PHILIPPINE JURISPRUDENCE FULL TEXT The Lawphil Project - Arellano Law Foundation G.R. No.

. XnoX November xdate, 2006 XCX

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 165879 November 10, 2006 MARIA B. CHING, Petitioner, vs. JOSEPH C. GOYANKO, JR., EVELYN GOYANKO, JERRY GOYANKO, IMELDA GOYANKO, JULIUS GOYANKO, MARY ELLEN GOYANKO AND JESS GOYANKO, Respondents. DECISION CARPIO MORALES, J.: On December 30, 1947, Joseph Goyanko (Goyanko) and Epifania dela Cruz (Epifania) were married. [1] Out of the union were born respondents Joseph, Jr., Evelyn, Jerry, Imelda, Julius, Mary Ellen and Jess, all surnamed Goyanko. Respondents claim that in 1961, their parents acquired a 661 square meter property located at 29 F. Cabahug St., Cebu City but that as they (the parents) were Chinese citizens at the time, the property was registered in the name of their aunt, Sulpicia Ventura (Sulpicia). On May 1, 1993, Sulpicia executed a deed of sale [2] over the property in favor of respondents father Goyanko. In turn, Goyanko executed on October 12, 1993 a deed of sale [3] over the property in favor of his common-law-wife-herein petitioner Maria B. Ching. Transfer Certificate of Title (TCT) No. 138405 was thus issued in petitioners name. After Goyankos death on March 11, 1996, respondents discovered that ownership of the property had already been transferred in the name of petitioner. Respondents thereupon had the purported signature of their father in the deed of sale verified by the Philippine National Police Crime Laboratory which found the same to be a forgery. [4] Respondents thus filed with the Regional Trial Court of Cebu City a complaint for recovery of property and damages against petitioner, praying for the nullification of the deed of sale and of TCT No. 138405 and the issuance of a new one in favor of their father Goyanko. In defense, petitioner claimed that she is the actual owner of the property as it was she who provided its purchase price. To disprove that Goyankos signature in the questioned deed of sale is a forgery, she presented as witness the notary public who testified that Goyanko appeared and signed the document in his presence. By Decision of October 16, 1998, [5] the trial court dismissed the complaint against petitioner, the pertinent portions of which decision read: There is no valid and sufficient ground to declare the sale as null and void, fictitious and simulated. The signature on the questioned Deed of Sale is genuine. The testimony of Atty. Salvador Barrameda who declared in court that Joseph Goyanko, Sr. and Maria Ching together with their witnesses appeared before him for notarization of Deed of Sale in question is more reliable than the conflicting testimonies of the two document examiners. Defendant Maria Ching asserted that the Deed of Sale executed by Joseph Goyanko, Sr. in her favor is valid and genuine. The signature of Joseph Goyanko, Sr. in the questioned Deed of Absolute Sale is genuine as it was duly executed and signed by Joseph Goyanko, Sr. himself. The parcel of lands known as Lot No. 6 which is sought to be recovered in this case could never be considered as the conjugal property of the original Spouses Joseph C. Goyanko and Epifania dela Cruz or the exclusive capital property of the husband. The acquisition of the said property by defendant Maria Ching is well-elicited from the aforementioned testimonial and documentary evidence presented by the defendant. Although for a time being the property passed through Joseph Goyanko, Sr. as a buyer yet his ownership was only temporary and transitory for the reason that it was subsequently sold to herein defendant Maria Ching. Maria Ching claimed that it was even her money which was used by Joseph Goyanko, Sr. in the purchase of the land and so it was eventually sold to her. In her testimony, defendant Ching justified her financial capability to buy the land for herself. The transaction undertaken was from the original owner Sulpicia Ventura to Joseph Goyanko, Sr. and then from Joesph Goyanko, Sr. to herein defendant Maria Ching. The land subject of the litigation is already registered in the name of defendant Maria Ching under TCT No. 138405. By virtue of the Deed of Sale executed in favor of Maria Ching, Transfer Certificate of Title No. 138405 was issued in her favor. In recognition of the proverbial virtuality of a Torrens title, it has been repeatedly held that, unless bad faith can be established on the part of the person appearing as owner on the certificate of title, there is no other owner than that in whose favor it has been issued. A Torrens title is not subject to collateral attack. It is a well-known doctrine that a Torrens title, as a rule, is irrevocable and indefeasible, and the duty of the court is to see to it that this title is maintained and respected unless challenged in a direct proceedings [sic]. [6] (Citations omitted; underscoring supplied) Before the Court of Appeals where respondents appealed, they argued that the trial court erred: 1. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject property between Joseph, Sr. and the defendant-appellee, despite the proliferation in the records and admissions by both parties that defendant-appellee was the "mistress" or "common-law wife" of Joseph, Sr.. 2. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject property between Joseph, Sr. and the defendant-appellee, despite the fact that the marriage of Joseph, Sr. and Epifania was then still subsisting thereby rendering the subject property as conjugal property of Joseph, Sr. and Epifania. 3. . . . in dismissing the complaint a quo . . . , in effect, sustaining the validity of the sale of the subject property between Joseph, Sr. and the defendantappellee, despite the clear findings of forgery and the non-credible testimony of notary public. [7] By Decision dated October 21, 2003, [8] the appellate court reversed that of the trial court and declared null and void the questioned deed of sale and TCT No. 138405. Held the appellate court:

. . . The subject property having been acquired during the existence of a valid marriage between Joseph Sr. and Epifania dela Cruz-Goyanko, is presumed to belong to the conjugal partnership. Moreover, while this presumption in favor of conjugality is rebuttable with clear and convincing proof to the contrary, we find no evidence on record to conclude otherwise. The record shows that while Joseph Sr. and his wife Epifania have been estranged for years and that he and defendant-appellant Maria Ching, have in fact been living together as common-law husband and wife, there has never been a judicial decree declaring the dissolution of his marriage to Epifania nor their conjugal partnership. It is therefore undeniable that the 661square meter property located at No. 29 F. Cabahug Street, Cebu City belongs to the conjugal partnership. Even if we were to assume that the subject property was not conjugal, still we cannot sustain the validity of the sale of the property by Joseph, Sr. to defendant-appellant Maria Ching, there being overwhelming evidence on records that they have been living together as common-law husband and wife. On this score, Art. 1352 of the Civil Code provides: "Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy." We therefore find that the contract of sale in favor of the defendant-appellant Maria Ching was null and void for being contrary to morals and public policy. The purported sale, having been made by Joseph Sr. in favor of his concubine, undermines the stability of the family, a basic social institution which public policy vigilantly protects. Furthermore, the law emphatically prohibits spouses from selling property to each other, subject to certain exceptions. And this is so because transfers or conveyances between spouses, if allowed during the marriage would destroy the system of conjugal partnership, a basic policy in civil law. The prohibition was designed to prevent the exercise of undue influence by one spouse over the other and is likewise applicable even to common-law relationships otherwise, "the condition of those who incurred guilt would turn out to be better than those in legal union. [9] (Underscoring supplied) Hence, the present petition, petitioners arguing that the appellate court gravely erred in: I. . . . APPLYING THE STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES ON THE SUBJECT PROPERTY, THE SAME BEING FOUND BY THE COURT A QUO, AS THE EXCLUSIVE PROPERTY OF PETITIONER, AND THAT THE SAME WAS NEVER PART OF THE CONJUGAL PROPERTY OF THE MARRIAGE BETWEEN RESPONDENTS MOTHER EPIFANIA GOYANKO AND PETITIONERS COMMON LAW HUSBAND, JOSEPH GOYANKO, SR., NOR THE EXCLUSIVE OR CAPITAL PROPERTY OF THE LATTER AT ANYTIME BEFORE THE SAME WAS VALIDLY ACQUIRED BY PETITIONER. II. . . . NOT FINDING THAT A JURIDICAL RELATION OF TRUST AS PROVIDED FOR UNDER ARTICLES 1448 AND 1450 OF THE NEW CIVIL CODE CAN VALIDLY EXIST BETWEEN COMMON LAW SPOUSES. III. . . . NOT FINDING THAT A CONVEYANCE OVER A PROPERTY MADE BY A TRUSTEE, WHO BECAME AS SUCH IN CONTEMPLATION OF LAW, AND WHO HAPPENS TO BE A COMMON LAW HUSBAND OF THE BENEFICIARY, IS NOT A VIOLATION OF A STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES. IV. . . . ALLOWING RESPONDENTS TO ABANDON THEIR ORIGINAL THEORY OF THEIR CASE DURING APPEAL. [10] The pertinent provisions of the Civil Code which apply to the present case read: ART. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. ART. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. ARTICLE 1490. The husband and wife cannot sell property to each other, except: (1) When a separation of property was agreed upon in the marriage settlements; or (2) When there has been a judicial separation of property under Article 191. (Underscoring supplied) The proscription against sale of property between spouses applies even to common law relationships. So this Court ruled in Calimlim-Canullas v. Hon.

Fortun, etc., et al.: [11] Anent the second issue, we find that the contract of sale was null and void for being contrary to morals and public policy. The sale was made by a husband in favor of a concubine after he had abandoned his family and left the conjugal home where his wife and children lived and from whence they derived their support. The sale was subversive of the stability of the family, a basic social institution which public policy cherishes and protects. Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes is contrary to law, morals, good customs, public order, or public policy are void and inexistent from the very beginning. Article 1352 also provides that: "Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy." Additionally, the law emphatically prohibits the spouses from selling property to each other subject to certain exceptions. Similarly, donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, "the condition of those who incurred guilt would turn out to be better than those in legal union." Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties. . . . [12] (Italics in the original; emphasis and underscoring supplied) As the conveyance in question was made by Goyangko in favor of his common- law-wife-herein petitioner, it was null and void. Petitioners argument that a trust relationship was created between Goyanko as trustee and her as beneficiary as provided in Articles 1448 and 1450 of the Civil Code which read: ARTICLE 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. ARTICLE 1450. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom it is paid. The latter may redeem the property and compel a conveyance thereof to him. does not persuade. For petitioners testimony that it was she who provided the purchase price is uncorroborated. That she may have been considered the breadwinner of the family and that there was proof that she earned a living do not conclusively clinch her claim. As to the change of theory by respondents from forgery of their fathers signature in the deed of sale to sale contrary to public policy, it too does not persuade. Generally, a party in a litigation is not permitted to freely and substantially change the theory of his case so as not to put the other party to undue disadvantage by not accurately and timely apprising him of what he is up against, [13] and to ensure that the latter is given the opportunity during trial to refute all allegations against him by presenting evidence to the contrary. In the present case, petitioner cannot be said to have been put to undue disadvantage and to have been denied the chance to refute all the allegations against her. For the nullification of the sale is anchored on its illegality per se, it being violative of the above-cited Articles 1352, 1409 and 1490 of the Civil Code. WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner. SO ORDERED

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 106063 November 21, 1996 EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners, vs. MAYFAIR THEATER, INC., respondent.

HERMOSISIMA, JR., J.: Before us is a petition for review of the decision 1 of the Court of Appeals 2 involving questions in the resolution of which the respondent appellate court analyzed and interpreted particular provisions of our laws on contracts and sales. In its assailed decision, the respondent court reversed the trial court 3 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, Inc. (hereafter, Carmelo) to be impossible of performance and unsupported by a consideration and 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 We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost verbatim the basis of the statement of facts as rendered by the petitioners in their pleadings: 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 by the Register of Deeds of Manila. On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of a portion of Carmelo's property particularly described, to wit: A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters. THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 150 square meters. for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair thereafter constructed on the leased property a movie house known as "Maxim Theatre." Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for the lease of another portion of Carmelo's property, to wit: A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,064 square meters. THE TWO (2) STORE SPACES AT THE GROUND FLOOR and MEZZANINE of the two-storey building situated at C.M. Recto Avenue, Manila, with a floor area of 300 square meters and bearing street numbers 1871 and 1875, 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. Both contracts of lease provides (sic) identically worded paragraph 8, which reads: That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other 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 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 of Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire 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 was willing to buy the property for Six to Seven Million Pesos. Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974, Mayfair replied through a letter stating as follows: It appears that on August 19, 1974 your Mr. Henry Pascal informed our client's Mr. Henry Yang through the telephone that your company desires to sell your above-mentioned C.M. Recto Avenue property. Under your company's two lease contracts with our client, it is uniformly provided: 8. That if the LESSOR should desire to sell the leased premises the LESSEE shall be given 30-days exclusive option to purchase the same. 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) 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). Carmelo did not reply to this letter. 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 the second letter. Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00. 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 C.M. Recto Avenue property and offered the same to Mayfair, but the latter answered that it 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 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 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 devaluation of the currency. Equatorial likewise cross-claimed against co-defendant Carmelo for indemnification in respect of Mayfair's claims. During the pre-trial conference held on January 23, 1979, the parties stipulated on the following:

1. That there was a deed of sale of the contested premises by the defendant Carmelo . . . in favor of defendant Equatorial . . .; 2. That in both contracts of lease there appear (sic) the stipulation granting the plaintiff exclusive option to purchase the leased premises should the lessor desire to sell the same (admitted subject to the contention that the stipulation is null and void); 3. That the two buildings erected on this land are not of the condominium plan; 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 occupancy of the leased premises, subject of the same contracts of lease, Exhibits A and B; xxx xxx xxx 6. That there was no consideration specified in the option to buy embodied in the contract; 7. That Carmelo & Bauermann owned the land and the two buildings erected thereon; 8. That the leased premises constitute only the portions actually occupied by the theaters; and 9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty is the land and the two buildings erected thereon. xxx xxx xxx After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion of which reads as follows: WHEREFORE, judgment is hereby rendered: (1) Dismissing the complaint with costs against the plaintiff; (2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by way of attorney's fees on its counterclaim; (3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per month as reasonable compensation for the use of areas not covered by the contract (sic) of lease from July 31, 1979 until plaintiff vacates said 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 contracts (sic) of lease dated (June 1, 1967 from June 1, 1987 until plaintiff vacates the premises plus legal interest from June 1, 1987; P55,000.00 per month as reasonable compensation for the use of the 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; (4) Dismissing defendant Equatorial's crossclaim against defendant Carmelo & Bauermann. The contracts of lease dated June 1, 1967 and March 31, 1969 are declared expired and all persons claiming rights under these contracts are directed to vacate the premises. 6 The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to be an option clause which however cannot be deemed to be binding on Carmelo because of lack of distinct consideration therefor. The court a quo ratiocinated: Significantly, during the pre-trial, it was admitted by the parties that the option in the contract 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 the former. The option invoked by the plaintiff appears in the contracts of lease . . . in effect there is no option, on the ground that there is no consideration. Article 1352 of the Civil Code, provides: Contracts without cause or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good custom, public order or public policy. Contracts therefore without consideration produce no effect whatsoever. Article 1324 provides: When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. in relation with Article 1479 of the same Code: A promise to buy and sell a determine thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determine thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. The plaintiff cannot compel defendant Carmelo to comply with the promise unless the former establishes the existence of a distinct consideration. In other words, the promisee has the burden of proving the consideration. The consideration cannot be presumed as in Article 1354: Although the cause is not stated in the contract, it is presumed that it exists and is lawful unless the debtor proves the contrary.

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 from the price. Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said: (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 promissor, Article 1479 requires the concurrence of a condition, namely, that the promise be supported by a consideration distinct from the price. Accordingly, the promisee cannot compel the promissor 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. 7 It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M. Recto property to the former. Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent Court of Appeals. Respondent appellate court reversed the court a quo and rendered judgment: 1. Reversing and setting aside the appealed Decision; 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; 3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc. to execute the deeds and documents necessary for the issuance and transfer of ownership 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). Article 1479, second paragraph, on the other hand, contemplates of an "accepted unilateral promise to buy or to sell a determinate thing for a price within (which) is binding upon the promisee if the promise is supported by a consideration distinct from the price." That "unilateral promise to buy or to sell a determinate thing for a price certain" is called an offer. 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 essential terms of the contract (Art. 1319, Civil Code). Based on the foregoing discussion, it is evident that the provision granting Mayfair "30-days exclusive option to purchase" the leased premises is NOT AN OPTION in the context of Arts. 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" or the "offer to sell" because the clause does not specify the price for the subject property. 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. xxx xxx xxx The provision in question is not of the pro-forma type customarily found in a contract of lease. Even appellees have recognized that the stipulation was incorporated in the two Contracts of Lease at the initiative and behest of Mayfair. Evidently, the stipulation was intended to benefit 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?

A I have an offer from another party to buy the property and having the offer we decided to make an offer to Henry Yang on a first-refusal basis. (TSN November 8, 1983, p. 12.). and on cross-examination: Q When you called Mr. Yang on August 1974 can you remember exactly what you have told him in connection with that matter, Mr. Pascal? A More or less, I told him that I received an offer from another party to buy the property and I was offering him first choice of the enter property. (TSN, November 29, 1983, p. 18). We rule, therefore, that the foregoing interpretation best renders effectual the intention of the parties. 9 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 court also addressed the claim of Carmelo and Equatorial that assuming arguendo that the option is valid and effective, it is impossible of performance because it covered only the leased premises and not the entire Claro M. Recto property, while Carmelo's offer to sell pertained to the entire property in question. The Court of Appeals ruled as to this issue in this wise: 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. 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 two theaters stand on the parcels of land covered by TCT No. 17350 with an area of 622.10 sq. m and TCT No. 118612 with an area of 2,100.10 sq. m. The existence of four separate parcels of land covering the whole Recto property demonstrates the legal and physical possibility that each parcel of land, together with the buildings and improvements 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: I THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR STIPULATION OF FACTS. II WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS 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 FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS FROM NOTICE. III THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE COMPLAINT. IV THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE MOTIONS IN THE "COMPLETION PROCESS" AND TO STILL RESOLVE THE MERITS OF THE CASE IN THE "DECISION STAGE". 11

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 CAG.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 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 course of action not to pre-empt the administrative proceedings to be undertaken respecting the said irregularities. Certainly, a discussion thereupon by us in this case would entail a finding on the merits as to the real nature of the questioned procedures and the true intentions and motives of the players therein.

