for dismissal, claiming that
petitioner's payment of rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30,
1990, was an acknowledgment of the latter's status as new owner-lessor of said property, by virtue of which
petitioner is deemed to have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of the lease agreement did not include the
assignment of the option to purchase. Respondent Raymundo further avers that he was not privy to the contract
of lease, being neither the lessor nor lessee adverted to therein, hence he could not be held liable for violation
thereof.
The Court's Ruling
Preliminary Issue: Failure to File
Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents, particularly petitioner's failure to file twelve (12)
copies of its brief. We have ruled that when non-compliance with the Rules was not intended for delay or did not
result in prejudice to the adverse party, dismissal of appeal on mere technicalities — in cases where appeal is a
matter of right — may be stayed, in the exercise of the court's equity jurisdiction. 10 It does not appear that
respondents were unduly prejudiced by petitioner's nonfeasance. Neither has it been shown that such failure was
intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents' contention that the issue involved is purely factual. The principal legal question,
as stated earlier, is whether the complaint filed by herein petitioner in the lower court states a valid cause of action.
Since such question assumes the facts alleged in the complaint as true, it follows that the determination thereof is
one of law, and not of facts. There is a question of law in a given case when the doubt or difference arises as to
what the law is on a certain state of facts, and there is a question of fact when the doubt or difference arises as to
the truth or the falsehood of alleged facts. 11
At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause of action, such
ground must appear on the face of the complaint; that to determine the sufficiency of a cause of action, only the
facts alleged in the complaint and no others should be considered; and that the test of sufficiency of the facts
alleged in a petition or complaint to constitute a cause of action is whether, admitting the facts alleged, the court
could render a valid judgment upon the same in accordance with the prayer of the petition or complaint.
A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or
not to violate such right, and (3) an act or omission on the part of such defendant violative of the right of plaintiff
or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for
recovery of damages. 12
In determining whether allegations of a complaint are sufficient to support a cause of action, it must be borne in
mind that the complaint does not have to establish or allege facts proving the existence of a cause of action at the
outset; this will have to be done at the trial on the merits of the case. To sustain a motion to dismiss for lack of
cause of action, the complaint must show that the claim for relief does not exist, rather than that a claim has been
defectively stated, or is ambiguous, indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded
as having hypothetically admitted all the averments thereof. 14
A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the
part of private respondents. Under paragraph 9 of the contract of lease between respondent Santos and petitioner,
the latter was granted the "first option or priority" to purchase the leased properties in case Santos decided to sell.
If Santos never decided to sell at all, there can never be a breach, much less an enforcement of such "right." But
on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to
petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner complained.
Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner, however, rejected
because of the "ridiculous" price. But Santos again appeared to have violated the same provision of the lease
contract when she finally resold the properties to respondent Raymundo for only P9 million without first offering
them to petitioner at such price. Whether there was actual breach which entitled petitioner to damages and/or
other just or equitable relief, is a question which can better be resolved after trial on the merits where each party
can present evidence to prove their respective allegations and defenses. 15
The trial and appellate courts based their decision to sustain respondents' motion to dismiss on the allegations of
Parañaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the final
sale in favor of Raymundo, but that the offer was rejected. According to said courts, with such offer, Santos had
verily complied with her obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the contractual right granting petitioner the first option
to purchase, the sale of the properties for the amount of P9 million, the price for which they were finally sold to
respondent Raymundo, should have likewise been first offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first
refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. 16 In that case, under a contract of lease, the lessees
(Raul and Christopher Bonnevie) were given a "right of first priority" to purchase the leased property in case the
lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully paid in
cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and
accepted by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was
to be paid only when the property was cleared of occupants. We held that even if the Bonnevies could not buy it
at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and
under more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies
as well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell the
subject property to others, and only under the same terms and conditions previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right of first
priority, "all things and conditions being equal." This Court interpreted this proviso to mean that there should be
identity of terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the Bonnevies
to enjoy the right of first priority. We hold that the same rule applies even without the same proviso if the right of
first refusal (or the first option to buy) is not to be rendered illusory.
From the foregoing, the basis of the right of first refusal* must be the current offer to sell of the seller or offer to
purchase of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the same
terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again,
under the same terms as offered to the optionee.
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. 17 which was
decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the sale of the
property by the lessor Carmelo to Equatorial Realty "considering that Mayfair, which had substantial interest over
the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period" (emphasis supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should desire to
sell the leased premises, the LESSEE shall be given 30 days exclusive option to purchase the same." Carmelo
initially offered to sell the leased property to Mayfair for six to seven million pesos. Mayfair indicated interest in
purchasing the property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo. Four
years later, the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for
P11,300,000.00 without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad
faith: Carmelo for knowingly violating the right of first option of Mayfair, and Equatorial for purchasing the property
despite being aware of the contract stipulation. In addition to rescission of the contract of sale, the Court ordered
Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another source of its
right of first refusal. It claims to be covered under said law, being the "rightful occupant of the land and its
structures" since it is the lawful lessee thereof by reason of contract. Under the lease contract, petitioner would
have occupied the property for fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say that this Court has
previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the lessee's right of first refusal
to purchase shall be determined by the Urban Zone Expropriation and Land Management Committee. Hence, . .
