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G.R. No. L-11668 April 1, 1918 In witness of my entire conformity with the foregoing, I hereunto affix my
ANTONIO ENRIQUEZ DE LA CAVADA, plaintiff-appellee, signature, in Manila, P. I., this 15th day of November, 1912.
vs. (Sgd.) Antonio Diaz.
ANTONIO DIAZ, defendant-appellant. Signed in the presence of:
Ramon Diokno for appellant. (Sgd.) J. VALDS DIAZ.
Alfredo Chicote and Jose Arnaiz for appellee. (EXHIBIT B.)
JOHNSON, J.: P. I., November 15, 1912.
This action was instituted by the plaintiff for the purpose of requiring the defendant to
comply with a certain "contract of option" to purchase a certain piece or parcel of land Sr. Don ANTONIO DIAZ,
described in said contract and for damages for a noncompliance with said contract. After Calle Victoria, No. 125, W. C., Manila, P. I.
the close of the trial the Honorable James A. Ostrand, judge, rendered a judgment the DEAR SIR: I have the honor to inform you that, in conformity with the letter of
dispositive part of which is as follows: option in my favor of even date, I will buy your coconut plantation in Pitogo,
Wherefore, it is hereby ordered and adjudged that the defendant, within the containing one hundred hectares, together with all the coconut and nipa-palm
period of thirty days from the date upon which this decision becomes final, trees planted thereon, under the following conditions:
convey to the plaintiff a good and sufficient title in fee simple to the land 1. I shall send a surveyor to survey the said property, and to apply to the
described in decrees Nos. 13909 and 13919 of the Court of Land Registration, Government for a Torrens title therefore, and, if the expenses incurred for the
upon payment or legal tender of payment by said plaintiff of the sum of thirty same should not exceed P1,000, I shall pay the P500 and you the other
thousand pesos (P30,000) in cash, and upon said plaintiff giving security P500; Provided, however, that you shall give the surveyor all necessary
approved by this court for the payment within the term of 6 years from the date assistance during his stay at the hacienda.
of the conveyance for the additional sum of forty thousand pesos (P40,000) with 2. I shall pay the purchase price to you in conformity with our letter of option of
interest at the rate of 6 per cent per annum. this date, and after the Torrens title shall have been officially approved.
It is further ordered and adjudged that in the event of the failure of the defendant Yours respectfully,
to execute the conveyance as aforesaid, the plaintiff have and recover judgment (Sgd.) A. ENRIQUEZ
against him, the said defendant, for the sum of twenty thousand pesos I acknowledge receipt of, and conform with, the foregoing.
(P20,000), with interest at the rate of six per cent (6 per cent per annum from (Sgd.) ANTONIO DIAZ
the date upon which the conveyance should have been made). It is so ordered. It appears from the record that soon after the execution of said contract, and in part
From that judgment the defendant appealed and made several assignment of error. compliance with the terms thereof, the defendant presented two petitions in the Court of
It appears from the record that on the 15th day of November, 1912, the defendant and Land Registration (Nos. 13909 and 13919), each for the purpose of obtaining the
the plaintiff entered into the following "contract of option:" registration of a part of the "Hacienda de Pitogo." Said petitions were granted, and each
(EXHIBIT A.) parcel as registered and a certificate of title was issued for each part under the Torrens
CONTRACT OF OPTION. system to the defendant herein. Later, and pretending to comply with the terms of said
I, the undersigned, Antonio Diaz, of legal age, with personal registration contract, the defendant offered to transfer to the plaintiff one of said parcels only, which
certificate Number F-855949, issued at Pitogo, Tayabas, January 16, 1912, and was a part of said "hacienda." The plaintiff refused to accept said certificate for a part
temporarily residing in Manila, P. I., do hereby grant an option to Antonio only of said "hacienda" upon the ground (a) that it was only a part of the "Hacienda de
Enriquez to purchase my hacienda at Pitogo consisting of 100 and odd Pitogo," and (b) under the contract (Exhibits A and B) he was entitled to a transfer to him
hectares, within the period necessary for the approval and issuance of a all said "hacienda."
Torrens title thereto by the Government for which he may pay me either the sum The theory of the defendant is that the contract of sale of said "Hacienda de Pitogo"
of thirty thousand pesos (P30,000), Philippine currency, in cash, or within the included only 100 hectares, more or less, of said "hacienda," and that by offering to
period of six (6) years, beginning with the date of the purchase, the sum of forty convey to the plaintiff a portion of said "hacienda" composed of "100 hectares, more or
thousand pesos (P40,000), Philippine currency, at six per cent interest per less," he thereby complied with the terms of the contract. The theory of the plaintiff is that
annum, with due security for the payment of the said P40,000 in consideration he had purchased all of said "hacienda," and that the same contained, at least, 100
of the sale to him of my property described as follows, to wit: hectares, more or less. The lower court sustained the contention of the plaintiff, to wit,
About one hundred hectares of land in Pitogo, Tayabas, containing about that the sale was a sale of the "Hacienda de Pitogo" and not a sale of a part of it, and
20,000 coconut trees and 10,000 nipa-palm trees, all belonging to me, which I rendered a judgment requiring the defendant to comply with the terms of the contract by
hereby sell to Antonio Enriquez de la Cavada for seventy thousand pesos, transferring to the plaintiff, by proper deeds of conveyance, all said "hacienda," or to pay
under the conditions herein specified. in lieu thereof the sum of P20,000 damages, together with 6 per cent interest from the
I declare that Antonio Enriquez is the sole person who has, and shall have, date upon which said conveyance should have been made.
during the period of this option, the right to purchase the property above- After issue had been joined between the plaintiff and defendant upon their pleadings,
mentioned. they entered into the following agreement with reference to the method of presenting
I likewise declare that Antonio Enriquez shall be free to resell the said property their proof:
at whatever price he may desire, provided that he should comply with the The attorneys for the parties in this case make the following stipulations:
stipulations covenanted with me.
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1. Each of the litigating parties shall present his evidence before Don Felipe the defendant himself made said contract an integral part of his pleadings. The defendant
Canillas, assistant clerk of the Court of First Instance of Manila, who, for such admitted the execution and delivery of the contract, and alleged that he made an effort to
purpose, should be appointed commissioner. comply with its terms. His only defense is that he sold to the plaintiff a part of the
2. Said commissioner shall set a day and hour for the presentation of the "hacienda" only and that he offered, in compliance with the terms of the contract, to
evidence above-mentioned, both oral and documentary, and in the stenographic convey to the plaintiff all of the land which he had promised to sell.
notes shall have record entered of all objections made to the evidence by either With reference to the second objection, to wit, that there was no consideration for said
party, in order that they may afterwards be decided by the court. contract it may be said (a) that the contract was for the sale of a definite parcel of land;
3. The transcription of the stenographic notes, containing the record of the (b) that it was reduced to writing; (c) that the defendant promised to convey to the plaintiff
evidence taken, shall be paid for in equal shares by both parties. said parcel of land; (d) that the plaintiff promised to pay therefor the sum of P70,000 in
4. At the close of the taking of the evidence, each of the parties shall file his the manner prescribed in said contract; (e) that the defendant admitted the execution and
brief in respect to such evidence, whereupon the case as it then stands shall be delivery of the contract and alleged that he made an effort to comply with the same (par.
submitted to the decision of the court. 3 of defendant's answer) and requested the plaintiff to comply with his part of the
The parties request the court to approve this agreement in the part thereof contract; and (f) that no defense or pretension was made in the lower court that there
which refers to the proceedings in this case. was no consideration for his contract. Having admitted the execution and delivery of the
Manila, P. I., December 21, 1914. contract, having admitted an attempt to comply with its terms, and having failed in the
(Sgd.) ANTONIO V. HERRERO. (Sgd.) ALFREDO court below to raise any question whatsoever concerning the inadequacy of
CHICOTE. consideration, it is rather late, in the face of said admissions, to raise that question for the
first time in this court. The only dispute between the parties in the lower court was
Approved: whether or not the defendant was obliged to convey to the plaintiff all of said "hacienda."
(Sgd.) GEO. R. HARVEY, The plaintiff insisted that his contract entitled him to a conveyance of all of said
Judge. "hacienda." The defendant contended that he had complied with the terms of his contract
Said agreement was approved by the lower court, and proof was taken in accordance by offering to convey to the plaintiff a part of the said "hacienda" only. That was the only
therewith. The defendant-appellant now alleges, giving several reasons therefor, that the question presented to the lower court and that was the only question decided.