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 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 property to Equatorial. Both contracts of lease in question provide the identically worded paragraph 8, which reads: That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds 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 thereof. 14 We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal. As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal was our characterization of an option contract as one necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price. It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of three months and for its assessed valuation, a grant which necessarily implied the offer or obligation on the part of the defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned . . . There was, therefore, a meeting of minds on the 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 of option, for, . . . there can be no contract without the requisite, among others, of the cause for the obligation to be established. In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language: 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. (Story vs. Salamon, 71 N.Y., 420.) From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken: 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 to sell. 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 is, the right or privilege to buy at the election or option of the other party. The second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of value; that is, the right to call for and receive 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 buy. But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to the case where there was cause or consideration for the obligation, the subject of the agreement made by the parties; while in the case at bar there was no such cause or consideration. 16 (Emphasis ours.) The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in order to be valid and enforceable, must, among other things, indicate the definite price at which the person granting the option, is willing to sell. Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per square meter upon failure to make the purchase within the time specified; 17 in one other case we freed the landowner 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 consideration; 19 and as an exception to the doctrine enumerated in the two preceding cases, in another case, we ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not without consideration for in reciprocal contracts, like lease, the obligation or promise of each party is the consideration for that of the other. 20 In all these cases, the selling price of the object thereof is always predetermined and specified in the option clause in the contract or in the separate deed of option. We elucidated, thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals 21 that: . . . 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 in 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. . . . 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. 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 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 Paraaque, 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 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 reparation 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 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 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 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. The petitioner insists that it was not aware of the right of first priority granted by the Contract of Lease. Assuming this to be true, we nevertheless agree with the observation of the respondent court that: If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which includes Par. 20 on priority right given to the Bonnevies, it had only itself to blame. Having known that the property it was buying was under lease, it behooved it as a prudent person to have required Reynoso or the broker to show to it the Contract of Lease in which Par. 20 is contained. 25 Petitioners assert the alleged impossibility of performance because the entire property is indivisible property. It was petitioner Carmelo which fixed the limits of the property it was leasing out. Common sense and fairness dictate that instead of nullifying the agreement on that basis, the stipulation should be given effect by including the indivisible appurtenances in the sale of the dominant portion under the right of first refusal. A valid and legal contract where the ascendant or the more important of the two 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 in the contracts of lease but also the appurtenant portions sold to Equatorial which are claimed by petitioners to be indivisible. Carmelo acted in bad faith when it sold the entire property to Equatorial without informing Mayfair, a clear violation of Mayfair's rights. While there was a series of exchanges of letters evidencing the offer and counter-offers between the parties, Carmelo abandoned the negotiations without giving Mayfair full opportunity to negotiate within the 30-day period. 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 first refusal. As to the remedy to enforce Mayfair's right, the Court disagrees to a certain extent with the concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of Appeals should be modified, if not amplified under the peculiar facts of this case. 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 of 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 has 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. 26 The sale of the subject real property by Carmelo to Equatorial 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 stipulated period. 27 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 which Mayfair could have purchased the property is, therefore, fixed. It can neither be more nor less. There is no dispute over it. The damages which Mayfair suffered are in terms of actual injury and lost 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. To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the latter of the disputed property would be unjust and unkind to Mayfair because it is once more compelled to litigate to enforce its right. It is not proper to give it an empty or vacuous victory in this case. From the viewpoint of Carmelo, it is like asking a fish if it would accept the choice of being thrown back into the 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 another chance to sell it at an increased price? Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to execute because a contract over the right of first refusal belongs to a class of preparatory juridical relations governed not by the law on contracts but by the codal provisions on human relations. This may apply here if the contract is limited to the buying and selling of the real property. However, the obligation 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 multiplicity of suits. There is something to execute and that is for Carmelo to comply with its obligation to the property under the right of the first refusal according to the terms at which they should have been 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 leases can be executed according to their terms. On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in 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 any notice or knowledge of the sale coming to the attention of Mayfair. All the circumstances point to a calculated and contrived plan of non-compliance with the agreement of first refusal. On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious advantage of Mayfair. Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the 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 from the amount. Equatorial, on the other hand, has received rents and otherwise profited from the use of the property turned over to it by Carmelo. In fact, during

all the years that this controversy was being litigated, Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the property. Mayfair is under no obligation to pay any interests arising from this judgment to either Carmelo or 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. Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza and Francisco, JJ., concur. Narvasa, C.J., took no part.

Separate Opinions

PADILLA, J., concurring: I am of the considered view (like Mr. Justice Jose A. R. Melo) that the Court in this case should categorically 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 (Art. 1380-1381[3], Civil Code). The Court should, in this same case, to avoid multiplicity of suits, likewise allow Mayfair to effectively exercise said right of first refusal, by paying Carmelo the sum of P11,300,000.00 for the entire subject property, without any need of instituting a separate action for damages against Carmelo and/or Equatorial. I do not agree with the proposition that, in addition to the aforesaid purchase price, Mayfair should be required to pay a compounded interest of 12% per annum of said amount computed from 1 August 1978. Under the Civil Code, a party to a contract may recover interest as indemnity for damages in the following instances: Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs 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, which is six per cent per annum. Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. There appears to be no basis in law for adding 12% per annum compounded interest to the purchase price of P11,300,000.00 payable by Mayfair to Carmelo since there was no such stipulation in writing between the parties (Mayfair and Carmelo) but, more importantly, because Mayfair neither incurred in 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 which violated Mayfair's right of first refusal under the contract? The equities of the case support the foregoing legal disposition. During the intervening years between 1 August 1978 and this date, Equatorial (after acquiring the C.M. Recto property for the price of P11,300,000.00) had been leasing the property and deriving rental income therefrom. In fact, one of the lessees in the property was Mayfair. Carmelo had, in turn, been using the proceeds of the sale, investment-wise and/or operation-wise in its own business. 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. 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 Such statement is anchored upon a pronouncement in Ang Yu Asuncion vs. CA, 1 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. 8741058, 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 contract 3 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 copetitioner, 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 for the rescission of the contract of sale between Carmelo & Bauermann, Inc., and Equatorial Realty Development, Inc., has been misapplied. The action for rescission under that provision of the law, unlike in the resolution of reciprocal obligations under Article 1191 of the Code, is merely subsidiary and relates to the specific instance when a debtor, in an attempt to defraud his creditor, enters into a contract with another that deprives the creditor to recover his just claim and leaves him with no other legal means, than by rescission, to obtain reparation. Thus, 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 Gigante vs. Republic Savings Bank, 135 Phil. 359). The concept of a right of first refusal as a simple juridical relation, and so governed (basically) by the Civil Code's 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 damages primarily under Article 19 of the Civil Code, as well as its related provisions, but not to an action for specific performance set out under Book IV of the Code on "Obligations and Contracts." That right, standing by itself, is far distant from being the obligation referred to in Article 1159 of the Code which would have the force of law sufficient to compel compliance per se or to establish a creditor-debtor or obligee-obligor relation between the parties. If, as it is rightly so, a right of first refusal cannot even be properly classed as an offer or as an option, certainly, and with much greater reason, it cannot be the equivalent of, nor be given the same legal effect as, a duly perfected contract. It is not possible to cross out, such as we have said in Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602), the indispensable element of consensuality in the perfection of contracts. It is basic that without mutual consent on the object and on the cause, a contract cannot exist (Art. 1305, Civil Code); corollary to it, no one can be forced, least of all perhaps by a court, into a contract against his will or compelled to perform thereunder. It is sufficiently clear, I submit, that, there being no binding contract between Carmelo and Mayfair, neither the rescission of the contract between Carmelo and Equatorial nor the directive to Carmelo to sell the property to Mayfair would be legally appropriate. My brief disquisition should have ended here except for some personal impressions expressed by my esteemed colleague, Mr. Justice Artemio V. Panganiban, on the Ang Yu decision which perhaps need to be addressed. The discussion by the Court in Ang Yu on the right of first refusal is branded as a mere obiter dictum. Justice Panganiban states: The 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. . . . . 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." Black defines an obiter dictum as "an opinion entirely unnecessary for the decision of the case" and thus "are not binding as precedent." (Black's Law Dictionary, 6th edition, 1990). A close look at the antecedents of Ang Yu as 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 would not deem it "entirely unnecessary" for this Court to itself discuss the legal connotation and significance of the decreed (confirmatory) right of first refusal. I should add that when the ponencia recognized that, in the case of Buen Realty Development Corporation (the alleged purchaser of the property), the latter could not be held subject of the writ of execution and be ousted from the ownership and possession of the disputed property without first affording it due process, the Court decided to simply put a cap in the final disposition of the case but it could not have intended to thereby mitigate the import of its basic ratio decidendi.

Justice Panganiban opines that the pronouncement in Ang Yu, i.e., that a breach of the right of first refusal does not sanction an action for specific performance but only an action for damages, "is at best debatable (. . . imprecise or incorrect), on to top of its being contradicted by extant jurisprudence." He then comes up with the novel proposition that "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," presumably enforceable by action for specific performance. It would be perilous a journey, first of all, to try to seek out a common path for such juridical relations as contracts, 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 Supreme Court En Banc, which held: 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 1319 of the same Code. An option or an offer would require, among other things, 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. 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, Civil Code), and one that is constituted by law, contracts, quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil 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 of the contracting parties, (b) object certain (subject matter of the contract) and (c) cause (Art. 1318, Civil Code). These requirements, clearly defined, are essential. The consent contemplated by the law is that which is manifested by the meeting of the offer and of the acceptance upon the object and the cause of the obligation. The offer must be certain and the acceptance absolute (Article 1319 of the Civil Code). Thus, a right of first refusal cannot have the effect of a contract because, by its very essence, certain basic terms would have yet to be 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 faith (Article 1159 of the Civil Code; see also Article 1308, of the Civil Code), and, in case of its breach, would allow the creditor or obligee (the passive subject) to invoke the remedy that specifically appertains to it. The judicial remedies, in general, would, of course, include: (a) The principal remedies (i) of specific performance in obligations to give specific things (Articles 1165 and 1167 of the Civil Code), substitute performance in an obligation to do or to deliver generic things (Article 1165 of the Civil Code) and equivalent performance for damages (Articles 1168 and 1170 of the Civil Code); and (ii) of rescission or resolution of reciprocal obligations; and (b) the subsidiary remedies that may be availed of when the principal remedies are unavailable or ineffective such as (i) accion subrogatoria or subrogatory action (Article 1177 of the Civil Code; see also Articles 1729 and 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.

Separate Opinions PADILLA, J., concurring: I am of the considered view (like Mr. Justice Jose A. R. Melo) that the Court in this case should categorically 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 (Art. 1380-1381[3], Civil Code). The Court should, in this same case, to avoid multiplicity of suits, likewise allow Mayfair to effectively exercise said right of first refusal, by paying Carmelo the sum of P11,300,000.00 for the entire subject property, without any need of instituting a separate action for damages against Carmelo and/or Equatorial. I do not agree with the proposition that, in addition to the aforesaid purchase price, Mayfair should be required to pay a compounded interest of 12% per annum of said amount computed from 1 August 1978. Under the Civil Code, a party to a contract may recover interest as indemnity for damages in the following instances:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs 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, which is six per cent per annum. Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. There appears to be no basis in law for adding 12% per annum compounded interest to the purchase price of P11,300,000.00 payable by Mayfair to Carmelo since there was no such stipulation in writing between the parties (Mayfair and Carmelo) but, more importantly, because Mayfair neither incurred in 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 which violated Mayfair's right of first refusal under the contract? The equities of the case support the foregoing legal disposition. During the intervening years between 1 August 1978 and this date, Equatorial (after acquiring the C.M. Recto property for the price of P11,300,000.00) had been leasing the property and deriving rental income therefrom. In fact, one of the lessees in the property was Mayfair. Carmelo had, in turn, been using the proceeds of the sale, investment-wise and/or operation-wise in its own business. 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. 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 Such statement is anchored upon a pronouncement in Ang Yu Asuncion vs. CA, 1 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. 8741058, 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 contract 3 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 copetitioner, 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 for the rescission of the contract of sale between Carmelo & Bauermann, Inc., and Equatorial Realty Development, Inc., has been misapplied. The action for rescission under that provision of the law, unlike in the resolution of reciprocal obligations under Article 1191 of the Code, is merely subsidiary and relates to the specific instance when a debtor, in an attempt to defraud his creditor, enters into a contract with another that deprives the creditor to recover his just claim and leaves him with no other legal means, than by rescission, to obtain reparation. Thus, 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 Gigante vs. Republic Savings Bank, 135 Phil. 359). The concept of a right of first refusal as a simple juridical relation, and so governed (basically) by the Civil Code's 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 damages primarily under Article 19 of the Civil Code, as well as its related provisions, but not to an action for specific performance set out under Book IV of the Code on "Obligations and Contracts." That right, standing by itself, is far distant from being the obligation referred to in Article 1159 of the Code which would have the force of law sufficient to compel compliance per se or to establish a creditor-debtor or obligee-obligor relation between the parties. If, as it is rightly so, a right of first refusal cannot even be properly classed as an offer or as an option, certainly, and with much greater reason, it cannot be the equivalent of, nor be given the same legal effect as, a duly perfected contract. It is not possible to cross out, such as we have said in Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602), the indispensable element of consensuality in the perfection of contracts. It is basic that without mutual consent on the object and on the cause, a contract cannot exist (Art. 1305, Civil Code); corollary to it, no one can be forced, least of all perhaps by a court, into a contract against his will or compelled to perform thereunder. It is sufficiently clear, I submit, that, there being no binding contract between Carmelo and Mayfair, neither the rescission of the contract between Carmelo and Equatorial nor the directive to Carmelo to sell the property to Mayfair would be legally appropriate. My brief disquisition should have ended here except for some personal impressions expressed by my esteemed colleague, Mr. Justice Artemio V. Panganiban, on the Ang Yu decision which perhaps need to be addressed. The discussion by the Court in Ang Yu on the right of first refusal is branded as a mere obiter dictum. Justice Panganiban states: The 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. . . . . 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." Black defines an obiter dictum as "an opinion entirely unnecessary for the decision of the case" and thus "are not binding as precedent." (Black's Law Dictionary, 6th edition, 1990). A close look at the antecedents of Ang Yu as 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 would not deem it "entirely unnecessary" for this Court to itself discuss the legal connotation and significance of the decreed (confirmatory) right of first refusal. I should add that when the ponencia recognized that, in the case of Buen Realty Development Corporation (the alleged purchaser of the property), the latter could not be held subject of the writ of execution and be ousted from the ownership and possession of the disputed property without first affording it due process, the Court decided to simply put a cap in the final disposition of the case but it could not have intended to thereby mitigate the import of its basic ratio decidendi. Justice Panganiban opines that the pronouncement in Ang Yu, i.e., that a breach of the right of first refusal does not sanction an action for specific performance but only an action for damages, "is at best debatable (. . . imprecise or incorrect), on to top of its being contradicted by extant jurisprudence." He then comes up with the novel proposition that "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," presumably enforceable by action for specific performance. It would be perilous a journey, first of all, to try to seek out a common path for such juridical relations as contracts, 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 Supreme Court En Banc, which held: 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 1319 of the same Code. An option or an offer would require, among other things, 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. 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, Civil Code), and one that is constituted by law, contracts, quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil 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 of the contracting parties, (b) object certain (subject matter of the contract) and (c) cause (Art. 1318, Civil Code). These requirements, clearly defined, are essential. The consent contemplated by the law is that which is manifested by the meeting of the offer and of the acceptance upon the object and the cause of the obligation. The offer must be certain and the acceptance absolute (Article 1319 of the Civil Code). Thus, a right of first refusal cannot have the effect of a contract because, by its very essence, certain basic terms would have yet to be 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 faith (Article 1159 of the Civil Code; see also Article 1308, of the Civil Code), and, in case of its breach, would allow the creditor or obligee (the passive subject) to invoke the remedy that specifically appertains to it. The judicial remedies, in general, would, of course, include: (a) The principal remedies (i) of specific performance in obligations to give specific things (Articles 1165 and 1167 of the Civil Code), substitute performance in an obligation to do or to deliver generic things (Article 1165 of the Civil Code) and equivalent performance for damages (Articles 1168 and 1170 of the Civil Code); and (ii) of rescission or resolution of reciprocal obligations; and (b) the subsidiary remedies that may be availed of when the principal remedies are unavailable or ineffective such as (i) accion subrogatoria or subrogatory action (Article 1177 of the Civil Code; see also Articles 1729 and 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. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 103577 October 7, 1996 ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs. THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-fact, respondents.

MELO, J.:p The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in January 1985 for the price of P1,240,000.00. The undisputed facts of the case were summarized by respondent court in this wise: On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as Coronels) executed a document entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder: RECEIPT OF DOWN PAYMENT P1,240,000.00 Total amount 50,000 Down payment P1,190,000.00 Balance Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00. We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the down payment above-stated. On our presentation of the TCT already in or name, We will immediately execute the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00. Clearly, the conditions appurtenant to the sale are the following: 1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the document aforestated; 2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;

3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos. On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2"). On February 6, 1985, the property originally registered in the name of the Coronels' father was transferred in their names under TCT No. 327043 (Exh. "D"; Exh. "4") On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C") For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona by depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz. On February 22, 1985, Concepcion, et al., filed a complaint for specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5"). On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6"). On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina (Exh. "G"; Exh. "7"). On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8"). (Rollo, pp. 134-136) In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered their documentary evidence accordingly marked as Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same exhibits as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits "1" through "10", likewise inclusive of their corresponding submarkings. Upon motion of the parties, the trial court gave them thirty (30) days within which to simultaneously submit their respective memoranda, and an additional 15 days within which to submit their corresponding comment or reply thereof, after which, the case would be deemed submitted for resolution. On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as follows: WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the improvements existing thereon free from all liens and encumbrances, and once accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and declared to be without force and effect. Defendants and intervenor and all other persons claiming under them are hereby ordered to vacate the subject property and deliver possession thereof to plaintiffs. Plaintiffs' claim for damages and attorney's fees, as well as the counterclaims of defendants and intervenors are hereby dismissed. No pronouncement as to costs. So Ordered. Macabebe, Pampanga for Quezon City, March 1, 1989. (Rollo, p. 106) A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly: The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by the undersigned Presiding Judge should be denied for the following reasons: (1) The instant case became submitted for decision as of April 14, 1988 when the parties terminated the presentation of their respective documentary evidence and when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that they were allowed to file memoranda at some future date did not change the fact that the hearing of the case was terminated before Judge Roura and therefore the same should be submitted to him for decision; (2) When the defendants and intervenor did not object to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, when they met for the first time before the undersigned Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and they are now estopped from questioning said authority of Judge Roura after they received the decision in question which happens to be adverse to them; (3) While it is true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge with full authority to act on any pending incident submitted before this Court during his incumbency. When he returned to his Official Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve such cases submitted to him for decision or resolution because he continued as Judge of the Regional Trial Court and is of co-equal rank with the undersigned Presiding Judge. The standing rule and supported by jurisprudence is that a Judge to whom a case is submitted for decision has the authority to decide the case notwithstanding his transfer to another branch or region of the same court (Sec. 9, Rule 135, Rule of Court). Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in the instant case, resolution of which now pertains to the undersigned Presiding Judge, after a meticulous examination of the documentary evidence presented by the parties, she is convinced that the Decision of March 1, 1989 is supported by evidence and, therefore, should not be disturbed. IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul Decision and Render Anew Decision by the Incumbent Presiding Judge" dated March 20, 1989 is hereby DENIED.

SO ORDERED. Quezon City, Philippines, July 12, 1989. (Rollo, pp. 108-109) Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial court. Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents' Reply Memorandum, was filed on September 15, 1993. The case was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom the case was last assigned. While we deem it necessary to introduce certain refinements in the disquisition of respondent court in the affirmance of the trial court's decision, we definitely find the instant petition bereft of merit. The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar is the precise determination of the legal significance of the document entitled "Receipt of Down Payment" which was offered in evidence by both parties. There is no dispute as to the fact that said document embodied the binding contract between Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as follows: Art. 1305. A contract 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. While, it is the position of private respondents that the "Receipt of Down Payment" embodied a perfected contract of sale, which perforce, they seek to enforce by means of an action for specific performance, petitioners on their part insist that what the document signified was a mere executory contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P. Alcaraz, who left for the United States of America, said contract could not possibly ripen into a contract absolute sale. Plainly, such variance in the contending parties' contentions is brought about by the way each interprets the terms and/or conditions set forth in said private instrument. Withal, based on whatever relevant and admissible evidence may be available on record, this, Court, as were the courts below, is now called upon to adjudge what the real intent of the parties was at the time the said document was executed. The Civil Code defines a contract of sale, thus: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent. Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule: Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective seller's obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person buying

such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller's title per se, but the latter, of course, may be used for damages by the intending buyer. In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been previous delivery of the subject property, the seller's ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller's title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale. With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the contract entered into by petitioners and private respondents. It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of Down Payment" that they Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00. without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold their property. When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitioner's father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price. Therefore, petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father, after which, they promised to present said title, now in their names, to the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price. The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, the Court may safely presume that, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then. Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the properly to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale. Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain terms and conditions, promised to sell the property to the latter. What may be perceived from the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lot they inherited from their father, completely willing to transfer full ownership of the subject house and lot to the buyer if the documents were then in order. It just happened, however, that the transfer certificate of title was then still in the name of their father. It was more expedient to first effect the change in the certificate of title so as to bear their names. That is why they undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of title is issued in their names, petitioners were committed to immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price arise. There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the seller against a buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor, in the contract entered into in the case at bar, the sellers were the one who were unable to enter into a contract of absolute sale by reason of the fact that the certificate of title to the property was still in the name of their father. It was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the execution of an contract of absolute sale. What is clearly established by the plain language of the subject document is that when the said "Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners' father, Constancio P. Coronel, to their names. The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and private respondent Ramona P. Alcaraz became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the "Receipt of Down Payment." Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus, 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 the moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00. It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively admitted that: 3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our names from our deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the downpayment above-stated". The sale was still subject to this suspensive condition. (Emphasis supplied.) (Rollo, p. 16)

Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive condition. Only, they contend, continuing in the same paragraph, that: . . . Had petitioners-sellers not complied with this condition of first transferring the title to the property under their names, there could be no perfected contract of sale. (Emphasis supplied.) (Ibid.) not aware that they set their own trap for themselves, for Article 1186 of the Civil Code expressly provides that: Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Besides, it should be stressed and emphasized that what is more controlling than these mere hypothetical arguments is the fact that the condition herein referred to was actually and indisputably fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4"). The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject only to the suspensive condition that the sellers shall effect the issuance of new certificate title from that of their father's name to their names and that, on February 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4"). We, therefore, hold that, in accordance with Article 1187 which pertinently provides Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation . . . In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations of both seller and buyer arose. Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then not yet the absolute owners of the inherited property. We cannot sustain this argument. Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows: Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to be extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law. Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]). Be it also noted that petitioners' claim that succession may not be declared unless the creditors have been paid is rendered moot by the fact that they were able to effect the transfer of the title to the property from the decedent's name to their names on February 6, 1985. Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an agreement at that time and they cannot be allowed to now take a posture contrary to that which they took when they entered into the agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly states that: Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. Having represented themselves as the true owners of the subject property at the time of sale, petitioners cannot claim now that they were not yet the absolute owners thereof at that time. Petitioners also contend that although there was in fact a perfected contract of sale between them and Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible the consummation thereof by going to the United States of America, without leaving her address, telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were correct in unilaterally rescinding rescinding the contract of sale. We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case. We note that these supposed grounds for petitioners' rescission, are mere allegations found only in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners' allegations. We have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]). Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6, 1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially rescinding the contract of sale, there being no express stipulation authorizing the sellers to extarjudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984]) Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale. Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense of the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to show that they actually presented the new transfer certificate of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramona's corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default.

Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default, to wit: Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. xxx xxx xxx 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 fulfill his obligation, delay by the other begins. (Emphasis supplied.) There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents. With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will apply, to wit: Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should if be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest title, provided there is good faith. The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply. The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer. In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member of the Court, Justice Jose C. Vitug, explains: The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it has held that it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992). (J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604). Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a clean title, she was unaware of any adverse claim or previous sale, for which reason she is buyer in good faith. We are not persuaded by such argument. In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a notice of lis pendens had been annotated on the transfer certificate of title in the names of petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time of registration, therefore, petitioner Mabanag knew that the same property had already been previously sold to private respondents, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect in petitioners' title to the property at the time of the registration of the property. This Court had occasions to rule that: If a vendee in a double sale registers that sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a pervious sale, the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.) Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts below. Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such assumption disputed between mother and daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this point. WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED. SO ORDERED. G.R. No. 52267 January 24, 1996

ENGINEERING & MACHINERY CORPORATION, petitioner, vs. COURT OF APPEALS and PONCIANO L. ALMEDA, respondent.

DECISION PANGANIBAN, J.: Is a contract for the fabrication and installation of a central air-conditioning system in a building, one of "sale" or "for a piece of work"? What is the prescriptive period for filing actions for breach of the terms of such contract? These are the legal questions brought before this Court in this Petition for review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision1 of the Court of Appeals2 in CA-G.R. No. 58276-R promulgated on November 28, 1978 (affirming in toto the decision3 dated April 15, 1974 of the then Court of First Instance of Rizal, Branch II4 , in Civil Case No. 14712, which ordered petitioner to pay private respondent the amount needed to rectify the faults and deficiencies of the airconditioning system installed by petitioner in private respondent's building, plus damages, attorney's fees and costs). By a resolution of the First Division of this Court dated November 13, 1995, this case was transferred to the Third. After deliberating on the various submissions of the parties, including the petition, record on appeal, private respondent's comment and briefs for the petitioner and the private respondent, the Court assigned the writing of this Decision to the undersigned, who took his oath as a member of the Court on October 10, 1995. The Facts Pursuant to the contract dated September 10, 1962 between petitioner and private respondent, the former undertook to fabricate, furnish and install the air-conditioning system in the latter's building along Buendia Avenue, Makati in consideration of P210,000.00. Petitioner was to furnish the materials, labor, tools and all services required in order to so fabricate and install said system. The system was completed in 1963 and accepted by private respondent, who paid in full the contract price. On September 2, 1965, private respondent sold the building to the National Investment and Development Corporation (NIDC). The latter took possession of the building but on account of NIDC's noncompliance with the terms and conditions of the deed of sale, private respondent was able to secure judicial rescission thereof. The ownership of the building having been decreed back to private respondent, he re-acquired possession sometime in 1971. It was then that he learned from some NIDC, employees of the defects of the air-conditioning system of the building. Acting on this information, private respondent commissioned Engineer David R. Sapico to render a technical evaluation of the system in relation to the contract with petitioner. In his report, Sapico enumerated the defects of the system and concluded that it was "not capable of maintaining the desired room temperature of 76F - 2F (Exhibit C)"5 . On the basis of this report, private respondent filed on May 8, 1971 an action for damages against petitioner with the then Court of First Instance of Rizal (Civil Case No. 14712). The complaint alleged that the air-conditioning system installed by petitioner did not comply with the agreed plans and specifications. Hence, private respondent prayed for the amount of P210,000.00 representing the rectification cost, P100,000.00 as damages and P15,000.00 as attorney's fees. Petitioner moved to dismiss the complaint, alleging that the prescriptive period of six months had set in pursuant to Articles 1566 and 1567, in relation to Article 1571 of the Civil Code, regarding the responsibility of a vendor for any hidden faults or defects in the thing sold. Private respondent countered that the contract dated September 10, 1962 was not a contract for sale but a contract for a piece of work under Article 1713 of the Civil Code. Thus, in accordance with Article 1144 (1) of the same Code, the complaint was timely brought within the ten-year prescriptive period. In its reply, petitioner argued that Article 1571 of the Civil Code providing for a six-month prescriptive period is applicable to a contract for a piece of work by virtue of Article 1714, which provides that such a contract shall be governed by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale6 . The trial court denied the motion to dismiss. In its answer to the complaint, petitioner reiterated its claim of prescription as an affirmative defense. It alleged that whatever defects might have been discovered in the air-conditioning system could have been caused by a variety of factors, including ordinary wear and tear and lack of proper and regular maintenance. It pointed out that during the one-year period that private respondent withheld final payment, the system was subjected to "very rigid inspection and testing and corrections or modifications effected" by petitioner. It interposed a compulsory counterclaim suggesting that the complaint was filed "to offset the adverse effects" of the judgment in Civil Case No. 71494, Court of First Instance of Manila, involving the same parties, wherein private respondent was adjudged to pay petitioner the balance of the unpaid contract price for the air-conditioning system installed in another building of private respondent, amounting to P138,482.25. Thereafter, private respondent filed an ex-parte motion for preliminary attachment on the strength of petitioner's own statement to the effect that it had sold its business and was no longer doing business in Manila. The trial court granted the motion and, upon private respondent's posting of a bond of F'50,000.00, ordered the issuance of a writ of attachment. In due course, the trial court rendered a decision finding that petitioner failed to install certain parts and accessories called for by the contract, and deviated from the plans of the system, thus reducing its operational effectiveness to the extent that 35 window-type units had to be installed in the building to achieve a fairly desirable room temperature. On the question of prescription, the trial court ruled that the complaint was filed within the ten-year court prescriptive period although the contract was one for a piece of work, because it involved the "installation of an air-conditioning system which the defendant itself manufactured, fabricated, designed and installed." Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. Hence, it instituted the instant petition. The Submissions of the Parties In the instant Petition, petitioner raised three issues. First, it contended that private respondent's acceptance of the work and his payment of the contract price extinguished any liability with respect to the defects in the air-conditioning system. Second, it claimed that the Court of Appeals erred when it held that the defects in the installation were not apparent at the time of delivery and acceptance of the work considering that private respondent was not an expert who could recognize such defects. Third, it insisted that, assuming arguendo that there were indeed hidden defects, private respondent's complaint was barred by prescription under Article 1571 of the Civil Code, which provides for a six-month prescriptive period. Private respondent, on the other hand, averred that the issues raised by petitioner, like the question of whether there was an acceptance of the work by the owner and whether the hidden defects in the installation could have been discovered by simple inspection, involve questions of fact which have been passed upon by the appellate court. The Court's Ruling The Supreme Court reviews only errors of law in petitions for review on certiorari under Rule 45. It is not the function of this Court to re-examine the findings of fact of the appellate court unless said findings are not supported by the evidence on record or the judgment is based on a misapprehension of facts7 of Appeals erred when it held that the defects in the installation were not apparent at the time of delivery and acceptance of the work considering that private respondent was not an expert who

could recognize such defects. Third. it insisted that, assuming arguendo that there were indeed hidden defects, private respondent's complaint was barred by prescription under Article 1571 of the Civil Code, which provides for a six-month prescriptive period. Private respondent, on the other hand, averred that the issues raised by petitioner, like the question of whether here was an acceptance of the work by the owner and whether the hidden defects in the installation could have been discovered by simple inspection, involve questions of fact which have been passed upon by the appellate court. The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below.8 We see no valid reason to discard the factual conclusions of the appellate court. . . . (I)t is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide.9 (Emphasis supplied) Hence, the first two issues will not be resolved as they raise questions of fact. Thus, the only question left to be resolved is that of prescription. In their submissions, the parties argued lengthily on the nature of the contract entered into by them, viz., whether it was one of sale or for a piece of work. Article 1713 of the Civil Code defines a contract for a piece of work thus: By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill, or also furnish the material. A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order, of the person desiring it10 . In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given, then the contract is one of sale11 . Thus, Mr. Justice Vitug12 explains that A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work (Art. 1467, Civil Code). The mere fact alone that certain articles are made upon previous orders of customers will not argue against the imposition of the sales tax if such articles are ordinarily manufactured by the taxpayer for sale to the public (Celestino Co. vs. Collector, 99 Phil. 841). To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, there is a contract for a piece of work13 . Clearly, the contract in question is one for a piece of work. It is not petitioner's line of business to manufacture air-conditioning systems to be sold "off-the-shelf." Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers. The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the Civil Code, which provide: Art. 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale. Art. 1715. The contractor shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contractor fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractor's cost. The provisions on warranty against hidden defects, referred to in Art. 1714 above-quoted, are found in Articles 1561 and 1566, which read as follows: Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them. xxx xxx xxx

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof. This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (redhibitory action) or to demand a proportionate reduction of the price (accion quanti manoris), with damages in either case14 . In Villostas vs. Court of Appeals15 , we held that, "while it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a redhibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties"; and where there is an express warranty in the contract, as in the case at bench, the prescriptive period is the one specified in the express warranty, and in the absence of such period, "the general rule on rescission of contract, which is four years (Article 1389, Civil Code) shall apply"16 .

Consistent with the above discussion, it would appear that this suit is barred by prescription because the complaint was filed more than four years after the execution of the contract and the completion of the air-conditioning system. However, a close scrutiny of the complaint filed in the trial court reveals that the original action is not really for enforcement of the warranties against hidden defects, but one for breach of the contract itself. It alleged17 that the petitioner, "in the installation of the air conditioning system did not comply with the specifications provided" in the written agreement between the parties, "and an evaluation of the air-conditioning system as installed by the defendant showed the following defects and violations of the specifications of the agreement, to wit: GROUND FLOOR: "A. RIGHT WING: Equipped with Worthington Compressor, Model 2VC4 directly driven by an Hp Elin electric motor 1750 rmp, 3 phase, 60 cycles, 220 volts, complete with starter evaporative condenser, circulating water pump, air handling unit air ducts. Defects Noted: 1. Deteriorated evaporative condenser panels, coils are full of scales and heavy corrosion is very evident. 2. Defective gauges of compressors; 3. No belt guard on motor; 4. Main switch has no cover; 5. Desired room temperature not attained; Aside from the above defects, the following were noted not installed although provided in the specifications. 1. Face by-pass damper of G.I. sheets No. 16. This damper regulates the flow of cooled air depending on room condition. 2. No fresh air intake provision were provided which is very necessary for efficient comfort cooling.. 3. No motor to regulate the face and by-pass damper. 4. Liquid level indicator for refrigerant not provided. 5. Suitable heat exchanger is not installed. This is an important component to increase refrigeration efficiency. 6. Modulating thermostat not provided. 7. Water treatment device for evaporative condenser was not provided. 8. Liquid receiver not provided by sight glass. B. LEFT WING: Worthington Compressor Model 2VC4 is installed complete with 15 Hp electric motor, 3 phase, 220 volts 60 cycles with starter. Defects Noted: Same as right wing. except No. 4, All other defects on right wing are common to the left wing. SECOND FLOOR: (Common up to EIGHT FLOORS) Compressors installed are MELCO with 7.5 Hp V-belt driven by 1800 RPM, -220 volts, 60 cycles, 3 phase, Thrige electric motor with starters. As stated in the specifications under, Section No. IV, the MELCO compressors do not satisfy the conditions stated therein due to the following: 1. MELCO Compressors are not provided with automatic capacity unloader. 2. Not provided with oil pressure safety control. 3. Particular compressors do not have provision for renewal sleeves. Out of the total 15 MELCO compressors installed to serve the 2nd floor up to 8th floors, only six (6) units are in operation and the rest were already replaced. Of the remaining six (6) units, several of them have been replaced with bigger crankshafts. NINTH FLOOR: Two (2) Worthington 2VC4 driven by 15 Hp, 3 phase, 220 volts, 60 cycles, 1750 rpm, Higgs motors with starters. Defects Noted are similar to ground floor. GENERAL REMARKS:

Under Section III, Design conditions of specification for air conditioning work, and taking into account "A" & "B" same, the present systems are not capable of maintaining the desired temperature of 76 = 2F (sic). The present tenant have installed 35 window type air conditioning units distributed among the different floor levels. Temperature measurements conducted on March 29. 1971, revealed that 78F room (sic) is only maintained due to the additional window type units. The trial court, after evaluating the evidence presented, held that, indeed, petitioner failed to install items and parts required in the contract and substituted some other items which were not in accordance with the specifications18 , thus: From all of the foregoing, the Court is persuaded to believe the plaintiff that not only had the defendant failed to install items and parts provided for in the specifications of the air-conditioning system be installed, like face and by-pass dampers and modulating thermostat and many others, but also that there are items, parts and accessories which were used and installed on the air-conditioning system which were not in full accord with contract specifications. These omissions to install the equipments, parts and accessories called for in the specifications of the contract, as well as the deviations made in putting into the airconditioning system equipments, parts and accessories not in full accord with the contract specification naturally resulted to adversely affect the operational effectiveness of the air-conditioning system which necessitated the installation of thirty-five window type of air-conditioning units distributed among the different floor levels in order to be able to obtain a fairly desirable room temperature for the tenants and actual occupants of the building. The Court opines and so holds that the failure of the defendant to follow the contract specifications and said omissions and deviations having resulted in the operational ineffectiveness of the system installed makes the defendant liable to the plaintiff in the amount necessary to rectify to put the air conditioning system in its proper operational condition to make it serve the purpose for which the plaintiff entered into the contract with the defendant. The respondent Court affirmed the trial court's decision thereby making the latter's findings also its own. Having concluded that the original complaint is one for damages arising from breach of a written contract - and not a suit to enforce warranties against hidden defects we here - with declare that the governing law is Article 1715 (supra). However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions "upon a written contract" prescribe in ten (10) years. Since the governing contract was executed on September 10, 1962 and the complaint was filed on May 8, 1971, it is clear that the action has not prescribed. What about petitioner's contention that "acceptance of the work by the employer relieves the contractor of liability for any defect in the work"? This was answered by respondent Court19 as follows: As the breach of contract which gave rise to the instant case consisted in appellant's omission to install the equipments (sic), parts and accessories not in accordance with the plan and specifications provided for in the contract and the deviations made in putting into the air conditioning system parts and accessories not in accordance with the contract specifications, it is evident that the defect in the installation was not apparent at the time of the delivery and acceptance of the work, considering further that plaintiff is not an expert to recognize the same. From the very nature of things, it is impossible to determine by the simple inspection of air conditioning system installed in an 8-floor building whether it has been furnished and installed as per agreed specifications. Verily, the mere fact that the private respondent accepted the work does not, ipso facto, relieve the petitioner from liability for deviations from and violations of the written contract, as the law gives him ten (10) years within which to file an action based on breach thereof. WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. No costs. SO ORDERED. Narvasa, C.J., Davide Jr., Melo and Francisco, JJ., concur. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 173856 November 20, 2008

DAO HENG BANK, INC., now BANCO DE ORO UNIVERSAL BANK, petitioner vs. SPS. LILIA and REYNALDO LAIGO, respondent. DECISION CARPIO MORALES, J.: The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao Heng Bank, Inc. (Dao Heng) in the total amount of P11 Million, to secure the payment of which they forged on October 28, 1996, November 18, 1996 and April 18, 1997 three Real Estate Mortgages covering two parcels of land registered in the name of respondent "Lilia D. Laigo, . . . married to Reynaldo Laigo," one containing 569 square meters and the other containing 537 square meters. The mortgages were duly registered in the Registry of Deeds of Quezon City. The loans were payable within 12 months from the execution of the promissory notes covering the loans. As of 2000, respondents failed to settle their outstanding obligation, drawing them to verbally offer to cede to Dao Heng one of the two mortgaged lots by way of dacion en pago. To appraise the value of the mortgaged lands, Dao Heng in fact commissioned an appraiser whose fees were shouldered by it and respondents. There appears to have been no further action taken by the parties after the appraisal of the properties. Dao Heng was later to demand the settlement of respondents' obligation by letter of August 18, 20001 wherein it indicated that they had an outstanding obligation of P10,385,109.92 inclusive of interests and other charges. Respondents failed to heed the demand, however. Dao Heng thereupon filed in September 2000 an application to foreclose the real estate mortgages executed by respondents. The properties subject of the mortgage were sold for P10,776,242 at a public auction conducted on December 20, 2000 to Banco de Oro Universal Bank (hereafter petitioner) which was the highest bidder. It appears that respondents negotiated for the redemption of the mortgages for by a June 29, 2001 letter2 to them, petitioner, to which Dao Heng had been merged, through its Vice President on Property Management & Credit Services Department, advised respondent Lilia Laigo as follows:

This is to formally advise you of the bank's response to your proposal pertaining to the redemption of the two (2) foreclosed lots located in Fairview, Quezon City as has been relayed to you last June 13, 2001 as follows: 1. Redemption price shall be P11.5MM plus 12% interest based on diminishing balance payable in staggered payments up to January 2, 2002 as follows: a. P3MM - immediately upon receipt of this approval b. Balance payable in staggered payments (plus interest) up to January 2, 2002 2. Release Values for Partial Redemption: a. TCT No. 92257 (along Commonwealth) P7.500 MM* b. TCT No. N-146289 (along Regalado) P4.000 MM* * excluding 12% interest 3. Other Conditions: a. Payments shall be covered by post dated checks b. TCT No. 92257 shall be the first property to be released upon payment of the first P7.5MM plus interest c. Arrangement to be covered by an Agreement If you are agreeable to the foregoing terms and conditions, please affix your signature showing your conformity thereto at the space provided below. (Emphasis and underscoring in the original; italics supplied) Nothing was heard from respondents, hence, petitioner by its Manager, Property Management & Credit Services Department, advised her by letter of December 26, 20013 that in view of their failure to conform to the conditions set by it for the redemption of the properties, it would proceed to consolidate the titles immediately after the expiration of the redemption period on January 2, 2002. Six days before the expiration of the redemption period or on December 27, 2001, respondents filed a complaint before the Regional Trial Court (RTC) of Quezon City, for Annulment, Injunction with Prayer for Temporary Restraining Order (TRO), praying for the annulment of the foreclosure of the properties subject of the real estate mortgages and for them to be allowed "to deliver by way of dacion en pago' one of the mortgaged properties as full payment of [their] mortgaged obligation" and to, in the meantime, issue a TRO directing the defendant-herein petitioner to desist from consolidating ownership over their properties. By respondents' claim, Dao Heng verbally agreed to enter into a dacion en pago. In its Opposition to respondents' Application for a TRO,4 petitioner claimed that there was no meeting of the minds between the parties on the settlement of respondents' loan via dacion en pago. A hearing on the application for a TRO was conducted by Branch 215 of the RTC of Quezon City following which it denied the same. Petitioner thereupon filed a Motion to Dismiss the complaint on the ground that the claim on which respondents' action is founded is unenforceable under the Statute of Frauds and the complaint states no cause of action. Respondents opposed the motion, contending that their delivery of the titles to the mortgaged properties constituted partial performance of their obligation under the dacion en pago to take it out from the coverage of the Statute of Frauds. The trial court granted petitioner's Motion to Dismiss in this wise: [P]laintiffs' claim must be based on a document or writing evidencing the alleged dacion en pago, otherwise, the same cannot be enforced in an action in court. The Court is not persuaded by plaintiffs' contention that their case is an exception to the operation of the rule on statute of frauds because of their partial performance of the obligation in the dacion en pago consisting of the delivery of the titles of the properties to the defendants. As correctly pointed out by the defendants, the titles were not delivered to them pursuant to the dacion en pago but by reason of the execution of the mortgage loan agreement. If indeed a dacion en pago agreement was entered into between the parties, it is inconceivable that a written document would not be drafted considering the magnitude of the amount involved.5 (Emphasis and underscoring supplied) Respondents assailed the dismissal of their complaint via Petition for Review before this Court which referred it to the Court of Appeals for disposition. Reversing the trial court's dismissal of the complaint, the appellate court, by Decision of January 26, 2006,6 reinstated respondents' complaint.7 In ordering the reinstatement of respondents' complaint, the appellate court held that the complaint states a cause of action, respondents having alleged that there was partial performance of the agreement to settle their obligation via dacion en pago when they agreed to have the properties appraised to thus place their agreement within the exceptions provided under Article 14038 of the Civil Code on Statute of Frauds. Thus the appellate court ratiocinated: Particularly, in seeking exception to the application of the Statute of Frauds, petitioners[-herein respondents] averred partial performance of the supposed verbal dacion en pago. In paragraph 5 of their complaint, they stated: "As part of the agreement, defendant Dao Heng Bank had the mortgaged property appraised to determine which of the two shall be delivered as full payment of the mortgage obligation; Also as part of the deal, plaintiffs for their part paid P5,000.00 for the appraisal expense. As reported by the appraiser commissioned by Defendant Dao Heng, the appraised value of the mortgaged properties were as follows: x x x" Having done so, petitioners are at least entitled to a reasonable opportunity to prove their case in the course of a full trial, to which the respondents may equally present their evidence in refutation of the formers' case. (Underscoring supplied) Petitioner's Motion for Reconsideration having been denied by the appellate court by Resolution of July 19, 2006, the present petition was filed faulting the appellate court in ruling: I. . . . THAT THE COMPLAINT ALLEGED A SUFFICIENT CAUSE OF ACTION DESPITE THE ALLEGATIONS, AS WELL AS ADMISSIONS FROM THE RESPONDENTS, THAT THERE WAS NO PERFECTED DACION EN PAGO CONTRACT;

II. . . . THAT THE ALLEGED DACION EN PAGO IS NOT UNENFORCEABLE UNDER THE STATUTE OF FRAUDS, DESPITE THE ABSENCE OF A WRITTEN & BINDING CONTRACT; III. . . . THAT THE COMPLAINT SUFFICIENTLY STATED A CAUSE OF ACTION.9 Generally, the presence of a cause of action is determined from the facts alleged in the complaint. In their complaint, respondents alleged: xxxx 4. Sometime in the middle of the year 2000, defendant Dao Heng Bank as the creditor bank agreed to the full settlement of plaintiffs' mortgage obligation of P9 Million through the assignment of one of the two (2) mortgaged properties; [5] As part of the agreement, defendant Dao Heng Bank had the mortgaged properties appraised to determine which of the two (2) mortgaged properties shall be delivered as full payment of the mortgage obligation; Also as part of the deal, plaintiffs for their part paid P5,000.00 for the appraisal expense; As reported by the appraiser commissioned by defendant Dao Heng, the appraised value of the mortgaged properties were as follows: (a) Property No. 1 - T.C.T. No. 92257: P12,518,000.00 L2A Blk 12 Don Mariano Marcos Ave., Fairview, QC (b) Property No. 2 - T.C.T. No. 146289: P8,055,000.00 L36 Blk 87 Regalado Ave. Cor. Ipil St., Neopolitan, QC [6] Sometime in December, year 2000, the protest of plaintiffs notwithstanding and in blatant breach of the agreed "Dacion en pago" as the mode of full payment of plaintiffs' mortgage obligation, defendant Dao Heng Bank proceeded to foreclose the mortgaged properties above-described and sold said properties which were aggregately valued at more than P20 Million for only P10,776,242.00, an unconscionably very low price; (Underscoring supplied) Even if a complaint states a cause of action, however, a motion to dismiss for insufficiency of cause of action may be granted if the evidence discloses facts sufficient to defeat the claim and enables the court to go beyond the disclosures in the complaint. In such instances, the court can dismiss a complaint on this ground, even without a hearing, by taking into account the discussions in said motion to dismiss and the disposition thereto.10 In its Opposition to respondents' application for the issuance of a TRO,11 petitioner, responding to respondents' allegation that it agreed to the settlement of their obligation via the assignment of one of the two mortgaged properties, alleged that there was no meeting of the minds thereon: 4. Plaintiffs' claim that defendant Dao Heng Bank[s] foreclosure sale of the mortgaged properties was improper because there was an agreement to dacion one of the two (2) mortgaged properties as full settlement of the loan obligation and that defendant Dao Heng Bank and Banco de Oro were already negotiating and colluding for the latter's acquisition of the mortgaged [properties] for the unsconscionably low price of P10,776.242.00 are clearly WITHOUT BASIS. Quite to the contrary, there was no meeting of the minds between defendant Dao Heng Bank and the plaintiffs to dacion any of the mortgaged properties as full settlement of the loan. Although there was a PROPOSAL and NEGOTIATIONS to settle the loan by way of dacion, nothing came out of said proposal, much less did the negotiations mature into the execution of a dacion en pago instrument. Defendant Dao Heng Bank found the offer to settle by way of dacion not acceptable and thus, it opted to foreclose on the mortgage. The law clearly provides that "the debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value, or more valuable than that which is due" (Article 1244, New Civil Code). "The oblige is entitled to demand fulfillment of the obligation or performance as stipulated" (Palmares v. Court of Appeals, 288 SCRA 422 at p. 444 [1998]). "The power to decide whether or not to foreclose on the mortgage is the sole prerogative of the mortgagee" (Rural Bank of San Mateo, Inc. vs. Intermediate Appellate Court, 146 SCRA 205, at 213 [1986]) Defendant Dao Heng Bank merely opted to exercise such prerogative.12 (Emphasis in the original; capitalization and underscoring supplied) Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature of sale whereby property is alienated to the creditor in satisfaction of a debt in money.13 It is an objective novation of the obligation, hence, common consent of the parties is required in order to extinguish the obligation. . . . In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such the elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation."14 (Emphasis, italics and underscoring supplied; citation omitted) Being likened to that of a contract of sale, dacion en pago is governed by the law on sales.15 The partial execution of a contract of sale takes the transaction out of the provisions of the Statute of Frauds so long as the essential requisites of consent of the contracting parties, object and cause of the obligation concur and are clearly established to be present.16 Respondents claim that petitioner's commissioning of an appraiser to appraise the value of the mortgaged properties, his services for which they and petitioner paid, and their delivery to petitioner of the titles to the properties constitute partial performance of their agreement to take the case out of the provisions on the Statute of Frauds. There is no concrete showing, however, that after the appraisal of the properties, petitioner approved respondents' proposal to settle their obligation via dacion en pago. The delivery to petitioner of the titles to the properties is a usual condition sine qua non to the execution of the mortgage, both for security and registration purposes. For if the title to a property is not delivered to the mortgagee, what will prevent the mortgagor from again encumbering it also by mortgage or even by sale to a third party. Finally, that respondents did not deny proposing to redeem the mortgages,17 as reflected in petitioner's June 29, 2001 letter to them, dooms their claim of the existence of a perfected dacion en pago. WHEREFORE, the Court of Appeals Decision of January 26, 2006 is REVERSED and SET ASIDE. The Resolution of July 2, 2002 of the Regional Trial Court of Quezon City, Branch 215 dismissing respondents' complaint is REINSTATED.

SO ORDERED. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 125172 June 26, 1998 Spouses ANTONIO and LUZVIMINDA GUIANG, petitioners, vs. COURT OF APPEALS and GILDA COPUZ, respondents.

PANGANIBAN, J.: The sale of a conjugal property requires the consent of both the husband and the wife. The absence of the consent of one renders the sale null and void, while the vitiation thereof makes it merely voidable. Only in the latter case can ratification cure the defect. The Case These were the principles that guided the Court in deciding this petition for review of the Decision 1 dated January 30, 1996 and the Resolution 2 dated May 28, 1996, promulgated by the Court of Appeals in CA-GR CV No. 41758, affirming the Decision of the lower court and denying reconsideration, respectively. On May 28, 1990, Private Respondent Gilda Corpuz filed an Amended Complainant 3 against her husband Judie Corpuz and Petitioner-Spouses Antonio and Luzviminda Guiang. The said Complaint sought the declaration of a certain deed of sale, which involved the conjugal property of private respondent and her husband, null and void. The case was raffled to the Regional Trial Court of Koronadal, South Cotabato, Branch 25. In due course, the trial court rendered a Decision 4 dated September 9, 1992, disposing as follow: 5 ACCORDINGLY, judgment is rendered for the plaintiff and against the defendants, 1. Declaring both the Deed of Transfer of Rights dated March 1, 1990 (Exh. "A") and the "amicable settlement" dated March 16, 1990 (Exh. "B") as null void and of no effect; 2. Recognizing as lawful and valid the ownership and possession of plaintiff Gilda Corpuz over the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-165409 which has been the subject of the Deed of Transfer of Rights (Exh. "A"); 3. Ordering plaintiff Gilda Corpuz to reimburse defendants Luzviminda Guiang the amount of NINE THOUSAND (P9,000.00) PESOS corresponding to the payment made by defendants Guiangs to Manuel Callejo for the unpaid balance of the account of plaintiff in favor of Manuel Callejo, and another sum of P379.62 representing one-half of the amount of realty taxes paid by defendants Guiangs on Lot 9, Block 8, (LRC) Psd-165409, both with legal interests thereon computed from the finality of the decision. No pronouncement as to costs in view of the factual circumstances of the case. Dissatisfied, petitioners-spouses filed an appeal with the Court of Appeals. Respondent Court, in its challenged Decision, ruled as follow: 6 WHEREFORE, the appealed of the lower court in Civil Case No. 204 is hereby AFFIRMED by this Court. No costs considering plaintiffappellee's failure to file her brief despite notice. Reconsideration was similarly denied by the same court in its assailed Resolution: 7 Finding that the issues raised in defendants-appellants motion for reconsideration of Our decision in this case of January 30, 1996, to be a mere rehash of the same issues which we have already passed upon in the said decision, and there [being] no cogent reason to disturb the same, this Court RESOLVED to DENY the instant motion for reconsideration for lack of merit. The Facts The facts of this case are simple. Over the objection of private respondent and while she was in Manila seeking employment, her husband sold to the petitioners-spouses one half of their conjugal peoperty, consisting of their residence and the lot on which it stood. The circumstances of this sale are set forth in the Decision of Respondent Court, which quoted from the Decision of the trial court as follows: 8 1. Plaintiff Gilda Corpuz and defendant Judie Corpuz are legally married spouses. They were married on December 24, 1968 in Bacolod City, before a judge. This is admitted by defendants-spouses Antonio and Luzviminda Guiang in their answer, and also admitted by defendant Judie Corpuz when he testified in court (tsn. p. 3, June 9, 1992), although the latter says that they were married in 1967. The couple have three children, namely: Junie 18 years old, Harriet 17 years of age, and Jodie or Joji, the youngest, who was 15 years of age in August, 1990 when her mother testified in court. Sometime on February 14, 1983, the couple Gilda and Judie Corpuz, with plaintiff-wife Gilda Corpuz as vendee, bought a 421 sq. meter lot located in Barangay Gen. Paulino Santos (Bo. 1), Koronadal, South Cotabato, and particularly known as Lot 9, Block 8, (LRC) Psd-165409 from Manuel Callejo who signed as vendor through a conditional deed of sale for a total consideration of P14,735.00. The consideration was payable in installment, with right of cancellation in favor of vendor should vendee fail to pay three successive installments (Exh. "2", tsn p. 6, February 14, 1990). 2. Sometime on April 22, 1988, the couple Gilda and Judie Corpuz sold one-half portion of their Lot No. 9, Block 8, (LRC) Psd-165409 to the defendants-spouses Antonio and Luzviminda Guiang. The latter have since then occupied the one-half portion [and] built their house thereon (tsn. p. 4, May 22, 1992). They are thus adjoining neighbors of the Corpuzes.

3. Plaintiff Gilda Corpuz left for Manila sometime in June 1989. She was trying to look for work abroad, in [the] Middle East. Unfortunately, she became a victim of an unscrupulous illegal recruiter. She was not able to go abroad. She stayed for sometime in Manila however, coming back to Koronadal, South Cotabato, . . . on March 11, 1990. Plaintiff's departure for Manila to look for work in the Middle East was with the consent of her husband Judie Corpuz (tsn. p. 16, Aug. 12, 1990; p. 10 Sept. 6, 1991). After his wife's departure for Manila, defendant Judie Corpuz seldom went home to the conjugal dwelling. He stayed most of the time at his place of work at Samahang Nayon Building, a hotel, restaurant, and a cooperative. Daughter Herriet Corpuz went to school at King's College, Bo. 1, Koronadal, South Cotabato, but she was at the same time working as household help of, and staying at, the house of Mr. Panes. Her brother Junie was not working. Her younger sister Jodie (Jojie) was going to school. Her mother sometimes sent them money (tsn. p. 14, Sept. 6, 1991.) Sometime in January 1990, Harriet Corpuz learned that her father intended to sell the remaining one-half portion including their house, of their homelot to defendants Guiangs. She wrote a letter to her mother informing her. She [Gilda Corpuz] replied that she was objecting to the sale. Harriet, however, did not inform her father about this; but instead gave the letter to Mrs. Luzviminda Guiang so that she [Guiang] would advise her father (tsn. pp. 16-17, Sept. 6, 1991). 4. However, in the absence of his wife Gilda Corpuz, defendant Judie Corpuz pushed through the sale of the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-165409. On March 1, 1990, he sold to defendant Luzviminda Guiang thru a document known as "Deed of Transfer of Rights" (Exh. "A") the remaining one-half portion of their lot and the house standing thereon for a total consideration of P30,000.00 of which P5,000.00 was to be paid in June, 1990. Transferor Judie Corpuz's children Junie and Harriet signed the document as witness. Four (4) days after March 1, 1990 or on March 5, 1990, obviously to cure whatever defect in defendant Judie Corpuz's title over the lot transferred, defendant Luzviminda Guiang as vendee executed another agreement over Lot 9, Block 8, (LRC) Psd-165408 (Exh. "3"), this time with Manuela Jimenez Callejo, a widow of the original registered owner from whom the couple Judie and Gilda Corpuz originally bought the lot (Exh. "2"), who signed as vendor for a consideration of P9,000.00. Defendant Judie Corpuz signed as a witness to the sale (Exh. "3-A"). The new sale (Exh. "3") describes the lot sold as Lot 8, Block 9, (LRC) Psd-165408 but it is obvious from the mass of evidence that the correct lot is Lot 8, Block 9, (LRC) Psd-165409, the very lot earlier sold to the couple Gilda and Judie Corpuz. 5. Sometimes on March 11, 1990, plaintiff returned home. She found her children staying with other households. Only Junie was staying in their house. Harriet and Joji were with Mr. Panes. Gilda gathered her children together and stayed at their house. Her husband was nowhere to be found. She was informed by her children that their father had a wife already. 6. For staying in their house sold by her husband, plaintiff was complained against by defendant Luzviminda Guiang and her husband Antonio Guiang before the Barangay authorities of Barangay General Paulino Santos (Bo. 1), Koronadal, South Cotabato, for trespassing (tsn. p. 34, Aug. 17, 1990). The case was docketed by the barangay authorities as Barangay Case No. 38 for "trespassing". On March 16, 1990, the parties thereat signed a document known as "amicable settlement". In full, the settlement provides for, to wit: That respondent, Mrs. Gilda Corpuz and her three children, namely: Junie, Hariet and Judie to leave voluntarily the house of Mr. and Mrs. Antonio Guiang, where they are presently boarding without any charge, on or before April 7, 1990. FAIL NOT UNDER THE PENALTY OF THE LAW. Believing that she had received the shorter end of the bargain, plaintiff to the Barangay Captain of Barangay Paulino Santos to question her signature on the amicable settlement. She was referred however to the Office-In-Charge at the time, a certain Mr. de la Cruz. The latter in turn told her that he could not do anything on the matter (tsn. p. 31, Aug. 17, 1990). This particular point not rebutted. The Barangay Captain who testified did not deny that Mrs. Gilda Corpuz approached him for the annulment of the settlement. He merely said he forgot whether Mrs. Corpuz had approached him (tsn. p. 13, Sept. 26, 1990). We thus conclude that Mrs. Corpuz really approached the Barangay Captain for the annulment of the settlement. Annulment not having been made, plaintiff stayed put in her house and lot. 7. Defendant-spouses Guiang followed thru the amicable settlement with a motion for the execution of the amicable settlement, filing the same with the Municipal Trial Court of Koronadal, South Cotabato. The proceedings [are] still pending before the said court, with the filing of the instant suit. 8. As a consequence of the sale, the spouses Guiang spent P600.00 for the preparation of the Deed of Transfer of Rights, Exh. "A", P9,000.00 as the amount they paid to Mrs. Manuela Callejo, having assumed the remaining obligation of the Corpuzes to Mrs. Callejo (Exh. "3"); P100.00 for the preparation of Exhibit "3"; a total of P759.62 basic tax and special education fund on the lot; P127.50 as the total documentary stamp tax on the various documents; P535.72 for the capital gains tax; P22.50 as transfer tax; a standard fee of P17.00; certification fee of P5.00. These expenses particularly the taxes and other expenses towards the transfer of the title to the spouses Guiangs were incurred for the whole Lot 9, Block 8, (LRC) Psd-165409. Ruling of Respondent Court Respondent Court found no reversible error in the trial court's ruling that any alienation or encumbrance by the husband of the conjugal propety without the consent of his wife is null and void as provided under Article 124 of the Family Code. It also rejected petitioners' contention that the "amicable sttlement" ratified said sale, citing Article 1409 of the Code which expressly bars ratification of the contracts specified therein, particularly those "prohibited or declared void by law." Hence, this petition. 9 The Issues In their Memorandum, petitioners assign to public respondent the following errors: 10 I Whether or not the assailed Deed of Transfer of Rights was validly executed. II Whether or not the Cour of Appeals erred in not declairing as voidable contract under Art. 1390 of the Civil Code the impugned Deed of Transfer of Rights which was validly ratified thru the execution of the "amicable settlement" by the contending parties.