. . certain prerequisites must be complied with by anyone who wishes to avail himself of the benefits of the
decree." 19 There being no allegation in its complaint that the prerequisites were complied with, it is clear that the
complaint did fail to state a cause of action on this ground.
Deed of Assignment included
the option to purchase
Neither do we find merit in the contention of respondent Santos that the assignment of the lease contract to
petitioner did not include the option to purchase. The provisions of the deeds of assignment with regard to matters
assigned were very clear. Under the first assignment between Frederick Chua as assignor and Lee Ching Bing as
assignee, it was expressly stated that:
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all
his rights, interest and participation over said premises afore-described, . . . . 20 (emphasis
supplied)
And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner,
represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that;
. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation
over said leased premises, . . . . 21 (emphasis supplied)
One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessee's
right of first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of the assigned
lease contract. The deed of assignment need not be very specific as to which rights and obligations were passed
on to the assignee. It is understood in the general provision aforequoted that all specific rights
and obligations contained in the contract of lease are those referred to as being assigned. Needless to state,
respondent Santos gave her unqualified conformity to both assignments of rights.
Respondent Raymundo privy
to the Contract of Lease
With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the
lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a
proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he
assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of
rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the
properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the
exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable,
party to the case. 22 A favorable judgment for the petitioner will necessarily affect the rights of respondent
Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause of action for breach of the right of first
refusal and that the trial court should thus not have dismissed the complaint, we find no more need to pass upon
the question of whether the complaint states a cause of action for damages or whether the complaint is barred by
estoppel or laches. As these matters require presentation and/or determination of facts, they can be best resolved
after trial on the merits.
While the lower courts erred in dismissing the complaint, private respondents, however, cannot be denied their
day in court. While, in the resolution of a motion to dismiss, the truth of the facts alleged in the complaint are
theoretically admitted, such admission is merely hypothetical and only for the purpose of resolving the motion. In
case of denial, the movant is not to be deprived of the right to submit its own case and to submit evidence to rebut
the allegations in the complaint. Neither will the grant of the motion by a trial court and the ultimate reversal thereof
by an appellate court have the effect of stifling such right. 23 So too, the trial court should be given the opportunity
to evaluate the evidence, apply the law and decree the proper remedy. Hence, we remand the instant case to the
trial court to allow private respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are hereby
REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Makati for further
proceedings. SO ORDERED.
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, vs. THE HON. COURT OF APPEALS and
BUEN REALTY DEVELOPMENT CORPORATION, respondents.
VITUG, J.
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R.
SP No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, dated
30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang
Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose
Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging,
among others, that plaintiffs are tenants or lessees of residential and commercial spaces
owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they WHEREFORE, finding the appeal unmeritorious, the judgment appealed
have occupied said spaces since 1935 and have been religiously paying the rental and from is hereby AFFIRMED, but subject to the following modification: The
complying with all the conditions of the lease contract; that on several occasions before court a quo in the aforestated decision gave the plaintiffs-appellants the
October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and right of first refusal only if the property is sold for a purchase price of
are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng Eleven Million pesos or lower; however, considering the mercurial and
offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs uncertain forces in our market economy today. We find no reason not to
thereafter asked the defendants to put their offer in writing to which request defendants grant the same right of first refusal to herein appellants in the event that
acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking the subject property is sold for a price in excess of Eleven Million pesos.
that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive No pronouncement as to costs.
any reply, they sent another letter dated January 28, 1987 with the same request; that since
defendants failed to specify the terms and conditions of the offer to sell and because of
SO ORDERED.
information received that defendants were about to sell the property, plaintiffs were compelled
to file the complaint to compel defendants to sell the property to them.
The decision of this Court was brought to the Supreme Court by petition for review
on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form
Defendants filed their answer denying the material allegations of the complaint and
and substances" (Annex H, Petition).
interposing a special defense of lack of cause of action.

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this
After the issues were joined, defendants filed a motion for summary judgment which was
Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the
granted by the lower court. The trial court found that defendants' offer to sell was never
property in question to herein petitioner Buen Realty and Development Corporation, subject
accepted by the plaintiffs for the reason that the parties did not agree upon the terms and
to the following terms and conditions:
conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the
lower court ruled that should the defendants subsequently offer their property for sale at a
price of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive 1. That for and in consideration of the sum of FIFTEEN MILLION PESOS
portion of the decision states: (P15,000,000.00), receipt of which in full is hereby acknowledged, the
VENDORS hereby sells, transfers and conveys for and in favor of the
VENDEE, his heirs, executors, administrators or assigns, the above-
WHEREFORE, judgment is hereby rendered in favor of the defendants
described property with all the improvements found therein including all
and against the plaintiffs summarily dismissing the complaint subject to
the rights and interest in the said property free from all liens and
the aforementioned condition that if the defendants subsequently decide
encumbrances of whatever nature, except the pending ejectment
to offer their property for sale for a purchase price of Eleven Million Pesos
proceeding;
or lower, then the plaintiffs has the option to purchase the property or of
first refusal, otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven Million Pesos. 2. That the VENDEE shall pay the Documentary Stamp Tax, registration
fees for the transfer of title in his favor and other expenses incidental to
the sale of above-described property including capital gains tax and
SO ORDERED.
accrued real estate taxes.