proof was improperly practiced, and that the judge was without authority o decide the A promise made by one party, if made in accordance with the forms required by the law,
cause upon proof taken in the manner agreed upon by the respective parties. The may be a good consideration (causa) for a promise made by another party. (Art. 1274,
defendant-appellant makes no contention that he was not permitted to present all the Civil Code.) In other words, the consideration (causa) need not pass from one to the
proof he desired to present. He makes no contention that he has been prejudiced in any other at the time the contract is entered into. For example, A promises to sell a certain
manner whatsoever by virtue of the method agreed upon for taking the testimony. parcel of land to B for the sum of P70,000. A, by virtue of the promise of B to pay
There is nothing in the law nor in public policy which prohibits the parties in a civil P70,000, promises to sell said parcel of land to B for said sum, then the contract is
litigation from making the agreement above quoted. While the law concedes to parties complete, provided they have complied with the forms required by the law. The
litigant, generally, the right to have their proof taken in the presence of the judge, such consideration need not be paid at the time of the promise. The one promise is a
right is a renounceable one. In a civil action the parties litigant have a right to agree, consideration for the other. Of course, A cannot enforce a compliance with the contract
outside of the court, upon the facts in litigation. Under certain conditions the parties and require B to pay said sum until he has complied with his part of the contract. In the
litigant have a right to take the depositions of witnesses and submit the sworn statements present case, the defendant promised to convey the land in question to the plaintiff as
in that form to the court. The proof, as it was submitted to the court in the present case, soon as the same could be registered. The plaintiff promised to pay to the defendant
by virtue of said agreement, was, in effect, in the form of a deposition of the various P70,000 therefor in accordance with the terms of their contract. The plaintiff stood ready
witnesses presented. Having agreed to the method of taking the proof, and the same to comply with his part of the contract. The defendant, even though he had obtained a
having been taking in compliance with said agreement, it is now too late, there being no registered title to said parcel of land, refused to comply with his promise. All of the
law to the contrary, for them to deny and repudiate the effect of their agreement. (Biunas conditions of the contract on the part of the defendant had been concluded, except
vs. Mora, R. G. No. 11464, March 11, 1918; Behr vs. Levy Hermanos, R. G. No 12211, delivering the deeds of transfer. Of course, if the defendant had been unable to obtain a
March 19, 1918.1) registration of his title, or if he had violated the terms of the alleged optional contract by
Not only is there no law prohibiting the parties from entering into an agreement to submit selling the same to some other person than the plaintiff, then he might have raised the
their proof to the court in civil actions as was done in the present case, but it may be a objection that he had received nothing from the plaintiff for the option which he had
method highly convenient, not only to the parties, but to busy courts. The judgment of the conceded. That condition, of course, would have presented a different question from the
lower court, therefore, should not be modified or reversed on account of the first one which we have before us. The said contract (Exhibits A and B) was not, in fact, an
assignment of error. "optional contract" as that phrase is generally used. Reading the said contract from its
In the second assignment of error, the appellant alleges (a) that the lower court four corners it is clearly as absolute promise to sell a definite parcel of land for a fixed
committed an error in declaring the contract (Exhibits A and B) a valid obligation, for the price upon definite conditions. The defendant promised to convey to the plaintiff the land
reason that it not been admitted in evidence, and (b) that the same was null for a failure in question as soon as the same was registered under the Torrens system, and the
of consideration. Upon the first question, an examination of the proof shows that said plaintiff promised to pay to the defendant the sum of P70,000, under the conditions
contract (Exhibits A and B) was offered in evidence and admitted as proof without named, upon the happening of that event. The contract was not, in fact, what is generally
objection. Said contract was, therefore, properly presented to the court as proof. Not only known as a "contract of option." It differs very essentially from a contract of option. An
was the contract before the court by reason of its having been presented in evidence, but optional contract is a privilege existing in one person, for which he had paid a
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consideration, which gives him the right to buy, for example, certain merchandise of The appellant contends in his sixth assignment of error that the plaintiff had not suffered
certain specified property, from another person, if he chooses, at any time within the the damages complained of, to wit, in the sum of P20,000. The only proof upon the
agreed period, at a fixed price. The contract of option is a separate and distinct contract question of damages suffered by the plaintiff for the noncompliance with the terms of the
from the contract which the parties may enter into upon the consummation of the option. contract in question on the part of the defendant is that the plaintiff, in contemplation of
A consideration for an optional contract is just as important as the consideration for any the compliance with the terms of the contract on the part of the defendant, entered into a
other kind of contract. If there was no consideration for the contract of option, then it contract with a third party to sell the said "hacienda" at a profit of P30,000. That proof is
cannot be entered any more than any other contract where no consideration exists. To not disputed. No attempt was made in the lower court to deny that fact. The proof shows
illustrate, A offers B the sum of P100,000 for the option of buying his property within the that the person with whom the plaintiff had entered into a conditional sale of the land in
period of 30 days. While it is true that the conditions upon which A promises to buy the question had made a deposit for the purpose of guaranteeing the final consummation of
property at the end of the period mentioned are usually fixed in the option, the that contract. By reason of the failure of the defendant to comply with the contract here in
consideration for the option is an entirely different consideration from the consideration of question, the plaintiff was obliged to return the sum deposited by said third party with a
the contract with reference to which the option exists. A contract of option is a contract by promise to pay damages. The record does not show why the plaintiff did not ask for
virtue of the terms of which the parties thereto promise and obligate themselves to enter damages in the sum of P30,000. He asked for a judgment only in the sum of P20,000.
into contract at a future time, upon the happening of certain events, or the fulfillment of He now asks that the judgment of the lower court be modified and that he be given a
certain conditions. judgment for P30,000. Considering the fact that he neither asked for a judgment for more
Upon the other hand, suppose that the defendant had complied with his part of the than P20,000 nor appealed from the judgment of the lower court, his request now cannot
contract and had tendered the deeds of transfer of the "Hacienda de Pitogo" in be granted. We find no reason for modifying the judgment of the lower court by virtue of
accordance with its terms and had demanded the payments specified in the contract, and the sixth assignment of error.
the plaintiff refused to comply — what then would have been the rights of the defendant? In the seventh assignment of error the appellant contends that the contract of sale was
Might he not have successfully maintained an action for the specific performance of the not in effect a contract of sale. He alleges that the contract was, in fact, a contract by
contract, or for the damages resulting from the breach of said contract? When the virtue of which the plaintiff promised to find a buyer for the parcel of land in question; that
defendant alleged that he had complied with his part of the contract (par. 3 of defendant's the plaintiff was not in fact the purchaser; that the only obligation that the plaintiff
answer) and demanded that the plaintiff should immediately comply with his part of the assumed was to find some third person who would purchase the land from the
same, he evidently was laying the foundation for an action for damages, the nullification defendant. Again, it would be sufficient to say, in answer to that assignment of error, that
or a specific compliance with the contract. no contention of that nature was presented in the court below, and for that reason it is
The appellant contends that the contract which he made was not with the plaintiff but with improperly presented now for the first time. In addition, however, it may be added that the
Rosenstock, Elser and Co. That question was not presented in the court below. The defendant, in his answer, admitted that he not only sold the land in question, but offered
contract in question shows, upon its face, that the defendant made the same with the to transfer the same to the plaintiff, in compliance with the contract. (See answer of
plaintiff, Not having raised the question in the court below, and having admitted the defendant.)
execution and delivery of the contract in question with the plaintiff, we are of the opinion In the eighth assignment of error the appellant contends that the lower court committed
that his admission is conclusive upon that question (par. 1 of special defense of an error in its order requiring him to convey to the plaintiff the "Hacienda de Pitogo," for
defendant's answer) and need not be further discussed. the reason that the plaintiff had not demanded a transfer of said property, and for the
The appellant further contends that the action was premature, for the reason that the additional reason that a portion of said "hacienda" had already been sold to a third
plaintiff had not paid nor offered to pay the price agreed upon, under the conditions person. With reference to the first contention, the record clearly shows that the plaintiff
named, for the land in question. That question was not raised in the court below, which was constantly insisting upon a compliance with the terms of the contract, to wit, a
fact, ordinarily, would be a sufficient answer to the contention of the appellant. It may be conveyance to him of the "Hacienda de Pitogo" by the defendant. Naturally, he refused,
added, however, that the defendant could not demand the payment until he had offered under the contract, to accept a conveyance of a part only of said "hacienda." With
the deeds of conveyance, in accordance with the terms of his contract. He did not offer to reference to the second contention, it may be said that the mere fact that the defendant
comply with the terms of his contract. True it is that he offered to comply partially with the had sold a part of the "hacienda" to other persons, is no sufficient reason for not requiring
terms of the contract, but not fully. While the payment must be simultaneous with the a strict compliance with the terms of his contract with the plaintiff, or to answer in
delivery of the deeds of conveyance, the payment need not be made until the deed of damages for his failure. (Arts. 1101 and 1252 of the Civil Code.)
conveyance is offered. The plaintiff (Dela Cavada) stood ready and willing to perform his In view of the foregoing, and after a consideration of the facts and the law applicable
part of the contract immediately upon the performance on the part of the defendant. thereto, we are persuaded that there is no reason given in the record justifying a
(Arts. 1258 and 1451 of Civil Code.) modification or reversal of the judgment of the lower court. The same is, however, hereby
In the fifth assignment of error the appellant contends that the lower court committed an affirmed, with costs. So ordered.
error in not declaring that the defendant was not obligated to sell the "Hacienda de Arellano, C.J., Torres, Street, Malcolm and Fisher, JJ., concur.
Pitogo" to the plaintiff "por incumplimiento, renuncia abandono y negligencia del mismo G.R. No. L-15752 December 29, 1962
demandante, etc." (For nonfulfillment, renunciation, abandonment and negligence of RUPERTO SORIANO, ET AL., plaintiffs-appellees,
plaintiff himself, etc.) That question was not presented to the court below. But even vs.
though it had been the record shows that the plaintiff, at all times, insisted upon a BASILIO BAUTISTA, ET AL., defendants.
compliance with the terms of the contract on the part of the defendant, standing ready to BASILIO BAUTISTA and SOFIA DE ROSAS, defendants-appellants.
comply with his part of the same. ---------------------------------
G.R. No. L-17457 December 29, 1962
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BASILIO BAUTISTA, ET AL., plaintiffs, sanglaan, na ito ay ang tinatawag na (FORECLOSURE OF
BASILIO BAUTISTA and SOFIA DE ROSAS, plaintiffs-appellants, MORTGAGES, JUDICIAL OR EXTRA JUDICIAL). Maaring makapili ng
vs. hakbang ang Pinagsanglaan, alinsunod sa batas o kaya naman ay
RUPERTO SORIANO, ET AL., defendants appellees. pagusapan ng dalawang parte ang mabuting paraan ng paglutas ng
Amado T. Garrovillas, Ananias C. Ona, Norberto A. Ferrera and Pedro N. Belmi for bagay na ito.
appellants Basilio Bautista and Sofia de Rosas. That simultaneously with the signing of the aforementioned deed, the spouses
Javier and Javier for appellees Ruperto Soriano, et al. Basilio Bautista and Sofia de Rosas transferred the possession of the said land
MAKALINTAL, J.: to Ruperto Soriano and Olimpia de Jesus who have been and are still in
The judgment appealed from, rendered on March 10, 1959 by the Court of First Instance possess of the said property and have since that date been and cultivating the
of Rizal, after a joint trial of both cases mentioned in the caption, orders "the spouses said land and have enjoyed and are still enjoying the produce thereof to the
Basilio Bautista and Sofia de Rosas to execute a deed of sale covering the property in exclusion of all other persons. Sometimes after May 30, 1956, the spouses
question in favor of Ruperto Soriano and Olimpia de Jesus upon payment by the latter of Basilio Bautista and Sofia de Rosas received from Ruperto Soriano and Olimpia
P1,650.00 which is the balance of the price agreed upon, that is P3,900.00, and the de Jesus, the sum of P450.00 pursuant to the condition agreed upon in the
amount previously received by way of loan by the said spouses from the said Ruperto aforementioned document for which no receipt issued and which was returned
Soriano and Olimpia de Jesus, to pay the sum of P500.00 by way of attorney's fees, and by the spouses sometime on May 31, 1958. On May 13, 1958, a certain Atty.
to pay the costs. Angel O. Ver wrote a letter to the spouses Bautista whose letter has been
Appellants Basilio Bautista and Sofia de Rosas have adopted in their appeal brief the marked Annex 'B' of the stipulation of facts informing the said spouses that his
following factual findings of the trial court: clients Ruperto Soriano and Olimpia de Jesus have decided to buy the parcel of
Spouses Basilio Bautista and Sofia de Rosas are the absolute and registered land in question pursuant to paragraph 5 of the document in question, Annex
owners of a parcel of land, situated in the municipality of Teresa, province of "A".
