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G.R. No.

194785

VIRGILIO S. DAVID, PETITIONER, VS. MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE, INC., RESPONDENT. DECISION MENDOZA, J.: Before this Court is a petition for review under Rule 45 of the Rules of Court assailing the July 8, 2010 Decision [1] of the Court of Appeals (CA), in CA-G.R. CR No. 91839, which affirmed the July 17, 2008 Decision[2] of the Regional Trial Court, Branch VIII, Manila (RTC)in Civil Case No. 9469402, an action for specific performance and damages. The Facts: Petitioner Virgilio S. David (David) was the owner or proprietor of VSD Electric Sales, a company engaged in the business of supplying electrical hardware including transformers for rural electric cooperatives like respondent Misamis Occidental II Electric Cooperative, Inc. (MOELCI), with principal office located in Ozamis City. To solve its problem of power shortage affecting some areas within its coverage, MOELCI expressed its intention to purchase a 10 MVA power transformer from David. For this reason, its General Manager, Engr. Reynaldo Rada (Engr. Rada), went to meet David in the latters office in Quezon City. David agreed to supply the power transformer provided that MOELCI would secure a board resolution because the item would still have to be imported. On June 8, 1992, Engr. Rada and Director Jose Jimenez (Jimenez), who was in-charge of procurement, returned to Manila and presented to David the requested board resolution which authorized the purchase of one 10 MVA power transformer. In turn, David presented his proposal for the acquisition of said transformer. This proposal was the same proposal that he would usually give to his clients. After the reading of the proposal and the discussion of terms, David instructed his then secretary and bookkeeper, Ellen M. Wong, to type the names of Engr. Rada and Jimenez at the end of the proposal. Both signed the document under the word conforme. The board resolution was thereafter attached to the proposal. As stated in the proposal, the subject transformer, together with the basic accessories, was valued at P5,200,000.00. It was also stipulated therein that 50% of the purchase price should be paid as downpayment and the remaining balance to be paid upon delivery. Freight handling, insurance, customs duties, and incidental expenses were for the account of the buyer. The Board Resolution, on the other hand, stated that the purchase of the said transformer was to be financed through a loan from the National Electrification Administration (NEA). As there was no immediate action on the loan application, Engr. Rada returned to Manila in early December 1992 and requested David to deliver the transformer to them even without the required downpayment. David granted the request provided that MOELCI would pay interest at 24% per annum. Engr. Rada acquiesced to the condition. On December 17, 1992, the goods were shipped to Ozamiz City via William Lines. In the Bill of Lading, a sales invoice was included which stated the agreed interest rate of 24% per annum. When nothing was heard from MOELCI for sometime after the shipment, Emanuel Medina (Medina), Davids Marketing Manager, went to Ozamiz City to check on the shipment. Medina was able to confer with Engr. Rada who told him that the loan was not yet released and asked if it was possible to withdraw the shipped items. Medina agreed. When no payment was made after several months, Medina was constrained to send a demand letter, dated September 15, 1993, which MOELCI duly received. Engr. Rada replied in writing that the goods were still in the warehouse of William Lines again reiterating that the loan had not been approved by NEA. This prompted Medina to head back to Ozamiz City where he found out that the goods had already been released to MOELCI evidenced by

the shipping companys copy of the Bill of Lading which was stamped Released, and with the notation that the arrastre charges in the amount of P5,095.60 had been paid. This was supported by a receipt of payment with the corresponding cargo delivery receipt issued by the Integrated Port Services of Ozamiz, Inc. Subsequently, demand letters were sent to MOELCI demanding the payment of the whole amount plus the balance of previous purchases of other electrical hardware. Aside from the formal demand letters, David added that several statements of accounts were regularly sent through the mails by the company and these were never disputed by MOELCI. On February 17, 1994, David filed a complaint for specific performance with damages with the RTC. In response, MOECLI moved for its dismissal on the ground that there was lack of cause of action as there was no contract of sale, to begin with, or in the alternative, the said contract was unenforceable under the Statute of Frauds. MOELCI argued that the quotation letter could not be considered a binding contract because there was nothing in the said document from which consent, on its part, to the terms and conditions proposed by David could be inferred. David knew that MOELCIs assent could only be obtained upon the issuance of a purchase order in fa vor of the bidder chosen by the Canvass and Awards Committee. Eventually, pursuant to Rule 16, Section 5 of the Rules of Court, MOELCI filed its Motion for Preliminary Hearing of Affirmative Defenses and Deferment of the Pre-Trial Conference which was denied by the RTC to abbreviate proceedings and for the parties to proceed to trial and avoid piecemeal resolution of issues. The order denying its motion was raised with the CA, and then with this Court. Both courts sustained the RTC ruling. Trial ensued. By reason of MOELCIs continued failure to appear despite notice, David was allowed to present his testimonial and documentary evidence ex parte, pursuant to Rule 18, Section 5 of the Rules. A Very Urgent Motion to Allow Defendant to Present Evidence was filed by MOELCI, but was denied. In its July 17, 2008 Decision, the RTC dismissed the complaint. It found that although a contract of sale was perfected, it was not consummated because David failed to prove that there was indeed a delivery of the subject item and that MOELCI received it.[3] Aggrieved, David appealed his case to the CA. On July 8, 2010, the CA affirmed the ruling of the RTC. In the assailed decision, the CA reasoned out that although David was correct in saying that MOELCI was deemed to have admitted the genuineness and due execution of the quotation letter (Exhibit A), wherein the signatures of the Chairman and the General Manager of MOELCI appeared, he failed to offer any textual support to his stand that it was a contract of sale instead of a mere price quotation agreed to by MOELCI representatives. On this score, the RTC erred in stating that a contract of sale was perfected between the parties despite the irregularities that tainted their transaction. Further, the fact that MOELCIs representatives agreed to the terms embodied in the agreement would not preclude the finding that said contract was at best a mere contract to sell. A motion for reconsideration was filed by David but it was denied.[4] Hence, this petition. Before this Court, David presents the following issues for consideration: I. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE. II. WHETHER OR NOT THERE WAS A DELIVERY THAT CONSUMMATED THE CONTRACT. The Court finds merit in the petition. I.

On the issue as to whether or not there was a perfected contract of sale, this Court is required to delve into the evidence of the case. In a petition for review on certiorari under Rule 45 of the Rules of Court, the issues to be threshed out are generally questions of law only, and not of fact. This was reiterated in the case of Buenaventura v. Pascual,[5]where it was written: Time and again, this Court has stressed that its jurisdiction in a petition for review oncertiorari under Rule 45 of the Rules of Court is limited to reviewing only errors of law, not of fact, unless the findings of fact complained of are devoid of support by the evidence on record, or the assailed judgment is based on the misapprehension of facts. The trial court, having heard the witnesses and observed their demeanor and manner of testifying, is in a better position to decide the question of their credibility. Hence, the findings of the trial court must be accorded the highest respect, even finality, by this Court. That being said, the Court is not unmindful, however, of the recognized exceptions well-entrenched in jurisprudence. It has always been stressed that when supported by substantial evidence, the findings of fact of the CA are conclusive and binding on the parties and are not reviewable by this Court, unless the case falls under any of the following recognized exceptions: (1) When the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) When the inference made is manifestly mistaken, absurd or impossible; (3) Where there is a grave abuse of discretion: (4) When the judgment is based on a misapprehension of facts; (5) When the findings of fact are conflicting; (6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) When the findings are contrary to those of the trial court; (8) When the findings of fact are without citation of specific evidence on which the conclusions are based; (9) When the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondents; and (10) When the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.[6] [Emphasis supplied] In this case, the CA and the RTC reached different conclusions on the question of whether or not there was a perfected contract of sale. The RTC ruled that a contract of sale was perfected although the same was not consummated because David failed to show proof of delivery.[7] The CA was of the opposite view. The CA wrote: Be that as it may, it must be emphasized that the appellant failed to offer any textual support to his insistence that Exhibit A is a contract of sale instead of a mere price quotation conformed to by MOELCI representatives. To that extent, the trial court erred in laying down the premise that indeed a contract of sale is perfected between the parties despite the irregularities attending the transaction. x x x That representatives of MOELCI conformed to the terms embodied in the agreement does not preclude the finding that such contract is, at best, a mere contract to sell with stipulated costs quoted should it ultimately ripen into one of sale. The conditions upon which that development may occur may even be obvious from statements in the agreement itself, that go beyond just captions. Thus, the appellant opens with, WE are pleased to submit our quotation xxx. The purported contract also ends with. Thank you for giving us the opportunity to quote on your requirements and we hope to receive your order soon apparently referring to a purchase order which MOELCI contends to be a formal requirement for the entire transaction. [8] In other words, the CA was of the position that Exhibit A was at best a contract to sell. A perusal of the records persuades the Court to hold otherwise. The elements of a contract of sale are, to wit: 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.[9] It is the absence of the first element which distinguishes a contract of sale from that of a contract to sell.

In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, such as, in most cases, the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.[10] In a contract of sale, on the other hand, the title to the property passes to the vendee upon the delivery of the thing sold. Unlike in a contract to sell, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. The vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded.[11] An examination of the alleged contract to sell, Exhibit A, despite its unconventional form, would show that said document, with all the stipulations therein and with the attendant circumstances surrounding it, was actually a Contract of Sale. The rule is that it is not the title of the contract, but its express terms or stipulations that determine the kind of contract entered into by the parties.[12] First, there was meeting of minds as to the transfer of ownership of the subject matter. The letter (Exhibit A), though appearing to be a mere price quotation/proposal, was not what it seemed. It contained terms and conditions, so that, by the fact that Jimenez, Chairman of the Committee on Management, and Engr. Rada, General Manager of MOELCI, had signed their names under the word CONFORME, they, in effect, agreed with the terms and conditions with respect to the purchase of the subject 1 0 MVA Power Transformer. As correctly argued by David, if their purpose was merely to acknowledge the receipt of the proposal, they would not have signed their name under the word CONFORME. Besides, the uncontroverted attending circumstances bolster the fact that there was consent or meeting of minds in the transfer of ownership. To begin with, a board resolution was issued authorizing the purchase of the subject power transformer. Next, armed with the said resolution, top officials of MOELCI visited Davi ds office in Quezon City three times to discuss the terms of the purchase. Then, when the loan that MOELCI was relying upon to finance the purchase was not forthcoming, MOELCI, through Engr. Rada, convinced David to do away with the 50% downpayment and deliver the unit so that it could already address its acute power shortage predicament, to which David acceded when it made the delivery, through the carrier William Lines, as evidenced by a bill of lading. Second, the document specified a determinate subject matter which was one (1) Unit of 10 MVA Power Transformer with corresponding KV Line Accessories. And third, the document stated categorically the price certain in money which was P5,200,000.00 for one (1) unit of 10 MVA Power Transformer and P2,169,500.00 for the KV Line Accessories. In sum, since there was a meeting of the minds, there was consent on the part of David to transfer ownership of the power transformer to MOELCI in exchange for the price, thereby complying with the first element. Thus, the said document cannot just be considered a contract to sell but rather a perfected contract of sale. II. Now, the next question is, was there a delivery? MOELCI, in denying that the power transformer was delivered to it, argued that the Bill of Lading which David was relying upon was not conclusive. It argued that although the bill of lading was stamped Released, there was nothing in it that indicated that said power transformer was indeed released to it or delivered to its possession. For this reason, it is its position that it is not liable to pay the purchase price of the 10 MVA power transformer. This Court is unable to agree with the CA that there was no delivery of the items. On the contrary, there was delivery and release. To begin with, among the terms and conditions of the proposal to which MOELCI agreed stated:

2. Delivery Ninety (90) working days upon receipt of your purchase order and downpayment. C&F Manila, freight, handling, insurance, custom duties and incidental expenses shall be for the account of MOELCI II.[13] (Emphasis supplied) On this score, it is clear that MOELCI agreed that the power transformer would be delivered and that the freight, handling, insurance, custom duties, and incidental expenses shall be shouldered by it. On the basis of this express agreement, Article 1523 of the Civil Code becomes applicable. It provides: Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases provided for in Article 1503, first, second and third paragraphs, or unless a contrary intent appears. (Emphasis supplied) Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of Lading, was deemed to be a delivery to MOELCI. David was authorized to send the power transformer to the buyer pursuant to their agreement. When David sent the item through the carrier, it amounted to a delivery to MOELCI. Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco,[14] it was pointed out that a specification in a contract relative to the payment of freight can be taken to indicate the intention of the parties with regard to the place of delivery. So that, if the buyer is to pay the freight, as in this case, it is reasonable to suppose that the subject of the sale is transferred to the buyer at the point of shipment. In other words, the title to the goods transfers to the buyer upon shipment or delivery to the carrier. Of course, Article 1523 provides a mere presumption and in order to overcome said presumption, MOELCI should have presented evidence to the contrary. The burden of proof was shifted to MOELCI, who had to show that the rule under Article 1523 was not applicable. In this regard, however, MOELCI failed. There being delivery and release, said fact constitutes partial performance which takes the case out of the protection of the Statute of Frauds. It is elementary that 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.[15] That being said, the Court now comes to Davids prayer that MOELCI be made to pay the total sum of P5,472,722.27 plus the stipulated interest at 24% per annum from the filing of the complaint. Although the Court agrees that MOELCI should pay interest, the stipulated rate is, however, unconscionable and should be equitably reduced. While there is no question that parties to a loan agreement have wide latitude to stipulate on any interest rate in view of the Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective January 1, 1983, it is also worth stressing that interest rates whenever unconscionable may still be reduced to a reasonable and fair level. There is nothing in the said circular which grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.[16] Accordingly, the excessive interest of 24% per annum stipulated in the sales invoice should be reduced to 12% per annum. Indeed, David was compelled to file an action against MOELCI but this reason alone will not warrant an award of attorneys fees. It is settled that the award of attorneys fees is the exception rather than the rule. Counsels fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. Attorneys fees, as part of damages, are not necessarily equated to the amount paid by a l itigant to a lawyer. In the ordinary sense, attorneys fees represent the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter; while in its extraordinary concept, they may be awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party. Attorneys fees as part of damages are awarded only in the instances specified in Article 2208 of the Civil Code17 which demands factual, legal, and equitable justification. Its basis cannot be left to speculation or conjecture. In this regard, none was proven.

Moreover, in the absence of stipulation, a winning party may be awarded attorneys fees only in case plaintiffs action or defendants stand is so untenable as to amount to gross and evident bad faith.[18] MOELCIs case cannot be similarly classified. Also, Davids claim for the balance of P73,059.76 plus the stipulated interest is denied for being unsubstantiated. WHEREFORE, the petition is GRANTED. The July 8, 2010 Decision of the Court of Appeals Is REVERSED and SET ASIDE. Respondent Misamis Occidental II Electric Cooperative, Inc. is ordered to pay petitioner Virgilio S. David the total sum of P5,472,722.27 with interest at the rate of 12% per annum reckoned from the filing of the complaint until fully paid. SO ORDERED. Velasco, Jr., (Chairperson), Peralta, Reyes,* and Perlas-Bernabe, JJ., concur.

SECOND DIVISION ALEXANDER ALEX MACASAET, Petitioner, G.R. No. 172446 Present: QUISUMBING, J., Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

- versus -

R. TRANSPORT CORPORATION, Respondent. Promulgated: October 10, 2007 x-----------------------------------------------------------------------------------x

DECISION TINGA, J.:

This petition seeks the reversal of the Decision[1] of the Court of Appeals dated 5 October 2005 in CA G.R. CV No. 70585, as well as its Resolution[2] dated 28 March 2006 denying petitioners motion for reconsideration. First, the factual background. On 3 January 1996, a Complaint for Recovery of Possession and Damages[3] was filed by herein respondent R. Transport Corporation against herein petitioner Alexander Macasaet before the Regional Trial Court (RTC) of Makati, Branch 147. The complaint alleged that R. Transport was a holder of Certificates of Public Convenience (CPC) to operate a public utility bus service within Metro Manila and the provinces whereas New Mindoro Transport Classic (NMTC), represented by petitioner, operates a transportation company in Oriental Mindoro. On 11 October 1995, and Macasaet entered into a Deed of Sale with Assumption of Mortgage (deed of sale) [4] over four (4) passenger buses[5] whereby Macasaet undertook to pay the consideration of twelve million pesos (P12,000,000.00) and assume the existing mortgage obligation on the said buses in favor of Phil. Hino Sales Corporation. Accordingly, R. Transport delivered to Macasaet two (2) passenger buses. Despite repeated demands, however, Macasaet failed to pay the stipulated purchase price. This prompted R. Transport to file a complaint seeking the issuance of a writ of replevin, praying for judgment declaring R.

Transport as the lawful owner and possessor of the passenger buses and ordering Macasaet to remit the amount of P660,000.00 representing the income generated by the two buses from 16 October 1995 to 2 January 1996.[6] Prior to the execution of the contract, Special Trip Contract was entered into by the parties on 8 October 1995.[7] This contract stipulated that R. Transport would lease the four buses subject of the deed of sale to Macasaet for the sum of P10,000.00 a day per bus or a total of P280,000.00 for the duration of one week, from 1522 October 1995.[8] Respondents finance officer testified that the purpose of the contract was to support the delivery of the first two buses pending formal execution of the deed of sale.[9] On 8 January 1996, on R. Transports motion, the trial court issued a writ of seizure [10] ordering the sheriff to take possession of the two buses in NMTC subject to R. Transports filing of a bond in the amount of P12,000,000.00. The sheriff recovered the two buses and delivered them to R. Transport on 16 January 1996.[11] For his defense, petitioner alleged that he had paid respondent the full consideration of P12,000,000.00 and had agreed to assume the mortgage obligation in favor of Phil. Hino Sales Corporation. He claimed ownership over the four passenger buses, including the two buses already delivered to him. He further contended that he had already remitted P120,000.00 to respondent as partial payment of the mortgage obligation. Petitioner admitted that he had been earning at least P7,000.00 per day on each of the buses.[12] For his counterclaim, he prayed for the return of the bus units seized and the immediate delivery of the other two units, as well as for payment of damages.[13] In its Decision[14] dated 15 February 2001, the RTC upheld the right of respondent to possess the two buses but dismissed its claim for recovery of unpaid rentals for the use of the two buses. The dispositive portion of the decision reads as follows: WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the defendant and against plaintiff, dismissing the Complaint as regards the claim for recovery of the unpaid rentals of the two (2) passenger buses which were used by the defendant from October 16, 1995 until January 16, 1996 for lack of evidence. SO ORDERED. [15] The trial court observed that there was no basis for the payment of unpaid rentals because respondent failed to formally offer in evidence the records of operational
[16]

expenses

incurred

by

the

buses

delivered to petitioner and marked as Exhibits W, W -1 to W -3.

The trial court did not bother to give a

definitive ruling on the issues related to the counterclaim for specific performance of the deed of sale on the ground that the issuance of a writ of replevin effectively disposed of the cause of action in the principal complaint, which is recovery of possession. The trial court was likewise silent with respect to the status of the deed of sale.[17] Dissatisfied with the RTCs refusal to award rentals, respondent filed a petition for review before the Court of Appeals asserting its right as an owner to the fruits of the two passenger buses, over the fruits thereof, i.e., the income derived from their use. The Court of Appeals, in its Decision dated 5 October 2005, sustained the trial courts finding that ownership over the passenger buses remained with respondent.

Unlike the RTC, the Court of Appeals ruled that the deed of sale was not perfected, thus, respondent retained ownership over the buses. It further ordered petitioner to remit the income from the passenger buses in the amount of P7,000.00 per day for the period between 16 October 1995 and 16 January 1996, deducting therefrom the amount of P120,000.00 which had already been remitted to respondent.[18] Macasaet filed a motion for reconsideration which the appellate court denied. Hence, the instant petition raising this sole issue: Is Section 34 of Rule 132 of the Rules of Court which states that the court shall consider no evidence which has not been formally offered applicable in the case at bar?[19] However, other interrelated issues have to be looked into to resolve the controversy. Petitioner argues in the main that there was no legal and factual basis for the Court of Appeals to order the remittance of income. He harps on the fact that there was no lease agreement alleged in respondents complaint to support its claim for unpaid rentals. He reiterates the trial courts finding that the exhibits tending to prove the rentals were not formally offered in evidence. Moreover, no other competent evidence was presented to substantiate its claim for unpaid rentals.[20] Respondent, in its comment, merely parrots the ruling of the Court of Appeals, petitioner notes.[21] Crucial to the resolution of the case is the continuing efficacy of the deed of sale, which in turn is the basis in determining the ownership of the buses. Respondent, on the other hand, claims that the contract was never consummated for lack of consideration and because of the subsequent disapproval of the security finance needed for petitioner to assume the mortgage obligation. On the other hand, petitioner asserts ownership over the subject buses by virtue of payment of the stipulated consideration for the sale. The appellate court declared that the non-perfection of the deed of sale precluded petitioner from possessing and enjoying the buses, including the income thereof. Explained the appellate court:

True, the plaintiff-appellant and the defendant-appellee have no agreement as to the payment of rentals for the subject passenger buses, since what was actually agreed upon by the parties herein, was not the lease, but the sale of the subject buses to the defendant-appellee in the amount ofP12,000,000.00, with assumption of mortgage, as evidenced by the Deed of Sale with Assumption of Mortgage. It was pursuant to this Deed of Sale with Assumption of Mortgage that the subject two passenger buses were delivered by the plaintiff-appellant to the defendant-appellee in October,[sic] 1995. The said contract was the basis of the defendant-appellees possession and enjoyment of the subject property, which includes entitlement to the income thereof. However, the aforementioned contract of sale has never been perfected. Firstly, the court a quo found that no payment has been made by the defendant-appellee, for otherwise, it could not have upheld the plaintiff-appellants possession over the subject buses.[22]

The Court of Appeals erred in stating that the deed of sale was not perfected, for it was. There was no consummation, though. However, the rescission or resolution of the deed of sale is in order. The essential requisites of a contract under Article 1318 of the New Civil Code are: (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. Thus, contracts, other than real contracts are perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Once perfected, they bind other contracting parties and the obligations arising therefrom have the force of law between the parties and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.[23] Being a consensual contract, sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.[24] A perfected contract of sale imposes reciprocal obligations on the parties whereby the vendor obligates himself to transfer the ownership of and to deliver a determinate thing to the buyer who, in turn, is obligated to pay a price certain in money or its equivalent.[25] Failure of either party to comply with his obligation entitles the other to rescission as the power to rescind is implied in reciprocal obligations.[26] Applying these legal precepts to the case at bar, we hold that respondent has the right to rescind or cancel the deed of sale in view of petitioners failure to pay the stipulated consideration. Montecillo v. Reynes,[27] cited by the appellate court, is particularly instructive in distinguishing the legal effects of failure to pay consideration and lack of consideration: x x x Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing contract, while the latter prevents the existence of a valid contract. Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initiofor lack of consideration. x x x [28]

The Court of Appeals however failed to consider that in the instant case, there was failure on the part of petitioner to pay the purchase price and to complete the assumption of mortgage. The latter argued before the lower court that payment was in fact made and counterclaimed for the immediate delivery of the two other passenger buses and payment of damages.[29] However, this claim remained a claim and was not substantiated. While the Court of Appeals relied on the text of the deed of sale which adverts to payment of the purchase price,
[30]

the non-payment of the purchase price was no longer an issue at the appellate level. Respondent

presented strong evidence that petitioner did not pay the purchase price, and that paved the way for the issuance of a writ of replevin. Petitioner did not challenge the finding of the trial court before the Court of Appeals and this

Court. He did not also controvert the non-consummation of the assumption of mortgage at any level of the proceedings. Non-payment of the purchase price of property constitutes a very good reason to rescind a sale for it violates the very essence of the contract of sale.[31] While it is preferable that respondent instead should have filed an action to resolve or cancel the deed as the right to do so must be invoked judicially,[32] this shortcoming was cured when the complaint itself made out a case for rescission or resolution for failure of petitioner to comply with his obligation to pay the full purchase price. The complaint relevantly alleged: xxxx 3. (a) That on October 11, 1995, the plaintiff and the defendant entered into and executed a Deed of Sale with Assumption of Mortgage with plaintiff as Vendor and the defendant as Vendee covering four (4) units of passenger airconditioned buses. x x x 3. (b) That the plaintiff and the defendant in said Deed of Sale with Assumption of Mortgage x x x hereof agreed that the price of the sale of the above-described motor vehicles is in the sum of PESOS TWELVE MILLION (P12,000,000.00), Philippine Currency, with the stipulation that the defendant as Vendee will assume the existing mortgage of the above-described motor vehicle with PHIL. HINO SALES CORPORATION and consequently, will assume the balance of the remaining obligation due to PHIL. HINO SALES CORPORATION as agreed upon in the said Deed of Sale with Assumption of Mortgage; 3. (c) That pursuant to said Deed of Sale with Assumption of Mortgage, the plaintiff delivered to the defendant at Calapan, Oriental Mindoro, the first two (2) motor vehicles x x x withholding the other two (2) passenger buses pending the payment by the defendant to the plaintiff of the purchase price of the sale of PESOS TWELVE MILLION (P12,000,000.00), Philippine currency and assumption of mortgage by said defendant obligating himself to pay the remaining balance of the obligation due to the PHIL. HINO SALES CORPORATION constituted over the above-described motor vehicles; 3. (d) That inspite of repeated demands made by the plaintiff to the defendant to pay the purchase price of the sale x x x the defendant, in evident bad faith, refused and failed and continue to refuse and fail to pay the plaintiff the purchase price of the said vehicles; xxxx 4. b.) That the plaintiff-applicant is the owner of the two (2) buses claimed as above-described and is entitled to the rightful possession thereof x x x 4. c.) That the above-described two (2) units of passenger buses are wrongfully detained by the defendant pretending that he is the owner under the Deed of Sale with Assumption of Mortgage which pretension is false because the defendant has not paid the plaintiff any single centavo out of the PESOS TWELVE MILLION (P12,000,000.00), Philippine currency, the purchase price of the sale of the four (4) passenger buses,[33] xxxx

As previously noted, petitioner did not pay the full purchase price as stipulated in the contract whereas respondent complied with its obligation when it delivered the two buses to petitioner. A necessary consequence of rescission is restitution with payment of damages. Article 1191 provides: x x x x

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. x x xx Also, corollary to the rescission of the contract of sale is the recovery of possession of the object thereof. Thus, petitioners possession over the passenger buses became unlawful when upon demand for return, he wrongfully retained possession over the same.

In ordering petitioner to remit to respondent the income derived from the passenger buses, the appellate court ratiocinated thus: Although the parties herein did not agree on the rentals for the use of the property, the fact that the defendant-appellee was able to use the two passenger buses for the months of October, [sic] 1995 to January, [sic] 1996, and has derived income therefrom, was acknowledged by the court a quo and the defendant-appellee himself. Under such circumstances, it is but fair that the defendant-appellee be made to pay reasonable rentals for the use of the two passenger buses from the time that they were delivered, until they were seized from him. It would be against the equitable proscription against unjust enrichment for the defendant-appellee to keep the income from a property over which he has no legal right. It would be unfair to excuse the defendant-appellee from the payment of reasonable rentals because he enjoyed and made use of the subject passenger buses. It is a basic rule in law that no one shall unjustly enrich himself at the expense of another. Niguno non deue enriquecerse tortizamente condao de otro. Thus, a modification of the decision of the court a quo is in order. In view of the plaintiff-appellants failure to substantiate its claim for the unpaid rentals amounting to P660,000.00, we could not grant the same. However, we deem it just for the defendant-appellee to remit the plaintiff-appellant the income he derived from the subject passenger buses in the amount of P7,000.00 per day within the period that they were in the defendant-appellants possession, that is from October 16, 1997 to January 16, 1995, minus the amount of P120,000.00 which the defendant-appellee already remitted to the plaintiff-appellant.[34]

It can be inferred from this decision that the appellate court did not consider petitioner liable for the unpaid rentals when it noted that respondent had failed to support its claim over it. Instead, it concluded that he was liable to respondent for damages, in the form of reasonable rentals for the use of the passenger buses. However, with respect to the amount of damages, we differ from the award of the appellate court. Settled is the rule that actual damages must be proved with reasonable degree of certainty. A party is entitled only up to such compensation for the pecuniary loss that he has duly proven. It cannot be presumed. Absent proof of the amount of actual damages sustained, the court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof.[35]

The appellate court arrived at the amount of P7,000.00 per day as income for the use of the two passenger buses due to respondent on the basis of the allegations in the answer of petitioner.[36] The award cannot be sustained because no evidence was produced to support this averment made by petitioner. Petitioner did not present any record or journal that would have evidenced the earnings of the passenger buses for said period. Bare allegations would not suffice. Since the amount of damages awarded by the Court of Appeals was founded merely on speculations, we turn to the provisions of the Special Trip Contract. In said contract, the rental is fixed at P10,000.00 per day for each bus. This duly executed contract was presented, marked and formally offered in evidence. The fact that Macasaet voluntarily signed the contract evinced his acquiescence to its terms, particularly the amount of rentals. Therefore, the amount of P1,460,000.00 is deemed reasonable compensation for the use of the passenger buses, computed as follows: Amt of rentals per bus: x No. of buses: Amt of rentals per day: x No. of days (16 Oct-2 Jan) P10,000.00 2 __________ P 20,000.00 79 ____________ P1,580,000.00 120,000.00 ____________ P1,460,000.00

- Payment by Macasaet TOTAL

Since the amount awarded as damages in the form of reasonable rentals is more than the amount of rentals specified in the complaint, additional filing fees corresponding to the difference between the amount prayed for in the complaint and the award based on the evidence should be assessed as a lien on the judgment, as mandated by Section 2, Rule 141 of the Rules of Court, to wit:

SEC. 2. Fees in lien. Where the court in its final judgment awards a claim not alleged, or a relief different from, or more than that claimed in the pleading, the party concerned shall pay the additional fees which shall constitute a lien on the judgment in satisfaction of said lien. The clerk of court shall assess and collect the corresponding fees.[37]

WHEREFORE, the petition is DENIED. However, the decision of the Court of Appeals is MODIFIED in that petitioner is ORDERED to pay respondent damages in the form of reasonable rentals in the amount of P1,460,000.00 with interest at 12% per annum from the finality of this decision, with a lien thereon corresponding to the additional filing fees adverted to above. The Clerk of Court of the Regional Trial Court of Makati is directed to assess and collect the additional filing fees.

SO ORDERED.

DANTE O. TINGA Associate Justice

SECOND DIVISION

[G.R. No. 120820. August 1, 2000]

SPS. FORTUNATO SANTOS and ROSALINDA R. SANTOS, petitioners, vs. COURT OF APPEALS, SPS. MARIANO R. CASEDA and CARMEN CASEDA, respondents. DECISION QUISUMBING, J.: For review on certiorari is the decision of the Court of Appeals, dated March 28, 1995, in CA-G.R. CV No. 30955, which reversed and set aside the judgment of the Regional Trial Court of Makati, Branch 133, in Civil Case No. 89-4759. Petitioners (the Santoses) were the owners of a house and lot informally sold, with conditions, to herein private respondents (the Casedas). In the trial court, the Casedas had complained that the Santoses refused to deliver said house and lot despite repeated demands. The trial court dismissed the complaint for specific performance and damages, but in the Court of Appeals, the dismissal was reversed, as follows: WHEREFORE, in view of the foregoing, the decision appealed from is hereby REVERSED and SET A SIDE and a new one entered: 1. GRANTING plaintiffs-appellants a period of NINETY (90) DAYS from the date of the finality of judgment within which to pay the balance of the obligation in accordance with their agreement; 2. Ordering appellees to restore possession of the subject house and lot to the appellants upon receipt of the full amount of the balance due on the purchase price; and 3. No pronouncement as to costs. SO ORDERED.[1] The undisputed facts of this case are as follows: The spouses Fortunato and Rosalinda Santos owned the house and lot consisting of 350 square meters located at Lot 7, Block 8, Better Living Subdivision, Paranaque, Metro Manila, as evidenced by TCT (S-11029) 28005 of the Register of Deeds of Paranaque. The land together with the house, was mortgaged with the Rural Bank of Salinas, Inc., to secure a loan of P150,000.00 maturing on June 16, 1987.

Sometime in 1984, Rosalinda Santos met Carmen Caseda, a fellow market vendor of hers in Pasay City and soon became very good friends with her. The duo even became kumadres when Carmen stood as a wedding sponsor of Rosalinda's nephew. On June 16, 1984, the bank sent Rosalinda Santos a letter demanding payment of P16,915.84 in unpaid interest and other charges. Since the Santos couple had no funds, Rosalinda offered to sell the house and lot to Carmen. After inspecting the real property, Carmen and her husband agreed. Sometime that month of June, Carmen and Rosalinda signed a document, which reads: Received the amount of P54,100.00 as a partial payment of Mrs. Carmen Caseda to the (total) amount of 350,000.00 (house and lot) that is own (sic) by Mrs. Rosalinda R. Santos. (Mrs.) (Sgd.) Carmen Caseda direct buyer Mrs. Carmen Caseda (Sgd.) Rosalinda Del R. Santos Owner Mrs. Rosalinda R. Santos House and Lot Better Living Subd. Paraaque, Metro Manila Section V Don Bosco St."[2] The other terms and conditions that the parties agreed upon were for the Caseda spouses to pay: (1) the balance of the mortgage loan with the Rural bank amounting to P135,385.18; (2) the real estate taxes; (3) the electric and water bills; and (4) the balance of the cash price to be paid not later than June 16, 1987, which was the maturity date of the loan.[3] The Casedas gave an initial payment of P54,100.00 and immediately took possession of the property, which they then leased out. They also paid in installments, P81,696.84 of the mortgage loan. The Casedas, however, in 1987. Notwithstanding the state of their finances, Carmen nonetheless paid in March 1990, the real estate taxes on the property for 1981-1984. She also settled the electric bills from December 12, 1988 to July 12, 1989. All these payments were made in the name of Rosalinda Santos. In January 1989, the Santoses, seeing that the Casedas lacked the means to pay the remaining installments and/or amortization of the loan, repossessed the property. The Santoses then collected the rentals from the tenants. In February 1989, Carmen Caseda sold her fishpond in Batangas. She then approached petitioners and offered to pay the balance of the purchase price for the house and lot. The parties, however, could not agree, and the deal could not push through because the Santoses wanted a higher price. For understandably, the real estate boom in Metro Manila at this time, had considerably jacked up realty values. On August 11, 1989, the Casedas filed Civil Case No. 89-4759, with the RTC of Makati, to have the Santoses execute the final deed of conveyance over the property, or in default thereof, to reimburse the amount of P180,000.00 paid in cash and P249,900.00 paid to the rural bank, plus interest; as well as rentals for eight months amounting to P32,000.00, plus damages and costs of suit. After trial on the merits, the lower court disposed of the case as follows: WHEREFORE, judgment is hereby ordered: (a) dismissing plaintiff's (Casedas') complaint; and (b) declaring the agreement marked as Annex "C" of the complaint rescinded. Costs against plaintiffs. SO ORDERED.[4] Said judgment of dismissal is mainly based on the trial court's finding that:

Admittedly, the purchase price of the house and lot was P485,385.18, i.e. P350,000.00 as cash payment and P135,385.18, assumption of mortgage. Of it plaintiffs [Casedas] paid the following: (1) P54,100.00 down payment; and (2) P81,694.64 installment payments to the bank on the loan (Exhs. E to E-19) or a total of P135,794.64. Thus, plaintiffs were short of the purchase price. They cannot, therefore, demand specific performance.[5] The trial court further held that the Casedas were not entitled to reimbursement of payments already made, reasoning that: As, earlier mentioned, plaintiffs made a total payment of P135,794.64 out of the purchase price of P485,385.18. The property was in plaintiffs' possession from June 1984 to January 1989 or a period of fifty-five months. During that time, plaintiffs leased the property. Carmen said the property was rented for P25.00 a day or P750.00 a month at the start and in 1987 it was increased to P2,000.00 and P4,000.00 a month. But the evidence is not precise when the different amounts of rental took place. Be that as it may, fairness demands that plaintiffs must pay defendants for their exercise of dominical rights over the property by renting it to others. The amount of P2,000.00 a month would be reasonable based on the average of P750.00, P2,000.00, P4,000.00 lease-rentals charged. Multiply P2,000.00 by 55 months, the plaintiffs must pay defendants P110,000.00 for the use of the property. Deducting this amount from the P135,794.64 payment of the plaintiffs on the property, the difference is P25,794.64. Should the plaintiffs be entitled to a reimbursement of this amount? The answer is in the negative. Because of failure of plaintiffs to liquidated the mortgage loan on time, it had ballooned from its original figure of P135,384.18 as of June 1984 to P337,280.78 as of December 31, 1988. Defendants [Santoses] had to pay the last amount to the bank to save the property from foreclosure. Logically, plaintiffs must share in the burden arising from their failure to liquidate the loan per their contractual commitment. Hence, the amount of P25,794.64 as their share in the defendants' damages in the form of increased loan-amount, is reasonable.[6] On appeal, the appellate court, as earlier noted, reversed the lower court. The appellate court held that rescission was not justified under the circumstances and allowed the Caseda spouses a period of ninety days within which to pay the balance of the agreed purchase price. Hence, this instant petition for review on certiorari filed by the Santoses. Petitioners now submit the following issues for our consideration: WHETHER OR NOT THE COURT OF APPEALS HAS JURISDICTION TO DECIDE PRIVATE RESPONDENT'S APPEAL INTERPOSING PURELY QUESTIONS OF LAW. WHETHER THE SUBJECT TRANSACTION IS NOT A CONTRACT OF ABSOLUTE SALE BUT A MERE ORAL CONTRACT TO SELL IN WHICH CASE JUDICIAL DEMAND FOR RESCISSION (ART. 1592,[7] CIVIL CODE) IS NOT APPLICABLE. ASSUMING ARGUENDO THAT A JUDICIAL DEMAND FOR RESCISSION IS REQUIRED, WHETHER PETITIONERS' DEMAND AND PRAYER FOR RESCISSION CONTAINED IN THEIR ANSWER FILED BEFORE THE TRIAL SATISFIED THE SAID REQUIREMENT. WHETHER OR NOT THE NON-PAYMENT OF MORE THAN HALF OF THE ENTIRE PURCHASE PRICE INCLUDING THE NON-COMPLIANCE WITH THE STIPULATION TO LIQUIDATE THE MORTGAGE LOAN ON TIME WHICH CAUSED GRAVE DAMAGE AND PREJUDICE TO PETITIONERS, CONSTITUTE SUBSTANTIAL BREACH TO JUSTIFY RESCISSION OF A CONTRACT TO SELL UNDER ARTICLE 1191 [8] (CIVIL CODE). On the first issue, petitioners argue that, since both the parties and the appellate court adopted the findings of trial court,[9] no questions of fact were raised before the Court of Appeals. According to petitioners, CA-G.R. CV No. 30955, involved only pure questions of law. They aver that the court a quo had no jurisdiction to hear, much less decide, CA-G.R. CV No. 30955, without running afoul of Supreme Court Circular No. 2-90 (4) [c].[10] There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain set of facts, and there is a question of fact when the doubt or difference arises as to the truth or falsehood of the alleged facts.[11] But we note that the first assignment of error submitted by respondents for consideration by the appellate court dealt with the trial court's finding that herein petitioners got back the property in question because respondents did not have the means to pay the installments and/or amortization of the loan.[12] The resolution of this question involved an evaluation of proof, and not only a consideration of the applicable statutory and case

laws. Clearly, CA-G.R. CV No. 30955 did not involve pure questions of law, hence the Court of Appeals had jurisdiction and there was no violation of our Circular No. 2-90. Moreover, we find that petitioners took an active part in the proceedings before the Court of Appeals, yet they did not raise there the issue of jurisdiction. They should have raised this issue at the earliest opportunity before the Court of Appeals. A party taking part in the proceedings before the appellate court and submitting his case for as decision ought not to later on attack the court's decision for want of jurisdiction because the decision turns out to be adverse to him.[13] The second and third issues deal with the question: Did the Court of Appeals err in holding that a judicial rescission of the agreement was necessary? In resolving both issues, we must first make a preliminary determination of the nature of the contract in question: Was it a contract of sale, as insisted by respondents or a mere contract to sell, as contended by petitioners? Petitioners argue that the transaction between them and respondents was a mere contract to sell, and not a contract of sale, since the sole documentary evidence (Exh. D, receipt) referring to their agreement clearly showed that they did not transfer ownership of the property in question simultaneous with its delivery and hence remained its owners, pending fulfillment of the other suspensive conditions, i.e., full payment of the balance of the purchase price and the loan amortizations. Petitioners point to Manuel v. Rodriguez, 109 Phil. 1 (1960) and Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972), where we held that Article 1592 of the Civil Code is inapplicable to a contract to sell. They charge the court a quo with reversible error in holding that petitioners should have judicially rescinded the agreement with respondents when the latter failed to pay the amortizations on the bank loan. Respondents insist that there was a perfected contract of sale, since upon their partial payment of the purchase price, they immediately took possession of the property as vendees, and subsequently leased it, thus exercising all the rights of ownership over the property. This showed that transfer of ownership was simultaneous with the delivery of the realty sold, according to respondents. It must be emphasized from the outset that a contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it.[14] Article 1458[15] of the Civil Code defines a contract of sale. Note that the said article expressly obliges the vendor to transfer ownership of the thing sold as an essential element of a contract of sale. This is because the transfer of ownership in exchange for a price paid or promised is the very essence of a contract of sale.[16] We have carefully examined the contents of the unofficial receipt, Exh. D, with the terms and conditions informally agreed upon by the parties, as well as the proofs submitted to support their respective contentions. We are far from persuaded that there was a transfer of ownership simultaneously with the delivery of the property purportedly sold. The records clearly show that, notwithstanding the fact that the Casedas first took then lost possession of the disputed house and lot, the title to the property, TCT No. 28005 (S-11029) issued by the Register of Deeds of Paraaque, has remained always in the name of Rosalinda Santos.[17] Note further that although the parties had agreed that the Casedas would assume the mortgage, all amortization payments made by Carmen Caseda to the bank were in the name of Rosalinda Santos. [18] We likewise find that the bank's cancellation and discharge of mortgage dated January 20, 1990, was made in favor of Rosalinda Santos.[19] The foregoing circumstances categorically and clearly show that no valid transfer of ownership was made by the Santoses to the Casedas. Absent this essential element, their agreement cannot be deemed a contract of sale. We agree with petitioners' averment that the agreement between Rosalinda Santos and Carmen Caseda is a contract to sell. In contracts to sell, ownership is reserved by the vendor and is not to pass until full payment of the purchase price. This we find fully applicable and understandable in this case, given that the property involved is a titled realty under mortgage to a bank and would require notarial and other formalities of law before transfer thereof could be validly effected. In view of our finding in the present case that the agreement between the parties is a contract to sell, it follows that the appellate court erred when it decreed that a judicial rescission of said agreement was necessary. This is because there was no rescission to speak of in the first place. As we earlier pointed out, in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.[20] This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside.[21] In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. When the petitioners in

the instant case repossessed the disputed house and lot for failure of private respondents to pay the purchase price in full, they were merely enforcing the contract and not rescinding it. As petitioners correctly point out, the Court of Appeals erred when it ruled that petitioners should have judicially rescinded the contract pursuant to Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the purchase price as a resolutory condition. It does not apply to a contract to sell.[22] As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of immovable property.[23] Neither provision is applicable in the present case. As to the last issue, we need not tarry to make a determination of whether the breach of contract by private respondents is so substantial as to defeat the purpose of the parties in entering into the agreement and thus entitle petitioners to rescission. Having ruled that there is no rescission to speak of in this case, the question is moot. WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals in CA-G.R. CV No. 30955 is REVERSED and SET ASIDE. The judgment of the Regional Trial Court of Makati, Branch 133, with respect to the DISMISSAL of the complaint in Civil Case No. 89-4759, is hereby REINSTATED. No pronouncement as to costs. SO ORDERED. Mendoza, Buena, and De Leon, Jr., JJ., concur. Bellosillo, J. (Chairman), on official leave. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 135634 May 31, 2000 HEIRS OF JUAN SAN ANDRES (VICTOR S. ZIGA) and SALVACION S. TRIA, petitioners, vs. VICENTE RODRIGUEZ, respondent.

MENDOZA, J.: This is a petition for review on certiorari of the decision of the Court of Appeals 1 reversing the decision of the Regional Trial Court, Naga City, Branch 19, in Civil Case No. 87-1335, as well as the appellate court's resolution denying reconsideration. The antecedent facts are as follows: Juan San Andres was the registered owner of Lot No. 1914-B-2 situated in Liboton, Naga City. On September 28, 1964, he sold a portion thereof, consisting of 345 square meters, to respondent Vicente S. Rodriguez for P2,415.00. The sale is evidenced by a Deed of Sale. 2 Upon the death of Juan San Andres on May 5, 1965, Ramon San Andres was appointed judicial administrator of the decedent's estate in Special Proceedings No. R-21, RTC, Branch 19, Naga City. Ramon San Andres engaged the services of a geodetic engineer, Jose Peero, to prepare a consolidated plan (Exh. A) of the estate. Engineer Peero also prepared a sketch plan of the 345-square meter lot sold to respondent. From the result of the survey, it was found that respondent had enlarged the area which he purchased from the late Juan San Andres by 509 square meters. 3 Accordingly, the judicial administrator sent a letter, 4 dated July 27, 1987, to respondent demanding that the latter vacate the portion allegedly encroached by him. However, respondent refused to do so, claiming he had purchased the same from the late Juan San Andres. Thereafter, on November 24, 1987, the judicial administrator brought an action, in behalf of the estate of Juan San Andres, for recovery of possession of the 509-square meter lot. In his Re-amended Answer filed on February 6, 1989, respondent alleged that apart from the 345-square meter lot which had been sold to him by Juan San Andres on September 28, 1964, the latter likewise sold to him the following day the remaining portion of the lot consisting of 509 square meters, with both parties treating the two lots as one whole parcel with a total area of 854 square meters. Respondent alleged that the full payment of the 509-square

meter lot would be effected within five (5) years from the execution of a formal deed of sale after a survey is conducted over said property. He further alleged that with the consent of the former owner, Juan San Andres, he took possession of the same and introduced improvements thereon as early as 1964. As proof of the sale to him of 509 square meters, respondent attached to his answer a receipt (Exh. 2) 5 signed by the late Juan San Andres, which reads in full as follows: Received from Vicente Rodriguez the sum of Five Hundred (P500.00) Pesos representing an advance payment for a residential lot adjoining his previously paid lot on three sides excepting on the frontage with the agreed price of Fifteen (15.00) Pesos per square meter and the payment of the full consideration based on a survey shall be due and payable in five (5) years period from the execution of the formal deed of sale; and it is agreed that the expenses of survey and its approval by the Bureau of Lands shall be borne by Mr. Rodriguez. Naga City, September 29, 1964. (Sgd.) JUAN R. SAN ANDRES Vendor Noted: (Sgd.) VICENTE RODRIGUEZ Vendee Respondent also attached to his answer a letter of judicial administrator Ramon San Andres (Exh. 3), 6asking payment of the balance of the purchase price. The letter reads: Dear Inting, Please accommodate my request for Three Hundred (P300.00) Pesos as I am in need of funds as I intimated to you the other day. We will just adjust it with whatever balance you have payable to the subdivision. Thanks. Sincere ly, (Sgd.) RAMO N SAN ANDR ES Vicente Rodriguez Penafrancia Subdivision, Naga City P.S. You can let bearer Enrique del Castillo sign for the amount. Received One Hundred Only (Sgd.)

RAMON SAN ANDRES 3/30/66 Respondent deposited in court the balance of the purchase price amounting to P7,035.00 for the aforesaid 509square meter lot. While the proceedings were pending, judicial administrator Ramon San Andres died and was substituted by his son Ricardo San Andres. On the other band, respondent Vicente Rodriguez died on August 15, 1989 and was substituted by his heirs. 7 Petitioner, as plaintiff, presented two witnesses. The first witness, Engr. Jose Peero, 8 testified that based on his survey conducted sometime between 1982 and 1985, respondent had enlarged the area which he purchased from the late Juan San Andres by 509 square meters belonging to the latter's estate. According to Peero, the titled property (Exh. A-5) of respondent was enclosed with a fence with metal holes and barbed wire, while the expanded area was fenced with barbed wire and bamboo and light materials. The second witness, Ricardo San Andres, 9 administrator of the estate, testified that respondent had not filed any claim before Special Proceedings No. R-21 and denied knowledge of Exhibits 2 and 3. However, he recognized the signature in Exhibit 3 as similar to that of the former administrator, Ramon San Andres. Finally, he declared that the expanded portion occupied by the family of respondent is now enclosed with barbed wire fence unlike before where it was found without fence. On the other hand, Bibiana B. Rodriguez, 10 widow of respondent Vicente Rodriguez, testified that they had purchased the subject lot from Juan San Andres, who was their compadre, on September 29, 1964, at P15.00 per square meter. According to her, they gave P500.00 to the late Juan San Andres who later affixed his signature to Exhibit 2. She added that on March 30, 1966; Ramon San Andres wrote them a letter asking for P300.00 as partial payment for the subject lot, but they were able to give him only P100.00. She added that they had paid the total purchase price of P7,035.00 on November 21, 1988 by depositing it in court. Bibiana B. Rodriquez stated that they had been in possession of the 509-square meter lot since 1964 when the late Juan San Andres signed the receipt. (Exh. 2) Lastly, she testified that they did not know at that time the exact area sold to them because they were told that the same would be known after the survey of the subject lot. On September 20, 1994, the trial court 11 rendered judgment in favor of petitioner. It ruled that there was no contract of sale to speak of for lack of a valid object because there was no sufficient indication in Exhibit 2 to identify the property subject of the sale, hence, the need to execute a new contract. Respondent appealed to the Court of Appeals, which on April 21, 1998 rendered a decision reversing the decision of the trial court. The appellate court held that the object of the contract was determinable, and that there was a conditional sale with the balance of the purchase price payable within five years from the execution of the deed of sale. The dispositive portion of its decision's reads: IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby REVERSED and SET ASIDE and a new one entered DISMISSING the complaint and rendering judgment against the plaintiff-appellee: 1. to accept the P7,035.00 representing the balance of the purchase price of the portion and which is deposited in court under Official Receipt No. 105754 (page 122, Records); 2. to execute the formal deed of sale over the said 509 square meter portion of Lot 1914-B-2 in favor of appellant Vicente Rodriguez; 3. to pay the defendant-appellant the amount of P50,000.00 as damages and P10,000.00 attorney's fees as stipulated by them during the trial of this case; and 4. to pay the costs of the suit. SO ORDERED. Hence, this petition. Petitioner assigns the following errors as having been allegedly committed by the trial court:

I. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT THE DOCUMENT (EXHIBIT "2") IS A CONTRACT TO SELL DESPITE ITS LACKING ONE OF THE ESSENTIAL ELEMENTS OF A CONTRACT, NAMELY, OBJECT CERTAIN AND SUFFICIENTLY DESCRIBED. II. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS OBLIGED TO HONOR THE PURPORTED CONTRACT TO SELL DESPITE NONFULFILLMENT BY RESPONDENT OF THE CONDITION THEREIN OF PAYMENT OF THE BALANCE OF THE PURCHASE PRICE. III. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT CONSIGNATION WAS VALID DESPITE NON-COMPLIANCE WITH THE MANDATORY REQUIREMENTS THEREOF. IV. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT LACHES AND PRESCRIPTION DO NOT APPLY TO RESPONDENT WHO SOUGHT INDIRECTLY TO ENFORCE THE PURPORTED CONTRACT AFTER THE LAPSE OF 24 YEARS. The petition has no merit. First. Art. 1458 of the Civil Code provides: 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. As thus defined, the essential elements 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. 12 As shown in the receipt, dated September 29, 1964, the late Juan San Andres received P500.00 from respondent as "advance payment for the residential lot adjoining his previously paid lot on three sides excepting on the frontage; the agreed purchase price was P15.00 per square meter; and the full amount of the purchase price was to be based on the results of a survey and would be due and payable in five (5) years from the execution of a deed of sale. Petitioner contends, however, that the "property subject of the sale was not described with sufficient certainty such that there is a necessity of another agreement between the parties to finally ascertain the identity; size and purchase price of the property which is the object of the alleged sale." 1 He argues that the "quantity of the object is not determinate as in fact a survey is needed to determine its exact size and the full purchase price therefor" 14In support of his contention, petitioner cites the following provisions of the Civil Code: Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinable shall not be an obstacle to the existence of a contract, provided it is possible to determine the same without the need of a new contract between the parties. Art. 1460. . . . The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new and further agreement between the parties. Petitioner's contention is without merit. There is no dispute that respondent purchased a portion of Lot 1914-B-2 consisting of 345 square meters. This portion is located in the middle of Lot 1914-B-2, which has a total area of 854 square meters, and is clearly what was referred to in the receipt as the "previously paid lot." Since the lot subsequently sold to respondent is said to adjoin the "previously paid lot" on three sides thereof, the subject lot is capable of being determined without the need of any new contract. The fact that the exact area of these adjoining

residential lots is subject to the result of a survey does not detract from the fact that they are determinate or determinable. As the Court of Appeals explained: 15 Concomitantly, the object of the sale is certain and determinate. Under Article 1460 of the New Civil Code, a thing sold is determinate if at the time the contract is entered into, the thing is capable of being determinate without necessity of a new or further agreement between the parties. Here, this definition finds realization. Appellee's Exhibit "A" (page 4, Records) affirmingly shows that the original 345 sq. m. portion earlier sold lies at the middle of Lot 1914-B-2 surrounded by the remaining portion of the said Lot 1914-B-2 on three (3) sides, in the east, in the west and in the north. The northern boundary is a 12 meter road. Conclusively, therefore, this is the only remaining 509 sq. m. portion of Lot 1914-B-2 surrounding the 345 sq. m. lot initially purchased by Rodriguez. It is quite difined, determinate and certain. Withal, this is the same portion adjunctively occupied and possessed by Rodriguez since September 29, 1964, unperturbed by anyone for over twenty (20) years until appellee instituted this suit. Thus, all of the essential elements of a contract of sale are present, i.e., that there was a meeting of the minds between the parties, by virtue of which the late Juan San Andres undertook to transfer ownership of and to deliver a determinate thing for a price certain in money. As Art. 1475 of the Civil Code provides: 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. . . . That the contract of sale is perfected was confirmed by the former administrator of the estates, Ramon San Andres, who wrote a letter to respondent on March 30, 1966 asking for P300.00 as partial payment for the subject lot. As the Court of Appeals observed: Without any doubt, the receipt profoundly speaks of a meeting of the mind between San Andres and Rodriguez for the sale of the property adjoining the 345 square meter portion previously sold to Rodriguez on its three (3) sides excepting the frontage. The price is certain, which is P15.00 per square meter. Evidently, this is a perfected contract of sale on a deferred payment of the purchase price. All the pre-requisite elements for a valid purchase transaction are present. Sale does not require any formal document for its existence and validity. And delivery of possession of land sold is a consummation of the sale (Galar vs. Husain, 20 SCRA 186 [1967]). A private deed of sale is a valid contract between the parties (Carbonell v. CA, 69 SCRA 99 [1976]). In the same vein, after the late Juan R. San Andres received the P500.00 downpayment on March 30, 1966, Ramon R. San Andres wrote a letter to Rodriguez and received from Rodriguez the amount of P100.00 (although P300.00 was being requested) deductible from the purchase price of the subject portion. Enrique del Castillo, Ramon's authorized agent, correspondingly signed the receipt for the P100.00. Surely, this is explicitly a veritable proof of he sale over the remaining portion of Lot 1914-B-2 and a confirmation by Ramon San Andres of the existence thereof. 16 There is a need, however, to clarify what the Court of Appeals said is a conditional contract of sale. Apparently, the appellate court considered as a "condition" the stipulation of the parties that the full consideration, based on a survey of the lot, would be due and payable within five (5) years from the execution of a formal deed of sale. It is evident from the stipulations in the receipt that the vendor Juan San Andres sold the residential lot in question to respondent and undertook to transfer the ownership thereof to respondent without any qualification, reservation or condition. In Ang Yu Asuncion v. Court of Appeals, 17 we held: In Dignos v. 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. 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). Thus, in. one case, when the sellers declared in a "Receipt of Down Payment" that they received an amount as purchase price for a house and lot without any reservation of title until full payment of the entire purchase price, the implication was that they sold their property. 18 In People's Industrial Commercial Corporation v. Court of Appeals, 19 it was stated: A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Applying these principles to this case, it cannot be gainsaid that the contract of sale between the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to respondent. 20 Thus, Art. 1477 provides that the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. The stipulation that the "payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale" is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to be computed and the time within which the same is to be paid. But it does not affect in any manner the effectivity of the contract. Consequently, the contention that the absence of a formal deed of sale stipulated in the receipt prevents the happening of a sale has no merit. Second. With respect to the contention that the Court of Appeals erred in upholding the validity of a consignation of P7,035.00 representing the balance of the purchase price of the lot, nowhere in the decision of the appellate court is there any mention of consignation. Under Art. 1257 of this Civil Code, consignation is proper only in cases where an existing obligation is due. In this case, however, the contracting parties agreed that full payment of purchase price shall be due and payable within five (5) years from the execution of a formal deed of sale. At the time respondent deposited the amount of P7,035.00 in the court, no formal deed of sale had yet been executed by the parties, and, therefore, the five-year period during which the purchase price should be paid had not commenced. In short, the purchase price was not yet due and payable. This is not to say, however, that the deposit of the purchase price in the court is erroneous. The Court of Appeals correctly ordered the execution of a deed of sale and petitioners to accept the amount deposited by respondent. Third. The claim of petitioners that the price of P7,035.00 is iniquitous is untenable. The amount is based on the agreement of the parties as evidenced by the receipt (Exh. 2). Time and again, we have stressed the rule that a contract is the law between the parties, and courts have no choice but to enforce such contract so long as they are not contrary to law, morals, good customs or public policy. Otherwise, court would be interfering with the freedom of contract of the parties. Simply put, courts cannot stipulate for the parties nor amend the latter's agreement, for to do so would be to alter the real intentions of the contracting parties when the contrary function of courts is to give force and effect to the intentions of the parties. Fourth. Finally, petitioners argue that respondent is barred by prescription and laches from enforcing the contract. This contention is likewise untenable. The contract of sale in this case is perfected, and the delivery of the subject lot to respondent effectively transferred ownership to him. For this reason, respondent seeks to comply with his obligation to pay the full purchase price, but because the deed of sale is yet to be executed, he deemed it appropriate to deposit the balance of the purchase price in court. Accordingly, Art. 1144 of the Civil Code has no application to the instant case. 21 Considering that a survey of the lot has already been conducted and approved by the Bureau of Lands, respondent's heirs, assign or successors-in-interest should reimburse the expenses incurred by herein petitioners, pursuant to the provisions of the contract. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the modification that respondent is ORDERED to reimburse petitioners for the expenses of the survey. SO ORDERED. Bellosillo and Buena, JJ., concur. Quisumbing and De Leon, Jr., JJ., are on leave. FIRST DIVISION

SPOUSES GOMER and LEONOR RAMOS, Petitioners,

G.R. No. 145330 Present: Davide, Jr., C.J., Chairman, Quisumbing, Ynares-Santiago, Carpio, and Azcuna, JJ.