Aggrieved by the decision, plaintiffs appealed to this Court in

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice
was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on
Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A.
December 3, 1990.
Santiago), this Court affirmed with modification the lower court's judgment, holding:

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the
In resume, there was no meeting of the minds between the parties
lessees demanding that the latter vacate the premises.
concerning the sale of the property. Absent such requirement, the claim
for specific performance will not lie. Appellants' demand for actual, moral
and exemplary damages will likewise fail as there exists no justifiable On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the
ground for its award. Summary judgment for defendants was properly property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on
granted. Courts may render summary judgment when there is no genuine TCT No. 105254/T-881 in the name of the Cu Unjiengs.
issue as to any material fact and the moving party is entitled to a
judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case
815). All requisites obtaining, the decision of the court a quo is legally
justifiable. No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed by plaintiff
represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng
and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty.
Anacleto Magno respectively were duly notified in today's consideration
of the motion as evidenced by the rubber stamp and signatures upon the
copy of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated September
21, 1990 as modified by the Court of Appeals in its decision in CA G.R.
CV-21123, and elevated to the Supreme Court upon the petition for
review and that the same was denied by the highest tribunal in its
resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there
was an Entry of Judgment by the Supreme Court as of June 6, 1991,
stating that the aforesaid modified decision had already become final and
executory.
It is the observation of the Court that this property in dispute was the
subject of the Notice of Lis Pendens and that the modified decision of
this Court promulgated by the Court of Appeals which had become final
to the effect that should the defendants decide to offer the property for
sale for a price of P11 Million or lower, and considering the mercurial and
uncertain forces in our market economy today, the same right of first
refusal to herein plaintiffs/appellants in the event that the subject property
is sold for a price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the necessary
Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million
pesos in recognition of plaintiffs' right of first refusal and that a new
Transfer Certificate of Title be issued in favor of the buyer.
All previous transactions involving the same property notwithstanding the
issuance of another title to Buen Realty Corporation, is hereby set aside
as having been executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive portion of
which reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled
case directing the Deputy Sheriff Ramon Enriquez of this Court to
implement said Writ of Execution ordering the defendants among others
to comply with the aforesaid Order of this Court within a period of one (1)
week from receipt of this Order and for defendants to execute the
necessary Deed of Sale of the property in litigation in favor of the plaintiffs
Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of
P15,000,000.00 and ordering the Register of Deeds of the City of Manila,
to cancel and set aside the title already issued in favor of Buen Realty
Corporation which was previously executed between the latter and
defendants and to register the new title in favor of the aforesaid plaintiffs
Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition)
was issued.1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without
force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of
execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen
Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such arrangements as the right of first
refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental
precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted
upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the
efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-
delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and
(c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the
passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to render some service (Art.
1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its perfection
and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract
takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to
perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the
object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of
the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order
to make the act valid, the prescribed form being thereby an essential element thereof. The stage
of consummation begins when the parties perform their respective undertakings under the contract culminating in
the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical
relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is
perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership
of a thing or right to another, called the buyer, over which the latter agrees. 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 therefor a price
certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the
thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the
purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory
force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of
Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the
right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred
to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold.
Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent
such perfection.3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may
either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code).4
An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed,
can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract
of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of
the Civil Code, viz:
Art. 1479. . . .
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. (1451a)6
Observe, however, that the option is not the contract of sale itself.7 The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their
respective undertakings.8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely
an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments.
Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The
offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by
its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where
a period is given to the offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right
to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to
know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins,
Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479,
modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil
Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right
to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage
claim under Article 19 of the Civil Code which ordains 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."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach
of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract
by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is
obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise
of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract
("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however,
renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature
of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract
with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar
instance would be an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it
cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first
refusal, understood in its normal concept, per se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under Article 13199 of the same Code. An option or
an offer would require, among other things,10 a clear certainty on both the object and the cause or consideration
of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of
the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto,
it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by
contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive)
but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human
conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach
cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its
existence, nor would it sanction an action for specific performance without thereby negating the indispensable
element of consensuality in the perfection of contracts. 11 It is not to say, however, that the right of first refusal
would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance,
the circumstances expressed in Article 1912 of the Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal"
in favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said.