Rizal, covered by Original Certificate of Title No. 3905, of the Register of Deeds The spouses inspite of the receipt of the letter refused comply with the demand
of Rizal and particularly described as follow: contained therein. On May 31, 1958, Ruperto Soriano and Olimpia de Jesus
A parcel of land (lot No. 4980) of the Cadastral Survey of Teresa; filed before this Court Civil Case No. 5023, praying that plaintiffs be allowed to
situated in the municipality of Teresa; bounded on the NE. by Lot No. consign or deposit with the Clerk of Court the sum of P1,650 as the balance of
5004; on the SE. by Lots Nos. 5003 and 4958; on the SW. by Lot the purchase price of the parcel of land question and that after due hearing,
4949; and the W. and NW by a creek .... Containing the area of judgment be rendered considering the defendants to execute an absolute deed
THIRTY THOUSAND TWO HUNDRED TWENTY TWO (30,222) of sale of said property in their favor, plus damages.
square meters, more or less. Date of Survey, December 1913-June, On June 9, 1958, spouses Basilio Bautista and Sofia Rosas filed a complaint
1914. (Full technical description appears on Original Certificate of Title against Ruperto Soriano and Olimpia de Jesus marked as Annexed 'B' of the
No. 3905.)lawphil.net Stipulation of Facys, which case after hearing was dismissed for lack of
That, on May 30, 1956, the said spouses for and in consideration of the sum of jurisdiction On August 5, 1959, the spouses Bautista and De Rosas again filed a
P1,800, signed a document entitled "Kasulatan Ng Sanglaan" in favor of case in the Court of First Instance against Soriano and De Jesus asking this
Ruperto Soriano and Olimpia de Jesus, under the following terms and Court to order the defendants to accept the payment of the principal obligation
conditions: and release the mortgage and to make an accounting of the harvest for the
1. Na ang sanglaang ito ay magpapatuloy lamang hanggang dalawang harvest seasons (1956-1957). The two cases, were by agreement of the parties
(2) taon pasimula sa araw na lagdaan ang kasunduang ito, at assigned to one branch so that they can be tried jointly.
magpapalampas ng dalawang panahong ani o ani agricola. The principal issue in this case is whether, having seasonably advised appellants that
2. Na ang aanihin ng bukid na isinangla ay mapupunta sa they had decided to be the land in question pursuant to paragraph 5 of the instrument of
pinagsanglaan bilang pakinabang ng nabanggit na halagang inutang. mortgage, appellees are entitled to special performance consisting of the execution by
3. Na ang buwis sa pamahalaan ng lupang ito ay ang magbabayad ay appellants the corresponding deed of sale. As translated, paragraph 5 states: "That it has
ang Nagsangla o mayari. likewise been agreed that if the financial condition of the mortgagees will permit, they
4. Na ang lupang nasanglang ito ay hindi na maaaring isangla pang may purchase said land absolutely on any date within the two-year term of this mortgage
muli sa ibang tao ng walang pahintulot ang Unang Pinagsanglaan. at the agreed price of P3,900.00."
5. Na pinagkasunduan din dinatnan na sakaling magkaroon ng Appellants contend that, being mortgagors, they can not be deprived of the right to
kakayahan ang Pinagsanglaan ay maaaring bilhin ng patuluyan ng redeem the mortgaged property, because such right is inherent in and inseparable from
lupang nasanglang ito kahit anong araw sa loob ng taning na this kind of contract. The premise of the contention is not entirely accurate. While the
dalawang taon ng sanglaan sa halagang Tatlong Libo at Siam na Raan transaction is undoubtedly a mortgage and contains the customary stipulation concerning
Piso (P3,900.00), salaping Pilipino na pinagkaisahan. redemption, it carries the added special provision aforequoted, which renders the
6. Na sakaling ang pagkakataon na ipinagkaloob ng Nagsangla sa mortgagors' right to redeem defeasible at the election of the mortgagees. There is
sinundang talata ay hindi maisagawa ng Pinagsanglaan sa Kawalan nothing illegal or immoral in this. It is simply an option to buy, sanctioned by Article 1479
ng maibayad at gayon din naman ang Nagsangla na hindi magbalik of the Civil Code, which states: "A promise to buy and sell a determinate thing for a price
ang halagang inutang sa taning na panahon, ang sanglaan ito ay certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a
lulutasin alinsunod sa itinatagubilin ng batas sa bagay-bagay ng
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determinate thing for a price certain is binding upon the promissor if the promise is a. That the amount of FIVE THOUSAND FIVE
supported by a consideration distinct from the price." HUNDRED PESOS (P5,500) will be paid upon the
In this case the mortgagor's promise to sell is supported by the same consideration as execution of this Contract of Lease;
that of the mortgage itself, which is distinct from that which would support the sale, an b. That the amount of FOUR THOUSAND FIVE
additional amount having been agreed upon to make up the entire price of P3,900.00, HUNDRED PESOS (P4,500) is payable on or before
should the option be exercised. The mortgagors' promise was in the nature of a the 30th day of October, 1959;
continuing offer, non-withdrawable during a period of two years, which upon acceptance c. That the remaining balance of FIFTEEN
by the mortgagees gave rise to a perfected contract of purchase and sale. Appellants cite THOUSAND PESOS (P15,000) will be paid on or
the case of Iñigo vs. Court of Appeals, L-5572, O.G. No. 11, 5281, where we held that a before March 30, 1960;
stipulation in a contract of mortgage to sell the property to the mortgagee does not bind 3. That all improvements made during the lease by the LESSEE will be
the same but creates only a personal obligation on the part of the mortgagor. The citation owned by the LESSOR after the expiration of the term of this Contract
instead of sustaining appellant's position, confirms that of appellees, who are not here of Lease;
enforcing any real right to the disputed land but are rather seeking to obtain specific 4. That the LESSOR agrees to give the LESSEE an option to buy the
performance of a personal obligation, namely, the execution of a deed of sale for the land and the school building, for a price of ONE HUNDRED
price agreed upon, the corresponding amount to cover which was duly deposited in court THOUSAND PESOS (P100,000) within the period of the Contract of
upon the filing of the complaint. Lease;
Reference is made in appellants' brief to the fact that they tendered the sum of 5. That should the LESSEE buy the lot, land and the school building
P1,800.00 to redeem mortgage before they filed their complaint in civil case No. 99 in the within the stipulated period, the unused payment for the Contract of
Justice of the Peace Court of Morong, Rizal. That tender was ineffective for the purpose Lease will be considered as part payment for the sale of the land and
intended. In the first place it must have been made after the option to purchase had been school;
exercised by appellees (Civil Case No. 99 was filed on June 9, 1958, only to be 6. That an inventory of all properties in the school will be made on
dismissed for lack of jurisdiction); and secondly, appellants' to redeem could be defeated March 31, 1960;
by appellees' preemptive right to purchase within the period of two years from May 30, 6A. That the term of this Contract will commence in June 1960 and will
1956. As already noted, such right was availed of appellants were accordingly notified by terminate in June 1965;
letter dated May 13, 1958, which was received by them on the following May 22. Offer 7. That the LESSEE will be given full control and responsibilities over
and acceptance converged and gave to a perfected and binding contract of purchase all the properties of the school and over all the supervisions and
and sale. administrations of the school;
The judgment appealed from is affirmed, with costs. 8. That the LESSEE agrees to help the LESSOR to collect the back
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, accounts of students incurred before the execution of this contract.
Dizon and Regala, JJ.,concur. Instead of paying the lessor in the manner set forth in paragraph 2 of said contract,
G.R. No. L-32873 August 18, 1972 Nietes had, as of August 4, 1961, made payments as follows:
AQUILINO NIETES, petitioner, October 6,1960 ....................................... P18,957.00 (Exh. D)
vs. November 23, 1960 ................................. 300.00 (Exh. E)
HON. COURT OF APPEALS & DR. PABLO C. GARCIA, respondents. December 21, 1960 ................................. 200.00 (Exh. F)
Conrado V. del Rosario for petitioner. January 14, 1961 ..................................... 500.00 (Exh. G)
Romeo D. Magat for private respondent. February 16, 1961 ................................... 3,000.00 (Exh. H)
March 12, 1961 ....................................... 1,000.00 (Exh. I)
CONCEPCION, C.J.:p March 13, 1961 ....................................... 700.00 (Exh. J)
Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of August 4, 1961 ........................................ 100.00 (Exh. K) _________
Appeals. TOTAL ..................................... P24,757.00
It appears that, on October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia Moreover, Nietes maintains that, on September 4, 1961, and December 13, 1962, he
entered into a "Contract of Lease with Option to Buy," pursuant to the terms and paid Garcia the additional sums of P3,000 and P2,200, respectively, for which Garcia
conditions set forth in the deed Exhibits A and A-1, (also, marked as Exhibit 2) namely: issued receipts Exhibit B and C, reading:
That the LESSOR is an owner of the ANGELES EDUCATIONAL Received the amount of (P3,000.00) Three Thousand Pesos from Mrs.