- versus -

SPOUSES SANTIAGO and MINDA HERUELA, and SPOUSES CHERRY and RAYMOND PALLORI, Respondents.

Promulgated: October 14, 2005

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

DECISION CARPIO, J.:

The Case

Before the Court is a petition for review[1] assailing the Decision[2] dated 23 August 2000 and the Order dated 20 September 2000 of the Regional Trial Court (trial court) of Misamis Oriental, Branch 21, in Civil Case No. 98060. The trial court dismissed the plaintiffs action for recovery of ownership with damages.

The Antecedent Facts The spouses Gomer and Leonor Ramos (spouses Ramos) own a parcel of land, consisting of 1,883 square meters, covered by Transfer Certificate of Title (TCT) No. 16535 of the Register of Deeds of Cagayan de Oro City. On 18 February 1980, the spouses Ramos made an agreement with the spouses Santiago and Minda Heruela (spouses Heruela)[3] covering 306 square meters of the land (land). According to the spouses Ramos, the agreement is a contract of conditional sale. The spouses Heruela allege that the contract is a sale on installment basis. On 27 January 1998, the spouses Ramos filed a complaint for Recovery of Ownership with Damages against the spouses Heruela. The case was docketed as Civil Case No. 98-060. The spouses Ramos allege that out of the P15,300[4] consideration for the sale of the land, the spouses Heruela paid only P4,000. The last installment that the spouses Heruela paid was on 18 December 1981. The spouses Ramos assert that the spouses Heruelas unjust refusal to pay the balance of the purchase price caused the cancellation of the Deed of Conditional Sale. In June 1982, the spouses Ramos discovered that the spouses Heruela were already occupying a portion of the land. Cherry and Raymond Pallori (spouses Pallori), daughter and son-in-law, respectively, of the spouses Heruela, erected another house on the land. The spouses Heruela and the spouses Pallori refused to vacate the land despite demand by the spouses Ramos. The spouses Heruela allege that the contract is a sale on installment basis. They paid P2,000 as down payment and made the following installment payments: 31 March 1980 P200

2 May 1980 20 June 1980 8 October 1980 5 March 1981 18 December 1981

P400 P200 P500 P400 P300

(for April and May 1980) (for June 1980) (for July, August and part of September 1980) (for October and November 1980) (for December 1980 and part of January 1981)

The spouses Heruela further allege that the 306 square meters specified in the contract was reduced to 282 square meters because upon subdivision of the land, 24 square meters became part of the road. The spouses Heruela claim that in March 1982, they expressed their willingness to pay the balance of P11,300 but the spouses Ramos refused their offer. The Ruling of the Trial Court In its Decision[5] dated 23 August 2000, the trial court ruled that the contract is a sale by installment. The trial court ruled that the spouses Ramos failed to comply with Section 4 of Republic Act No. 6552 (RA 6552),[6] as follows: SEC. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

The dispositive portion of the Decision reads: WHEREFORE, the complaint is hereby dismissed and plaintiff[s] are ordered to execute the corresponding Deed of Sale in favor of defendants after the latter have paid the remaining balance of Eleven Thousand and Three Hundred Pesos (P11,300.00). Plaintiffs are further ordered to pay defendants the sum of P20,000.00, as Attorneys fees and P10,000.00 as litigation expenses. SO ORDERED.[7] In an Order[8] dated 20 September 2000, the trial court denied the spouses Ramos motion for reconsideration. Hence, this petition.

The Issues The spouses Ramos raise the following issues: I. II. III. IV. Whether RA 6552 is applicable to an absolute sale of land; Whether Articles 1191 and 1592 of the Civil Code are applicable to the present case; Whether the spouses Ramos have a right to cancel the sale; Whether the spouses Heruela have a right to damages.[9]

The Ruling of the Court The petition is partly meritorious. The Agreement is a Contract to Sell In its Decision, the trial court ruled on whether the contract made by the parties is a conditional sale or a sale on installment. The spouses Ramos premise is that since the tri al court ruled that the contract is a sale on installment, the trial court also in effect declared that the sale is an absolute sale. The spouses Ramos allege that RA 6552 is not applicable to an absolute sale. Article 1458 of the Civil Code provides that a contract of sale may be absolute or conditional. A contract of sale is absolute when title to the property passes to the vendee upon delivery of the thing sold. [10] A deed of sale is absolute when there is no stipulation in the contract that title to the property remains with the seller until full payment of the purchase price.[11] The sale is also absolute if there is no stipulation giving the vendor the right to cancel unilaterally the contract the moment the vendee fails to pay within a fixed period.[12] In a conditional sale, as in a contract to sell, ownership remains with the vendor and does not pass to the vendee until full payment of the purchase price.[13] The full payment of the purchase price partakes of a suspensive condition, and non-fulfillment of the condition prevents the obligation to sell from arising.[14] In this case, the agreement of the parties is embodied in a one-page, handwritten document.[15] The document does not contain the usual terms and conditions of a formal deed of sale. The original document, elevated to this Court as part of the Records, is torn in part. Only the words LMENT BASIS is legible on the title. The names and addresses of the parties and the identity of the property cannot be ascertained. The agreement only provides for the following terms of the sale: TERM[S] OF SALE: PRICE PER SQM P50.00 X 306 SQM P 15,300.00 DOWN PAYMENT (TWO THOUSAND PESOS) 2,000.00 BALANCE PAYABLE AT MINIMUM OF P200.00 P 13,300.00 PER MONTH UNTIL FULLY PAID ======= In Manuel v. Rodriguez, et al.,[16] the Court ruled that to be a written contract, all the terms must be in writing, so that a contract partly in writing and partly oral is in legal effect an oral contract. The Court reiterated the Manuel ruling in Alfonso v. Court of Appeals:[17] xxx In Manuel, only the price and the terms of payment were in writing, but the most important matter in the controversy, the alleged transfer of title was never reduced to any written document.[] It was held that the contract should not be considered as a written but an oral one; not a sale but a promise to sell; and that the absence of a formal deed of conveyance was a strong indication that the parties did not intend immediate transfer of title, but only a transfer after full payment of the price. Under these circumstances, the Court ruled Article 1504 of the Civil Code of 1889 (Art. 1592 of the present Code) to be inapplicable to the contract in controversy a contract to sell or promise to sell where title remains with the vendor until fulfillment of a positive suspensive condition, such as full payment of the price x x [x].

The records show that the spouses Heruela did not immediately take actual, physical possession of the land. According to the spouses Ramos, in March 1981, they allowed the niece of the spouses Heruela to occupy a portion of the land. Indeed, the spouses Ramos alleged that they only discovered in June 1982 that the spouses Heruela were already occupying the land. In their answer to the complaint, the spouses Heruela and the spouses Pallori alleged that their occupation of the land is lawful because having made partial payments of the purchase price, they already considered themselves owners of the land.[18] Clearly, there was no transfer of title to the spouses Heruela. The spouses Ramos retained their ownership of the land. This only shows that the parties did not intend the transfer of ownership until full payment of the purchase price.

RA 6552 is the Applicable Law The trial court did not err in applying RA 6552 to the present case. Articles 1191[19] and 1592[20] of the Civil Code are applicable to contracts of sale. In contracts to sell, RA 6552 applies. InRillo v. Court of Appeals,[21] the Court declared: xxx Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon nonpayment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments xxx.

Sections 3 and 4 of RA 6552 provide: Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred fortyfour as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments: (a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.

(b)

Down payments, deposits or options on the contract shall be included in the computation of the total number of installments made. Sec. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

In this case, the spouses Heruela paid less than two years of installments. Thus, Section 4 of RA 6552 applies. However, there was neither a notice of cancellation nor demand for rescission by notarial act to the spouses Heruela. In Olympia Housing, Inc. v. Panasiatic Travel Corp.,[22] the Court ruled that the vendor could go to court to demand judicial rescission in lieu of a notarial act of rescission. However, an action for reconveyance is not an action for rescission. The Court explained in Olympia: The action for reconveyance filed by petitioner was predicated on an assumption that its contract to sell executed in favor of respondent buyer had been validly cancelled or rescinded. The records would show that, indeed, no such cancellation took place at any time prior to the institution of the action for reconveyance. xxx

xxx xxx Not only is an action for reconveyance conceptually different from an action for rescission but that, also, the effects that flow from an affirmative judgment in either case would be materially dissimilar in various respects. The judicial resolution of a contract gives rise to mutual restitution which is not necessarily the situation that can arise in an action for reconveyance. Additionally, in an action for rescission (also often termed as resolution), unlike in an action for reconveyance predicated on an extrajudicial rescission (rescission by notarial act), the Court, instead of decreeing rescission, may authorize for a just cause the fixing of a period.[23]

In the present case, there being no valid rescission of the contract to sell, the action for reconveyance is premature. Hence, the spouses Heruela have not lost the statutory grace period within which to pay. The trial court should have fixed the grace period to sixty days conformably with Section 4 of RA 6552. The spouses Heruela are not entirely fault-free. They have been remiss in performing their obligation. The trial court found that the spouses Heruela offered once to pay the balance of the purchase price. However, the spouses Heruela did not consign the payment during the pendency of the case. In the meanwhile, the spouses Heruela enjoyed the use of the land. For the breach of obligation, the court, in its discretion, and applying Article 2209 of the Civil Code, [24] may award interest at the rate of 6% per annum on the amount of damages.[25] The spouses Heruela have been enjoying the use of the land since 1982. In 1995, they allowed their daughter and son-in-law, the spouses Pallori, to construct a house on the land. Under the circumstances, the Court deems it proper to award interest at 6% per annum on the balance of the purchase price. The records do not show when the spouses Ramos made a demand from the spouses Heruela for payment of the balance of the purchase price. The complaint only alleged that the spouses Heruelas unjust refusal to pay in full the purchase price xxx has caused the Deed of Conditional Sale to be rescinded, revoked and annulled. [26] The complaint did not specify when the spouses Ramos made the demand for payment. For purposes of computing the legal interest, the reckoning period should be the filing on 27 January 1998 of the complaint for reconveyance, which the spouses Ramos erroneously considered an action for rescission of the contract. The Court notes the reduction of the land area from 306 square meters to 282 square meters. Upon subdivision of the land, 24 square meters became part of the road. However, Santiago Heruela expressed his willingness to pay for the 306 square meters agreed upon despite the reduction of the land area.[27] Thus, there is no dispute on the amount of the purchase price even with the reduction of the land area. On the Award of Attorneys Fees and Litigation Expenses The trial court ordered the spouses Ramos to pay the spouses Heruela and the spouses Pallori the amount of P20,000 as attorneys fees and P10,000 as litigation expenses. Article 2208[28] of the Civil Code provides that subject to certain exceptions, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered in the absence of stipulation. None of the enumerated exceptions applies to this case. Further, the policy of the law is to put no premium on the right to litigate.[29] Hence, the award of attorneys fees and litigation expenses should be deleted. WHEREFORE, we AFFIRM the Decision dated 23 August 2000 of the Regional Trial Court of Misamis Oriental, Branch 21, dismissing the complaint for Recovery of Ownership with Damages, with the following MODIFICATION: 1. The spouses Heruela shall pay the spouses Ramos P11,300 as balance of the purchase price plus interest at 6% per annum from 27 January 1998. The spouses Heruela shall pay within 60 days from finality of this Decision; Upon payment, the spouses Ramos shall execute a deed of absolute sale of the land and deliver the certificate of title in favor of the spouses Heruela; In case of failure to thus pay within 60 days from finality of this Decision, the spouses Heruela and the spouses Pallori shall immediately vacate the premises without need of further demand, and the down

2. 3.

4.

payment and installment payments ofP4,000 paid by the spouses Heruela shall constitute rental for the land; The award of P20,000 as attorneys fees and P10,000 as litigation expenses in favor of the spouses Heruela and the spouses Pallori is deleted.

SO ORDERED.

ANTONIO T. CARPIO Associate Justice WE CONCUR:

HILARIO G. DAVIDE, JR. Chief Justice Chairman

LEONARDO A. QUISUMBING Associate Justice

CONSUELO YNARES-SANTIAGO Associate Justice

ADOLFO S. AZCUNA Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

HILARIO G. DAVIDE, JR. Chief Justice

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 170405 February 2, 2010

RAYMUNDO S. DE LEON, Petitioner, vs. BENITA T. ONG.1 Respondent. DECISION CORONA, J.: On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and respondent executed a notarized deed of absolute sale with assumption of mortgage3 stating: xxx xxx xxx

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (P1.1 million), Philippine currency, the receipt whereof is hereby acknowledged from [RESPONDENT] to the entire satisfaction of [PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a manner absolute and irrevocable, unto said [RESPONDENT], his heirs and assigns that certain real estate together with the buildings and other improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the following terms and conditions: 1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN THOUSAND FIVE HUNDRED (P415,000), [petitioner] shall execute and sign a deed of assumption of mortgage in favor of [respondent] without any further cost whatsoever; 2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED EIGHTY FOUR THOUSAND FIVE HUNDRED PESOS (P684,500) with REAL SAVINGS AND LOAN,4 Cainta, Rizal (emphasis supplied) xxx xxx xxx

Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner, on the other hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and authorizing it to accept payment from respondent and release the certificates of title. Thereafter, respondent undertook repairs and made improvements on the properties.5 Respondent likewise informed RSLAI of her agreement with petitioner for her to assume petitioners outstanding loan. RSLAI required her to undergo credit investigation. Subsequently, respondent learned that petitioner again sold the same properties to one Leona Viloria after March 10, 1993 and changed the locks, rendering the keys he gave her useless. Respondent thus proceeded to RSLAI to inquire about the credit investigation. However, she was informed that petitioner had already paid the amount due and had taken back the certificates of title. Respondent persistently contacted petitioner but her efforts proved futile. On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity of the second sale and damages6 against petitioner and Viloria in the Regional Trial Court (RTC) of Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the properties to her on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus, petitioner fraudulently deprived her of the properties.

Petitioner, on the other hand, insisted that respondent did not have a cause of action against him and consequently prayed for the dismissal of the complaint. He claimed that since the transaction was subject to a condition (i.e., that RSLAI approve the assumption of mortgage), they only entered into a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI, the condition did not arise. Consequently, the sale was not perfected and he could freely dispose of the properties. Furthermore, he made a counter-claim for damages as respondent filed the complaint allegedly with gross and evident bad faith. Because respondent was a licensed real estate broker, the RTC concluded that she knew that the validity of the sale was subject to a condition. The perfection of a contract of sale depended on RSLAIs approval of the assumption of mortgage. Since RSLAI did not allow respondent to assume petitioners obligation, the RTC held that the sale was never perfected. In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of action and ordered respondent to pay petitioner P100,000 moral damages, P20,000 attorneys fees and the cost of suit. Aggrieved, respondent appealed to the Court of Appeals (CA),8 asserting that the court a quo erred in dismissing the complaint. The CA found that the March 10, 2003 contract executed by the parties did not impose any condition on the sale and held that the parties entered into a contract of sale. Consequently, because petitioner no longer owned the properties when he sold them to Viloria, it declared the second sale void. Moreover, it found petitioner liable for moral and exemplary damages for fraudulently depriving respondent of the properties. In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and nullified the sale to Viloria. It likewise ordered respondent to reimburse petitioner P715,250 (or the amount he paid to RSLAI). Petitioner, on the other hand, was ordered to deliver the certificates of titles to respondent and pay her P50,000 moral damages andP15,000 exemplary damages. Petitioner moved for reconsideration but it was denied in a resolution dated November 11, 2005.10 Hence, this petition,11 with the sole issue being whether the parties entered into a contract of sale or a contract to sell. Petitioner insists that he entered into a contract to sell since the validity of the transaction was subject to a suspensive condition, that is, the approval by RSLAI of respondents assumption of mortgage. Because RSLAI did not allow respondent to assume his (petitioners) obligation, the condition never materialized. Consequently, there was no sale. Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner already conveyed full ownership of the subject properties upon the execution of the deed. We modify the decision of the CA. Contract of Sale or Contract to Sell? The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled that it was a contract to sell while the CA held that it was a contract of sale. In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. Should the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or have the contract judicially resolved and set aside. The non-payment of the price is therefore a negative resolutory condition.12 On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the payment thereof, the seller can only sue for damages.13 The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to respondent "in a manner absolute and irrevocable" for a sum of P1.1 million.14 With regard to the manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the execution of the deed, with the balance15payable directly to RSLAI (on behalf of petitioner) within a reasonable time.16 Nothing in said instrument implied that petitioner reserved ownership of the properties until the full payment of the purchase price.17 On the contrary, the terms and

conditions of the deed only affected the manner of payment, not the immediate transfer of ownership (upon the execution of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said terms and conditions pertained to the performance of the contract, not the perfection thereof nor the transfer of ownership. Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to the buyer.18In this regard, Article 1498 of the Civil Code19 provides that, as a rule, the execution of a notarized deed of sale is equivalent to the delivery of a thing sold. In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent. Moreover, not only did petitioner turn over the keys to the properties to respondent, he also authorized RSLAI to receive payment from respondent and release his certificates of title to her. The totality of petitioners acts clearly indicates that he had unqualifiedly delivered and transferred ownership of the properties to respondent. Clearly, it was a contract of sale the parties entered into. Furthermore, even assuming arguendo that the agreement of the parties was subject to the condition that RSLAI had to approve the assumption of mortgage, the said condition was considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation and taking back the certificates of title without even notifying respondent. In this connection, Article 1186 of the Civil Code provides: Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Void Sale Or Double Sale? Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two separate occasions.20 However, the second sale was not void for the sole reason that petitioner had previously sold the same properties to respondent. On this account, the CA erred. This case involves a double sale as the disputed properties were sold validly on two separate occasions by the same seller to the two different buyers in good faith. Article 1544 of the Civil Code provides: Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (emphasis supplied) This provision clearly states that the rules on double or multiple sales apply only to purchasers in good faith. Needless to say, it disqualifies any purchaser in bad faith. A purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or an interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of some other persons claim or interest in the property.21 The law requires, on the part of the buyer, lack of notice of a defect in the title of the seller and payment in full of the fair price at the time of the sale or prior to having notice of any defect in the sellers title. Was respondent a purchaser in good faith? Yes. Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI. According to her agreement with petitioner, respondent had the obligation to assume the balance of petitioners outstanding obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and of her assumption of petitioners obligation. However, because petitioner surreptitiously paid his outstanding obligation and took back her certificates of title, petitioner himself rendered respondents obligation to assume petitioners indebtedness to RSLAI impossible to perform.

Article 1266 of the Civil Code provides: Article 1266. The debtor in obligations to do shall be released when the prestation become legally or physically impossible without the fault of the obligor. Since respondents obligation to assume petitioners outstanding balance with RSLAI became impossible without her fault, she was released from the said obligation. Moreover, because petitioner himself willfully prevented the condition vis--vis the payment of the remainder of the purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil Code. For purposes, therefore, of determining whether respondent was a purchaser in good faith, she is deemed to have fully complied with the condition of the payment of the remainder of the purchase price. Respondent was not aware of any interest in or a claim on the properties other than the mortgage to RSLAI which she undertook to assume. Moreover, Viloria bought the properties from petitioner after the latter sold them to respondent. Respondent was therefore a purchaser in good faith. Hence, the rules on double sale are applicable. Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with the registrar of deeds, the one who took prior possession of the properties shall be the lawful owner thereof. In this instance, petitioner delivered the properties to respondent when he executed the notarized deed22 and handed over to respondent the keys to the properties. For this reason, respondent took actual possession and exercised control thereof by making repairs and improvements thereon. Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became the lawful owner of the properties. Nonetheless, while the condition as to the payment of the balance of the purchase price was deemed fulfilled, respondents obligation to pay it subsisted. Otherwise, she would be unjustly enriched at the expense of petitioner. Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This is because the provisions, terms and conditions of the contract constitute the law between the parties. Moreover, the deed itself provided that the assumption of mortgage "was without any further cost whatsoever." Petitioner, on the other hand, must deliver the certificates of title to respondent. We likewise affirm the award of damages. WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as respondent Benita T. Ong is ordered to pay petitioner Raymundo de Leon P684,500 representing the balance of the purchase price as provided in their March 10, 1993 agreement. Costs against petitioner. SO ORDERED. RENATO C. CORONA Associate Justice Chairperson

SECOND DIVISION [G.R. No. 180665 : August 11, 2010] HEIRS OF PAULINO ATIENZA, NAMELY, RUFINA L. ATIENZA, ANICIA A. IGNACIO, ROBERTO ATIENZA, MAURA A. DOMINGO, AMBROCIO ATIENZA, MAXIMA ATIENZA, LUISITO ATIENZA, CELESTINA A. GONZALES, REGALADO ATIENZA AND MELITA A. DELA CRUZ PETITIONERS, VS. DOMINGO P. ESPIDOL, RESPONDENT. DECISION ABAD, J.:

This case is about the legal consequences when a buyer in a contract to sell on installment fails to make the next payments that he promised. The Facts and the Case Petitioner Heirs of Paulino Atienza, namely, Rufina L. Atienza, Anicia A. Ignacio, Roberto Atienza, Maura A. Domingo, Ambrocio Atienza, Maxima Atienza, Luisito Atienza, Celestina A. Gonzales, Regalado Atienza and Melita A. Dela Cruz (collectively, the Atienzas)[1] own a 21,959 square meters of registered agricultural land at Valle Cruz, Cabanatuan City.[2] They acquired the land under an emancipation patent[3] through the government's land reform program.[4] On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a contract calledKasunduan sa Pagbibili ng Lupa na may Paunang-Bayad (contract to sell land with a down payment) covering the property.[5] They agreed on a price of P130.00 per square meter or a total of P2,854,670.00, payable in three installments: P100,000.00 upon the signing of the contract; P1,750,000.00 in December 2002, and the remaining P974,670.00 in June 2003. Respondent Espidol paid the Atienzas P100,000.00 upon the execution of the contract and paid P30,000.00 in commission to the brokers. When the Atienzas demanded payment of the second installment of P1,750,000.00 in December 2002, however, respondent Espidol could not pay it. He offered to pay the Atienzas P500.000.00 in the meantime,[6] which they did not accept. Claiming that Espidol breached his obligation, on February 21, 2003 the Atienzas filed a complaint[7] for the annulment of their agreement with damages before the Regional Trial Court (RTC) of Cabanatuan City in Civil Case 4451. In his answer,[8] respondent Espidol admitted that he was unable to pay the December 2002 second installment, explaining that he lost access to the money which he shared with his wife because of an injunction order issued by an American court in connection with a domestic violence case that she filed against him.[9] In his desire to abide by his obligation, however, Espidol took time to travel to the Philippines to offer P800,000.00 to the Atienzas. Respondent Espidol also argued that, since their contract was one of sale on installment, his failure to pay the installment due in December 2002 did not amount to a breach. It was merely an event that justified the Atienzas' not to convey the title to the property to him. The non-payment of an installment is not a legal ground for annulling a perfected contract of sale. Their remedy was to bring an action for specific performance. Moreover, Espidol contended that the action was premature since the last payment was not due until June 2003. In a decision[10] dated January 24, 2005, the RTC ruled that, inasmuch as the non-payment of the purchase price was not considered a breach in a contract to sell on installment but only an event that authorized the vendor not to convey title, the proper issue was whether the Atienzas were justified in refusing to accept respondent Espidol's offer of an amount lesser than that agreed upon on the second installment. The trial court held that, although respondent's legal problems abroad cannot justify his failure to comply with his contractual obligation to pay an installment, it could not be denied that he made an honest effort to pay at least a portion of it. His traveling to the Philippines from America showed his willingness and desire to make good on his obligation. His good faith negated any notion that he intended to renege on what he owed. The Atienzas brought the case to court prematurely considering that the last installment was not then due. Furthermore, said the RTC, any attempt by the Atienzas to cancel the contract would have to comply with the provisions of Republic Act (R.A.) 6552 or the Realty Installment Buyer Protection Act (R.A. 6552), particularly the giving of the required notice of cancellation, that they omitted in this case. The RTC thus declared the contract between the parties valid and subsisting and ordered the parties to comply with its terms and conditions. On appeal,[11] the Court of Appeals (CA) affirmed the decision of the trial court.[12] Not satisfied, the Atienzas moved for reconsideration.[13] They argued that R.A. 6552 did not apply to the case because the land was agricultural and respondent Espidol had not paid two years worth of installment that the law required for coverage. And, in an apparent shift of theory, the Atienzas now also impugn the validity of their contract to sell, claiming that, since the property was covered by an emancipation patent, its sale was prohibited and void. But the CA denied the motion for reconsideration, hence, the present petition.[14]

Questions Presented The questions presented for resolution are: 1. Whether or not the Atienzas could validly sell to respondent Espidol the subject land which they acquired through land reform under Presidential Decree 27[15] (P.D. 27); 2. Whether or not the Atienzas were entitled to the cancellation of the contract to sell they entered into with respondent Espidol on the ground of the latter's failure to pay the second installment when it fell due; and 3. Whether or not the Atienzas' action for cancellation of title was premature absent the notarial notice of cancellation required by R.A. 6552. The Court's Rulings One. That the Atienzas brought up the illegality of their sale of subject land only when they filed their motion for reconsideration of the CA decision is not lost on this Court. As a rule, no question will be entertained on appeal unless it was raised before the court below. This is but a rule of fairness.[16] Nonetheless, in order to settle a matter that would apparently undermine a significant policy adopted under the land reform program, the Court cannot simply shirk from the issue. The Atienzas' title shows on its face that the government granted title to them on January 9, 1990 by virtue of P.D. 27. This law explicitly prohibits any form of transfer of the land granted under it except to the government or by hereditary succession to the successors of the farmer beneficiary. Upon the enactment of Executive Order 228[17] in 1987, however, the restriction ceased to be absolute. Land reform beneficiaries were allowed to transfer ownership of their lands provided that their amortizations with the Land Bank of the Philippines (Land Bank) have been paid in full.[18] In this case, the Atienzas' title categorically states that they have fully complied with the requirements for the final grant of title under P.D. 27. This means that they have completed payment of their amortization with Land Bank. Consequently, they could already legally transfer their title to another. Two. Regarding the right to cancel the contract for non-payment of an installment, there is need to initially determine if what the parties had was a contract of sale or a contract to sell. In a contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement, retained by the seller and is not to pass to the vendee until full payment of the purchase price. In the contract of sale, the buyer's non-payment of the price is a negative resolutory condition; in the contract to sell, the buyer's full payment of the price is a positive suspensive condition to the coming into effect of the agreement. In the first case, the seller has lost and cannot recover the ownership of the property unless he takes action to set aside the contract of sale. In the second case, the title simply remains in the seller if the buyer does not comply with the condition precedent of making payment at the time specified in the contract.[19] Here, it is quite evident that the contract involved was one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land until respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no question that the parties understood this to be the case.[20] Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002. That payment, said both the RTC and the CA, was a positive suspensive condition failure of which was not regarded a breach in the sense that there can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition had not taken place. And this is correct so far. Unfortunately, the RTC and the CA concluded that should Espidol eventually pay the price of the land, though not on time, the Atienzas were bound to comply with their obligation to sell the same to him. But this is error. In the first place, since Espidol failed to pay the installment on a day certain fixed in their agreement, the Atienzas can afterwards validly cancel and ignore the contract to sell because their obligation to sell under it did not arise. Since the suspensive condition did not arise, the parties stood as if the conditional obligation had never existed.[21] Secondly, it was not a pure suspensive condition in the sense that the Atienzas made no undertaking while the installments were not yet due. Mr. Justice Edgardo L. Paras gave a fitting example of suspensive condition: "I'll buy

your land for P1,000.00 if you pass the last bar examinations." This he said was suspensive for the bar examinations results will be awaited. Meantime the buyer is placed under no immediate obligation to the person who took the examinations.[22] Here, however, although the Atienzas had no obligation as yet to turn over title pending the occurrence of the suspensive condition, it was implicit that they were under immediate obligation not to sell the land to another in the meantime. When Espidol failed to pay within the period provided in their agreement, the Atienzas were relieved of any obligation to hold the property in reserve for him. The ruling of the RTC and the CA that, despite the default in payment, the Atienzas remained bound to this day to sell the property to Espidol once he is able to raise the money and pay is quite unjustified. The total price was P2,854,670.00. The Atienzas decided to sell the land because petitioner Paulino Atienza urgently needed money for the treatment of his daughter who was suffering from leukemia.[23] Espidol paid a measly P100,000.00 in down payment or about 3.5% of the total price, just about the minimum size of a broker's commission. Espidol failed to pay the bulk of the price, P1,750,000.00, when it fell due four months later in December 2002. Thus, it was not such a small default as to justify the RTC and the CA's decision to continue to tie up the Atienzas to the contract to sell upon the excuse that Espidol tried his honest best to pay. Although the Atienzas filed their action with the RTC on February 21, 2003, four months before the last installment of P974,670.00 fell due in June 2003, it cannot be said that the action was premature. Given Espidol's failure to pay the second installment of P1,750,000.00 in December 2002 when it was due, the Atienzas' obligation to turn over ownership of the property to him may be regarded as no longer existing.[24] The Atienzas had the right to seek judicial declaration of such non-existent status of that contract to relieve themselves of any liability should they decide to sell the property to someone else. Parenthetically, Espidol never offered to settle the full amount of the price in June 2003, when the last installment fell due, or during the whole time the case was pending before the RTC. Three. Notice of cancellation by notarial act need not be given before the contract between the Atienzas and respondent Espidol may be validly declare non-existent. R.A. 6552 which mandated the giving of such notice does not apply to this case. The cancellation envisioned in that law pertains to extrajudicial cancellation or one done outside of court,[25] which is not the mode availed of here. The Atienzas came to court to seek the declaration of its obligation under the contract to sell cancelled. Thus, the absence of that notice does not bar the filing of their action. Since the contract has ceased to exist, equity would, of course, demand that, in the absence of stipulation, the amount paid by respondent Espidol be returned, the purpose for which it was given not having been attained;[26] and considering that the Atienzas have consistently expressed their desire to refund the P130,000.00 that Espidol paid.[27] WHEREFORE, the Court GRANTS the petition and REVERSES and SETS ASIDE the August 31, 2007 decision and November 5, 2007 resolution of the Court of Appeals in CA-G.R. CV 84953. The Court declares the Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad between petitioner Heirs of Paulino Atienza and respondent Domingo P. Espidol dated August 12, 2002 cancelled and the Heirs' obligation under it non-existent. The Court directs petitioner Heirs of Atienza to reimburse the P130,000.00 down payment to respondent Espidol. SO ORDERED. Carpio, (Chairperson), Nachura, Peralta, and Mendoza, JJ., concur. FIRST DIVISION

[G.R. No. 152658. July 29, 2005]

LILY ELIZABETH BRAVO-GUERRERO, BEN MAURICIO P. BRAVO,[1] ROLAND P. BRAVO, JR., OFELIA BRAVO-QUIESTAS, HEIRS OF CORPUSINIA BRAVO-NIOR namely: GERSON U. NIOR, MARK GERRY B. NIOR, CLIFF RICHARD B. NIOR, BRYAN B. NIOR, WIDMARK B. NIOR, SHERRY ANNE B. NIOR, represented by LILY ELIZABETH BRAVO-GUERRERO as their attorney-in-fact, and HONORABLE

FLORENTINO A. TUASON, JR., Presiding Judge, Regional Trial Court, Branch 139, Makati City, petitioners, vs. EDWARD P. BRAVO, represented by his attorney-in-fact FATIMA C. BRAVO, respondent, and DAVID B. DIAZ, JR.,intervenor-respondent. DECISION CARPIO, J.:

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

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

The Ruling of the Trial Court

The trial court upheld Mauricios sale of the Properties to the vendees. The trial court ruled that the sale did not prejudice the compulsory heirs, as the Properties were conveyed for valuable consideration. The trial court also noted that the Deed of Sale was duly notarized and was in existence for many years without question about its validity. The dispositive portion of the trial courts Decision of 11 May 2000 reads: WHEREFORE, premises considered, the Court hereby DENIES the JUDICIAL PARTITION of the properties covered by TCT Nos. 58999 and 59000 registered with the Office of the Register of Deeds of Rizal. SO ORDERED.[11] Dissatisfied, Edward and David Jr. (respondents) filed a joint appeal to the Court of Appeals.

The Ruling of the Court of Appeals Citing Article 166 of the Civil Code (Article 166), the Court of Appeals declared the Deed of Sale void for lack of Simonas consent. The appellate court held that the GPA executed by Simona in 1966 was not sufficient to authorize Mauricio to sell the Properties because Article 1878 of the Civil Code (Article 1878) requires a special power of attorney for such transactions. The appellate court reasoned that the GPA was executed merely to enable Mauricio to mortgage the Properties, not to sell them. The Court of Appeals also found that there was insufficient proof that the vendees made the mortgage payments on the Properties, since the PNB and DBP receipts were issued in Mauricios name. The appellate court opined that the rental income of the Properties, which the vendees never shared with respondents, was sufficient to cover the mortgage payments to PNB and DBP. The Court of Appeals declared the Deed of Sale void and ordered the partition of the Properties in its Decision of 21 December 2001 (CA Decision), as follows: WHEREFORE, the decision of the Regional Trial Court of Makati City, Metro-Manila, Branch 13[9] dated 11 May 2000[,] review of which is sought in these proceedings[,] is REVERSED. 1. The Deed of Sale with Assumption of Real Estate Mortgage (Exh. 4) dated 28 October 1970 is hereby declared null and void; Judicial Partition on the questioned properties is hereby GRANTED in the following manner: A. B. In representation of his deceased mother, LILY BRAVO-DIAZ, intervenor DAVID DIAZ, JR., is entitled to one-half (1/2) interest of the subject properties; Plaintiff-appellant EDWARD BRAVO and the rest of the five siblings, namely: LILY ELIZABETH, EDWARD, ROLAND, JR., SENIA, BENJAMIN and OFELIA are entitled to one-sixth (1/6) representing the other half portion of the subject properties; Plaintiff-appellant Edward Bravo, intervenor DAVID DIAZ, JR., SENIA and BENJAMIN shall reimburse the defendant-appellees LILY ELIZABETH, OFELIA and ROLAND the sum of One Thousand (P1,000.00) PESOS representing the consideration paid on the questioned deed of sale with assumption of mortgage with interest of six (6) percent per annum effective 28 October 1970 until fully paid.

2.

C.

SO ORDERED.[12]

The Issues

Petitioners seek a reversal of the Decision of the Court of Appeals, raising these issues: 1. WHETHER THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE VALIDITY AND ENFORCEMENT OF THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE. 2. WHETHER THE COURT OF APPEALS ERRED IN ORDERING THE PARTITION OF THE PROPERTY IN QUESTION.[13] At the least, petitioners argue that the subject sale is valid as to Mauricios share in the Properties. On the other hand, respondents maintain that they are co-owners of the Properties by succession. Respondents argue that the sale of the conjugal Properties is void because: (1) Mauricio executed the Deed of Sale without Simonas consent; and (2) the sale was merely simulated, as shown by the grossly inadequate consideration Mauricio received for the Properties. While this case was pending, Leonida Andaya Lolong (Leonida), David Jr.s aunt, and Atty. Cendaa, respondents counsel, informed the Court that David Jr. died on 14 September 2004. Afterwards, Leonida and Elizabeth wrote separate letters asking for the resolution of this case. Atty. Cendaa later filed an urgent motion to annotate attorneys lien on TCT Nos. 58999 and 59000. In its Resolution dated 10 November 2004,[14] the Court noted the notice of David Jr.s death, the letters written by Leonida and Elizabeth, and gr anted the motion to annotate attorneys lien on TCT Nos. 58999 and 59000.

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

On the Requirement of the Wifes Consent We hold that the Court of Appeals erred when it declared the Deed of Sale void based on Article 166, which states: Art. 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership without the wifes consent. If she refuses unreasonably to give her consent, the court may compel her to grant the same. This article shall not apply to property acquired by the conjugal partnerships before the effective date of this Code. Article 166 expressly applies only to properties acquired by the conjugal partnership after the effectivity of the Civil Code of the Philippines (Civil Code). The Civil Code came into force on 30 August 1950.[16] Although there is no dispute that the Properties were conjugal properties of Mauricio and Simona, the records do not show, and the parties did not stipulate, when the Properties were acquired.[17] Under Article 1413 of the old Spanish Civil Code, the husband could alienate conjugal partnership property for valuable consideration without the wifes consent.[18] Even under the present Civil Code, however, the Deed of Sale is not void. It is well-settled that contracts alienating conjugal real property without the wifes consent are merely voidable under the Civil Code that is, binding on the parties unless annulled by a competent court and not void ab initio.[19] Article 166 must be read in conjunction with Article 173 of the Civil Code (Article 173). The latter prescribes certain conditions before a sale of conjugal property can be annulled for lack of the wifes consent, as follows:

Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband. (Emphasis supplied) Under the Civil Code, only the wife can ask to annul a contract that disposes of conjugal real property without her consent. The wife must file the action for annulment during the marriage and within ten years from the questioned transaction. Article 173 is explicit on the remedies available if the wife fails to exercise this right within the specified period. In such case, the wife or her heirs can only demand the value of the property provided they prove that the husband fraudulently alienated the property. Fraud is never presumed, but must be established by clear and convincing evidence.[20] Respondents action to annul the Deed of Sale based on Article 166 must fail for having been filed out of time. The marriage of Mauricio and Simona was dissolved when Mauricio died in 1973. More than ten years have passed since the execution of the Deed of Sale. Further, respondents, who are Simonas heirs, are not the parties who can invoke Article 166. Article 173 reserves that remedy to the wife alone. Only Simona had the right to have the sale of the Properties annulled on the ground that Mauricio sold the Properties without her consent. Simona, however, did not assail the Deed of Sale during her marriage or even after Mauricios death. The records are bereft of any indication that Simona questioned the sale of the Properties at any time. Simona did not even attempt to take possession of or reside on the Properties after Mauricios death. David Jr., who was raised by Simona, testified that he and Simona continued to live in Pasay City after Mauricios death, while her children and other grandchildren resided on the Properties.[21] We also agree with the trial court that Simona authorized Mauricio to dispose of the Properties when she executed the GPA. True, Article 1878 requires a special power of attorney for an agent to execute a contract that transfers the ownership of an immovable. However, the Court has clarified that Article 1878 refers to the nature of the authorization, not to its form.[22] Even if a document is titled as a general power of attorney, the requirement of a special power of attorney is met if there is a clear mandate from the principal specifically authorizing the performance of the act.[23] In Veloso v. Court of Appeals,[24] the Court explained that a general power of attorney could contain a special power to sell that satisfies the requirement of Article 1878, thus: An examination of the records showed that the assailed power of attorney was valid and regular on its face. It was notarized and as such, it carries the evidentiary weight conferred upon it with respect to its due execution. While it is true that it was denominated as a general power of attorney, a perusal thereof revealed that it stated an authority to sell, to wit: 2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands, tenements and hereditaments or other forms of real property, more specifically TCT No. 49138, upon such terms and conditions and under such covenants as my said attorney shall deem fit and proper. Thus, there was no need to execute a separate and special power of attorney since the general power of attorney had expressly authorized the agent or attorney in fact the power to sell the subject property. The special power of attorney can be included in the general power when it is specified therein the act or transaction for which the special power is required. (Emphasis supplied) In this case, Simona expressly authorized Mauricio in the GPA to sell, assign and dispose of any and all of my property, real, personal or mixed, of any kind whatsoever and wheresoever situated, or any interest therein xxx as well as to act as my general representative and agent, with full authority to buy, sell, negotiate and contract for me and in my behalf.[25] Taken together, these provisions constitute a clear and specific mandate to Mauricio to sell the Properties. Even if it is called a general power of attorney, the specific provisions in the GPA are sufficient for the purposes of Article 1878. These provisions in the GPA likewise indicate that Simona consented to the sale of the Properties.

Whether the Sale of the Properties was Simulated or is Void for Gross Inadequacy of Price We point out that the law on legitime does not bar the disposition of property for valuable consideration to descendants or compulsory heirs. In a sale, cash of equivalent value replaces the property taken from the estate.[26] There is no diminution of the estate but merely a substitution in values. Donations and other dispositions by gratuitous title, on the other hand, must be included in the computation of legitimes.[27] Respondents, however, contend that the sale of the Properties was merely simulated. As proof, respondents point to the consideration ofP1,000 in the Deed of Sale, which respondents claim is grossly inadequate compared to the actual value of the Properties. Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects. When the parties to an alleged contract do not really intend to be bound by it, the contract is simulated and void. [28] A simulated or fictitious contract has no legal effect whatsoever[29] because there is no real agreement between the parties. In contrast, a contract with inadequate consideration may nevertheless embody a true agreement between the parties. A contract of sale is a consensual contract, which becomes valid and binding upon the meeting of minds of the parties on the price and the object of the sale.[30] The concept of a simulated sale is thus incompatible with inadequacy of price. When the parties agree on a price as the actual consideration, the sale is not simulated despite the inadequacy of the price.[31] Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of price does not even affect the validity of a contract of sale, unless it signifies a defect in the consent or that the parties actually intended a donation or some other contract.[32] Inadequacy of cause will not invalidate a contract unless there has been fraud, mistake or undue influence.[33] In this case, respondents have not proved any of the instances that would invalidate the Deed of Sale. Respondents even failed to establish that the consideration paid by the vendees for the Properties was grossly inadequate. As the trial court pointed out, the Deed of Sale stipulates that, in addition to the payment of P1,000, the vendees should assume the mortgage loans from PNB and DBP. The consideration for the sale of the Properties was thus P1,000 in cash and the assumption of the P15,000 mortgage. Respondents argue that P16,000 is still far below the actual value of the Properties. To bolster their claim, respondents presented the following: (1) Tax Declarations No. A-001-00905[34] and A-001-00906[35] for the year 1979, which placed the assessed value of the Properties at P70,020 and their approximate market value at P244,290; and (2) a certified copy of the Department of Finances Department Order No. 62-97[36] dated 6 June 1997 and attached guidelines[37] which established the zonal value of the properties along Evangelista Street at P15,000 per square meter. The subject Deed of Sale, however, was executed in 1970. The valuation of the Properties in 1979 or 1997 is of little relevance to the issue of whether P16,000 was a grossly inadequate price to pay for the Properties in 1970. Certainly, there is nothing surprising in the sharp increase in the value of the Properties nine or twenty-seven years after the sale, particularly when we consider that the Properties are located in the City of Makati. More pertinent are Tax Declarations No. 15812[38] and No. 15813,[39] both issued in 1967, presented by petitioners. These tax declarations placed the assessed value of both Properties at P16,160. Compared to this, the price of P16,000 cannot be considered grossly inadequate, much less so shocking to the conscience [40] as to justify the setting aside of the Deed of Sale. Respondents next contend that the vendees did not make the mortgage payments on the Properties. Respondents allege that the rents paid by the tenants leasing portions of the Properties were sufficient to cover the mortgage payments to DBP and PNB. Again, this argument does not help respondents cause. Assuming that the vendees failed to pay the full price stated in the Deed of Sale, such partial failure would not render the sale void. In Buenaventura v. Court of Appeals,[41] the Court held: xxx If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the breach of that manner of payment. xxx

It is not the act of payment of price that determines the validity of a contract of sale. Payment of the price has nothing to do with the perfection of the contract. Payment of the price goes into the performance of the contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract. (Emphasis supplied.) Neither was it shown that the rentals from tenants were sufficient to cover the mortgage payments. The parties to this case stipulated to only one tenant, a certain Federico M. Puno, who supposedly leased a room on the Properties for P300 per month from 1992 to 1994.[42] This is hardly significant, when we consider that the mortgage was fully paid by 1974. Indeed, the fact that the Properties were mortgaged to DBP and PNB indicates that the conjugal partnership, or at least Mauricio, was short of funds. Petitioners point out that they were duly employed and had the financial capacity to buy the Properties in 1970. Respondents did not refute this. Petitioners presented 72 receipts[43] showing the mortgage payments made to PNB and DBP, and the Release of the Real Estate Mortgage [44] (Mortgage Release) dated 5 April 1974. True, these documents all bear Mauricios name. However, this tends to support, rather than detract from, petitionervendees explanation that they initially gave the mortgage payments directly to Mauricio, and then later directly to the banks, without formally advising the bank of the sale. The last 3 mortgage receipts and the Mortgage Release were all issued in Mauricios name even after his death in 1970. Obviously, Mauricio could not have secured the Mortgage Release and made these last payments.

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

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

Case No. 97-137, declaring VALID the Deed of Sale with Assumption of Mortgage dated 28 October 1970, with the following MODIFICATIONS: 1. We GRANT judicial partition of the subject Properties in the following manner: a. b. c. Petitioner LILY ELIZABETH BRAVO-GUERRERO is entitled to one-third (1/3) of the Properties; Petitioner OFELIA BRAVO-QUIESTAS is entitled to one-third (1/3) of the Properties; and The remaining one-third (1/3) portion of the Properties should be divided equally between the children of ROLAND BRAVO.

2. The other heirs of ROLAND BRAVO must reimburse ROLAND BRAVO, JR. for whatever expenses the latter incurred in paying for and securing the release of the mortgage on the Properties. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION SPS. RAMON LEQUIN and VIRGINIA LEQUIN, Petitioners, G.R. No. 177710 Present: CARPIO, J., Chairperson, CHICO-NAZARIO, VELASCO, JR., NACHURA, and

- versus -

PERALTA, JJ. SPS. RAYMUNDO VIZCONDE and SALOME LEQUIN VIZCONDE, Respondents. Promulgated:

October 12, 2009 x-----------------------------------------------------------------------------------------x DECISION VELASCO, JR., J.: The Case This is an appeal under Rule 45 from the Decision[1] dated July 20, 2006 of the Court of Appeals (CA) in CAG.R. CV No. 83595, which declared the Kasulatan ng Bilihang Tuluyan ng Lupa[2] (Kasulatan) valid as between the parties, but required respondents to return the amount of PhP 50,000 to petitioners. Also assailed is the March 30, 2007 CA Resolution[3] denying petitioners motion for reconsideration. The Facts Petitioner Ramon Lequin, husband of petitioner Virginia Lequin, is the brother of respondent Salome L. Vizconde and brother-in-law of respondent Raymundo Vizconde. With this consanguine and affinity relation, the instant case developed as follows: In 1995, petitioners, residents of Diamond Court, Brixton Ville Subdivision, Camarin, Caloocan City, bought the subject lot consisting of 10,115 square meters from one Carlito de Leon (de Leon). The sale was negotiated by respondent Raymundo Vizconde. The subject lot is located near the Sto. Rosario to Magsaysay road in Aliaga, Nueva Ecija. Adjacent thereto and located in between the subject lot and the road is a dried up canal (or sapang patay in the native language). In 1997, respondents represented to petitioners that they had also bought from Carlito de Leon a 1,012square meter lot adjacent to petitioners property and built a house thereon. As later confirmed by de Leon, however, the 1,012-square meter lot claimed by respondents is part of the 10,115-square meter lot petitioners bought from him. Petitioners believed the story of respondents, since it was Raymundo who negotiated the sale of their lot with de Leon. With the consent of respondents, petitioners then constructed their house on the 500-square meter half-portion of the 1,012 square-meter lot claimed by respondents, as this was near the road. Respondents residence is on the remaining 512 square meters of the lot. Given this situation where petitioners house stood on a portion of the lot allegedly owned by respondents, petitioners consulted a lawyer, who advised them that the 1,012-square meter lot be segregated from the subject lot whose title they own and to make it appear that they are selling to respondents 512 square meters thereof. This sale was embodied in the February 12, 2000Kasulatan where it was made to appear that respondents paid PhP 15,000 for the purchase of the 512-square meter portion of the subject lot. In reality, the consideration of PhP 15,000 was not paid to petitioners. Actually, it was petitioners who paid respondents PhP 50,000 for the 500-square meter portion where petitioners built their house on, believing respondents representation that the latter own the 1,012-square meter lot. In July 2000, petitioners tried to develop the dried up canal located between their 500-square meter lot and the public road. Respondents objected, claiming ownership of said dried up canal or sapang patay. This prompted petitioners to look into the ownership of the dried up canal and the 1,012 square-meter lot claimed by respondents. Carlito de Leon told petitioners that what he had sold to respondents was the dried up canal or sapang patay and that the 1,012-square meter lot claimed by respondents really belongs to petitioners. Thus, on July 13, 2001, petitioners filed a Complaint[4] for Declaration of Nullity of Contract, Sum of Money and Damagesagainst respondents with the Regional Trial Court (RTC), Branch 28 in Cabanatuan City, praying, among others, for the declaration of the February 12, 2000 Kasulatan as null and void ab initio, the return of PhP 50,000 they paid to respondents, and various damages. The case was docketed as Civil Case No. 4063.

The Ruling of the RTC On July 5, 2004, after due trial on the merits with petitioners presenting three witnesses and respondents only one witness, the trial court rendered a Decision[5] in favor of petitioners. The decretal portion reads:

WHEREFORE, viewed from the foregoing, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows: 1. 2. Declaring the KASULATAN NG TULUYANG BILIHAN dated February 12, 2000 as NULL and VOID; and Ordering the defendants: (a) to return to the plaintiffs the amount of FIFTY THOUSAND PESOS which they have paid in the simulated deed of sale plus an interest of 12% per annum to commence from the date of the filing of this case; (b) To pay the plaintiffs moral damages in the amount of Php50,000.00; (c) To pay exemplary damages of Php50,000.00; (d) To pay attorneys fees in the amount of Php10,000.00; and (e) SO ORDERED.[6] To pay the costs of suit.

The RTC found the Kasulatan allegedly conveying 512 square meters to respondents to be null and void due to: (1) the vitiated consent of petitioners in the execution of the simulated contract of sale; and (2) lack of consideration, since it was shown that while petitioners were ostensibly conveying to respondents 512 square meters of their property, yet the consideration of PhP 15,000 was not paid to them and, in fact, they were the ones who paid respondents PhP 50,000. The RTC held that respondents were guilty of fraudulent misrepresentation. Aggrieved, respondents appealed the above RTC Decision to the CA. The Ruling of the CA The appellate court viewed the case otherwise. On July 20, 2006, it rendered the assailed Decision granting respondents appeal and declaring as valid the Kasulatan. The fallo reads: WHEREFORE, premises considered, the Appeal is GRANTED. The Kasulatan ng Bilihang Tuluyan dated February 12, 2000 is declared valid. However, Spouses Raymundo Vizconde and Salome Lequin Vizconde are hereby ordered to return to the plaintiffs the amount of P50,000.00 without interest. SO ORDERED.[7] In reversing and vacating the RTC Decision, the CA found no simulation in the contract of sale, i.e., Kasulatan. Relying onManila Banking Corporation v. Silverio,[8] the appellate court pointed out that an absolutely simulated contract takes place when the parties do not intend at all to be bound by it, and that it is characterized by the fact that the apparent contract is not really desired or intended to produce legal effects or in any way alter the juridical situation of the parties. It read the sale contract (Kasulatan) as clear and unambiguous, for respondents (spouses Vizconde) were the buyers and petitioners (spouses Lequin) were the sellers. Such being the case, petitioners are, to the CA, the owners of the 1,012-square meter lot, and as owners they conveyed the 512-square meter portion to respondents.

The CA viewed petitioners claim that they executed the sale contract to make it appear that respondents bought the property as mere gratuitous allegation. Besides, the sale contract was duly notarized with respondents claiming the 512-square meter portion they bought from petitioners and not the whole 1,012-square meter lot as alleged by petitioners. Moreover, the CA dismissed allegations of fraud and machinations against respondents to induce petitioners to execute the sale contract, there being no evidence to show how petitioners were defrauded and much less the machinations used by respondents. It ratiocinated that the allegation of respondents telling petitioners that they own the 1,012-square meter lot and for which petitioners sold them 512 square meters thereof does not fall in the concept of fraud. Anent the PhP 50,000 petitioners paid to respondents for the 500-square meter portion of the 1,012-square meter lot claimed by respondents, the CA ruled that the receipt spoke for itself and, thus, required respondents to return the amount to petitioners. On March 30, 2007, the CA denied petitioners Motion for Reconsideration of the above decision through the assailed resolution. Hence, petitioners went to this Court. The Issues I THE HONORABLE COURT OF APPEALS, WITH ALL DUE RESPECT, ERRED IN NOT CLEARLY STATING IN THE ASSAILED DECISION AND RESOLUTION THE FACTS AND LAW ON WHICH THE SAME WERE BASED; II THE HONORABLE COURT OF APPEALS, WITH ALL DUE RESPECT, ERRED IN NOT GIVING DUE CREDENCE TO THE FINDINGS OF FACTS OF THE TRIAL COURT AND HOW THE LATTER APPRECIATED THE TESTIMONIES GIVEN BY THE WITNESSES; III THE HONORABLE COURT OF APPEALS, WITH ALL DUE RESPECT, ERRED IN FINDING THAT THERE WAS NO FRAUD ON THE PART OF THE RESPONDENT-VIZCONDES; IV THE HONORABLE COURT OF APPEALS, WITH ALL DUE RESPECT, ERRED IN CONSIDERING THAT THE KASULATAN NG BILIHANG TULUYAN IS A VALID CONTRACT OF SALE; V THE HONORABLE COURT OF APPEALS, WITH ALL DUE RESPECT, ERRED IN NOT CONSIDERING THAT THE RESPONDENTS DID NOT HAVE THE FINANCIAL CAPACITY TO PURCHASE THE SUBJECT LAND FROM THE PETITIONERS.[9] The Courts Ruling The petition is meritorious. The issues boil down to two core questions: whether or not the Kasulatan covering the 512 square-meter lot is a valid contract of sale; and who is the legal owner of the other 500 square-meter lot. We find for petitioners.