In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor
the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but
an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently
addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058,
cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership
and possession of the property, without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution
varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of
Appeals, in this regard, has observed:
 Finally, the questioned writ of execution is in variance with the decision of the trial court as
modified by this Court. As already stated, there was nothing in said decision 13 that decreed
the execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the fixing
of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC,
147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman
vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time
the execution of any deed of sale between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30
August 1991 and 27 September 1991, of the court a quo. Costs against petitioners. SO ORDERED.
ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners, vs. PATERNO INQUING,
IRENE GUILLERMO, FEDERICO BANTUGAN, FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking reversal of the Decision 1 of
the Court of Appeals dated June 25, 1999 in CA-G.R. CV No. 53963. The Court of Appeals decision reversed and
set aside the Decision2 dated May 13, 1996 of Branch 217 of the Regional Trial Court of Quezon City in Civil Case
No. Q-93-18582.1âwphi1.nêt
The case was originally filed on December 10, 1993 by Paterno Inquing, Irene Guillermo and Federico Bantugan,
herein respondents, against Rosencor Development Corporation (hereinafter "Rosencor"), Rene Joaquin, and
Eufrocina de Leon. Originally, the complaint was one for annulment of absolute deed of sale but was later amended
to one for rescission of absolute deed of sale. A complaint-for intervention was thereafter filed by respondents
Fernando Magbanua and Danna Lizza Tiangco. The complaint-in-intervention was admitted by the trial court in
an Order dated May 4, 1994.3
The facts of the case, as stated by the trial court and adopted by the appellate court, are as follows:
"This action was originally for the annulment of the Deed of Absolute Sale dated September 4, 1990
between defendants Rosencor and Eufrocina de Leon but later amended (sic) praying for the rescission
of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two-story residential
apartment located at No. 150 Tomas Morato Ave., Quezon City covered by TCT No. 96161 and owned
by spouses Faustino and Cresencia Tiangco. The lease was not covered by any contract. The lessees
were renting the premises then for P150.00 a month and were allegedly verbally granted by the lessors
the pre-emptive right to purchase the property if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of the property was adjudicated to
their heirs who were represented by Eufrocina de Leon. The lessees were allegedly promised the same
pre-emptive right by the heirs of Tiangcos since the latter had knowledge that this right was extended
to the former by the late spouses Tiangcos. The lessees continued to stay in the premises and allegedly
spent their own money amounting from P50,000.00 to P100,000.00 for its upkeep. These expenses
were never deducted from the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they vacate the
premises so that the demolition of the building be undertaken. They refused to leave the premises. In
that same month, de Leon refused to accept the lessees’ rental payment claiming that they have run
out of receipts and that a new collector has been assigned to receive the payments. Thereafter, they
received a letter from Eufrocina de Leon offering to sell to them the property they were leasing for
P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the amount of P1,000,000.00. De Leon told
them that she will be submitting the offer to the other heirs. Since then, no answer was given by de Leon
as to their offer to buy the property. However, in November 1990, Rene Joaquin came to the leased
premises introducing himself as its new owner.
In January 1991, the lessees again received another letter from Atty. Aguila demanding that they vacate
the premises. A month thereafter, the lessees received a letter from de Leon advising them that the
heirs of the late spouses Tiangcos have already sold the property to Rosencor. The following month
Atty. Aguila wrote them another letter demanding the rental payment and introducing herself as counsel
for Rosencor/Rene Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had disregarded the pre-emptive right she and the late
Tiangcos have promised them. They also asked for a copy of the deed of sale between her and the new
owners thereof but she refused to heed their request. In the same manner, when they asked Rene
Joaquin a copy of the deed of sale, the latter turned down their request and instead Atty. Aguila wrote
them several letters demanding that they vacate the premises. The lessees offered to tender their rental
payment to de Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the Building Official, the barangay interceded
between the parties herein after which Rosencor raised the issue as to the rental payment of the
premises. It was also at this instance that the lessees were furnished with a copy of the Deed of Sale
and discovered that they were deceived by de Leon since the sale between her and Rene
Joaquin/Rosencor took place in September 4, 1990 while de Leon made the offer to them only in
October 1990 or after the sale with Rosencor had been consummated. The lessees also noted that the
property was sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an additional
P274,000.00 to complete their P1,000.000.00 earlier offer. When their offer was refused, they filed the
present action praying for the following: a) rescission of the Deed of Absolute Sale between de Leon
and Rosencor dated September 4, 1990; b) the defendants Rosencor/Rene Joaquin be ordered to
reconvey the property to de Leon; and c) de Leon be ordered to reimburse the plaintiffs for the repairs
of the property, or apply the said amount as part of the price for the purchase of the property in the sum
of P100,000.00."4
After trial on the merits, the Regional Trial Court rendered a Decision5 dated May 13, 1996 dismissing the
complaint. The trial court held that the right of redemption on which the complaint. The trial court held that the right
of redemption on which the complaint was based was merely an oral one and as such, is unenforceable under the
law. The dispositive portion of the May 13, 1996 Decision is as follows:
"WHEREFORE, in view of the foregoing, the Court DISMISSES the instant action. Plaintiffs and
plaintiffs-intervenors are hereby ordered to pay their respective monthly rental of P1,000.00 per month
reckoned from May 1990 up to the time they leave the premises. No costs.