INSTITUTE situated at Angeles, Pampanga, a school which is duly Nietes as per advance pay for the school, the contract of lease being
recognized by the Government; paid.
That the lessor agrees to lease the above stated school to the (Sgd.) PABLO GARCIA (Exh. B)
LESSEE under the following terms and conditions: To Whom it May Concern:
1. That the term will be for a period of five (5) years; This is to certify that I received the sum of Two Thousand Two
2. That the price of the rent is FIVE THOUSAND PESOS (P5,000) per Hundred Pesos, Philippine Currency, from Mrs. Catherine R. Nietes as
year payable in the following manners: the partial payment on the purchase of the property as specified on the
original contract of "Contract of Lease with the First Option to Buy"
originally contracted and duly signed.
6

(Sgd.) DR. PABLO GARCIA (Exh. C) corresponding Deed of Sale pursuant to this notice, and that if he fails
On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter Exhibit 1 (also to do so within fifteen (15) days from the receipt of this letter, we shall
Exhibit V) stating: take the corresponding action to enforce the agreement.
The Director Truly yours,
Philippine Institute of Electronics (Sgd.) CONRADO V. DEL ROSARIO
Angeles, Pampanga Counsel for Mr. Aquilino T. Nietes
Sir: Angeles City
I regret to inform you that our client, Dr. Pablo Garcia, desires to On July 26, 1965, Nietes deposited with the branch office of the Agro-Industrial Bank in
rescind your contract, dated 19 October 1959 because of the following: Angeles City checks amounting to P84,860.50, as balance of the purchase price of the
1. That you had not maintained the building, subject of the lease property, but he withdrew said sum of P84,860.50 on August 12, 1965, after the checks
contract in good condition. had been cleared. On August 2, 1965, he commenced the present action, in the Court of
2. That you had not been using the original name of the school — First Instance of Pampanga, for specific performance of Dr. Garcia's alleged obligation to
Angeles Institute, thereby extinguishing its existence in the eyes of the execute in his (Nietes') favor a deed of absolute sale of the leased property, free from
public and injuring its prestige. any lien or encumbrance whatsoever, he having meanwhile mortgaged it to the People's
3. That through your fault, no inventory has been made of all properties Bank and Trust Company, and to compel him (Garcia) to accept whatever balance of the
of the school. purchase price is due him, as well as to recover from him the aggregate sum of P90,000
4. That up to this time, you had not collected or much less helped in by way of damages, apart from attorney's fees and the costs.
the collection of back accounts of former students. Dr. Garcia filed an answer admitting some allegations of the complaint and denying other
This is to remind you that the foregoing obligations had been one, if allegations thereof, as well as setting up a counterclaim for damages in the sum of
not, the principal moving factors which had induced the lessor in P150,000.
agreeing with the terms embodied in your contract of lease, without After due trial, said court rendered its decision, the dispositive part of which reads:
which fulfillment, said contract could not have come into existence. It is WHEREFORE, in view of the preponderance of evidence in favor of
not simply one of those reminders that we make mention, that our the plaintiff and against the defendant, judgment is hereby rendered
client under the circumstances, is not only entitled to a rescission of ordering the latter to execute the Deed of Absolute Sale of property
the contract. He is likewise entitled to damages — actual, originally leased together with the school building and other
compensatory and exemplary. improvements thereon which are covered by the contract, Annex "A",
In view of the serious nature of the breach which warrant and sanction upon payment of the former of the balance (whatever be the amount)
drastic legal remedies against you, we earnestly request you to please of the stipulated purchase price; to free the said property from any
see the undersigned at the above-named address two days from mortgage or encumbrance and deliver the title thereto to the plaintiff
receipt hereof. Otherwise, if we shall not hear from you, the foregoing free from any lien or encumbrance, and should said defendant fail to
will serve notice on your part to vacate the premises within five (5) do so, the proceeds from the purchase price be applied to the payment
days to be counted from date of notice. of the encumbrance so that the title may be conveyed to the plaintiff; to
Very truly yours, pay the plaintiff the sum of P1,000.00 as attorney's fees, and the cost
(Sgd.) VICTOR T. LLAMAS, JR. of this suit.
to which counsel for Nietes replied in the following language: Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial court had
Atty. Victor T. Llamas, Jr. neither dismissed the complaint nor upheld his counterclaim and failed to order Nietes to
Victor Llamas Law Office vacate the property in question, and Nietes insofar as the trial court had granted him no
Corner Rivera-Zamora Streets more than nominal damages in the sum of P1,000, as attorney's fees.
Dagupan City After appropriate proceedings, a special division of Court of Appeals rendered its
Dear Sir: decision, on October 18, 1969, affirming, in effect, that of the trial court, except as
Your letter dated July 31, 1964 addressed to my client, the Director of regards said attorney's fees, which were eliminated. The dispositive part of said decision
the Philippine Institute of Electronics, Angeles City, has been referred of the Court of Appeals reads:
to me and in reply, please, be informed that my client has not violated WHEREFORE, with the modification that the attorney's fees awarded by the trial court in
any provision of the CONTRACT OF LEASE WITH OPTION TO BUY, favor of the plaintiff is eliminated, the appealed judgment is hereby affirmed in all other
executed by him as LESSEE and Dr. Pablo Garcia as LESSOR. For respects, and the defendant is ordered to execute the corresponding deed of sale for the
this reason, there is no basis for rescission of the contract nor of the school building and lot in question in favor of the plaintiff upon the latter's full payment of
demands contained in your letter. the balance of the purchase price. The costs of this proceedings shall be taxed against
In this connection, I am also serving this formal notice upon your client the defendant-appellant.
Dr. Pablo Garcia, thru you, that my client Mr. AQUILINO T. NIETES On motion for reconsideration of defendant Garcia, said special division set aside its
will exercise his OPTION to buy the land and building subject matter of aforementioned decision and rendered another one, promulgated on March 10, 1970
the lease and that my said client is ready to pay the balance of the reversing the appealed decision of the court of first instance, and dismissing the
purchase price in accordance with the contract. Please, inform Dr. complaint of Nietes, with costs again him. Hence, the present petition of Nietes for review
Pablo Garcia to make available the land title and execute the
7

certiorari of the second decision of the Court of Appeals, dated March 10, 1970, to which readiness to pay the stipulated price, provided that the same is available and actually
petition We gave due course. delivered to the debtor upon execution and delivery by him of the corresponding deed of
Said decision of the Court of Appeals, reversing that of the Court of First Instance, is sale. Unless and until the debtor shall have done this the creditor is not and cannot be in
mainly predicated upon the theory that, under the contract between the parties, "the full default in the discharge of his obligation to pay.2 In other words, notice of the creditor's
purchase price must be paid before the option counsel be exercised," because "there decision to exercise his option to buy need not be coupled with actual payment of the
was no need nor sense providing that "the unused payment for the Contract Lease will price, so long as this is delivered to the owner of the property upon performance of his
be considered as part payment for the sale the land and school'" inasmuch as "otherwise part of the agreement. Nietes need not have deposited, therefore, with the Agro-
there is substantial amount from which such unused rental could be deducted"; that the Industrial Bank checks amounting altogether to P84,860.50 on July 26, 1965, and the
statement in the letter, Exhibit L, of Nietes, dated August 7, 1964, to the effect that he withdrawal thereof soon after does not and cannot affect his cause of action in the
"will exercise his OPTION to buy the land and building," indication that he did not present case. In making such deposit, he may have had the intent to show his ability to
consider the receipts, Exhibits B and for P3,000 and P2,200, respectively, "as an pay the balance of the sum due to Dr. Garcia as the sale price of his property. In short,
effective exercise of his option to buy"; that the checks for P84,860.50 deposited by said deposit and its subsequent withdrawal cannot affect the result of the present case.