The trial court found, inter alia, lack of consideration in the contract of sale while the appellate court, in reversing the decision of the trial court, merely ruled that the contract of sale is not simulated. With the contrary rulings of the courts a quo, the Court is impelled to review the records to judiciously resolve the petition. It is true that this Court is not a trier of facts, but there are recognized exceptions to this general rule, such as when the appellate court had ignored, misunderstood, or misinterpreted cogent facts and circumstances which, if considered, would change the outcome of the case; or when its findings were totally devoid of support; or when its judgment was based on a misapprehension of facts.[10] As may be noted, the CA, without going into details, ruled that the contract of sale was not simulated, as it was duly notarized, and it clearly showed petitioners as sellers, and respondents as buyers, of the 512-square meter lot, subject matter of the sale. But the CA misappreciated the evidence duly adduced during the trial on the merits. As established during the trial, petitioners bought the entire subject property consisting of 10,115 square meters from Carlito de Leon. The title of the subject property was duly transferred to petitioners names. Respondents, on the other hand, bought the dried up canal consisting of 1,012 square meters from de Leon. This dried up canal is adjacent to the subject property of petitioners and is the lot or area between the subject property and the public road (Sto. Rosario to Magsaysay). The affidavit or Sinumpaang Salaysay[11] of de Leon attests to the foregoing facts. Moreover, de Leons testimony in court confirmed and established such facts. These were neither controverted nor assailed by respondents who did not present any countervailing evidence. Before this factual clarification was had, respondents, however, made a claim against petitioners in 1997 when subject lot was re-surveyed by petitionersthat respondents also bought a 1,012 square-meter lot from de Leon. Undeniably, the 1,012 square meters was a portion of the 10,115 square meters which de Leon sold to petitioners. Obviously, petitioners respected respondents claimif not, to maintain peace and harmonious relations and segregated the claimed portion. Whether bad faith or ill-will was involved or an honest erroneous belief by respondents on their claim, the records do not show. The situation was further complicated by the fact that both parties built their respective houses on the 1,012 square-meter portion claimed by respondents, it being situated near the public road. To resolve the impasse on respondents claim over 1,012 square meters of petitioners property and the latters house built thereon, and to iron out their supposed respective rights, petitioners consulted a notary public, who advised and proposed the solution of a contract of sale which both parties consented to and is now the object of the instant action. Thus, the contract of sale was executed on February 12, 2000 with petitioners, being the title holders of the subject property who were ostensibly selling to respondents 512 square meters of the subject property while at the same time paying PhP 50,000 to respondents for the other 500 square-meter portion. From the above considerations, we conclude that the appellate courts finding that there was no fraud or fraudulent machinations employed by respondents on petitioners is bereft of factual evidentiary support. We sustain petitioners contention that respondents employed fraud and machinations to induce them to enter into the contract of sale. As such, the CAs finding of fact must give way to the finding of the trial court that the Kasulatan has to be annulled for vitiated consent. Anent the first main issue as to whether the Kasulatan over the 512-square meter lot is voidable for vitiated consent, the answer is in the affirmative.

A contract, as defined in the Civil Code, is a meeting of minds, with respect to the other, to give something or to render some service.[12] For a contract to be valid, it must have three essential elements: (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. The requisites of consent are (1) it should be intelligent or with an exact notion of the matter to which it refers; (2) it should be free; and (3) it should be spontaneous. In De Jesus v. Intermediate Appellate Court,[13] it was explained that intelligence in consent is vitiated by error, freedom by violence, intimidation or undue influence, and spontaneity by fraud. Article (Art.) 1330 of the Civil Code provides that when consent is given through fraud, the contract is voidable. Tolentino defines fraud as every kind of deception whether in the form of insidious machinations, manipulations, concealments or misrepresentations, for the purpose of leading another party into error and thus execute a particular act.[14] Fraud has a determining influence on the consent of the prejudiced party, as he is misled by a false appearance of facts, thereby producing error on his part in deciding whether or not to agree to the offer. One form of fraud is misrepresentation through insidious words or machinations. Under Art. 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which without them he would not have agreed to. Insidious words or machinations constituting deceit are those that ensnare, entrap, trick, or mislead the other party who was induced to give consent which he or she would not otherwise have given. Deceit is also present when one party, by means of concealing or omitting to state material facts, with intent to deceive, obtains consent of the other party without which, consent could not have been given. Art. 1339 of the Civil Code is explicit that failure to disclose facts when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. From the factual milieu, it is clear that actual fraud is present in this case. The sale between petitioners and de Leon over the 10,115 square-meter lot was negotiated by respondent Raymundo Vizconde. As such, Raymundo was fully aware that what petitioners bought was the entire 10,115 square meters and that the 1,012-square meter lot which he claims he also bought from de Leon actually forms part of petitioners lot. It cannot be denied by respondents that the lot which they actually bought, based on the unrebutted testimony and statement of de Leon, is the dried up canal which is adjacent to petitioners 10,115-square meter lot. Considering these factors, it is clear as day that there was deception on the part of Raymundo when he misrepresented to petitioners that the 1,012-square meter lot he bought from de Leon is a separate and distinct lot from the 10,115-square meter lot the petitioners bought from de Leon. Raymundo concealed such material fact from petitioners, who were convinced to sign the sale instrument in question and, worse, even pay PhP 50,000 for the 500 square-meter lot which petitioners actually own in the first place. There was vitiated consent on the part of petitioners. There was fraud in the execution of the contract used on petitioners which affected their consent. Petitioners reliance and belief on the wrongful claim by respondents operated as a concealment of a material fact in their agreeing to and in readily executing the contract of sale, as advised and proposed by a notary public. Believing that Carlito de Leon indeed sold a 1,012-square meter portion of the subject property to respondents, petitioners signed the contract of sale based on respondents representations. Had petitioners known, as they eventually would sometime in late 2000 or early 2001 when they made the necessary inquiry from Carlito de Leon, they would not have entered or signed the contract of sale, much

less pay PhP 50,000 for a portion of the subject lot which they fully own. Thus, petitioners consent was vitiated by fraud or fraudulent machinations of Raymundo. In the eyes of the law, petitioners are the rightful and legal owners of the subject 512 square-meter lot anchored on their purchase thereof from de Leon. This right must be upheld and protected. On the issue of lack of consideration, the contract of sale or Kasulatan states that respondents paid petitioners PhP 15,000 for the 512-square meter portion, thus: Na kaming magasawang Ramon Lequin at Virginia R. Lequin, nawang may sapat na gulang, pilipino at nakatira sa 9 Diamond Court, Brixton Ville Subdivision, Camarin, Kalookan City, alangalang sa halagang LABINGLIMANG LIBONG PISO (P 15,000.00) salaping pilipino nabinayaran sa amin ng buong kasiyahang loob namin ng magasawang Raymundo Vizconde at Salome Lequin, nawang may sapat na gulang, pilipino at nakatira sa Sto. Rosario, Aliaga, Nueva Ecija, ay amin naman ngayon inilipat, ibinigay at ipinagbili ng bilihang tuluyan sa naulit na magasawang Raymundo Vizconde at Salome Lequin, at sa kanilang mga tagapagmana ang x x x.[15] On its face, the above contract of sale appears to be supported by a valuable consideration. We, however, agree with the trial courts finding that this is a simulated sale and unsupported by any consideration, for respondents never paid the PhP 15,000 purported purchase price. Section 9 of Rule 130 of the Revised Rules on Evidence gives both the general rule and exception as regards written agreements, thus: SEC. 9. Evidence of written agreements.When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement. However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading: (a) An intrinsic ambiguity, mistake or imperfection in written agreement; (b) The failure of the written agreement to express the true intent and agreement of the parties thereto; (c) The validity of the written agreement; or (d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement. The term agreement includes wills. The second exception provided for the acceptance of parol evidence applies to the instant case. Lack of consideration was proved by petitioners evidence aliunde showing that the Kasulatan did not express the true intent and agreement of the parties. As explained above, said sale contract was fraudulently entered into through the misrepresentations of respondents causing petitioners vitiated consent. Moreover, the evidence of petitioners was uncontroverted as respondents failed to adduce any proof that they indeed paid PhP 15,000 to petitioners. Indeed, having asserted their purchase of the 512-square meter portion of petitioners based on theKasulatan, it behooves upon respondents to prove such affirmative defense of purchase. Unless the party asserting the affirmative defense of an issue sustains the burden of proof, his or her cause will not succeed. If he or she fails to establish the facts of which the matter asserted is predicated, the complainant is entitled to a verdict or decision in his or her favor.[16] In the instant case, the record is bereft of any proof of payment by respondents and, thus, their affirmative defense of the purported purchase of the 512-square meter portion fails. Thus, the clear finding of the trial court: 2. x x x [I]t was established by the plaintiffs [petitioners] that they were the ones who paid the defendants the amount of FIFTY THOUSAND PESOS (Php50,000.00) and execute a deed of

sale also in favor of the defendants. In a simple logic, where can you find a contract that a VENDOR will convey his real property and at the same time pay the VENDEE a certain amount of money without receiving anything in return?[17] There can be no doubt that the contract of sale or Kasulatan lacked the essential element of consideration. It is a well-entrenched rule that where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration.[18] Moreover, Art. 1471 of the Civil Code, which provides that if the price is simulated, the sale is void, also applies to the instant case, since the price purportedly paid as indicated in the contract of sale was simulated for no payment was actually made.[19] Consideration and consent are essential elements in a contract of sale. Where a partys consent to a contract of sale is vitiated or where there is lack of consideration due to a simulated price, the contract is null and void ab initio. Anent the second issue, the PhP 50,000 paid by petitioners to respondents as consideration for the transfer of the 500-square meter lot to petitioners must be restored to the latter. Otherwise, an unjust enrichment situation ensues. The facts clearly show that the 500-square meter lot is legally owned by petitioners as shown by the testimony of de Leon; therefore, they have no legal obligation to pay PhP 50,000 therefor. Art. 22 of the Civil Code provides that every person who through an act or performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. Considering that the 512 square-meter lot on which respondents house is located is clearly owned by petitioners, then the Court declares petitioners legal ownership over said 512 square-meter lot. The amount of PhP 50,000 should only earn interest at the legal rate of 6% per annum from the date of filing of complaint up to finality of judgment and not 12% since such payment is neither a loan nor a forbearance of credit.[20] After finality of decision, the amount of PhP 50,000 shall earn interest of 12% per annum until fully paid. The award of moral and exemplary damages must be reinstated in view of the fraud or fraudulent machinations employed by respondents on petitioners. The grant of damages in the concept of attorneys fees in the amount of PhP 10,000 must be maintained considering that petitioners have to incur litigation expenses to protect their interest in conformity to Art. 2208(2)[21] of the Civil Code. Considering that respondents have built their house over the 512-square meter portion legally owned by petitioners, we leave it to the latter what course of action they intend to pursue in relation thereto. Such is not an issue in this petition. WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the CA Decision dated July 20, 2006 and Resolution dated March 30, 2007 in CA-G.R. CV No. 83595 are hereby REVERSED and SET ASIDE. The Decision of the RTC, Branch 28 in Cabanatuan City in Civil Case No. 4063 is REINSTATED with the MODIFICATION that the amount of fifty thousand pesos (PhP 50,000) which respondents must return to petitioners shall earn an interest of 6% per annum from the date of filing of the complaint up to the finality of this Decision, and 12% from the date of finality of this Decision until fully paid. No pronouncement as to costs. SO ORDERED. SECOND DIVISION

[G.R. No. 158380. May 16, 2005]

MARIQUITA MACAPAGAL, petitioner, vs. CATALINA O. REMORIN, CORAZON CALUZA-BAMRUNGCHEEP, and LAURELIA CALUZA-VALENCIANO, respondents. DECISION PUNO, J.: Assailed in this petition for review is the Decision dated March 8, 2002 [1] of the Court of Appeals in CA-G.R. CV No. 44814[2] which reversed and set aside the Decision of the Regional Trial Court (RTC), Branch 88, of Quezon City in Civil Case No. Q-90-5384, as well as its Resolution dated May 7, 2003[3] which denied petitioners motion for reconsideration. Involved in the present controversy is a 105-square meter parcel of land located at No. 7, Serrano Laktaw Street, Galas, Quezon City, known as Lot 5. Lot 5, together with an adjacent 52.5-square meter lot known as Lot 4, forms part of the consolidated Lots 24 and 25, Block 12, of subdivision plan Psd-12586, LRC Record No. 16117. Lots 24 and 25 were registered in the name of Candido Caluza under Transfer Certificate of Title (TCT) No. 160544. Purificacion Arce-Caluza (Purificacion) is his second wife. Corazon Caluza-Bamrungcheep (Corazon) is his legally adopted daughter during his first marriage. After Candido died in 1981, Corazon and Purificacion executed a Deed of Extrajudicial Settlement dated November 21, 1981[4] adjudicating between themselves the properties of Candido, as the latters surviving heirs. Lots 24 and 25, together with Lot 23 which was registered in Candidos name under TCT No. 160543, were adjudicated to Corazon. Purificacion got Candidos land in Bulacan. However, administration of Lots 23, 24 and 25 were entrusted to Purificacion by Corazon as she had to leave for Thailand after her marriage to a Thai. Unknown to Corazon and while she was in Thailand, the 74-year old Purificacion executed an Affidavit of Loss dated December 31, 1983 alleging that TCT Nos. 160543 and 160544 were lost and could no longer be found. She filed a petition with the RTC of Quezon City for the issuance of new owners duplicates of title alleging that she was her deceased husbands sole heir. The petition was granted and TCT Nos. 326633 and 326634 were issued in Purificacions name. In July 1986, Purificacion sold the lots to Catalina Remorin (Catalina) who was issued TCT Nos. 346876 and 347859. Catalina mortgaged Lots 24 and 25 to L & R Lending Corporation for two hundred thousand (P200,000.00) pesos. After she learned of the foregoing, Corazon, through her attorney-in-fact Ramon Remorin, filed a complaint on December 29, 1986 for reconveyance and damages against Purificacion and Catalina before the RTC of Quezon City, docketed as Civil Case No. Q-49661. Plaintiff alleged that the two defendants connived with each other in transferring the three lots in their names through simulated sales. Corazon likewise filed a criminal complaint for falsification and perjury against the two before the Office of the City Fiscal of Quezon City, docketed as I.S. No. 8707726. On May 4, 1987, Catalina executed a Deed of Transfer, signed by Purificacion as witness, admitting the wrong they did in illegally transferring the lots in their names and acknowledging Corazon to be the rightful owner under the Deed of Extrajudicial Settlement dated November 21, 1981. The document was presented by Corazon in a motion to dismiss Civil Case No. Q-49661 but the motion was withdrawn when counsel for Catalina and Purificacion objected on the ground that the Deed of Transfer was executed without his legal assistance. The Deed of Transfer, however, was presented by Corazon before the Register of Deeds of Quezon City. Catalinas TCT No. 347859 over Lots 24 and 25 was cancelled and TCT No. 375605 was issued in Corazons name. Prior thereto, however, Catalina mortgaged Lots 24 and 25 to respondent Laurelia Caluza-Valenciano (Laurelia) for two hundred ninety-five thousand (P295,000.00) pesos to pay off her mortgage indebtedness to L & R Lending Corporation. The inscription of the mortgage in favor of Laurelia was carried over to Corazons TCT No. 375605. On March 21, 1988, Corazon, Purificacion, Catalina, and Laurelia executed a Memorandum of Agreement[5] to settle Civil Case No. Q-49661 and Criminal Charge No. I.S. 87-07726. The Agreement read This memorandum of agreement, made and executed by and among CORAZON CALUZA-BAMRUNGCHEEP, of legal age, married, citizen of Thailand by marriage but Filipino by birth, resident of Bangkok, Thailand, represented by her attorney-in-fact, CONSUELO R. CARUBIO; PURIFICACION ARCE-CALUZA and CATALINA OGOY-REMORIN, of legal ages, widow[s], Filipino citizens and residents at (sic) No. 7 Serrano Laktaw St., Quezon City; and

LAURELIA VALENCIANO, of legal age, married, Filipino citizen, and resident of No. 98 Bayani St., Santol, Quezon City; witnesseth, that Whereas, the above-named parties are involved in Civil Case No. Q-49661 of the Regional Trial Court of Quezon City and in Criminal Charge No. I.S. 87-07726 of the City Fiscals Office of Quezon City; Whereas, said parties have decided to mutually resolve their differences out-of-court voluntarily and without any duress or undue influence on both (sic) of them; Now, therefore, for and in consideration of the foregoing premises, the above parties hereby agree and stipulate as follows: That the first party, Corazon Caluza-Bamrungcheep, hereby cedes and grants unto and in favor of Purificacion ArceCaluza full ownership and other real rights over the southernmost apartment (garage) as well as the portion of the lot occupied thereby, described as Lot 25, Block 12 of the subdn. plan Psd-12586 covered by Transfer Certificate of Title No. 375605 of the Registry of Deeds for Quezon City; subject to the condition that said Purificacion ArceCaluza shall assume satisfaction of the mortgage debt contracted by Catalina Ogoy-Remorin in favor of Mrs. Laurelia C. Valenciano annotated at the back of the title thereof; and shall cause transfer of said annotation to the title to be issued in her (Purificacions) name; and furthermore that any and all expenses for segregation survey, retitling and annotation of said mortgage shall be shouldered by said Purificacion Arce-Caluza; That the parties agree that they shall execute such formal requisites for the implementation of this agreement, and that henceforth they waive and renounce whatever conflicting claims they may have over the intestate estate of Candido Caluza, deceased. Before the agreement could be implemented, however, Purificacion died on July 28, 1988. Consequently, another compromise agreement[6]was executed on September 9, 1988, viz.: PLAINTIFF AND DEFENDANTS (sic) respectfully submit for the kind consideration and approval of the Honorable Court this Compromise Agreement, which provides, thus: 1. That they agreed, as they hereby agree, to dismiss the complaint of the plaintiff as well as the counterclaim of the defendants (sic); 2. That they bind themselves not to bring any further action, suit or complaint against each other in connection with this case and/or the property in question or the subject-matter hereof; 3. That pursuant to the parties Memorandum of Agreement of March 21, 1986 (sic), a copy of which is attached as Annex A hereof, and with the death of defendant Purificacion Arce Caluza on July 28, 1988, in Quezon City, without an heir, plaintiff Corazon Caluza Bamrungcheep and defendant Catalina O. Remorin agreed, as they hereby agree, that title to the southernmost apartment (garage) as well as the portion of the lot occupied thereby, described as Lot 25, Block 12 of the subdivision plan Psd-12586 covered by Transfer Certificate of Title No. 375605 of the Registry of Deeds for Quezon City shall be transferred direct to its interested buyer with defendant Catalina O. Remorin assuming and paying (from the proceeds of the sale) her mortgage obligation with Mrs. Laurelia C. Valenciano annotated at the back of the title thereof; any and all expenses for segregation survey, re-titling, capital gains taxes and those connected with the annotation and/or release of said mortgage should now be shouldered by defendant Catalina O. Remorin; said defendant further agrees to execute such other documents or papers as are necessary to implement the aforementioned Memorandum of Agreement of March 21, 1986 (sic). The Agreement was approved by Judge Benigno T. Dayaw in his Decision dated September 16, 1988.[7] On May 24, 1989, Corazon sold the subject Lot 5 to Laurelia by virtue of a deed entitled Sale of Unsegregated Portion of Land. Controversy erupted anew when Catalina sold the same lot to herein petitioner Mariquita Macapagal on August 24, 1989 claiming to be authorized under the Compromise Agreement. Laurelia demanded that petitioner and her family vacate the premises, to no avail. On November 28, 1989, Laurelia filed an ejectment suit against petitioner before the Metropolitan Trial Court (MeTC) of Quezon City, docketed as Civil Case No. 2244.

In turn, petitioner filed a complaint for nullification of contract and damages with prayer for a temporary restraining order and/or writ of preliminary prohibitory injunction against Catalina, Corazon and Laurelia before the RTC of Quezon City, docketed as Civil Case No. Q-90-5384, root of the present petition. Petitioner sought to nullify the sale executed by Corazon in favor of Laurelia and to declare valid the one executed by Catalina in her favor. Plaintiff likewise asked that the MeTC of Quezon City be ordered to desist from hearing the ejectment suit. On October 15, 1993, the RTC of Quezon City rendered judgment in favor of petitioner.[8] Corazon and Laurelia appealed to the Court of Appeals which reversed the decision of the trial court.[9] Hence, this petition for review. Petitioner contends that the sale executed by Catalina in her favor should prevail over the one executed by Corazon in favor of Laurelia, as Catalina was the one authorized to sell the disputed property under the Compromise Agreement dated September 9, 1988. Respondents, on the other hand, contend that Corazon, the registered owner of the disputed property, did not give Catalina authority to sell the lot considering Catalinas connivance with Purificacion in illegally transferring the lots in their names, in the first place. It was provided in the Agreement that Catalina shall pay off her mortgage obligation and incidental expenses from the proceeds of the sale only to reassure Catalina that her obligation would be paid in the event that Corazon sells the property. We rule in favor of respondents. As correctly pointed out by the appellate court, Corazon was the registered owner of the disputed Lot 5 at the time the two sales were executed. As owner, she had the right to enjoy and dispose of Lot 5 as well as to exclude any person from such enjoyment and disposal.[10] A waiver may not be casually attributed when the terms thereof do not explicitly and clearly prove an intent to abandon the right.[11] In the case at bar, the Compromise Agreement dated September 9, 1988 cannot be taken as a waiver of Corazons authority to sell and grant thereof to Catalina considering that the Agreement merely provided that Catalina pay off her mortgage obligation and incidental expenses from the proceeds of the sale. Although it was imperative, as part of the compromise, that the money come from the proceeds of the sale, it was not expressly stated, nor did it necessarily mean, that Catalina herself be the one to directly sell the property. The money may merely be handed over to her for such payment. The rule is that any reasonable doubt that the language used conveys authority to sell will yield a construction that no such authority has been given.[12] Authority to sell must be couched in clear and unmistakable language.[13] Moreover, intent to give Catalina authority to sell may not be easily attributed to Corazon considering that the latter had to file the reconveyance case as a result of Purificacions and Catalinas acts of transferring the disputed lot in their names notwithstanding the clear terms of the Deed of Extrajudicial Settlement dated November 21, 1981. In contract interpretation, analysis is not to be limited to the words used in the contract, as they may not accurately reflect the parties true intent.[14] Ambiguities are construed against the drafter only when justified by the operative facts and surrounding circumstances.[15] It is for this reason that the interpreter must look at the reason behind and the circumstances under which the contract was executed.[16] If the words of the contract appear to be contrary to the evident intention as revealed by the circumstances, the latter shall prevail over the former.[17] Even assuming arguendo that the parties intended to confer upon Catalina authority to sell the disputed property, they clearly did not intend the Agreement to be the document itself considering that they agreed to execute such other documents or papers as are necessary to implement the agreement,[18] which they never did. Under Article 1878, paragraph 5 of the Civil Code, a special power of attorney is necessary for an agent to enter into any contract by which the ownership of an immovable property is transmitted or acquired either gratuitously or for a valuable consideration. Catalina admittedly did not have such a document in her favor. Neither can petitioner demand enforcement of the Compromise Agreement on the ground that she was the interested buyer referred to therein to whom title to the disputed property shall be directl y transferred. Being a stranger to the Agreement, petitioner cannot demand its enforcement for it is settled that a compromise agreement determines the rights and obligations only of the parties to it.[19] It cannot favor or prejudice a third person[20] even if he was aware of the contract and has acted with knowledge of it.[21] Moreover, if petitioner was indeed the interested buyer referred to in the Agreement and there was already a closed deal between her, Corazon and Catalina, even before the execution of the Compromise Agreement,[22] it is strange that petitioner was not identified outright as the buyer and that the Deed of Sale in her favor was executed only some twelve (12) months after or on August 24, 1989. Petitioner cannot be considered a buyer in good faith considering that she did not buy the disputed lot from its registered owner. One who buys from a person who is not the registered owner is not a buyer in good

faith.[23] Moreover, in double sales of real property, ownership passes to the vendee who, in good faith, first recorded it in the Registry of Property.[24] TCT No. 43235 was issued in Laurelias name on July 21, 1989 by virtue of the Sale of Unsegregated Portion of Land executed in her favor by Corazon. The fact that the deed of sale between respondents Corazon and Laurelia did not accurately reflect the true consideration thereof is not cause for declaration of its nullity. When the parties intended to be bound by the contract except that it did not reflect the actual purchase price of the property, there is only a relative simulation of the contract which remains valid and enforceable.[25] It cannot be declared null and void since it does not fall under the category of an absolutely simulated or fictitious contract.[26] The contract of sale is valid but subject to reformation.[27] IN VIEW WHEREOF, the petition is DENIED. The assailed Decision of the Court of Appeals, dated March 8, 2002, as well as its Resolution dated May 7, 2003 in CA-G.R. CV No. 44814 is AFFIRMED. SO ORDERED. Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 157493

February 5, 2007

RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO and ENRIQUETA, all surnamed OESMER, Petitioners, vs. PARAISO DEVELOPMENT CORPORATION, Respondent. DECISION CHICO-NAZARIO, J.: Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure seeking to reverse and set aside the Court of Appeals Decision1 dated 26 April 2002 in CA-G.R. CV No. 53130 entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs. Paraiso Development Corporation, as modified by its Resolution2 dated 4 March 2003, declaring the Contract to Sell valid and binding with respect to the undivided proportionate shares of the six signatories of the said document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); and ordering them to execute the Deed of Absolute Sale concerning their 6/8 share over the subject parcels of land in favor of herein respondent Paraiso Development Corporation, and to pay the latter the attorneys fees plus costs of the suit. The assailed Decision, as modified, likewise ordered the respondent to tender payment to the petitioners in the amount of P3,216,560.00 representing the balance of the purchase price of the subject parcels of land. The facts of the case are as follows: Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all surnamed Oesmer, together with Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are brothers and sisters, and the co-owners of undivided shares of two parcels of agricultural and tenanted land situated in Barangay Ulong Tubig, Carmona, Cavite, identified as Lot 720 with an area of 40,507 square meters (sq. m.) and Lot 834 containing an area of 14,769 sq. m., or a total land area of 55,276 sq. m. Both lots are unregistered and originally owned by their parents, Bibiano Oesmer and Encarnacion Durumpili, who declared the lots for taxation purposes under Tax Declaration No. 34383(cancelled by I.D. No. 6064-A) for Lot 720 and Tax Declaration No. 34374 (cancelled by I.D. No. 5629) for Lot 834. When the spouses Oesmer died, petitioners, together with Adolfo and Jesus, acquired the lots as heirs of the former by right of succession. Respondent Paraiso Development Corporation is known to be engaged in the real estate business. Sometime in March 1989, Rogelio Paular, a resident and former Municipal Secretary of Carmona, Cavite, brought along petitioner Ernesto to meet with a certain Sotero Lee, President of respondent Paraiso Development Corporation, at Otani Hotel in Manila. The said meeting was for the purpose of brokering the sale of petitioners properties to respondent corporation. Pursuant to the said meeting, a Contract to Sell5 was drafted by the Executive Assistant of Sotero Lee, Inocencia Almo. On 1 April 1989, petitioners Ernesto and Enriqueta signed the aforesaid Contract to Sell. A check in the amount of P100,000.00, payable to Ernesto, was given as option money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and Librado also signed the said Contract to Sell. However, two of the brothers, Adolfo and Jesus, did not sign the document. On 5 April 1989, a duplicate copy of the instrument was returned to respondent corporation. On 21 April 1989, respondent brought the same to a notary public for notarization. In a letter6 dated 1 November 1989, addressed to respondent corporation, petitioners informed the former of their intention to rescind the Contract to Sell and to return the amount of P100,000.00 given by respondent as option money. Respondent did not respond to the aforesaid letter. On 30 May 1991, herein petitioners, together with Adolfo and Jesus, filed a Complaint7 for Declaration of Nullity or for Annulment of Option Agreement or Contract to Sell with Damages before the Regional Trial Court (RTC) of Bacoor, Cavite. The said case was docketed as Civil Case No. BCV-91-49.

During trial, petitioner Rizalino died. Upon motion of petitioners, the trial court issued an Order,8 dated 16 September 1992, to the effect that the deceased petitioner be substituted by his surviving spouse, Josefina O. Oesmer, and his children, Rolando O. Oesmer and Fernando O. Oesmer. However, the name of Rizalino was retained in the title of the case both in the RTC and the Court of Appeals. After trial on the merits, the lower court rendered a Decision9 dated 27 March 1996 in favor of the respondent, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding only to the undivided proportionate share of the signatory of this document and recipient of the check, [herein petitioner] co-owner Ernesto Durumpili Oesmer. The latter is hereby ordered to execute the Contract of Absolute Sale concerning his 1/8 share over the subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter the attorneys fees in the sum of Ten Thousand (P10,000.00) Pesos plus costs of suit. The counterclaim of [respondent] corporation is hereby Dismissed for lack of merit.10 Unsatisfied, respondent appealed the said Decision before the Court of Appeals. On 26 April 2002, the appellate court rendered a Decision modifying the Decision of the court a quo by declaring that the Contract to Sell is valid and binding with respect to the undivided proportionate shares of the six signatories of the said document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The decretal portion of the said Decision states that: WHEREFORE, premises considered, the Decision of the court a quo is hereby MODIFIED. Judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding with respect to the undivided proportionate share of the six (6) signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the subject two parcels of land and in favor of herein [respondent] corporation, and to pay the latter the attorneys fees in the sum of Ten Thousand Pesos (P10,000.00) plus costs of suit.11 Aggrieved by the above-mentioned Decision, petitioners filed a Motion for Reconsideration of the same on 2 July 2002. Acting on petitioners Motion for Reconsideration, the Court of Appeals issued a Resolution dated 4 March 2003, maintaining its Decision dated 26 April 2002, with the modification that respondent tender payment to petitioners in the amount of P3,216,560.00, representing the balance of the purchase price of the subject parcels of land. The dispositive portion of the said Resolution reads: WHEREFORE, premises considered, the assailed Decision is hereby modified. Judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding with respect to the undivided proportionate shares of the six (6) signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter attorneys fees in the sum of Ten Thousand Pesos (P10,000.00) plus costs of suit. Respondent is likewise ordered to tender payment to the abovenamed [petitioners] in the amount of Three Million Two Hundred Sixteen Thousand Five Hundred Sixty Pesos (P3,216,560.00) representing the balance of the purchase price of the subject two parcels of land. 12
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Hence, this Petition for Review on Certiorari. Petitioners come before this Court arguing that the Court of Appeals erred: I. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is not binding upon petitioner Ernesto Oesmers co-owners (herein petitioners Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora). II. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is void altogether considering that respondent itself did not sign it as to indicate its consent to be bound by its terms. Moreover, Exhibit D is really a unilateral promise to sell without consideration distinct from the price, and hence, void.

Petitioners assert that the signatures of five of them namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on the margins of the supposed Contract to Sell did not confer authority on petitioner Ernesto as agent to sell their respective shares in the questioned properties, and hence, for lack of written authority from the above-named petitioners to sell their respective shares in the subject parcels of land, the supposed Contract to Sell is void as to them. Neither do their signatures signify their consent to directly sell their shares in the questioned properties. Assuming that the signatures indicate consent, such consent was merely conditional. The effectivity of the alleged Contract to Sell was subject to a suspensive condition, which is the approval of the sale by all the co-owners. Petitioners also assert that the supposed Contract to Sell (Exhibit D), contrary to the findings of the Court of Appeals, is not couched in simple language. They further claim that the supposed Contract to Sell does not bind the respondent because the latter did not sign the said contract as to indicate its consent to be bound by its terms. Furthermore, they maintain that the supposed Contract to Sell is really a unilateral promise to sell and the option money does not bind petitioners for lack of cause or consideration distinct from the purchase price. The Petition is bereft of merit. It is true that the signatures of the five petitioners, namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on the Contract to Sell did not confer authority on petitioner Ernesto as agent authorized to sell their respective shares in the questioned properties because of Article 1874 of the Civil Code, which expressly provides that: Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. The law itself explicitly requires a written authority before an agent can sell an immovable. The conferment of such an authority should be in writing, in as clear and precise terms as possible. It is worth noting that petitioners signatures are found in the Contract to Sell. The Contract is absolutely silent on the establishment of any principalagent relationship between the five petitioners and their brother and co-petitioner Ernesto as to the sale of the subject parcels of land. Thus, the Contract to Sell, although signed on the margin by the five petitioners, is not sufficient to confer authority on petitioner Ernesto to act as their agent in selling their shares in the properties in question. However, despite petitioner Ernestos lack of written authority from the five petitioners to sell their shares in the subject parcels of land, the supposed Contract to Sell remains valid and binding upon the latter. As can be clearly gleaned from the contract itself, it is not only petitioner Ernesto who signed the said Contract to Sell; the other five petitioners also personally affixed their signatures thereon. Therefore, a written authority is no longer necessary in order to sell their shares in the subject parcels of land because, by affixing their signatures on the Contract to Sell, they were not selling their shares through an agent but, rather, they were selling the same directly and in their own right. The Court also finds untenable the following arguments raised by petitioners to the effect that the Contract to Sell is not binding upon them, except to Ernesto, because: (1) the signatures of five of the petitioners do not signify their consent to sell their shares in the questioned properties since petitioner Enriqueta merely signed as a witness to the said Contract to Sell, and that the other petitioners, namely: Librado, Rizalino, Leonora, and Bibiano, Jr., did not understand the importance and consequences of their action because of their low degree of education and the contents of the aforesaid contract were not read nor explained to them; and (2) assuming that the signatures indicate consent, such consent was merely conditional, thus, the effectivity of the alleged Contract to Sell was subject to a suspensive condition, which is the approval by all the co-owners of the sale. It is well-settled that contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. To produce a contract, the acceptance must not qualify the terms of the offer. However, the acceptance may be express or implied. For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.13

In the case at bar, the Contract to Sell was perfected when the petitioners consented to the sale to the respondent of their shares in the subject parcels of land by affixing their signatures on the said contract. Such signatures show their acceptance of what has been stipulated in the Contract to Sell and such acceptance was made known to respondent corporation when the duplicate copy of the Contract to Sell was returned to the latter bearing petitioners signatures. As to petitioner Enriquetas claim that she merely signed as a witness to the said contract, the contract itself does not say so. There was no single indication in the said contract that she signed the same merely as a witness. The fact that her signature appears on the right-hand margin of the Contract to Sell is insignificant. The contract indisputably referred to the "Heirs of Bibiano and Encarnacion Oesmer," and since there is no showing that Enriqueta signed the document in some other capacity, it can be safely assumed that she did so as one of the parties to the sale. Emphasis should also be given to the fact that petitioners Ernesto and Enriqueta concurrently signed the Contract to Sell. As the Court of Appeals mentioned in its Decision,14 the records of the case speak of the fact that petitioner Ernesto, together with petitioner Enriqueta, met with the representatives of the respondent in order to finalize the terms and conditions of the Contract to Sell. Enriqueta affixed her signature on the said contract when the same was drafted. She even admitted that she understood the undertaking that she and petitioner Ernesto made in connection with the contract. She likewise disclosed that pursuant to the terms embodied in the Contract to Sell, she updated the payment of the real property taxes and transferred the Tax Declarations of the questioned properties in her name.15 Hence, it cannot be gainsaid that she merely signed the Contract to Sell as a witness because she did not only actively participate in the negotiation and execution of the same, but her subsequent actions also reveal an attempt to comply with the conditions in the said contract. With respect to the other petitioners assertion that they did not understand the importance and consequences of their action because of their low degree of education and because the contents of the aforesaid contract were not read nor explained to them, the same cannot be sustained. We only have to quote the pertinent portions of the Court of Appeals Decision, clear and concise, to dispose of this issue. Thus, First, the Contract to Sell is couched in such a simple language which is undoubtedly easy to read and understand. The terms of the Contract, specifically the amount of P100,000.00 representing the option money paid by [respondent] corporation, the purchase price of P60.00 per square meter or the total amount ofP3,316,560.00 and a brief description of the subject properties are well-indicated thereon that any prudent and mature man would have known the nature and extent of the transaction encapsulated in the document that he was signing. Second, the following circumstances, as testified by the witnesses and as can be gleaned from the records of the case clearly indicate the [petitioners] intention to be bound by the stipulations chronicled in the said Contract to Sell. As to [petitioner] Ernesto, there is no dispute as to his intention to effect the alienation of the subject property as he in fact was the one who initiated the negotiation process and culminated the same by affixing his signature on the Contract to Sell and by taking receipt of the amount of P100,000.00 which formed part of the purchase price. xxxx As to [petitioner] Librado, the [appellate court] finds it preposterous that he willingly affixed his signature on a document written in a language (English) that he purportedly does not understand. He testified that the document was just brought to him by an 18 year old niece named Baby and he was told that the document was for a check to be paid to him. He readily signed the Contract to Sell without consulting his other siblings. Thereafter, he exerted no effort in communicating with his brothers and sisters regarding the document which he had signed, did not inquire what the check was for and did not thereafter ask for the check which is purportedly due to him as a result of his signing the said Contract to Sell. (TSN, 28 September 1993, pp. 22-23) The [appellate court] notes that Librado is a 43 year old family man (TSN, 28 September 1993, p. 19). As such, he is expected to act with that ordinary degree of care and prudence expected of a good father of a family. His unwitting testimony is just divinely disbelieving.

The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise bound by the said Contract to Sell. The theory adopted by the [petitioners] that because of their low degree of education, they did not understand the contents of the said Contract to Sell is devoid of merit. The [appellate court] also notes that Adolfo (one of the coheirs who did not sign) also possess the same degree of education as that of the signing co-heirs (TSN, 15 October 1991, p. 19). He, however, is employed at the Provincial Treasury Office at Trece Martirez, Cavite and has even accompanied Rogelio Paular to the Assessors Office to locate certain missing documents which were needed to transfer the titles of the subject properties. (TSN, 28 January 1994, pp. 26 & 35) Similarly, the other co-heirs [petitioners], like Adolfo, are far from ignorant, more so, illiterate that they can be extricated from their obligations under the Contract to Sell which they voluntarily and knowingly entered into with the [respondent] corporation. The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207 SCRA 753 [1992]), citing the case of Tan Sua Sia v. Yu Baio Sontua (56 Phil. 711), instructively ruled as follows: "The Court does not accept the petitioners claim that she did not understand the terms and conditions of the transactions because she only reached Grade Three and was already 63 years of age when she signed the documents. She was literate, to begin with, and her age did not make her senile or incompetent. x x x. At any rate, Metrobank had no obligation to explain the documents to the petitioner as nowhere has it been proven that she is unable to read or that the contracts were written in a language not known to her. It was her responsibility to inform herself of the meaning and consequence of the contracts she was signing and, if she found them difficult to comprehend, to consult other persons, preferably lawyers, to explain them to her. After all, the transactions involved not only a few hundred or thousand pesos but, indeed, hundreds of thousands of pesos. As the Court has held: x x x The rule that one who signs a contract is presumed to know its contents has been applied even to contracts of illiterate persons on the ground that if such persons are unable to read, they are negligent if they fail to have the contract read to them. If a person cannot read the instrument, it is as much his duty to procure some reliable persons to read and explain it to him, before he signs it, as it would be to read it before he signed it if he were able to do and his failure to obtain a reading and explanation of it is such gross negligence as will estop from avoiding it on the ground that he was ignorant of its contents."16 That the petitioners really had the intention to dispose of their shares in the subject parcels of land, irrespective of whether or not all of the heirs consented to the said Contract to Sell, was unveiled by Adolfos testimony as follows: ATTY. GAMO: This alleged agreement between you and your other brothers and sisters that unless everybody will agree, the properties would not be sold, was that agreement in writing? WITNESS: No sir. ATTY. GAMO: What you are saying is that when your brothers and sisters except Jesus and you did not sign that agreement which had been marked as [Exhibit] "D", your brothers and sisters were grossly violating your agreement. WITNESS: Yes, sir, they violated what we have agreed upon.17 We also cannot sustain the allegation of the petitioners that assuming the signatures indicate consent, such consent was merely conditional, and that, the effectivity of the alleged Contract to Sell was subject to the suspensive condition that the sale be approved by all the co-owners. The Contract to Sell is clear enough. It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control.18 The terms of the Contract to Sell made no mention of the condition that before it can become valid and binding, a unanimous consent of all the heirs is necessary. Thus, when the language of the contract is explicit, as in the present case, leaving no doubt as to the intention of the parties thereto, the literal meaning of its stipulation is controlling. In addition, the petitioners, being owners of their respective undivided shares in the subject properties, can dispose of their shares even without the consent of all the co-heirs. Article 493 of the Civil Code expressly provides: Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except

when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. [Emphases supplied.] Consequently, even without the consent of the two co-heirs, Adolfo and Jesus, the Contract to Sell is still valid and binding with respect to the 6/8 proportionate shares of the petitioners, as properly held by the appellate court. Therefore, this Court finds no error in the findings of the Court of Appeals that all the petitioners who were signatories in the Contract to Sell are bound thereby. The final arguments of petitioners state that the Contract to Sell is void altogether considering that respondent itself did not sign it as to indicate its consent to be bound by its terms; and moreover, the Contract to Sell is really a unilateral promise to sell without consideration distinct from the price, and hence, again, void. Said arguments must necessarily fail. The Contract to Sell is not void merely because it does not bear the signature of the respondent corporation. Respondent corporations consent to be bound by the terms of the contract is shown in the uncontroverted facts which established that there was partial performance by respondent of its obligation in the said Contract to Sell when it tendered the amount of P100,000.00 to form part of the purchase price, which was accepted and acknowledged expressly by petitioners. Therefore, by force of law, respondent is required to complete the payment to enforce the terms of the contract. Accordingly, despite the absence of respondents signature in the Contract to Sell, the former cannot evade its obligation to pay the balance of the purchase price. As a final point, the Contract to Sell entered into by the parties is not a unilateral promise to sell merely because it used the word option money when it referred to the amount of P100,000.00, which also form part of the purchase price. Settled is the rule that in the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be discharged by looking to the words they used to project that intention in their contract, all the words, not just a particular word or two, and words in context, not words standing alone.19 In the instant case, the consideration of P100,000.00 paid by respondent to petitioners was referred to as "option money." However, a careful examination of the words used in the contract indicates that the money is not option money but earnest money. "Earnest money" and "option money" are not the same but distinguished thus: (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option.20 The sum of P100,000.00 was part of the purchase price. Although the same was denominated as "option money," it is actually in the nature of earnest money or down payment when considered with the other terms of the contract. Doubtless, the agreement is not a mere unilateral promise to sell, but, indeed, it is a Contract to Sell as both the trial court and the appellate court declared in their Decisions. WHEREFORE, premises considered, the Petition is DENIED, and the Decision and Resolution of the Court of Appeals dated 26 April 2002 and 4 March 2003, respectively, are AFFIRMED, thus, (a) the Contract to Sell isDECLARED valid and binding with respect to the undivided proportionate shares in the subject parcels of land of the six signatories of the said document, herein petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); (b) respondent is ORDERED to tender payment to petitioners in the amount ofP3,216,560.00 representing the balance of the purchase price for the latters shares in the subject parcels of land; and (c) petitioners are further ORDERED to execute in favor of respondent the Deed of Absolute Sale covering their shares in the subject parcels of land after receipt of the balance of the purchase price, and to pay respondent attorneys fees plus costs of the suit. Costs against petitioners. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice

WE CONCUR: CONSUELO YNARESSANTIAGO Associate Justice Chairperson MA. ALICIA AUSTRIA MARTINEZ Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. CONSUELO YNARES-SANTIAGO Associate Justice Chairperson, Third Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice ROMEO J. CALLEJO, SR. Asscociate Justice

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 154493 December 6, 2006

REYNALDO VILLANUEVA, petitioner, vs. PHILIPPINE NATIONAL BANK (PNB), respondent.

DECISION

AUSTRIA-MARTINEZ, J.: The Petition for Review on Certiorari under Rule 45 before this Court assails the January 29, 2002 Decision1 and June 27, 2002 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 520083 which reversed and set aside the September 14, 1995 Decision4 of the Regional Trial Court, Branch 22, General Santos City (RTC) in Civil Case No. 4553. As culled from the records, the facts are as follows: The Special Assets Management Department (SAMD) of the Philippine National Bank (PNB) issued an advertisement for the sale thru bidding of certain PNB properties in Calumpang, General Santos City, including Lot No. 17, covered by TCT No. T-15042, consisting of 22,780 square meters, with an advertised floor price ofP1,409,000.00, and Lot No. 19, covered by TCT No. T-15036, consisting of 41,190 square meters, with an advertised floor price of P2,268,000.00.5 Bidding was subject to the following conditions: 1) that cash bids be submitted not later than April 27, 1989; 2) that said bids be accompanied by a 10% deposit in managers or cashiers check; and 3) that all acceptable bids be subject to approval by PNB authorities. In a June 28, 1990 letter6 to the Manager, PNB-General Santos Branch, Reynaldo Villanueva (Villanueva) offered to purchase Lot Nos. 17 and 19 for P3,677,000.00. He also manifested that he was depositing P400,000.00 to show his good faith but with the understanding that said amount may be treated as part of the payment of the purchase price only when his offer is accepted by PNB. At the bottom of said letter there appears an unsigned marginal note stating that P400,000.00 was deposited into Villanuevas account (Savings Account No. 43612) with PNB-General Santos Branch. 7 PNB-General Santos Branch forwarded the June 28, 1990 letter of Villanueva to Ramon Guevara (Guevara), Vice President, SAMD.8 On July 6, 1990, Guevara informed Villanueva that only Lot No. 19 is available and that the asking price therefor is P2,883,300.00.9 Guevara further wrote: If our quoted price is acceptable to you, please submit a revised offer to purchase. Sale shall be subject to our Board of Directors approval and to other terms and conditions imposed by the Bank on sale of acquired assets. 10 (Emphasis ours) Instead of submitting a revised offer, Villanueva merely inserted at the bottom of Guevaras letter a July 11, 1990 marginal note, which reads: C O N F O R M E: PRICE OF P2,883,300.00 (downpayment of P600,000.00 and the balance payable in two (2) years at quarterly amortizations.) 11 Villanueva paid P200,000.00 to PNB which issued O.R. No. 16997 to acknowledge receipt of the "partial payment deposit on offer to purchase."12 On the dorsal portion of Official Receipt No. 16997, Villanueva signed a typewritten note, stating: This is a deposit made to show the sincerity of my purchase offer with the understanding that it shall be returned without interest if my offer is not favorably considered or be forfeited if my offer is approved but I fail/refuse to push through the purchase.13 Also, on July 24, 1990, P380,000.00 was debited from Villanuevas Savings Account No. 43612 and credited to SAMD.14 On October 11, 1990, however, Guevara wrote Villanueva that, upon orders of the PNB Board of Directors to conduct another appraisal and public bidding of Lot No. 19, SAMD is deferring negotiations with him over said property and returning his deposit of P580,000.00.15 Undaunted, Villanueva attempted to deliver postdated checks covering the balance of the purchase price but PNB refused the same. Hence, Villanueva filed with the RTC a Complaint16 for specific performance and damages against PNB. In its September 14, 1995 Decision, the RTC granted the Complaint, thus: WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant directing it to do the following:

1. To execute a deed of sale in favor of the plaintiff over Lot 19 comprising 41,190 square meters situated at Calumpang, General Santos City covered by TCT No. T-15036 after payment of the balance in cash in the amount of P2,303,300.00; 2. To pay the plaintiff P1,000,000.00 as moral damages; P500,000.00 as attorneys fees, plus litigation expenses and costs of the suit. SO ORDERED.17 The RTC anchored its judgment on the finding that there existed a perfected contract of sale between PNB and Villanueva. It found: The following facts are either admitted or undisputed: xxx The defendant through Vice-President Guevara negotiated with the plaintiff in connection with the offer of the plaintiff to buy Lots 17 & 19. The offer of plaintiff to buy, however, was accepted by the defendant only insofar as Lot 19 is concerned as exemplified by its letter dated July 6, 1990 where the plaintiff signified his concurrence after conferring with the defendants vice-president. The conformity of the plaintiff was typewritten by the defendants own people where the plaintiff accepted the price of P2,883,300.00. The defendant also issued a receipt to the plaintiff on the same day when the plaintiff paid the amount ofP200,000.00 to complete the downpayment of P600,000.00 (Exhibit "F" & Exhibit "I"). With this development, the plaintiff was also given the go signal by the defendant to improve Lot 19 because it was already in effect sold to him and because of that the defendant fenced the lot and completed his two houses on the property.18 The RTC also pointed out that Villanuevas P580,000.00 downpayment was actually in the nature of earnest money acceptance of which by PNB signified that there was already a sale.19 The RTC further cited contemporaneous acts of PNB purportedly indicating that, as early as July 25, 1990, it considered Lot 19 already sold, as shown by Guevaras July 25, 1990 letter (Exh. "H")20 to another interested buyer. PNB appealed to the CA which reversed and set aside the September 14, 1995 RTC Decision, thus: WHEREFORE, the appealed decision is REVERSED and SET ASIDE and another rendered DISMISSING the complaint. SO ORDERED.21 According to the CA, there was no perfected contract of sale because the July 6, 1990 letter of Guevara constituted a qualified acceptance of the June 28, 1990 offer of Villanueva, and to which Villanueva replied on July 11, 1990 with a modified offer. The CA held: In the case at bench, consent, in respect to the price and manner of its payment, is lacking. The record shows that appellant, thru Guevaras July 6, 1990 letter, made a qualified acceptance of appellees letteroffer dated June 28, 1990 by imposing an asking price of P2,883,300.00 in cash for Lot 19. The letter dated July 6, 1990 constituted a counter-offer (Art. 1319, Civil Code), to which appellee made a new proposal, i.e., to pay the amount of P2,883,300.00 in staggered amounts, that is, P600,000.00 as downpayment and the balance within two years in quarterly amortizations. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and a rejection of the original offer (Art. 1319, id.). Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer (Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 6th ed., 1996, p. 450, cited in ABS-CBN Broadcasting Corporation v. Court of Appeals, et al., 301 SCRA 572). Appellees new proposal, which constitutes a counter-offer, was not accepted by appellant, its board having decided to have Lot 19 reappraised and sold thru public bidding.

Moreover, it was clearly stated in Guevaras July 6, 1990 letter that "the sale shall be subject to our Board of Directors approval and to other terms and conditions imposed by the Bank on sale of acquired assets."22 Villanuevas Motion for Reconsideration23 was denied by the CA in its Resolution of June 27, 2002. Petitioner Villanueva now assails before this Court the January 29, 2002 Decision and June 27, 2002 Resolution of the CA. He assigns five issues which may be condensed into two: first, whether a perfected contract of sale exists between petitioner and respondent PNB; and second, whether the conduct and actuation of respondent constitutes bad faith as to entitle petitioner to moral and exemplary damages and attorneys fees. The Court sustains the CA on both issues. Contracts of sale are perfected by mutual consent whereby the seller obligates himself, for a price certain, to deliver and transfer ownership of a specified thing or right to the buyer over which the latter agrees.24 Mutual consent being a state of mind, its existence may only be inferred from the confluence of two acts of the parties: an offer certain as to the object of the contract and its consideration, and an acceptance of the offer which is absolute in that it refers to the exact object and consideration embodied in said offer.25 While it is impossible to expect the acceptance to echo every nuance of the offer, it is imperative that it assents to those points in the offer which, under the operative facts of each contract, are not only material but motivating as well. Anything short of that level of mutuality produces not a contract but a mere counter-offer awaiting acceptance.26 More particularly on the matter of the consideration of the contract, the offer and its acceptance must be unanimous both on the rate of the payment and on its term. An acceptance of an offer which agrees to the rate but varies the term is ineffective. 27 To determine whether there was mutual consent between the parties herein, it is necessary to retrace each offer and acceptance they made. Respondent began with an invitation to bid issued in April 1989 covering several of its acquired assets in Calumpang, General Santos City, including Lot No. 19 for which the floor price was P2,268,000.00. The offer was subject to the condition that sealed bids, accompanied by a 10% deposit in managers or cashiers check, be submitted not later than 10 oclock in the morning of April 27, 1989. On June 28, 1990, petitioner made an offer to buy Lot No. 17 and Lot No. 19 for an aggregate price ofP3,677,000.00. It is noted that this offer exactly corresponded to the April 1989 invitation to bid issued by respondent in that the proposed aggregate purchase price for Lot Nos. 17 and 19 matched the advertised floor prices for the same properties. However, it cannot be said that the June 28, 1990 letter of petitioner was an effective acceptance of the April 1989 invitation to bid for, by its express terms, said invitation lapsed on April 27, 1989.28 More than that, the April 1989 invitation was subject to the condition that all sealed bids submitted and accepted be approved by respondents higher authorities. Thus, the June 28, 1990 letter of petitioner was an offer to buy independent of the April 1989 invitation to bid. It was a definite offer as it identified with certainty the properties sought to be purchased and fixed the contract price. However, respondent replied to the June 28, 1990 offer with a July 6, 1990 letter that only Lot No. 19 is available and that the price therefor is now P2,883,300.00. As the CA pointed out, this reply was certainly not an acceptance of the June 28, 1990 offer but a mere counter-offer. It deviated from the original offer on three material points: first, the object of the proposed sale is now only Lot No. 19 rather than Lot Nos. 17 and 19; second, the area of the property to be sold is still 41,190 sq. m but an 8,797-sq. m portion is now part of a public road; and third, the consideration is P2,883,300 for one lot rather than P3,677,000.00 for two lots. More important, this July 6, 1990 counter-offer imposed two conditions: one, that petitioner submit a revised offer to purchase based on the quoted price; and two, that the sale of the property be approved by the Board of Directors and subjected to other terms and conditions imposed by the Bank on the sale of acquired assets. In reply to the July 6, 1990 counter-offer, petitioner signed his July 11, 1990 conformity to the quoted price ofP2,883,300.00 but inserted the term "downpayment of P600,000.00 and the balance payable in two years at quarterly amortization." The CA viewed this July 11, 1990 conformity not as an acceptance of the July 6, 1990 counter-offer but a further counter-offer for, while petitioner accepted the P2,883,300.00 price for Lot No. 19, he qualified his acceptance by proposing a two-year payment term.