III Whether or not the Court of Appeals erred in not setting aside the findings of the Court a quo which recognized as lawful and valid the ownership and possession of private respondent over the remaining one half (1/2) portion of the properly. In a nutshell, petitioners-spouses contend that (1) the contract of sale (Deed of Transfer of Rights) was merely voidable, and (2) such contract was ratified by private respondent when she entered into an amicable sttlement with them. This Court's Ruling The petition is bereft of merit. First Issue: Void or Voidable Contract? Petitioners insist that the questioned Deed of Transfer of Rights was validly executed by the parties-litigants in good faith and for valuable consideration. The absence of private respondent's consent merely rendered the Deed voidable under Article 1390 of the Civil Code, which provides: Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: xxx xxx xxx (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.(n) The error in petitioners' contention is evident. Article 1390, par. 2, refers to contracts visited by vices of consent, i.e., contracts which were entered into by a person whose consent was obtained and vitiated through mistake, violence, intimidation, undue influence or fraud. In this instance, private respondent's consent to the contract of sale of their conjugal property was totally inexistent or absent. Gilda Corpuz, on direct examination, testified thus: 11 Q Now, on March 1, 1990, could you still recall where you were? A I was still in Manila during that time. xxx xxx xxx ATTY. FUENTES: Q When did you come back to Koronadal, South Cotabato? A That was on March 11, 1990, Ma'am. Q Now, when you arrived at Koronadal, was there any problem which arose concerning the ownership of your residential house at Callejo Subdivision? A When I arrived here in Koronadal, there was a problem which arose regarding my residential house and lot because it was sold by my husband without my knowledge. This being the case, said contract properly falls within the ambit of Article 124 of the Family Code, which was correctly applied by the teo lower court: Art. 124. The administration and enjoyment of the conjugal partnerhip properly shall belong to both spouses jointly. In case of disgreement, the husband's decision shall prevail, subject recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (165a) (Emphasis supplied) Comparing said law with its equivalent provision in the Civil Code, the trial court adroitly explained the amendatory effect of the above provision in this wise: 12 The legal provision is clear. The disposition or encumbrance is void. It becomes still clearer if we compare the same with the equivalent provision of the Civil Code of the Philippines. Under Article 166 of the Civil Code, the husband cannot generally alienate or encumber any real property of the conjugal partnershit without the wife's consent. The alienation or encumbrance if so made however is not null and void. It is merely voidable. The offended wife may bring an action to annul the said alienation or encumbrance. Thus the provision of Article 173 of the Civil Code of the Philippines, to wit: Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband.(n) This particular provision giving the wife ten (10) years . . . during [the] marriage to annul the alienation or encumbrance was not carried over to the Family Code. It is thus clear that any alienation or encumbrance made after August 3, 1988 when the Family Code took effect by the husband of the conjugal partnership property without the consent of the wife is null and void.

Furthermore, it must be noted that the fraud and the intimidation referred to by petitioners were perpetrated in the execution of the document embodying the amicable settlement. Gilda Corpuz alleged during trial that barangay authorities made her sign said document through misrepresentation and coercion. 13 In any event, its execution does not alter the void character of the deed of sale between the husband and the petitioners-spouses, as will be discussed later. The fact remains that such contract was entered into without the wife's consent. In sum, the nullity of the contract of sale is premised on the absence of private respondent's consent. To constitute a valid contract, the Civil Code requires the concurrence of the following elements: (1) cause, (2) object, and (3) consent, 14 the last element being indubitably absent in the case at bar. Second Issue: Amicable Settlement Insisting that the contract of sale was merely voidable, petitioners aver that it was duly ratified by the contending parties through the "amicable settlement" they executed on March 16, 1990 in Barangay Case No. 38. The position is not well taken. The trial and the appellate courts have resolved this issue in favor of the private respondent. The trial court correctly held: 15 By the specific provision of the law [Art. 1390, Civil Code] therefore, the Deed to Transfer of Rights (Exh. "A") cannot be ratified, even by an "amicable settlement". The participation by some barangay authorities in the "amicable settlement" cannot otherwise validate an invalid act. Moreover, it cannot be denied that the "amicable settlement (Exh. "B") entered into by plaintiff Gilda Corpuz and defendent spouses Guiang is a contract. It is a direct offshoot of the Deed of Transfer of Rights (Exh. "A"). By express provision of law, such a contract is also void. Thus, the legal provision, to wit: Art. 1422. Acontract which is the direct result of a previous illegal contract, is also void and inexistent. (Civil Code of the Philippines). In summation therefore, both the Deed of transfer of Rights (Exh. "A") and the "amicable settlement" (Exh. "3") are null and void. Doctrinally and clearly, a void contract cannot be ratified. 16 Neither can the "amicable settlement" be considered a continuing offer that was accepted and perfected by the parties, following the last sentence of Article 124. The order of the pertinent events is clear: after the sale, petitioners filed a complaint for trespassing against private respondent, after which the barangay authorities secured an "amicable settlement" and petitioners filed before the MTC a motion for its execution. The settlement, however, does not mention a continuing offer to sell the property or an acceptance of such a continuing offer. Its tenor was to the effect that private respondent would vacate the property. By no stretch of the imagination, can the Court interpret this document as the acceptance mentioned in Article 124. WHEREFORE, the Court hereby DENIES the petition and AFFIRMS the challenged Decision and Resolution. Costs against petitioners. SO ORDERED. Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 158907 February 12, 2007

EDUARDO B. OLAGUER, Petitioner, vs. EMILIO PURUGGANAN, JR. AND RAUL LOCSIN, Respondents. DECISION CHICO-NAZARIO, J.: This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the Decision,1 dated 30 June 2003, promulgated by the Court of Appeals, affirming the Decision of the Regional Trial Court, dated 26 July 1995, dismissing the petitioners suit. The parties presented conflicting accounts of the facts. EDUARDO B. OLAGUERS VERSION Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock of Businessday Corporation (Businessday) with a total par value of P600,000.00, with Certificates of Stock No. 005, No. 028, No. 034, No. 070, and No. 100.2 At the time he was employed with the corporation as Executive Vice-President of Businessday, and President of Businessday Information Systems and Services and of Businessday Marketing Corporation, petitioner, together with respondent Raul Locsin (Locsin) and Enrique Joaquin (Joaquin), was active in the political opposition against the Marcos dictatorship.3 Anticipating the possibility that petitioner would be arrested and detained by the Marcos military, Locsin, Joaquin, and Hector Holifea had an unwritten agreement that, in the event that petitioner was arrested, they would support the petitioners family by the continued payment of his salary.4 Petitioner also executed a Special Power of Attorney (SPA), on 26 May 1979, appointing as his attorneys-in-fact Locsin, Joaquin and Hofilea for the purpose of selling or transferring petitioners shares of stock with Businessday. During the trial, petitioner testified that he agreed to execute the SPA in order to cancel his shares of stock, even before they are sold, for the purpose of concealing that he was a stockholder of Businessday, in the event of a military crackdown against the opposition.5 The parties acknowledged the SPA before respondent Emilio Purugganan, Jr., who was then the Corporate Secretary of Businessday, and at the same time, a notary public for Quezon City.6 On 24 December 1979, petitioner was arrested by the Marcos military by virtue of an Arrest, Search and Seizure Order and detained for allegedly committing arson. During the petitioners detention, respondent Locsin ordered fellow respondent Purugganan to cancel the petitioners shares in the books of the corporation and to transfer them to respondent Locsins name.7 As part of his scheme to defraud the petitioner, respondent Locsin sent Rebecca Fernando, an employee of Businessday, to Camp Crame where the petitioner was detained, to pretend to borrow Certificate of Stock No. 100 for the purpose of using it as additional collateral for Businessdays then outstanding loan with the National

Investment and Development Corporation. When Fernando returned the borrowed stock certificate, the word "cancelled" was already written therein. When the petitioner became upset, Fernando explained that this was merely a mistake committed by respondent Locsins secretary.8 During the trial, petitioner also agreed to stipulate that from 1980 to 1982, Businessday made regular deposits, each amounting to P10,000.00, to the Metropolitan Bank and Trust Company accounts of Manuel and Genaro Pantig, petitioners in-laws. The deposits were made on every 15th and 30th of the month.9 Petitioner alleged that these funds consisted of his monthly salary, which Businessday agreed to continue paying after his arrest for the financial support of his family.10 After receiving a total of P600,000.00, the payments stopped. Thereafter, respondent Locsin and Fernando went to ask petitioner to endorse and deliver the rest of his stock certificates to respondent Locsin, but petitioner refused. 11 On 16 January 1986, petitioner was finally released from detention. He then discovered that he was no longer registered as stockholder of Businessday in its corporate books. He also learned that Purugganan, as the Corporate Secretary of Businessday, had already recorded the transfer of shares in favor of respondent Locsin, while petitioner was detained. When petitioner demanded that respondents restore to him full ownership of his shares of stock, they refused to do so. On 29 July 1986, petitioner filed a Complaint before the trial court against respondents Purugganan and Locsin to declare as illegal the sale of the shares of stock, to restore to the petitioner full ownership of the shares, and payment of damages.12 RESPONDENT RAUL LOCSINS VERSION In his version of the facts, respondent Locsin contended that petitioner approached him and requested him to sell, and, if necessary, buy petitioners shares of stock in Businessday, to assure support for petitioners family in the event that something should happen to him, particularly if he was jailed, exiled or forced to go underground.13 At the time petitioner was employed with Businessday, respondent Locsin was unaware that petitioner was part of a group, Light-a-Fire Movement, which actively sought the overthrow of the Marcos government through an armed struggle.14 He denied that he made any arrangements to continue paying the petitioners salary in the event of the latters imprisonment.15 When petitioner was detained, respondent Locsin tried to sell petitioners shares, but nobody wanted to buy them. Petitioners reputation as an oppositionist resulted in the poor financial condition of Businessday and discouraged any buyers for the shares of stock.16 In view of petitioners previous instructions, respondent Locsin decided to buy the shares himself.1awphi1.net Although the capital deficiency suffered by Businessday caused the book value of the shares to plummet below par value, respondent Locsin, nevertheless, bought the shares at par value.17 However, he had to borrow from Businessday the funds he used in purchasing the shares from petitioner, and had to pay the petitioner in installments of P10,000.00 every 15th and 30th of each month.18 The trial court in its Decision, dated 26 July 1995, dismissed the Complaint filed by the petitioner. It ruled that the sale of shares between petitioner and respondent Locsin was valid. The trial court concluded that petitioner had intended to sell the shares of stock to anyone, including respondent Locsin, in order to provide for the needs of his family should he be jailed or forced to go underground; and that the SPA drafted by the petitioner empowered respondent Locsin, and two other agents, to sell the shares for such price and under such terms and conditions that the agents may deem proper. It further found that petitioner consented to have respondent Locsin buy the shares himself. It also ruled that petitioner, through his wife, received from respondent Locsin the amount of P600,000.00 as payment for the shares of stock.19 The dispositive part of the trial courts Decision reads: WHEREFORE, for failure of the [herein petitioner] to prove by preponderance of evidence, his causes of action and of the facts alleged in his complaint, the instant suit is hereby ordered DISMISSED, without pronouncement as to costs. [Herein respondents] counterclaims, however, are hereby DISMISSED, likewise, for dearth of substantial evidentiary support.20 On appeal, the Court of Appeals affirmed the Decision of the trial court that there was a perfected contract of sale.21 It further ruled that granting that there was no perfected contract of sale, petitioner, nevertheless, ratified the sale to respondent Locsin by his receipt of the purchase price, and his failure to raise any protest over the said sale.22 The Court of Appeals refused to credit the petitioners allegation that the money his wife received constituted his salary from Businessday since the amount he received as his salary, P24,000.00 per month, did not correspond to the amount he received during his detention, P20,000.00 per month (deposits of P10,000.00 on every 15th and 30th of each month in the accounts of the petitioners in-laws). On the other hand, the total amount received, P600,000.00, corresponds to the aggregate par value of petitioners shares in Businessday. Moreover, the financial condition of Businessday prevented it from granting any form of financial assistance in favor of the petitioner, who was placed in an indefinite leave of absence, and, therefore, not entitled to any salary. 23 The Court of Appeals also ruled that although the manner of the cancellation of the petitioners certificates of stock and the subsequent issuance of the new certificate of stock in favor of respondent Locsin was irregular, this irregularity will not relieve petitioner of the consequences of a consummated sale.24 Finally, the Court of Appeals affirmed the Decision of the trial court disallowing respondent Locsins claims for moral and exemplary damages due to lack of supporting evidence.25 Hence, the present petition, where the following issues were raised: I. THE APPELLATE COURT ERRED IN RULING THAT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN PETITIONER AND MR. LOCSIN OVER THE SHARES; II. THE APPELLATE COURT ERRED IN RULING THAT PETITIONER CONSENTED TO THE ALLEGED SALE OF THE SHARES TO MR. LOCSIN; III. THE APPELLATE COURT ERRED IN RULING THAT THE AMOUNTS RECEIVED BY PETITIONERS IN LAWS WERE NOT PETITIONERS SALARY FROM THE CORPORATION BUT INSTALLMENT PAYMENTS FOR THE SHARES; IV. THE APPELLATE COURT ERRED IN RULING THAT MR. LOCSIN WAS THE PARTY TO THE ALLEGED SALE OF THE SHARES AND NOT THE CORPORATION; AND V. THE APPELLATE COURT ERRED IN RULING THAT THE ALLEGED SALE OF THE SHARES WAS VALID ALTHOUGH THE CANCELLATION OF THE SHARES WAS IRREGULAR.26

The petition is without merit. The first issue that the petitioner raised is that there was no valid sale since respondent Locsin exceeded his authority under the SPA27 issued in his, Joaquin and Holifenas favor. He alleged that the authority of the afore-named agents to sell the shares of stock was limited to the following conditions: (1) in the event of the petitioners absence and incapacity; and (2) for the limited purpose of applying the proceeds of the sale to the satisfaction of petitioners subsisting obligations with the companies adverted to in the SPA.28 Petitioner sought to impose a strict construction of the SPA by limiting the definition of the word "absence" to a condition wherein "a person disappears from his domicile, his whereabouts being unknown, without leaving an agent to administer his property,"29 citing Article 381 of the Civil Code, the entire provision hereunder quoted: ART 381. When a person disappears from his domicile, his whereabouts being unknown, and without leaving an agent to administer his property, the judge, at the instance of an interested party, a relative, or a friend, may appoint a person to represent him in all that may be necessary. This same rule shall be observed when under similar circumstances the power conferred by the absentee has expired. Petitioner also puts forward that the word "incapacity" would be limited to mean "minority, insanity, imbecility, the state of being deaf-mute, prodigality and civil interdiction."30 He cites Article 38 of the Civil Code, in support of this definition, which is hereunder quoted: ART. 38 Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil interdiction are mere restrictions on capacity to act, and do not exempt the incapacitated person, from certain obligations, as when the latter arise from his acts or from property relations, such as easements. Petitioner, thus, claims that his arrest and subsequent detention are not among the instances covered by the terms "absence or incapacity," as provided under the SPA he executed in favor of respondent Locsin. Petitioners arguments are unpersuasive. It is a general rule that a power of attorney must be strictly construed; the instrument will be held to grant only those powers that are specified, and the agent may neither go beyond nor deviate from the power of attorney. However, the rule is not absolute and should not be applied to the extent of destroying the very purpose of the power. If the language will permit, the construction that should be adopted is that which will carry out instead of defeat the purpose of the appointment. Clauses in a power of attorney that are repugnant to each other should be reconciled so as to give effect to the instrument in accordance with its general intent or predominant purpose. Furthermore, the instrument should always be deemed to give such powers as essential or usual in effectuating the express powers.31 In the present case, limiting the definitions of "absence" to that provided under Article 381 of the Civil Code and of "incapacity" under Article 38 of the same Code negates the effect of the power of attorney by creating absurd, if not impossible, legal situations. Article 381 provides the necessarily stringent standards that would justify the appointment of a representative by a judge. Among the standards the said article enumerates is that no agent has been appointed to administer the property. In the present case, petitioner himself had already authorized agents to do specific acts of administration and thus, no longer necessitated the appointment of one by the court. Likewise, limiting the construction of "incapacity" to "minority, insanity, imbecility, the state of being a deaf-mute, prodigality and civil interdiction," as provided under Article 38, would render the SPA ineffective. Article 1919(3) of the Civil Code provides that the death, civil interdiction, insanity or insolvency of the principal or of the agent extinguishes the agency. It would be equally incongruous, if not outright impossible, for the petitioner to require himself to qualify as a minor, an imbecile, a deaf-mute, or a prodigal before the SPA becomes operative. In such cases, not only would he be prevented from appointing an agent, he himself would be unable to administer his property. On the other hand, defining the terms "absence" and "incapacity" by their everyday usage makes for a reasonable construction, that is, "the state of not being present" and the "inability to act," given the context that the SPA authorizes the agents to attend stockholders meetings and vote in behalf of petitioner, to sell the shares of stock, and other related acts. This construction covers the situation wherein petitioner was arrested and detained. This much is admitted by petitioner in his testimony.32 Petitioners contention that the shares may only be sold for the sole purpose of applying the proceeds of the sale to the satisfaction of petitioners subsisting obligations to the company is far-fetched. The construction, which will carry out the purpose, is that which should be applied. Petitioner had not submitted evidence that he was in debt with Businessday at the time he had executed the SPA. Nor could he have considered incurring any debts since he admitted that, at the time of its execution, he was concerned about his possible arrest, death and disappearance. The language of the SPA clearly enumerates, as among those acts that the agents were authorized to do, the act of applying the proceeds of the sale of the shares to any obligations petitioner might have against the Businessday group of companies. This interpretation is supported by the use of the word "and" in enumerating the authorized acts, instead of phrases such as "only for," "for the purpose of," "in order to" or any similar terms to indicate that the petitioner intended that the SPA be used only for a limited purpose, that of paying any liabilities with the Businessday group of companies. Secondly, petitioner argued that the records failed to show that he gave his consent to the sale of the shares to respondent Locsin for the price of P600,000.00. This argument is unsustainable. Petitioner received from respondent Locsin, through his wife and in-laws, the installment payments for a total of P600,000.00 from 1980 to 1982, without any protest or complaint. It was only four years after 1982 when petitioner demanded the return of the shares. The petitioners claim that he did not instruct respondent Locsin to deposit the money to the bank accounts of his in-laws fails to prove that petitioner did not give his consent to the sale since respondent Locsin was authorized, under the SPA, to negotiate the terms and conditions of the sale including the manner of payment. Moreover, had respondent Locsin given the proceeds directly to the petitioner, as the latter suggested in this petition, the proceeds were likely to have been included among petitioners properties which were confiscated by the military. Instead, respondent Locsin deposited the money in the bank accounts of petitioners in-laws, and consequently, assured that the petitioners wife received these amounts. Article 1882 of the Civil Code provides that the limits of an agents authority shall not be considered exceeded should it have been performed in a manner more advantageous to the principal than that specified by him. In addition, petitioner made two inconsistent statements when he alleged that (1) respondent Locsin had not asked the petitioner to endorse and deliver the shares of stock, and (2) when Rebecca Fernando asked the petitioner to endorse and deliver the certificates of stock, but petitioner refused and even became upset.33 In either case, both statements only prove that petitioner refused to honor his part as seller of the shares, even after receiving payments from the buyer. Had the petitioner not known of or given his consent to the sale, he would have given back the payments as soon as Fernando asked him to endorse and deliver the certificates of stock, an incident which unequivocally confirmed that the funds he received, through his wife and his in-laws, were intended as payment for his shares of stocks. Instead, petitioner held on to the proceeds of the sale after it had been made clear to him that respondent Locsin had considered the P600,000.00 as payment for the shares, and asked petitioner, through Fernando, to endorse and deliver the stock certificates for cancellation. As regards the third issue, petitioners allegation that the installment payments he was adjudged to have received for the shares were actually salaries which Businessday promised to pay him during his detention is unsupported and implausible. Petitioner received P20,000.00 per month through his in-laws; this amount does not correspond to his monthly salary at P24,000.00.34 Nor does the amount received correspond to the amount which Businessday was supposed to be obliged to pay petitioner, which was only P45,000.00 to P60,000.00 per annum.35 Secondly, the petitioners wife did not receive funds from respondent Locsin or Businessday for the entire duration of petitioners detention. Instead, when the total amount received by the petitioner reached the aggregate amount of his shares at par value -P600,000.00 -- the payments stopped. Petitioner even testified that when respondent Locsin denied knowing the petitioner soon after his arrest, he believed respondent Locsins commitment to pay his salaries during his detention to be nothing more than lip-service.36 Granting that petitioner was able to prove his allegations, such an act of gratuity, on the part of Businessday in favor of petitioner, would be void. An arrangement whereby petitioner will receive "salaries" for work he will not perform, which is not a demandable debt since petitioner was on an extended leave of absence, constitutes a donation under Article 72637 of the Civil Code. Under Article 748 of the Civil Code, if the value of the personal property donated exceeds P5,000.00, the donation and the acceptance shall have to be made in writing. Otherwise, the donation will be void. In the present case, petitioner admitted in his testimony38 that such arrangement was not made in writing and, hence, is void.