Nietes with the Agro-Industrial Development Bank, did not constitute a proper tender of Nietes was entitled to exercise his option to buy "within the period of the Contract of
payment, which, at any rate, was "made beyond the stipulated 5-year period"; that such Lease," which — pursuant to paragraph 6-A of said contract — commenced "in June
deposit "was not seriously made, because on August 12, 1965, the same was withdrawn 1960" and was to "terminate in June 1965." As early as September 4, 1961, or well
from the Bank and ostensibly remains in the lessee's hand"; and that "the fact that such "within the period of the Contract of Lease," Nietes had paid Dr. Garcia the following
deposit was made by the lessee shows that he himself believed that he should have paid sums:
the entire amount of the purchase price before he could avail of the option to buy, October 6, 1960 ............................ P18,957.00 (Exh. D)
otherwise, the deposit was a senseless gesture ... ." November 23, 1960 ....................... 300.00 (Exh E)
Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him "were part of the December 21, 1960 ....................... 200.00 (Exh. F)
price of the contract of lease between the parties which were paid late and not within the January 14, 1961 ........................... 500.00 (Exh. G)
periods and/or schedules fixed by the contract (Annex A.)." What is more, on the witness February 16, 1961 ......................... 3,000.00 (Exh. H)
stand, Garcia claimed that he did "not know" whether the signatures on Exhibits B and C March 12, 1961 ............................. 1,000.00 (Exh. I)
— the receipt for P3,000 and P2,200, respectively — were his, and even said that he March 13, 1961 ............................. 700.00 (Exh. J)
was "doubtful" about it. August 4, 1961 ............................... 100.00 (Exh. K)
This testimony is manifestly incredible, for a man of his intelligence — a Doctor of September 4, 1961 ......................... 3,000.00 (Exh. B)
Medicine and the owner of an educational institution — could not possibly "not know" or ________
entertain doubts as to whether or not the aforementioned signatures are his and the TOTAL ............................... P27,757.00
payments therein acknowledged had been received by him. His dubious veracity It is true that Nietes was bound, under the contract, to pay P5,500 on October 19, 1959,
becomes even more apparent when we consider the allegations in paragraph (4) of his P4,500 on or before October 30, 1959, and P15,000 on or before March 30, 1960, or the
answer — referring to paragraphs 5 and 6 of the complaint alleging, inter alia, the total sum of P25,000, from October 19, 1959 to March 30, 1960, whereas his first
aforementioned partial payments of P3,000 and P2,200, on account of the stipulated sale payment was not made until October 10, 1960, when he delivered the sum of P18,957 to
price — to the effect that said sums " paid to the herein defendant were part of the price Dr. Garcia, and the latter had by August 4, 1961, received from the former the aggregate
of the contract of lease." In other words, payment of said sums of P3,000 and P2,200 sum of P24,757. This is, however, P243.00 only less than the P25,000 due as of March
is admitted in said answer. Besides, the rentals for the whole period of the lease 30, 1960, so that Nietes may be considered as having complied substantially with the
aggregated P25,000 only, whereas said sums of P3,000 and P2,200, when added to the terms agreed upon. Indeed, Dr. Garcia seems to have either agreed thereto or not
payments previously made by Nietes, give a grand total of P29,957.00, or P4,957 in considered that Nietes had thereby violated the contract, because the letter of the former,
excess of the agreed rentals for the entire period of five years. Thus, Dr. Garcia was less dated July 31, 1964, demanding rescission of the contract, did not mention said acts or
than truthful when he tried to cast doubt upon the fact of payment of said sums of P3,000 omissions of Nietes among his alleged violations thereof enumerated in said
and P2,200, as well as when he claimed that the same were part of the rentals collectible communication. In fact, when, on September 4, 1961, Mrs. Nietes turned over the sum of
by him. P3,000 to Dr. Garcia, he issued the receipt Exhibit B, stating that said payment had been
We, likewise, find ourselves unable to share the view taken by the Court of Appeals. made "as per advance pay for the school, the Contract of Lease being paid" — in other
Neither the tenor of the contract Exhibits A and A-1 (also Exhibit 2) nor the behaviour of words, in accordance or conformity with said contract. Besides, when, on December 13,
Dr. Garcia — as reflected in the receipts Exhibits B and C — justifies such view. The 1962, Mrs. Nietes delivered the additional sum of P2,200, Dr. Garcia issued a receipt
contract does not say that Nietes had to pay the stipulated price of accepting said amount "as the partial payment on the purchase price of the property as
P100,000 before exercising his option to buy the property in question. Accordingly, said specified on the original contract," thus further indicating that the payment, in his
option is governed by the general principles on obligations, pursuants to which: opinion, conformed with said contract, and that, accordingly, the same was in full force
In reciprocal obligations, neither party incurs in delay if the other does and effect.
not comply or is not ready to comply in a proper manner with what is In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had received the
incumbent upon him. From the moment one of the parties fulfills his total sum of P27,757, or P2,757 in excess of the P25,000 representing the rentals for the
obligation, delay by the other begins.1 entire period of the lease, and over P21,200 in excess of the rentals for the unexpired
In the case of an option to buy, the creditor may validly and effectively exercise his right portion of the lease, from September 4, 1961 to June 1965. This circumstance indicates
by merely advising the debtor of the former's decision to buy and expressing his clearly that Nietes had, on September 4, 1961, chosen to exercise and did exercise then
8

his option to buy. What is more, this is borne out by the receipt issued by Dr. Garcia for G.R. No. L-35272 August 26, 1977
the payment of P2,200, on December 13, 1962, to which he referred therein as a "partial FLORENCIA CRONICO, substituted by LUCILLE E. VENTURANZA, petitioner-
payment on the purchase of the property as specified on the original contract of 'Contract appellant,
of Lease with the First Option to Buy' ... ." vs.
Further confirmation is furnished by the letter of Nietes, Exhibit L, of August 1964 — also, J. M. TUASON & CO., INC., and CLAUDIO R. RAMIREZ, respondents-appellees.
within the period of the lease — stating that he "will exercise his OPTION to buy the land Antonio B. Alcera for appellant.
and building subject matter of the lease." It is not correct to construe this expression — Araneta, Mendoza & Papa for appellee J. M. Tuason & Co., Inc.
as did the appealed decision — as implying that the option had not been or was not Leonardo Abola for appellee Caludio R. Ramirez.
yet being exercised, or as a mere announcement of the intent to avail of it at
some future time. This interpretation takes said expression out of the context of Exhibit L, FERNANDEZ, J:
which positively states, also, that Nietes "is ready to pay the balance of the purchase In Civil Case No. Q-6363 entitled "Florencia Cronies, substituted by Lucille E.
price in accordance with the contract," and requests counsel for Dr. Garcia to inform or Venturanza, plaintiff, versus J. M. Tuason & Co., Inc., represented by Gregorio Araneta,
advise him "to make available the land title and execute the corresponding Deed of Sale Inc., and Claudio Ramirez, defendants," the Court of First Instance of Rizal, Branch IV,
pursuant to this notice, and that if he fails to do so within fifteen (15) days ... we shall take Quezon City, rendered its decision dated January 25, 1969, the dispositive part of which
the corresponding action to enforce the agreement." Such demand and said readiness to reads:
pay the balance of the purchase price leave no room for doubt that, as stated in Exhibit IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor
L, the same is "a formal notice" that Nietes had exercised his option, and expected Dr. of the plaintiff and against the defendants, as follows:
Garcia to comply, within fifteen (15) days, with his part of the bargain. Surely, there would a) Declaring the Contract to Sell No. 10879 Exhibit 3-company,
have been no point for said demand and readiness to pay, if Nietes had not yet exercised executed by defendant corporation in favor of its co- defendant
his option to buy. Ramirez on April 2,1962, as NULL and VOID;
The provision in paragraph 5 of the Contract, to the effect that "should the LESSEE" b) Ordering the defendant-corporations to execute a Contract to Sell in
choose to make use of his option to buy "the unused payment for the Contract of Lease favor of the substituted plaintiff Dr. Lucille E. Venturanza over Lot 22,
will be considered as payment for the sale of the land and school, "simply means that the Block 461 of the Sta. Mesa Heights Subdivision, under the same terms
rental paid for the unused portion of the lease shall be applied to and deducted from the and conditions of their offer to the plaintiffs as contained in the letter of
sale price of P100,000 to be paid by Nietes at the proper time — in other Gregorio Araneta, Inc., representative of J. M. Tuason & Co., Inc., to
words, simultaneously with the delivery to him of the corresponding deed of sale, duly Florencia Cronico of March 20, 1962 (Exh. H) or under the same terms
executed by Dr. Garcia. given to defendant Ramirez;
It is, consequently, Our considered opinion that Nietes had validly and effectively c) Declaring as cancelled any and all transfer certificates of title that
exercised his option to buy the property of Dr. Garcia, at least, on December 13, 1962, might have been issued in favor of defendant Ramirez over said Lot
when he acknowledged receipt from Mrs. Nietes of the sum of P2,200 then delivered by No. 22;
her "in partial payment on the purchase of the property" described in the "Contract of d) Ordering the defendants, jointly and severally, to pay the plaintiff
Lease with Option to Buy"; that from the aggregate sum of P29,957.00 paid to him up to (Dr. Lucille E. Venturanza) the sum of P160,000.00, as damages
that time, the sum of P12,708.33 should be deducted as rental for the period from June representing the rents derived from the property in question up to
1960 to December 13, 1962, or roughly thirty (30) months and a half, thereby leaving a December 2, 1968, plus the sum of P2,000.00 every month thereafter
balance of P17,248.67, consisting of P12,291.67, representing the rentals for the unused until the lot in question is sold and delivered to plaintiff (Dr.
period of the lease, plus P4,957.00 paid in excess of said rental and advanced solely on Venturanza);
account of the purchase price; that deducting said sum of P17,248.67 from the agreed e) Ordering defendants, jointly and severally, to pay plaintiff (Dr. Lucille
price of P100,000.00, there results a balance of P82,751.33 which should be paid by E. Venturanza) the sum of P10,000.00, as attorney's fees;
Nietes to Dr. Garcia, upon execution by the latter of the corresponding deed of absolute f) To pay the costs.
sale of the property in question, free from any lien or encumbrance whatsoever, in favor IT IS SO ORDERED Quezon City, Philippines, January 25, 1969.
of Nietes, and the delivery to him of said deed of sale, as well as of the owner's duplicate s/t WALFRIDO DE LOS ANGELES J u d g e
of the certificate of title to said property; and that Dr. Garcia should indemnify Nietes in (Rollo, p. 69, Joint Record on Appeal, pp. 49-50)
the sum of P2,500 as and for attorney's fees. The defendants J. M. Tuason & Co., Inc. and Claudio R. Ramirez appealed to the Court
Thus modified, the decision of the Court of First Instance of Pampanga is hereby of Appeals which promulgated its decision on April 21, 1972 reversing the judgment
affirmed in all other respects, and that of the Court of Appeals reversed, with costs appealed from and dismissing the complaint with costs against the plaintiff-appellee.
against respondent herein, Dr. Pablo C. Garcia. It is so ordered. (Rollo, p. 31, Decision in CA-G. R. No. 44479R, p. 19)
Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Makasiar Antonio The plaintiff, Florencia Cronico substituted by Lucille E. Venturanza, filed with this Court
and Esguerra, JJ., concur. a petition for certiorari to review the decision of the Court of Appeals * assigning the
Castro, J., took no part. following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN- HOLDING
THAT FLORENCIA CRONICO OBTAINED. THE DEFENDANT
9

COMPANY'S LETTER-OFFER TO HER DATED MARCH 20, 1962 BY lot had been mailed. With this information, plaintiff Cronies and Mary E.