Petitioner does not directly impugn such reasoning of the CA. He merely questions it for taking up the issue of whether his July 11, 1990 conformity modified the July 6, 1990 counter-offer as this was allegedly never raised during the trial nor on appeal.29 Such argument is not well taken. From beginning to end, respondent denied that a contract of sale with petitioner was ever perfected.30 Its defense was broad enough to encompass every issue relating to the concurrence of the elements of contract, specifically on whether it consented to the object of the sale and its consideration. There was nothing to prevent the CA from inquiring into the offers and counter-offers of the parties to determine whether there was indeed a perfected contract between them. Moreover, there is merit in the ruling of the CA that the July 11, 1990 marginal note was a further counter-offer which did not lead to the perfection of a contract of sale between the parties. Petitioners own June 28, 1990 offer quoted the price of P3,677,000.00 for two lots but was silent on the term of payment. Respondents July 6, 1990 counter-offer quoted the price of P2,833,300.00 and was also silent on the term of payment. Up to that point, the term or schedule of payment was not on the negotiation table. Thus, when petitioner suddenly introduced a term of payment in his July 11, 1990 counter-offer, he interjected into the negotiations a new substantial matter on which the parties had no prior discussion and over which they must yet agree.31 Petitioners July 11, 1990 counter-offer, therefore, did not usher the parties beyond the negotiation stage of contract making towards its perfection. He made a counter-offer that required acceptance by respondent. As it were, respondent, through its Board of Directors, did not accept this last counter-offer. As stated in its October 11, 1990 letter to petitioner, respondent ordered the reappraisal of the property, in clear repudiation not only of the proposed price but also the term of payment thereof. Petitioner insists, however, that the October 11, 1990 repudiation was belated as respondent had already agreed to his July 11, 1990 counter-offer when it accepted his "downpayment" or "earnest money" of P580,000.00.32 He cites Article 1482 of the Civil Code where it says that acceptance of "downpayment" or "earnest money" presupposes the perfection of a contract. Not so. Acceptance of petitioners payments did not amount to an implied acceptance of his last counter-offer. To begin with, PNB-General Santos Branch, which accepted petitioners P380,000.00 payment, and PNB-SAMD, which accepted his P200,000.00 payment, had no authority to bind respondent to a contract of sale with petitioner.33 Petitioner is well aware of this. To recall, petitioner sent his June 28, 1990 offer to PNB-General Santos Branch. Said branch did not act on his offer except to endorse it to Guevarra. Thereafter, petitioner transacted directly with Guevarra. Petitioner then cannot pretend that PNB-General Santos Branch had authority to accept his July 11, 1990 counter-offer by merely accepting his P380,000.00 payment. Neither did SAMD have authority to bind PNB. In its April 1989 invitation to bid, as well as its July 6, 1990 counteroffer, SAMD was always careful to emphasize that whatever offer is made and entertained will be subject to the approval of respondents higher authorities. This is a reasonable disclaimer considering the corporate nature of respondent. 34 Moreover, petitioners payment of P200,000.00 was with the clear understanding that his July 11, 1990 counter-offer was still subject to approval by respondent. This is borne out by respondents Exhibits "2-a" and "2-b", which petitioner never controverted, where it appears on the dorsal portion of O.R. No. 16997 that petitioner acceded that the amount he paid was a mere "x x x deposit made to show the sincerity of [his] purchase offer with the understanding that it shall be returned without interest if [his] offer is not favorably considered x x x."35 This was a clear acknowledgment on his part that there was yet no perfected contract with respondent and that even with the payments he had advanced, his July 11, 1990 counter-offer was still subject to consideration by respondent. Not only that, in the same Exh. "2-a" as well as in his June 28, 1990 offer, petitioner referred to his payments as mere "deposits." Even O.R. No. 16997 refers to petitioners payment as mere deposit. It is only in the debit notice issued by PNB-General Santos Branch where petitioners payment is referred to as "downpayment". But then, as we said, PNB-General Santos Branch has no authority to bind respondent by its interpretation of the nature of the payment made by petitioner.

In sum, the amounts paid by petitioner were not in the nature of downpayment or earnest money but were mere deposits or proof of his interest in the purchase of Lot No. 19. Acceptance of said amounts by respondent does not presuppose perfection of any contract.36 It must be noted that petitioner has expressly admitted that he had withdrawn the entire amount of P580,000.00 deposit from PNB-General Santos Branch.37 With the foregoing disquisition, the Court foregoes resolution of the second issue as it is evident that respondent acted well within its rights when it rejected the last counter-offer of petitioner. In fine, petitioners petition lacks merit. WHEREFORE, the petition is DENIED. The Decision dated January 29, 2002 and Resolution dated June 27, 2002 of the Court of Appeals are AFFIRMED. No costs. SO ORDERED. Panganiban, C.J. (Chairperson), Ynares-Santiago, Callejo, Sr., and Chico-Nazario, JJ., concur.

SECOND DIVISION

[G.R. No. 168220. August 31, 2005]

SPS. RUDY PARAGAS and CORAZON B. PARAGAS, petitioners, vs. HRS. OF DOMINADOR BALACANO, namely: DOMINIC, RODOLFO, NANETTE and CYRIC, all surnamed BALACANO, represented by NANETTE BALACANO and ALFREDO BALACANO, respondents. RESOLUTION CHICO-NAZARIO, J.: This petition for review seeks to annul the Decision[1] dated 15 February 2005 of the Court of Appeals in CAG.R. CV No. 64048, affirming with modification the 8 March 1999 Decision[2] of the Regional Trial Court (RTC), Branch 21, of Santiago City, Isabela, in Civil Case No. 21-2313. The petition likewise seeks to annul the Resolution[3] dated 17 May 2005 denying petitioners motion for reconsideration. The factual antecedents were synthesized by the Court of Appeals in its decision. Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of Lot 1175-E and Lot 1175-F of the Subd. Plan Psd-38042 [located at Baluarte, Santiago City, Isabela] covered by TCT No. T-103297 and TCT No. T103298 of the Registry of Deeds of the Province of Isabela. Gregorio and Lorenza had three children, namely: Domingo, Catalino and Alfredo, all surnamed Balacano. Lorenza died on December 11, 1991. Gregorio, on the other hand, died on July 28, 1996.

Prior to his death, Gregorio was admitted at the Veterans General Hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until July 19, 1996. He was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City where he was confined until his death. Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion of Lot 1175-E (specifically consisting of 15,925 square meters from its total area of 22,341 square meters) and the whole Lot 1175-F to the Spouses Rudy (Rudy) and Corazon Paragas (collectively, the Spouses Paragas) for the total consideration of P500,000.00. This sale appeared in a deed of absolute sale notarized by Atty. Alexander V. de Guzman, Notary Public for Santiago City, on the same date July 22, 1996 and witnessed by Antonio Agcaoili (Antonio) and Julia Garabiles (Julia). Gregorios certificates of title over Lots 1175-E and 1175-F were consequently cancelled and new certificates of title were issued in favor of the Spouses Paragas. The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for the total consideration ofP60,000.00. Domingos children (Dominic, Rodolfo, Nanette and Cyric, all surnamed Balacano;) filed on October 22, 1996 a complaint for annulment of sale and partition against Catalino and the Spouses Paragas. They essentially alleged in asking for the nullification of the deed of sale that: (1) their grandfather Gregorio could not have appeared before the notary public on July 22, 1996 at Santiago City because he was then confined at the Veterans Memorial Hospital in Quezon City; (2) at the time of the alleged execution of the deed of sale, Gregorio was seriously ill, in fact dying at that time, which vitiated his consent to the disposal of the property; and (3) Catalino manipulated the execution of the deed and prevailed upon the dying Gregorio to sign his name on a paper the contents of which he never understood because of his serious condition. Alternatively, they alleged that assuming Gregorio was of sound and disposing mind, he could only transfer a half portion of Lots 1175-E and 1175-F as the other half belongs to their grandmother Lorenza who predeceased Gregorio they claimed that Lots 1175-E and 1175-F form part of the conjugal partnership properties of Gregorio and Lorenza. Finally, they alleged that the sale to the Spouses Paragas covers only a 5-hectare portion of Lots 1175-E and 1175-F leaving a portion of 6,416 square meters that Catalino is threatening to dispose. They asked for the nullification of the deed of sale executed by Gregorio and the partition of Lots 1175-E and 1175-F. They likewise asked for damages. Instead of filing their Answer, the defendants Catalino and the Spouses Paragas moved to dismiss the complaint on the following grounds: (1) the plaintiffs have no legal capacity - the Domingos children cannot file the case because Domingo is still alive, although he has been absent for a long time; (2) an indispensable party is not impleaded that Gregorios other son, Alfredo was not made a party to the suit; and (3) the complaint states no cause of action that Domingos children failed to allege a ground for the annulment of the deed of sale; they did not cite any mistake, violence, intimidation, undue influence or fraud, but merely alleged that Gregorio was seriously ill. Domingos children opposed this motion. The lower court denied the motion to dismiss, but directed the plaintiffs-appellees to amend the complaint to include Alfredo as a party. Alfredo was subsequently declared as in default for his failure to file his Answer to the Complaint. The defendants-appellees filed their Answer with Counterclaim on May 7, 1997, denying the material allegations of the complaint. Additionally, they claimed that: (1) the deed of sale was actually executed by Gregorio on July 19 (or 18), 1996 and not July 22, 1996; (2) the Notary Public personally went to the Hospital in Bayombong, Nueva Vizcaya on July 18, 1996 to notarize the deed of sale already subject of a previously concluded covenant between Gregorio and the Spouses Paragas; (3) at the time Gregorio signed the deed, he was strong and of sound and disposing mind; (4) Lots 1175-E and 1175-F were Gregorios separate capital and the inscription of Lorenzas name in the titles was just a description of Gregorios marital status; (5) the entire area of Lots 1175-E and 1175-F were sold to the Spouses Paragas. They interposed a counterclaim for damages. At the trial, the parties proceeded to prove their respective contentions. Plaintiff-appellant Nanette Balacano testified to prove the material allegations of their complaint. On Gregorios medical condition, she declared that: (1) Gregorio, who was then 81 years old, weak and sick, was brought to the hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until the afternoon on July 19, 1996; (2) thereafter, Gregorio, who by then was weak and could no longer talk and whose condition had worsened, was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City where Gregorio died. She claimed that Gregorio could not have signed a deed of sale on July 19, 1996 because she stayed at the

hospital the whole of that day and saw no visitors. She likewise testified on their agreement for attorneys fees with their counsel and the litigation expenses they incurred. Additionally, the plaintiffs-appellees presented in evidence Gregorios medical records and his death certificate. Defendants-appellees, on the other hand, presented as witnesses Notary Public de Guzman and instrumental witness Antonio to prove Gregorios execution of the sale and the circumstances under the deed was executed. They uniformly declared that: (1) on July 18, 1996, they went to the hospital in Bayombong, Nueva Vizcaya where Gregorio was confined with Rudy; (2) Atty. De Guzman read and explained the contents of the deed to Gregorio; (3) Gregorio signed the deed after receiving the money from Rudy; (4) Julia and Antonio signed the deed as witnesses. Additionally, Atty. De Guzman explained that the execution of the deed was merely a confirmation of a previous agreement between the Spouses Paragas and Gregorio that was concluded at least a month prior to Gregorios death; that, in fact, Gregorio had previously asked him to prepare a deed that Gregorio eventually signed on July 18, 1996. He also explained that the deed, which appeared to have been executed on July 22, 1996, was actually executed on July 18, 1996; he notarized the deed and entered it in his register only on July 22, 1996. He claimed that he did not find it necessary to state the precise date and place of execution (Bayombong, Nueva Vizcaya, instead of Santiago City) of the deed of sale because the deed is merely a confirmation of a previously agreed contract between Gregorio and the Spouses Paragas. He likewise stated that of the stated P500,000.00 consideration in the deed, Rudy paid Gregorio P450,000.00 in the hospital because Rudy had previously paid Gregorio P50,000.00. For his part, Antonio added that he was asked by Rudy to take pictures of Gregorio signing the deed. He also claimed that there was no entry on the date when he signed; nor did he remember reading Santiago City as the place of execution of the deed. He described Gregorio as still strong but sickly, who got up from the bed with Julias help. Witness for defendants-appellants Luisa Agsalda testified to prove that Lot 1175-E was Gregorios separate property. She claimed that Gregorios father (Leon) purchased a two-hectare lot from them in 1972 while the other lot was purchased from her neighbor. She also declared that Gregorio inherited these lands from his father Leon; she does not know, however, Gregorios brothers share in the inheritance. Defendant-appellant Catalino also testified to corroborate the testimony of witness Luisa Agsalda; he said that Gregorio told him that he (Gregorio) inherited Lots 1175-E and 1175-F from his father Leon. He also stated that a portion of Lot 1175-E consisting of 6,416 square meters was sold to him by the Spouses Paragas and that he will pay the Spouses Paragas P50,000.00, not as consideration for the return of the land but for the transfer of the title to his name. Additionally, the defendants-appellants presented in evidence the pictures taken by Antonio when Gregorio allegedly signed the deed.[4] The lower court, after trial, rendered the decision declaring null and void the deed of sale purportedly executed by Gregorio Balacano in favor of the spouses Rudy Paragas and Corazon Paragas. In nullifying the deed of sale executed by Gregorio, the lower court initially noted that at the time Gregorio executed the deed, Gregorio was ill. The lower courts reasoning in declaring the deed of sale null and void and this reasonings premises may be summarized as follows: (1) the deed of sale was improperly notarized; thus it cannot be considered a public document that is usually accorded the presumption of regularity; (2) as a private document, the deed of sales due execution must be proved in accordance with Section 20, Rule 132 of the Revised Rules on Evidence either: (a) by anyone who saw the document executed or written; or (b) by evidence of the genuineness of the signature or handwriting of the maker; and (3) it was incumbent upon the Spouses Paragas to prove the deed of sales due execution but failed to do so the lower court said that witness Antonio Agcaoili is not credible while Atty. Alexander De Guzman is not reliable.[5] The lower court found the explanations of Atty. De Guzman regarding the erroneous entries on the actual place and date of execution of the deed of sale as justifications for a lie. The lower court said The Court cannot imagine an attorney to undertake to travel to another province to notarize a document when he must certainly know, being a lawyer and by all means, not stupid, that he has no authority to notarize a document in that province. The only logical thing that happened was that Rudy Paragas brought the deed of sale to him on July 22, 1996 already signed and requested him to notarize the same which he did, not knowing that at that time the vendor was already in a hospital and [sic] Quezon City. Of course had he known, Atty. De Guzman would not have notarized the document. But he trusted Rudy Paragas and moreover, Gregorio Balacano already informed him previously in June that he will sell his lands to Paragas. In addition [sic, (,) was omitted] Rudy Paragas also told him that Balacano received an advance of P50,000.00.

The intention to sell is not actual selling. From the first week of June when, according to Atty. De Guzman, Gregorio Balacano informed him that he will sell his land to Rudy Paragas, enough time elapsed to the time he was brought to the hospital on June 28, 1996. Had there been a meeting of the minds between Gregorio Balacano and Rudy Paragas regarding the sale, surely Gregorio Balacano would have immediately returned to the office of Atty. De Guzman to execute the deed of sale. He did not until he was brought to the hospital and diagnosed to have liver cirrhosis. Because of the seriousness of his illness, it is not expected that Gregorio Balacano would be negotiating a contract of sale. Thus, Rudy Paragas negotiated with Catalino Balacano, the son of Gregorio Balacano with whom the latter was staying.[6] The lower court also did not consider Antonio Agcaoili, petitioner Rudy Paragass driver, a convincing witness, concluding that he was telling a rehearsed story. The lower court said The only portion of his testimony that is true is that he signed the document. How could the Court believe that he brought a camera with him just to take pictures of the signing? If the purpose was to record the proceeding for posterity, why did he not take the picture of Atty. De Guzman when the latter was reading and explaining the document to Gregorio Balacano? Why did he not take the picture of both Gregorio Balacano and Atty. de Guzman while the old man was signing the document instead of taking a picture of Gregorio Balacano alone holding a ball pen without even showing the document being signed? Verily there is a picture of a document but only a hand with a ball pen is shown with it. Why? Clearly the driver Antonio Agcaoili must have only been asked by Rudy Paragas to tell a concocted story which he himself would not dare tell in Court under oath.[7] The lower court likewise noted that petitioner Rudy Paragas did not testify about the signing of the deed of sale. To the lower court, Rudys refusal or failure to testify raises a lot of questions, such as: (1) was he (Rudy) afraid to divulge the circumstances of how he obtained the signature of Gregorio Balacano, and (2) was he (Rudy) afraid to admit that he did not actually pay the P500,000.00 indicated in the deed of sale as the price of the land?[8] The lower court also ruled that Lots 1175-E and 1175-F were Gregorios and Lorenzas conjugal partnership properties. The lower court found that these lots were acquired during the marriage because the certificates of title of these lots clearly stated that the lots are registered in the name Gregorio, married to Lorenza Sumigcay. Thus, the lower court concluded that the presumption of law (under Article 160 of the Civil Code of the Philippines) that property acquired during the marriage is presumed to belong to the conjugal partnership fully applies to Lots 1175-E and 1175-F.[9] Thus, on 8 March 1999, the RTC, Branch 21, of Santiago City, Isabela, rendered a Decision [10] in Civil Case No. 21-2313, the dispositive portion of which reads as follows: WHEREFORE in the light of the foregoing considerations judgment is hereby rendered: 1. DECLARING as NULL and VOID the deed of sale purportedly executed by Gregorio Balacano in favor of the spouses Rudy Paragas and Corazon Paragas over lots 1175-E and 1175-F covered by TCT Nos. T-103297 and T-103298, respectively; 2. ORDERING the cancellation of TCT Nos. T-258042 and T-258041 issued in the name of the spouses Rudy and Corazon Paragas by virtue of the deed of sale; and DECLARING the parcel of lands, lots 1175-E and 1175-F as part of the estate of the deceased spouses Gregorio Balacano and Lorenza Balacano.[11] In the assailed Decision dated 15 February 2005, the Court of Appeals affirmed the Decision of the trial court, with the modification that Lots 1175-E and 1175-F were adjudged as belonging to the estate of Gregorio Balacano. The appellate court disposed as follows: WHEREFORE, premises considered, the appeal is hereby DISMISSED. We AFFIRM the appealed Decision for the reasons discussed above, with the MODIFICATION that Lots 1175-E and 1175-F belong to the estate of Gregorio Balacano. Let a copy of this Decision be furnished the Office of the Bar Confidant for whatever action her Office may take against Atty. De Guzman.[12] (Emphasis in the original.)

Herein petitioners motion for reconsideration was met with similar lack of success when it was denied for lack of merit by the Court of Appeals in its Resolution[13] dated 17 May 2005. Hence, this appeal via a petition for review where petitioners assign the following errors to the Court of Appeals, viz: A. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN FINDING THAT THERE WAS NO PERFECTED AND PARTIALLY EXECUTED CONTRACT OF SALE OVER LOTS 1175-E AND 1175-F PRIOR TO THE SIGNING OF THE DEED OF SALE. B. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY FAILED TO APPRECIATE THE SIGNIFICANCE OF THE JUDICIAL ADMISSION ON THE AUTHENTICITY AND DUE EXECUTION OF THE DEED OF SALE MADE BY THE RESPONDENTS DURING THE PRE-TRIAL CONFERENCE. C. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, BASED ITS CONCLUSION THAT GREGORIOS CONSENT TO THE SALE OF THE LOTS WAS AB SENT MERELY ON SPECULATIONS AND SURMISES. D. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN NOT RULING ON THE ISSUE OF RESPONDENTS LACK OF LEGAL CAPACITY TO SUE FOR NOT BEING THE PROPER PARTIES IN INTEREST. E. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN DISMISSING ATTY. ALEXANDER DE GUZMAN AND ANTONIO AGCAOILI AS NOT CREDIBLE WITNESSES.[14] At bottom is the issue of whether or not the Court of Appeals committed reversible error in upholding the findings and conclusions of the trial court on the nullity of the Deed of Sale purportedly executed between petitioners and the late Gregorio Balacano. To start, we held in Blanco v. Quasha[15] that this Court is not a trier of facts. As such, it is not its function to examine and determine the weight of the evidence supporting the assailed decision. Factual findings of the Court of Appeals, which are supported by substantial evidence, are binding, final and conclusive upon the Supreme Court,[16] and carry even more weight when the said court affirms the factual findings of the trial court. Moreover, well- entrenched is the prevailing jurisprudence that only errors of law and not of facts are reviewable by this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court. The foregoing tenets in the case at bar apply with greater force to the petition under consideration because the factual findings by the Court of Appeals are in full agreement with that of the trial court. Specifically, the Court of Appeals, in affirming the trial court, found that there was no prior and perfected contract of sale that remained to be fully consummated. The appellate court explained In support of their position, the defendants-appellants argue that at least a month prior to Gregorios signing of the deed, Gregorio and the Spouses Paragas already agreed on the sale of Lots 1175-E and 1175-F; and that, in fact, this agreement was partially executed by Rudys payment to Gregorio of P50,000.00 before Gregorio signed the deed at the hospital. In line with this position, defendants-appellants posit that Gregorios consent to the sale should be determined, not at the time Gregorio signed the deed of sale on July 18, 1996, but at the time when he agreed to sell the property in June 1996 or a month prior to the deeds signing; and in June 1996, Gregorio was of sound and disposing mind and his consent to the sale was in no wise vitiated at that time. The defendants-appellants further argue that the execution or signing of the deed of sale, however, irregular it might have been, does not affect the validity of the previously agreed sale of the lots, as the execution or signing of the deed is merely a formalization of a previously agreed oral contract. ... In the absence of any note, memorandum or any other written instrument evidencing the alleged perfected contract of sale, we have to rely on oral testimonies, which in this case is that of Atty. de Guzman whose testimony on the alleged oral agreement may be summarized as follows: (1) that sometime in the first week of June 1996, Gregorio

requested him (Atty. de Guzman) to prepare a deed of sale of two lots; (2) Gregorio came to his firms office in the morning with a certain Doming Balacano, then returned in the afternoon with Rudy; (3) he (Atty. de Guzman) asked Gregorio whether he really intends to sell the lots; Gregorio confirmed his intention; (4) Gregorio and Rudy left the law office at 5:00 p.m., leaving the certificates of title; (5) he prepared the deed a day after Rudy and Gregorio came. With regard to the alleged partial execution of this agreement, Atty. de Guzman said that he was told by Rudy that there was already a partial payment of P50,000.00. We do not consider Atty. de Guzmans testimony sufficient evidence to establish the fact that there was a prior agreement between Gregorio and the Spouses Paragas on the sale of Lots 1175-E and 1175-F. This testimony does not conclusively establish the meeting of the minds between Gregorio and the Spouses Paragas on the price or consideration for the sale of Lots 1175-E and 1175-F Atty. de Guzman merely declared that he was asked by Gregorio to prepare a deed; he did not clearly narrate the details of this agreement. We cannot assume that Gregorio and the Spouses Paragas agreed to a P500,000.00 consideration based on Atty. de Guzmans bare assertion that Gregorio asked him to prepare a deed, as Atty. de Guzman was not personally aware of the agreed consideration in the sale of the lots, not being privy to the parties agreement. To us, Rudy could have been a competent witness to testify on the perfection of this prior contract; unfortunately, the defendants-appellants did not present Rudy as their witness. We seriously doubt too the credibility of Atty. de Guzman as a witness. We cannot rely on his testimony because of his tendency to commit falsity. He admitted in open court that while Gregorio signed the deed on July 18, 1996 at Bayombong, Nueva Vizcaya, he nevertheless did not reflect these matters when he notarized the deed; instead he entered Santiago City and July 22, 1996, as place and date of execution, respectively. To us, Atty. de Guzmans propensity to distort facts in the performance of his public functions as a notary public, in utter disregard of the significance of the act of notarization, seriously affects his credibility as a witness in the present case. In fact, Atty. de Guzmans act in falsifying the entries in his acknowledgment of the deed of sale could be the subject of administrative and disciplinary action, a matter that we however do not here decide. Similarly, there is no conclusive proof of the partial execution of the contract because the only evidence the plaintiffs-appellants presented to prove this claim was Atty. de Guzmans testimony, which is hearsay and thus, has no probative value. Atty. de Guzman merely stated that Rudy told him that Rudy already gaveP50,000.00 to Gregorio as partial payment of the purchase price; Atty. de Guzman did not personally see the payment being made.[17] But, did Gregorio give an intelligent consent to the sale of Lots 1175-E and 1175-F when he signed the deed of sale? The trial court as well as the appellate court found in the negative. In the Court of Appeals rationaleIt is not disputed that when Gregorio signed the deed of sale, Gregorio was seriously ill, as he in fact died a week after the deeds signing. Gregorio died of complications caused by cirrhosis of the liver. Gregorios death was neither sudden nor immediate; he fought at least a month-long battle against the disease until he succumbed to death on July 22, 1996. Given that Gregorio purportedly executed a deed during the last stages of his battle against his disease, we seriously doubt whether Gregorio could have read, or fully understood, the contents of the documents he signed or of the consequences of his act. We note in this regard that Gregorio was brought to the Veterans Hospital at Quezon City because his condition had worsened on or about the time the deed was allegedly signed. This transfer and fact of death not long after speak volumes about Gregorios condition at that time. We likewise see no conclusive evidence that the contents of the deed were sufficiently explained to Gregorio before he affixed his signature. The evidence the defendants-appellants offered to prove Gregorios consent to the sale consists of the testimonies of Atty. de Guzman and Antonio. As discussed above, we do not find Atty. de Guzman a credible witness. Thus, we fully concur with the heretofore-quoted lower courts evaluation of the testimonies given by Atty. de Guzman and Antonio because this is an evaluation that the lower court was in a better position to make. Additionally, the irregular and invalid notarization of the deed is a falsity that raises doubts on the regularity of the transaction itself. While the deed was indeed signed on July 18, 1996 at Bayombong, Nueva Vizcaya, the deed states otherwise, as it shows that the deed was executed on July 22, 1996 at Santiago City. Why such falsity was committed, and the circumstances under which this falsity was committed, speaks volume about the regularity and the validity of the sale. We cannot but consider the commission of this falsity, with the indispensable aid of Atty. de Guzman, an orchestrated attempt to legitimize a transaction that Gregorio did not intend to be binding upon him nor on his bounty.

Article 24 of the Civil Code tells us that in all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection.[18] Based on the foregoing, the Court of Appeals concluded that Gregorios consent to the sale of the lots was absent, making the contract null and void. Consequently, the spouses Paragas could not have made a subsequent transfer of the property to Catalino Balacano. Indeed, nemo dat quod non habet. Nobody can dispose of that which does not belong to him.[19] We likewise find to be in accord with the evidence on record the ruling of the Court of Appeals declaring the properties in controversy as paraphernal properties of Gregorio in the absence of competent evidence on the exact date of Gregorios acquisition of ownership of these lots. On the credibility of witnesses, it is in rhyme with reason to believe the testimonies of the witnesses for the complainants vis--vis those of the defendants. In the assessment of the credibility of witnesses, we are guided by the following well-entrenched rules: (1) that evidence to be believed must not only spring from the mouth of a credible witness but must itself be credible, and (2) findings of facts and assessment of credibility of witness are matters best left to the trial court who had the front-line opportunity to personally evaluate the witnesses demeanor, conduct, and behavior while testifying.[20] In the case at bar, we agree in the trial courts conclusion that petitioners star witness, Atty. De Guzman is far from being a credible witness. Unlike this Court, the trial court had the unique opportunity of observing the demeanor of said witness. Thus, we affirm the trial court and the Court of Appeals uniform decision based on the whole evidence in record holding the Deed of Sale in question to be null and void. In Domingo v. Court of Appeals,[21] the Court declared as null and void the deed of sale therein inasmuch as the seller, at the time of the execution of the alleged contract, was already of advanced age and senile. We held . . . She died an octogenarian on March 20, 1966, barely over a year when the deed was allegedly executed on January 28, 1965, but before copies of the deed were entered in the registry allegedly on May 16 and June 10, 1966. The general rule is that a person is not incompetent to contract merely because of advanced years or by reason of physical infirmities. However, when such age or infirmities have impaired the mental faculties so as to prevent the person from properly, intelligently, and firmly protecting her property rights then she is undeniably incapacitated. The unrebutted testimony of Zosima Domingo shows that at the time of the alleged execution of the deed, Paulina was already incapacitated physically and mentally. She narrated that Paulina played with her waste and urinated in bed. Given these circumstances, there is in our view sufficient reason to seriously doubt that she consented to the sale of and the price for her parcels of land. Moreover, there is no receipt to show that said price was paid to and received by her. Thus, we are in agreement with the trial courts finding and conclusion on the matter: . . . In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death bed in the hospital. Gregorio was an octogenarian at the time of the alleged execution of the contract and suffering from liver cirrhosis at that circumstances which raise grave doubts on his physical and mental capacity to freely consent to the contract. Adding to the dubiety of the purported sale and further bolstering respondents claim that their uncle Catalino, one of the children of the decedent, had a hand in the execution of the deed is the fact that on 17 October 1996, petitioners sold a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for P60,000.00.[22] One need not stretch his imagination to surmise that Catalino was in cahoots with petitioners in maneuvering the alleged sale. On the whole, we find no reversible error on the part of the appellate court in CA-G.R. CV No. 64048 that would warrant the reversal thereof. WHEREFORE, the present petition is hereby DENIED. Accordingly, the Decision[23] and the Resolution,[24] dated 15 February 2005 and 17 May 2005, respectively, of the Court of Appeals in CA-G.R. CV No. 64048 are hereby AFFIRMED. No costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 161524 January 27, 2006

LAURA M. MARNELEGO, Petitioner, vs. BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Respondent. DECISION PUNO, J.: This is a petition for review of the decision of the Court of Appeals dated October 9, 2003 in CA-G.R. CV No. 71501 and its resolution dated December 30, 2003. The facts are as follows: In September 1980, Spouses Patrick and Beatrize Price and petitioner Laura Marnelego executed a Deed of Conditional Sale over a parcel of land located at Houston Street, BF Homes, Paraaque, Metro Manila and its improvements. The contract showed that the property was mortgaged to respondent Banco Filipino Savings and Mortgage Bank (Banco Filipino) and BF Homes, and that Spouses Price agreed to pay the amortizations for the first six months beginning August 1980 to January 1981 while petitioner would assume the succeeding amortizations.1

It appears, however, that when the parties faltered on the amortizations, respondent bank foreclosed the mortgage and acquired the property at public auction. It later consolidated the title to the property in its name after petitioner failed to redeem it. The Regional Trial Court of Makati issued a writ of possession in February 1984.2 In her letter dated June 15, 1984,3 petitioner made an offer to Banco Filipino to repurchase the property forP310,000.00. The letter read: June 15, 1984 Banco Filipino Paseo de Roxas Makati, Metro Manila Attention: RICARDO GABRIEL Assistant Manager Real Estate Department Dear Sir: May I request for a reconsideration on the property located at Lots 17 and 19 Block 95, Barrio San Dionisio, Paranaque, Metro Manila which has been appraised by the bank atP362,000.00. The house needs repairs on the roof as it is leaking. The flooring needs new wood parquet, all the gutters needs [sic] to be replaced. There are cracks on the walls which needs [sic] new finishing. Aside from termites around the house which needs [sic] to be controlled. All of these Im sure has been noticed by the bank[]s appraiser. In these [sic] connection therefore, I would like to offer P310,000.00 for the property. Thank you. Sincerely yours, (sgd) LAURA M. MARNELEGO In response, Banco Filipino wrote to petitioner on September 20, 1984 in this wise:4 September 20, 1984 MS. LAURA M. MARNELEGO No. 24 Houston Street BF Homes, [sic] Subdivision Paraaque, Metro Manila SUBJECT : Reply to your 15 June 1984 letter Re: Foreclosed Property of Gaudencio Pereyra Dear Ms. Marnelego, Please be informed that your request to repurchase the subject property has been approved by the Committee on Disposal of Bank Properties per Resolution No. DCR-143-84 in the amount of P362,000.00 but on the following terms and conditions: a. Cash payment of P310,000.00 upon approval of the request/proposal, otherwise the bank shall immediately implement its Writ of Possession.

b. Balance of P52,000.00 to be paid within one (1) year at the rate of 35% interest per annum. Thank you. (sgd) RICARDO J. GABRIEL Assistant Manager Real Estate Department SECRETARY, COMMITTEE ON DISPOSAL OF BANK PROPERTIES Petitioner replied on October 9, 1984:5 October 9, 1984 23 Houston St. B.F. Homes Phase III Metro-Manila Banco Filipino Paseo de Roxas Makati, Metro Manila Attention: RICARDO GABRIEL Assistant Manager Real Estate Department Dear Sir: This is in reference to your letter dated September 20, 1984 informing us of the asking price and terms for the house and lot of Three Hundred Sixty Two Thousand Pesos Only (P362,000.00) located at Lots 17 and 19 Block 95, Barrio San Dionisio, Paranaque, Metro Manila. In these [sic] connection therefore, may I offer the sum of One Hundred Thousand Pesos Only (P100,000.00) as downpayment and the balance to be paid in five (5) equal installment[s] and to be paid within five (5) years with interest thereon. Thank you. Sincerely yours, (sgd) LAURA M. MARNELEGO In January 1985, the Central Bank of the Philippines ordered the closure and liquidation of Banco Filipino. Pending the liquidation of the bank, the Deputy Sheriff of the Regional Trial Court of Makati implemented the writ of possession issued by the court. Petitioner pleaded with the banks Deputy Liquidator to allow her to stay in the premises while the bank considers her proposal to repurchase the property.6 The bank, through its legal counsel, Atty. Vic Villanueva, granted petitioners request.7 On December 5, 1985, petitioner made a proposal to the Deputy Liquidator of Banco Filipino to purchase the property.8 Her letter explains the terms and conditions of her proposal, thus: December 5, 1985

MR. ALBERTO V. REYES Deputy Liquidator, Banco Filipino Paseo de Roxas, Makati, Metro Manila Dear Mr. Reyes: This is a proposal to purchase the property which we are presently occupying situated at #23 Houston St., BF Homes Subd., Paranaque Phase III (Lot[s] 17 & 19, Block 95) owned by Spouses Pereyra and now classified as an ASSETACQUIRED of the bank under the following terms and conditions: 1. Purchase price to be determined by the Liquidator 2. Purchase price to be payable as follows: 2.A. P120,000.00 to be deposited immediately and to be lodged as A/P for the undersigned 2.B. Balance to be paid once the restraining order/preliminary injunction is lifted by the Supreme Court in the case filed by the officers of Banco Filipino Should I fail to pay the balance upon notice, then I hereby undertake to voluntarily vacate the premises and surrender possession thereof to BF and I further undertake to pay rentals for the use of the premises at P1,000.00 a month from December, 1985, up to the time that possession is given to BF. The amount of rentals shall be deducted from my aforesaid deposit and the excess to be refunded to me. In case liquidation pushes through and the property is sold at public bidding and awarded to other bidders other than the undersigned, then my deposit ofP120,000.00 shall be reimbursed to me. The foregoing is offered to amply protect the interest of the bank while our court are [sic] deliberating on the cases pertinent to the liquidation and also to request that in the meantime, the execution of the writ of possession in LRC Case #M-276 be temporarily held in abeyance since the undersigned is ready, willing and able to buy the subject property but for reason of technicality, the process of liquidation is temporarily stopped. This proposal if acceptable shall not in anyway [sic] novate, modify or extinguish any right which BF may had [sic] on the subject property including the implementation of the writ of possession in LRC Case No. M-276. Thank you. Very truly yours, (sgd) LAURA MARNELEGO The Bank Liquidator responded to petitioners proposal in her letter dated April 3, 1986, thus:9 April 3, 1986 Mrs. Laura Marnelego 23 Houston Street BF Homes Subdivision Phase II[I] Paranaque, Metro Manila

Dear Mrs. Marnelego: This refers to your letter dated December 5, 1985 proposing to purchase the banks property presently occupied by you and requesting for the deferment of the execution of the Writ of Possession. We can only consider your offer to buy the property and allow your temporary occupancy of the same under the following conditions: 1. That sale of the property after the lifting of the Supreme Court Restraining Order shall be subject to Central Bank rules/regulations on the matter for closed banks; 2. That rental at P1,000.00 per month shall be collected and charged against your deposit of P170,000.00 starting December, 1985; 3. That no interests shall accrue to your deposit and that same shall be reimbursed only when the property is awarded to another bidder; 4. That should you win in the bidding but fail to produce the balance of the purchase price set by the liquidator, you agree to immediately vacate the property and the deposit shall be returned to you net of the monthly rental of P1,000.00 starting December, 1985 up to the time ownership of the property is taken back by the Bank which rental shall be collected; 5. And to such other terms and conditions the Liquidator may further deem necessary to protect the interest of the Bank. Please confer with us on the above conditions soonest. Very truly yours, CARLOTA P. VALENZUELA Liquidator By: (sgd) ALBERTO V. REYES On November 22, 1995, after the bank resumed its operations, it sent a letter to petitioner demanding that they vacate the premises within five days from receipt thereof.10 Petitioner filed a complaint with the Regional Trial Court of Paraaque for specific performance. Invoking the letter dated September 20, 1984 of Mr. Ricardo J. Gabriel, Assistant Manager, Real Estate Department and Secretary of the Committee on Disposal of Bank Properties, petitioner claimed that the bank has approved her proposal for the acquisition of the property. Petitioner prayed that the court order the bank to execute the necessary Deed of Sale of the property in question.11 The trial court ruled in favor of petitioner. It held that there was a perfected contract of sale between petitioner and respondent; that the parties have agreed on the purchase price of P362,000.00; and that the terms set in the banks letter of September 20, 1984 are merely conditions in the performance of the obligation and not a condition for the birth of the contract.12 The dispositive portion of the decision reads: Wherefore, judgment is hereby rendered in favor of the plaintiff and against the defendant: 1. Ordering the defendant to execute the Deed of Absolute Sale, upon payment, over the parcels of land covered by Transfer Certificate of Title Nos. 71660 and 71661 of the Registry of Deeds of Paraaque City and to pay Php20,000.00 as and for attorneys fees;

2. Ordering the plaintiff to pay the purchase price of Php724,000.00 less the amount of Php120,000.00 as advance payment immediately; 3. No pronouncement as to costs. SO ORDERED. On appeal, the Court of Appeals reversed the decision of the trial court. It found that there was no perfected contract of sale between petitioner and respondent bank. There was merely a series of offers and counter-offers between the parties but they never reached an agreement as to the purchase price. Hence, this petition. Petitioner argues: 1. The Court of Appeals gravely erred in finding that there was no perfected contract between the parties. 2. The Court of Appeals gravely erred in not finding that the modified terms of payment offered by petitioner was [sic] merely a condition on the performance of an obligation, not a condition imposed on the perfection of the contract. The petition is devoid of merit. The issue in this case is whether there is a perfected contract of sale between petitioner and respondent Banco Filipino concerning the property in question. A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance subject to the law governing the form of contracts.13 In the case at bar, the subject of the contract is clear, that is, the house and lot where petitioner presently resides. However, it appears from the records that the parties have not reached an agreement on the purchase price. It has been ruled that a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable contract of sale.14 The exchange of letters between petitioner and respondent shows that petitioner first offered to buy the property for P310,000.00, considering the numerous repairs that had to be done in the house.15 Respondent, in its letter dated September 20, 1984, informed petitioner that the bank has approved her request to repurchase the property in the amount ofP362,000.00 but subject to the following terms and conditions: (1) cash payment of P310,000.00 upon approval of the request/proposal, and (2) balance of P52,000.00 to be paid within one (1) year at the rate of 35% interest per annum.16 Petitioner, in her letter to the bank dated October 9, 1984, made a counter-offer to pay a down payment of P100,000.00 and to pay the balance in 5 equal installments to be paid in 5 years with interest. Before the bank could act on petitioners proposal, the Central Bank of the Philippines ordered the closure of Banco Filipino and placed it under liquidation. Thus on December 5, 1985, petitioner wrote to Mr. Alberto V. Reyes, Deputy Liquidator of Banco Filipino, proposing to purchase the property under the following terms and conditions: 1. Purchase price to be determined by the Liquidator 2. Purchase price to be payable as follows: 2.A. P120,000.00 to be deposited immediately and to be lodged as A/P for the undersigned 2.B. Balance to be paid once the restraining order/preliminary injunction is lifted by the officers of Banco Filipino17 On April 3, 1986, the Deputy Liquidator replied that they can only consider the sale of the property after the lifting of the Temporary Restraining Order issued by the Supreme Court and said sale shall be subject to the Central Bank rules and regulations.18 Clearly, there was no agreement yet between the parties as regards the purchase price and the manner and schedule of its payment. Neither of them had expressed acceptance of the other partys offer and counter-offer.

Notable is petitioners letter to the banks Deputy Liquidator, Mr. Alberto V. Reyes, which reveals that she herself believed that no agreement has yet been reached by the parties as regards the purchase price after the exchange of communication between her and the bank. In said letter, she made a totally new proposal for consideration of the banks Liquidator that the purchase price shall be determined by the Liquidator; that she would deposit the amount of P120,000.00 to be lodged in her accounts payable; and that she would pay the balance after the lifting of the temporary restraining order issued by the Court on the banks transactions. We find, therefore, that the Court of Appeals did not err in reversing the decision of the trial court. As the parties have not agreed on the purchase price for the property, petitioners action for specific performance against the bank must fail. IN VIEW WHEREOF, the petition is DENIED. SO ORDERED. REYNATO S. PUNO Associate Justice

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G. R. No. 158149 February 9, 2006

BOSTON BANK OF THE PHILIPPINES, (formerly BANK OF COMMERCE), Petitioner, vs. PERLA P. MANALO and CARLOS MANALO, JR., Respondents. DECISION CALLEJO, SR., J.: Before us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 47458 affirming, on appeal, the Decision2 of the Regional Trial Court (RTC) of Quezon City, Branch 98, in Civil Case No. Q-89-3905. The Antecedents The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known as the Xavierville Estate Subdivision, with an area of 42 hectares. XEI caused the subdivision of the property into residential lots, which was then offered for sale to individual lot buyers.3 On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and The Overseas Bank of Manila (OBM), as vendee, executed a "Deed of Sale of Real Estate" over some residential lots in the subdivision, including Lot 1, Block 2, with an area of 907.5 square meters, and Lot 2, Block 2, with an area of 832.80 square meters. The transaction was subject to the approval of the Board of Directors of OBM, and was covered by real estate mortgages in favor of the Philippine National Bank as security for its account amounting to P5,187,000.00, and the Central Bank of the Philippines as security for advances amounting to P22,185,193.74.4 Nevertheless, XEI continued selling the residential lots in the subdivision as agent of OBM.5 Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr. Carlos Manalo, Jr. who was in business of drilling deep water wells and installing pumps under the business name Hurricane Commercial, Inc. For P34,887.66, Manalo, Jr. installed a water pump at Ramos residence at the corner of Aurora Boulevard and Katipunan Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot in the Xavierville subdivision, and offered as part of the downpayment the P34,887.66 Ramos owed him. XEI, through Ramos, agreed. In a letter dated February 8, 1972, Ramos requested Manalo, Jr. to choose which lots he wanted to buy so that the price of the lots and the terms of payment could be fixed and incorporated in the conditional sale.6 Manalo, Jr. met with Ramos and informed him that he and his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3 square meters. In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the lots. He also pegged the price of the lots at P200.00 per square meter, or a total of P348,060.00, with a 20% down payment of the purchase price amounting to P69,612.00 less the P34,887.66 owing from Ramos, payable on or before December 31, 1972; the corresponding Contract of Conditional Sale would then be signed on or before the same date, but if the selling operations of XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and the spouses would sign the aforesaid contract within five (5) days from receipt of the notice of resumption of such selling operations. It was also stated in the letter that, in the meantime, the spouses may introduce improvements thereon subject to the rules and regulations imposed by XEI in the subdivision. Perla Manalo conformed to the letter agreement.7 The spouses Manalo took possession of the property on September 2, 1972, constructed a house thereon, and installed a fence around the perimeter of the lots. In the meantime, many of the lot buyers refused to pay their monthly installments until they were assured that they would be issued Torrens titles over the lots they had purchased.8 The spouses Manalo were notified of the resumption of the selling operations of XEI.9 However, they did not pay the balance of the downpayment on the lots

because Ramos failed to prepare a contract of conditional sale and transmit the same to Manalo for their signature. On August 14, 1973, Perla Manalo went to the XEI office and requested that the payment of the amount representing the balance of the downpayment be deferred, which, however, XEI rejected. On August 10, 1973, XEI furnished her with a statement of their account as of July 31, 1973, showing that they had a balance of P34,724.34 on the downpayment of the two lots after deducting the account of Ramos, plus P3,819.6810 interest thereon from September 1, 1972 to July 31, 1973, and that the interests on the unpaid balance of the purchase price ofP278,448.00 from September 1, 1972 to July 31, 1973 amounted to P30,629.28.11 The spouses were informed that they were being billed for said unpaid interests.12 On January 25, 1974, the spouses Manalo received another statement of account from XEI, inclusive of interests on the purchase price of the lots.13 In a letter dated April 6, 1974 to XEI, Manalo, Jr. stated they had not yet received the notice of resumption of Leis selling operations, and that there had been no arrangement on the payment of interests; hence, they should not be charged with interest on the balance of the downpayment on the property.14 Further, they demanded that a deed of conditional sale over the two lots be transmitted to them for their signatures. However, XEI ignored the demands. Consequently, the spouses refused to pay the balance of the downpayment of the purchase price.15 Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his house. In a letter dated June 17, 1976, XEI informed Manalo, Jr. that business signs were not allowed along the sidewalk. It demanded that he remove the same, on the ground, among others, that the sidewalk was not part of the land which he had purchased on installment basis from XEI.16 Manalo, Jr. did not respond. XEI reiterated its demand on September 15, 1977.17 Subsequently, XEI turned over its selling operations to OBM, including the receivables for lots already contracted and those yet to be sold.18 On December 8, 1977, OBM warned Manalo, Jr., that "putting up of a business sign is specifically prohibited by their contract of conditional sale" and that his failure to comply with its demand would impel it to avail of the remedies as provided in their contract of conditional sale.19 Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of Title (TCT) No. T-265822 over Lot 1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in favor of the OBM.20 The lien in favor of the Central Bank of the Philippines was annotated at the dorsal portion of said title, which was later cancelled on August 4, 1980.21 Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from OBM. CBM wrote Edilberto Ng, the president of Xavierville Homeowners Association that, as of January 31, 1983, Manalo, Jr. was one of the lot buyers in the subdivision.22 CBM reiterated in its letter to Ng that, as of January 24, 1984, Manalo was a homeowner in the subdivision.23 In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going construction on the property since it (CBM) was the owner of the lot and she had no permission for such construction.24 She agreed to have a conference meeting with CBM officers where she informed them that her husband had a contract with OBM, through XEI, to purchase the property. When asked to prove her claim, she promised to send the documents to CBM. However, she failed to do so.25 On September 5, 1986, CBM reiterated its demand that it be furnished with the documents promised,26 but Perla Manalo did not respond. On July 27, 1987, CBM filed a complaint27 for unlawful detainer against the spouses with the Metropolitan Trial Court of Quezon City. The case was docketed as Civil Case No. 51618. CBM claimed that the spouses had been unlawfully occupying the property without its consent and that despite its demands, they refused to vacate the property. The latter alleged that they, as vendors, and XEI, as vendee, had a contract of sale over the lots which had not yet been rescinded.28 While the case was pending, the spouses Manalo wrote CBM to offer an amicable settlement, promising to abide by the purchase price of the property (P313,172.34), per agreement with XEI, through Ramos. However, on July 28, 1988, CBM wrote the spouses, through counsel, proposing that the price of P1,500.00 per square meter of the property was a reasonable starting point for negotiation of the settlement.29 The spouses rejected the counter proposal,30 emphasizing that they would abide by their original agreement with XEI. CBM moved to withdraw its complaint31 because of the issues raised.32

In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM filed its complaint against the spouses Manalo, the latter filed a complaint for specific performance and damages against the bank before the Regional Trial Court (RTC) of Quezon City on October 31, 1989. The plaintiffs alleged therein that they had always been ready, able and willing to pay the installments on the lots sold to them by the defendants remote predecessor-in-interest, as might be or stipulated in the contract of sale, but no contract was forthcoming; they constructed their house worth P2,000,000.00 on the property in good faith; Manalo, Jr., informed the defendant, through its counsel, on October 15, 1988 that he would abide by the terms and conditions of his original agreement with the defendants predecessor-in-interest; during the hearing of the ejectment case on October 16, 1988, they offered to pay P313,172.34 representing the balance on the purchase price of said lots; such tender of payment was rejected, so that the subject lots could be sold at considerably higher prices to third parties. Plaintiffs further alleged that upon payment of the P313,172.34, they were entitled to the execution and delivery of a Deed of Absolute Sale covering the subject lots, sufficient in form and substance to transfer title thereto free and clear of any and all liens and encumbrances of whatever kind and nature.33 The plaintiffs prayed that, after due hearing, judgment be rendered in their favor, to wit: WHEREFORE, it is respectfully prayed that after due hearing: (a) The defendant should be ordered to execute and deliver a Deed of Absolute Sale over subject lots in favor of the plaintiffs after payment of the sum of P313,172.34, sufficient in form and substance to transfer to them titles thereto free and clear of any and all liens and encumbrances of whatever kind or nature; (b) The defendant should be held liable for moral and exemplary damages in the amounts of P300,000.00 and P30,000.00, respectively, for not promptly executing and delivering to plaintiff the necessary Contract of Sale, notwithstanding repeated demands therefor and for having been constrained to engage the services of undersigned counsel for which they agreed to pay attorneys fees in the sum of P50,000.00 to enforce their rights in the premises and appearance fee of P500.00; (c) And for such other and further relief as may be just and equitable in the premises.34 In its Answer to the complaint, the defendant interposed the following affirmative defenses: (a) plaintiffs had no cause of action against it because the August 22, 1972 letter agreement between XEI and the plaintiffs was not binding on it; and (b) "it had no record of any contract to sell executed by it or its predecessor, or of any statement of accounts from its predecessors, or records of payments of the plaintiffs or of any documents which entitled them to the possession of the lots."35 The defendant, likewise, interposed counterclaims for damages and attorneys fees and prayed for the eviction of the plaintiffs from the property.36 Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an amicable settlement of the case by paying P942,648.70, representing the balance of the purchase price of the two lots based on the current market value.37 However, the defendant rejected the same and insisted that for the smaller lot, they payP4,500,000.00, the current market value of the property.38 The defendant insisted that it owned the property since there was no contract or agreement between it and the plaintiffs relative thereto. During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional Sale executed between XEI and Alberto Soller;39 Alfredo Aguila,40 and Dra. Elena Santos-Roque41 to prove that XEI continued selling residential lots in the subdivision as agent of OBM after the latter had acquired the said lots. For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI proposed to sell the two lots subject to two suspensive conditions: the payment of the balance of the downpayment of the property, and the execution of the corresponding contract of conditional sale. Since plaintiffs failed to pay, OBM consequently refused to execute the corresponding contract of conditional sale and forfeited the P34,877.66 downpayment for the two lots, but did not notify them of said forfeiture.42 It alleged that OBM considered the lots unsold because the titles thereto bore no annotation that they had been sold under a contract of conditional sale, and the plaintiffs were not notified of XEIs resumption of its selling operations. On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the defendant. The fallo of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant (a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1 and 2, Block 2 of the Xavierville Estate Subdivision after payment of the sum of P942,978.70 sufficient in form and substance to transfer to them titles thereto free from any and all liens and encumbrances of whatever kind and nature. (b) Ordering the defendant to pay moral and exemplary damages in the amount of P150,000.00; and (c) To pay attorneys fees in the sum of P50,000.00 and to pay the costs. SO ORDERED.43 The trial court ruled that under the August 22, 1972 letter agreement of XEI and the plaintiffs, the parties had a "complete contract to sell" over the lots, and that they had already partially consummated the same. It declared that the failure of the defendant to notify the plaintiffs of the resumption of its selling operations and to execute a deed of conditional sale did not prevent the defendants obligation to convey titles to the lots from acquiring binding effect. Consequently, the plaintiffs had a cause of action to compel the defendant to execute a deed of sale over the lots in their favor. Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a) not concluding that the letter of XEI to the spouses Manalo, was at most a mere contract to sell subject to suspensive conditions, i.e., the payment of the balance of the downpayment on the property and the execution of a deed of conditional sale (which were not complied with); and (b) in awarding moral and exemplary damages to the spouses Manalo despite the absence of testimony providing facts to justify such awards.44 On September 30, 2002, the CA rendered a decision affirming that of the RTC with modification. The fallo reads: WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS that (a) the figure "P942,978.70" appearing [in] par. (a) of the dispositive portion thereof is changed to "P313,172.34 plus interest thereon at the rate of 12% per annum from September 1, 1972 until fully paid" and (b) the award of moral and exemplary damages and attorneys fees in favor of plaintiffs-appellees is DELETED. SO ORDERED.45 The appellate court sustained the ruling of the RTC that the appellant and the appellees had executed a Contract to Sell over the two lots but declared that the balance of the purchase price of the property amounting toP278,448.00 was payable in fixed amounts, inclusive of pre-computed interests, from delivery of the possession of the property to the appellees on a monthly basis for 120 months, based on the deeds of conditional sale executed by XEI in favor of other lot buyers.46 The CA also declared that, while XEI must have resumed its selling operations before the end of 1972 and the downpayment on the property remained unpaid as of December 31, 1972, absent a written notice of cancellation of the contract to sell from the bank or notarial demand therefor as required by Republic Act No. 6552, the spouses had, at the very least, a 60-day grace period from January 1, 1973 within which to pay the same. Boston Bank filed a motion for the reconsideration of the decision alleging that there was no perfected contract to sell the two lots, as there was no agreement between XEI and the respondents on the manner of payment as well as the other terms and conditions of the sale. It further averred that its claim for recovery of possession of the aforesaid lots in its Memorandum dated February 28, 1994 filed before the trial court constituted a judicial demand for rescission that satisfied the requirements of the New Civil Code. However, the appellate court denied the motion. Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the CA rulings. It maintains that, as held by the CA, the records do not reflect any schedule of payment of the 80% balance of the purchase price, or P278,448.00. Petitioner insists that unless the parties had agreed on the manner of payment of the principal amount, including the other terms and conditions of the contract, there would be no existing contract of sale or contract to sell.47 Petitioner avers that the letter agreement to respondent spouses dated August 22, 1972 merely confirmed their reservation for the purchase of Lot Nos. 1 and 2, consisting of 1,740.3 square meters, more or less, at the price of P200.00 per square meter (or P348,060.00), the amount of the downpayment thereon and the application of the P34,887.00 due from Ramos as part of such downpayment. Petitioner asserts that there is no factual basis for the CA ruling that the terms and conditions relating to the payment of the balance of the purchase price of the property (as agreed upon by XEI and other lot buyers in the

same subdivision) were also applicable to the contract entered into between the petitioner and the Respondents. It insists that such a ruling is contrary to law, as it is tantamount to compelling the parties to agree to something that was not even discussed, thus, violating their freedom to contract. Besides, the situation of the respondents cannot be equated with those of the other lot buyers, as, for one thing, the respondents made a partial payment on the downpayment for the two lots even before the execution of any contract of conditional sale. Petitioner posits that, even on the assumption that there was a perfected contract to sell between the parties, nevertheless, it cannot be compelled to convey the property to the respondents because the latter failed to pay the balance of the downpayment of the property, as well as the balance of 80% of the purchase price, thus resulting in the extinction of its obligation to convey title to the lots to the Respondents. Another egregious error of the CA, petitioner avers, is the application of Republic Act No. 6552. It insists that such law applies only to a perfected agreement or perfected contract to sell, not in this case where the downpayment on the purchase price of the property was not completely paid, and no installment payments were made by the buyers. Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the respondents of cancellation or rescission of the contract to sell, or notarial demand therefor. Petitioner insists that its August 5, 1986 letter requiring respondents to vacate the property and its complaint for ejectment in Civil Case No. 51618 filed in the Metropolitan Trial Court amounted to the requisite demand for a rescission of the contract to sell. Moreover, the action of the respondents below was barred by laches because despite demands, they failed to pay the balance of the purchase price of the lots (let alone the downpayment) for a considerable number of years. For their part, respondents assert that as long as there is a meeting of the minds of the parties to a contract of sale as to the price, the contract is valid despite the parties failure to agree on the manner of payment. In such a situation, the balance of the purchase price would be payable on demand, conformably to Article 1169 of the New Civil Code. They insist that the law does not require a party to agree on the manner of payment of the purchase price as a prerequisite to a valid contract to sell. The respondents cite the ruling of this Court in Buenaventura v. Court of Appeals48 to support their submission. They argue that even if the manner and timeline for the payment of the balance of the purchase price of the property is an essential requisite of a contract to sell, nevertheless, as shown by their letter agreement of August 22, 1972 with the OBM, through XEI and the other letters to them, an agreement was reached as to the manner of payment of the balance of the purchase price. They point out that such letters referred to the terms of the terms of the deeds of conditional sale executed by XEI in favor of the other lot buyers in the subdivision, which contained uniform terms of 120 equal monthly installments (excluding the downpayment, but inclusive of pre-computed interests). The respondents assert that XEI was a real estate broker and knew that the contracts involving residential lots in the subdivision contained uniform terms as to the manner and timeline of the payment of the purchase price of said lots. Respondents further posit that the terms and conditions to be incorporated in the "corresponding contract of conditional sale" to be executed by the parties would be the same as those contained in the contracts of conditional sale executed by lot buyers in the subdivision. After all, they maintain, the contents of the corresponding contract of conditional sale referred to in the August 22, 1972 letter agreement envisaged those contained in the contracts of conditional sale that XEI and other lot buyers executed. Respondents cite the ruling of this Court in Mitsui Bussan Kaisha v. Manila E.R.R. & L. Co.49 The respondents aver that the issues raised by the petitioner are factual, inappropriate in a petition for review on certiorari under Rule 45 of the Rules of Court. They assert that petitioner adopted a theory in litigating the case in the trial court, but changed the same on appeal before the CA, and again in this Court. They argue that the petitioner is estopped from adopting a new theory contrary to those it had adopted in the trial and appellate courts. Moreover, the existence of a contract of conditional sale was admitted in the letters of XEI and OBM. They aver that they became owners of the lots upon delivery to them by XEI. The issues for resolution are the following: (1) whether the factual issues raised by the petitioner are proper; (2) whether petitioner or its predecessors-in-interest, the XEI or the OBM, as seller, and the respondents, as buyers, forged a perfect contract to sell over the property; (3) whether petitioner is estopped from contending that no such contract was forged by the parties; and (4) whether respondents has a cause of action against the petitioner for specific performance.