The fact that some of the deposit slips and communications made to petitioners wife contain the phrase "household expenses" does not disprove the sale of the shares. The money was being deposited to the bank accounts of the petitioners in-laws, and not to the account of the petitioner or his wife, precisely because some of his property had already been confiscated by the military. Had they used the phrase "sale of shares," it would have defeated the purpose of not using their own bank accounts, which was to conceal from the military any transaction involving the petitioners property. Petitioner raised as his fourth issue that granting that there was a sale, Businessday, and not respondent Locsin, was the party to the transaction. The curious facts that the payments were received on the 15th and 30th of each month and that the payor named in the checks was Businessday, were adequately explained by respondent Locsin. Respondent Locsin had obtained cash advances from the company, paid to him on the 15th and 30th of the month, so that he can pay petitioner for the shares. To support his claim, he presented Businessdays financial records and the testimony of Leo Atienza, the Companys Accounting Manager. When asked why the term "shares of stock" was used for the entries, instead of "cash advances," Atienza explained that the term "shares of stock" was more specific rather than the broader phrase "cash advances."39 More to the point, had the entries been for "shares of stock," the issuance of shares should have been reflected in the stock and transfer books of Businessday, which the petitioner presented as evidence. Instead the stock and transfer books reveal that the increase in respondent Locsins shares was a result of the cancellation and transfer of petitioners shares in favor of respondent Locsin. Petitioner alleges that the purported sale between himself and respondent Locsin of the disputed shares of stock is void since it contravenes Article 1491 of the Civil Code, which provides that: ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: xxxx (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; x x x. It is, indeed, a familiar and universally recognized doctrine that a person who undertakes to act as agent for another cannot be permitted to deal in the agency matter on his own account and for his own benefit without the consent of his principal, freely given, with full knowledge of every detail known to the agent which might affect the transaction.40 The prohibition against agents purchasing property in their hands for sale or management is, however, clearly, not absolute. It does not apply where the principal consents to the sale of the property in the hands of the agent or administrator.>41 In the present case, the parties have conflicting allegations. While respondent Locsin averred that petitioner had permitted him to purchase petitioners shares, petitioner vehemently denies having known of the transaction. However, records show that petitioners position is less credible than that taken by respondent Locsin given petitioners contemporaneous and subsequent acts.42 In 1980, when Fernando returned a stock certificate she borrowed from the petitioner, it was marked "cancelled." Although the petitioner alleged that he was furious when he saw the word cancelled, he had not demanded the issuance of a new certificate in his name. Instead of having been put on his guard, petitioner remained silent over this obvious red flag and continued receiving, through his wife, payments which totalled to the aggregate amount of the shares of stock valued at par. When the payments stopped, no demand was made by either petitioner or his wife for further payments. From the foregoing, it is clear that petitioner knew of the transaction, agreed to the purchase price of P600,000.00 for the shares of stock, and had in fact facilitated the implementation of the terms of the payment by providing respondent Locsin, through petitioners wife, with the information on the bank accounts of his in-laws. Petitioners wife and his son even provided receipts for the payments that were made to them by respondent Locsin,43 a practice that bespeaks of an onerous transaction and not an act of gratuity.
Lastly, petitioner claims that the cancellation of the shares and the subsequent transfer thereof were fraudulent, and, therefore, illegal. In the present case, the shares were transferred in the name of the buyer, respondent Locsin, without the petitioner delivering to the buyer his certificates of stock. Section 63 of the Corporation Code provides that:

Sec.63. Certificate of stock and transfer of shares. xxx Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. (Emphasis provided.)

The aforequoted provision furnishes the procedure for the transfer of shares the delivery of the endorsed certificates, in order to prevent the fraudulent transfer of shares of stock. However, this rule cannot be applied in the present case without causing the injustice sought to be avoided. As had been amply demonstrated, there was a valid sale of stocks. Petitioners failure to deliver the shares to their rightful buyer is a breach of his duty as a seller, which he cannot use to unjustly profit himself by denying the validity of such sale. Thus, while the manner of the cancellation of petitioners certificates of stock and the issuance of the new certificates in favor of respondent Locsin was highly irregular, we must, nonetheless, declare the validity of the sale between the parties. Neither does this irregularity prove that the transfer was fraudulent. In his testimony, petitioner admitted that they had intended to conceal his being a stockholder of Businessday.44 The cancellation of his name from the stock and transfer book, even before the shares were actually sold, had been done with his consent. As earlier explained, even the subsequent sale of the shares in favor of Locsin had been done with his consent.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed Decision of the Court of Appeals, promulgated on 30 June 2003, affirming the validity of the sale of the shares of stock in favor of respondent Locsin. No costs.

SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 132474 November 19, 1999 RENATO CENIDO (deceased), represented by VICTORIA CENIDOSA, petitioner, vs. SPOUSES AMADEO APACIONADO and HERMINIA STA. ANA, respondents.

PUNO, J.: In this petition for review, petitioner Renato Cenido seeks to reverse and set aside the decision of the Court of Appeals 1 in CA-G.R. CV No. 41011 which declared the private respondents as the owners of a house and lot in Binangonan, Rizal. 2 The antecedent facts are as follows:

On May 22, 1989, respondent spouses Amadeo Apacionado and Herminia Sta. Ana filed with the Regional Trial Court, Branch 70, Rizal a complaint against petitioner Renato Cenido for, "Declaration of Ownership, Nullity, with Damages." 3 The spouses alleged that: (1) they are the owners of a parcel of unregistered land, 123 square meters in area and located at Rizal Street, Barrio Layunan, Binangonan, Rizal, more particularly described as follows: . . . that certain parcel of land located at Rizal, St., Layunan, Binangonan, Rizal, with an area of 123 square meters, more or less, bounded on the North by Gavino Aparato; on the East by Rizal St., on the South by Tranquilino Manuzon; and on the West by Simplicio Aparato, and the residential house standing thereon. 4 (2) this house and lot were purchased by the spouses from its previous owner, Bonifacio Aparato, now deceased, who lived under the spouses' care and protection for some twenty years prior to his death; (3) while he was alive, Bonifacio Aparato mortgaged the said property twice, one to the Rural Bank of Binangonan and the other to Linda C. Ynares, as security for loans obtained by him; (4) the loans were paid off by the spouses thereby securing the release and cancellation of said mortgages; (5) the spouses also paid and continue to pay the real estate taxes on the property; (6) from the time of sale, they have been in open, public, continuous and uninterrupted possession of the property in the concept of owners; (7) that on January 7, 1987, petitioner Renato Cenido, claiming to be the owner of the subject house and lot, filed a complaint for ejectment against them with the Municipal Trial Court, Branch 2, Binangonan, Rizal; (8) through fraudulent and unauthorized means, Cenido was able to cause the issuance in his name of Tax Declaration No. 02-0368 over the subject property, which fact the spouses learned only upon the filing of the ejectment case; (9) although the ejectment case was dismissed by the Municipal Trial Court (MTC), Branch 2, the tax declaration in Cenido's name was not cancelled and still subsisted; (10) the spouses have referred the matter to the barangay for conciliation but Cenido unjustifiably refused to appear thereat. The spouses thus prayed that: WHEREFORE, it is respectfully prayed of the Honorable Court that judgment issue in the case: 1. Declaring them (plaintiffs) the true and absolute owners of the house and lot now covered by Tax Declaration No. 02-0368; 2. Declaring Tax Declaration No. 02-0368 in the name of defendant Renato Cenido as null and void and directing the Provincial Assessor of Rizal and the Municipal Assessor of Binangonan, Rizal to register and to declare the house and lot covered by the same in their names (plaintiffs) for purposes of taxation; 3. Ordering defendant to pay them in the least amount of P50,000.00 as and for moral damages suffered; 4. Ordering defendant to pay them the amount of P10,000.00 as and for attorney's fees; 5. Ordering payment by defendant of exemplary damages in such amount which the Honorable Court may deem just and equitable in the premises; 6. Ordering defendant to pay the costs of suit; and Plaintiffs pray for such other and further relief which the Honorable Court may deem just and equitable considering the foregoing premises. 5 Petitioner Cenido answered claiming that: (1) he is the illegitimate son of Bonifacio Aparato, the deceased owner of the subject property; (2) as Aparato's sole surviving heir, he became the owner of the property as evidenced by the cancellation of Tax Declaration No. 02-0274 in Bonifacio's name and the issuance of Tax Declaration No. 02-0368 in his name; (3) his ownership over the house and lot was also confirmed in 1985 by the Municipal Trial Court, Branch 1, Binangonan in Case No. 2264 which "adjudicated various claims involving the same subject property wherein plaintiffs were privy to the said case;" (4) that in said case, the Apacionado spouses participated in the execution of the compromise agreement partitioning the deceased's estate among his heirs, which agreement was adopted by the Municipal Trial Court as its judgment; (5) that the Apacionado spouses were allowed to stay in his father's house temporarily; (6) the mortgages on the property were obtained by his father upon request of the Apacionados who used the proceeds of the loans exclusively for themselves; (7) the real estate taxes or the property were paid for by his father, the principal, and the spouses were merely his agents; (8) the instrument attesting to the alleged sale of the house and lot by Bonifacio Aparato to the spouses is not a public document; (8) petitioner Cenido was never summoned to appear before the barangay for conciliation proceedings. 6 Respondent spouses replied that: (1) Cenido is not the illegitimate son of Bonifacio, Cenido's claim of paternity being spurious; (2) the ownership of the property was not the proper subject in Civil Case No. 2264 before the MTC, Branch I, nor were the spouses parties in said case. 7 The parties went to trial. Respondent spouses presented four (4) witnesses, namely, respondent Herminia Sta. Ana Apacionado; Rolando Nieves, the barangay captain; Norberto Aparato the son of Gavino Aparato, Bonifacio's brother; and Carlos Inabayan, one of the two witnesses to the deed of sale between Bonifacio Aparato and the spouses over the property. Petitioner Cenido presented only himself as witness. On March 30, 1993, the trial court rendered judgment. The court upheld petitioner Cenido's ownership over the property by virtue of the recognition made by Bonifacio's then surviving brother, Gavino, in the compromise judgment of the MTC. Concomitantly, the court also did not sustain the deed of sale between Bonifacio and the spouses because it was neither notarized nor signed by Bonifacio and was intrinsically defective. The court ordered thus: WHEREFORE, in the light of the foregoing considerations, the Court believes that preponderance of evidence is on the side of defendant and so the complaint could not be given due course. Accordingly, the case is, as it should be, dismissed. No attorney's fees or damages is being awarded as no evidence to this effect had been given by defendant. With costs against plaintiffs. SO ORDERED. 8 Respondent spouses appealed to the Court of Appeals. In a decision dated September 30, 1997, the appellate court found the appeal meritorious and reversed the decision of the trial court. It held that the recognition of Cenido's filiation by Gavino, Bonifacio's brother, did not comply with the requirements of the Civil Code and the Family Code; that the deed between Bonifacio and respondent spouses was a valid contract of sale over the property; and Cenido's failure to object to the presentation of the deed before the trial court was a waiver of the defense of the Statute of Frauds. The Court of Appeals disposed of as follows: WHEREFORE, the appealed Decision is hereby REVERSED and SET ASIDE. Plaintiffs-Appellants Spouses Amadeo Apacionado and Herminia Sta. Ana are declared owners of the subject house and lot now covered by Tax Declaration No. 02-6368. 9 Hence, this recourse. Petitioner Cenido alleges that: 1. The unsigned, unnotarized and highly doubtful private document designated as "Pagpapatunay" which is solely relied upon by the respondents in support of their case is not sufficient to vest ownership of and transfer the title, rights and interest over the subject property to the respondents. xxx xxx xxx

2. The Court of Appeals departed from the accepted and usual course of judicial proceedings in that it ruled against the petitioner in view of the alleged weakness of his defense rather than evaluate the case based on the strength of the respondents' evidence, thereby necessitating this Honorable Court's exercise of its power of supervision. 10 Victoria Cenidosa, in representation of petitioner Cenido, has manifested, through counsel, that petitioner died in September 1993; that on December 18, 1985, eight years before his death, Cenido sold the subject house and lot to Maria D. Ojeda for the sum of P70,000.00; that Maria D. Ojeda is now old and sickly, and is thus being represented in the instant case by her daughter, Victoria O. Cenidosa. 11 In the same vein, respondent Herminia Sta. Ana Apacionado also manifested that her husband, Amadeo Apacionado, died on August 11, 1989. Amadeo is now being represented by his compulsory heirs. 12 Before ruling on petitioner's arguments, it is necessary to establish certain facts essential for a proper adjudication of the case. The records reveal that the late Bonifacio Aparato had two siblings a sister named Ursula and a brother named Gavino. 13 Ursula died on March 1, 1979, 14 Bonifacio on January 3, 1982 15 and Gavino, sometime after Bonifacio's death. Both Ursula and Bonifacio never married and died leaving no legitimate offspring. Gavino's son, Norberto, however, testified that there was a fourth sibling, a sister, who married but also died; as to when she died or whether she left any heirs, Norberto did not know. 16 What is clear and undisputed is that Bonifacio was survived by Gavino who also left legitimate heirs. Both Bonifacio and Ursula lived in the subject property under the care and protection of the Apacionados. Herminia Sta. Ana Apacionado started living with them in 1976. She took care of Bonifacio and Ursula, who died three years later. Herminia married Amado Apacionado, whose paternal grandmother was a sister of Bonifacio. 17 Amadeo moved into Bonifacio's house and assisted Herminia in taking care of the old man until his demise. Shortly after Bonifacio's death, Civil Case No. 2264 was instituted by petitioner Cenido against Gavino Aparato before the Municipal Trial Court, Branch 1, Binangonan. The records do not reveal the nature of this action. 18 Nevertheless, three years after filing of the case, the parties entered into a compromise agreement. The parties listed the properties of Bonifacio comprising two parcels of land: one parcel was the residential house and lot in question and the other was registered agricultural land with an area of 38,641 square meters; Gavino Aparato expressly recognized Renato Cenido as the sole illegitimate son of his brother, likewise, Cenido recognized Gavino as the brother of Bonifacio; as Bonifacio's heirs, they partitioned his estate among themselves, with the subject property and three portions of the agricultural land as Cenido's share, and the remaining 15,309 square meters of the agricultural land as Gavino's; both parties agreed to share in the documentation, registration and other expenses for the transfer of their shares. This compromise agreement was adopted as the decision of the MTC on January 31, 1985. 19 In the same year, petitioner Cenido obtained in his name Tax Declaration No. 02-6368 over the subject property. Two years later, in January 1987, he filed an ejectment case against respondent spouses who continued occupying the property in question. This case was dismissed. Respondent spouses' claim of ownership over the subject property is anchored on a one-page typewritten document entitled "Pagpapatunay," executed by Bonifacio Aparato. The "Pagpapatunay" reads as follows: PAGPAPATUNAY DAPAT MALAMAN NG LAHAT: Akong si BONIFACIO APARATO, binata, Pilipino, husto sa gulang, at kasalukuyang naninirahan sa Layunan, Binangonan, Rizal, ay nagpapatunay nitong mga sumusunod: Una: Na, ako ang siyang nagmamay-ari ng isang lagay na lupang SOLAR at Bahay Tirahan na nakatirik sa nabanggit na solar na makikita sa lugar ng Rizal St., Layunan, Binangonan, Rizal; Ikalawa: Na, sapagkat ang nagalaga sa akin hanggang sa ako'y tuluyang kunin ng Dakilang Maykapal ay walang iba kungdi ang mag-asawang AMADEO APACIONADO at HERMINIA STA. ANA APACIONADO; Ikatlo: Na, pinatutunayan ko sa mga maykapangyarihan at kanginumang tao na ang nabanggit na SOLAR at bahay tirahan ay ipinagbili ko sa nabanggit na mag-asawa sa halagang SAMPUNG LIBONG (P10,000.00) PISO, bilang pakunsuwelo sa kanilang pagmamalasakit sa aking pagkatao at kalalagayan; Na, patunay na ito ay aking nilagdaan ng maliwanag ang aking isip at nalalaman ko ang lahat ng nilalaman nito. SA KATUNAYAN NG LAHAT, lumagda ako ng aking pangalan at apelyido ngayong ika-10 ng Disyembre 1981, dito sa Layunan, Binangonan, Rizal. (Thumbmarked) BONIFACIO APARATO Nagpatunay NILAGDAAN SA HARAP NINA: (SGD.) (SGD.) Virgilio O. Cenido Carlos Inabayan Saksi Saksi 20 On its face, the document "Pagpapatunay" attests to the fact that Bonifacio Aparato was the owner of the house and lot in Layunan, Rizal; that because the Apacionado spouses took care of him until the time of his death, Bonifacio sold said property to them for the sum of P10,000.00; that he was signing the same document with a clear mind and with full knowledge of its contents; and as proof thereof, he was affixing his signature on said document on the tenth day of December 1981 in Layunan, Binangonan, Rizal. Bonifacio affixed his thumbmark on the space above his name; and this was witnessed by Virgilio O. Cenido and Carlos Inabayan. Petitioner Cenido disputes the authenticity and validity of the "Pagpapatunay." He claims that it is not a valid contract of sale and its genuineness is highly doubtful because: (1) it was not notarized and is merely a private instrument; (2) it was not signed by the vendor, Bonifacio; (3) it was improbable for Bonifacio to have executed

the document and dictated the words "lumagda ako ng aking pangalan at apelyido" because he was paralyzed and could no longer sign his name at that time; and (4) the phrase "ang nag-alaga sa akin hanggang sa ako'y tuluyang kunin ng Dakilang Maykapal" speaks of an already departed Bonifacio and could have been made only by persons other than the dead man himself. 21 To determine whether the "Pagpapatunay" is a valid contract of sale, it must contain the essential requisites of contracts, viz: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established. 22 The object of the "Pagpapatunay" is the house and lot. The consideration is P10,000.00 for the services rendered to Aparato by respondent spouses. According to respondent Herminia Apacionado, this P10,000.00 was not actually paid to Bonifacio because the amount merely quantified the services they rendered to the old man. It was the care the spouses voluntarily gave that was the cause of the sale. 23 The cause therefore was the service remunerated. 24 Petition alleges that Bonifacio did not give his consent to the deed because he did not affix his signature, but merely his thumbmark, on the document. Bonifacio was a literate person who could legibly sign his full name, and his signature is evident in several documents such as his identification card as member of the Anderson FilAmerican Guerillas; 25 the "Kasulatan ng Palasanglaan" dated July 25, 1974 where he and his two other siblings mortgaged the subject property for P2,000.00 to one Linda Y. Cenido; 26 "Padagdag sa Sanglaan" dated June 16, 1976; 27 and another "Pagdagdag sa Sanglaan" dated March 2, 1979. 28 Respondent Herminia Sta. Ana Apacionado testified that Bonifacio Aparato affixed his thumbmark because he could no longer write at the time of execution of the document. The old man was already 61 years of age and could not properly see with his eyes. He was stricken by illness a month before and was paralyzed from the waist down. He could still speak albeit in a garbled manner, and be understood. The contents of the "Pagpapatunay" were actually dictated by him to one Leticia Bandola who typed the same on a typewriter she brought to his house. 29 That Bonifacio was alive at the time of execution of the contract and voluntarily gave his consent to the instrument is supported by the testimony of Carlos Inabayan, the lessee of Bonifacio's billiard hall at the ground floor of the subject property. Inabayan testified that on December 10, 1981, he was summoned to go up to Bonifacio's house. There, he saw Bonifacio, respondent Apacionados, and a woman and her husband. He was given a sheet of paper to read. He read the paper and understood that it was a deed of sale of the house and lot executed by Bonifacio in favor of the Apacionados. Thereafter, Bonifacio requested him to sign the document as witness. Reexamining the "Pagpapatunay," Inabayan saw that Bonifacio affixed his thumbmark on the space above his name. Inabayan thus signed the document and returned to the billiard hall. 30 Inabayan's testimony has not been rebutted by petitioner. Petitioner, through counsel, waived his right to do so, finding no need to cross-examine the witness. 31 This waiver was granted by the court in the order of September 23, 1992. 32 One who alleges any defect or the lack of a valid consent to a contract must establish the same by full, clear and convincing evidence, not merely by preponderance thereof. 33 Petitioner has not alleged that the old man, by his physical or mental state, was incapacitated to give his consent at the time of execution of the "Pagpapatunay." Petitioner has not shown that Bonifacio was insane or demented or a deaf-mute who did not know how to write. 34 Neither has petitioner claimed, at the very least, that the consent of Bonifacio to the contract was vitiated by mistake, violence, intimidation, undue influence or fraud. 35 If by assailing the intrinsic defects in the wordage of the "Pagpapatunay" petitioner Cenido seeks to specifically allege the exercise of extrinsic fraud and undue influence on the old man, these defects are not substantial as to render the entire contract void. There must be clear and convincing evidence of what specific acts of undue influence 36 or fraud 37 were employed by respondent spouses that gave rise to said defects. Absent such proof, Bonifacio's presumed consent to the "Pagpapatunay" remains. The "Pagpapatunay," therefore, contains all the essential requisites of a contract. Its authenticity and due execution have not been disproved either. The finding of the trial court that the document was prepared by another person and the thumbmark of the dead Bonifacio was merely affixed to it is pure conjecture. On the contrary, the testimonies of respondent Herminia Sta. Ana and Carlos Inabayan prove that the document is authentic and was duly executed by Bonifacio himself. The "Pagpapatunay" is undisputably a private document. And this fact does not detract from its validity. The Civil Code, in Article 1356 provides: Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. Generally, contracts are obligatory, in whatever form such contracts may have been entered into, provided all the essential requisites for their validity are present. When, however, the law requires that a contract be in some form for it to be valid or enforceable, that requirement must be complied with. A certain form may be prescribed by law for any of the following purposes: for validity, enforceability, or greater efficacy of the contract. 38 When the form required is for validity, its non-observance renders the contract void and of no effect. 39 When the required form is for enforceability, non-compliance therewith will not permit, upon the objection of a party, the contract, although otherwise valid, to be proved or enforced by action. 40 Formalities intended for greater efficacy or convenience or to bind third persons, if not done, would not adversely affect the validity or enforceability of the contract between the contracting parties themselves. 41 Art. 1358 of the Civil Code requires that: Art. 1358. The following must appear in a public document: (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein are governed by Articles 1403, No. 2 and 1405; (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; (4) The cession of actions or rights proceeding from an act appearing in a public document. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles 1403, No. 2 and 1405. Acts and contracts which create, transmit, modify or extinguish real rights over immovable property should be embodied in a public document. Sales of real property are governed by the Statute of Frauds which reads: Art. 1403. The following contracts are unenforceable, unless they are ratified: (1) . . .