MEANS OF IRREGULAR AND PREMATURE DELIVERY. Venturanza went to the post office in Manila and she was able to get
II the letter at about 3:30 in the afternoon of the same date. After she got
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING the letter, plaintiff Cronies and Mary E. Venturanza went directly to the
THAT THE RECORDS DO NOT SHOW THAT DEFENDANT office of Gregorio Araneta Inc., Escolta, Manila, and presented the
COMPANY'S LETTER-OFFER OR UNILATERAL PROMISE TO SELL letter to Benjamin Bautista, Head of the Real Estate Department of
W AS SUPPORTED BY A CONSIDERATION OTHER THAN THE said company. Since she had no money, plaintiff Cronies requested
SELLING PRICE. Mary E. Venturanza to issue a check in the amount of P33,572.00 to
III cover the down payment for the lot. However, Benjamin Bautista did
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING not accept the cheek. He advised plaintiff Cronies that it is Gregorio
THAT PLAINTIFF CRONICO IS NOT PRINCIPALLY NOR Araneta II who would decide whose offer to buy may be accepts after
SUBSIDIARILY OBLIGED UNDER THE CONTRACT TO SELL (EXH. the appellant company receives the registry return cards attached to
3-Company) AND HENCE MAY NOT BRING SUIT TO ANNUL THE the registered letters sent to the offerors.
SAME. On March 22, 1962, between 10:00 and 11:00 a.m., appellant Ramirez
IV received from the post office at San Francisco del Monte, Quezon City,
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING the reply letter of the appellant company dated March 20, 1962,
THE TRIAL COURT AND DISMISSING THE COMPLAINT. wherein it stated that Lot 22, Block 461, Sta. Mesa Heights
(Rollo, p.74, Petitioner's Brief, pp. 1-2) Subdivision, was available for sale under the conditions therein set
The facts, as found by the Court of Appeals, are: forth and that the said lot was being offered for sale on a first come first
Appellant J. M. Tuason & Co. Inc. hereinafter referred to as appellant serve basis. Appellant Ramirez proceeded to the office of Benjamin
company was the registered owner of Lot No. 22, Block 461, Sta. Bautista in the same morning stating that he accepted the conditions
Mesa Heights Subdivision, located at the Northwestern corner of stated in the appellant company's letter. Benjamin Bautista advised
Quezon Boulevard and Gregorio Araneta, Quezon City and embraced appellant Ramirez to wait for the decision of Gregorio Araneta II. The
by Transfer Certificate of Title No. 49235 of the registry of Deeds of next day, March 23, 1962, appellant Ramirez presented his letter to the
said city. In March, 1962, plaintiff Florencia Cronico offered to buy the appellant company confirming his verbal acceptance of the terms and
lot from the appellant company with the help of Mary E. Venturanza. conditions in connection with the sale. On March 31, 1962, Atty. Jose
They personally talked to Benjamin F. Bautista, Manager of the Real E. Patangco in behalf of appellant Ramirez wrote the appellant
Estate Department of Gregorio Araneta, Inc. the appellant company's company requesting the early execution of the proper contract to sell
attorney-in-fact, proposing to buy Lot No. 22. She was required to over Lot No. 22. A check in the amount of P33,572 was enclosed in the
present proofs to show her rights to the lot. On March 8, 1962, letter to cover the down payment for said lot. The request was
Florencia Cronico exhibited certain documents showing her priority favorably considered.
rights to buy the lot. On April 2, 1962, the J. M. Tuason & Co. Inc., and Claudio R. Ramirez
In the first week of March, 1962, defendant-appellant Claudio Ramirez executed a contract to sell whereby the appellant company agreed to
also learned that the lot in question was being sold by the appellant sell to appellant Ramirez the lot in question for a total price of
company. The occupants thereof who also had priority rights to buy the P167,896.00 subject to the terms and conditions therein set forth.
land informed Claudio Ramirez, about the intended sale. Juanita Meanwhile, on March 27, 1962, the appellant company received a
Semilla and Pedro Fernandez, who were the occupants of the said Lot letter from Atty. Godofredo Asuncion in behalf of Florencia Cronies
No. 22 expressed their willingness to waive their rights although-Pedro requesting that the lot subject of litigation be 'sold to her. She tendered
Fernandez reserved a condition that a small portion of the land a check to cover the down payment which was, however, returned. On
whereon his house stands be sold to him. In the same month, March, April 4, 1962, the appellant company sent a letter to the plaintiff-
1962, plaintiff Cronico and defendant- appellant Ramirez sent separate appellee informing her that it had decided to sell the lot in question to
individual letters to appellant company wherein they expressed their appellant Ramirez. This triggered the instant suit.
desire to purchase the land and requested information concerning the On April 28,1962, plaintiff Florencia Cronico lodged in the Court of First
area, the price and other terms and conditions of the contract to sell. Instance of Rizal (Quezon City Branch) a complaint against the
Two others intimated their desire to buying the lot. They were Bonifacio defendants-appellants J. M. Tuason & Co., Inc. and Claudio Ramirez.
Chung and Angeles Henson. Both, however, subsequently lost their The main purpose of the said suit is to annul and set aside the contract
interest in said lot. On March 20, 1962, the appellant company sent to sell executed by and between appellant company and appellant
separate reply letters to prospective buyers including plaintiff Cronies Ramirez. On May 30, 1962, Gregorio Araneta, representing J. M.
and defendant-appellant Ramirez. They were dropped in the Manila Tuason & Co. Inc., filed its answer to the complaint with cross claim
Post Office at 11:00 in the morning of March 21, 1962 by registered against its co-defendant Claudio Ramirez and Luisa Patangco. On the
mail. It so happened that plaintiff Cronico went to the appellant part of defendant Claudio Ramirez, he filed a motion to dismiss on the
company's office on March 21, 1962, and she was informed that the ground that the complaint states no cause of action against him. He
reply letter of the appellant company to prospective buyers of the same contends that the action for the annulment of contract may only be
10

instituted by those who are parties thereto or those who are thereby returned to petitioner Cronico and on April 4, 1962, the respondent company wrote said
obliged principally or subsidiarily. According to Claudio Ramirez such petitioner that it had decided to sell the lot in question to the respondent Ramirez.
action to annul a deed of sale can not prosper against third persons as In view of the foregoing circumstances, we concur in the finding of the Court of Appeals
they are not principally or subsidiarily obligated thereby. The motion to that "Viewing the case from the standpoint of regularity of notice, plaintiff-appellee falls
dismiss was denied. So Claudio Ramirez filed his answer reiterating in short of the yardstick." (Rollo, p. 42, Decision of the Court of Appeal p.12)
his affirmative defenses that since the plaintiff-appellee is not a party to The Court of Appeals entertained serious doubts as to the financial capability of
the contract to sell executed by him and the defendant company, petitioner Florencia Cronico to purchase the property because she was receiving only the
plaintiff Florencia Cronico has no right whatsoever to demand the amount of P150.00 a month as her salary from her employment and there was no
annulment of said contract. showing that she had sources of income other than her job. In fact, when petitioner
On November 19, 1968, plaintiff together with Dr. Lucille E. Venturanza Cronico tried to pay the down payment for the purchase of the land, it was Mary E.
filed a motion for substitution for party plaintiff whereby plaintiff Venturanza who drew the check in the amount of P33,572.00 which was rejected by the
Florencia Cronico expressed her willingness to be substituted by Dr. respondent company. It is also to be noted that in the trial court, Florencia cronico was
Lucille E. Venturanza as the former had transferred to the latter substituted by her assignee Lucille E. Venturanza, daughter of Mary E. Venturanza. It is
whatever rights and interests which she may have over Lot 22, Block apparent that petitioner, Florencia Cronico, did not have the capability to pay and that
261, Sta. Mesa Heights Subdivision by virtue of a deed of assignment she acted only as a mere front of the Venturanzas. As correctly pointed out by the Court
she executed on July 5, 1968. The court granted the substitution of the of Appeals, realtors are given the right to choose their buyers so as to avoid delinquent
party plaintiff by Dr. Lucille E. Venturanza. (Rollo, p. 31, Decision of payments of monthly installments which may result in costly court litigations.
Court of Appeals, pp. 1- 71) The contention of petitioner. Florencia Cronico that the promise to sell is supported by a
Anent the first error assigned, the petitioner contends that "No less than the chief of the consideration as to her because she had established her link as successor of Gregorio
general service section of the Manila post office, Gaspar Bautista, speaking on the Venturanza who bought the lot from Juan Ramos who in turn acquired said lot from
regularity of plaintiff Cronico's receipt of the letter, testified before the trial court that the Pedro Deudor. The petitioner then argues that since Clause Seventh of the Compromise
means by which plaintiff Cronico received her letter is very regular." (Rollo, p. 74, Agreement between the respondent company and the Deudors, et al. obligated the
Petitioner's Brief, p. 18). And that "Anyway, the manner by which the offerees were to respondent company to sell to the buyers of the Deudors 'listed in Annex B thereof,
receive their letters was not announced by the offeror to the contestant such that they Exhibit R-1, and Juan Ramos was the purchaser of the lot from Pedro Deudor with such
could not be bound thereby. Hence, the rule of the fittest and without lawlessness should right to buy from the defendant company under a new contract with the latter, the said
govern, and that was Cronies who proved her diligence and resourcefullness over petitioner had established the onerous cause or consideration apart from the selling price
Claudio Ramirez." (Rollo, p. 74, Petitioner's Brief, p. 21) of the lot. Granting, arguendo, that Clause Seventh of the Compromise Agreement
The petitioner also averred that the capability of the plaintiff, Florencia Cronico to constitutes a valid consideration of the promise to sell apart from the selling price, it
purchase the land in question was not raised as an issue in the answer of the defendant appears that the Compromise Agreement upon which the petitioner Cronico predicates
company and was developed as an afterthought during the trial. her right to buy the lot in question has been rescinded and set aside. (Deudor vs. J.M.