The rule is that before this Court, only legal issues may be raised in a petition for review on certiorari. The reason is that this Court is not a trier of facts, and is not to review and calibrate the evidence on record. Moreover, the findings of facts of the trial court, as affirmed on appeal by the Court of Appeals, are conclusive on this Court unless the case falls under any of the following exceptions: (1) when the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondents; and (10) when the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.50 We have reviewed the records and we find that, indeed, the ruling of the appellate court dismissing petitioners appeal is contrary to law and is not supported by evidence. A careful examination of the factual backdrop of the case, as well as the antecedental proceedings constrains us to hold that petitioner is not barred from asserting that XEI or OBM, on one hand, and the respondents, on the other, failed to forge a perfected contract to sell the subject lots. It must be stressed that the Court may consider an issue not raised during the trial when there is plain error.51Although a factual issue was not raised in the trial court, such issue may still be considered and resolved by the Court in the interest of substantial justice, if it finds that to do so is necessary to arrive at a just decision,52 or when an issue is closely related to an issue raised in the trial court and the Court of Appeals and is necessary for a just and complete resolution of the case.53 When the trial court decides a case in favor of a party on certain grounds, the Court may base its decision upon some other points, which the trial court or appellate court ignored or erroneously decided in favor of a party.54 In this case, the issue of whether XEI had agreed to allow the respondents to pay the purchase price of the property was raised by the parties. The trial court ruled that the parties had perfected a contract to sell, as against petitioners claim that no such contract existed. However, in resolving the issue of whether the petitioner was obliged to sell the property to the respondents, while the CA declared that XEI or OBM and the respondents failed to agree on the schedule of payment of the balance of the purchase price of the property, it ruled that XEI and the respondents had forged a contract to sell; hence, petitioner is entitled to ventilate the issue before this Court. We agree with petitioners contention that, for a perfected contract of sale or contract to sell to exist in law, there must be an agreement of the parties, not only on the price of the property sold, but also on the manner the price is to be paid by the vendee. Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional, one of the contracting parties obliges himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and the price. From the averment of perfection, the parties are bound, not only to the fulfillment of what has been expressly stipulated, but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.55 On the other hand, when the contract of sale or to sell is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.56 A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.57 It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. This

is so because the agreement as to the manner of payment goes into the price, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.58 In a contract to sell property by installments, it is not enough that the parties agree on the price as well as the amount of downpayment. The parties must, likewise, agree on the manner of payment of the balance of the purchase price and on the other terms and conditions relative to the sale. Even if the buyer makes a downpayment or portion thereof, such payment cannot be considered as sufficient proof of the perfection of any purchase and sale between the parties. Indeed, this Court ruled in Velasco v. Court of Appeals59 that: It is not difficult to glean from the aforequoted averments that the petitioners themselves admit that they and the respondent still had to meet and agree on how and when the down-payment and the installment payments were to be paid. Such being the situation, it cannot, therefore, be said that a definite and firm sales agreement between the parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum ofP10,000.00 as part of the downpayment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under article 1482 of the New Civil Code, as the petitioners themselves admit that some essential matter the terms of payment still had to be mutually covenanted.60 We agree with the contention of the petitioner that, as held by the CA, there is no showing, in the records, of the schedule of payment of the balance of the purchase price on the property amounting to P278,448.00. We have meticulously reviewed the records, including Ramos February 8, 1972 and August 22, 1972 letters to respondents,61 and find that said parties confined themselves to agreeing on the price of the property (P348,060.00), the 20% downpayment of the purchase price (P69,612.00), and credited respondents for theP34,887.00 owing from Ramos as part of the 20% downpayment. The timeline for the payment of the balance of the downpayment (P34,724.34) was also agreed upon, that is, on or before XEI resumed its selling operations, on or before December 31, 1972, or within five (5) days from written notice of such resumption of selling operations. The parties had also agreed to incorporate all the terms and conditions relating to the sale, inclusive of the terms of payment of the balance of the purchase price and the other substantial terms and conditions in the "corresponding contract of conditional sale," to be later signed by the parties, simultaneously with respondents settlement of the balance of the downpayment. The February 8, 1972 letter of XEI reads: Mr. Carlos T. Manalo, Jr. Hurricane Rotary Well Drilling Rizal Avenue Ext.,Caloocan City Dear Mr. Manalo: We agree with your verbal offer to exchange the proceeds of your contract with us to form as a down payment for a lot in our Xavierville Estate Subdivision. Please let us know your choice lot so that we can fix the price and terms of payment in our conditional sale. Sincerely yours, XAVIERVILLE ESTATE, INC. (Signed) EMERITO B. RAMOS, JR. President CONFORME: (Signed) CARLOS T. MANALO, JR. Hurricane Rotary Well Drilling62

The August 22, 1972 letter agreement of XEI and the respondents reads: Mrs. Perla P. Manalo 1548 Rizal Avenue Extensionbr>Caloocan City Dear Mrs. Manalo: This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidation-subdivision plan as amended, consisting of 1,740.3 square meters more or less, at the price of P200.00 per square meter or a total price of P348,060.00. It is agreed that as soon as we resume selling operations, you must pay a down payment of 20% of the purchase price of the said lots and sign the corresponding Contract of Conditional Sale, on or before December 31, 1972, provided, however, that if we resume selling after December 31, 1972, then you must pay the aforementioned down payment and sign the aforesaid contract within five (5) days from your receipt of our notice of resumption of selling operations. In the meanwhile, you may introduce such improvements on the said lots as you may desire, subject to the rules and regulations of the subdivision. If the above terms and conditions are acceptable to you, please signify your conformity by signing on the space herein below provided. Thank you. Very truly yours, XAVIERVILLE ESTATE, INC. CONFORME: By: (Signed) EMERITO B. RAMOS, JR. President Buyer63 Based on these two letters, the determination of the terms of payment of the P278,448.00 had yet to be agreed upon on or before December 31, 1972, or even afterwards, when the parties sign the corresponding contract of conditional sale. Jurisprudence is that if a material element of a contemplated contract is left for future negotiations, the same is too indefinite to be enforceable.64 And when an essential element of a contract is reserved for future agreement of the parties, no legal obligation arises until such future agreement is concluded.65 So long as an essential element entering into the proposed obligation of either of the parties remains to be determined by an agreement which they are to make, the contract is incomplete and unenforceable.66 The reason is that such a contract is lacking in the necessary qualities of definiteness, certainty and mutuality.67 There is no evidence on record to prove that XEI or OBM and the respondents had agreed, after December 31, 1972, on the terms of payment of the balance of the purchase price of the property and the other substantial terms and conditions relative to the sale. Indeed, the parties are in agreement that there had been no contract of conditional sale ever executed by XEI, OBM or petitioner, as vendor, and the respondents, as vendees.68 The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case because the issue of the manner of payment of the purchase price of the property was not raised therein. We reject the submission of respondents that they and Ramos had intended to incorporate the terms of payment contained in the three contracts of conditional sale executed by XEI and other lot buyers in the "corresponding contract of conditional sale," which would later be signed by them.69 We have meticulously reviewed the respondents complaint and find no such allegation therein.70 Indeed, respondents merely alleged in their complaint that they were bound to pay the balance of the purchase price of the property "in installments." When respondent (Signed) PERLA P. MANALO

Manalo, Jr. testified, he was never asked, on direct examination or even on cross-examination, whether the terms of payment of the balance of the purchase price of the lots under the contracts of conditional sale executed by XEI and other lot buyers would form part of the "corresponding contract of conditional sale" to be signed by them simultaneously with the payment of the balance of the downpayment on the purchase price. We note that, in its letter to the respondents dated June 17, 1976, or almost three years from the execution by the parties of their August 22, 1972 letter agreement, XEI stated, in part, that respondents had purchased the property "on installment basis."71 However, in the said letter, XEI failed to state a specific amount for each installment, and whether such payments were to be made monthly, semi-annually, or annually. Also, respondents, as plaintiffs below, failed to adduce a shred of evidence to prove that they were obliged to pay the P278,448.00 monthly, semiannually or annually. The allegation that the payment of the P278,448.00 was to be paid in installments is, thus, vague and indefinite. Case law is that, for a contract to be enforceable, its terms must be certain and explicit, not vague or indefinite.72 There is no factual and legal basis for the CA ruling that, based on the terms of payment of the balance of the purchase price of the lots under the contracts of conditional sale executed by XEI and the other lot buyers, respondents were obliged to pay the P278,448.00 with pre-computed interest of 12% per annum in 120-month installments. As gleaned from the ruling of the appellate court, it failed to justify its use of the terms of payment under the three "contracts of conditional sale" as basis for such ruling, to wit: On the other hand, the records do not disclose the schedule of payment of the purchase price, net of the downpayment. Considering, however, the Contracts of Conditional Sale (Exhs. "N," "O" and "P") entered into by XEI with other lot buyers, it would appear that the subdivision lots sold by XEI, under contracts to sell, were payable in 120 equal monthly installments (exclusive of the downpayment but including pre-computed interests) commencing on delivery of the lot to the buyer.73 By its ruling, the CA unilaterally supplied an essential element to the letter agreement of XEI and the Respondents. Courts should not undertake to make a contract for the parties, nor can it enforce one, the terms of which are in doubt.74 Indeed, the Court emphasized in Chua v. Court of Appeals75 that it is not the province of a court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material stipulations or read into contract words which it does not contain. Respondents, as plaintiffs below, failed to allege in their complaint that the terms of payment of the P278,448.00 to be incorporated in the "corresponding contract of conditional sale" were those contained in the contracts of conditional sale executed by XEI and Soller, Aguila and Roque.76 They likewise failed to prove such allegation in this Court. The bare fact that other lot buyers were allowed to pay the balance of the purchase price of lots purchased by them in 120 or 180 monthly installments does not constitute evidence that XEI also agreed to give the respondents the same mode and timeline of payment of the P278,448.00. Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain thing at one time is not admissible to prove that he did the same or similar thing at another time, although such evidence may be received to prove habit, usage, pattern of conduct or the intent of the parties. Similar acts as evidence. Evidence that one did or did not do a certain thing at one time is not admissible to prove that he did or did not do the same or a similar thing at another time; but it may be received to prove a specific intent or knowledge, identity, plan, system, scheme, habit, custom or usage, and the like. However, respondents failed to allege and prove, in the trial court, that, as a matter of business usage, habit or pattern of conduct, XEI granted all lot buyers the right to pay the balance of the purchase price in installments of 120 months of fixed amounts with pre-computed interests, and that XEI and the respondents had intended to adopt such terms of payment relative to the sale of the two lots in question. Indeed, respondents adduced in evidence the three contracts of conditional sale executed by XEI and other lot buyers merely to prove that XEI continued to sell lots in the subdivision as sales agent of OBM after it acquired said lots, not to prove usage, habit or pattern of conduct on the part of XEI to require all lot buyers in the subdivision to pay the balance of the purchase price of said lots in 120

months. It further failed to prive that the trial court admitted the said deeds77 as part of the testimony of respondent Manalo, Jr.78 Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must contend with the caveat that, before they admit evidence of usage, of habit or pattern of conduct, the offering party must establish the degree of specificity and frequency of uniform response that ensures more than a mere tendency to act in a given manner but rather, conduct that is semi-automatic in nature. The offering party must allege and prove specific, repetitive conduct that might constitute evidence of habit. The examples offered in evidence to prove habit, or pattern of evidence must be numerous enough to base on inference of systematic conduct. Mere similarity of contracts does not present the kind of sufficiently similar circumstances to outweigh the danger of prejudice and confusion. In determining whether the examples are numerous enough, and sufficiently regular, the key criteria are adequacy of sampling and uniformity of response. After all, habit means a course of behavior of a person regularly represented in like circumstances.79 It is only when examples offered to establish pattern of conduct or habit are numerous enough to lose an inference of systematic conduct that examples are admissible. The key criteria are adequacy of sampling and uniformity of response or ratio of reaction to situations.80 There are cases where the course of dealings to be followed is defined by the usage of a particular trade or market or profession. As expostulated by Justice Benjamin Cardozo of the United States Supreme Court: "Life casts the moulds of conduct, which will someday become fixed as law. Law preserves the moulds which have taken form and shape from life."81 Usage furnishes a standard for the measurement of many of the rights and acts of men.82 It is also well-settled that parties who contract on a subject matter concerning which known usage prevail, incorporate such usage by implication into their agreement, if nothing is said to be contrary.83 However, the respondents inexplicably failed to adduce sufficient competent evidence to prove usage, habit or pattern of conduct of XEI to justify the use of the terms of payment in the contracts of the other lot buyers, and thus grant respondents the right to pay the P278,448.00 in 120 months, presumably because of respondents belief that the manner of payment of the said amount is not an essential element of a contract to sell. There is no evidence that XEI or OBM and all the lot buyers in the subdivision, including lot buyers who pay part of the downpayment of the property purchased by them in the form of service, had executed contracts of conditional sale containing uniform terms and conditions. Moreover, under the terms of the contracts of conditional sale executed by XEI and three lot buyers in the subdivision, XEI agreed to grant 120 months within which to pay the balance of the purchase price to two of them, but granted one 180 months to do so.84 There is no evidence on record that XEI granted the same right to buyers of two or more lots. Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may be considered certain if it be so with reference to another thing certain. It is sufficient if it can be determined by the stipulations of the contract made by the parties thereto85 or by reference to an agreement incorporated in the contract of sale or contract to sell or if it is capable of being ascertained with certainty in said contract;86 or if the contract contains express or implied provisions by which it may be rendered certain;87 or if it provides some method or criterion by which it can be definitely ascertained.88 As this Court held in Villaraza v. Court of Appeals,89 the price is considered certain if, by its terms, the contract furnishes a basis or measure for ascertaining the amount agreed upon. We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no direct or implied reference to the manner and schedule of payment of the balance of the purchase price of the lots covered by the deeds of conditional sale executed by XEI and that of the other lot buyers90 as basis for or mode of determination of the schedule of the payment by the respondents of the P278,448.00. The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light Company91 is not applicable in this case because the basic price fixed in the contract was P9.45 per long ton, but it was stipulated that the price was subject to modification "in proportion to variations in calories and ash content, and not otherwise." In this case, the parties did not fix in their letters-agreement, any method or mode of determining the terms of payment of the balance of the purchase price of the property amounting to P278,448.00. It bears stressing that the respondents failed and refused to pay the balance of the downpayment and of the purchase price of the property amounting to P278,448.00 despite notice to them of the resumption by XEI of its selling operations. The respondents enjoyed possession of the property without paying a centavo. On the other hand, XEI and OBM failed and refused to transmit a contract of conditional sale to the Respondents. The

respondents could have at least consigned the balance of the downpayment after notice of the resumption of the selling operations of XEI and filed an action to compel XEI or OBM to transmit to them the said contract; however, they failed to do so. As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected contract to sell the two lots; hence, respondents have no cause of action for specific performance against petitioner. Republic Act No. 6552 applies only to a perfected contract to sell and not to a contract with no binding and enforceable effect. IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 47458 is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City, Branch 98 is ordered to dismiss the complaint. Costs against the Respondents. SO ORDERED. ROMEO J. CALLEJO, SR. Associate Justice WE CONCUR: ARTEMIO V. PANGANIBAN Chief Justice Chairperson CONSUELO YNARES-SANTIAGO, MA. ALICIA AUSTRIA-MARTINEZ Associate Justice Associate Justice MINITA V. CHICO-NAZARIO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 166862 December 20, 2006

MANILA METAL CONTAINER CORPORATION, petitioner, REYNALDO C. TOLENTINO, intervenor, vs. PHILIPPINE NATIONAL BANK, respondent, DMCI-PROJECT DEVELOPERS, INC., intervenor.

DECISION

CALLEJO, SR., J.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. No. 46153 which affirmed the decision2 of the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution3 denying the motion for reconsideration filed by petitioner Manila Metal Container Corporation (MMCC). The Antecedents Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City), Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation of P1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment4 of Real Estate Mortgage over its property. On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent PNB, payable in quarterly installments of P32,650.00, plus interests and other charges.5 On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold at public auction for P911,532.21, petitioner's outstanding obligation to respondent PNB as of June 30, 1982,6 plus interests and attorney's fees. After due notice and publication, the property was sold at public auction on September 28, 1982 where respondent PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale7 issued in its favor was registered with the Office of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on February 17, 1984. Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an extension of time to redeem/repurchase the property.8 In its reply dated August 30, 1983, respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate action and recommendation.9 In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its request to repurchase the property on installment.11 Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does not accept "partial redemption."12 Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of respondent PNB.13 Petitioner's offers had not yet been acted upon by respondent PNB. Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account, and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes, registration expenses, miscellaneous expenses and publication cost.14 When apprised of the statement of account, petitioner remitted P725,000.00 to respondent PNB as "deposit to repurchase," and Official Receipt No. 978191 was issued to it.15 In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property would be sold to other interested buyers.16 Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property for P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to purchase the property.17 On February 25, 1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner declared that it had already agreed to the SAMD's offer to purchase the property forP1,574,560.47, and that was

why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on the position.18 On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already deposited with it.19 On page two of the letter was a space above the typewritten name of petitioner's President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did not conform to the letter but merely indicated therein that he had received it.20 Petitioner did not respond, so PNB requested petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase. Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment had been accepted, respondent PNB was proscribed from increasing the purchase price of the property.21 Petitioner averred that it had a net balance payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioner's offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.22 On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." To support its cause of action for specific performance, it alleged the following: 34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the substantial amount of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as approved by its SMAD and considering the reliance made by Manila Metal and the long time that has elapsed, the approval of the higher management of the Bank to confirm the agreement of its SMAD is clearly a potestative condition which cannot legally prejudice Manila Metal which has acted and relied on the approval of SMAD. The Bank cannot take advantage of a condition which is entirely dependent upon its own will after accepting and benefiting from the substantial payment made by Manila Metal. 35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from Manila Metal. PNB cannot take advantage of its own delay and long inaction in demanding a higher amount based on unilateral computation of interest rate without the consent of Manila Metal. Petitioner later filed an amended complaint and supported its claim for damages with the following arguments: 36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank, plaintiff is constrained to engage the services of counsel at an agreed fee of P50,000.00 and to incur litigation expenses of at least P30,000.00, which the defendant PNB should be condemned to pay the plaintiff Manila Metal. 37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal suffered besmirched reputation for which defendant PNB is liable for moral damages of at least P50,000.00. 38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible, exemplary damages should be awarded in favor of the plaintiff by way of example or correction for the public good of at least P30,000.00.23 Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus: a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal force and effect. b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property and setting it for auction sale null and void. c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO. 43792) covering the property described in paragraph 4 of the Complaint, to reinstate TCT No. 37025 in the name of Manila Metal and to cancel the annotation of the mortgage in question at the back of the TCT No.37025 described in paragraph 4 of this Complaint.

d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025described in paragraph 4 of this Complaint to the plaintiff Manila Metal. e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages, moral and exemplary damages in the aggregate amount of not less than P80,000.00 as may be warranted by the evidence and fixed by this Honorable Court in the exercise of its sound discretion, and attorney's fees of P50,000.00 and litigation expenses of at least P30,000.00 as may be proved during the trial, and costs of suit. Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises.24 In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem the property had expired. During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts.25 The parties agreed to limit the issues to the following: 1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer to purchase the property is still valid and legally enforceable. 2. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with the conditions set forth by the defendant in its letter dated June 4, 1985. 3. Whether or not there is a perfected contract of sale between the parties.26 While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate the property within 15 days from notice,27 but petitioners refused to do so. On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer was however rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing market value of the property was approximately P30,000,000.00, and as a matter of policy, it could not sell the property for less than its market value.29 On June 21, 1993, petitioner offered to purchase the property for P4,250,000.00 in cash.30The offer was again rejected by respondent PNB on September 13, 1993.31 On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had made.32 The trial court ruled that there was no perfected contract of sale between the parties; hence, petitioner had no cause of action for specific performance against respondent. The trial court declared that respondent had rejected petitioner's offer to repurchase the property. Petitioner, in turn, rejected the terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had offered to repurchase the property per its letter of July 14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which respondent PNB had demanded. It further declared that the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985 was a "deposit," and not a downpayment or earnest money. On appeal to the CA, petitioner made the following allegations: I THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE. II THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE. III

THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985. IV THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANTAPPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE. V THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE. VI THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER. VII THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFFAPPELLANT. VIII THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND LITIGATION EXPENSES. 33 Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where it waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one of its Directors.34 Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the ownership and management of the property in favor of Reynaldo Tolentino, who later moved for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued a resolution granting the motion,35 and likewise granted the motion of Reynaldo Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as intervenor.36 The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.37 It declared that petitioner obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of the minds between the parties as to the price or consideration of the sale. The CA ratiocinated that petitioner's original offer to purchase the subject property had not been accepted by respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically on the selling price; petitioner did not agree to the counter-offer; and the negotiations did not prosper. Moreover, petitioner did not pay the balance of the purchase price within the sixty-day period set in the June 4, 1985 letter of respondent PNB. Consequently, there was no perfected contract of sale, and as such, there was no contract to rescind. According to the appellate court, the claim for damages and the counterclaim were correctly dismissed by the court a quo for no evidence was presented to support it. Respondent PNB's letter dated June 30, 1988 cannot revive the failed negotiations between the parties. Respondent PNB merely asked petitioner to submit an amended offer to repurchase. While petitioner reiterated its request for a lower selling price and that the balance of the repurchase be reduced, however, respondent rejected the proposal in a letter dated August 1, 1989. Petitioner filed a motion for reconsideration, which the CA likewise denied. Thus, petitioner filed the instant petition for review on certiorari, alleging that: I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT.

II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY. III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES. IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES. V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED CONTRACT OF SALE.38 The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected contract for petitioner to repurchase the property from respondent. Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the property forP1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it then deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt No. 978194 which respondent had issued. Petitioner avers that the SAMD's acceptance of the deposit amounted to an acceptance of its offer to repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioner's offer to purchase the property. It claims that this was the suspensive condition, the fulfillment of which gave rise to the contract. Respondent could no longer unilaterally withdraw its offer to sell the property for P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of sale; it was obliged to remit to respondent the balance of the original purchase price of P1,574,560.47, while respondent was obliged to transfer ownership and deliver the property to petitioner, conformably with Article 1159 of the New Civil Code. Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted respondent's offer to sell the property for P1,574,560.00. Consequently, respondent could no longer validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise maintains that, although theP725,000.00 was considered as "deposit for the repurchase of the property" in the receipt issued by the SAMD, the amount constitutes earnest money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco39 and Topacio v. Court of Appeals.40 Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its failure to pay the balance of the price as fixed by respondent within the 60-day period from notice was to protest respondent's breach of its obligation to petitioner. It did not amount to a rejection of respondent's offer to sell the property since respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47. In any event, respondent had the option either to accept the balance of the offered price or to cause the rescission of the contract. Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the case in the RTC were merely to compromise the pending lawsuit, they did not constitute separate offers to repurchase the property. Such offer to compromise should not be taken against it, in accordance with Section 27, Rule 130 of the Revised Rules of Court. For its part, respondent contends that the parties never graduated from the "negotiation stage" as they could not agree on the amount of the repurchase price of the property. All that transpired was an exchange of proposals and counter-proposals, nothing more. It insists that a definite agreement on the amount and manner of payment of the price are essential elements in the formation of a binding and enforceable contract of sale. There was no such agreement in this case. Primarily, the concept of "suspensive condition" signifies a future and uncertain event upon the fulfillment of which the obligation becomes effective. It clearly presupposes the existence of a valid and binding agreement, the effectivity of which is subordinated to its fulfillment. Since there is no perfected contract in the first place, there is no basis for the application of the principles governing "suspensive conditions."

According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary claims against petitioner. Moreover, the amount stated therein could not likewise be considered as the counter-offer since as admitted by petitioner, it was only recommendation which was subject to approval of the PNB Board of Directors. Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale contract. As gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo, the amount is merely an acknowledgment of the receipt of P725,000.00 as deposit to repurchase the property. The deposit of P725,000.00 was accepted by respondent on the condition that the purchase price would still be approved by its Board of Directors. Respondent maintains that its acceptance of the amount was qualified by that condition, thus not absolute. Pending such approval, it cannot be legally claimed that respondent is already bound by any contract of sale with petitioner. According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its authority is limited to administering, managing and preserving the properties and other special assets of PNB. The SAMD does not have the power to sell, encumber, dispose of, or otherwise alienate the assets, since the power to do so must emanate from its Board of Directors. The SAMD was not authorized by respondent's Board to enter into contracts of sale with third persons involving corporate assets. There is absolutely nothing on record that respondent authorized the SAMD, or made it appear to petitioner that it represented itself as having such authority. Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved by the Board subject to the condition, among others, "that the selling price shall be the total bank's claim as of documentation date x x x payable in cash (P725,000.00 already deposited) within 60 days from notice of approval." A new Statement of Account was attached therein indicating the total bank's claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00. Furthermore, while respondent's Board of Directors accepted petitioner's offer to repurchase the property, the acceptance was qualified, in that it required a higher sale price and subject to specified terms and conditions enumerated therein. This qualified acceptance was in effect a counter-offer, necessitating petitioner's acceptance in return. The Ruling of the Court The ruling of the appellate court that there was no perfected contract of sale between the parties on June 4, 1985 is correct. 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.41 Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. Contracts are perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.42 Once perfected, they bind other contracting parties and the obligations arising therefrom have the form of law between the parties and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.43 By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.44 The absence of any of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:45 A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the

decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.46 A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract.47 When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.48 In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. A negotiation is formally initiated by an offer, which, however, must be certain.50 At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa Properties, Inc. v. Court of Appeals,51 the Court ruled that: x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale.52 A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis.53 Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer.54 The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since it lacked the resources, it requested for more time to redeem/repurchase the property under such terms and conditions agreed upon by the parties.55 The request, which was made through a letter dated August 25, 1983, was referred to the respondent's main branch for appropriate action.56 Before respondent could act on the request, petitioner again wrote respondent as follows: 1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS (P150,000.00); 2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and 3. The remaining balance together with the interest and other expenses that will be incurred will be paid within the last six months of the one year grave period requested for.57 When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a letter to respondent's President reiterating its offer to purchase the property.59 There was no response to petitioner's letters dated February 10 and 15, 1984. The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25, 1984 wasP1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to purchase the property. The statement is but a computation of the amount which petitioner was obliged to pay in case respondent would later agree to sell the property, including interests, advances on insurance premium, advances on realty taxes, publication cost, registration expenses and miscellaneous expenses.

There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept petitioner's offer and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioner's offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:60 Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with the performance of authorized duties of such director, are held not binding on the corporation. Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when authorized by a board resolution or its by-laws.61 It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to repurchase the property even beyond the one-year period; it recommended that petitioner be allowed to redeem the property and pay P1,574,560.00 as the purchase price. Respondent later approved the recommendation that the property be sold to petitioner. But instead of the P1,574,560.47 recommended by the SAMD and to which petitioner had previously conformed, respondent set the purchase price at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was qualified, hence can be at most considered as a counter-offer. If petitioner had accepted this counter-offer, a perfected contract of sale would have arisen; as it turns out, however, petitioner merely sought to have the counter-offer reconsidered. This request for reconsideration would later be rejected by respondent. We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent was "earnest money" which could be considered as proof of the perfection of a contract of sale under Article 1482 of the New Civil Code. The provision reads: ART. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. This contention is likewise negated by the stipulation of facts which the parties entered into in the trial court: 8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated Statement of Account showing MMCC's total liability to PNB as of June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase price of the subject property. 9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The deposit of P725,000 was accepted by PNB on the condition that the purchase price is still subject to the approval of the PNB Board.62 Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property, in the event that respondent would approve the recommendation of SAMD for respondent to accept petitioner's offer to purchase the property for P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no perfected contract of sale would arise. Absent proof of the concurrence of all the essential elements of a contract of sale, the giving of earnest money cannot establish the existence of a perfected contract of sale.63 It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the offer to purchase the property for P1,931,389.53. However, this amounted to an amendment of respondent's qualified acceptance, or an amended counter-offer, because while the respondent lowered the purchase price, it still declared that its acceptance was subject to the following terms and conditions: 1. That the selling price shall be the total Bank's claim as of documentation date (pls. see attached statement of account as of 5-31-85), payable in cash (P725,000.00 already deposited) within sixty (60) days from notice of approval;

2. The Bank sells only whatever rights, interests and participation it may have in the property and you are charged with full knowledge of the nature and extent of said rights, interests and participation and waive your right to warranty against eviction. 3. All taxes and other government imposts due or to become due on the property, as well as expenses including costs of documents and science stamps, transfer fees, etc., to be incurred in connection with the execution and registration of all covering documents shall be borne by you; 4. That you shall undertake at your own expense and account the ejectment of the occupants of the property subject of the sale, if there are any; 5. That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of advice accepting your offer, your deposit shall be forfeited and the Bank is thenceforth authorized to sell the property to other interested parties. 6. That the sale shall be subject to such other terms and conditions that the Legal Department may impose to protect the interest of the Bank.64 It appears that although respondent requested petitioner to conform to its amended counter-offer, petitioner refused and instead requested respondent to reconsider its amended counter-offer. Petitioner's request was ultimately rejected and respondent offered to refund its P725,000.00 deposit. In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject property. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation. SO ORDERED. Ynares-Santiago, J., Working Chairperson, Austria-Martinez, and Chico-Nazario, JJ., concur. Panganiban, C.J., retired as of December 7, 2006.

THIRD DIVISION ADELAIDA AMADO AND THE HEIRS AND/OR ESTATE OF THE LATE JUDGE NOE AMADO, Petitioners, G.R. No. 171401 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and REYES, JJ.

- versus -

RENATO SALVADOR, Respondent.

Promulgated:

December 13, 2007 x---------------------------- ---------------------x DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision dated 25 August 2005rendered by the Court of Appeals in CA-G.R. CV No. 71816.[1] In reversing the Decision,[2] dated 28 November 2000, of the Regional Trial Court (RTC), Branch 76, of San Mateo, Rizal, the Court of Appeals declared that the late Judge Noe Amado (JudgeAmado), the petitioners predecessor-in-interest, already sold the subject property to respondent, Renato Salvador (Salvador). Petitioners are the heirs of the late Judge Amado, who was the owner of a parcel of land situated at Barangay Burgos, Rodriguez, Rizal, with an area of 5,928 square meters.[3] The property subject of the present controversy is a portion thereof, consisting of 1,106 square meters and registered under Original Certificate of Title (OCT) No. N-191954-A with the Registry of Deeds of Rizal[4] in the name of Judge Amado. Salvador alleges that in or around September 1979, Judge Amado agreed to sell to him the subject property for P60.00 per square meter, or in the total sum of P66,360.00, payable in cash or construction materials which would be delivered to Judge Amado, or to whomsoever the latter wished during his lifetime.[5] Salvador though failed to state the terms of payment, such as the period within which the payment was supposed to be completed, or how much of the payment should be made in cash. In view of the sale in his favor, Salvador undertook the transfer and relocation of about five squatter families residing on the subject property. Thereafter, Judge Amado allowed Salvador to take possession of the subject property and to build thereon a residential structure, office, warehouse, perimeter fence and a deep well pump.[6] Salvador claims that by October 1980, he

had already given JudgeAmado total cash advances of P30,310.93 and delivered construction materials amounting to P36,904.45, the total of which exceeded the agreed price for the subject property.[7] According to the petitioners, on the other hand, Judge Amado let Salvador use the subject property, upon the request of the latters father and grandfather, who were Judge Amados friends. Salvador used the subject property for his business of manufacturing hollow blocks.[8] The petitioners maintain that the cash advances and the various construction materials were received by Judge Amado fromSalvador in connection with a loan agreement, and not as payment for the sale of the subject property. Petitioners offered in evidence a loan agreement executed on 15 August 1980 wherein Salvador and Judge Amado and their respective spouses appeared as co-borrowers with Capitol City Development Bank as lender. The property belonging to Judge Amado was used as collateral, while Salvador undertook the obligation to construct a perimeter fence over Judge Amados land covered by OCT No. N-191954-A and to deliver hollow blocks to Judge Amados son, Valeriano Amado. Petitioners aver that Salvador and Judge Amado agreed to divide the proceeds of the loan among themselves. Since the bank delivered the proceeds of the loan to Salvador, Judge Amadosshare in the proceeds were paid to him in several installments, some of which Salvador alleged were payments for the sale of the subject property.[9] Petitioners assert that when Salvadors business folded up, he failed to pay his share of the monthly amortization of the loan with the bank. Judge Amado paid the loan to prevent the foreclosure of his mortgaged property. Salvador also allowed his brotherLamberto Salvador to occupy the premises without the consent of Judge Amado.[10] On 4 November 1983, Judge Amado sent a demand letter to Salvador directing the latter to vacate the subject property,[11]which Salvador merely ignored.[12] Judge Amado filed an ejectment suit against Salvador before the Municipal Trial Court (MTC) of Rodriguez, Rizal, docketed as Civil Case No. 700. During the hearing before the MTC, Salvador and his brother, Lamberto Salvador, defendants therein, stated in their Answer with Counterclaim that a balance of P4,040.62 from the purchase price of the subject property was left unpaid due to the failure of Judge Amado to execute and deliver a deed of sale.[13] In a Decision dated 16 July 1990, the MTC dismissed theejectment suit on the ground of lack of jurisdiction because of Salvadors claim of ownership over the subject property.[14] The case was appealed to the RTC and docketed as Civil Case No. 704. The RTC affirmed the dismissal of Judge Amados ejectmentsuit by the MTC based on lack of jurisdiction.[15] On 22 August 1996, Salvador filed before the RTC Civil Case No. 1252, an action for specific performance with damages against the petitioners.[16] As evidence that the sale of the subject property was perfected between Judge Amado and himself,Salvador presented a note written by Judge Amado, which reads[17]: San Mateo October 1, 1980 Dear Reny, Meron naniningil sa akin ng P500.00 kayat ako ay bigyan ng ganoong halaga ngayon. Hindi ko nilagdaan iyong papel na dala ni Kapitan Maeng at ito ay nasa akin pa. Saka ko na ibabalik iyon pa gang aking plano ay napaayos ko na. Ang lupa ay gagawin kong dalawang lote. Ako, Noe Amado

Salvador also offered in evidence the testimony of Ismael Angeles to prove that Judge Amado agreed to sell the subject property to him. To prove that he paid the purchase price, Salvador submitted the following documents showing he paid cash and delivered construction materials to Judge Amado: (1) a statement of account of cash advances made from 1

September 1979 to 23 September 1980 in the total amount of P30,310.93[18]; (2) statements of account of construction materials delivered from 23 August 1979 to 20 October 1979 with a total cost of P17,656.85, from 26 December 1979 to 25 August 1980 with a total cost of P1,711.20, and from 26 August 1980 to 24 September 1980 with a total cost of P10,447.40[19]; (3) Invoice No. 50 dated 8 December 1980 for construction materials worth P924.00[20]; and (4) delivery receipts of construction materials from 21 November 1979 to 6 January 1981 with a total cost of P1,665.00.[21] The RTC dismissed Salvadors complaint in Civil Case No. 1252. The trial court observed that it was not indicated in the documentary evidence presented by Salvador that the money and construction materials were intended as payment for the subject property. It gave little probative value to tax declarations in the name of Salvador since they referred to the improvements on the land and not the land itself. The testimonial evidence given by Ismael Angeles was considered insufficient to prove the fact of sale because the witness failed to categorically state that a sale transaction had taken place between Salvador and Judge Amado. Moreover, the RTC held that Salvador was disqualified under the Dead Mans Statute[22] from testifying on any matter of fact involving a transaction between him and Judge Amado which occurred before the death of the latter.[23] Salvador appealed the Decision of the RTC in Civil Case No. 1252 before the Court of Appeals. In reversing the decision of the RTC of San Mateo, the Court of Appeals found that Salvador paid for the subject land with cash advances and construction materials, since petitioners failed to present any evidence showing that the construction materialsSalvador delivered to Judge Amado had been paid for. It construed as adequate proof of the sale the handwritten note of JudgeAmado wherein the latter promised to sign an unidentified deed after the subdivision of an unnamed property, in light of IsmaelAngeles testimony that Judge Amado had promised to sign a deed of sale over the subject property in favor of Salvador. According to the appellate court, the testimony of Salvador was not barred by Section 23, Rule 130 of the Rules of Court, also known as the Dead Mans Statute, and was, therefore, admissible because the petitioners filed a counterclaim against Salvador. It also gave great weight to the tax declarations presented by Salvador and his efforts to relocate the five squatter families which previously resided on the subject property as proof of ownership. Lastly, the Court of Appeals awarded Salvador P100,000.00 as moral damages andP100,000.00 as exemplary damages. The dispositive part of the said Decision reads: 1. Ordering [herein petitioners] to execute a Deed of Sale in favor of [herein respondent Salvador] covering the parcel of land with an area of 1,106 square meters located at 18 AmadoLiamzon Street, Brgy. Burgos, Rodriguez, Rizal which is a portion of the 5,928 square meter parcel of land in the name of Judge Noe Amado, married to Adelaida A. Amado in the Registration Book as Original Certificate of Title No. ON-191954-A of the Register of Deeds of Rizal, Marikina Branch; 2. Ordering the [petitioners] to deliver to [Salvador] the Original Certificate of Title No. ON-191954-A of the Register of Deeds of Rizal, MarikinaBranch, bearing page number 54-A, Book A-6, and execute receipts and other documents which may be necessary for the registration and titling of the parcel of land in [Salvador]s name; and 3. Ordering the [petitioners] to pay [Salvador] P100,000.00 as moral damages, P100,000.00 as exemplary damages, and costs of suits.[24] Hence, the present petition. Petitioners rely on the following grounds:[25] I THE COURT A QUO ERRED ON A QUESTION OF LAW IN REVERSING THE TRIAL COURTS DECISION AND HOLDING THAT RESPONDENT HAS SUCCESSFULLY DISCHARGED THE BURDEN OF EVIDENCE THAT THERE WAS A SALE OF LOT, THE CONSIDERATION OF WHICH WAS TO BE PAID IN CASH AND CONSTRUCTION MATERIALS II

THE COURT A QUO ERRED ON A QUESTION OF LAW IN HOLDING THAT RESPONDENT WAS NOT DISQUALIFIED TO TESTIFY UNDER THE DEAD MANS STATUTE AS PROVIDED IN SECTION 23, RULE 130 OF THE RULES OF COURT III THE COURT A QUO ERRED ON A QUESTION OF LAW IN RULING THAT PETITIONERS ARE LIABLE FOR MORAL OR EXEMPLARY DAMAGES IN THE TOTAL AMOUNT OF P200,000.00[26]

The petition at bar is meritorious. The main controversy in the petition is whether or not there was a perfected contract of sale of the subject property. In resolving this issue, this Court would necessarily re-examine the factual findings of the Court of Appeals, as well as the contrary findings of the trial court. It is a recognized principle that while this Court is not a trier of facts and does not normally embark on the evaluation of evidence adduced during trial, this rule allows exceptions,[27] such as when the findings of the trial court and the Court of Appeals are conflicting or contradictory.[28] A contract of sale is perfected by mere consent, upon a meeting of the minds in the offer and the acceptance thereof based on subject matter, price and terms of payment.[29] Until the contract of sale is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.[30] Consent is essential for the existence of a contract, and where it is absent, the contract is nonexistent. Consent in contracts presupposes the following requisites: (1) it should be intelligent or with an exact notion of the matter to which it refers; (2) it should be free; and (3) it should be spontaneous. [31] Moreover, a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale.[32] This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price or consideration.[33] In the present case, Salvador fails to allege the manner of payment of the purchase price on which the parties should have agreed. No period was set within which the payment must be made. Of the purchase price of P66,360.00, which the parties purportedly agreed upon, the amount which should be paid in cash and the amount for construction materials was not determined. This means that the parties had no exact notion of the consideration for the contract to which they supposedly gave their consent. Thus, such failure is fatal to Salvadors claim that a sale had been agreed upon by the parties. Furthermore, after carefully examining the records, serious doubts became apparent as to whether cash advances and deliveries of construction materials evidenced by numerous statements of accounts and delivery receipts were actually intended as payment for the land. First of all, the statements of accounts and the delivery receipts do not indicate that the construction materials or the cash advances were made in connection with the sale of the subject property. Any doubt as to the real meaning of the contract must be resolved against the person who drafted the instrument and is responsible for the ambiguity thereof.[34] Since Salvador prepared these statements of accounts and therefore caused the ambiguity, he cannot benefit from the resulting ambiguity. Salvador is hardly an ignorant and illiterate person; rather, he is a businessman engaged in manufacturing and distributing construction materials and operates no less than two branches. It should have been noted in the statement of accounts, or even in another document, that the cash advances and deliveries of construction materials were made in connection with a transaction as important as a sale of land. As they are, the statements of accounts and especially the straightforward delivery receipts are insufficient proof that Judge Amado sold his property to Salvador. Secondly, one of the delivery receipts presented by Salvador as Annex I of his Complaint in RTC Civil Case No. 1252 was partially paid.[35] If Judge Amado had already agreed that the construction materials delivered to him and his family constituted the payment for the subject property, the act of partially paying for construction materials would be incongruous to such intention.

Thirdly, Salvador himself gave conflicting statements on whether he has completed payment. Among the findings of fact made by the MTC in its Decision dated 16 July 1990 in Civil Case No. 700, based on the very statements made by the Salvador brothers in their Answer with Counterclaim, was that Salvador paid Judge Amado P62,319.38 in cash and construction materials for the subject property, and a balance of P4,040.62 was left unpaid due to the failure of Judge Amado to execute and deliver the deed of sale.[36] However, in the proceedings before the RTC in Civil Case No. 1252, Salvador claimed that he paid Judge Amado P67,215.38 in cash and construction materials, which was more than the purchase price of P66,360.00 upon which they agreed.[37] Lastly, Salvador again contradicts himself as to the date he supposedly completed the payments for the subject property. In his Complaint in Civil Case No. 1252, he alleges that by October 1980, he had already fully paid Judge Amado P67,215.38 in cash and construction materials.[38] Yet in the same pleading, he included 11 separate deliveries of construction materials made from 8 December 1980 to 6 January 1981 as evidence of payment.[39] This Court cannot presume the existence of a sale of land, absent any direct proof of it. The construction of the terms of a contract, which would amount to impairment or loss of rights, is not favored. Conservation and preservation, not waiver or abandonment or forfeiture of a right, is the rule.[40] While it is apparent that Salvador paid cash advances and delivered construction materials to Judge Amado, this fact alone does not attest to the existence of a sale of land. In truth, the inconsistent statements made by Salvador regarding the amount paid to Judge Amado, the date when he was supposed to have completed the payment, and the dissimilarity between the price allegedly agreed upon and the amount supposedly paid show the absence of a uniform intention to apply these cash advances and construction materials as payment for the purchase of the subject property. Absent any tangible connection with the sale of land, these transactions stand by themselves as loans and purchases of construction materials. Other than the statements of accounts and delivery receipts scrutinized above, the other pieces of evidence that Salvadoroffered are similarly inadequate to establish his allegation of a perfected sale. Salvador presented as evidence of a perfected sale a handwritten note dated 1 October 1980 as Annex GG of the Complaint dated 16 August 1996, written by Judge Amado, wherein the latter asked Salvador for P500.00. In the same note, Judge Amadoinformed Salvador that he had not yet signed an unidentified document, which he promised to sign after his plan to divide a certain parcel of land was completed.[41] This note is not conclusive proof of the existence of a perfected sale. What this note proves is that Judge Amado was hesitant to sign the unidentified document and was still waiting for the completion of his plan to divide the land referred to in the note. To say that the document is the deed of sale and the land is the subject property claimed by Salvadorwould be based on pure surmise and conjecture without a more specific reference to them in the note. Moreover, the P500.00 which Judge Amado was demanding from Salvador could not have been payment pursuant to the purported sale of the subject property. The list of cash advances, which were supposedly part of the payment for the subject property, made by Salvador to Judge Amadofrom 1 September 1979 to 23 September 1980 and attached as Annex D of his Complaint in Civil Case No. 1252, did not include the P500.00 which Judge Amado demanded from Salvador on 1 October 1980. The testimony of Ismael Angeles is likewise insufficient to support the allegation that Judge Amado agreed to sell the subject property to Salvador. The factual findings of the trial court, especially as regards the credibility of witnesses, are conclusive upon this court.[42] The findings of fact and assessment of credibility of witnesses is a matter best left to the trial court because of its unique position of having observed that elusive and incommunicable evidence of the witnesses deportment on the stand while testifying, which opportunity is denied to the appellate courts. Only the trial judge can observe the furtive glance, blush of conscious shame, hesitation, flippant or sneering tone, calmness, sigh or the scant or full realization of an oath--all of which are useful for an accurate determination of a witness honesty and sincerity.[43] Thus, the assessment by the RTC of Angeles testimony, which it deemed insufficient, is entitled to great respect: Moreover, [herein respondent Salvador]s corroborative testimonial evidence, that is, the testimony of one Ismael Angeles, is likewise deemed insufficient as even that witness failed to categorically state any sale transaction of the lot between [respondent] Salvador and the late Judge Amado, as in fact, Mr. Angeles manifested uncertainty when he said siguro nagkaroon sila ng bilihan.

The findings of the trial court are well supported by the records of this case. At the time that Judge Amado and Salvadorallegedly entered into the sale agreement, Ismael Angeles testified that I was inside the house, but I did not hear their conversation because I was far from them.[44] Even if Ismael Angeles testimony was given full credence, it would still be insufficient to establish that a sale agreement was perfected between Salvador and Judge Amado. His testimony that Judge Amado ordered the preparation of the deed of sale only proves that Judge Amado and Salvador were in the process of negotiating the sale of the subject property, not that they had already set and agreed to the terms and conditions of the sale. [45] In fact, Ismael Angeles testimony that Judge Amado refused to sign the contract reinforces the fact that the latter had not consented to the sale of the subject property.[46] In addition, Salvadors act of relocating the squatter families formerly residing on the subject property[47] is not substantial proof of ownership. Such act is only consistent with the petitioners allegations that Salvador was allowed to use the subject property for his business, and it would redound to his benefit to relocate the squatters previously occupying it. From the evidence presented, an agreement of sale of the subject property between him and Judge Amado had not yet reached the stage of perfection. The stages of a contract are, thus, explained: A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiationcovers 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 the minds, i.e. the concurrence of offer and acceptance, on the object and on the cause thereof. x x x. 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.[48]

In the present case, the terms of payment have not even been alleged. No positive proof was adduced that Judge Amado had fully accepted Salvadors sketchy proposal. Even if the handwritten note actually referred to the subject property, it merely points to the fact that the parties were, at best, negotiating a contract of sale. At the time it was written, on 1 October 1980, Judge Amado had not expressed his unconditional acceptance of Salvadors offer. He merely expressed that he was considering the sale of the subject property, but it was nevertheless clear that he still was unprepared to sign the contract. Salvador himself admitted before the MTC in Civil Case No. 700 that the sale agreement did not push through as he testified that I considered that dead investment because our sale did not materialize because he always made promises.[49] Absent the valid sale agreement between Salvador and Judge Amado, the formers possession of the subject property hinges on the permission and goodwill of Judge Amado and the petitioners, as his successors-ininterest. In the demand letter dated 4 November 1983, Judge Amado had already directed Salvador to vacate the subject property. Thus, there is no more basis forSalvador and his brother, Lamberto Salvador, to retain possession over it, and such possession must now be fully surrendered to the petitioners. The Court of Appeals imposed moral damages and exemplary damages in view of the petitioner s refusal to execute a Deed of Sale and the social humiliation suffered by Salvador due to his ouster from the property.[50] Since petitioners had no demandable obligation to deliver the subject property, the award of moral and exemplary damages, as well as cost of suit, in favor of Salvador is without legal basis. Moral damages may be recovered if they were the proximate result of defendants wrongful acts or omissions.[51] Two elements are required. First, the act or omission must be the proximate result of the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social

humiliation and similar injury. Second, the act must be wrongful.[52] In this case, petitioners were not under any obligation to execute a Deed of Sale or guarantee Salvadors possession of the property. Absent any wrongful act which may be attributed to petitioners, an award of moral damages is inappropriate. The award of exemplary damages is also improper. Exemplary damages are awarded only when a wrongful act is accompanied by bad faith or when the guilty party acted in a wanton, fraudulent, reckless or malevolent manner.[53] Moreover, where a party is not entitled to actual or moral damages, an award of exemplary damages is likewise baseless.[54] As this Court has found, petitioners refusal to turn over the subject property to Salvador is justified and cannot be the basis for the award of exemplary damages. IN VIEW OF THE FOREGOING, the instant Petition is GRANTED and the assailed Decision of the Court of Appeals in CA-G.R. No. 71816, promulgated on 25 August 2005, is REVERSED AND SET ASIDE. The Order dated 28 November 2000 of the Rizal RTC is REINSTATED. Renato Salvador and Lamberto Salvador are ordered to vacate the subject property. SO ORDERED.

MINITA V. CHICO-NAZARIO Associate Justice

SECOND DIVISION [G.R. No. 117187. July 20, 2001] UNION MOTOR CORPORATION, petitioner-appellant, vs. THE COURT OF APPEALS, JARDINE-MANILA FINANCE, INC., SPOUSES ALBIATO BERNAL and MILAGROS BERNAL, respondents-appelles. DECISION DE LEON, JR., J.: Before us on appeal, by way of a petition for review on certiorari, is the Decision[1] dated March 30, 1994 and Resolution[2] dated September 14, 1994 of the Court of Appeals[3] which affirmed the Decision dated March 6, 1989 of the Regional Trial Court of Makati, Metro Manila, Branch 150, in Civil Case No. 920 as well as its Resolution dated September 14, 1994 which denied the Motion for Reconsideration of the petitioner.

The facts are as follows: On September 14, 1979, the respondent Bernal spouses purchased from petitioner Union Motor Corporation one Cimarron Jeepney for Thirty Seven Thousand Seven Hundred Fifty Eight Pesos and Sixty Centavos (P37,758.60) to be paid in installments. For this purpose, the respondent spouses executed a promissory note and a deed of chattel mortgage in favor of the petitioner. Meanwhile, the petitioner entered into a contract of assignment of the promissory note and chattel mortgage with Jardine-Manila Finance, Inc. Through Manuel Sosmea, an agent of the petitioner, the parties agreed that the respondent spouses would pay the amount of the promissory note to Jardine-Manila Finance, Inc., the latter being the assignee of the petitioner. To effectuate the sale as well as the assignment of the promissory note and chattel mortgage, the respondent spouses were required to sign a notice of assignment, a deed of assignment, a sales invoice, a registration certificate, an affidavit, and a disclosure statement. The respondent spouses were obliged to sign all these documents for the reason that, according to Sosmea, it was a requirement of petitioner Union Motor Corporation and Jardine-Manila Finance, Inc. for the respondent spouses to accomplish all the said documents in order to have their application approved. Upon the respondent spouses tender of the downpayment worth Ten Thousand Thirty-Seven Pesos (P10,037.00), and the petitioners acceptance of the same, the latter approved the sale. Although the respondent spouses have not yet physically possessed the vehicle, Sosmea required them to sign the receipt as a condition for the delivery of the vehicle. The respondent spouses continued paying the agreed installments even if the subject motor vehicle remained undelivered inasmuch as Jardine-Manila Finance, Inc. promised to deliver the subject jeepney. The respondent spouses have paid a total of Seven Thousand Five Hundred Seven Pesos (P7,507.00) worth of installments before they discontinued paying on account of non-delivery of the subject motor vehicle. According to the respondent spouses, the reason why the vehicle was not delivered was due to the fact that Sosmea allegedly took the subject motor vehicle in his personal capacity. On September 11, 1981, Jardine-Manila Finance, Inc., filed a complaint for a sum of money, docketed as Civil Case No. 42849, against the respondent Bernal spouses before the then Court of First Instance of Manila. This case was later on transferred to the Regional Trial Court of Makati, Branch 150. On November 10, 1981, the complaint was amended to include petitioner Union Motor Corporation as alternative defendant, the reason being that if the respondent spouses refusal to pay Jardine-Manila Finance, Inc. was due to petitioners non-delivery of the unit, the latter should pay Jardine-Manila Finance, Inc. what has been advanced to the petitioner. After the petitioner filed its answer, the respondent spouses filed their amended answer with cross-claim against the former and counterclaim against Jardine-Manila Finance, Inc. Following the presentation of evidence of Jardine-Manila Finance, Inc., the respondent spouses presented as witnesses Albiato Bernal and Pacifico Tacub in support of their defense and counterclaim against the plaintiff and cross-claim against the petitioner. The petitioner did not present any evidence inasmuch as the testimony of the witness it presented was ordered stricken off the record for his repeated failure to appear for cross-examination on the scheduled hearings. The trial court deemed the presentation of the said witness as having been waived by the petitioner. On March 6, 1989, the trial court rendered a decision, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered ordering: 1. Plaintiff to pay spouses Bernals the sum of P7,507.15 plus legal interest until fully paid; 2. Union Motor Corporation to pay defendants spouses Bernals the downpayment in the amount of P10,037.00, plus legal interest until fully paid; 3. Union Motor Corporation to pay plaintiff P23,268.29, plus legal interest until fully paid, and attorneys fees equivalent to 20% of the amount due to plaintiff. Union Motor Corporation shall further pay defendants spouses Bernals the sum of P20,000.00 as moral damages, P10,000.00 as attorneys fees and costs of suit.[4] The petitioner interposed an appeal before the Court of Appeals while the respondent spouses appealed to hold the petitioner solidarily liable with Jardine-Manila Finance, Inc. The appellate court denied both appeals and affirmed the trial courts decision by holding that:

Now, as to the appeal of defendant Union Motors, it must be noted that said defendant had failed to adduce evidence in court to support its claim of non-liability. We cannot see how the absence of any evidence in favor of said defendant can result in favorable reliefs to its side on appeal. There is simply no evidence to speak of in appellant Union Motors favor to cause a reversal of the lower courts decision. In the case of Tongson v. C.A. G.R. No. 77104, Nov. 6, 1992, the Supreme Court reiterated that: As mandated by the Rules of Court, each party must prove his own affirmative allegation, i.e., one who asserts the affirmative of the issue has the burden of presenting at the trial such amount of evidence required by law to obtain a favorable judgment: by preponderance of evidence in civil cases, and by proof beyond reasonable doubt in criminal cases. x x x. Hence, the instant petition anchored on the following assigned errors: I THE HONORABLE COURT OF APPEALS (SECOND DIVISION) GRAVELY ERRED AND ABUSED ITS DISCRETION IN NOT FINDING THAT THE LOWER COURT A QUOS DECISION OF MARCH 6, 1989 IS CONTRARY TO LAW AND THE EVIDENCE ON RECORD; II THE HONORALBLE COURT OF APPEALS (SECOND DIVISION) GRAVELY ERRED AND ABUSED ITS DISCRETION IN NOT FINDING THAT THE APPEALED DECISION WAS RENDERED IN DEPRIVATION AND IN DENIAL OF HEREIN PETITIOENR-APPELLANTS RIGHT TO DUE PROCESS. The first issue to be resolved in the instant case is whether there has been a delivery, physical or constructive, of the subject motor vehicle. On this score, petitioner Union Motor Corporation maintains that the respondent spouses are not entitled to a return of the downpayment for the reason that there was a delivery of the subject motor vehicle. According to the petitioner, the appellate court erred in holding that no delivery was made by relying exclusively on the testimonial evidence of respondent Albiato Bernal without considering the other evidence on record, like the sales invoice and delivery receipt which constitute an admission that there was indeed delivery of the subject motor vehicle. Also, there was a constructive delivery of the vehicle when respondent Albiato Bernal signed the registration certificate of the subject vehicle. Inasmuch as there was already delivery of the subject motor vehicle, ownership has been transferred to the respondent spouses. The Chattel Mortgage Contract signed by the respondent Bernal spouses in favor of the petitioner likewise proves that ownership has already been transferred to them for the reason that, under Article 2085 of the New Civil Code, the mortgagor must be the owner of the property.[5] As owners of the jeepney, the respondent Bernal spouses should bear the loss thereof in accordance with Article 1504 of the New Civil Code which provides that when the ownership of goods is transferred to the buyer, the goods are at the buyers risk whether actual delivery has been made or not. These, then, are the contentions of the petitioner. The main allegation of the respondent Bernal spouses, on the other hand, is that they never came into possession of the subject motor vehicle. Thus, it is but appropriate that they be reimbursed by the petitioner of the initial payment which they made. They also claim that Jardine-Manila Finance, Inc., and the petitioner conspired to defraud and deprive them of the subject motor vehicle for which they suffered damages. We rule in favor of the respondent Bernal spouses. Undisputed is the fact that the respondent Bernal spouses did not come into possession of the subject Cimarron jeepney that was supposed to be delivered to them by the petitioner. The registration certificate, receipt and sales invoice that the respondent Bernal spouses signed were explained during the hearing without any opposition by the petitioner. According to testimonial evidence adduced by the respondent spouses during the trial of the case, the said documents were signed as a part of the processing and for the approval of their application to buy the subject motor vehicle. Without such signed documents, no sale, much less delivery, of the subject jeepney could be made. The documents were not therefore an acknowledgment by respondent spouses of the physical acquisition of the subject motor vehicle but merely a requirement of petitioner so that the said subject motor vehicle would be delivered to them.