(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 and 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; xxx xxx xxx (e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein; (3) . . . . The sale of real property should be in writing and subscribed by the party charged for it to be enforceable. The "Pagpapatunay" is in writing and subscribed by Bonifacio Aparato, the vendor; hence, it is enforceable under the Statute of Frauds. Not having been subscribed and sworn to before a notary public, however, the "Pagpapatunay" is not a public document, and therefore does not comply with Article 1358, paragraph 1 of the Civil Code. The requirement of a public document in Article 1358 is not for the validity of the instrument but for its efficacy. 42 Although a conveyance of land is not made in a public document, it does not affect the validity of such conveyance. 43 Article 1358 does not require the accomplishment of the acts or contracts in a public instrument in order to validate the act or contract but only to insure its efficacy, 44 so that after the existence of said contract has been admitted, the party bound may be compelled to execute the proper document. 45 This is clear from Article 1357, viz: Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article [Article 1358], the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. The private conveyance of the house and lot is therefore valid between Bonifacio Aparato and respondent spouses. The question of whether the "Pagpapatunay" is sufficient to transfer and convey title to the land for purposes of original registration 46 or the issuance of a real estate tax declaration in respondent spouses' names, as prayed for by respondent spouses, 47 is another matter altogether. 48 For greater efficacy of the contract, convenience of the parties and to bind third persons, respondent spouses have the right to compel the vendor or his heirs to execute the necessary document to properly convey the property. 49 Anent petitioner's second assigned error, the fact that the Court of Appeals sustained the validity of the "Pagpapatunay" was not a conclusion that necessarily resulted from the weakness of petitioner's claim of filiation to Bonifacio Aparato. Of and by itself, the "Pagpapatunay" is a valid contract of sale between the parties and the Court of Appeals did not err in upholding its validity. The issue of petitioner's paternity, however, is essential to determine whether Tax Declaration No. 02-6368 in the name of petitioner Cenido should be nullified, as prayed for by respondent spouses in their complaint. Tax Declaration No. 02-6368 50 in petitioner Cenido's name was issued pursuant to the compromise judgment of the MTC where Gavino Aparato, Bonifacio's brother, expressly recognized petitioner Cenido as Bonifacio's sole illegitimate son. The compromise judgment was rendered in 1985, three years after Bonifacio's demise. Under the Civil Code, 51 natural children and illegitimate children other than natural are entitled to support and successional rights only when recognized or acknowledged by the putative parent. 52 Unless recognized, they have no rights whatsoever against their alleged parent or his estate. 53 The filiation of illegitimate children may be proved by any of the forms of recognition of natural children. 54 This recognition may be made in three ways: 55 (1) voluntarily, which must be express such as that in a record of birth, a will, a statement before a court of record, or in any authentic writing; 56 (2) legally, i.e., when a natural child is recognized, such recognition extends to his or her brothers and sisters of the full blood; 57 and (3) judicially or compulsorily, which may be demanded by the illegitimate child of his parents. 58 The action for compulsory recognition of the illegitimate child must be brought during the lifetime of the presumed parents. This is explicitly provided in Article 285 of the Civil Code, viz: Art. 285. The action for the recognition of natural children may be brought only during the lifetime of the presumed parents, except in the following cases: (1) If the father or mother died during the minority of the child, in which case the latter may file the action before the expiration of four years from the attainment of his majority; (2) If after the death of the father or of the mother a document should appear of which nothing had been heard and in which either or both parents recognize the child. In this case, the action must be commenced within four years from the finding of the document. The illegitimate child can file an action for compulsory recognition only during the lifetime of the presumed parent. After the parent's death, the child cannot bring such action, except, however, in only two instances: one is when the supposed parent died during the minority of the child, and the other is when after the death of the parent, a document should be discovered in which the parent recognized the child as his. The action must be brought within four years from the attainment of majority in the first case, and from the discovery of the document in the second case. The requirement that the action be filed during the parent's lifetime is to prevent illegitimate children, on account of strong temptations to large estates left by dead persons, to claim part of this estate without giving the alleged parent personal opportunity to be heard. 59 It is vital that the parent be heard for only the parent is in a position to reveal the true facts surrounding the claimant's conception. 60 In the case at bar, petitioner Cenido did not present any record of birth, will or any authentic writing to show he was voluntarily recognized by Bonifacio as his illegitimate son. In fact, petitioner admitted on the witness stand that he had no document to prove Bonifacio's recognition, much less his filiation. 61 The voluntary recognition of petitioner's filiation by Bonifacio's brother before the MTC does not qualify as a "statement in a court of record." Under the law, this statement must be made personally by the parent himself or herself, not by any brother, sister or relative; after all, the concept of recognition speaks of a voluntary declaration by the parent, or if the parent refuses, by judicial authority, to establish the paternity or maternity of children born outside wedlock. 62 The compromise judgment of the MTC does not qualify as a compulsory recognition of petitioner. In the first place, when he filed this case against Gavino Aparato, petitioner was no longer a minor. He was already pushing fifty years old. 63 Secondly, there is no allegation that after Bonifacio's death, a document was discovered where Bonifacio recognized petitioner Cenido as his son. Thirdly, there is nothing in the compromise judgment that indicates that the action before the MTC was a settlement of Bonifacio's estate with a gross value not exceeding P20,000.00. 64 Definitely, the action could not have been for compulsory recognition because the MTC had no jurisdiction over the subject matter. 65 The Real Property Tax Code provides that real property tax be assessed in the name of the person "owning or administering" the property on which the tax is levied. 66 Since petitioner Cenido has not proven any successional or administrative rights to Bonifacio's estate, Tax Declaration No. 02-6368 in Cenido's name must be declared null and void.

IN VIEW WHEREOF, the petition is denied and the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 41011 are affirmed. Tax Declaration No. 026368 in the name of petitioner Renato Cenido is declared null and void. No costs. SO ORDERED. Davide, Jr., C.J., Kapunan, Pardo and Ynares-Santiago, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 109125 December 2, 1994 ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, vs. THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents. Antonio M. Albano for petitioners. Umali, Soriano & Associates for private respondent.

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 have occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive 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 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. Defendants filed their answer denying the material allegations of the complaint and interposing a special defense of lack of cause of action. After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court. The trial court found that defendants' offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon the terms and 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 portion of the decision states: WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs summarily dismissing the complaint subject to the aforementioned condition that if the defendants subsequently decide to offer their property for sale for a purchase price of Eleven Million Pesos 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. SO ORDERED. Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with modification the lower court's judgment, holding: In resume, there was no meeting of the minds between the parties 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 ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine 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 815). All requisites obtaining, the decision of the court a quo is legally justifiable. WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision gave the plaintiffs-appellants the right of first refusal only if the property is sold for a purchase price of Eleven Million pesos or lower; however, considering the mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos. No pronouncement as to costs.

SO ORDERED. 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 and substances" (Annex H, Petition). On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and Development Corporation, subject to the following terms and conditions: 1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (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-described property with all the improvements found therein including all the rights and interest in the said property free from all liens and encumbrances of whatever nature, except the pending ejectment proceeding; 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 accrued real estate taxes. As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990. On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises. On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs. The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case 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 Paraaque, 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 1319 9 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 19 12 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. Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Mendoza, JJ., concur. Kapunan, J., took no part. Feliciano, J., is on leave. SECOND DIVISION [G.R. No. 139982. November 21, 2002] JULIAN FRANCISCO (Substituted by his Heirs, namely: CARLOS ALTEA FRANCISCO; the heirs of late ARCADIO FRANCISCO, namely: CONCHITASALANGSANGFRANCISCO (surviving spouse), and his children namely: TEODULO S.FRANCISCO,EMILIANOS. FRANCISCO, MARIA THERESA S. FRANCISCO, PAULINA S. FRANCISCO, THOMASS.FRANCISCO;PEDRO ALTEAFRANCISCO;CARINAFRANCISCO-ALCANTARA; EFREN ALTEAFRANCISCO;DOMINGALEA FRANCISCO-REGONDON;BENEDICTO ALTEA FRANCISCO and ANTONIO ALTEA FRANCISCO), petitioner, vs. PASTOR HERRERA, respondent. DECISION QUISUMBING, J.: This is a petition for review on certiorari of the decision1[1] of the Court of Appeals, dated August 30, 1999, in CA-G.R. CV No. 47869, which affirmed in toto the judgment2[2] of the Regional Trial Court (RTC) of Antipolo City, Branch 73, in Civil Case No. 92-2267. The appellate court sustained the trial courts ruling which: (a) declared null and void the deeds of sale of the properties covered by Tax Declaration Nos. 01-00495 and 01-00497; and (b) directed petitioner to return the subject properties to respondent who, in turn, must refund to petitioner the purchase price of P1,750,000. The facts, as found by the trial court and affirmed by the Court of Appeals, are as follows: Eligio Herrera, Sr., the father of respondent, was the owner of two parcels of land, one consisting of 500 sq. m. and another consisting of 451 sq. m., covered by Tax Declaration (TD) Nos. 01-00495 and 01-00497, respectively. Both were located at Barangay San Andres, Cainta, Rizal.3[3] On January 3, 1991, petitioner bought from said landowner the first parcel, covered by TD No. 01-00495, for the price of P1,000,000, paid in installments from November 30, 1990 to August 10, 1991. On March 12, 1991, petitioner bought the second parcel covered by TD No. 01-00497, for P750,000. Contending that the contract price for the two parcels of land was grossly inadequate, the children of Eligio, Sr., namely, Josefina Cavestany, Eligio Herrera, Jr., and respondent Pastor Herrera, tried to negotiate with petitioner to increase the purchase price. When petitioner refused, herein respondent then filed a complaint for annulment of sale, with the RTC of Antipolo City, docketed as Civil Case No. 92-2267. In his complaint, respondent claimed ownership over the second parcel, which is the lot covered by TD No. 01-00497, allegedly by virtue of a sale in his favor since 1973. He likewise claimed that the first parcel, the lot covered by TD No. 0100495, was subject to the co-ownership of the surviving heirs of Francisca A. Herrera, the wife of Eligio, Sr., considering that she died intestate on April 2, 1990, before the alleged sale to petitioner. Finally, respondent also alleged that the sale of the two lots was null and void on the ground that at the time of sale, Eligio, Sr. was already incapacitated to give consent to a contract because he was already afflicted with senile dementia, characterized by deteriorating mental and physical condition including loss of memory. In his answer, petitioner as defendant below alleged that respondent was estopped from assailing the sale of the lots. Petitioner contended that respondent had effectively ratified both contracts of sales, by receiving the consideration offered in each transaction.

On November 14, 1994, the Regional Trial Court handed down its decision, the dispositive portion of which reads: WHEREFORE, in view of all the foregoing, this court hereby orders that: 1. The deeds of sale of the properties covered by Tax Dec. Nos. 01-00495 and 01-00497 are declared null and void; 2. The defendant is to return the lots in question including all improvements thereon to the plaintiff and the plaintiff is ordered to simultaneously return to the defendant the purchase price of the lots sold totalling to P750,000.00 for lot covered by TD 01-00497 and P1,000,000.00 covered by TD 01-00495; 3. The court also orders the defendant to pay the cost of the suit. 4. The counter-claim of the defendant is denied for lack of merit. SO ORDERED.4[4] Petitioner then elevated the matter to the Court of Appeals in CA-G.R. CV No. 47869. On August 30, 1999, however, the appellate court affirmed the decision of the Regional Trial Court, thus: WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED in toto. Costs against defendant-appellant. SO ORDERED.5[5] Hence, this petition for review anchored on the following grounds: I. THE COURT OF APPEALS COMPLETELY IGNORED THE BASIC DIFFERENCE BETWEEN A VOID AND A MERELY VOIDABLE CONTRACT THUS MISSING THE ESSENTIAL SIGNIFICANCE OF THE ESTABLISHED FACT OF RATIFICATION BY THE RESPONDENT WHICH EXTINGUISHED WHATEVER BASIS RESPONDENT MAY HAVE HAD IN HAVING THE CONTRACT AT BENCH ANNULLED. II. THE DECISION OF THE COURT OF APPEALS ON SENILE DEMENTIA: A. DISREGARDED THE FACTUAL BACKGROUND OF THE CASE; B. WAS CONTRARY TO ESTABLISHED JURISPRUDENCE; AND C. WAS PURELY CONJECTURAL, THE CONJECTURE BEING ERRONEOUS. III. THE COURT OF APPEALS WAS IN GROSS ERROR AND IN FACT VIOLATED PETITIONERS RIGHT TO DUE PROCESS WHEN IT RULED THAT THE CONSIDERATION FOR THE QUESTIONED CONTRACTS WAS GROSSLY INADEQUATE.6[6] The resolution of this case hinges on one pivotal issue: Are the assailed contracts of sale void or merely voidable and hence capable of being ratified? Petitioner contends that the Court of Appeals erred when it ignored the basic distinction between void and voidable contracts. He argues that the contracts of sale in the instant case, following Article 13907[7] of the Civil Code are merely voidable and not void ab initio. Hence, said contracts can be ratified. Petitioner argues that while it is true that a demented person cannot give consent to a contract pursuant to Article 1327,8[8] nonetheless the dementia affecting one of the parties will not make the contract void per se but merely voidable. Hence, when respondent accepted the purchase price on behalf of his father who was allegedly suffering from senile dementia, respondent effectively ratified the contracts. The ratified contracts then become valid and enforceable as between the parties. Respondent counters that his act of receiving the purchase price does not imply ratification on his part. He only received the installment payments on his senile fathers behalf, since the latter could no longer account for the previous payments. His act was thus meant merely as a safety measure to prevent the money from going into the wrong hands. Respondent also maintains that the sales of the two properties were null and void. First, with respect to the lot covered by TD No. 01-00497, Eligio, Sr. could no longer sell the same because it had been previously sold to respondent in 1973. As to lot covered by TD No. 01-00495, respondent contends that it is coowned by Eligio, Sr. and his children, as heirs of Eligios wife. As such, Eligio, Sr. could not sell said lot without the consent of his co-owners. We note that both the trial court and the Court of Appeals found that Eligio, Sr. was already suffering from senile dementia at the time he sold the lots in question. In other words, he was already mentally incapacitated when he entered into the contracts of sale. Settled is the rule that findings of fact of the trial court, when affirmed by the appellate court, are binding and conclusive upon the Supreme Court.9[9] Coming now to the pivotal issue in this controversy. A void or inexistent contract is one which has no force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be validated either by the passage of time or by ratification. There are two types of void contracts: (1) those where one of the essential requisites of a valid contract as provided for by Article 131810[10] of the Civil Code is totally wanting; and (2) those declared to be so under Article