SO ORDERED."6
Not satisfied with the decision of the trial court, respondents herein filed a Notice of Appeal dated June 3, 1996.
On the same date, the trial court issued an Order for the elevation of the records of the case to the Court of
Appeals. On August 8, 1997, respondents filed their appellate brief before the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its decision7 reversing the decision of the trial court. The
dispositive portion of the June 25, 1999 decision is as follows:
"WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the Regional Trial
Court (Branch 217) in Quezon City in Case No. Q-93-18582 is hereby REVERSED and SET ASIDE. In
its stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed between the appellees on
September 4, 1990;
(2) The reconveyance of the subject premises to appellee Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru appellee Eufrocina de Leon, to afford
the appellants thirty days within which to exercise their right of first refusal by paying the
amount of ONE MILLION PESOS (P1,000,000.00) for the subject property; and
(4) The appellants to, in turn, pay the appellees back rentals from May 1990 up to the time
this decision is promulgated.
No pronouncement as to costs.
SO ORDERED".8
Petitioners herein filed a Motion for Reconsideration of the decision of the Court of Appeals but the same was
denied in a Resolution dated October 15, 1999.9
Hence, this petition for review on certiorari where petitioners Rosencor Development Corporation and Rene
Joaquin raise the following assignment of errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE RESCISSION OF THE
ABSOLUTE DEED OF SALE BETWEEN EUFROCINA DE LEON AND PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED MANIFEST ERROR IN MANDATING THAT EUFROCINA
DE LEON AFFORD RESPONDENTS THE OPPORTUNITY TO EXERCISE THEIR RIGHT OF FIRST
REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT RESPONDENTS HAVE
ESTABLISHED THEIR RIGHT OF FIRST REFUSAL DESPITE PETITIONERS’ RELIANCE ON THEIR
DEFENSE BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and Crescencia Tiangco, did not appeal
the decision of the Court of Appeals.
At the onset, we not that both the Court of Appeals and the Regional Trial Court relied on Article 1403 of the New
Civil Code, more specifically the provisions on the statute of frauds, in coming out with their respective decisions.
The trial court, in denying the petition for reconveyance, held that right of first refusal relied upon by petitioners
was not reduced to writing and as such, is unenforceable by virtue of the said article. The Court of Appeals, on
the other hand, also held that the statute of frauds governs the "right of first refusal" claimed by respondents.
However, the appellate court ruled that respondents had duly proven the same by reason of petitioners’ waiver of
the protection of the statute by reason of their failure to object to the presentation of oral evidence of the said right.
Both the appellate court and the trial court failed to discuss, however, the threshold issue of whether or not a right
of first refusal is indeed covered by the provisions of the New Civil Code on the statute of frauds. The resolution
of the issue on the applicability of the statute of frauds is important as it will determine the type of evidence which
may be considered by the trial court as proof of the alleged right of first refusal.
The term "statute of frauds" is descriptive of statutes which require certain classes of contracts to be in writing.
This statute does not deprive the parties of the right to contract with respect to the matters therein involved, but
merely regulates the formalities of the contract necessary to render it enforceable. Thus, they are included in the
provisions of the New Civil Code regarding unenforceable contracts, more particularly Art. 1403, paragraph 2.
Said article provides, as follows:
"Art. 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases
an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:
a) An agreement that by its terms is not to be performed within a year from the making thereof;
b) A special promise to answer for the debt, default, or miscarriage of another;
c) An agreement made in consideration of marriage, other than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in action, at a price not less than five
hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made by the auctioneer in
 his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale,
price, names of purchasers and person on whose account the sale is made, it is a sufficient
memorandum;
e) An agreement for the leasing of a longer period than one year, or for the sale of real property
or of an interest therein;
f) A representation to the credit of a third person."
The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations depending for their
evidence on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to
be evidenced by a writing signed by the party to be charged. 11 Moreover, the statute of frauds refers to specific
kinds of transactions and cannot apply to any other transaction that is not enumerated therein.12 The application
of such statute presupposes the existence of a perfected contract. 13
The question now is whether a "right of first refusal" is among those enumerated in the list of contracts covered
by the Statute of Frauds. More specifically, is a right of first refusal akin to "an agreement for the leasing of a longer
period than one year, or for the sale of real property or of an interest therein" as contemplated by Article 1403,
par. 2(e) of the New Civil Code.
We have previously held that not all agreements "affecting land" must be put into writing to attain
enforceability.14 Thus, we have held that the setting up of boundaries,15 the oral partition of real property16, and an
agreement creating a right of way17 are not covered by the provisions of the statute of frauds. The reason simply
is that these agreements are not among those enumerated in Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under the statute of frauds. Furthermore, the
application of Article 1403, par. 2(e) of the New Civil Code presupposes the existence of a perfected, albeit
unwritten, contract of sale.18 A right of first refusal, such as the one involved in the instant case, is not by any
means a perfected contract of sale of real property. At best, it is a contractual grant, not of the sale of the real
property involved, but of the right of first refusal over the property sought to be sold 19.