We have ruled that the issuance of a sales invoice does not prove transfer of ownership of the thing sold to the buyer; an invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale.[6] The registration certificate signed by the respondent spouses does not conclusively prove that constructive delivery was made nor that ownership has been transferred to the respondent spouses. Like the receipt and the invoice, the signing of the said documents was qualified by the fact that it was a requirement of petitioner for the sale and financing contract to be approved. In all forms of delivery, it is necessary that the act of delivery, whether constructive or actual, should be coupled with the intention of delivering the thing. The act, without the intention, is insufficient.[7] The critical factor in the different modes of effecting delivery which gives legal effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition.[8]Enlightening is Addison v. Felix and Tioco[9] wherein we ruled that: The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed in the hands and possession of the vendee. (Civil Code, Art. 1462). It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality-the delivery has not been effected. (Italics supplied) The act of signing the registration certificate was not intended to transfer the ownership of the subject motor vehicle to respondent Bernal spouses inasmuch as the petitioner still needed the same for the approval of the financing contract with Jardine-Manila Finance, Inc. The record shows that the registration certificate was submitted to Jardine-Manila Finance, Inc., which took possession thereof until Sosmea requested the latter to hand over the said document to him. The fact that the registration certificate was still kept by Jardine-Manila Finance, Inc. and its unhesitating move to give the same to Sosmea just goes to show that the respondent spouses still had no complete control over the subject motor vehicle as they did not even possess the said certificate of registration nor was their consent sought when Jardine-Manila Finance, Inc. handed over the said document to Sosmea. Inasmuch as there was neither physical nor constructive delivery of a determinate thing, (in this case, the subject motor vehicle) the thing sold remained at the sellers risk.[10] The petitioner should therefore bear the loss of the subject motor vehicle after Sosmea allegedly stole the same. Petitioners reliance on the Chattel Mortgage Contract executed by the respondent spouses does not help its assertion that ownership has been transferred to the latter since there was neither delivery nor transfer of possession of the subject motor vehicle to respondent spouses. Consequently, the said accessory contract of chattel mortgage has no legal effect whatsoever inasmuch as the respondent spouses are not the absolute owners thereof, ownership of the mortgagor being an essential requirement of a valid mortgage contract. The Carlos case[11] cited by the petitioner is not applicable to the case at bar for the reason that in the said case, apart from the fact that it has a different issue, the buyer took possession of the personal property and was able to sell the same to a third party. In the instant case, however, the respondent spouses never acquired possession of the subject motor vehicle. The manifestations of ownership are control and enjoyment over the thing owned. The respondent spouses never became the actual owners of the subject motor vehicle inasmuch as they never had dominion over the same. The petitioner also disputes the finding of the appellate court that there was no delivery. It did not consider, according to the petitioner, the fact that the circumstance of non-delivery was not shown and that the respondent spouses never made any demand for the possession of the vehicle. Contrary to the petitioners allegation, the respondent spouses presented sufficient evidence to prove that Sosmea took delivery and possession of that subject motor vehicle in his personal capacity as shown by a document[12] on which he (Sosmea) personally acknowledged receipt of the registration certificate from Jardine-Manila Finance, Inc. Also, respondent Albiato Bernal testified to the effect that they went several times to the office of the petitioner to demand the delivery of the subject motor vehicle. The petitioner failed to refute that testimonial evidence considering that it waived its right to present evidence.

Anent the second issue, the petitioner claims that the trial court committed a violation of due process when it ordered the striking off of the testimony of the petitioners witness as well as the declaration that petitioner has abandoned its right to present evidence. According to the petitioner, the delays in the hearing of the case were neither unjust nor deliberate. It just so happened that from August 5, 1986 up to June 1987, the designated counsel for the petitioner was either appointed to the government or was short of time to go over the records of the case inasmuch as he was a new substitute counsel. During the last time the petitioners counsel moved for the postponement of the case, witness Ambrosio Balones was not available due to gastro-enteritis as shown by a medical certificate. Well-settled is the rule that factual findings of the Court of Appeals are conclusive on the parties and not reviewable by the Supreme Court and they carry even more weight when the Court of Appeals affirms the factual findings of the trial court.[13] In the present case, the trial court found that after the direct testimony of petitioners witness, Ambrosio Balones, the continuation of the cross-examination was postponed and re-scheduled for four (4) times from November 21, 1986 up to June 19, 1987, all at the instance of petitioner Union Motor Corporation. For three (3) times, the witness did not appear whenever the case was called for hearing. On June 19, 1987, when asked by the trial court why the witness was not present, the petitioners counsel could not give any good reason for his absence. Neither did the petitioner offer to present any other witness to testify on that day. The appellate court assented to these findings by quoting the decision of the trial court, to wit: Defendant Union Motors Corporation has no evidence as the testimony of its only witness, Ambrosio Balones, was orderd stricken off the record in the hearing of June 19, 1987, for his continuous failure to appear on scheduled hearings. The Court further considered said defendant to have waived further presentation of evidence.[14] The petitioner attempts to shift the blame on the respondents for the failure of its witness, Balones, to finish his testimony. It was at the instance of Atty. Tacub, counsel for the respondents, that the testimony of petitioners witness, Balones, was discontinued after Atty. Tacub asked for a recess and later on for the postponement of the cross-examination of the said witness. The petitioner had the duty to produce its witness when he was called to finish his testimony. To place the blame on the respondent spouses is to put a premium on the negligence of the petitioner to require its own witness to testify on cross-examination. By presenting witness Balones on directexamination, the petitioner had the corresponding duty to make him available for cross-examination in accordance with fair play and due process. The respondents should not be prejudiced by the repeated failure of the petitioner to present its said witness for cross-examination. Hence, the trial court ordered that the unfinished testimony of said witness be stricken off the record. However, we cannot affirm that part of the ruling of the courts a quo awarding moral damages to the respondents. For moral damages to be awarded in cases of breach of contract, the plaintiff must prove bad faith or fraudulent act on the part of the defendant.[15] In the instant case, the allegations about connivance and fraudulent schemes by the petitioner and Manuel Sosmea were merely general allegations and without any specific evidence to sustain the said claims. In fact, Exhibit 1 which bears the name and signature of Sosmea as the person who received the registration certificate militates against the respondent spouses claim that the petitioner connived with its agent to deprive them of the possession of the subject motor vehicle. The said document shows that Sosmea acted only in his personal and private capacity, thereby effectively excluding any alleged participation of the petitioner in depriving them of the possession of the subject motor vehicle. The petitioner should not be held liable for the acts of its agent which were done by the latter in his personal capacity. However, we affirm the award of attorneys fees. When a party is compelled to litigate with third persons or to incur expenses to protect his interest, attorneys fees should be awarded.[16] In the present case, the respondent spouses were forced to implead the petitioner Union Motor Corporation on account of the collection suit filed against them by Jardine-Manila Finance, Inc., a case which was eventually won by the respondent spouses. WHEREFORE, the appealed Decision dated March 30, 1994 of the Court of Appeals is hereby AFFIRMED with the MODIFICATION that the award of moral damages is deleted. With costs against the petitioner. SO ORDERED. Bellosillo, (Chairman), Mendoza, and Buena, JJ., concur. Quisumbing, J., on official leave. SECOND DIVISION NAVOTAS INDUSTRIAL CORPORATION, represented herein by its acting president G.R. No. 159212

DANIEL L. BAUTISTA, Petitioner, - versus -

Present: PUNO, J., Chairman, AUSTRIA-MARTINEZ, CALLEJO, SR., TINGA, and CHICO-NAZARIO, JJ.

GERMAN D. CRUZ, MARCELO D. CRUZ, ROSALINA CRUZ-LAIZ, MARIANO A. CRUZ, JR., THE HEIRS OF ROGELIO D. CRUZ, namely, SYLVIA, ROSYL, ROGELIO, JR., SERGIO and ESTRELLA, all surnamed CRUZ, the HEIRS OF SERAFIN D. CRUZ, namely, ADELAIDA, MERCEDITAS and GABRIEL, all surnamed CRUZ, MARIA CRISTINA CRUZ-YCASIANO, Promulgated: MONICA CRUZ-DADIVAS and CARMEN VDA. DE CRUZ, Respondents. September 12, 2005 x------------------------------------ --------------x DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 69818, reversing the Decision of the Regional Trial Court (RTC) in Civil Case No. 2427-MN. The Antecedents Carmen Vda. De Cruz was the owner of a parcel of land located in Navotas, Rizal, with an area of 13,999 square meters, covered by Transfer Certificate of Title (TCT) No. 81574.[2] On October 5, 1966, Carmen Cruz, as lessor, and the Navotas Industrial Corporation (NIC), through its president, Cipriano C. Bautista, as lessee, executed a contract of lease over one-half portion of the said property, shown in the sketch appended thereto as Annex A. The lease was for the period of October 1, 1966 to midnight of October 1, 1990. The property was to be used for shipyard slipways and the lessees other allied businesses. The NIC obliged itself to construct two slipways, with all its accessories, within the first 10 years of the lease with a total value of not less than P450,000.00.[3] On March 14, 1973, the property was mortgaged to the China Banking Corporation (CBC) as security for a loan by two of Carmen Cruzs children, Mariano and Gabriel.[4] The owners duplicate of the title was delivered to and kept by the CBC as mortgagee. On December 31, 1974, Carmen Cruz executed a Deed of Absolute Sale of Realty with Assumption of Mortgage in which she, as vendor, sold and conveyed the property to her children, namely, Serafin D. Cruz (married to Adelaida Cruz), Mariano Cruz, Rogelio Cruz, Sr. Carmencita Cruz and Sr. Mary Carmela Cruz, for the purchase price of P350,000.00 which the vendor acknowledged to have received from the vendees.[5] In a Letter[6] dated November 22, 1976, Mariano Cruz, in his behalf and in behalf of the other vendees, requested CBC to conform to the sale of the property, a copy of which was attached to the said letter. The CBC refused. In the meantime, relations between Carmen Cruz and her children became strained. She believed that her children had ignored her and failed to take care of her. On June 27, 1977, Mariano Cruz, for himself and in behalf of the other vendees, presented the said deed of sale to the Register of Deeds for registration purposes.[7] In the same letter, they requested the Register of Deeds to

request the CBC for the transmittal of the owners TCT No. 81574 for the annotation of the Deed of Sale with Assumption of Mortgage. However, on June 28, 1977, the CBC, through counsel, wrote Mariano Cruz, informing him that Carmen Cruz had instructed it not to conform to the Deed of Sale with Assumption of Mortgage, and not to surrender the owners duplicate of the said title. In the meantime, the balance of the loan account secured by the mortgage was paid to the CBC. Thus, on June 29, 1977, the CBC executed a Cancellation of Real Estate Mortgage over the property.[8] However, the deed was not presented to the Register of Deeds for registration. On the same day, Mariano Cruz executed an Affidavit of Adverse Claim[9] stating, inter alia, that he and the others named therein were the vendees of the property as evidenced by a Deed of Sale with Assumption of Mortgage appended thereto, and that, to protect their rights and interests, the said affidavit of adverse claim was being executed as a cautionary notice to third persons and the world that the property had been sold to them. It was, likewise, stated that Carmen Cruz had ordered the CBC not to surrender the owners duplicate of TCT No. 81574. The aforesaid affidavit of adverse claim was inscripted at the dorsal portion of the title[10] on June 30, 1977 as Entry No. 22178. In a Letter[11] dated July 1, 1977, the Register of Deeds requested CBC to surrender the owners duplicate of TCT No. 81574, pursuant to Section 72 of Act 496, in order that proper memorandum be made thereon. The Register of Deeds was obviously unaware that the CBC had already executed the cancellation of real estate mortgage on June 29, 1977. On July 30, 1977, Carmen Cruz, as lessor, and the NIC, as lessee, executed a Supplementary Lease Agreement;[12] the October 5, 1966 Contract of Lease earlier executed by the parties was modified, in that the terms of the lease was extended for another 15 years to expire on October 1, 2005. The lessee was, likewise, given up to October 1, 1982 within which to construct the two slipways at a cost of not less than P600,000.00 and increasing the lease rental for the property. The lessee was granted the option to buy the property for the price of P1,600,000.00. On the same day, the parties executed a Contract of Lease[13] over an additional portion of the property, with an area of 590.58 square meters, as shown in the sketch appended thereto. However, the said contracts were not presented for registration to the Register of Deeds. On September 14, 1977, the aforesaid Cancellation of Real Estate Mortgage the CBC had earlier executed (on June 29, 1977) was presented to the Register of Deeds and annotated at the dorsal portion of TCT No. 81574 as Entry No. 27796. The following were, likewise, presented to the Register of Deeds for registration, and, thereafter, annotated at the dorsal portion of the said title: the Contract of Lease dated October 5, 1966 (Entry No. 27797), the July 30, 1977 Contract of Lease (Entry No. 27798), and the Supplementary Lease Agreement (Entry No. 27799).[14] In the meantime, Mariano Cruz and the other vendees presented the Deed of Sale with Assumption of Mortgage to the Register of Deeds for registration. On December 19, 1977, the Register of Deeds cancelled the said title and issued TCT No. 11272 in the names of the new owners. TCT No. 11272 was later cancelled by TCT No. R-11830. In a Letter[15] dated October 20, 1978, Mariano Cruz, et al. informed the NIC that the property had been sold to them, and gave it 30 days from receipt of the letter to vacate the property and return possession to them. The vendees, likewise, informed the NIC that since the October 5, 1966 Contracts of Lease and the July 30, 1977 Supplementary Lease Agreement were annotated at the back of TCT No. 81574 only on September 14, 1977, after the affidavit of adverse claim of Mariano Cruz, et al. was annotated on June 29, 1977, such contracts were null and void. However, the NIC refused to vacate the property. In the meantime, the property was subdivided into three lots: Lots 1-A, 1-B and 1-C. Lot 1-A had an area of 6,307 square meters, covered by TCT No. 85099[16] issued on July 5, 1982. Carmen Cruz filed a complaint with the RTC of Navotas against Cipriano Bautista, in his capacity as president of the NIC, for the declaration of nullity of the July 30, 1977 Supplementary Lease Agreement and Contract of Lease, and for the cancellation of the annotation at the back of TCT No. 81574 referring to the said contracts. The complaint

was amended to implead the NIC as party-defendant. Carmen Cruz alleged therein that she was the owner-lessor of the property subject of the said contract; the NIC failed to construct the two slipways within the period stated in the lease contract; it took advantage of the animosity between her and her children, and caused the preparation of the July 30, 1977 Supplementary Lease Agreement and Contract of Lease; the NIC was able to insert therein blatantly erroneous, one-sided and highly unfair provisions; and that the said contracts were even extended for a period long beyond her life expectancy (the plaintiff was then almost 80 years old). She further alleged that the provisions in the Contract of Lease and Supplementary Lease Agreement which granted NIC the exclusive option to buy the property, was a sham. She prayed that, after due proceedings, judgment be rendered in her favor: WHEREFORE, it is respectfully prayed that judgment be rendered declaring the Supplementary Contract of Lease dated July 30, 1977 as null and void ab initio; ordering the defendant and all persons claiming possession of the premises under it to vacate and turn over the premises to the plaintiffs; ordering the defendant to pay the reasonable monthly rental of P10,000.00 for the occupancy of the premises, beginning October 1, 1990, until it vacates the premises; ordering the defendant to pay the plaintiffs the sum of P30,000.00 as moral damages; the sum of P50,000.00 as attorneys fees, and the sum of P1,000.00 as appearance fee of the undersigned counsel; to pay the sum of P5,000.00 as litigation expenses; plus costs of suit. Plaintiffs further pray for such other relief and remedies they are entitled to in the premises.[17] Mariano Cruz and his siblings filed a complaint-in-intervention in the said case, alleging that they were the coowners of the property, and praying that judgment be rendered in their favor, as follows: WHEREFORE, it is respectfully prayed that judgment be rendered rescinding the Contract of Lease dated October 5, 1966, (Annex B), declaring as null and void the Supplementary Lease Agreement (Annex C), and the Contract of Lease (Annex D), both dated July 30, 1977, for having been entered into by the plaintiff who had long ceased to be the owner of the property in question, awarding the sum of P450,000.00, actual damages, representing the value of the improvements which the defendants bound themselves to introduce in the premises; awarding the plaintiffsintervenors the sum of P100,000.00 as exemplary damages; the sum of P150,000.00 as moral damages; P50,000.00 as attorneys fees and P10,000.00 as litigation expenses. Plaintiffs-intervenors further pray for such other relief and remedies they are entitled to in the premises.[18] However, Carmen Cruz filed a motion to dismiss the amended complaint. On February 6, 1984, the trial court issued an Order[19] granting the motion and dismissing the amended complaint and the complaint-in-intervention. The order became final and executory. On June 23, 1990, Mariano Cruz, et al. wrote the NIC that they would no longer renew the October 5, 1966 contract of lease which was to expire on October 1, 1990; as far as they were concerned, the July 30, 1977 Supplementary Lease Agreement and Contract of Lease were null and void, the same having been executed and annotated on September 14, 1977 at the back of TCT No. 81574 long after the annotation of the affidavit of the adverse claim of Mariano Cruz, et al. on June 30, 1977.[20] In a Letter[21] dated January 11, 1991, Mariano Cruz, et al. wrote the NIC, demanding that it vacate the property within 30 days from notice thereof, otherwise, a complaint for unlawful detainer would be filed against it. However, the NIC refused to vacate the property. On April 18, 1991, Mariano Cruz and his siblings filed a Complaint[22] against the NIC with the Municipal Trial Court (MTC) of Navotas for ejectment. However, on June 11, 1992, the trial court issued an Order[23] dismissing the complaint, on the ground that it had no jurisdiction over the case, it appearing that the validity of the July 30, 1977 Supplementary Lease Agreement and the Contract of Lease, in relation to the deed of absolute sale with assumption of mortgage executed by Carmen Cruz, were intertwined with the issue of NICs right of possession. The plaintiffs sought a motion for reconsideration of the decision, which the MTC denied on September 15, 1992. The plaintiffs appealed to the RTC, which rendered a decision granting the appealed decision.[24] The plaintiffs-appellants filed a petition for review with the CA. On July 13, 1993, the CA affirmed the decision of the RTC and dismissed the petition.[25] The decision became final and executory.

In the meantime, Mariano Cruz died intestate and was survived by his son Mariano Cruz, Jr.; Rogelio Cruz, likewise, died and was survived by his children Sylvia, Rosyl, Rogelio, Jr., Sergio and Estrella, all surnamed Cruz; Serafin Cruz also died and was survived by his wife Adelaida, and his children Merceditas and Gabriel. TCT No. 81574 was reconstituted and TCT No. R-85099 was issued. On January 24, 1995, German and Marcelo Cruz, Rosalina Cruz-Laiz, Mariano Cruz, Jr. and the said heirs filed a Complaint against Carmen Cruz, as unwilling plaintiff, and the NIC with the RTC of Malabon for the nullification of the July 30, 1977 Supplementary Lease Agreement and Contract of Lease. The complaint was amended to allege that they were the co-owners of the property covered by TCT No. 85099 based on the Deed of Sale with Assumption of Mortgage executed by Carmen Cruz on December 31, 1974; an affidavit of adverse claim was annotated at the dorsal portion of TCT No. 81574 on June 30, 1977, despite which NIC caused Carmen Cruz to execute, on July 30, 1977, a Supplementary Lease Agreement and Contract of Lease by taking advantage of her age, mental weakness and lack of will; and that NIC failed to pay rentals for the property. The plaintiffs prayed that: WHEREFORE, it is respectfully prayed that, after trial on the merits, judgment be rendered in favor of the plaintiffs as follows: 1. Under the First Alternative Cause of Action, declaring the Contract of Lease dated 30 July 1977 and the Supplementary Lease Contract dated 30 July 1977, Annex D hereof, as null and void ab initio; or, alternatively, Under the Second Alternative Cause of Action, annulling the said Contract of Lease and Supplementary Lease Contract. Under the Third Alternative Cause of Action, rescinding and canceling the Contract of Lease and Supplementary Lease Agreement, ordering the defendants to vacate the leased premises and to pay plaintiffs all unpaid rentals from 1 October 1991 until defendants vacate the premises. 2. Under the Second Cause of Action, ordering defendants NAVOTAS and Bautista to vacate and surrender the possession of the subject property and all improvements thereon to the plaintiffs; 3. Under the Third Cause of Action, ordering defendants NAVOTAS and Bautista, jointly and severally, to pay plaintiffs the reasonable compensation for the use of the premises in the amount of at least P10,000.00 a month from October 1990 up to the filing of this Complaint, totalling P500,000.00, as well as P10,000.00 every month thereafter until defendants shall have vacated and surrendered the premises to the plaintiffs. 4. Under the Fourth Cause of Action, ordering defendants NAVOTAS and Bautista, jointly and severally, to pay the plaintiffs exemplary damages of at least P50,000.00 or such amount as the Honorable Court may deem just and equitable in the premises; and 5. Under the Fifth Cause of Action, ordering defendants NAVOTAS and Bautista to pay plaintiff attorneys fees and expenses of litigation in such amount as may be established during the trial, but not less than P35,000.00. Plaintiffs pray for such other reliefs just and equitable in the premises.[26]

In her answer with cross-claim, Carmen Cruz alleged, inter alia, that she was willing to be made a party-plaintiff, although she was initially reluctant to become one because of the burden of a court hearing; she admitted that the plaintiffs were the co-owners of the property; Bautista was granted an exclusive option to buy the leased property at the ridiculously low fixed price of P1,600,000.00, which, according to Carmen Cruz, was an option unsupported by any consideration; hence, null and void.[27] Carmen Cruz prayed that, after due proceedings, judgment be rendered in her favor:

WHEREFORE, it is most respectfully prayed that the complaint as against answering defendant be dismissed, and that: AS TO THE CROSS-CLAIM a) The Contract of Lease and the Supplemental Lease Contract be declared null and void due to vitiated consent; b) In the event that monetary judgment be rendered by this Honorable Court against answering defendant in favor of the plaintiffs, her co-defendants, Navotas Industrial Corporation and Bautista, be made to reimburse her for all or part of the said judgment; c) Co-defendants be ordered to pay her moral as well as exemplary damages in the amount which this Honorable Court may deem just and proper; d) Co-defendants, instead of answering defendants, be, likewise, ordered to pay the plaintiffs, the rentals in arrears over the premises which now amounts to P147,000.00. BOTH AS TO COUNTERCLAIM AND CROSS-CLAIM a) Plaintiffs and co-defendants be ordered, jointly and severally, to reimburse answering defendant the sum of P30,000.00 which the latter paid her counsel as and for attorneys fees for unnecessarily dragging her into this suit including the amount of P1,000.00 which she will pay her lawyer for every appearance; b) Likewise, the costs of suit and other litigation expenses.

Other reliefs and remedies reasonable under the premises are similarly prayed for.[28] In its amended answer, NIC alleged that its July 30, 1977 Supplementary Lease Agreement and Contract of Lease were valid, whereas the deed of absolute sale with assumption of mortgage executed by Carmen Cruz in favor of the plaintiffs was null and void for being simulated and fraudulent. NIC and Bautista further alleged that it was exercising its option to buy the subject property now covered by TCT No. 85099;[29] it, likewise, offered P1,600,000.00 as consideration for the sale to be paid upon the execution of a deed of transfer.[30] NIC and Bautista prayed that, after due proceeding, judgment be rendered in their favor, thus: WHEREFORE, premises considered, herein answering defendants respectfully prayed that the complaint be dismissed for lack of merit. On the Counterclaim: (a) that the Contract of Lease and the Supplementary Lease Agreement be declared valid, legal and binding between Carmen Vda. de Cruz and defendants Navotas and Bautista, as well as their respective heirs, successors or assigns, while the Deed of Absolute Sale with Assumption of Mortgage be declared null and void so far as it prejudiced and adversely affected the rights of defendants Navotas and Bautista on the portion of the property leased to it; (b) that the plaintiffs and Carmen Vda. de Cruz be ordered to accept the sum of P1,600,000.00 representing the option money for the purchase of the property subject of the lease contract specifically that which is now covered by TRANSFER CERTIFICATE OF TITLE NO. R-85099 and to execute and sign the necessary deed of conveyance therefore in favor of defendant Navotas and/or Bautista; and (c) that plaintiffs and Carmen Vda. de Cruz be ordered and condemned, jointly and severally, to pay defendants Navotas and Bautista moral and exemplary damages of not less than P80,000.00, attorneys fees and litigation expenses of not less than P50,000.00, and the costs of suit. Herein answering defendants further pray for such other reliefs and remedies available in the premises.[31] In the meantime, Carmen Cruz died intestate on November 20, 1995 at the age of 97. She was survived by the plaintiffs as her heirs.[32]

On March 7, 2000, the trial court rendered judgment in favor of the NIC and Bautista. The fallo of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered: a) Affirming the validity of the Contract of Lease and the Supplementary Lease Agreement, both dated 30 July 1977, including the provision granting defendants exclusive option to buy the subject property. b) Affirming the full rental payments made by defendants Navotas and Bautista for the lease of the subject property until the expiration thereof. c) Denying the claims for actual and compensatory, moral and exemplary damages as well as attorneys fees interposed by plaintiffs against defendants. d) Denying the claims for moral and exemplary damages interposed by defendants Navotas and Bautista against plaintiffs. e) The Deed of Absolute Sale with Assumption of Mortgage is hereby declared null and void as far as it prejudiced and is adversely affecting the rights of defendants Navotas and Bautista on the portion thereof leased to them. The plaintiffs, as heirs of defendant Cruz, are hereby ordered to accept the sum of P1,600,000.00 representing the option money for the purchase of the subject property subject of the lease contract specifically that which is now covered by Transfer Certificate of Title No. R-85099 and to execute and sign the necessary deed of conveyance therefor in favor of defendants Navotas and/or Bautista. f) Ordering plaintiffs to pay defendants Navotas and Bautista P20,000.00 by way of reasonable attorneys fees.

Costs against the plaintiffs.[33] The trial court declared that when defendant Carmen Cruz executed the July 30, 1977 Supplementary Lease Agreement and Contract of Lease, she was still the owner of the property; as such, NIC was not bound by the deed of sale with assumption of mortgage executed by Carmen Cruz because it was not a party thereto; and that such deed was not registered with the Office of the Register of Deeds. The trial court ruled that the plaintiffs failed to prove fraud and undue influence on Carmen Cruz and/or that NIC took advantage of her mental weakness. The RTC ruled that only Carmen Cruz had the right to rescind the contracts of lease and supplementary lease agreement. The option to buy the property granted to NIC was supported by a consideration, more specifically the P42,000.00 rental payment it made upon the execution of the said contracts. The plaintiffs appealed the decision to the CA wherein they alleged that: I THE TRIAL COURT ERRED IN HOLDING THAT APPELLEES WERE NOT BOUND BY THE DEED OF ABSOLUTE SALE OF REALTY WITH ASSUMPTION OF MORTGAGE WHICH APPELLANTS ANNOTATED AS AN ADVERSE CLAIM ON THE CERTIFICATE OF TITLE OF THE PROPERTY AS EARLY AS 30 JUNE 1977 BEFORE APPELLEES REGISTERED THE QUESTIONED LEASE CONTRACTS ON 14 SEPTEMBER 1977. II THE TRIAL COURT ERRED IN COMPLETELY IGNORING THE OVERWHELMING EVIDENCE ON RECORD SHOWING THAT APPELLEES HAD ACTUAL AND CONSTRUCTIVE NOTICE OF THE SALE OF THE SUBJECT PROPERTY TO THE CRUZ CHILDREN IN 1974, AND THUS KNEW OR OUGHT TO HAVE KNOWN THAT IN EXECUTING THE QUESTIONED LEASE CONTRACTS WITH MRS. CRUZ IN 1977, THEY WERE DEALING WITH ONE WHO WAS NO LONGER THE OWNER OF THE PROPERTY WHO CAN BIND THE SAME UNDER THE QUESTIONED LEASE CONTRACTS. III

THE TRIAL COURT ERRED IN HOLDING THAT THE CONSENT OF MRS. CRUZ TO THE SUBJECT LEASE CONTRACTS HAD NOT BEEN VITIATED BY UNDUE AND IMPROPER PRESSURE AND INFLUENCE ON THE PART OF APPELLEES CONSIDERING THAT: A. THE UNDISPUTED EVIDENCE ON RECORD READILY BEARS OUT THE UNDUE AND IMPROPER PRESSURE AND INFLUENCE EXERTED BY APPELLEES ON MRS. CRUZ TO OBTAIN HER CONSENT TO THE SUBJECT LEASE CONTRACTS; B. THE VERY TERMS AND CONDITIONS OF THE LEASE CONTRACTS, WHICH ARE GROSSLY DISADVANTAGEOUS TO MRS. CRUZ, POINT TO APPELLEES USE OF UNDUE PRESSURE AND INFLUENCE ON HER TO OBTAIN HER CONSENT TO THE SUBJECT LEASE CONTRACTS. IV THE TRIAL COURT ERRED IN NOT HOLDING, IN THE ALTERNATIVE, THAT THE SUBJECT LEASE CONTRACTS WERE RENDERED RESCINDED BY REASON OF APPELLEES MATERIAL BREACHES OF THE TERMS AND CONDITIONS CONSIDERING THAT: A. APPELLEES HAD ADMITTEDLY FAILED TO CONSTRUCT THE SLIPWAYS AS REQUIRED UNDER THE LEASE CONTRACT; B. THE EVIDENCE FULLY ESTABLISHES THAT APPELLEES HAVE NOT PAID THE RENTALS DUE ON THE PROPERTY SINCE 1991. V THE TRIAL COURT ERRED IN DECLARING THE DEED OF ABSOLUTE SALE WITH ASSUMPTION OF MORTGAGE AS NULL AND VOID AS AGAINST APPELLEES CONSIDERING THAT THE SAME HAS BEEN CONFIRMED AND RECOGNIZED IN SUBJECT TRANSFERS AFFECTING THE SAME PROPERTY. VI THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION CONTRACT FOR APPELLEES PURCHASE OF THE SUBJECT PROPERTY WAS SUPPORTED BY A SEPARATE CONSIDERATION AND THUS VALID AND BINDING ON APPELLANTS. VII THE TRIAL COURT ERRED IN NOT HOLDING APPELLEES LIABLE TO APPELLANTS FOR ACTUAL AND COMPENSATORY DAMAGES CONSISTING OF THE REASONABLE RENTALS ON THE PROPERTY FROM 2 OCTOBER 1990 UNTIL THE RETURN THEREOF TO APPELLANTS. VIII THE TRIAL COURT ERRED IN ABSOLVING APPELLEES OF LIABILITY TO APPELLANTS FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES.[34] On July 18, 2003, the CA rendered judgment granting the appeal, and reversing the decision of the RTC. The CA ruled that the appellees had constructive notice of the Deed of Sale with Assumption of Mortgage, which Carmen Cruz executed in favor of the appellants, based on the affidavit of adverse claim annotated on June 29, 1977 at the dorsal portion of TCT No. 81574. The CA declared that the adverse claim annotated at the dorsal portion of the said title continued to be effective and remained a lien until cancelled. The CA held that the option granted to the appellee NIC to purchase the property was not effective because there was no consideration therefor, apart from NICs rental payments. Besides, the CA emphasized, when Carmen Cruz executed the July 30, 1977 Supplementary Lease Agreement and Contract of Lease, she was no longer the owner of the property. The CA denied NICs motion for reconsideration of the said decision; hence, it filed the instant petition for review on certiorari, alleging that: A.

THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR WHEN IT DECLARED THAT THE QUESTIONED LEASE CONTRACTS WERE NULL AND VOID, IT APPEARING IN AN ADVERSE CLAIM ANNOTATED ON THE CERTIFICATE OF TITLE OF CARMEN VDA. DE CRUZ THAT SHE WAS NO LONGER THE OWNER OF THE PROPERTY SUBJECT MATTER THEREOF WHEN THE LEASE WAS EXECUTED ON JULY 30, 1977. B. THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR WHEN IT RULED THAT THE OPTION TO BUY THE LEASED PROPERTY CONTAINED IN THE SUPPLEMENTARY LEASE CONTRACT IS NOT VALID AND BINDING FOR LACK OF CONSIDERATION AND CAPACITY OF CARMEN VDA. DE CRUZ TO CONVEY THE SAME. C. THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR WHEN IT FAILED TO RECOGNIZE A PRIOR JUDGMENT BASED ON A COMPROMISE AS A BAR TO THE PROCEEDINGS IN THIS INSTANT CASE.[35] On the first issue, the petitioner avers that the adverse claim annotated at the dorsal portion of TCT No. 81574 was ineffective because the respondents failed to submit to the Register of Deeds the owners duplicate of TCT No. 81574, as mandated by Section 110 of Act No. 496. The annotation of the adverse claim in the Office of the Register of Deeds on June 29, 1977 on TCT No. 81574 despite such failure to present the owners duplicate of the said title rendered such inscription ineffectual, not binding on it and Carmen Cruz. Hence, the petitioner posits, Carmen Cruz remained the lawful owner of the property. Even Carmen Cruz maintained that she was the owner of the property in her complaint in Civil Case No. C-7040 filed after the execution of the deed of absolute sale with assumption of real estate mortgage; she even executed the July 30, 1977 Supplementary Lease Agreement and Contract of Lease in its favor. According to the petitioner, the said deed of sale was fictitious as, in fact, it was rejected by Carmen Cruz.

For their part, the respondents aver that the petitioner had constructive notice of the said sale, based on the inscription of the affidavit of adverse claim on June 29, 1977 at the dorsal portion of TCT No. 81574. Besides, the respondents posit, Cipriano Bautista even admitted having known of the said adverse claim before the July 30, 1977 Contract of Lease and Supplementary Lease Agreement were registered in the Office of the Register of Deeds. The respondents cited the ruling of this Court in Sajonas v. Court of Appeals[36] to support their claim. On the second issue, the petitioner avers that the exclusive option granted to it by Carmen Cruz under the Supplementary Lease Agreement was essentially a mutual promise to buy and sell, equivalent to a reciprocal contract under the first paragraph of Article 1479 of the New Civil Code. But in the same breath, the petitioner argues that its exclusive option to buy the property for P1,600,000.00 was supported by a consideration apart from the said amount. The petitioner insists that the P42,000.00 which it paid to Carmen Cruz as rental upon the execution of the Supplementary Lease Agreement was advance money, which motivated Carmen Cruz to grant the option to the petitioner. On the third issue, the petitioner argues that the respondents action was barred by the order of the RTC in Civi l Case No. C-7040 dismissing the complaint and complaint-in-intervention therein, based on a compromise agreement of Carmen Cruz and petitioner NIC. The Ruling of the Court The annotation of an adverse claim is a measure designed to protect the interest of a person over a part of real property, and serves as a notice and warning to third parties dealing with the said property that someone is claiming an interest over it or has a better right than the registered owner thereof.[37] On the first issue, we agree with the ruling of the CA that the petitioner had constructive notice of the Deed of Sale with Assumption of Mortgage executed by Carmen Cruz in favor of the respondents. The affidavit of adverse claim

the respondents executed on June 29, 1977 was annotated at the dorsal portion of TCT No. 81574 on June 30, 1977, to wit: A review of the facts and circumstances in the case at bar reveals that at the time the Supplementary Lease Agreement and Contract of Lease both dated July 30, 1977 were executed by and between CARMEN and herein appellees, CARMEN was apparently no longer the owner of the land covered by TCT No. 81574 subject of this controversy. Obviously, appellees cannot turn a blind eye on the inscription found on CARMEN s certificate of title at the time the Supplementary Lease Agreement and Contract of Lease were signed on July 30, 1977. Basic is the rule that the annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or a better right than the registered owner thereof. A subsequent transaction involving the property cannot prevail over the adverse claim which was previously annotated in the certificate of title of the property. Here, the records are obvious, the notice of adverse claim executed on June 29, 1977 was annotated on the title on June 30, 1977, that is, one month prior to the signing of the disputed lease contracts on July 30, 1977. Said contracts of lease were belatedly annotated two months after its execution or on September 14, 1977 only, after appellees were allegedly warned by CARMEN that her children are desirous of the property leased in their favor. To say the least, this warning from CARMEN should have aroused appellees suspicion regarding the status of the prime property they intend to lease for another fifteen (15) years. [38] Section 110 of Act No. 496 was the law in force when Carmen Cruz executed the Deed of Sale with Assumption of Mortgage, and when the respondents executed the affidavit of adverse claim and presented it to the Register of Deeds on June 30, 1977. The petitioners reliance on the said provision is misplaced. Indeed, the Register of Deeds acted in accord with Section 110 of Act No. 496 when he inscribed the affidavit of adverse claim at the dorsal portion of TCT No. 81574, despite the non-production of the owners duplicate of TCT No. 81574 simultaneously with the presentation of the affidavit of adverse claim. The law reads: SEC. 110. Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Act for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, and a reference to the volume and page of the certificate of title of the registered owner, and a description of the land in which the right or interest is claimed. The statement shall be signed and sworn to, and shall state the adverse claimants residence, and designate a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim, and the court, upon a petition of any party-in-interest, shall grant a speedy hearing upon the question of the validity of such adverse claim and shall enter such decree therein as justice and equity may require. If the claim is adjudged to be invalid, the registration shall be cancelled. If in any case the court, after notice and hearing, shall find that a claim thus registered was frivolous or vexatious, it may tax the adverse claimant double or treble costs in its discretion. Irrefragably, the Deed of Sale with Assumption of Mortgage which Carmen Cruz executed on December 31, 1974 was a voluntary act; and under Section 50 of the law, the act of registration shall be the operative act to convey and affect the land. Indeed, Section 55 of Act No. 496 provides that the presentation of the owners duplicate certificate of title for the registration of any voluntary instrument is required: SEC. 55. No new certificate of title shall be entered, no memorandum shall be made upon any certificate of title by the register of deeds, in pursuance of any deed or other voluntary instrument, unless the owners duplicate certificate is presented for such indorsement, except in cases expressly provided for in this Act, or upon the order of the court for cause shown; and whenever such order is made, a memorandum thereof shall be entered upon the new certificate of title and upon the owners duplicate: Provided, however, That in case the mortgagee refuses or fails to deliver within a reasonable time to the register of deeds the duplicate or copy of the certificate of title surrendered by the owner, after advice by said officer, in order to enable him to register or annotate thereon another real right acquired by said owner, the record or annotation made on the certificate in the register book shall be valid for all legal purposes.

The production of the owners duplicate certificate whenever any voluntary instrument is presented for registration shall be conclusive authority from the registered owner to the register of deeds to enter a new certificate or to make a memorandum of registration in accordance with such instrument, and the new certificate or memorandum shall be binding upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith: Provided, however, That in all cases of registration procured by fraud the owner may pursue all his legal and equitable remedies against the parties to such fraud, without prejudice, however, to the rights of any innocent holder for value of a certificate of title: And provided, further, That after the transcription of the decree of registration under this Act procured by the presentation of a forged duplicate certificate, or of a forged deed or other instrument, shall be null and void. In case of the loss or theft of an owners duplicate certificate, notice shall be sent by the owner or by someone in his behalf to the register of deeds of the province in which the land lies as soon as the loss or theft is discovered. This Court explained the rationale of the requirement in L.P. Leviste & Company, Inc. v. Noblejas:[39] The basis of respondent Villanuevas adverse claim was an agreement to sell executed in her favor by Garcia Realty. An agreement to sell is a voluntary instrument as it is a willful act of the registered owner. As such voluntary instrument, Section 50 of Act No. 496 expressly provides that the act of registration shall be the operative act to convey and affect the land. And Section 55 of the same Act requires the presentation of the owners duplicate certificate of title for the registration of any deed or voluntary instrument. As the agreement to sell involves an interest less than an estate in fee simple, the same should have been registered by filing it with the Register of Deeds who, in turn, makes a brief memorandum thereof upon the original a nd owners duplicate certificate of title. The reason for requiring the production of the owners duplicate certificate in the registration of a voluntary instrument is that, being a willful act of the registered owner, it is to be presumed that he is interested in registering the instrument and would willingly surrender, present or produce his duplicate certificate of title to the Register of Deeds in order to accomplish such registration. [40] However, in this case, Carmen Cruz had ordered the CBC, the mortgagee and custodian of the owners duplicate of TCT No. 81574, not to surrender the owners duplicate of the said title to the Register of Deeds. The latter thus acted in accord with law when the affidavit of adverse claim was inscribed at the dorsal portion of TCT No. 81574 on June 30, 1977. Indeed, this Court ruled in L.P. Leviste & Company, Inc. v. Noblejas[41] that: However, where the owner refuses to surrender the duplicate certificate for the annotation of the voluntary instrument, the grantee may file with the Register of Deeds a statement setting forth his adverse claim, as provided for in Section 110 of Act No. 496. In such a case, the annotation of the instrument upon the entry book is sufficient to affect the real estate to which it relates, although Section 72 of Act No. 496 imposes upon the Register of Deeds the duty to require the production by the Registered owner of his duplicate certificate for the inscription of the adverse claim. The annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such interest or right is not, otherwise, provided for by the Land Registration Act, and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or a better right than the registered owner thereof.[42] Moreover, on June 29, 1977, the balance of Mariano Cruz and Gabriel Cruzs account with the CBC had already been paid, presumably by Mariano Cruz; and the CBC had executed a cancellation of real estate mortgage. However, the said deed was inexplicably not presented to the Register of Deeds for registration. The general rule is that a person dealing with registered land is not required to go behind the register to determine the condition of the property. However, such person is charged with notice of the burden on the property which is noted on the face of the register or certificate of title.[43] A person who deals with registered land is bound by the liens and encumbrances including adverse claim annotated therein.[44] In the present action, the petitioner caused the annotation of the July 30, 1977 Supplementary Lease Agreement and Contract of Sale only on September 14, 1977, long after the annotation of the respondents adverse claim at the dorsal portion of TCT No. 81574 on June 30, 1977. Thus, as of that date, the petitioner had constructive knowledge of the Deed of Sale with Assumption of Mortgage Carmen Cruz executed on December 31, 1974 in favor of her children. Even before July 30, 1977, the petitioner had knowledge that Carmen Cruz was no

longer the owner of the property, and had no more right to execute the July 30, 1977 Supplementary Lease Agreement and Contract of Lease. The registration of the said lease contracts was of no moment, since it is understood to be without prejudice to the better rights of third parties.[45] While it is true that in the complaint and amended complaint in Civil Case No. C-7040, Carmen Cruz alleged that she was the owner-lessor of the property, such allegation cannot detract from the fact that the property had already been registered under the names of the respondents under TCT No. 11272, later cancelled by TCT No. R-11830. The petitioner was informed by the respondents that they were the registered owners of the property. Moreover, the already aging Carmen Cruz and her children had a domestic quarrel, and animosity that caused her to go into seclusion; she thought then that her children had abandoned her. The attendant circumstances must have influenced Carmen Cruz to erroneously allege in her complaint that she was the owner of the property.[46] Even then, on February 23, 1988, Carmen Cruz executed an Affidavit in which she swore that she had sold the property to her children: 3. That among the parcels of land which I have sold was that parcel located in Barrio Almacen, Navotas, Rizal, then covered by Transfer Certificate of Title No. 81574 of the Register of Deeds of Rizal in favor of my children Serafin D. Cruz, Mariano D. Cruz, Rogelio D. Cruz, Sr. Carmencita Cruz and Sr. Mary Carmellas as vendees, with the agreement that the then existing mortgage with the China Banking Corporation shall be assumed and settled by said vendees, as embodied in a document entitled Deed of Absolute Sale of Realty with Assumption of Mortgage, which I executed on December 31, 1974 and entered in the notarial register of Notary Public P. Dario Guevarra, Jr. as Doc. No. 198, Page No. 41, Book No. 198, Series of 1975.[47] 7. That in view of these developments and considering my advanced age and present physical condition and now realizing that I may have been unduly taken advantage of by some parties to promote their own selfish interests, I now hereby execute this sworn statement and hereby affirm the validity of the sale of said parcel of land covered by TCT No. 81574 of the Register of Deeds of Rizal and hereby state that said sale was entered into by me of my own free will and for valuable consideration.[48]

In her answer to the respondents amended complaint in the trial court, Carmen Cruz reitera ted that she had sold the property to her children: 2.5. On 31 December 1974, she sold the subject property to the plaintiffs for valuable consideration, free from all liens and encumbrances and claim of third parties, except that pertaining to a real estate mortgage with China Banking Corporation as evidenced by a notarized Deed of Absolute Sale of Realty with Assumption of Mortgage dated 31 December 1974, a photocopy of which is hereto attached and made an integral part hereof as Annex B; 2.6. After she sold the subject lot to the plaintiffs herein, the latter tried to effect the registration and annotation of the said transfer with the Registry of Deeds of Rizal sometime in 28 June 1977 but China Banking Corporation, the mortgagee, through its legal counsel, Atty. Arsenio Sy Santos, refused to release the title thus the delay in the registration of the said Deed of Sale with Assumption of Mortgage which she executed in favor of the plaintiffs involving the subject parcel of land with the Registry of Deeds; 2.7. In order to protect their rights and interests over the subject property, the plaintiffs, through their appointed attorney-in-fact, Mariano A. Cruz, annotated an adverse claim on the title which was then still under answering defendants name, as a cautionary notice to third persons and the whole world that said title has been transferred by answering defendant in favor of the plaintiffs herein and that any voluntary dealing thereon shall be considered subject to the said adverse claim.[49]

Carmen Cruz also alleged, in her amended complaint in Civil Case No. C-7040, that the July 30, 1977 Contract of Lease and Supplementary Lease Agreement she executed in favor of the petitioner were fraudulent.[50] In her answer to the amended complaint in the court a quo, Carmen Cruz alleged that the defendant therein (now the petitioner) was granted an exclusive option to buy the leased property at the ridiculously low price of P1,600,000.00, payable over an unspecified period an option unsupported by any consideration hence, null and void.[51] She elaborated that: 15. That the above-quoted provision is not only a foolery, trickery and a product of deception because the exercise of the option is not fixed the same maybe conveniently exercised by the defendant at anytime up to the year 2005. Even the fixing of the sum worded as flat sum of One Million Six Hundred Thousand the valuation fifteen (15) years, hence, (2005) without providing for the inflation and deflation of the currency is grossly prejudicial and unfair. Moreover, the provision which states that if and when defendants finally decides to exercise their option during the lifetime of the Lessor, the lessee will continue paying the rentals is not only illogical, untrue and deceptive, the same being used mainly as a ploy to win the sympathy and titillate the ego of the old woman. It is rather unbelievable that being already the owner, defendants will still pay the rentals. This, to our mind, is the height of hyprocracy.[52] On the second issue, we reject the petitioners contention that the exclusive option granted to it by Carmen Cruz under the Supplementary Lease Agreement is essentially a mutual promise to buy and sell, equivalent to a reciprocal contract under the first paragraph of Article 1479 of the New Civil Code, which reads: ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. In the first place, the petitioner insisted in its pleadings in the court a quo that under the Supplementary Lease Agreement and Contract of Lease, it was granted the exclusive option to purchase the property leased. The petitioner maintained its theory of the case in the CA. The petitioner cannot change its theory, and claim this time that it and Carmen Cruz entered into a promise to buy and sell the property leased.[53] Considering that Carmen Cruz was no longer the owner of the property when she executed the July 30, 1977 Supplementary Lease Agreement and Contract of Lease, and that the respondents had acquired ownership over the property as of December 31, 1974 (which the petitioner had constructive knowledge of since June 30, 1977), the petitioners claim that it had the option to buy the property or to compel the respondents to sell the property to it has no legal and factual basis. Even after a careful study of the merits of the petition, the Court finds that the petitioners claim is untenable. The relevant portions of the Supplementary Lease Agreement read: 4. The LESSEE is hereby granted an exclusive option to buy the property including all improvements already made by the LESSEE (slipways and camarines) subject matter of this contract comprising SIX THOUSAND NINE HUNDRED FORTY-NINE Point FIVE Square Meters (6,949.5) which is one-half portion of the area covered by TCT No. 81574 and same property subject matter of this contract should also be equally divided with one-half frontage along M. Naval Street and along the Navotas River Bank shoreline during the period of the lease. The price of the property is agreed to be fixed for the duration of the Option to Buy at a flat sum of ONE MILLION SIX HUNDRED THOUSAND PESOS (P1,600,000.00), Philippine Currency, payable over a period to be mutually agreed upon. Should the LESSEE exercise the option to buy during the lifetime of the LESSOR, the LESSEE will continue to pay the monthly rental to the LESSOR during her lifetime. 5. The LESSEE shall pay to the LESSOR the sum of FORTY-TWO THOUSAND (P42,000.00) PESOS upon signing of this contract as consideration thereof, to be applied as against the rental for the period from October 1, 1990 to September 30, 1991.[54]

It must be stressed that an option contract is a contract granting a privilege to buy or sell within an agreed time and at a determined price. Such a contract is a separate and distinct contract from the time the parties may enter into upon the construction of the option.[55] In Carceller v. Court of Appeals,[56] the Court held that an option contract is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract. The Court further stated that: It binds the party who has given the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate agreement distinct from the contract which the parties may enter into upon the consummation of the option.[57]

It is only when the option is exercised may a sale be perfected.[58] An option contract needs to be supported by a separate consideration. The Court defined consideration for an option in Bible Baptist Church v. Court of Appeals,[59] as follows: The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause. In the present case, there was no given period for the petitioner to exercise its option; it had yet to be determined and fixed at a future time by the parties, subsequent to the execution of the Supplementary Lease Agreement. There was, likewise, no consideration for the option. The amount of P42,000.00 paid by the petitioner to Carmen Cruz on July 30, 1977 was payment for rentals from October 1, 1990 to September 30, 1991, and not as a consideration for the option granted to the petitioner. On the third issue, the respondents action in the court a quo was not barred by the order of the RTC dismissing the complaint of Carmen Cruz, and the respondents complaint-in-intervention in Civil Case No. 5114. Contrary to the petitioners claim, Carmen Cruz (the plaintiff therein) and the petitioner (the defendant therein) did not enter into any compromise agreement in the said case. Moreover, the dismissal of the complaint, and, consequently, the respondents complaint-in-intervention was upon motion of plaintiff Carmen Cruz and without prejudice. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The Decision of the Court of Appeals in CA-G.R. CV No. 69818 is AFFIRMED. Costs against the petitioner. SO ORDERED.

ROMEO J. CALLEJO, SR. Associate Justice

FIRST DIVISION JMA HOUSE INCORPORATED, Petitioner, PANGANIBAN, C.J., Chairperson, - versus AUSTRIA-MARTINEZ, CALLEJO, SR., and G.R. No. 154156 Present:

YNARES-SANTIAGO,

CHICO-NAZARIO, JJ. STA. MONICA INDUSTRIAL and DEVELOPMENT CORPORATION and A. GUERRERO DEVELOPMENT CORPORATION, Respondents.

Promulgated:

August 31, 2006

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

DECISION CALLEJO, SR., J.:

Before the Court is a Petition for Review on Certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 60085 affirming on appeal the Decision[2] of the Regional Trial Court (RTC), Quezon City, Branch 105, in Civil Case No. Q-91-10576.

JMA House Incorporated (JMA) applied for a P1,500,000.00 loan from the Pioneer Savings and Loan Association, Inc. (Pioneer). To secure payment thereof, JMA executed a real estate mortgage over a parcel of land identified as Lot No. 4, Block No. 13, Subdivision Plan No. Psd-35337 covered by Transfer Certificate of Title (TCT) No. 268126. The lot, which was located in Quezon City across Gate 1 of the Maryknoll College, had an area of 1,611.6 square meters.[3] There was likewise a three-storey commercial and residential building which was occupied by tenants.[4] Upon the failure of JMA to pay its loan, the real estate mortgage was foreclosed extrajudicially. Pioneer was the winning bidder at P2,000,000.00 during the sale at public auction held on August 26, 1985. The Sheriff executed a Certificate of Sale over the property in favor of Pioneer which was annotated at the dorsal portion of TCT No. 268126 on October 11, 1985.[5] JMA had one year or until October 11, 1986 to redeem the property. JMA decided to redeem the property from Pioneer sometime in June 1986. It offered to borrow from Sta. Monica Industrial and Development Corporation (Sta. Monica) the amount of P2,300,000.00. During the negotiations between Rosita Alberto, the General Manager of JMA, and Sta. Monicas president Eugenio Trinidad, the parties agreed that the latter would purchase the property for P3,021,000.00.[6] Trinidad insisted that JMA execute a deed of absolute sale over the property for the price of P4,100,000.00. Rosita Alberto suggested that instead of a deed of absolute sale, a real estate mortgage be executed considering that the property was worth much more than P4,100,000.00. Trinidad refused. By way of a compromise, Alberto suggested that a supplement deed giving JMA the option to repurchase the property within a period of two years be executed.[7] Trinidad agreed to this proposal. Thus, the lawyers of JMA and Sta. Monica prepared two deeds.[8] From the P3,021,000.00 it received from Sta. Monica, JMA remitted P2,300,000.00 to Pioneer.