140911[11] of the Civil Code. By contrast, a voidable or annullable contract is one in which the essential requisites for validity under Article 1318 are present, but vitiated by want of capacity, error, violence, intimidation, undue influence, or deceit. Article 1318 of the Civil Code states that no contract exists unless there is a concurrence of consent of the parties, object certain as subject matter, and cause of the obligation established. Article 1327 provides that insane or demented persons cannot give consent to a contract. But, if an insane or demented person does enter into a contract, the legal effect is that the contract is voidable or annullable as specifically provided in Article 1390.12[12] In the present case, it was established that the vendor Eligio, Sr. entered into an agreement with petitioner, but that the formers capacity to consent was vitiated by senile dementia. Hence, we must rule that the assailed contracts are not void or inexistent per se; rather, these are contracts that are valid and binding unless annulled through a proper action filed in court seasonably. An annullable contract may be rendered perfectly valid by ratification, which can be express or implied. Implied ratification may take the form of accepting and retaining the benefits of a contract.13[13] This is what happened in this case. Respondents contention that he merely received payments on behalf of his father merely to avoid their misuse and that he did not intend to concur with the contracts is unconvincing. If he was not agreeable with the contracts, he could have prevented petitioner from delivering the payments, or if this was impossible, he could have immediately instituted the action for reconveyance and have the payments consigned with the court. None of these happened. As found by the trial court and the Court of Appeals, upon learning of the sale, respondent negotiated for the increase of the purchase price while receiving the installment payments. It was only when respondent failed to convince petitioner to increase the price that the former instituted the complaint for reconveyance of the properties. Clearly, respondent was agreeable to the contracts, only he wanted to get more. Further, there is no showing that respondent returned the payments or made an offer to do so. This bolsters the view that indeed there was ratification. One cannot negotiate for an increase in the price in one breath and in the same breath contend that the contract of sale is void. Nor can we find for respondents argument that the contracts were void as Eligio, Sr., could not sell the lots in question as one of the properties had already been sold to him, while the other was the subject of a co-ownership among the heirs of the deceased wife of Eligio, Sr. Note that it was found by both the trial court and the Court of Appeals that Eligio, Sr., was the declared owner of said lots. This finding is conclusive on us. As declared owner of said parcels of land, it follows that Eligio, Sr., had the right to transfer the ownership thereof under the principle of jus disponendi. In sum, the appellate court erred in sustaining the judgment of the trial court that the deeds of sale of the two lots in question were null and void. WHEREFORE, the instant petition is GRANTED. The decision dated August 30, 1999 of the Court of Appeals in CA-G.R. CV No. 47869, affirming the decision of the Regional Trial Court in Civil Case No. 92-2267 is REVERSED. The two contracts of sale covering lots under TD No. 01-00495 and No. 01-00497 are hereby declared VALID. Costs against respondent. SO ORDERED. Bellosillo, (Chairman), Mendoza, and Callejo, Sr., JJ., concur. Austria-Martinez, J., on leave. SECOND DIVISION [A.C. No. 3046. October 26, 1998] REGALADO DAROY, complainant, vs. ATTY. ESTEBAN ABECIA, respondent. DECISION MENDOZA, J.: This refers to the complaint for malpractice filed by Regalado Daroy (now deceased) against Esteban Abecia, a member of the Bar. Complainant Daroy accused respondent Abecia of having forged his signature in a deed of absolute sale by means of which the latter was able to transfer a parcel of land in Opol, Misamis Oriental, first to Jose Gangay and eventually to his (respondents) wife Nena Abecia. The facts of the instant case are as follows: Respondent Abecia was counsel of complainant Daroy in a case for forcible entry before the Municipal Trial Court of Opol, Misamis Oriental.i[1] Judgment was rendered in favor of complainant as plaintiff in the ejectment case, ordering the defendants to pay damages, attorneys fees, and the costs of the suit. To satisfy the judgment, the sheriff sold at public auction on March 25, 1971 a parcel of land belonging to one of the defendants to complainant Daroy as highest bidder for P1,250.00. Upon failure of the defendants to redeem the land, its ownership was consolidated in complainant Daroy. Complainant Daroy claimed that respondent Abecia forged his signature in a deed of absolute sale, dated March 31, 1971, transferring the subject parcel of land to Jose Gangay purportedly for the sum of P1,250.00 and that in a fictitious deed of absolute sale, dated April 17, 1971, it was made to appear that Gangay in turn conveyed the land to Nena Abecia, wife of respondent Abecia, for the sum of P1,350.00.ii[2] Complainant alleged that he entrusted the title to the land (TCT No. T-315) to Abecia as his counsel and allowed him to take possession of the land upon the latters request. By means of the forged deed of sale, Abecia was able to obtain new transfer certificates of title, first in the name of Gangay and then in that of Mrs. Abecia, from the Registry of Deeds of Misamis Oriental.iii[3] Daroy claimed he discovered the fraud only in 1984. Daroy submitted in evidence a report of the National Bureau of Investigation, which had examined the deed of sale in favor of Jose Gangay, showing that Daroys signature in the deed of sale had been written by a different hand. In addition, Daroy presented the affidavit, executed on August 10, 1988, of Anita Gangay, wife of Jose Gangay, in which she retracted an earlier affidavit executed on June 5, 1985. In the first affidavit, she stated that she had bought the land in question from Regalado Daroy and then sold it to her sister Nena Abecia, wife of respondent Esteban. Now, in her present affidavit, it is stated that she did not buy the land from Daroy nor later sell it to Nena Abecia and that she really did not know anything about the controversy between Regalado Daroy and Esteban Abecia, both of whom are her brothers-in-law. (It appears that Mrs. Conchita Daroy, Mrs. Anita Gangay, and Mrs. Nena Abecia are sisters, although Conchita Daroy and Regalado Daroy are not married but lived together in a common-law relationship.)

A complaint for falsification of public document was also filed against respondent Abecia in the Office of the City Prosecutor of Cagayan de Oro which, however, dismissed the same.iv[4] On appeal, then Undersecretary of Justice Silvestre H. Bello III reversed on May 6, 1988 the findings of the City Prosecutor of Cagayan de Oro and consequently ordered the filing of the corresponding information in court.v[5] Accordingly, City Prosecutor Rodolfo R. Waga filed an information for falsification of public document, dated June 30, 1988, with the Regional Trial Court of Misamis Oriental.vi[6] Respondent Abecia was unable to attend the hearings. He asked for their transfer to Cagayan de Oro on the ground that he did not have the means to travel, but his request was apparently denied sub silencio as the Commission continued the hearings in Pasig, Metro Manila. As a result only his counsel was present at the hearings.vii[7] As respondent reiterated his request for the transfer of venue, it was agreed at the hearing of January 30, 1989 that respondents answer, dated August 3, 1987, and the affidavits of his witnesses as well as his own would be considered as their direct testimonies.viii[8] In his answer, respondent Esteban Abecia maintained that on March 31, 1971, Regalado Daroy sold the land in question to Jose Gangay, and the latter in turn sold the land to Nena Abecia on April 17, 1971. He cited the sheriffs return, dated August 6, 1973, in which it was stated that on August 4, 1993 Regalado Daroy and his assignee Nena Abecia were . . . placed in actual possession of the parcel of land subject matter of the Deed of Conveyance and Possession.ix[9] He also referred to the resolution of the Assistant Provincial Fiscal of Misamis Oriental, who dismissed the complaint for grave coercion and malicious mischief filed by Gertrudes De Bajuyo, one of the defendants in the ejectment case, against Regalado Daroy and Nena Abecia for the demolition of her house, precisely on the basis of the right of Mrs. Nena Abecia . . . as assignee to do whatever she wants to do of the things she owns.x[10] On July 15, 1993, Commissioner Plaridel C. Jose rendered a report finding respondent Abecia guilty of malpractice and recommending his disbarment. In his report, Commissioner Jose stated:xi[11] . . . In the course of his law practice, the respondent handled several cases in behalf of the complainant Regalado Daroy, among which is Civil Case No. 3288, wherein a parcel of land located at Opol, Misamis Oriental covered by TCT No. T-15924 (TCT No. T-315) was the subject of litigation. In the course of handling the same, the complainant entrusted to the respondent the pertinent documents necessary in the said case which included his said TCT No. T-15924. In the year 1971, without the knowledge of the complainant, a document entitled Deed of Sale dated March 31, 1971 was executed and notarized by Notary Public Erasmo G. Damasing as Doc. No. 68, Page No. 16, Book No. VIII, Series of 1971, which appears to have been signed by complainant Regalado Daroy, thereby conveying the said property in favor of a certain Jose Gangay, married to Anita Basmayor, by virtue of which TCT No. T-15925 was issued in the name of Jose Gangay. Two weeks thereafter, under date of April 17, 1971, the said Jose Gangay executed a Deed of Sale of the same property in favor of Mrs. Nena Abecia, the wife of the respondent, by virtue of which TCT No. T-15926 was issued in the name of Nena Abecia, married to Atty. Esteban Abecia, the respondent. Sometime in the year 1984, the complainant discovered that his said property was already in the name of Mrs. Nena Abecia and Atty. Esteban Abecia. .... The foregoing evidence sufficiently proved respondents acts complained of in the present case . . . . The significant fact is that the herein respondent was instrumental and responsible for falsifying the signature of his client, complainant Daroy, in the deed of conveyance in favor of Jose Gangay, for which he is at present criminally charged in Criminal Case No. 88-443 before the Regional Trial Court of Misamis Oriental. In an unclear manner, respondent tried to justify his act by alleging that the transfer of his clients property to his wife was proper because he allegedly was not paid for his professional services. Such allegation, even if true, would not exculpate him from liability. A lawyer who executed with his client a deed transferring ownership over a parcel of land involved in a pending litigation as his attorneys fees violates the rule prohibiting the purchase of property in litigation by a lawyer from his client. . . . What is saddening is the fact that he is presently an incumbent labor arbiter of the National Labor Relations Commission with the delicate responsibility of administering justice to the parties before him. . . . The Commission has no alternative but to recommend his disbarment. It is likewise recommended that the National Labor Relations Commission be furnished with these findings for its guidance and appropriate action. The Board of Governors of the Integrated Bar of the Philippines in Resolution No. XI-94-072, dated March 26 1994,xii[12] approved the report but reduced the penalty to indefinite suspension. Respondent Abecia filed a Motion for Reconsideration and/or Appeal. Among other things, he contends that:xiii[13] .... 1. The Commission on Bar Discipline erred when it held that complainant had no knowledge of the execution of the Deed of Absolute Sale on March 31, 1971 before Notary Public Erasmo G. Damasing. Complainant very well knew of the execution of the deed of sale as shown in the Sheriffs Return of Service (Respondents Annex 9) dated August 6, 1973, where he declared that he was accompanied by the complainant and his assignee, Nena Abecia, in implementing the Deed of Conveyance and Possession on August 4, 1973. The Deputy Sheriff even went as far as declaring that the land was already in the name of complainants assignee. Paragraph 2 of the said Sheriffs Return of Service is herein quoted verbatim: 2. The undersigned then proceeded to the parcel of land which is the subject matter of the Deed of Conveyance and Possession together with purchaser Regalado Daroy, his assignee Nena Abecia, Atty. Esteban Abecia, Ex-LTC Registrar Clemente Quiblat, P.M. Salazar, and the Police Sgt. of Opol, Misamis Oriental, Felix Abejuela. Regalado Daroy and his assignee, Nena Abecia, were then formally placed in actual and physical possession of the parcel of land subject matter of the Deed of Conveyance and Possession. Regalado Daroy and his assignee, Nena Abecia, then asserted their ownership of the parcel of land by making use of the improvements found on the land such as the young coconuts and bananas. As a matter of fact the parcel of land is already in the name of Nena Abecia per Transfer Certificate of Title No. T-15926 entered in the Register of Deeds of Cagayan de Oro City on June 18, 1973 at 1:00 P.M. (Underscoring Ours). Likewise, in Office File No. 419-74 of the Office of the Provincial Fiscal (Respondents Annex 10) dated April 18, 1974, wherein complainant Regalado Daroy was the accused, then 4th Asst. Fiscal Alejo G. Rola referred to Nena Abecia as the owner of the subject property by virtue of her being the assignee and/or transferee of the rights of Regalado Daroy. Furthermore, in Criminal Case No. 88-443 before Branch 25 of the RTC of Misamis Oriental, complainant testified in open court that he came to know of the Deed of Absolute Sale (Exhibit A) when the sheriff awarded the land to him (TSN, p. 3. Oct. 4, 1989). The Sheriffs Deed of Conveyance and Possession, however, was executed by the Provincial Sheriffs way back in April 11, 1972. How indeed can complainant now have the temerity to claim that he discovered that the subject property was transferred only in 1984? And how could the Commission on Bar Discipline have overlooked the above evidence and believed the complainant hook, line and sinker?

2. The Commission on Bar Discipline erred in not giving credence and weight to the testimony/sworn statement of the Notary Public (Respondents Annex 4) and the instrumental witnesses to the execution of the questioned Deed of Absolute Sale (Respondents Annexes 5 and 6). Between the Notary Public and the complainant, the Notary Public, who is known for his unquestioned integrity, honesty and probity, is more believable. In fact, Notary Public Erasmo G. Damasing, then the incumbent vice-mayor, went on to become the congressman of Cagayan de Oro City. And between the positive identification of the complainant as the person who executed the instrument by the Notary Public (and the instrumental witnesses) and the assertion of the alleged handwriting expert, the positive identification must prevail especially since the questioned signature of complainant has as many strokes as the sample signatures in the documents submitted for comparison. Respondents motion is well taken. As already stated, the land in question was purchased by complainant at the sheriffs sale held on March 25, 1971. The land was owned by Gertrudes de Bajuyo, wife of one of the defendants in the action for forcible entry. Upon the lapse of one year and the failure of the owner to redeem the land, its ownership was consolidated in the name of complainant Regalado Daroy. In his sheriffs Return of Service issued on August 6, 1973 - long before the complaint in this case was filed on May 25, 1987 Deputy Sheriff Eufrosino P. Castillo stated that when he finally transferred the land to the buyer, he placed in possession of the land not only the buyer, Regalado Daroy, but also the latters assignee, Nena Abecia, in whose name the title to the land had in fact been transferred. The Deputy Sheriff said in his report:xiv[14] 2. The undersigned then proceeded to the parcel of land which is the subject matter of the Deed of Conveyance and Possession together with purchaser Regalado Daroy, his assignee Nena Abecia, Atty. Esteban Abecia, Ex-LTC Registrar Clemente Quiblat, P.M. Salazar, and the Police Sgt. of Opol, Misamis Oriental, Felix Abejuela. Regalado Daroy and his assignee, Nena Abecia, were then formally place in actual and physical possession of the parcel of land subject of the Deed of Conveyance and Possession. Regalado Daroy and his assignee, Nena Abecia, then asserted their ownership of the parcel of land by making use of the improvements found in the land such as the young coconuts and bananas. As a matter of fact the parcel of land is already in the name of Nena Abecia per Transfer Certificate of Title No. T-15926 entered in the Register of Deeds at Cagayan de Oro City on June 18, 1973 at 1:00 P.M. 3. At about 2:00 P.M. of the same day, August 4, 1973, the undersigned accompanied with police Sgt. Felex Abejuela of Opol Police Department and P.M. Salazar went to the house of Restituto Bajuyo at Mulugan, Opol, Mis. Or. The undersigned explained to Restituto Bajuyo that Regalado Daroy and his assignee Nena Abecia were already placed in actual and physical possession of the parcel of land subject matter of the Deed of Conveyance and Possession and admonished him not to molest Regalado Daroy and his assignee or anybody appointed by them to take care of the aforecited parcel of land. He was warned that any violation will be contrary to law and will subject him to court punishment. It would appear, therefore, that as early as August 4, 1973 Daroy already knew that title to the land had already been transferred in the name of respondents wife. Complainants claim that he came to know of such transfer only in 1984 is thus belied. Nor does it appear that the transfer was made without his knowledge and consent. To the contrary, the sheriffs return suggests that Daroy had agreed to such transfer. Hence, the references to Mrs. Abecia as Daroys assignee. It appears further that as a consequence of the demolition of the former owners house, complainant and Mrs. Abecia were charged, together with Deputy Sheriff Eufrosino P. Castillo, with grave coercion/malicious mischief in the Office of the Provincial Fiscal of Misamis Oriental. In his resolution, dated April 18, 1974, dismissing the charges, Assistant Provincial Fiscal Alejo G. Rola stated, among other things:xv[15] The undersigned despite the declaration of complainant Gertrudes de Bajuyo corroborated by the testimony of Josefina Jaraula that she was intimidated by a PC soldier, is of the opinion that such evidence is insufficient to warrant a belief that such an act was in fact done by Sgt. Abalos, because the other witnesses for the complainant namely, Lito Ejina and Jose Jaime never mentioned that there was such intimidation employed by Sgt. Abalos at the time despite the fact that these two (2) aforenamed witnesses, were present at the time and on the date Josefina Jaraula was around. The undersigned is however of the considered opinion that the house occupied by complainant Gertrudes de Bajuyo was demolished by respondents, but such an act is a right of Mrs. Nena Abecia in her capacity as an assignee to do whatever she wants to do of the thing she owns. Furthermore, the allegation of complainant regarding the intimidation made against her by the PC Sgt. corroborated by the other witness Josefina Jaraula is insufficient to offset the presumption of regularity of performance of an official duty by a public officer, apart from the fact that the testimony of Gertrudes Bajuyo and Josefina Jaraula are of dubious credibility. Like the sheriffs return made in 1973, this resolution of the Assistant Provincial Fiscal rendered the following year (1974) belies complainants allegation that the land in question was transferred to Mrs. Abecia without his knowledge and consent and that he came to know about it only in 1984. The aforementioned documents were attached to the answer of respondent Esteban Abecia. However, despite the parties agreement made at the hearing held on January 30, 1989, that the said documents would be considered the evidence of respondent Abecia, they were not even mentioned in the report of the Commissioner who investigated the case. Indeed, what appears to have happened in this case is that the parties thought that because the land had been acquired by complainant at a public sale held in order to satisfy a judgment in his favor in a case in which respondent was complainants counsel, the latter could not acquire the land. The parties apparently had in mind Art. 1491 of the Civil Code which provides, in pertinent parts, as follows: ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: .... (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.xvi[16] Of course, the parties were mistaken in thinking that respondent could not validly acquire the land. In Guevara v. Calalang,xvii[17] on facts similar to those in this case, we held that the prohibition in Art. 1491 does not apply to the sale of a parcel of land, acquired by a client to satisfy a judgment in his favor, to his attorney as long as the property was not the subject of the litigation. For indeed, while judges, prosecuting attorneys, and others connected with the administration of justice are prohibited from acquiring property or rights in litigation or levied upon in execution, the prohibition with respect to attorneys in the case extends only to property and rights which may be the object of any litigation in which they may take part by virtue of their profession. The point is, the parties in this case thought the transfer of the land to respondent Abecia was prohibited and so they contrived a way whereby the land would be sold to Jose Gangay, whose wife Anita is the sister of Mrs. Nena Abecia, and then Gangay would sell the land to Mrs. Abecia. As Jose Gangay stated in his affidavit of March 6, 1985:xviii[18] 4. T Ano ba ang iyong masasabi tungkol sa nangyari?

S Sinabihan ako ni Atty. Esteban Abecia, sapagkat siya raw ang abogado sa lupang pinagkaguluhan, hindi maari na siya ang nakalagay na nagbili ng upa sa kanyang cliente na si Regalado Daroy, dahil laban raw sa kanilang batas sa mga abogado, kaya sinabihan ako ni Atty. Esteban Abecia na maari bang gamitin niya ang pangalan ko na ako raw ang nakabili sa lupa ni Regalado Daroy at paglipas raw ng isang taon, ay kanya ng ilipat sa pangalan sa documento at tituto hanggang sa pangalan ng kanyang asawa na si Nena Abecia. 5.T Sumagot ka ba sa hiling ni Atty. Esteban Abecia?

Opo, pumayag ako dahil silang dalawa, si Regalado Daroy at si Atty. Esteban Abecia ay aking mga bilas, sapagkat ang isat-isa naming mga asawa ay magkakapatid. T Ano man ang nangyari pagkatapos noon?

6.

S Isang araw, ay pumunta si Atty. Esteban Abecia sa amin at sinama niya ako doon kay Atty. Wilfredo Linaac upang ipa tunayan ang aking pangalan doon sa documento sa pagbili, at dahil doon, iyong documento sa pabili ay na notariohan ni Atty. Wilfredo Linaac. 7. T Binayaran ba kayo ni Nena Abecia at ni Atty. Esteban Abecia sa pera na naghaga ng isang libo tatlong daan at limang[pung] pesos (P1,350.00) na iyong ang halaga sa lupa. S Wala.

8. T Ipakita ko sa iyo itong documento ng pagbili at may takda ng petsa na Abril 17, 1971 notariadad ni Atty. Wilfredo Linaac Signes sa Doc. No. 333, Pahina 48, Aklat No. VI; taon series sa 1971; ano mang ang kaugnayan nito sa documento ng pagbili? S Ang lahat na mga papiles sa sinasabi ninyo ay wala akong nalalaman, ang nalaman ko lang noon akoy dinala ni Atty. Esteban Abecia sa oficina ni Atty. Wilfredo Linaac tinanong ako kong aking pirma iyong sa sa documento. The sale of the land to Gangay may be fictitious and, therefore, void, but that complainant Regalado Daroy intended to convey the land ultimately to respondent Esteban Abecia appears to be the case. It is true that the NBI found the signature of Regalado Daroy on the deed of sale made in favor of Jose Gangay to have been forged. But Erasmo Damasing, the notary public who notarized the deed, affirmed that Daroy and his wife appeared before him on March 31, 1971 and, in his presence, signed the document in question.xix[19] Daisy Felicilda likewise stated in an affidavit executed on February 17, 1986 that she was a witness to the execution of the deed of sale and that she saw Daroy signing the deed of sale.xx[20] Daroy never denied these claims of the notary public and a witness to the execution of the deed of sale. Nor was the NBI writing expert ever called to testify on his finding that the signature of Daroy in the deed of sale appeared to have been signed by a different hand. The finding that the deed of sale was forged was simply implied from the report of the NBI writing expert. As complainant, Daroy had the burden of proving that contrary to the recital in the jurat he and his wife never appeared before the notary public and acknowledged the deed to be their voluntary act. WHEREFORE, the resolution dated March 26, 1994, of the IBP Board of Governors is RECONSIDERED and the complaint against respondent Esteban Abecia is DISMISSED. SO ORDERED. Melo, (Acting Chairman), Puno, and Martinez, JJ., concur.