It is a fact that the petitioner, Florencia Cronico upon being tipped by Benjamin Bautista, Tuason & Co., Inc., 2 SCRA 129 and J. M. Tuason & Co., Inc. vs. Sanvictores 4 SCRA
head of the Real Estate Department of Gregorio Araneta Inc., that the reply letters of the 123, 126) Hence, the promise of the respondent company to sell the lot in question to the
appellant company were already placed in the mails on March 21, 1962 at 11:00 o'clock petitioner, Florencia Cronico has no consideration separate from the selling price of said
in the morning, immediately went to the Manila post office and claimed the registered lot.
letter addressed to her without waiting for the ordinary course for registered mails to be In order that a unilateral promise may be binding upon the promisor, Article 1479, Civil
delivered. The petitioner took delivery of the registered letter addressed to her at the Code of the Philippines, requires the concurrence of the condition that the promise be
entry section of the Manila post office. While this procedure may be tolerated by the "supported by a consideration distinct from the price. Accordingly, the promisee can not
postal authorities, the act of the petitioner in taking delivery of her letter at the entry compel the promisor to comply with the promise, unless the former establishes the
section of the Manila post office without waiting for said letter to be delivered to her in existence of said distinct consideration. The promisee has the burden of proving such
due course of mail is a violation of the "first come first served" condition imposed by the consideration. (Sanchez vs. Rigos, 45 SCRA 368, 372-373) The petitioner, Florencia
respondent J. M. Tuason & Co. Inc., acting through Gregorio Araneta Inc. Cronies, has not established the existence of a consideration distinct from the price of
The respondent, Claudio R. Ramirez, received on March 22, 1962 in the morning the the lot in question.
reply letter of the respondent company dated March 20, 1962 stating that Lot 22, Block The petitioner cannot claim that she had accepted the promise before it was withdrawn
461, Sta. Mesa Heights Subdivision was available for sale under the conditions set forth because, as stated above, she had violated the condition of "first, come, first served"
on the basis of "first come first served". The respondent, Claudio R. Ramirez, proceeded Moreover, it was only on March 27, 1962 that the respondent company received a letter
to the office of Benjamin Bautista on the same date and manifested that he was from counsel of the petitioner requesting that the lot subject of this litigation be sold to
accepting the conditions stated in the respondent company's letter. On March 23, 1962, her. The respondent, Claudio R. Ramirez, had on March 23, 1962, confirmed in writing
respondent Ramirez presented his letter to the respondent company confirming his his verbal acceptance of the terms and conditions of the sale of the lot in question.
verbal acceptance of the terms and conditions in connection with the sale. The petitioner maintains that the contract to sell (Exhibit 3) executed by the respondent
It was only on March 27, 1962 that the respondent company received a letter from Atty. company in favor of the respondent, Claudio R. Ramirez, contains a stipulation for her
Godofredo Asuncion in behalf of petitioner, Florencia Cronies, requesting that the lot benefit, which reads:
subject of litigation be sold to her. The enclosed cheek to cover the down payment was b) that the buyer Claudio Ramirez has been fully informed by the
company of all the circumstances relative to the offer of Florencia
11

Cronico to buy said lot and that he agrees and binds himself to hold 4. As part of the consideration of this agreement, the LESSOR hereby grants unto the
the company absolutely free and harmless from all claims and LESSEE the exclusive right, option and privilege to purchase, within the lease period, the
damages to said Florencia Cronico in connection with this sale of the leased premises thereon for the aggregate amount of P1,800,000.00 payable as follows:
lot to him. (Rollo, p. 74, Petitioner's Brief, pp. 31-32) a. Upon the signing of the Deed of Sale, the LESSEE shall immediately pay P360,000.
The foregoing clause cannot ' by any stretch of the imagination be considered as a b. The balance of P1,440,000.00 shall be paid in equal installments of P41,425.87 over
clause "pour autrui" or for the benefit of the petitioner. The stipulation does not confer sixty (60) consecutive months computed with interest at 24% per annum on the
any right arising from the contract that may be enforced by the petitioner against any of diminishing balance; Provided, that the LESSEE shall have the right to accelerate
the parties thereto. Neither does it impose any obligation arising from the contract that payments at anytime in which event the stipulated interest for the remaining installments
may be enforced by any of the parties thereto against the petitioner. The petitioner is not shall no longer be imposed.
"obliged principally or subsidiarily" by the contract to sell executed between the x . . The option shall be exercised by a written notice to the LESSOR at anytime within
respondent company and the respondent Claudio R. Ramirez. The said stipulation is for the option period and the document of sale over the afore-described properties has to be
the benefit of the respondent company. consummated within the month immediately following the month when the LESSEE
The contention of the petitioner that she has become the obligee or creditor of the exercised his option under this contract.[6]
respondent company because she was the first to comply with the terms of the letter- On January 7, 1986, or approximately three (3) weeks before the expiration of the
offer has no merit. Her so-called acceptance has no effect because she violated the lease contract, SIHI notified petitioner of the impending termination of the lease
condition of "first come, first served" by taking delivery of the reply letter of the agreement, and of the short period of time left within which he could still validly exercise
respondent company in the entry section of the Manila post office and of the fact that her the option. It likewise requested petitioner to advise them of his decision on the option,
formal letter of acceptance was only received by the respondent company on March 27, on or before January 20, 1986.[7]
1962. In a letter dated January 15, 1986, which was received by SIHI on January 29,
In view of all the foregoing, we find that the Court of Appeals has not committed any of 1986, petitioner requested for a six-month extension of the lease contract, alleging that
the errors assigned in the brief of the petitioner. he needs ample time to raise sufficient funds in order to exercise the option. To support
WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. 44479-R is hereby his request, petitioner averred that he had already made a substantial investment on the
affirmed, without pronouncement as to costs. property, and had been punctual in paying his monthly rentals.[8]
SO ORDERED. On February 14, 1986, SIHI notified petitioner that his request was disapproved.
Makasiar, Martin and Guerrero, JJ., concur. Nevertheless, it offered to lease the same property to petitioner at the rate of Thirty
Teehankee (Chairman), concurs in the result. Thousand (P30,000.00) pesos a month, for a period of one (1) year. It further informed
Muñ;oz Palma, J., took no part. the petitioner of its decision to offer for sale said leased property to the general public. [9]
[G.R. No. 124791. February 10, 1999] On February 18, 1986, petitioner notified SIHI of his decision to exercise the option
JOSE RAMON CARCELLER, petitioner, vs. COURT OF APPEALS and STATE to purchase the property and at the same time he made arrangements for the payment of
INVESTMENT HOUSES, INC., respondents. the downpayment thereon in the amount of Three Hundred Sixty Thousand
DECISION (P360,000.00) pesos.[10]
QUISUMBING, J.: On February 20, 1986, SIHI sent another letter to petitioner, reiterating its previous
Before us is a petition for review of the Decision[1] dated September 21, 1995 of the stand on the latters offer, stressing that the period within which the option should have
Court of Appeals[2]in CA - G. R. CV No. 37520, as well as its Resolution[3] dated April 25, been exercised had already lapsed. SIHI asked petitioner to vacate the property within
1996, denying both parties motion for partial reconsideration or clarification. The assailed ten (10) days from notice, and to pay rental and penalty due.[11]
decision affirmed with modification the judgment[4] of the Regional Trial Court of Cebu Hence, on February 28, 1986, a complaint for specific performance and
City, Branch 5, in Civil Case No. CEB 4700, and disposed of the controversy as follows: damages[12] was filed by petitioner against SIHI before the Regional Trial Court of Cebu
However, We do not find it just that the appellee, in exercising his option to buy, should City, to compel the latter to honor its commitment and execute the corresponding deed of
pay appellant SIHI only P1,800,000.00. In fairness to appellant SIHI, the purchase price sale.
must be based on the prevailing market price of real property in Bulacao, Cebu After trial, the court a quo promulgated its decision dated April 1, 1991, the
City. (Emphasis supplied) dispositive portion of which reads:
The factual background of this case is quite simple. In the light of the foregoing considerations, the Court hereby renders judgment in Civil
Private respondent State Investment Houses, Inc. (SIHI) is the registered owner of Case No. CEB 4700, ordering the defendant to execute a deed of sale in favor of the
two (2) parcels of land with a total area of 9,774 square meters, including all the plaintiff, covering the parcels of land together with all the improvements thereon, covered
improvements thereon, located at Bulacao, Cebu City, covered by Transfer Certificate of by Transfer Certificates of Title Nos. 89152 and 89153 of the Registry of Deeds of Cebu
Titles Nos. T-89152 and T-89153 of the Registry of Deeds of Cebu City. City, in accordance with the lease contract executed on January 10, 1984 between the
On January 10, 1985, petitioner and SIHI entered into a lease contract with option plaintiff and the defendant, but the purchase price may be by one shot payment
to purchase[5] over said two parcels of land, at a monthly rental of Ten Thousand of P1,800,000.00; and the defendant to pay attorneys fee of P20,000.00.
(P10,000.00) pesos for a period of eighteen (18) months, beginning on August 1, 1984 No damages awarded.[13]
until January 30, 1986. The pertinent portion of the lease contract subject of the dispute Not satisfied with the judgment, SIHI elevated the case to the Court of Appeals by
reads in part: way of a petition for review.
On September 21, 1995, respondent court rendered its decision, affirming the trial
courts judgment, but modified the basis for assessing the purchase price. While
12

respondent court affirmed appellees option to buy the property, it added that, the executed. Thereby, the intention of the contracting parties could be made to prevail,
purchase price must be based on the prevailing market price of real property in Bulacao, because their agreement has the force of law between them. [19]
Cebu City.[14] Moreover, to ascertain the intent of the parties in a contractual relationship, it is
Baffled by the modification made by respondent court, both parties filed a motion for imperative that the various stipulations provided for in the contract be construed together,
reconsideration and/or clarification, with petitioner, on one hand, praying that the consistent with the parties contemporaneous and subsequent acts as regards the
prevailing market price be the value of the property in February 1986, the time when the execution of the contract.[20] And once the intention of the parties has been ascertained,
sale would have been consummated. SIHI, on the other hand, prayed that the market that element is deemed as an integral part of the contract as though it has been originally
price of the property be based on the prevailing price index at least 10 years later, that is, expressed in unequivocal terms.
1996. As sufficiently established during the trial, SIHI, prior to its negotiation with
Respondent court conducted further hearings to clarify the matter, but no petitioner, was already beset with financial problems. SIHI was experiencing difficulty in
agreement was reached by the parties. Thus, on April 25, 1996, respondent court meeting the claims of its creditors. Thus, in order to reprogram the companys financial
promulgated the assailed resolution, which denied both parties motions, and directed the investment plan and facilitate its rehabilitation and viability, SIHI, being a quasi-banking
trial court to conduct further hearings to ascertain the prevailing market value of real financial institution, had been placed under the supervision and control of the Central
properties in Bulacao, Cebu City and fix the value of the property subject of the Bank (CB). It was in dire need of liquidating its assets, so to speak, in order to stay afloat
controversy.14a financially.