On June 23, 1986, Pioneer and JMA executed a Deed of Legal Redemption and Absolute Sale in which Pioneer, for and consideration of P2,300,000.00, transferred to JMA all the rights over the property, including the improvements thereon, which Pioneer acquired under the Certificate of Sale.[9] The parties, likewise, declared therein that it was their intention that, with the execution of said deed, the loan of JMA amounting to P1,250,000.00, including all interests, penalties and charges thereon, were considered fully paid and legally extinguished.[10] On June 30, 1986 JMA, represented by its General Manager Rosita Alberto, executed a Deed of Absolute Sale over the lot, including the buildings thereon, in favor of Sta. Monica, represented by Eugenio Trinidad. The receipt for P4,100,000.00 as purchase price was acknowledged by JMA from Sta. Monica.[11] As agreed upon by the parties, the parties likewise executed a contract denominated as Option to Buy, in which Sta. Monica gave JMA the option to buy the property for P4,100,000.00 within one (1) year from the execution of the Deed Of Absolute Sale on or before July 1, 1987, with a grace period of one year immediately upon the expiration thereof (until July 1, 1988). The parties agreed that, in case JMA availed of such extension, JMA would be obligated to pay an additional amount equivalent to 3.5% a month as liquidated damages, until the whole amount is fully paid and/or the option is finally exercised.[12] Alberto turned over to Trinidad the owners duplicate of TCT No. 26812.6 The Register of Deeds thereafter issued TCT No. 347638 in the name of Sta. Monica;[13] however, the Option to Buy was not annotated at the dorsal portion of the title. As agreed upon between JMA and Sta. Monica, the latter thenceforth paid the realty taxes on the property.[14] JMA continued collecting the rentals from the tenants of the buildings with the knowledge and conformity of Sta. Monica. On November 17, 1986, Sta. Monica mortgaged the property to the PCI Capital Corporation as security for a P3,600,000.00 loan.[15] In a letter dated January 26, 1988, Sta. Monica, through Eugenio Trinidad, informed Rosita Alberto and the tenants of the buildings in the property that due to the failure of JMA to repurchase the property, it had been sold to A. Guerrero Development Corporation (AGCOR) effective February 1, 1988, and, as the new owner, AGCOR would be collecting the rentals.[16] Rosita Alberto protested to Trinidad, insisting that the period given to JMA to buy back the property had not yet elapsed. Nevertheless, on February 2, 1988, Sta. Monica and AGCOR executed a Deed of Absolute Sale over the property for P5,700,000.00, receipt of which was acknowledged by Sta. Monica.[17] Part of the amount was used by Sta. Monica to redeem the property from PCI Capital Corporation which executed a Release of Real Estate Mortgage on February 16, 1988.[18] On February 17, 1988, the Register of Deeds issued TCT No. 376746 in the name of AGCOR.[19] It paid the realty taxes on the property starting 1988.[20] Despite the sale of the property to AGCOR, Trinidad received, on June 30, 1988, five checks from Rosita Alberto drawn against the account of JMA in the total amount of P3,000,000.00. He likewise received P57,000.00 from Atty. Rosalie Alberto, Rositas sister and a member of the JMA Board of Directors as partial payment of the account of JMA for the pro perty located at No. 335, Katipunan Street, Quezon City.[21] However, the checks were dishonored by the drawee Bank.[22] Trinidad failed to return the cash amount of P57,000.00 to JMA. On October 30, 1989, AGCOR mortgaged the property to Planters Development Bank as security for a P7,000,000.00 loan.[23] Almost two years thereafter, or on November 11, 1991, JMA filed a complaint against Sta. Monica and AGCOR, as defendants, in the RTC of Quezon City for specific performance, reconveyance and damages. It alleged that it mortgaged its property to Sta. Monica as security for a P3,021,000.00 loan and P1,079,000.00 as interest; however, upon the insistence of Trinidad, in lieu of a real estate mortgage, a deed of absolute sale was executed over the property for the price of P4,100,000.00; an Option to Buy was also executed in its favor, giving it the option to buy the property for P4,100,000.00 within a period of one (1) year from execution thereof, and in the meantime, it retained dominion over the property; on January 26, 1988, it received notice that beginning February 1, 1988, the tenants will pay their rentals to the new owner of the property, defendant AGCOR, to which it protested; defendant Sta. Monica assured the plaintiff that defendant AGCOR was aware of its option to buy the property. JMA further alleged that it informed defendant Sta. Monica on June 30, 1988 that it was ready to repurchase the property for P5,822,000.00 with an initial payment of P3,057,000.00 to be immediately tendered on said date, and the remaining balance of P2,765,000.00 after one month. Sta. Monica assured JMA that the property would be

delivered to it with AGCORs conformity. JMA paid P3,057,000.00 on June 30, 1988, per redemption receipt issued by Trinidad, who however refused to receive the balance. Despite representations to defendant AGCOR to abide by the Option to Buy, AGCOR maintained its right to possess and own the property and even filed ejectment cases against it; worse, Sta. Monica never returned the downpayment given on June 30, 1988 and continues to benefit therefrom. JMA averred that it had a right to repurchase the property under the terms of the Option to Buy Agreement dated June 30, 1986, considering that the transaction actually entered into is one of equitable mortgage and not a deed of sale with option to buy. Defendant Sta. Monica is mandated by law to abide by the said agreement and could not have sold the questioned property to defendant AGCOR, taking into account that it has accepted the amount of P3,057,000.00 as downpayment for the purchase price. Having sold the property to AGCOR, defendant Sta. Monica must be made to pay the plaintiff the amount of P15,000,000.00 which is the actual market value of the property, as well as the rental payments which it failed to collect.[24] The plaintiff prayed that judgment be rendered in its favor, thus: WHEREFORE, it is most respectfully prayed of this Honorable Court that judgment be rendered in favor of the plaintiff ordering: 1) Defendants Sta. Monica and AGCOR to respect and acknowledge the right of JMA to repurchase and consequently own and possess the property free from liens and all encumbrances; 2) Defendants to solidarily pay the plaintiff the accrued rentals of P2,362,500.00 as of October 1991, with an additional P52,500.00 every month thereafter until defendant AGCOR ceases to collect the mentioned rentals from the tenants of the premises; 3) Ordering defendants to pay exemplary damages in the amount of P100,000.00, nominal damages in the amount of P100,000.00, attorneys fees in the sum of P200,000.00 and the costs of suit; Just and equitable reliefs are, likewise, prayed for under the premises.[25] For its part, Sta. Monica alleged in its Answer to the complaint the following special and affirmative defenses: (1) JMA has no cause of action against it; (2) the complaint is unfounded and malicious; (3) it acted in good faith; (4) the supposed Option to Buy is not supported by valuable consideration and, therefore, is unenforceable; (5) assuming arguendo that there was an extension to exercise the said Option to Buy, it was not in writing, without consideration and, therefore, unenforceable; (6) the amount/s which JMA had given to it had been offset by the value of the property and the resulting damages sustained by it (Sta. Monica). Defendant claimed P1,000,000.00, P500,000.00, P200,000.00 and P100,000.00 compulsory counterclaim representing actual, moral and exemplary damages, including attorneys fees and the litigation expenses, respectively. Defendant AGCOR alleged in its Answer with Cross-claim and Counterclaims that the physical possession of the subject property was voluntarily surrendered by Sta. Monica to it upon execution of the Deed of Absolute Sale. It came to know of the alleged Option to Buy only on September 30, 1988 when Trinidad made an offer to repurchase the subject property with an initial downpayment of P3,000,000.00, the balance to be paid on the following day. However, Trinidad never showed up or called as promised. As special and affirmative defenses, it claimed that there was no cause of action against it, since even assuming that an option to buy was duly executed, it was not a party thereto. It pointed out that the option was not registered nor annotated in the title with the Register of Deeds for the purpose of giving notice to the whole world; JMA was estopped from claiming that its contract[26] with Sta. Monica was a sale with right to repurchase, considering that there was no pre-existing condition or limitation whatsoever to serve as notice to third persons dealing with the said property; it was a purchaser in good faith without knowledge of any agreement between JMA and Sta. Monica or any fact that would vitiate consent in the acquisition of the property; it acquired legal title thru sale and in fact, TCT No. 376746 was issued in its name; and JMA is guilty of laches and it had not completely exercised its option to repurchase by paying the total amount and there is no proof that the option was extended by Sta. Monica for another year. By way of cross-claim, AGCOR alleged that JMA and Sta. Monica should be the only parties in this case, since they executed the Option to Buy, to its exclusion. Because of its inclusion as defendant, its goodwill was damaged and it was deprived of its right of full ownership; thus, cross-defendant Sta. Monica should be held liable for actual or

compensatory damages in the amount of P1,000,000.00. It likewise asserted compulsory counterclaims in the amount of P500,000.00 as moral damages, P300,000.00 as exemplary damages, and P200,000.00 as attorneys fees.[27] On January 10, 1992, Eugenio Trinidad died.[28] Victor Trinidad became the President of Sta. Monica. During trial, JMA presented Rosita Alberto and her sister, Atty. Rosalie Alberto as witnesses. Rosita testified that she graduated from the University of the Philippines with a Bachelor of Arts degree in Economics.[29] It was Eugenio Trinidad who insisted that JMA execute a deed of absolute sale instead of a real estate mortgage to secure the P4,100,000.00 loan.[30] She, in turn, requested that an option to buy be executed by the plaintiff to supplement the deed of absolute sale to which Trinidad agreed.[31] JMA retained possession of the property and continued collecting rentals from the tenants since the transaction between the parties was precisely a contract of mortgage.[32] When she protested to Trinidads letter dated January 26, 1988 informing her and the tenants that the property had not been repurchased by JMA, Trinidad verbally assured her that JMA could repurchase the property and pay the price thereof within a reasonable time. Trinidad agreed to the repurchasing of the property for P5,822,000.00 payable in two installments, to wit: (a) P3,057,000.00 on June 30, 1988; and (b) the balance of P2,768,000.00 within a reasonable time. On June 30, 1988, P3,000,000.00 in checks and P57,000.00 cash was paid by JMA, through Atty. Rosalie Alberto and Atty. Rellosa to Trinidad, and for which the latter issued a redemption receipt. JMA was ready to pay the balance of the repurchase price (P2,768,000.00) but Trinidad could not be located, and worse, failed to return the initial amount paid.[33] On cross-examination, Rosita Alberto admitted that her agreement with Trinidad, that JMA can repurchase the property by paying the price within a reasonable time, was merely verbal because she trusted Trinidad.[34] JMA did not file any complaint for consignation of the amount for its repurchase of the property.[35] She admitted that the checks delivered to Trinidad had been dishonored.[36] The respective lawyers of Sta. Monica and JMA typed the deed of absolute sale and option to buy.[37] Atty. Rosalie Alberto testified that JMA is a family corporation. She learned of the deed of absolute sale and option to buy only in February 1988.[38] She represented JMA in the negotiations with Trinidad for the repurchase of the property. Trinidad informed her that he had already informed defendant AGCOR of plaint iffs tender of P3,057,000.00. He, however, suggested that she personally inform AGCOR of said tender. When she did so, Guerrero informed her that AGCOR could no longer accept the offer.[39] She wanted to tell Trinidad about what Guerrero had said, but she could no longer locate him.[40] Franco Marquez, President of the Philippine Appraisal Co., Inc., testified that the property was appraised on May 15, 1986, and its value was pegged at P11,080,000.00.[41] Defendant Sta. Monica presented its president, Victor Trinidad, who testified on the damages sustained by it. On cross-examination, he admitted that, despite the deed of absolute sale, it never took possession of the property.[42] Neither did defendant collect rentals from the tenants of the building because of the option to buy.[43] Alberto Guerrero, a doctor of medicine and a lawyer, testified that he was the president of AGCOR, also a family corporation. When the property was offered for sale by Sta. Monica, he examined the title in the Register of Deeds and discovered that it was mortgaged to PCI Capital Corporation.[44] He agreed to buy the property and paid Sta. Monicas loan on February 3 and 16, 1988, upon which a Release of Real Estate Mortgage was issued.[45] In due course, defendants AGCOR and Sta. Monica executed a Deed of Absolute Sale covering the property.[46] He further declared that AGCOR secured a P2,500,000.00 loan from Planters Bank and used the money to pay Sta. Monica. On October 30, 1989, Sta. Monica executed a real estate mortgage over the property in favor of Planters Bank as security for a P7,000,000.00 loan. The deed was annotated at the dorsal portion of TCT No. 376746 on November 15, 1980.[47] The property was declared for taxation purposes after the property had been purchased.[48] On January 26, 1996, JMA filed an Omnibus Motion to Admit Newly-Discovered Evidence, which included the Appraisal Report of the Philippine Appraisal Co., Inc.[49] to prove the fair market value of the property as of February 1, 1988. The RTC granted the motion and allowed Franco M. Marquez to testify on the Appraisal Report.[50] The plaintiff offered the Report as part of the motion and to prove that the appraisal value of the property in May 1986 was P11,080,000.00. The report was admitted as part of the testimony of Marquez.[51] On December 8, 1997, the trial court rendered judgment in favor of the defendants. It ordered the dismissal of the complaint and ordered the plaintiff to pay P50,000.00 to each of the defendants. The fallo of the decision reads:

WHEREFORE, in light of the foregoing, the Court renders judgment as follows: 1. Plaintiffs complaint is dismissed and it is ordered on the counterclaim, to pay the amount of P50,000.00 each to defendant Sta. Monica Industrial & Development Corporation and defendant A. Guerrero Development Corporation as attorneys fees; and to pay the costs of suit; 2. The cross-claim of A. Guerrero Development Corporation against Sta. Monica Industrial and Development Corporation is dismissed. SO ORDERED.[52]

The trial court disbelieved the testimony of Atty. Alberto, holding that to declare the transaction between the plaintiff and defendant Sta. Monica as an equitable mortgage would be unjust to the latter.[53] The trial court noted that the plaintiff agreed to the execution of the deed of absolute sale and the option to buy; Rosita Alberto was an Economics graduate and was assisted by a lawyer. When the deed of absolute sale over the property was executed, JMA even offered to repurchase/buy the property instead of redeeming it, and waited up to June 30, 1988 to tender the repurchase price. The RTC concluded that the true intention of the parties was the property to be sold to Sta. Monica for profit, with JMA retaining the option to buy it back for P4,100,000.00 within a specific period of time. Moreover, considering that JMA failed to file an action for reformation of deed, it was estopped from claiming that the deed of absolute sale and option to buy failed to reflect the true intention of the parties. The RTC ruled that the Appraisal Report had no probative weight because the property subject thereof was covered by TCT No. 20416, not the property covered by TCT No. 268216 which was the subject of the contract between the plaintiff and defendant Sta. Monica. Further, the remittances made to Trinidad by way of checks did not buttress the case for JMA because they were so remitted after the stipulated one-year period and was short of the agreed amount of P4,100,000.00. It was further pointed out that the checks bounced. The RTC also declared that before AGCOR bought the property, it had no knowledge of the option to buy executed by JMA and Sta. Monica; and even if it had, JMA had failed to exercise its option and pay the purchase price of the property within the stipulated period. It was further stated that there is no evidence to prove the supposed obligation of Sta. Monica to return the amount of P57,000.00 received by Trinidad on June 30, 1988; there is no evidence that he was authorized by Sta. Monica to do so and that he received the amount for and in its behalf.[54] JMA appealed the decision to the CA. On January 28, 2002, the appellate court dismissed the appeal and affirmed the decision of the RTC, holding that the contracts entered into by the parties are what they purport to be: a Deed of Absolute Sale and Option to Buy; the deeds were notarized, hence, are public documents, and have the presumption of regularity. Furthermore, there were no ambiguities in the deeds. It was further held that JMA was barred by laches to enforce its claim that the deed of absolute sale was in fact an equitable mortgage. It pointed out that the property was not repurchased within the timeline fixed in the Option to Buy.[55] JMA filed a motion for the reconsideration of the decision which the CA denied on July 1, 2002.[56] JMA, now petitioner, filed the instant petition for review on certiorari, seeking to reverse the ruling of the CA on the following grounds:

I THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT APPLYING ARTICLE 1602 OF THE CIVIL CODE AND NOT HOLDING THAT THE CONTRACT SUBJECT MATTER OF THE INSTANT PETITION IS THAT OF AN EQUITABLE MORTGAGE. II THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PETITIONER IS GUILTY OF LACHES IN ASSERTING ITS RIGHT OVER ITS PROPERTY. III

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE FINDING OF THE LOWER COURT THAT RESPONDENT AGCOR HAS NO KNOWLEDGE OF THE OPTION TO BUY.[57]

It maintains that the trial court and the CA failed to consider the testimony of its General Manager Rosita Alberto, to prove that the contract entered into between it and respondent Sta. Monica is, in reality, a real estate mortgage. Petitioner maintains that the trial court and the appellate court ignored the facts based on the following evidence: (1) petitioner was in dire need of money when it executed the Deed of Absolute Sale and Option to Buy on June 30, 1985; (2) it continued to possess the property after the execution of the Deed of Sale and Option to Buy, and even collected the rentals from the tenants of the commercial and residential buildings; (3) the purchase price of P4,100,000.00 is grossly inadequate as purchase price of the property compared to its market value (P11,080,000.00) as found by the Philippine Appraisal Company. On the other hand, respondents aver that the issues raised by the petitioner are factual, which the Court is proscribed from reviewing. Moreover, the findings of facts of the trial court were affirmed by the CA; hence, such findings are conclusive on this Court. They insist that the CA decision is in accord with the law and the evidence on record. Article 1602 of the New Civil Code does not apply in this case because petitioner failed to exercise its option and pay the agreed upon repurchase price; hence, the CA correctly ruled that it was barred by laches when it filed its complaint below only on November 11, 1991. The threshold issues are the following: (1) whether the Court is proscribed from reviewing the factual issues raised by petitioner; (2) whether the transaction between the parties is an equitable mortgage; (3) whether the petitioner is barred by laches from filing the action against the respondent; and (4) whether respondent AGCOR was in good faith when it purchased the property from respondent Sta. Monica for P5,700,000.00. The petition is denied for lack of merit. Section 1, Rule 45 of the Rules of Court provides that only questions of law may be raised in this Court. Th e rationale for the rule is that the Court is not a trier of facts; it is not to re-examine and calibrate the evidence on record, as such task is assigned to the trial court. The trial courts findings, as affirmed by the CA, are conclusive on this Court unless there is preponderant evidence that the lower court ignored, misconstrued or misinterpreted cogent and substantial facts and circumstances which, if considered, would modify or reverse the outcome of the case.[58] The Court may look into and resolve factual issues in exceptional cases such as when the findings and conclusions of the trial court are contrary to evidence on record or tainted with grave abuse of discretion amounting to excess of jurisdiction. On the second issue, the law is that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.[59] When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it any other intention that would contradict its plain import.[60] The clear terms of the contract should never be the subject matter of interpretation. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract or obligation not assumed simply or merely to avoid seeming hardships.[61] Their true meaning must be enforced, as it is to be presumed that the contracting parties know their scope and effects.[62] If the parties execute two or more separate writings covering a common transaction and subject matter, the writings should be read and interpreted together to render the parties intention effective.[63] On the other hand, if the contract is ambiguous or the contracting parties offer conflicting claims on their intent, the trial court, at the first instance, has to ascertain the true intent of the parties, taking into account the contemporaneous and subsequent conduct, actions and words of the parties material to the case,[64] and pertinent facts having a tendency to fix and determine the real intent of the parties and undertaking shall be considered. It is the parties intention which shall be accorded primordial consideration. Th e reasonableness of the result obtained, after analysis and construction of the contract/contracts, must also be carefully considered.[65] The ascertained intention of the parties is deemed an integral part of the contract, as though it had been originally expressed in unequivocal terms. The Court will enforce the true agreement of the parties even if the property in question has already been registered and a new transfer certificate of title is issued in the name of the transferee.[66] The rule is that he who alleges that a contract does not reflect the true intention of the parties thereto may prove the same by documentary or parol evidence.[67] In this case, petitioner alleges that the Deed of Absolute Sale and

Option to Buy do not reflect the true intention of the parties, which according to it is a loan with mortgage or an equitable mortgage. The petitioner is burdened to prove, by clear and convincing evidence, the terms of the writings.[68] In the language of State Supreme Court of North Carolina in Obriant v. Lee,[69] the intention must be established, not by simple declarations of the parties, but by proof of facts and circumstances, inconsistent with the rule of absolute purchase, otherwise, the solemnity of deeds would always be exposed to the slippery memory of witnesses. The presumption is that the contract is what it purports to be; and, to establish its character as a mortgage, the evidence must be clear, unequivocal and convincing which reasons tending to show that the transaction was intended as a security for debt; and thus to be a mortgage must be sufficient to satisfy every reasonable mind without hesitation.[70] A less rigorous rule would mean that no man is safe in taking a deed of property. It would be only necessary for the grantor to bring witnesses to an agreement that the deed was regarded as an equitable mortgage, to enable him, on payment of the purchase price and interest, to redeem, particularly if the value of the property had doubled or trebled in ratio.[71] Unless the testimony is entirely plain and convincing beyond reasonable controversy, the writing will be held to express correctly the intention of the parties.[72] If there is a doubt as to the fact whether the transaction is in the nature of a mortgage, the presumption, in order to avoid a forfeiture is always in favor of a position to redeem, to subserve abstract justice and avert injurious consequences.[73] An equitable mortgage is one which, although lacking in some formality, or form or words or other requisites deemed required by statutes nevertheless reveals the intention of the parties to charge a real property as security for a debt and contains nothing impossible or contrary to law. An equitable mortgage may be constituted by any writing from which the intention to create such a lien may be patterned. Under Article 1602 of the New Civil Code, a contract shall be presumed to be an equitable mortgage in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right redemption or granting a new period is executed; to repurchase another instrument extending the period of

(4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

For the presumptions under the article to apply, two requisites must concur: (1) that the parties entered into a contract denominated as a sale; and (2) that their intention was to secure an existing debt by way of mortgage.[74] In order for a deed to be declared a mortgage, the relation of debtor and creditor must exist between the grantor in such a deed and one who seeks to have it declared a mortgage.[75] There must be a continuing binding debt; a debt in its fullest sense. Where there is no debt, there can be no mortgage; for if there is nothing to secure, there can be no security.[76] If there is an indebtedness or liability between the parties, either a debt existing prior to the conveyance, or a debt arising from a loan made at the time of the conveyance, or from any other cause, and this debt is still left subsistent, not being discharged or satisfied by the conveyance, but the grantor is regarded as still owing and bound to pay at some future time, so that the payment stipulated for in the agreement to re-convey is in reality the payment of this existing debt, then the whole transaction amounts to a mortgage, whatever stipulation they may have inserted in the instruments. If there is no relation of debtor-creditor, but by the terms of the contract one is merely given an option to buy real property for a fixed amount and for a fixed price, there is no equitable mortgage; the optionee is not bound to buy and to pay for said real property.[77] In the present case, the trial and appellate courts declared that based on the evidence on record, petitioner sold the property to respondent Sta. Monica for P3,021,000.00; as stated in the Option to Buy, petitioner may opt to repurchase the property for P4,100,000.00. Respondent Sta. Monica agrees with the findings of the trial court and the appellate court.[78]

The trial court failed to make any finding why petitioner sold the property to respondent Sta. Monica for P3,021,000.00, which is contrary to what appears on the face of the deed of absolute sale - P4,100,000.00-which amount petitioner acknowledged to have received from said respondent. Although petitioner claimed in its complaint that the true purchase price of the property was P3,021,000.00 and that it borrowed from respondent Sta. Monica P1,079,000.00 as mortgage for one year (from June 30, 1986 to June 30, 1987), no testimonial and documentary evidence was adduced to prove the same. Petitioner was burdened to prove its claim in its complaint that it borrowed P3,021,000.00 from respondent Sta. Monica,[79] failing which its claim will be defeated even if respondents failed to present any evidence to prove their side.[80] To reiterate, there is no evidence on record that petitioner borrowed P3,021,000.00 from respondent Sta. Monica in 1986 as alleged in its complaint. The only evidence on record is that petitioner decided in June 1986 to redeem the property from Pioneer much earlier than the one-year-period therefor and needed P2,300,000.00 for the purpose. Petitioner received the amount from respondent Sta. Monica and was able to redeem the property from Pioneer. The only evidence of petitioner that it received money from respondent Sta. Monica is the Deed of Absolute Sale, in which the petitioner acknowledged to have received P4,100,000.00. The Redemption Receipt signed by Trinidad on June 30, 1988 for P3,000,000.00 in the form of checks and P57,000.00 in cash as partial payment of the account of JMA for the property x x x does not constitute evidence that petitioner secured a loan of P3,021,000.00 from respondent Sta. Monica in June 1986. The said amount was part of the P5,822,000.00 which petitioner was obliged to pay to respondent Sta. Monica, in case it opted to buy the property under the Option to Buy, representing the repurchase price, inclusive of liquidated damages. In fact, Rosita Alberto testified that petitioner expected respondent Sta. Monica to execute a deed of sale over the property upon its payment of P4,100,000.00. This is gleaned from the testimony of Atty. Alberto: Atty. Balbastro: Q Let me put it this way, under these documents, Exhibits B and C, more particularly Exhibit C, the Option to Buy, JMA House Incorporated was given up to June 30, 1988 within which to exercise her option to buy, is that correct? A Yes, Sir. Q A And as of June 30, 1988, how much money did you tender to Sta. Monica Industrial Corporation? I tendered a total amount of three million fifty-seven thousand pesos, Sir.

Q And how much is the redemption price, if you know? If you know the repurchase price? A Based on the papers that can be found on the deed of absolute sale, if JMA House Incorporated was to redeem the property during the first year, we were supposed to repurchase on time. COURT: Q You are a lawyer, right? A Yes, Your Honor. WITNESS: A To repurchase the property within the first year, a total amount of four million one hundred thousand pesos, inclusive of interest, was supposed to be paid. If the repurchase was to be made on the second year, interests of 3.5 per cent per month was to be added on the face value which is one million one hundred thousand pesos. xxxx Atty. Balbastro: Q Aside from Exhibit G, you do not have any other document concerning the payment you made to Sta. Monica Industrial Corporation? A No other. Q Now, subsequent to the payments (sic) of Exhibits B and C, no other written document was executed between JMA House Incorporated and Sta. Monica Industrial and Development Corporation, is that correct? A No other because we were expecting that the next document to be executed was a deed of absolute sale of Sta. Monica Industrial Corporation back to JMA House Incorporated covering the property.[81]

If, as claimed by petitioner, the transaction between it and respondent Sta. Monica was an equitable mortgage, the latter would be obliged to execute a Cancellation of Real Estate Mortgage or Release of Mortgage over the property in favor of the petitioner. But, as admitted by Rosita Alberto, petitioner did not expect respondent Sta. Monica to execute any of these; petitioner expected that a deed of sale would be executed in its favor. It bears stressing that petitioner and respondent Sta. Monica were assisted by their respective lawyers during the negotiations held between Rosita Alberto and Trinidad. While Trinidad insisted on a deed of absolute sale, Rosita Alberto suggested that a real estate mortgage be executed by the parties instead. Trinidad rejected this, upon which Rosita proposed that an option to buy be executed as a supplement to the deed of absolute sale, to which Trinidad readily agreed. Obviously, the parties had arrived at a compromise to execute two deeds: a deed of absolute sale for P4,100,000.00, and a deed of option to enable petitioner to buy the property for the same price. Rosita Alberto testified, thus: Q Now, you also made mention that you had mortgaged the property to Sta. Monica Industrial Corporation. Did you execute any document to prove that mortgage? A Yes. Through the negotiation we were talking about a real estate mortgage but Mr. Trinidad insisted on a deed of sale in their favor. However, I requested for another document an option to buy/option to repurchase which is supplement to the deed of sale which would give us two years from the date of signing, to repurchase the property. ATTY. LAZARO: Q Madam Witness, do you still recall the exact date when this deed of absolute sale was executed? A It was June 30th 1986. Q A And how about the option to buy agreement that you are mentioning? When was it executed? It was executed [simultaneously] on the same day, June 30, 1986.

Q I am going to show you now a deed of absolute sale between JMA House Incorporated and Sta. Monica Industrial and Development Corporation which has been previously marked as Exhibit B and Exhibit B-1. What is the relation of this deed of absolute sale to the one that you are referring to? A This is the same deed of absolute sale that we signed. Q And I am calling your attention to Exhibit B-1 wherein the signature over and above the name Rosita Alberto [appears], whose signature is that? A My signature, Sir. Q And I am also calling your attention to the signature over and above the name Eugenio E. Trinidad, President and General Manager. Whose signature is that? A Mr. Trinidad[s].[82]

The respective lawyers of petitioner and respondent Sta. Monica thereafter prepared the deeds which were executed on June 30, 1986 before the same Notary Public, Atilano H. Lim. According to Rosita Alberto, the Option to Buy supplemented the Deed of Absolute Sale. The testimony of Rosita Alberto on the matter follows: Q Alright, I will read to you your Exh. C, under the second WHEREAS, and I quote: Whereas, the parties in the aforementioned Deed mutually agreed that the VENDOR JMA HOUSE INCORPORATED is given an option to buy back the properties subject thereto Do you recall this provision? A Yes. This is the document. Q And, in this second WHEREAS, the aforementioned Deed referred to here is the Deed referred to in the first WHEREAS, that is the Deed of Absolute Sale, marked as Exhibit B, is that correct? A Yes. Q I am going back to my first question. In other words, the basis of the option to buy is the supposed mutual agreement between JMA House Incorporated and Sta. Monica Industrial and Development Corporation to give JMA

House Incorporated the [option] to buy back the property as provided in the Deed of Absolute Sale marked here as Exhibit B, is that correct? A They were supplementing each other, the option to buy and the deed of absolute sale.[83] The fact that petitioner sold the property to respondent Sta. Monica is evidenced by Rosita Albertos admission that she delivered to respondent Sta. Monica the owners duplicate of TCT No. 268126, after which the latter had the property registered in its name, conformably with their pre-arrangement. This can be gleaned from her testimony, in answer to the questions of counsel of respondent AGCOR: ATTY. LUCAS: Q After June 30, 1986, Your Honor. WITNESS: A After June 30, 1986, the taxes were paid by STA. MONICA. That was the pre-arrangement, Your Honor, with STA. MONICA. And it would be absurd for JMA to pay the taxes when the title was with STA. MONICA. And we believe that they would be using it for their purposes, the title; for STA. MONICAs purposes. So, they are more than willing to take up the taxes.[84] Although Rosita Alberto did not specify the particulars of her pre-arrangement with Trinidad outside of the Deed of Absolute Sale and Option to Buy, it can safely be presumed that they agreed that petitioner would continue collecting rentals from the tenants, and respondent may mortgage the property as security for its P3,600,000.00 loan from the PCI Capital Corporation. Petitioner would then be able to generate funds for the purchase of the property on or before June 30, 1987 or 1988, partly from the rentals. On the other hand, respondent Sta. Monica was able to generate funds from its loan, with the property as collateral, for its business. Both parties benefited under the arrangement. While it is true that per Appraisal Report of the Philippine Appraisal Corporation, the property of the petitioner had a value, as of 1986, of P11,080,000.00, despite which, Alberto agreed to sell the property for P4,100,000.00 under the Deed of Absolute Sale, nevertheless, Alberto cannot be faulted. After all, under the Option to Buy, petitioner was obliged to pay only P4,100,000.00. It must be stressed that an option is a continuing offer or contract by which an owner stipulates with another that the latter shall have the right to buy the property at a fixed price with a certain time, or under, or in compliance with, certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale.[85] It is, in fine, an unaccepted offer, governed by the second paragraph of Article 1479 of the New Civil Code which states that a promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An option is not of itself a purchase, but merely secures the privilege to buy. An option is a privilege given by the owner of the property to another to buy the property at his election, and the owner does not sell the property but gives another the right to buy at his election.[86] It imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Without acceptance, it is not, properly speaking, treated as a contract, and does not vest, transfer or agree to transfer, any title to, or any interest or right in the subject property, but is merely a contract by which the owner of the property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms.[87] Thus, an option contract involves two distinct elements, that is: (1) the offer to sell, which does not become a contract until accepted; (2) the completed contract to lease the offer for a specified time.[88] It is a separate and distinct contract from that which the parties may enter into, upon the consummation of the option. It bears stressing that an option must be supported by a consideration distinct and separate from the price. A consideration for an optional contract is just as important as the consideration for any other kind of contract.[89] If there is no consideration for the optional contract, then it cannot be enforced anymore than any other contract where no consideration exists.[90] However, case law is that although an option is not binding as a contract for want of consideration, yet if the offer contained therein is not withdrawn, its acceptance within the time limited gives rise to a contract of sale, binding on the vendor, which cannot be affected by any subsequent attempt to withdraw the offer.[91]

The optionee or promisee is burdened to prove such consideration for the option. The consideration for the option is not presumed. In Villamor v. Court of Appeals,[92] the Court ruled that consideration is the why of the contract, the essential reason which moves the contracting parties to enter into the contract.[93] The consideration for a contract, including an option, need not be money or anything of monetary value but may consist of either a benefit or a detriment to the promisor.[94] There is sufficient consideration for a promise if there is any benefit to the promisee or any detriment to the promisor. A benefit should not necessarily accrue to the promisee if a detriment to the promisor is present; and there is consideration if the promisee does anything legal which he is not bound to do or refrain from doing anything which he has a right to do, whether or not there is any actual loan or detriment to him or actual benefit to the promisor.[95] It is sufficient that something valuable flows from the person to whom it is made, or that he suffers some prejudice or inconvenience, and that the promise is the inducement to the transaction. Indeed, there is a consideration if the promisee, in return for the promise, does anything legal which he is not bound to do, or refrains from doing anything which he has a right to do, whether there is any actual loss or detriment to him or actual benefit to the promisor or not.[96] We agree with the rulings of the trial court and the CA that the option granted to the petitioner has a consideration distinct from the purchase price of the property for P4,100,000.00. As gleaned from the Option to Buy itself, the agreement was executed by the parties because of the Deed of Absolute Sale they had executed on the same occasion. Instead of the parties executing a Real Estate Mortgage as suggested by petitioner, the parties, by way of compromise, agreed to execute a Deed of Absolute Sale, on the condition that they execute an Option to Buy, giving petitioner the privilege to repurchase the property within a period of one year, with a grace period of one year immediately upon the expiration of the original one year period. As admitted by Rosita Alberto, the two deeds complemented each other, the Option to Buy being a supplement to the Deed of Absolute Sale. In fine, petitioner would not have agreed to sell the property to respondent Sta. Monica unless petitioner was given the option to repurchase the property for the same amount. However, we agree with the ruling of the CA that petitioner failed to exercise its option and notify respondent Sta. Monica of its acceptance of the latters offer within the timeline under the Option to Buy. Under the said deed, petitioner had one year from June 30, 1986 or up to June 30, 1987 to exercise its option, and in case of failure to do so, it had a one year grace period (from July 1, 1987 to June 30, 1988), provided that, in the latter case, it would pay equitable damages of 3.5% a month from July 1, 1987 to June 30, 1988 until full payment of the purchase price or until the option is finally exercised. The pertinent portion of the contract reads: NOW, THEREFORE, for and in consideration of the foregoing premises, stipulations and conditions, the JMA HOUSE INCORPORATED is hereby given an option to buy back the subject properties mentioned in the aforesaid Deed of Absolute Sale, and in like manner the STA. MONICA INDUSTRIAL AND DEVELOPMENT CORPORATION hereby undertakes and binds itself to resell the same unto the said JMA HOUSE INCORPORATED within a period of One (1) year from and after date of execution of the said Deed for a fixed consideration of FOUR MILLION ONE HUNDRED THOUSAND PESOS (P4,100,000.00) Philippine Currency; PROVIDED, HOWEVER, should the said JMA HOUSE INCORPORATED failed (sic) to exercise the herein option to buy back within the above-stated period, the JMA HOUSE INCORPORATED be (sic) given a grace period of another One (1) year immediately thereafter. In case of such extension the JMA HOUSE INCORPORATED hereby undertakes and binds itself to pay an amount equivalent to Three and one-half percent (sic) month for and as liquidated damages until the whole amount is fully paid and/or the option is finally exercised. It is clear that petitioner failed to exercise its option on or before June 30, 1987. Neither did petitioner exercise its option and pay the liquidated damages to respondent Sta. Monica from July 1, 1987 up to June 1988. This impelled respondent Sta. Monica to inform petitioner that because of its failure to exercise its option to purchase the property, it had to discontinue collecting the rentals from the tenants of the buildings. On February 2, 1988, respondent Sta. Monica sold the property to respondent AGCOR, which secured TCT No. 376746 on February 17, 1988. The Option to Buy provides that acceptance must be accompanied by payment of liquidated damages; such payment is a condition precedent to the exercise of the right to buy, and the money must be tendered or offered. A mere notice of an intention to accept, or of an acceptance without such payment or tender, does not constitute a valid compliance.[97] Respondent Sta. Monicas acceptance of the five checks in the total amount of P3,000,0 00.00 and the cash amount of P57,000.00 on June 30, 1988, as partial payment of petitioners account did not resuscitate the right which petitioner had by then already lost, particularly since the property had already been sold and titled to

AGCOR. The said partial payment was an exercise in futility, made worse by the fact that the five checks were dishonored by the drawee bank. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. Costs against the petitioner. SO ORDERED.

ROMEO J. CALLEJO, SR. Associate Justice

FIRST DIVISION [G.R. No. 126454. November 26, 2004] BIBLE BAPTIST CHURCH and PASTOR REUBEN BELMONTE, petitioners, vs. COURT OF APPEALS and MR. & MRS. ELMER TITO MEDINA VILLANUEVA, respondents. DECISION AZCUNA, J.: This petition for review on certiorari seeks to annul the Decision[1] dated August 7, 1996, of the Court of Appeals in CA-G.R. CV No. 45956, and its Resolution[2] dated September 12, 1996, denying reconsideration of the decision. In the questioned issuances, the Court of Appeals affirmed the Decision[3] dated June 8, 1993, of the Regional Trial Court of Manila, Branch 3, in Civil Case No. 90-55437. The antecedents are: On June 7, 1985, the Bible Baptist Church (petitioner Baptist Church) entered into a contract of lease [4] with Mr. & Mrs. Elmer Tito Medina Villanueva (respondent spouses Villanueva). The latter are the registered owners of a property located at No. 2436 (formerly 2424) Leon Guinto St., Malate, Manila. The pertinent stipulations in the lease contract were: 1. That the LESSOR lets and leases to the LESSEE a store space known as 2424 Leon Guinto Sr. St., Malate, Manila, of which property the LESSOR is the registered owner in accordance with the Land Registration Act. 2. That the lease shall take effect on June 7, 1985 and shall be for the period of Fifteen (15) years. 3. That LESSEE shall pay the LESSOR within five (5) days of each calendar month, beginning Twelve (12) months from the date of this agreement, a monthly rental of Ten Thousand Pesos (P10,000.00) Philippine Currency, plus 10% escalation clause per year starting on June 7, 1988. 4. That upon signing of the LEASE AGREEMENT, the LESSEE shall pay the sum of Eighty Four Thousand Pesos (P84,000.00) Philippine Currency. Said sum is to be paid directly to the Rural Bank, Valenzuela, Bulacan for the purpose of redemption of said property which is mortgaged by the LESSOR. 5. That the title will remain in the safe keeping of the Bible Baptist Church, Malate, Metro Manila until the expiration of the lease agreement or the leased premises be purchased by the LESSEE, whichever comes first. In the event that the said title will be lost or destroyed while in the possession of the LESSEE, the LESSEE agrees to pay all costs involved for the re-issuance of the title. 6. That the leased premises may be renovated by the LESSEE, to the satisfaction of the LESSEE to be fit and usable as a Church. 7. That the LESSOR will remove all other tenants from the leased premises no later than March 15, 1986. It is further agreed that if those tenants are not vacated by June 1, 1986, the rental will be lowered by the sum of Three Thousand Pesos (P3,000.00) per month until said tenants have left the leased premises.

8. That the LESSEE has the option to buy the leased premises during the Fifteen (15) years of the lease. If the LESSEE decides to purchase the premises the terms will be: A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency. B) A down payment agreed upon by both parties. C) The balance of the selling price may be paid at the rate of One Hundred Twenty Thousand Pesos (P120,000.00), Philippine Currency, per year. x x x.[5] The foregoing stipulations of the lease contract are the subject of the present controversy. Although the same lease contract resulted in several cases[6] filed between the same parties herein, petitioner submits, for this Courts review, only the following errors allegedly committed by the Court of Appeals: a) Respondent Court of Appeals erred in finding that the option to buy granted the petitioner Baptist Church under its contract of lease with the Villanuevas did not have a consideration and, therefore, did not bind the latter; b) [R]espondent court again also erred in finding that the option to buy did not have a fixed price agreed upon by the parties for the purchase of the property; and c) [F]inally, respondent court erred in not awarding petitioners Baptist Church and its pastor attorneys fees.[7] In sum, this Court has three issues to resolve: 1) Whether or not the option to buy given to the Baptist Church is founded upon a consideration; 2) Whether or not by the terms of the lease agreement, a price certain for the purchase of the land had been fixed; and 3) Whether or not the Baptist Church is entitled to an award for attorneys fees. The stipulation in the lease contract which purportedly gives the lessee an option to buy the leased premises at any time within the duration of the lease, is found in paragraph 8 of the lease contract, viz: 8. That the LESSEE has the option to buy the leased premises during the Fifteen (15) years of the lease. If the LESSEE decides to purchase the premises the terms will be: A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency. B) A down payment agreed upon by both parties. C) The balance of the selling price may be paid at the rate of One Hundred Twenty Thousand Pesos (P120,000.00), Philippine Currency, per year. Under Article 1479 of the Civil Code, it is provided: 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. The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports it. In this case, petitioner Baptist Church seeks to buy the leased premises from the spouses Villanueva, under the option given to them. Petitioners claim that the Baptist Church agreed to advance the large amount needed for the rescue of the property but, in exchange, it asked the Villanuevas to grant it a long term lease and an option to buy the property for P1.8 million.[8] They argue that the consideration supporting the option was their agreement to pay off the Villanuevas P84,000 loan with the bank, thereby freeing the subject property from the mortgage encumbrance. They state further that the Baptist Church would not have agreed to advance such a large amount as it did to rescue the property from bank foreclosure had it not been given an enforceable option to buy that went with the lease agreement. In the petition, the Baptist Church states that [t]rue, the Baptist Church did not pay a separate and specific sum of money to cover the option alone. But the P84,000 it paid the Villanuevas in advance should be deemed consideration for the one contract they entered into the lease with option to buy.[9] They rely on the case of Teodoro v. Court of Appeals[10] to support their stand.

This Court finds no merit in these contentions. First, petitioners cannot insist that the P84,000 they paid in order to release the Villanuevas property from the mortgage should be deemed the separate consideration to support the contract of option. It must be pointed out that said amount was in fact apportioned into monthly rentals spread over a period of one year, at P7,000 per month. Thus, for the entire period of June 1985 to May 1986, petitioner Baptist Churchs monthly rent had already been paid for, such that it only again commenced paying the rentals in June 1986. This is shown by the testimony of petitioner Pastor Belmonte where he states that the P84,000 was advance rental equivalent to monthly rent of P7,000 for one year, such that for the entire year from 1985 to 1986 the Baptist Church did not pay monthly rent.[11] This Court agrees with respondents that the amount of P84,000 has been fully exhausted and utilized by their occupation of the premises and there is no separate consideration to speak of which could support the option.[12] Second, petitioners reliance on the case of Teodoro v. Court of Appeals[13] is misplaced. The facts of the Teodoro case reveal that therein respondent Ariola was the registered lessee of a property owned by the Manila Railroad Co. She entered into an agreement whereby she allowed Teodoro to occupy a portion of the rented property and gave Teodoro an option to buy the same, should Manila Railroad Co. decide to sell the property to Ariola. In addition, Teodoro, who was occupying only a portion of the subject rented property, also undertook to pay the Manila Railroad Co., the full amount of the rent supposed to be paid by the registered lessor Ariola. Consequently, unlike this case, Teodoro paid over and above the amount due for her own occupation of a portion of the property. That amount, which should have been paid by Ariola as lessor, and for her own occupation of the property, was deemed by the Court as sufficient consideration for the option to buy which Ariola gave to Teodoro upon Ariolas acquiring the property. Hence, in Teodoro, this Court was able to find that a separate consideration supported the option contract and thus, its enforcement may be demanded. Petitioners, therefore, cannot rely on Teodoro, for the case even supports the respondents stand that a consideration that is separate and distinct from the purchase price is required to support an option contract. Petitioners further insist that a consideration need not be a separate sum of money. They posit that their act of advancing the money to rescue the property from mortgage and impending foreclosure, should be enough consideration to support the option. In Villamor v. Court of Appeals,[14] this Court defined consideration as the why of the contracts, the essential reason which moves the contracting parties to enter into the contract.[15] This definition illustrates that the consideration contemplated to support an option contract need not be monetary. Actual cash need not be exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous contract for which the consideration must be something of value, although its kind may vary. Specifically, in Villamor v. Court of Appeals,[16] half of a parcel of land was sold to the spouses Villamor for P70 per square meter, an amount much higher than the reasonable prevailing price. Thereafter, a deed of option was executed whereby the sellers undertook to sell the other half to the same spouses. It was stated in the deed that the only reason the spouses bought the first half of the parcel of land at a much higher price, was the undertaking of the sellers to sell the second half of the land, also at the same price. This Court held that the cause or consideration for the option, on the part of the spouses-buyers, was the undertaking of the sellers to sell the other half of the property. On the part of the sellers, the consideration supporting the option was the much higher amount at which the buyers agreed to buy the property. It wasexplicit from the deed therein that for the parties, this was the consideration for their entering into the contract. It can be seen that the Court found that the buyer/optionee had parted with something of value, which was the amount he paid over and above the actual prevailing price of the land. Such amount, different from the price of the land subject of the option, was deemed sufficient and distinct consideration supporting the option contract. Moreover, the parties stated the same in their contract. Villamor is distinct from the present case because, First, this Court cannot find that petitioner Baptist Church parted with anything of value, aside from the amount of P84,000 which was in fact eventually utilized as rental payments. Second, there is no document that contains an agreement between the parties that petitioner Baptist Churchs supposed rescue of the mortgaged property was the consideration which the parties contemplated in support of the option clause in the contract. As previously stated, the amount advanced had been fully utilized as rental payments over a period of one year. While the Villanuevas may have them to thank for extending the payment at a time of need, this is not the separate consideration contemplated by law.

Noting that the option clause was part of a lease contract, this Court looked into its previous ruling in the early case of Vda. De Quirino v. Palarca,[17] where the Court did say that in reciprocal contracts, like the one in question,[18] the obligation or promise of each party is the consideration for that of the other.[19] However, it must be noted that in that case, it was also expressly stated in the deed that should there be failure to exercise the option to buy the property, the optionee undertakes to sell the building and/or improvements he has made on the premises. In addition, the optionee had also been paying an amount of rent that was quite high and in fact turned out to be too burdensome that there was a subsequent agreement to reduce said rentals. The Court found that the amount of rentals agreed upon x x x which amount turned out to be so burdensome upon the lessee, that the lessor agreed, five years later, to reduce it as well as the building and/or improvements contemplated to be constructed and/or introduced by the lessee, were, undoubtedly, part of the consideration for his option to purchase the leased premises.[20] Again, this Court notes that the parties therein clearly stipulated in their contract that there was an undertaking on the part of the optionee to sell the improvements made on the property if the option was not exercised. Such is a valuable consideration that could support the option contract. Moreover, there was the excessive rental payments that the optionee paid for five years, which the Court also took into account in deciding that there was a separate consideration supporting the option. To summarize the rules, an option contract needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause. This Court also notes that in the present case both the Regional Trial Court and the Court of Appeals agree that the option was not founded upon a separate and distinct consideration and that, hence, respondents Villanuevas cannot be compelled to sell their property to petitioner Baptist Church. The Regional Trial Court found that [a]ll payments made under the contract of lease were for rentals. No money [was] ever exchanged for and in consideration of the option. Hence, the Regional Trial Court found the action of the Baptist Church to be premature and without basis to compel the defendant to sell the leased premises. The Regional Trial Court consequently ruled: WHEREFORE, judgment is rendered: 1) Denying plaintiffs application for writ of injunction; 2) That defendant cannot be compelled to sell to plaintiffs the leased premises in accordance with par. 8 of the contract of lease; 3) Defendant is hereby ordered to reimburse plaintiffs the sum of P15, 919.75 plus 12% interest representing real estate taxes, plaintiffs paid the City Treasurers Office of Manila; 4) Declaring that plaintiff made a valid and legal consignation to the Court of the initial amount of P18,634.00 for the month of November and December 1990 and every month thereafter. All other claims of the plaintiffs are hereby dismissed for lack of merit. No pronouncement as to costs. SO ORDERED. [21] On appeal, the Court of Appeals agreed with the Regional Trial Court and found that the option to buy the leased premises was not binding upon the Villanuevas for non-compliance with Article 1479. It found that said option was not supported by a consideration as no money was ever really exchanged for and in consideration of the option. In addition, the appellate court determined that in the instant case, the price for the object is not yet certain. Thus, the Court of Appeals affirmed the Regional Trial Court decision and dismissed the appeal for lack of merit.[22]

Having found that the option to buy granted to the petitioner Baptist Church was not founded upon a separate consideration, and hence, not enforceable against respondents, this Court finds no need to discuss whether a price certain had been fixed as the purchase price. Anent the claim for attorneys fees, it is stipulated in paragraph 13 of the lease agreement that in the event of failure of either of the parties to comply with any of the conditions of the agreement, the aggrieved party can collect reasonable attorneys fees.[23] In view of this Courts finding that the option contract is not enforceable for being without consideration, the respondents Villanueva spouses refusal to comply with it cannot be the basis of a claim for attorneys fees. Hence, this Court agrees with as the Court of Appeals, which affirmed the findings of the Regional Trial Court, that such claim is to be dismissed for lack of factual and legal basis. WHEREFORE, the Decision and Resolution of the Court of Appeals subject of the petition are hereby AFFIRMED. No costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Carpio, JJ., concur.

THIRD DIVISION

ENRICO S. EULOGIO, Petitioner, - versus SPOUSES CLEMENTE APELES[1] and LUZ APELES, Respondents. G.R. No. 167884 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, AZCUNA,* CHICO-NAZARIO, and NACHURA, JJ. Promulgated: January 20, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION CHICO-NAZARIO, J.: Petitioner Enrico S. Eulogio (Enrico) filed this instant Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court assailing the Decision[2] dated 20 December 2004 of the Court of Appeals in CA-G.R. CV No. 76933 which reversed the Decision[3] dated 8 October 2002 of the Regional Trial Court (RTC) of Quezon City, Branch 215, in Civil Case No. Q-99-36834. The RTC directed respondents, spouses Clemente and Luz Apeles (spouses Apeles) to execute a Deed of Sale over a piece of real property in favor of Enrico after the latters payment of full consideration therefor. The factual and procedural antecedents of the present case are as follows: The real property in question consists of a house and lot situated at No. 87 Timog Avenue, Quezon City (subject property). The lot has an area of 360.60 square meters, covered by Transfer Certificate of Title No. 253990 issued by the Registry of Deeds of Quezon City in the names of the spouses Apeles.[4]

In 1979, the spouses Apeles leased the subject property to Arturo Eulogio (Arturo), Enricos father. Upon Arturos death, his son Enrico succeeded as lessor of the subject property. Enrico used the subject property as his residence and place of business. Enrico was engaged in the business of buying and selling imported cars.[5] On 6 January 1987, the spouses Apeles and Enrico allegedly entered into a Contract of Lease[6] with Option to Purchase involving the subject property. According to the said lease contract, Luz Apeles was authorized to enter into the same as the attorney-in-fact of her husband, Clemente, pursuant to a Special Power of Attorney executed by the latter in favor of the former on 24 January 1979. The contract purportedly afforded Enrico, before the expiration of the three-year lease period, the option to purchase the subject property for a price not exceeding P1.5 Million. The pertinent provisions of the Contract of Lease are reproduced below: 3. That this Contract shall be effective commencing from January 26, 1987 and shall remain valid and binding for THREE (3) YEARS from the said date. The LESSOR hereby gives the LESSEE under this Contract of Lease the right and option to buy the subject house and lot within the said 3-year lease period. 4. That the purchase price or total consideration of the house and lot subject of this Contract of Lease shall, should the LESSEE exercise his option to buy it on or before the expiration of the 3-year lease period, be fixed or agreed upon by the LESSOR and the LESSEE, Provided, that the said purchase price, as it is hereby agreed, shall not be more than ONE MILLION FIVE HUNDRED THOUSAND PESOS (P1,500,000.00) and, provided further, that the monthly rentals paid by the LESSEE to the LESSOR during the 3-year lease period shall form part of or be deducted from the purchase price or total consideration as may hereafter be mutually fixed or agreed upon by the LESSOR and the LESSEE. 5. That if the LESSEE shall give oral or written notice to the LESSOR on or before the expiry date of the 3-year lease period stipulated herein of his desire to exercise his option to buy or purchase the house and lot herein leased, the LESSOR upon receipt of the purchase price/total consideration as fixed or agreed upon less the total amount of monthly rentals paid the LESSEE during the 3-year lease period shall execute the appropriate Deed to SELL, TRANSFER and CONVEY the house and lot subject of this Contract in favor of the LESSEE, his heirs, successors and assigns, together with all the fixtures and accessories therein, free from all liens and encumbrances. Before the expiration of the three-year lease period provided in the lease contract, Enrico exercised his option to purchase the subject property by communicating verbally and in writing to Luz his willingness to pay the agreed purchase price, but the spouses Apeles supposedly ignored Enricos manifestation. This prompted Enrico to seek recourse from the barangay for the enforcement of his right to purchase the subject property, but despite several notices, the spouses Apeles failed to appear before the barangay for settlement proceedings. Hence, the barangay issued to Enrico a Certificate to File Action.[7] In a letter dated 26 January 1997 to Enrico, the spouses Apeles demanded that he pay his rental arrears from January 1991 to December 1996 and he vacate the subject property since it would be needed by the spouses Apeles themselves. Without heeding the demand of the spouses Apeles, Enrico instituted on 23 February 1999 a Complaint for Specific Performance with Damages against the spouses Apeles before the RTC, docketed as Civil Case No. Q99-36834. Enricos cause of action is founded on paragraph 5 of the Contract of Lease with Option to Purchase vesting him with the right to acquire ownership of the subject property after paying the agreed amount of consideration. Following the pre-trial conference, trial on the merits ensued before the RTC. Enrico himself testified as the sole witness for his side. He narrated that he and Luz entered into the Contract of Lease with Option to Purchase on 26 January 1987, with Luz signing the said Co ntract at Enricos office in Timog Avenue, Quezon City. The Contract was notarized on the same day as evidenced by the Certification on the Notary Publics Report issued by the Clerk of Court of the RTC of Manila.[8] On the other hand, the spouses Apeles denied that Luz signed the Contract of Lease with Option to Purchase, and posited that Luzs signature thereon was a forgery. To buttress their contention, the spouses Apeles offered as evidence Luzs Philippine Passport which showed that on 26 January 1987, the date when Luz allegedly signed the said Contract, she was in the United States of America. The spouses Apeles likewise presented several official documents bearing her genuine signatures to reveal their remarkable discrepancy from the signature

appearing in the disputed lease contract. The spouses Apeles maintained that they did not intend to sell the subject property.[9] After the spouses Apeles established by documentary evidence that Luz was not in the country at the time the Contract of Lease with Option to Purchase was executed, Enrico, in rebuttal, retracted his prior declaration that the said Contract was signed by Luz on 26 January 1996. Instead, Enrico averred that Luz signed the Contract after she arrived in the Philippines on 30 May 1987. Enrico further related that after Luz signed the lease contract, she took it with her for notarization, and by the time the document was returned to him, it was already notarized.[10] On 8 October 2002, the RTC rendered a Decision in Civil Case No. Q-99-36834 in favor of Enrico. Since none of the parties presented a handwriting expert, the RTC relied on its own examination of the specimen signatures submitted to resolve the issue of forgery. The RTC found striking similarity between Luzs genuine signatures in the documents presented by the spouses Apeles themselves and her purportedly forged signature in the Contract of Lease with Option to Purchase. Absent any finding of forgery, the RTC bound the parties to the clear and unequivocal stipulations they made in the lease contract. Accordingly, the RTC ordered the spouses Apeles to execute a Deed of Sale in favor of Enrico upon the latters payment of the agreed amount of consideration. The fallo of the RTC Decision reads: WHEREFORE, this Court finds [Enricos] complaint to be substantiated by preponderance of evidence and accordingly orders (1) [The spouses Apeles] to comply with the provisions of the Contract of Lease with Option to Purchase; and upon payment of total consideration as stipulated in the said CONTRACT for [the spouses Apeles] to execute a Deed of Absolute Sale in favor of [Enrico], over the parcel of land and the improvements existing thereon located at No. 87 Timog Avenue, Quezon City. (2) [The spouses Apeles] to pay [Enrico] moral and exemplary damages in the respective amounts of P100,000.00 and P50,000.00. (3) [The spouses Apeles] to pay attorneys fees of P50,000.00 and costs of the suit.[11]

The spouses Apeles challenged the adverse RTC Decision before the Court of Appeals and urged the appellate court to nullify the assailed Contract of Lease with Option to Purchase since Luzs signature thereon was clearly a forgery. The spouses Apeles argued that it was physically impossible for Luz to sign the said Contract on 26 January 1987 since she was not in the Philippines on that date and returned five months thereafter. The spouses Apeles called attention to Enricos inconsistent declarations as to material details involving the execution of the lease contract, thereby casting doubt on Enricos credibility, as well as on the presumed regularity of the contract as a notarized document. On 20 December 2004, the Court of Appeals rendered a Decision in CA-G.R. CV No. 76933 granting the appeal of the spouses Apeles and overturning the judgment of the RTC. In arriving at its assailed decision, the appellate court noted that the Notary Public did not observe utmost care in certifying the due execution of the Contract of Lease with Option to Purchase. The Court of Appeals chose not to accord the disputed Contract full faith and credence. The Court of Appeals held, thus: WHEREFORE, the foregoing premises considered, the appealed decision dated October 8, 2002 of the Regional Trial Court of Quezon City, Branch 215 in Civil Case No. Q-99-36834 for specific performance with damages is hereby REVERSED and a new is one entered dismissing [Enricos] complaint.[12] Enricos Motion for Reconsideration was denied by the Court of Appeals in a Resolution[13] dated 25 April 2005. Enrico is presently before this Court seeking the reversal of the unfavorable judgment of the Court of Appeals, assigning the following errors thereto: I. THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN IT BRUSHED ASIDE THE RULING OF THE COURT A QUO UPHOLDING THE VALIDITY OF THE CONTRACT OF LEASE WITH OPTION TO PURCHASE AND IN LIEU THEREOF RULED THAT THE SAID CONTRACT OF LEASE WAS A FORGERY AND THUS, NULL AND VOID.

II. THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN CONTRARY TO THE FINDINGS OF THE COURT A QUO IT RULED THAT THE DEFENSE OF FORGERY WAS SUBSTANTIALLY AND CONVINCINGLY PROVEN BY COMPETENT EVIDENCE. Simply, Enrico faults the Court of Appeals for disturbing the factual findings of the RTC in disregard of the legal aphorism that the factual findings of the trial court should be accorded great weight and respect on appeal. We do not agree. Enricos insistence on the infallibility of the findings of the RTC seriously impairs the discretion of the appellate tribunal to make independent determination of the merits of the case appealed before it. Certainly, the Court of Appeals cannot swallow hook, line, and sinker the factual conclusions of the trial court without crippling the very office of review. Although we have indeed held that the factual findings of the trial courts are to be accorded great weight and respect, they are not absolutely conclusive upon the appellate court.[14] The reliance of appellate tribunals on the factual findings of the trial court is based on the postulate that the latter had firsthand opportunity to hear the witnesses and to observe their conduct and demeanor during the proceedings. However, when such findings are not anchored on their credibility and their testimonies, but on the assessment of documents that are available to appellate magistrates and subject to their scrutiny, reliance on the trial court finds no application.[15] Moreover, appeal by writ of error to the Court of Appeals under Rule 41 of the Revised Rules of Court, the parties may raise both questions of fact and/or of law. In fact, it is imperative for the Court of Appeals to review the findings of fact made by the trial court. The Court of Appeals even has the power to try cases and conduct hearings, receive evidence and perform any and all acts necessary to resolve factual issues raised in cases falling within its original and appellate jurisdiction.[16] Enrico assiduously prays before this Court to sustain the validity of the Contract of Lease with Option to Purchase. Enrico asserts that the said Contract was voluntarily entered into and signed by Luz who had it notarized herself. The spouses Apeles should be obliged to respect the terms of the agreement, and not be allowed to renege on their commitment thereunder and frustrate the sanctity of contracts. Again, we are not persuaded. We agree with the Court of Appeals that in ruling out forgery, the RTC heavily relied on the testimony proffered by Enrico during the trial, ignoring blatant contradictions that destroy his credibility and the veracity of his claims. On direct examination, Enrico testified that Luz signed the Contract of Lease with Option to Purchase on 26 January 1987 in his presence,[17] but he recanted his testimony on the matter after the spouses Apeles established by clear and convincing evidence that Luz was not in the Philippines on that date.[18] In rebuttal, Enrico made a complete turnabout and claimed that Luz signed the Contract in question on 30 May 1987 after her arrival in the country.[19] The inconsistencies in Enricos version of events have seriously impaired the probative value of his testimony and cast serious doubt on his credibility. His contradictory statements on important details simply eroded the integrity of his testimony. While it is true that a notarized document carries the evidentiary weight conferred upon it with respect to its due execution, and has in its favor the presumption of regularity, this presumption, however, is not absolute. It may be rebutted by clear and convincing evidence to the contrary.[20] Enrico himself admitted that Luz took the document and had it notarized without his presence. Such fact alone overcomes the presumption of regularity since a notary public is enjoined not to notarize a document unless the persons who signed the same are the very same persons who executed and personally appeared before the said notary public to attest to the contents and truth of what are stated therein. Although there is no direct evidence to prove forgery, preponderance of evidence inarguably favors the spouses Apeles. In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term greater weight of the evidence or greater weight of the credible evidence. Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is more convincing to the court as worthier of belief than that which is offered in opposition

thereto.[21] In the case at bar, the spouses Apeles were able to overcome the burden of proof and prove by preponderant evidence in disputing the authenticity and due execution of the Contract of Lease with Option to Purchase. In contrast, Enrico seemed to rely only on his own self-serving declarations, without asserting any proof of corroborating testimony or circumstantial evidence to buttress his claim. Even assuming for the sake of argument that we agree with Enrico that Luz voluntarily entered into the Contract of Lease with Option to Purchase and personally affixed her signature to the said document, the provision on the option to purchase the subject property incorporated in said Contract still remains unenforceable. There is no dispute that what Enrico sought to enforce in Civil Case No. Q-99-36834 was his purported right to acquire ownership of the subject property in the exercise of his option to purchase the same under the Contract of Lease with Option to Purchase. He ultimately wants to compel the spouses Apeles to already execute the Deed of Sale over the subject property in his favor. An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the formers property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale.[22] An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of the 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, i.e., the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer.[23] It is also sometimes called an unaccepted offer and is sanctioned by Article 1479 of the Civil Code: 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. The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports it.[24] In the landmark case of Southwestern Sugar and Molasses Company v. Atlantic Gulf and Pacific Co.,[25] we declared that for an option contract to bind the promissor, it must be supported by consideration: There is no question that under Article 1479 of the new Civil Code an option to sell, or a promise to buy or to sell, as used in said article, to be valid must be supported by a consideration distinct from the price. This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration. In other words, an accepted unilateral promise can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee. (Emphasis supplied.) The doctrine requiring the payment of consideration in an option contract enunciated in Southwestern Sugar is resonated in subsequent cases and remains controlling to this day. Without consideration that is separate and distinct from the purchase price, an option contract cannot be enforced; that holds true even if the unilateral promise is already accepted by the optionee. The consideration is the why of the contracts, the essential reason which moves the contracting parties to enter into the contract. This definition illustrates that the consideration contemplated to support an option contract need not be monetary. Actual cash need not be exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous contract for which the consideration must be something of value, although its kind may vary.[26]

We have painstakingly examined the Contract of Lease with Option to Purchase, as well as the pleadings submitted by the parties, and their testimonies in open court, for any direct evidence or evidence aliunde to prove the existence of consideration for the option contract, but we have found none. The only consideration agreed upon by the parties in the said Contract is the supposed purchase price for the subject property in the amount not exceeding P1.5 Million, which could not be deemed to be the same consideration for the option contract since the law and jurisprudence explicitly dictate that for the option contract to be valid, it must be supported by a consideration separate and distinct from the price. In Bible Baptist Church v. Court of Appeals,[27] we stressed that an option contract needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the option contract. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause. In the present case, it is indubitable that no consideration was given by Enrico to the spouses Apeles for the option contract. The absence of monetary or any material consideration keeps this Court from enforcing the rights of the parties under said option contract. WHEREFORE, in view of the foregoing, the instant Petition is DENIED. The Decision dated 20 December 2004 and Resolution dated 25 April 2005 of the Court of Appeals in CA-G.R. CV No. 76933 are hereby AFFIRMED. No costs. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice THIRD DIVISION [G.R. No. 137552. June 16, 2000] ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA, petitioners, vs. ALONZO MACHUCA, respondent. DECISION GONZAGA_REYES, J.: This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Appeals[1] in CA G.R. CV No. 47457 entitled "ALONZO MACHUCA versus ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETA-LAFORTEZA MICHAEL Z. LAFORTEZA, and DENNIS Z. LAFORTEZA". The following facts as found by the Court of Appeals are undisputed: "The property involved consists of a house and lot located at No. 7757 Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila, covered by Transfer Certificate of Title (TCT) No. (220656) 8941 of the Registered of Deeds of Paraaque (Exhibit "D", Plaintiff, record, pp. 331-332). The subject property is registered in the name of the late Francisco Q. Laforteza, although it is conjugal in nature (Exhibit "8", Defendants, record pp. 331-386). On August 2, 1988, defendant Lea Zulueta-Laforteza executed a Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact authorizing them jointly to sell the subject property and sign any document for the settlement of the estate of the late Francisco Q. Laforteza (Exh. "A", Plaintiff, record, pp. 323-325). Likewise on the same day, defendant Michael Z. Laforteza executed a Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr., likewise, granting the same authority (Exh. "B", record, pp. 326-328). Both agency instruments contained a provision that in any document or paper to exercise authority granted, the signature of both attorneys-in-fact must be affixed. On October 27, 1988, defendant Dennis Z. Laforteza executed a Special Power of Attorney in favor of defendant Roberto Z. Laforteza for the purpose of selling the subject property (Exh. "C", Plaintiff, record, pp. 329-330). A year

later, on October 30, 1989, Dennis Z. Laforteza executed another Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the purpose of selling the subject property and signing any document for the settlement of the estate of the late Francisco Q. Laforteza. The subsequent agency instrument (Exh. "2", record, pp. 371-373) contained similar provisions that both attorneys-infact should sign any document or paper executed in the exercise of their authority. In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell) with the plaintiff[2] over the subject property for the sum of SIX HUNDRED THIRTY THOUSAND PESOS (P630,000.00) payable as follows: (a) P30,000.00 as earnest money, to be forfeited in favor of the defendants if the sale is not effected due to the fault of the plaintiff; (b) P600,000.00 upon issuance of the new certificate of title in the name of the late Francisco Q. Laforteza and upon execution of an extra-judicial settlement of the decedents estate with sale in favor of the plaintiff (Par. 2, Exh. "E", record, pp. 335-336). Significantly, the fourth paragraph of the Memorandum of Agreement (Contract to Sell) dated January 20, 1989 (Exh. "E", supra.) contained a provision as follows: xxx. Upon issuance by the proper Court of the new title, the BUYER -LESSEE shall be notified in writing and said BUYER-LESSEE shall have thirty (30) days to produce the balance of P600,000.00 which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement with sale. On January 20, 1989, plaintiff paid the earnest money of THIRTY THOUSAND PESOS (P30,000.00), plus rentals for the subject property (Exh. "F", Plaintiff, record, p. 339). On September 18, 1998[3], defendant heirs, through their counsel wrote a letter (Exh. 1, Defendants, record, p. 370) to the plaintiff furnishing the latter a copy of the reconstituted title to the subject property, advising him that he had thirty (3) days to produce the balance of SIX HUNDRED PESOS (sic) (P600,000.00) under the Memorandum of Agreement which plaintiff received on the same date. On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an extension of the THIRTY (30) DAYS deadline up to November 15, 1989 within which to produce the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00) (Exh. "G", Plaintiff, record, pp. 341-342). Defendant Roberto Z. Laforteza, assisted by his counsel Atty. Romeo L. Gutierrez, signed his conformity to the plaintiffs letter request (Exh. "G-1 and "G-2", Plaintiff, record, p. 342). The extension, however, does not appear to have been approved by Gonzalo Z. Laforteza, the second attorney-in-fact as his conformity does not appear to have been secured. On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, that he already had the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00) covered by United Coconut Planters Bank Managers Check No. 000814 dated November 15, 1989 (TSN, August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344; "M", records p. 350; and "N", record, p. 351). However, the defendants, refused to accept the balance (TSN, August 24, 1992, p. 14; Exhs. "M-1", Plaintiff, record, p. 350; and "N-1", Plaintiff, record, p. 351). Defendant Roberto Z. Laforteza had told him that the subject property was no longer for sale (TSN, October 20, 1992, p. 19; Exh. "J", record, p. 347). On November 20, 1998[4], defendants informed the plaintiff that they were canceling the Memorandum of Agreement (Contract to Sell) in view of the plaintiffs failure to comply with his contractual obligations (Exh. "3"). Thereafter, plaintiff reiterated his request to tender payment of the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00). Defendants, however, insisted on the rescission of the Memorandum of Agreement. Thereafter, plaintiff filed the instant action for specific performance. The lower court rendered judgment on July 6, 1994 in favor of the plaintiff, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of plaintiff Alonzo Machuca and against the defendant heirs of the late Francisco Q. Laforteza, ordering the said defendants.

(a) To accept the balance of P600,000.00 as full payment of the consideration for the purchase of the house and lot located at No. 7757 Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila, covered by Transfer Certificate of Title No. (220656) 8941 of the Registry of Deeds of Rizal Paraaque, Branch; (b) To execute a registrable deed of absolute sale over the subject property in favor of the plaintiff; (c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as attorneys fees plus cost of suit. SO ORDERED. (Rollo, pp. 74-75)."[5] Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of the lower court; the dispositive portion of the Decision reads: "WHEREFORE, the questioned decision of the lower court is hereby AFFIRMED with the MODIFICATION that defendant heirs Lea Zulueta-Laforteza, Michael Z. Laforteza, Dennis Z. Laforteza and Roberto Z. Laforteza including Gonzalo Z. Laforteza, Jr. are hereby ordered to pay jointly and severally the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages. SO ORDERED."[6] Motion for Reconsideration was denied but the Decision was modified so as to absolve Gonzalo Z. Laforteza, Jr. from liability for the payment of moral damages.[7] Hence this petition wherein the petitioners raise the following issues: "I. WHETHER THE TRIAL AND APPELLATE COURTS CORRECTLY CONSTRUED THE MEMORANDUM OF AGREEMENT AS IMPOSING RECIPROCAL OBLIGATIONS. II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT RESCISSION WILL NOT LIE IN THE INSTANT CASE. III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM RAISING THE ALLEGED DEFECT IN THE SPECIAL POWER OF ATTORNEY DATED 30 OCTOBER 1989 EXECUTED BY DENNIS LAFORTEZA. IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF AGREEMENT IMPOSES RECIPROCAL OBLIGATIONS, WHETHER THE PETITIONERS MAY BE COMPELLED TO SELL THE SUBJECT PROPERTY WHEN THE RESPONDENT FAILED TO MAKE A JUDICIAL CONSIGNATION OF THE PURCHASE PRICE? V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS MAKE THEM LIABLE FOR MORAL DAMAGES?"[8] The petitioners contend that the Memorandum of Agreement is merely a lease agreement with "option to purchase". As it was merely an option, it only gave the respondent a right to purchase the subject property within a limited period without imposing upon them any obligation to purchase it. Since the respondents tender of payment was made after the lapse of the option agreement, his tender did not give rise to the perfection of a contract of sale. It is further maintained by the petitioners that the Court of Appeals erred in ruling that rescission of the contract was already out of the question. Rescission implies that a contract of sale was perfected unlike the Memorandum of Agreement in question which as previously stated is allegedly only an option contract. Petitioner adds that at most, the Memorandum of Agreement (Contract to Sell) is a mere contract to sell, as indicated in its title. The obligation of the petitioners to sell the property to the respondent was conditioned upon the issuance of a new certificate of title and the execution of the extrajudicial partition with sale and payment of the P600,000.00. This is why possession of the subject property was not delivered to the respondent as the owner of the property but only as the lessee thereof. And the failure of the respondent to pay the purchase price in full prevented the petitioners obligation to convey title from acquiring obligatory force. Petitioners also allege that assuming for the sake of argument that a contract of sale was indeed perfected, the Court of Appeals still erred in holding that respondents failure to pay the purchase price of P600,000.00 was only a "slight or casual breach".

The petitioners also claim that the Court of Appeals erred in ruling that they were not ready to comply with their obligation to execute the extrajudicial settlement. The Power of Attorney to execute a Deed of Sale made by Dennis Z. Laforteza was sufficient and necessarily included the power to execute an extrajudicial settlement. At any rate, the respondent is estopped from claiming that the petitioners were not ready to comply with their obligation for he acknowledged the petitioners ability to do so when he requested for an extension of time within which to pay the purchase price. Had he truly believed that the petitioners were not ready, he would not have needed to ask for said extension. Finally, the petitioners allege that the respondents uncorroborated testimony that third persons offered a higher price for the property is hearsay and should not be given any evidentiary weight. Thus, the order of the lower court awarding moral damages was without any legal basis. The appeal is bereft of merit. A perusal of the Memorandum Agreement shows that the transaction between the petitioners and the respondent was one of sale and lease. The terms of the agreement read: "1. For and in consideration of the sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00) payable in a manner herein below indicated, SELLER-LESSOR hereby agree to sell unto BUYER-LESSEE the property described in the first WHEREAS of this Agreement within six (6) months from the execution date hereof, or upon issuance by the Court of a new owners certificate of title and the execution of extrajudicial partition with sale of the estate of Francisco Laforteza, whichever is earlier; 2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00) shall be paid in the following manner: P30,000.00- as earnest money and as consideration for this Agreement, which amount shall be forfeited in favor of SELLER-LESSORS if the sale is not effected because of the fault or option of BUYER-LESSEE; P600,000.00- upon the issuance of the new certificate of title in the name of the late Francisco Laforteza and upon the execution of an Extrajudicial Settlement of his estate with sale in favor of BUYER-LESSEE free from lien or any encumbrances. 3. Parties reasonably estimate that the issuance of a new title in place of the lost one, as well as the execution of extrajudicial settlement of estate with sale to herein BUYER-LESSEE will be completed within six (6) months from the execution of this Agreement. It is therefore agreed that during the six months period, BUYER-LESSEE will be leasing the subject property for six months period at the monthly rate of PESOS: THREE THOUSAND FIVE HUNDRED (P3,500.00). Provided however, that if the issuance of new title and the execution of Extrajudicial Partition is completed prior to the expiration of the six months period, BUYER-LESSEE shall only be liable for rentals for the corresponding period commencing from his occupancy of the premises to the execution and completion of the Extrajudicial Settlement of the estate, provided further that if after the expiration of six (6) months, the lost title is not yet replaced and the extra judicial partition is not executed, BUYER-LESSEE shall no longer be required to pay rentals and shall continue to occupy, and use the premises until subject condition is complied by SELLER-LESSOR; 4. It is hereby agreed that within reasonable time from the execution of this Agreement and the payment by BUYERLESSEE of the amount of P30,000.00 as herein above provided, SELLER-LESSORS shall immediately file the corresponding petition for the issuance of a new title in lieu of the lost one in the proper Courts. Upon issuance by the proper Courts of the new title, the BUYER-LESSEE shall have thirty (30) days to produce the balance of P600,000.00 which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement with sale."[9] A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.[10] From that moment the parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts.[11] The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate subject matter and (3) price certain in money or its equivalent.[12]

In the case at bench, there was a perfected agreement between the petitioners and the respondent whereby the petitioners obligated themselves to transfer the ownership of and deliver the house and lot located at 7757 Sherwood St., Marcelo Green Village, Paraaque and the respondent to pay the price amounting to six hundred thousand pesos (P600,000.00). All the elements of a contract of sale were thus present. However, the balance of the purchase price was to be paid only upon the issuance of the new certificate of title in lieu of the one in the name of the late Francisco Laforteza and upon the execution of an extrajudicial settlement of his estate. Prior to the issuance of the "reconstituted" title, the respondent was already placed in possession of the house and lot as lessee thereof for six months at a monthly rate of three thousand five hundred pesos (P3,500.00). It was stipulated that should the issuance of the new title and the execution of the extrajudicial settlement be completed prior to expiration of the six-month period, the respondent would be liable only for the rentals pertaining to the period commencing from the date of the execution of the agreement up to the execution of the extrajudicial settlement. It was also expressly stipulated that if after the expiration of the six month period, the lost title was not yet replaced and the extrajudicial partition was not yet executed, the respondent would no longer be required to pay rentals and would continue to occupy and use the premises until the subject condition was complied with by the petitioners. The six-month period during which the respondent would be in possession of the property as lessee, was clearly not a period within which to exercise an option. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. An option contract is a separate and distinct contract from that which the parties may enter into upon the consummation of the option.[13] An option must be supported by consideration.[14] An option contract is governed by the second paragraph of Article 1479 of the Civil Code[15], which reads: "Article 1479. xxx An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price." In the present case, the six-month period merely delayed the demandability of the contract of sale and did not determine its perfection for after the expiration of the six-month period, there was an absolute obligation on the part of the petitioners and the respondent to comply with the terms of the sale. The parties made a "reasonable estimate" that the reconstitution of the lost title of the house and lot would take approximately six months and thus presumed that after six months, both parties would be able to comply with what was reciprocally incumbent upon them. The fact that after the expiration of the six-month period, the respondent would retain possession of the house and lot without need of paying rentals for the use therefor, clearly indicated that the parties contemplated that ownership over the property would already be transferred by that time. The issuance of the new certificate of title in the name of the late Francisco Laforteza and the execution of an extrajudicial settlement of his estate was not a condition which determined the perfection of the contract of sale. Petitioners contention that since the condition was not met, they no longer had an obligation to proceed with the sale of the house and lot is unconvincing. The petitioners fail to distinguish between a condition imposed upon the perfection of the contract and a condition imposed on the performance of an obligation. Failure to comply with the first condition results in the failure of a contract, while the failure to comply with the second condition only gives the other party the option either to refuse to proceed with the sale or to waive the condition. Thus, Art. 1545 of the Civil Code states: "Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty. Where the ownership in the things has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing."[16] In the case at bar, there was already a perfected contract. The condition was imposed only on the performance of the obligations contained therein. Considering however that the title was eventually "reconstituted" and that the petitioners admit their ability to execute the extrajudicial settlement of their fathers estate, the respondent had a right to demand fulfillment of the petitioners obligation to deliver and transfer ownership of the house and lot.

What further militates against petitioners argument that they did not enter into a contract of sale is the fact that the respondent paid thirty thousand pesos (P30,000.00) as earnest money. Earnest money is something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain.[17] Whenever earnest money is given in a contract of sale, it is considered as part of the purchase price and proof of the perfection of the contract.[18] We do not subscribe to the petitioners view that the Memorandum Agreement was a contract to sell. There is nothing contained in the Memorandum Agreement from which it can reasonably be deduced that the parties intended to enter into a contract to sell, i.e. one whereby the prospective seller would explicitly reserve 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 full payment of the price, such payment being a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation from acquiring any obligatory force.[19] There is clearly no express reservation of title made by the petitioners over the property, or any provision which would impose non-payment of the price as a condition for the contracts entering into force. Although the memorandum agreement was also denominated as a "Contract to Sell", we hold that the parties contemplated a contract of sale. A deed of sale is absolute in nature although denominated a conditional sale in the absence of a stipulation reserving title in the petitioners until full payment of the purchase price.[20] In such cases, ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof.[21] The mere fact that the obligation of the respondent to pay the balance of the purchase price was made subject to the condition that the petitioners first deliver the reconstituted title of the house and lot does not make the contract a contract to sell for such condition is not inconsistent with a contract of sale.[22] The next issue to be addressed is whether the failure of the respondent to pay the balance of the purchase price within the period allowed is fatal to his right to enforce the agreement. We rule in the negative. Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach of the contract and was a ground for rescission thereof. The extension of thirty (30) days allegedly granted to the respondent by Roberto Z. Laforteza (assisted by his counsel Attorney Romeo Gutierrez) was correctly found by the Court of Appeals to be ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as required by the Special Powers of Attorney.[23] However, the evidence reveals that after the expiration of the six-month period provided for in the contract, the petitioners were not ready to comply with what was incumbent upon them, i.e. the delivery of the reconstituted title of the house and lot. It was only on September 18, 1989 or nearly eight months after the execution of the Memorandum of Agreement when the petitioners informed the respondent that they already had a copy of the reconstituted title and demanded the payment of the balance of the purchase price. The respondent could not therefore be considered in delay for in reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready to comply in a proper manner with what was incumbent upon him.[24] Even assuming for the sake of argument that the petitioners were ready to comply with their obligation, we find that rescission of the contract will still not prosper. The rescission of a sale of an immovable property is specifically governed by Article 1592 of the New Civil Code, which reads: "In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term."[25] It is not disputed that the petitioners did not make a judicial or notarial demand for rescission. The November 20, 1989 letter of the petitioners informing the respondent of the automatic rescission of the agreement did not amount to a demand for rescission, as it was not notarized.[26] It was also made five days after the respondents attempt to make the payment of the purchase price. This offer to pay prior to the demand for rescission is sufficient to defeat the petitioners right under article 1592 of the Civil Code.[27] Besides, the Memorandum Agreement between the parties did not contain a clause expressly authorizing the automatic cancellation of the contract without court intervention in the event that the terms thereof were violated. A seller cannot unilaterally and extrajudicially rescind a contract of sale where there is no express stipulation authorizing him to extrajudicially rescind.[28] Neither was there a judicial demand for the rescission thereof. Thus, when the respondent filed his complaint for specific performance, the agreement was still in force inasmuch as the contract was not yet rescinded. At any rate, considering that the six-month period was merely an approximation of the time it would take to reconstitute the lost title and was not a

condition imposed on the perfection of the contract and considering further that the delay in payment was only thirty days which was caused by the respondents justified but mistaken belief that an extension to pay was granted to him, we agree with the Court of Appeals that the delay of one month in payment was a mere casual breach that would not entitle the respondents to rescind the contract. Rescission of a contract will not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would defeat the very object of the parties in making the agreement.[29] Petitioners insistence that the respondent should have consignated the amount is not determinative of whether respondents action for specific performance will lie. Petitioners themselves point out that the effect of consignation is to extinguish the obligation. It releases the debtor from responsibility therefor.[30] The failure of the respondent to consignate the P600,000.00 is not tantamount to a breach of the contract for by the fact of tendering payment, he was willing and able to comply with his obligation. The Court of Appeals correctly found the petitioners guilty of bad faith and awarded moral damages to the respondent. As found by the said Court, the petitioners refused to comply with their obligation for the reason that they were offered a higher price therefor and the respondent was even offered P100,000.00 by the petitioners lawyer, Attorney Gutierrez, to relinquish his rights over the property. The award of moral damages is in accordance with Article 1191[31] of the Civil Code pursuant to Article 2220 which provides that moral damages may be awarded in case of a breach of contract where the defendant acted in bad faith. The amount awarded depends on the discretion of the court based on the circumstances of each case.[32] Under the circumstances, the award given by the Court of Appeals amounting to P50,000.00 appears to us to be fair and reasonable. ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457 is AFFIRMED and the instant petition is hereby DENIED. No pronouncement as to costs. SO ORDERED. Melo, (Chairman), Panganiban, and Purisima, JJ., concur. Vitug, J., Abroad, On Official Business. SECOND DIVISION [G.R. No. 135657. January 17, 2001] JOSE V. LAGON, petitioner, vs. HOOVEN COMALCO INDUSTRIES, INC., respondent. DECISION BELLOSILLO, J.: This petition for review on certiorari seeks to set aside the Decision of the Court of Appeals of 28 April 1997 which in turn set aside the decision of the Regional Trial Court of Davao City and ordered petitioner Jose V. Lagon to pay respondent Hooven Comalco Industries, Inc. (HOOVEN) the amount of P69,329.00 with interest at twelve percent (12%) per annum computed from the filing of the complaint until fully paid, plus attorneys fees and costs,[1] as we ll as the Resolution of the appellate court denying reconsideration thereof.[2] Petitioner Jose V. Lagon is a businessman and owner of a commercial building in Tacurong, Sultan Kudarat. Respondent HOOVEN on the other hand is a domestic corporation known to be the biggest manufacturer and installer of aluminum materials in the country with branch office at E. Quirino Avenue, Davao City. Sometime in April 1981 Lagon and HOOVEN entered into two (2) contracts, both denominated Proposal, whereby for a total consideration of P104,870.00 HOOVEN agreed to sell and install various aluminum materials in Lagons commercial building in Tacurong, Sultan Kudarat.[3] Upon execution of the contracts, Lagon paid HOOVEN P48,00.00 in advance.[4] On 24 February 1987 respondent HOOVEN commenced an action for sum of money with damages and attorneys fees against petitioner Lagon before the Regional Trial Court of Davao City. HOOVEN alleged in its complaint that on different occasions, it delivered and installed several construction materials in the commercial building of Lagon pursuant to their contracts; that the total cost of the labor and materials amounted to P117,329.00 out of which P69,329.00 remained unpaid even after the completion of the project; and, despite repeated demands, Lagon failed and refused to liquidate his indebtedness. HOOVEN also prayed for attorneys fees and litigation expenses, and in

support thereof, presented its OIC, Alberto Villanueva, and its employee, Ernesto Argente, and other witnesses, as well as several documentary evidence consisting mainly of the two (2) proposals, invoices and delivery receipts. Lagon, in his answer, denied liability and averred that HOOVEN was the party guilty of breach of contract by failing to deliver and install some of the materials specified in the proposals; that as a consequence he was compelled to procure the undelivered materials from other sources; that as regards the materials duly delivered and installed by HOOVEN, they were fully paid. He counterclaimed for actual, moral, exemplary, temperate and nominal damages, as well as for attorneys fees and expenses of litigation. On 9 October 1987, upon request of both parties, the trial court conducted an ocular inspection of Lagons commercial building to determine whether the items alleged in the complaint and appearing in the invoices and delivery receipts had been delivered and installed on the premises. The result of the ocular inspection was 1) with respect to the items covered by Exhibit A and submarkings that there are only seventeen (17) light diffusers, 13 in the ceiling of the ground and 4 on the mezzanine (Ocular Inspection, TSN, pp. 5 to 6); 2) on Exhibit B and submarkings, there are only twenty-three (23) light aluminum boxes, 14 aluminum boxes in the ceiling of the mezzanine and 9 on the ceiling of the ground floor (Ocular Inspection, TSN, p. 7); 3) on Exhibit C -1, the items are missing in the area where they were supposed to be installed; 4) on Exhibit C -2, admitted by defendant Lagon when he stated that I will admit that these were installed by the plaintiff but I do not know exactly the materials, but I really accept that these were installed sometime in 1981, before the occupation of the DBP. But I have paid that already in 1981. I could not identify the materials delivered in 1981 because I do not know the exact names of those materials. (Ocular Inspection, TSN, p. 12); 5) on Exhibit C-2, the glasses are not tinted but plain white; on Exhibit C-3, the materials cannot be formed (sic) in the place where they are supposed to be (Ocular Inspection, TSN, p.7); 6) Exhibit D and D-1, that the materials were supplied by plaintiff but they did not install them. It was the defendant who caused the installation thereof (Ocular Inspection, TSN, p. 13.); and 7) Exhibit E-1, as NU- Main and Cross-Runners and supplied by plaintiff but plaintiff did not install. They had it installed (Ocular Inspection, TSN, p. 14). In due course the trial court rendered a decision partly on the basis of the result of the ocular inspection finding that the total actual deliveries and installations made by HOOVEN cost P87,140.00. Deducting therefrom P48,000.00 which Lagon paid in advance upon execution of their contracts with no further payments appearing to have been made thereafter, only P39,140.00 remained unpaid and where Lagon incurred in delay. The trial court also awarded HOOVEN P3,255.00 as attorneys fees, but sustained Lagons counterclaims and awarded him P26,120.00 as actual damages representing the value of the undelivered and uninstalled materials, and P30,000.00 as attorneys fees in addition to litigation expenses of P45,534.50. According to the court a quo[5] As a result of the partial breach of contract on plaintiff's (Hooven Comalco) part, the defendant is entitled to actual damages only to the extent of the undelivered materials and undone labor or to the amount of P26,120.00. This P26,120.00 will be partially offsetted (sic) to the P39,140.00 unpaid balance of the defendant (Lagon), so that the difference that remain (sic) payable to plaintiff is P13,020.00. Evidence is insufficient to show that bad faith existed in the filing of the instant complaint for collection against the defendant. Plaintiff's obstinate conduct in prosecuting its claim spending for litigation expenses and for its lawyers negate the existence of bad faith. The fact alone that the findings of fact show an unpaid account of the defendant is proof that the complaint is not completely unfounded though evidence shows also that plaintiff is guilty of partial breach of contract by reason of failure to completely deliver and install the materials defendant ordered pursuant to the contract so that plaintiff is liable for damages. As plaintiff acted in good faith in the filing of the instant complaint in the belief that it has a valid cause of action against the defendant to enforce its claim, engaging a lawyer to prosecute it, plaintiff is entitled to a reasonable attorneys fees equivalent to 25% of the collectible amount of P13,020.00 or the amount of P3,225.00. Defendant's claim of attorneys fees in the amount of P152,629.15 is in the opinion of the court clearly unreasonable and unconscionable considering the nature of the action and the amount involved. The court has the power to reduce it to render it reasonable and conscionable whether the contract for attorney's fees is written or oral. The attorneys fees is fixed at P30,000.00. The defendant presented evidence of litigation expenses incurred in the course of the trial for plane fare of its lawyer in coming to Davao City from Manila from 1987 up to July 1990 in the total amount of P34,730.50 as evidenced by Exhibit 11 to 11-E. The records show that the defendants counsel came to Davao City from Manila to attend eleven (11) hearings of the case and the plane fare from 1987 up to August, 1989 is P2,524.50 and from August 1989 to June 1990 is P3,007.50. Hotel expenses of defendants counsel at the Maguindanao Hotel where he was billeted everytime he came to Davao City to attend the trial amounted to P11,824.00 as evidenced by Exhibit 17, the certification issued by the said hotel management. So that the total amount of the actual damage suffered by defendant is P45,534.50. Said amount of P45,534.50 is partially offsetted (sic) by the amount of

P13,020.00 representing the unpaid obligation of the defendant to the plaintiff so that the plaintiff is still liable to pay the defendant the difference in the amount of P32,514.50. Both parties appealed to the Court of Appeals. In its Decision of 28 April 1997, the appellate court set aside the judgment of the trial court and resolved the case in favor of HOOVEN. It held that the trial court erred in relying solely on the results of the ocular inspection since the delivery and installation of the materials in question started as early as 1981, while the ocular inspection was conducted only in 1987 or six (6) years later, after the entire mezzanine was altered and the whole building renovated. The appellate court also stressed that the testimonies of HOOVEN's witnesses were straightforward, categorical and supported by documentary evidence of the disputed transactions, and that all Lagon could offer was a mere denial, uncorroborated and self-serving statements regarding his transactions with HOOVEN. The decretal portion of the assailed decision of the Court of Appeals reads ACCORDINGLY, finding the decision of August 26, 1991 appealed from afflicted by reversible errors, the same is hereby SET ASIDE, and a new one entered ordering the defendant-appellant (Lagon) to pay plaintiff-appellant (Hooven Comalco): The amount of P69,329.00 plus interest of 12% per annum computed from the date of the filing of the complaint, until fully paid. Fifteen percent (15%) of the amount due, as and by way of attorneys fees. Defendant-appellant to pay costs. Petitioner's motion for reconsideration having been denied he now hopes to secure relief from this Court by contending that: (a) The Court of Appeals erred in holding that the trial court could not rely on the results of the ocular inspection conducted on his commercial building in Tacurong, Sultan Kudarat; and, (b) The assailed decision of the appellate court is based on speculations and contrary to the evidence adduced during the trial. The arguments in the petition ultimately boil down to the sole issue of whether all the materials specified in the contracts had been delivered and installed by respondent in petitioners commercial building in Tacurong, Sultan Kudarat. The question is basically factual involving as it does an evaluation of the conflicting evidence presented by the contending parties, including the existence and relevance of specific surrounding circumstances, to determine the truth or falsity of alleged facts. While factual issues are not within the province of this Court, as it is not a trier of facts and is not required to examine or contrast the oral and documentary evidence de novo,[6] nevertheless, the Court has the authority to review and, in proper cases, reverse the factual findings of lower courts in these instances: (a) when the findings of fact of the trial court are in conflict with those of the appellate court; (b) when the judgment of the appellate court is based on misapprehension of facts; and, (c) when the appellate court manifestly overlooked certain relevant facts which, if properly considered, would justify a different conclusion.[7] This case falls squarely within the foregoing exceptions. Before delving into the merits of this case, we find it necessary to describe and detail the nature and contents of the vital documentary exhibits upon which respondent HOOVEN based its claims, thus Exhibit F - Undated Proposal: I. For the supply of materials and installation of suspended aluminum ceiling runners: Area: 2,290 sq. ft. Materials: NU- Main & Cross runners NU-5 Perimeter mouldings G.I. wire hangers Aluminum straps stiffeners Blind Rivets and Screws P14,110.00

Labor charge

4,230.00 18,440.00

II. One (1) set: 65 x 68 YP aluminum cladding

1,150.00 P19,590.00

Delivery and Installation charge

1,860.00 P21,450.00

Exhibit F-1 Proposal dated 3 April 1981 Hooven Aluminum Casement Windows Anolok Finish Manually Operated, with 6.0 mm Bronzepane Tinted Glass Five (5) sets: 65 One (1) set: 65 x 126-1/2 (w/ transom) x 126-1/2 (w/ AC provision) -do-do-do-

Two (2) sets: 39-1/2 x 125-1/2 One (1) set: One (1) set: One (1) set: One (1) set: 39-1/2 x 39-1/2 x 65 65 x x 87 223

57-1/2 (w/ transom) 4 -do-

Hooven Aluminum Entrances and Fixed Windows Anolok Finish, with 6.0 mm Bronzepane Tinted Glass One (1) set: 100-1/2 x 76-1/2, double sash, double acting swing door, with transom. Two (2) sets: 80 x 278, fixed panels 21,740.00

Hooven Aluminum Sliding Windows Fabricated From SD-Sections, Anolok Finish, with 6.0 mm Bronzepane Tinted Glass One (1) set: One (1) set: 75,920.00 Add: Delivery and Installation charge 7,500.00 P83,420.00 Exhibit A Invoice No. 11094 dated 29 December 1982 Eighty Six (86) Pieces, 2.0 mm Hishilite Diffusers Exhibit B Invoice No. 11095 dated 29 December 1982 Forty-Three Pieces: For the Supply and Installation of Light Boxes Fabricated from GA. 032 Aluminum Plain Sheet Delivery and Installers subsistence P5,718.50 P3,440.00 54 x 191 45 x 302 11,650.00

Exhibit C Invoice No. 14349 dated 29 December 1984 Five (5) sets 1.651m 3.213m Hooven Aluminum Casement windows, Anolok finish, manually operated with 6.0 Bronzepane tinted glass. One (1) set 1.651 m 3.367m Two (2) sets 1.00 m 3.188m One (1) set One (1) set One (1) set One (1) set One (1) set 1.00 m 2.210 m 1.00 m 5.664 m - do - with a/c provision - do - do - do - do - do - do - do - with transom with transom - do -

1.651m 1.461 m - do 1.651m 1.880 m - do 1.651m 1.524 m - do -

One (1) set 2.553m 1.943 m pane tinted glass. Two (2) sets 2.032m 7.061 m One (1) set .737 m 7.061 m

Hooven aluminum double sash, double acting swing door, with transom, with 6.0 mm Bronze-

Fixed windows, Anolok finish. Aluminum tubulars with aluminum YP-100 cladding, Anolok finish.

One (1) set 1.143m 4.851m Hooven aluminum sliding windows fabricated from SD sections, Anolok finish, with 6.0 mm Bronzepane tinted glass, with 1.88 m tubular posts. One (1) set 1.143m 7.671m - do 4% tax P75,291.83 3,011.67 78,303.50 Delivery & Subs. 7,500.00 P85,803.50 Exhibit D Invoice No. 14265 dated 29 September 1984 For the supply P5,310.00 of materials and installation of aluminum stucco embossed sheet on spiral staircase

Exhibit E Invoice No. 14264 dated 29 November 1984 For the supply of materials and installation of suspended aluminum ceiling system. Materials: NU-4 main and cross runners NU-5 perimeter mouldings GI wire hangers Alum strap stiffeners Blind rivets and screws P17,057.00

Exhibit A-1 Delivery Receipt dated 9 June 1981 Twenty (20) pieces Light boxes fabricated from aluminum sheets Forty (40) pieces 2.0 mm x 24 x 24 Hishilite Diffusers Lump sum cost including discount and Delivery and

Installer Subsistence P4,340.00 Exhibit A-2 Delivery Receipt dated 8 August 1981 Twenty (20) pieces Light boxes fabricated from .032 aluminum plain sheet Twenty Seven (27) 2.0 mm x 24 x 24 Hishilite Diffusers Add: Delivery & Installers Subsistence P180.00

Exhibit A-3 Delivery Receipt, dated 8 December 1981 19 pcs. 2.0 mm x 2 x2 Hishilite Diffusers Exhibit B-1 Delivery Receipt dated 25 June 1981 Additional three (3) pcs. Light boxes fabricated from .032 Aluminum sheets P140.00 Exhibit C-1 Delivery Receipt dated 25 August 1983 To change alum tubular frames for sliding windows (item 10 & 11) from 45 L x to 94 x 74. To change width of one (1) set: item 1 from 126-1/2 to 132-1/2. To add: one (1) set 65H x 60 aluminum casement windows with 6.0 mm tinted glass. To extend alum tubulars of fixed windows on 2nd floor by 29L and installation of YP -aluminum cladding P8,640.00 Exhibit C-2 Delivery Receipt dated 25 August 1983 Hooven Alum Casement Windows Anolok Finish Manually Operated with 6.0 mm Bronzepane Tinted Glass: Five (5) sets: 65 One (1) set: 65 x 126-1/2 with transom x 126-1/2 with AC provision - do - do - do with transom - do P42,530.00 Hooven Alum Entrances & Fixed Windows Anolok Finish with 6.0 mm Bronzepane Tinted Glass: One (1) set: 100-1/2 x 76-1/2, double sash, double acting swing door, with transom Two (2) sets: 80 x 278 fixed panels Exhibit C-3 Delivery Receipt dated 25 August 1983 Hoven Alum Sliding Windows Fabricated from SD Sections Anolok Finish with 6.0 mm Bronzepane Tinted Glass: One (1) set: 45 x 191 P21,740.00 P40.00

Two (2) sets: 39-1/2 x 125-1/2 One (1) set: One (1) set: One (1) set: One (1) set: 39-1/2 x 87 39-1/2 x 223 65 65 x 57-1/2 x 74

One (1) set: 45 x 302 Add: Delivery and Installation Less: 7% Discount

P11,650.00 7,500.00 6,256.50 P77,163.50

Exhibit D-1 Delivery Receipt dated 25 August 1983 For the supply of materials and installation of aluminum stucco embossed sheet on spiral staircase: One (1) set 32 H x 304 WL P5,310.00 Exhibit E-1 Delivery Receipt dated 25 August 1983 NU- main and cross runners NU-5 Perimeter mouldings G.I. Wire Hangers Aluminum straps stiffeners Blind rivets and screws P17,057.00

We have carefully and diligently considered the foregoing exhibits and we are fully convinced that the mass of documentary evidence adduced by respondent suffers from patent irregularities and material inconsistencies on their faces, raising serious questions requiring cogent explanations. These flaws inevitably deplete the weight of its evidence, with the result that for lack of the requisite quantum of evidence, respondent dismally failed in the lower court to discharge its burden necessary to prevail in this case. Firstly, the quantity of materials and the amounts stated in the delivery receipts do not tally with those in the invoices covering them, notwithstanding that, according to HOOVEN OIC Alberto Villanueva, the invoices were based merely on the delivery receipts.[8] For instance, only eleven (11) items were listed in Exhs. "C-2" and "C-3" with a total worth of P77,163.50. But in Exh. "C," which was the invoice for Exhs. "C-2" and "C-3," there were thirteen (13) items enumerated for a total worth of P85,803.50. If Exh. "C" is supposed to be based on Exhs. "C-2" and "C-3," we cannot understand the apparent discrepancy in the items listed in those documents when they all referred to the same materials. Secondly, the total value of the materials as reflected in all the invoices is P117,329.00 while under the delivery receipts it is only P112,870.50, or a difference of P4,458.00. Moreover, the materials listed in the two (2) Proposals, upon which HOOVEN based its claims, is only for the total sum of P104,870.00. Curiously then, why would the materials supposedly delivered by HOOVEN be more than what was contracted and purchased by Lagon? This circumstance underscores the need to reexamine the strength, if not weakness, of respondents cause. Thirdly, under the Proposals HOOVEN bound itself to invoice the materials "when complete and ready for shipment." Oddly, the records show that the invoices were prepared several years after the materials were allegedly delivered and installed completely on petitioners building. Alberto Villanueva testified that their project with petitioner was completed sometime in August 1981 and that thereafter no further installation was done in the building.[9] But the disputed invoices marked Exhs. "A" and "B" were prepared only on 29 December 1982; Exhs. "C" and "D" were prepared only on 29 December 1984; and, Exh. "E" was prepared only on 29 November 1984. As for the delivery receipts, Exhs. "C-1," "C-2," "C-3" and "E-1" were prepared only on 25 August 1983 or two (2) years after the completion of the project, while Exh. "A-3" was prepared only on 8 December 1981 or some four (4) months after the date of completion. Even more strange is the fact that HOOVEN instituted the present action for collection of sum of money against Lagon only on 24 February 1987, or more than five (5) years after the supposed completion of the project. Indeed, it is contrary to common experience that a creditor would take its own sweet time in collecting its credit, more so in this case when the amount involved is not miniscule but substantial.

Fourthly, the demand letter of 25 August 1983[10] sent to petitioner by respondent further betrays the falsity of its claims Dear Mr. Lagon: The bearer, Mr. Fermin Piero, is an authorized representative of this company. He will arrange for your acceptance of the complete aluminum and glass installation we have undertaken for your building. He has with him the delivery receipts for your signature so with a statement of account showing your balance. Kindly favor us with a partial payment to cover our operation costs. Also kindly relay to him all other installations you wish us to undertake. Hoping for your favorable action, we shall remain. Very Truly Yours, Hooven Comalco Industries, Inc. Davao Branch (Sgd.) Alberto P. Villanueva If, as claimed by HOOVEN, all the materials were completely delivered and installed in petitioners building as ear ly as August 1981, why then would it demand partial payment only two (2) years later? This circumstance is very significant especially considering that under the Proposals the terms of payment should be 50% down "and the balance to be paid in full" upon completion. Moreover, it is surprising that the partial payment demanded was only "to cover operation costs." As correctly observed by petitioner, demand for payment of operation costs is typical of a still on-going project where the contractor needs funds to defray his expenses. If there was complete installation, why would respondent demand payment for operation costs only? Why not enforce the whole amount of indebtedness? All these clearly suggest that there was no full and complete delivery and installation of materials ordered by petitioner. Fifthly, all the delivery receipts did not appear to have been signed by petitioner or his duly authorized representative acknowledging receipt of the materials listed therein. A closer examination of the receipts clearly showed that the deliveries were made to a certain Jose Rubin, claimed to be petitioners driver, Armando Lagon, and a certain bookkeeper. Unfortunately for HOOVEN, the identities of these persons were never been established, and there is no way of determining now whether they were indeed authorized representatives of petitioner. Paragraph 3 of each Proposal is explicit on this point 3. x x x the sellers responsibility ends with delivery of the merchandise to carrier in good condition, to b uyer, or to buyers authorized "Receiver/Depository" named on the face of this proposal (underscoring supplied). As above specifically stated, deliveries must be made to the buyer or his duly authorized representative named in the contracts. In other words, unless the buyer specifically designated someone to receive the delivery of materials and his name is written on the Proposals opposite the words "Authorized Receiver/Depository," the seller is under obligation to deliver to the buyer only and to no other person; otherwise, the delivery would be invalid and the seller would not be discharged from liability. In the present case, petitioner did not name any person in the Proposals who would receive the deliveries in his behalf, which meant that HOOVEN was bound to deliver exclusively to petitioner. Sixthly, it is also obvious from the contested delivery receipts that some important details were not supplied or were left in blank, i.e., truck numbers, persons who delivered the materials, invoice and s. o. numbers. The persons who delivered the materials were potential witnesses who could shed light on the circumstances surrounding the alleged deliveries of the materials to petitioner. Moreover, it could have been easier for HOOVEN to pinpoint responsibility to any of its employees for the non-delivery of the materials. We are not unaware of the slipshod manner of preparing receipts, order slips and invoices, which unfortunately has become a common business practice of traders and businessmen. In most cases, these commercial forms are not always fully accomplished to contain all the necessary information describing the whole business transaction. The sales clerks merely indicate a description and the price of each item sold without bothering to fill up all the available spaces in the particular receipt or invoice, and without proper regard for any legal repercussion for such neglect.

Certainly, it would not hurt if businessmen and traders would strive to make the receipts and invoices they issue complete, as far as practicable, in material particulars. These documents are not mere scraps of paper bereft of probative value but vital pieces of evidence of commercial transactions. They are written memorials of the details of the consummation of contracts. Given this pathetic state of respondent's evidence, how could it be said that respondent had satisfactorily proved its case? Essentially, respondent has the burden of establishing its affirmative allegations of complete delivery and installation of the materials, and petitioners failure to pay therefor. In this regard, its evidence on its discharge of that duty is grossly anemic. We emphasize that litigations cannot be properly resolved by suppositions, deductions, or even presumptions, with no basis in evidence, for the truth must have to be determined by the hard rules of admissibility and proof. The Court of Appeals however faulted the trial court for supposedly relying solely on the results of the ocular inspection on the premises, which were not conclusive since the inspection was conducted several years after the disputed materials were allegedly installed therein. We disagree. The ocular inspection was made by the judge himself, at the request of both petitioner and respondent, for the exclusive purpose of determining whether the materials subject of this case were actually delivered and installed. There is therefore no basis to give little evidentiary value on the results of the ocular inspection, as the Court of Appeals would, and charge the trial court with error for relying thereon. It is now rather late for any of the parties to disclaim them, especially when they are not in his or its favor. Furthermore, a cursory reading of the decision of the court a quo will at once show that it was not premised solely on the results of the ocular inspection but was likewise predicated on other evidence presented by the parties and well-considered facts and circumstances discussed by the trial court in its ratio decidendi. We cannot ignore the factual findings of the trial court, which must carry great weight in the evaluation of evidentiary facts, and in the absence of any indication showing grave error committed by trial court, the appellate court is bound to respect such findings of fact. We hasten to add however that petitioner is not entirely free from any liability to respondent. Petitioner admitted the delivery of materials under Exhs. "A" and its submarkings, "B" and its submarkings, "D," "D-1" and "E." With respect to Exh. "C-2," petitioner acknowledged his obligation under the first heading, Items Nos. 3, 4 and 5, and the second heading, and denied the rest. Consequently, he should be made liable therefor in the total amount of P58,786.65. From this amount, petitioners down payment of P48,000.00 should be deducted. It is insisted by petitioner in his appeal brief filed before the Court of Appeals that the second item under the second heading of Exh. "C-2" should be excluded in the computation since he never admitted liability therefor. We are not persuaded. The transcript of stenographic notes shows that during the ocular inspection counsel for respondent manifested in effect that petitioner admitted the delivery and installation of the second item in his building, and petitioner did not interpose any objection to respondent's manifestation ATTY. QUIONES: We would like to make of record that defendant (Lagon) admits that plaintiff (Hooven Comalco) delivered and installed Item No. 1 under the second column of Exhibit C-2 which is the front door of the ground floor. ATTY. RICO: Defendant however adds that these were installed in 1981 and had already paid for the said item. ATTY. QUIONES: I would like to make of record also that defendant admits the delivery and installation of Item No. 2 under the second column of Exhibit C-2 as having been delivered and installed by the plaintiff in 1981 with the qualification, however, that he had already paid the same. COURT: Are you stating that all these installed items on the ground floor were all paid by you? MR. LAGON: Yes, Your Honor.[11] Petitioner cannot now be heard to complain against its inclusion in the computation of his liability since his silence virtually amounted to acquiescence. The silence of one of the contracting parties and his failure to protest against the claims of the other party, when he is chargeable with the duty to do so, strongly suggest an admission of the veracity and validity of the other partys claims.

In sum, petitioners total liability to respondent may be computed as follows:


(1) Items under Exh. A, consisting of 17 light diffusers at P40.00 each (2) Items under Exh. B, consisting of 23 light boxes at P40.00 each (3) Third, fourth and fifth items under the first heading of Exh. "C-2" which on the basis of their measurements constitute only 1/3 of the total costs of materials listed therein (4) Items under the second heading of Exh. C-2 (5) Items under Exhs. D and D-1 (6) Items under Exh. E-1 21,740.00 4,860.00 14,110.00 P58,786.65 Less: Stipulated 7% discount 4,408.99 P54,377.66 Less: Advance payment made by petitioner to Hooven Comalco Unpaid Balance of petitioner 48,000.00 P6,377.66 14,176.65 3,220.00 P 680.00

Notwithstanding the breach of contract by respondent in failing to deliver and install in the premises of petitioner all the stipulated materials, we nevertheless accede to the right of respondent to recover the unpaid balance from petitioner for the materials actually delivered. The next point of inquiry is the propriety of awarding damages, attorneys fees and litigation expenses. We are not in accord with the trial courts ruling that petitioner is entitled to actual damages to the extent of the undelivered materials and undone labor in the amount of P26,120.00. There is no proof that petitioner already paid for the value of the undelivered and uninstalled materials to respondent. Therefore, petitioner may not be deemed to have suffered any such damage. We have declared in no uncertain terms that actual or compensatory damages cannot be presumed but must be proved with reasonable degree of certainty.[12] A court cannot rely on speculations, conjectures or guesswork as to the fact of damage but must depend upon competent proof that they have indeed been suffered by the injured party and on the basis of the best evidence obtainable as to the actual amount thereof.[13] It must point out specific facts that could provide the gauge for measuring whatever compensatory or actual damages were borne. But we agree with petitioner that he is entitled to moral damages. HOOVEN's bad faith lies not so much on its breach of contract - as there was no showing that its failure to comply with its part of the bargain was motivated by ill will or done with fraudulent intent - but rather on its appalling temerity to sue petitioner for payment of an alleged unpaid balance of the purchase price notwithstanding knowledge of its failure to make complete delivery and installation of all the materials under their contracts. It is immaterial that, after the trial, petitioner was found to be liable to respondent to the extent of P6,377.66. Petitioner's right to withhold full payment of the purchase price prior to the delivery and installation of all the merchandise cannot be denied since under the contracts the balance of the purchase price became due and demandable only upon the completion of the project. Consequently, the resulting

social humiliation and damage to petitioner's reputation as a respected businessman in the community, occasioned by the filing of this suit provide sufficient grounds for the award of P50,000.00 as moral damages. Moreover, considering the fact that petitioner was drawn into this litigation by respondent and was compelled to hire an attorney to protect and defend his interest, and taking into account the work done by said attorney throughout the proceedings, as reflected in the record, we deem it just and equitable to award attorney's fees for petitioner in the amount of P30,000.00.[14] In addition, we agree with the trial court that petitioner is entitled to recover P46,554.50 as actual damages including litigation expenses as this amount is sufficiently supported by the evidence.[15] WHEREFORE, the assailed Decision of the Court of Appeals dated 28 April 1997 is MODIFIED. Petitioner Jose V. Lagon is ordered to pay respondent Hooven Comalco Industries, Inc., P6,377.66 representing the value of the unpaid materials admittedly delivered to him. On the other hand, respondent is ordered to pay petitioner P50,000.00 as moral damages, P30,000.00 as attorney's fees and P46,554.50 as actual damages and litigation expenses. SO ORDERED. Mendoza, Quisumbing, Buena and DeLeon Jr., JJ., concur.