It is thus evident that the statute of frauds does not contemplate cases involving a right of first refusal. As such, a
right of first refusal need not be written to be enforceable and may be proven by oral evidence.
The next question to be ascertained is whether or not respondents have satisfactorily proven their right of first
refusal over the property subject of the Deed of Absolute Sale dated September 4, 1990 between petitioner
Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of Appeals that respondents have adequately proven
the existence of their right of first refusal. Federico Bantugan, Irene Guillermo, and Paterno Inquing uniformly
testified that they were promised by the late spouses Faustino and Crescencia Tiangco and, later on, by their heirs
a right of first refusal over the property they were currently leasing should they decide to sell the same. Moreover,
respondents presented a letter20 dated October 9, 1990 where Eufrocina de Leon, the representative of the heirs
of the spouses Tiangco, informed them that they had received an offer to buy the disputed property for
P2,000,000.00 and offered to sell the same to the respondents at the same price if they were interested. Verily, if
Eufrocina de Leon did not recognize respondents’ right of first refusal over the property they were leasing, then
she would not have bothered to offer the property for sale to the respondents.
It must be noted that petitioners did not present evidence before the trial court contradicting the existence of the
right of first refusal of respondents over the disputed property. They only presented petitioner Rene Joaquin, the
vice-president of petitioner Rosencor, who admitted having no personal knowledge of the details of the sales
transaction between Rosencor and the heirs of the spouses Tiangco21. They also dispensed with the testimony of
Eufrocina de Leon22 who could have denied the existence or knowledge of the right of first refusal. As such, there
being no evidence to the contrary, the right of first refusal claimed by respondents was substantially proven by
respondents before the lower court.
Having ruled upon the question as to the existence of respondents’ right of first refusal, the next issue to be
answered is whether or not the Court of Appeals erred in ordering the rescission of the Deed of Absolute Sale
dated September 4, 1990 between Rosencor and Eufrocina de Leon and in decreeing that the heirs of the spouses
Tiangco should afford respondents the exercise of their right of first refusal. In other words, may a contract of sale
entered into in violation of a third party’s right of first refusal be rescinded in order that such third party can exercise
said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the Court upheld the decision of a lower court ordering the
rescission of a deed of sale which violated a right of first refusal granted to one of the parties therein. The Court
held:
"xxx Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of the Civil Code,
a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had
substantial interests that were prejudiced by the sale of the subject property to the petitioner without
recognizing their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to
third persons, to secure reparations for damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition at the moment prior to the celebration of
said contract. It is a relief allowed for the protection of one of the contracting parties and even third
persons from all injury and damage the contract may cause, or to protect some incompatible and
preferent right created by the contract. Rescission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the
action for its rescission where it is shown that such third person is in lawful possession of the subject of
the contract and that he did not act in bad faith. However, this rule is not applicable in the case before
us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its
possession of the subject property be regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner
cannot be deemed a purchaser in good faith for the record shows that it categorically admitted that it
was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at
the time it was sold to it. Although the occupying the subject property at the time it was sold to it. Although
the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose
Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was
equivalent to and indeed more binding than presumed notice by registration.
 A purchaser in good faith and for value is one who buys the property of another without notice that some
other person has a right to or interest in such property without and pays a full and fair price for the same
at the time of such purchase or before he has notice of the claim or interest of some other person in the
property. Good faith connotes an honest intention to abstain from taking unconscientious advantage of
another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it
had notice of the lease of the property by the Bonnevies and such knowledge should have cautioned it
to look deeper into the agreement to determine if it involved stipulations that would prejudice its own
interests."
Subsequently24 in Equatorial Realty and Development, Inc. vs. Mayfair Theater, Inc.25, the Court, en banc, with
three justices dissenting,26 ordered the rescission of a contract entered into in violation of a right of first refusal.
Using the ruling in Guzman Bocaling & Co., Inc. vs. Bonnevie as basis, the Court decreed that since respondent
therein had a right of first refusal over the said property, it could only exercise the said right if the fraudulent sale
is first set aside or rescinded. Thus:
"What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have
the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did
recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974.
There was an exchange of letters evidencing the offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair’s
right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the
full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance
within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned negotiations, kept a low
profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property
to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question,
rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial
was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts.
As such, Equatorial cannot tenably claim that to be a purchaser in good faith, and, therefore, rescission
lies.
XXX
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by
bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair.
In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied
the contract or lease prior to the sale. Equatorial’s knowledge of the stipulations therein should have
cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice
its own interests.
Since Mayfair had a right of first refusal, it can exercise the right only if the fraudulent sale is first set
aside or rescinded. All of these matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate into endless litigation. The facts of
the case and considerations of justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the contracting parties and even third persons
from all injury and damage the contract may cause or to protect some incompatible and preferred right
by the contract. The sale of the subject real property should now be rescinded considering that Mayfair,
which had substantial interest over the subject property, was prejudiced by the sale of the subject
property to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the
30-day stipulate periond.27
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals, 28 the Court held that the allegations in a complaint
showing violation of a contractual right of "first option or priority to buy the properties subject of the lease" constitute
a valid cause of action enforceable by an action for specific performance. Summarizing the rulings in the two
previously cited cases, the Court affirmed the nature of and concomitant rights and obligations of parties under a
right of first refusal. Thus:
"We hold however, that in order to have full compliance with the contractual right granting petitioner the
first option to purchase, the sale of the properties for the amount of P9,000,000.00, the price for which
they were finally sold to respondent Raymundo, should have likewise been offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a
right of first refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. In that case, under a contract
of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of first priority" to purchase
the leased property in case the lessor (Reynoso) decided to sell. The selling price quoted to the
Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the other
hand, the selling price offered by Reynoso to and accepted by Guzman was only P400,000.00 of which
P137,500.00 was to be paid in cash while the balance was to be paid only when the property was
cleared of occupants. We held that even if the Bonnevies could not buy it at the price quoted
(P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and under more
favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as
well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully
sell the subject property to others, and only under the same terms and conditions previously offered to
the Bonnevies.
XXX
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. which
was decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded
the sale of the property by the lessor Carmelo to Equatorial Realty "considering that Mayfair, which had
substantial interest over the subject property, was prejudiced by its sale to Equatorial without Carmelo
conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should
desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option to purchase the
same." Carmelo initially offered to sell the leased property to Mayfair for six to seven million pesos.
Mayfair indicated interest in purchasing the property though it invoked the 30-day period. Nothing was
heard thereafter from Carmelo. Four years later, the latter sold its entire Recto Avenue property,
including the leased premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The
Court held that both Carmelo and Equatorial acted in bad faith: Carmelo or knowingly violating the right
of first option of Mayfair, and Equatorial for purchasing the property despite being aware of the contract
stipulation. In addition to rescission of the contract of sale, the Court ordered Carmelo to allow Mayfair
to buy the subject property at the same price of P11,300,000.00.
In the recent case of Litonjua vs L&R Corporation,29 the Court, also citing the case of Guzman, Bocaling & Co. vs.
Bonnevie, held that the sale made therein in violation of a right of first refusal embodied in a mortgage contract,
was rescissible. Thus:
"While petitioners question the validity of paragraph 8 of their mortgage contract, they appear to be silent
insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants upon L&R Corporation the right
of first refusal over the mortgaged property in the event the mortgagor decides to sell the same. We see
nothing wrong in this provision. The right of first refusal has long been recognized as valid in our
 jurisdiction. The consideration for the loan mortgage includes the consideration for the right of first petitioners were made aware of the said right of first refusal either by the respondents or by the heirs of the spouses
refusal. L&R Corporation is in effect stating that it consents to lend out money to the spouses Litonjua Tiangco.
provided that in case they decide to sell the property mortgaged to it, then L&R Corporation shall be
given the right to match the offered purchase price and to buy the property at that price. Thus, while the
It is axiomatic that good faith is always presumed unless contrary evidence is adduced. 31 A purchaser in good faith
spouses Litonjua had every right to sell their mortgaged property to PWHAS without securing the prior
is one who buys the property of another without notice that some other person has a right or interest in such a
written consent of L&R Corporation, they had the obligation under paragraph 9, which is a perfectly valid
property and pays a full and fair price at the time of the purchase or before he has notice of the claim or interest
provision, to notify the latter of their intention to sell the property and give it priority over other buyers. It
of some other person in the property.32 In this regard, the rule on constructive notice would be inapplicable as it
is only upon the failure of L&R Corporation to exercise its right of first refusal could the spouses Litonjua
is undisputed that the right of first refusal was an oral one and that the same was never reduced to writing, much
validly sell the subject properties to the others, under the same terms and conditions offered to L&R
less registered with the Registry of Deeds. In fact, even the lease contract by which respondents derive their right
Corporation.
to possess the property involved was an oral one.

What then is the status of the sale made to PWHAS in violation of L & R Corporation’s contractual right
On this point, we hold that the evidence on record fails to show that petitioners acted in bad faith in entering into
of first refusal? On this score, we agree with the Amended Decision of the Court of Appeals that the sale
the deed of sale over the disputed property with the heirs of the spouses Tiangco. Respondents failed to present
made to PWHAS is rescissible. The case of Guzman, Bocaling & Co. v. Bonnevie is instructive on this
any evidence that prior to the sale of the property on September 4, 1990, petitioners were aware or had notice of
point.
the oral right of first refusal.

XXX
Respondents point to the letter dated June 1, 199033 as indicative of petitioners’ knowledge of the said right. In
this letter, a certain Atty. Erlinda Aguila demanded that respondent Irene Guillermo vacate the structure they were
It was then held that the Contract of Sale there, which violated the right of first refusal, was rescissible. occupying to make way for its demolition.

In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R
Corporation over the subject properties since the Deed of Real Estate Mortgage containing such a
provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have been
notified thereof by registration, which equates to notice to the whole world.
XXX
We fail to see how the letter could give rise to bad faith on the part of the petitioner. No mention is made of the
right of first refusal granted to respondents. The name of petitioner Rosencor or any of it officers did not appear
on the letter and the letter did not state that Atty. Aguila was writing in behalf of petitioner. In fact, Atty. Aguila
stated during trial that she wrote the letter in behalf of the heirs of the spouses Tiangco. Moreover, even assuming
that Atty. Aguila was indeed writing in behalf of petitioner Rosencor, there is no showing that Rosencor was aware
at that time that such a right of first refusal existed.

Neither was there any showing that after receipt of this June 1, 1990 letter, respondents notified Rosencor or Atty.
All things considered, what then are the relative rights and obligations of the parties? To recapitulate:
Aguila of their right of first refusal over the property. Respondents did not try to communicate with Atty. Aguila and
the sale between the spouses Litonjua and PWHAS is valid, notwithstanding the absence of L & R
inform her about their preferential right over the disputed property. There is even no showing that they contacted
Corporation’s prior written consent thereto. Inasmuch as the sale to PWHAS was valid, its offer to
the heirs of the spouses Tiangco after they received this letter to remind them of their right over the property.
redeem and its tender of the redemption price, as successor-in-interest of the spouses Litonjua, within
the one-year period should have been accepted as valid by the L & R Corporation. However, while the
sale is, indeed, valid, the same is rescissible because it ignored L & R Corporation’s right of first refusal." Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon, where she recognized the
right of first refusal of respondents, as indicative of the bad faith of petitioners. We do not agree. Eufrocina de
Leon wrote the letter on her own behalf and not on behalf of petitioners and, as such, it only shows that Eufrocina
Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of sale entered into in violation of
de Leon was aware of the existence of the oral right of first refusal. It does not show that petitioners were likewise
a right of first refusal of another person, while valid, is rescissible.
aware of the existence of the said right. Moreover, the letter was made a month after the execution of the Deed of
Absolute Sale on September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There
There is, however, a circumstance which prevents the application of this doctrine in the case at bench. In the is no showing that prior to the date of the execution of the said Deed, petitioners were put on notice of the existence
cases cited above, the Court ordered the rescission of sales made in violation of a right of first refusal precisely of the right of first refusal.
because the vendees therein could not have acted in good faith as they were aware or should have been aware
of the right of first refusal granted to another person by the vendors therein. The rationale for this is found in the
Clearly, if there was any indication of bad faith based on respondents’ evidence, it would only be on the part of
provisions of the New Civil Code on rescissible contracts. Under Article 1381 of the New Civil Code, paragraph 3,
Eufrocina de Leon as she was aware of the right of first refusal of respondents yet she still sold the disputed
a contract validly agreed upon may be rescinded if it is "undertaken in fraud of creditors when the latter cannot in
property to Rosencor. However, bad faith on the part of Eufrocina de Leon does not mean that petitioner Rosencor
any manner collect the claim due them." Moreover, under Article 1385, rescission shall not take place "when the
likewise acted in bad faith. There is no showing that prior to the execution of the Deed of Absolute Sale, petitioners
things which are the object of the contract are legally in the possession of third persons who did not act in bad
were made aware or put on notice of the existence of the oral right of first refusal. Thus, absent clear and
faith."30
convincing evidence to the contrary, petitioner Rosencor will be presumed to have acted in good faith in entering
into the Deed of Absolute Sale over the disputed property.
It must be borne in mind that, unlike the cases cited above, the right of first refusal involved in the instant case
was an oral one given to respondents by the deceased spouses Tiangco and subsequently recognized by their
heirs. As such, in order to hold that petitioners were in bad faith, there must be clear and convincing proof that
Considering that there is no showing of bad faith on the part of the petitioners, the Court of Appeals thus erred in
ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and
the heirs of the spouses Tiangco. The acquisition by Rosencor of the property subject of the right of first refusal is
an obstacle to the action for its rescission where, as in this case, it was shown that Rosencor is in lawful possession
of the subject of the contract and that it did not act in bad faith.34

This does not mean however that respondents are left without any remedy for the unjustified violation of their right
of first refusal. Their remedy however is not an action for the rescission of the Deed of Absolute Sale but an action
for damages against the heirs of the spouses Tiangco for the unjustified disregard of their right of first refusal 35.

WHEREFORE, premises considered, the decision of the Court of Appeals dated June 25, 1999 is REVERSED
and SET ASIDE. The Decision dated May 13, 1996 of the Quezon City Regional Trial Court, Branch 217 is hereby
REINSTATED insofar as it dismisses the action for rescission of the Deed of Absolute Sale dated September 4,
1990 and orders the payment of monthly rentals of P1,000.00 per month reckoned from May 1990 up to the time
respondents leave the premises. SO ORDERED

De la Cavada v. Diaz (refer to the previous cases)