Hence, the instant petition for review. Thus, SIHI was compelled to dispose some of its assets, among which is the
The fundamental issue to be resolved is, should petitioner be allowed to exercise subject leased property, to generate sufficient funds to augment its badly-depleted
the option to purchase the leased property, despite the alleged delay in giving the financial resources. This then brought about the execution of the lease contract with
required notice to private respondent? option to purchase between SIHI and the petitioner.
An option is a preparatory contract in which one party grants to the other, for a fixed The lease contract provided that to exercise the option, petitioner had to send a
period and under specified conditions, the power to decide, whether or not to enter into a letter to SIHI, manifesting his intent to exercise said option within the lease period ending
principal contract. It binds the party who has given the option, not to enter into the January 30, 1986. However, what petitioner did was to request on January 15, 1986, for
principal contract with any other person during the period designated, and, within that a six-month extension of the lease contract, for the alleged purpose of raising funds
period, to enter into such contract with the one to whom the option was granted, if the intended to purchase the property subject of the option. It was only after the request was
latter should decide to use the option.[15] It is a separate agreement distinct from the denied on February 14, 1986, that petitioner notified SIHI of his desire to exercise the
contract which the parties may enter into upon the consummation of the option.[16] option formally. This was by letter dated February 18, 1986. In private respondents view,
Considering the circumstances in this case, we find no reason to disturb the there was already a delay of 18 days, fatal to petitioners cause. But respondent court
findings of respondent court, that petitioners letter to SIHI, dated January 15, 1986, was found the delay neither substantial nor fundamental and did not amount to a breach that
fair notice to the latter of the formers intent to exercise the option, despite the request for would defeat the intention of the parties when they executed the lease contract with
the extension of the lease contract. As stated in said letter to SIHI, petitioner was option to purchase.20a
requesting for an extension (of the contract) for six months to allow us to generate In allowing petitioner to exercise the option, however, both lower courts are in
sufficient funds in order to exercise our option to buy the subject property. [17] The accord in their decision, rationalizing that a contrary ruling would definitely cause damage
analysis by the Court of Appeals of the evidence on record and the process by which it to the petitioner, as he had the whole place renovated to make the same suitable and
arrived at its findings on the basis thereof, impel this Courts assent to said findings. They conducive for the business he established there. Moreover, judging from the subsequent
are consistent with the parties primary intent, as hereafter discussed, when they acts of the parties, it is undeniable that SIHI really intended to dispose of said leased
executed the lease contract. As respondent court ruled: property, which petitioner indubitably intended to buy.
We hold that the appellee [herein petitioner] acted with honesty and good faith. Verily, SIHIs agreement to enter first into a lease contract with option to purchase with
We are in accord with the trial court that he should be allowed to exercise his option to herein petitioner, is a clear proof of its intent to promptly dispose said property although
purchase the lease property. In fact, SIHI will not be prejudiced. A contrary ruling, the full financial returns may materialize only in a years time. Furthermore, its letter dated
however, will definitely cause damage to the appellee, it appearing that he has January 7, 1986, reminding the petitioner of the short period of time left within which to
introduced considerable improvements on the property and has borrowed huge loan from consummate their agreement, clearly showed its desire to sell that property. Also, SIHIs
the Technology Resources Center.17a letter dated February 14, 1986 supported the conclusion that it was bent on disposing
The contracting parties primary intent in entering into said lease contract with option said property. For this letter made mention of the fact that, said property is now for sale
to purchase confirms, in our view, the correctness of respondent courts ruling. Analysis to the general public.
and construction, however, should not be limited to the words used in the contract, as Petitioners determination to purchase said property is equally indubitable. He
they may not accurately reflect the parties true intent. The reasonableness of the result introduced permanent improvements on the leased property, demonstrating his intent to
obtained, after said analysis, ought likewise to be carefully considered. acquire dominion in a years time.To increase his chances of acquiring the property, he
It is well-settled in both law and jurisprudence, that contracts are the law between secured an P8 Million loan from the Technology Resources Center (TRC), thereby
the contracting parties and should be fulfilled, if their terms are clear and leave no room augmenting his capital. He averred that he applied for a loan since he planned to pay the
for doubt as to the intention of the contracting parties.[18] Further, it is well-settled that in purchase price in one single payment, instead of paying in installment, which would entail
construing a written agreement, the reason behind and the circumstances surrounding its the payment of additional interest at the rate of 24% per annum, compared to 7% per
execution are of paramount importance. Sound construction requires one to be placed annum interest for the TRC loan. His letter earlier requesting extension was premised, in
mentally in the situation occupied by the parties concerned at the time the writing was fact, on his need for time to secure the needed financing through a TRC loan.
13

In contractual relations, the law allows the parties reasonable leeway on the terms The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant
of their agreement, which is the law between them.[21] Note that by contract SIHI had Severina Rigos executed an instrument entitled "Option to Purchase," whereby Mrs.
given petitioner 4 periods: (a) the option to purchase the property for P1,800,000.00 Rigos "agreed, promised and committed ... to sell" to Sanchez the sum of P1,510.00, a
within the lease period, that is, until January 30, 1986; (b) the option to be exercised parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose,
within the option period by written notice at anytime; (c) the document of sale...to be province of Nueva Ecija, and more particularly described in Transfer Certificate of Title
consummated within the month immediately following the month when petitioner No. NT-12528 of said province, within two (2) years from said date with the
exercises the option; and (d) the payment in equal installments of the purchase price understanding that said option shall be deemed "terminated and elapsed," if "Sanchez
over a period of 60 months. In our view, petitioners letter of January 15, 1986 and his shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch
formal exercise of the option on February 18, 1986 were within a reasonable time-frame as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said
consistent with periods given and the known intent of the parties to the agreement dated period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said
January 10, 1985. A contrary view would be harsh and inequituous indeed. amount with the Court of First Instance of Nueva Ecija and commenced against the latter
In Tuason, Jr., etc. vs. De Asis,[22] this Court opined that in a contract of lease, if the the present action, for specific performance and damages.
lessor makes an offer to the lessee to purchase the property on or before the termination After the filing of defendant's answer — admitting some allegations of the complaint,
of the lease, and the lessee fails to accept or make the purchase on time, the lessee denying other allegations thereof, and alleging, as special defense, that the contract
losses the right to buy the property later on the terms and conditions set in the between the parties "is a unilateral promise to sell, and the same being unsupported by
offer. Thus, on one hand, petitioner herein could not insist on buying the said property any valuable consideration, by force of the New Civil Code, is null and void" — on
based on the price agreed upon in the lease agreement, even if his option to purchase it February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a
is recognized. On the other hand, SIHI could not take advantage of the situation to judgment on the pleadings. Accordingly, on February 28, 1964, the lower court rendered
increase the selling price of said property by nearly 90% of the original price. Such leap judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him
in the price quoted would show an opportunistic intent to exploit the situation as SIHI and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise,
knew for a fact that petitioner badly needed the property for his business and that he sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by
could afford to pay such higher amount after having secured an P8 Million loan from the Mrs. Rigos.
TRC. If the courts were to allow SIHI to take advantage of the situation, the result would This case admittedly hinges on the proper application of Article 1479 of our Civil Code,
have been an injustice to petitioner, because SIHI would be unjustly enriched at his which provides:
expense. Courts of law, being also courts of equity, may not countenance such grossly ART. 1479. A promise to buy and sell a determinate thing for a price
unfair results without doing violence to its solemn obligation to administer fair and equal certain is reciprocally demandable.
justice for all. An accepted unilateral promise to buy or to sell a determinate thing for
WHEREFORE, the appealed decision of respondent court, insofar as it affirms the a price certain is binding upon the promissor if the promise is
judgment of the trial court in granting petitioner the opportunity to exercise the option to supported by a consideration distinct from the price.
purchase the subject property, is hereby AFFIRMED. However the purchase price should In his complaint, plaintiff alleges that, by virtue of the option under consideration,
be based on the fair market value of real property in Bulacao, Cebu City, as of February "defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy"
1986, when the contract would have been consummated. Further, petitioner is hereby the land described in the option, copy of which was annexed to said pleading as Annex A
ordered to pay private respondent SIHI legal interest on the said purchase price thereof and is quoted on the margin.1 Hence, plaintiff maintains that the promise
beginning February 1986 up to the time it is actually paid, as well as the taxes due on contained in the contract is "reciprocally demandable," pursuant to the first paragraph of
said property, considering that petitioner have enjoyed the beneficial use of said said Article 1479. Although defendant had really "agreed, promised and committed"
property. The case is hereby remanded to Regional Trial Court of Cebu, Branch 5, for herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and
further proceedings to determine promptly the fair market value of said real property as of committed himself " to buy said property. Said Annex A does not bear out plaintiff's
February 1986, in Bulacao, Cebu City. allegation to this effect. What is more, since Annex A has been made "an integral part" of
Costs against private respondent. his complaint, the provisions of said instrument form part "and parcel" 2 of said pleading.
SO ORDERED. The option did not impose upon plaintiff the obligation to purchase defendant's property.
Bellosillo, (Chairman), Puno, Mendoza, and Buena, JJ., concur. Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy.
And both parties so understood it, as indicated by the caption, "Option to Purchase,"
G.R. No. L-25494 June 14, 1972 given by them to said instrument. Under the provisions thereof, the defendant "agreed,
NICOLAS SANCHEZ, plaintiff-appellee, promised and committed" herself to sell the land therein described to the plaintiff for
vs. P1,510.00, but there is nothing in the contract to indicate that her aforementioned
SEVERINA RIGOS, defendant-appellant. agreement, promise and undertaking is supported by a consideration "distinct from the
Santiago F. Bautista for plaintiff-appellee. price" stipulated for the sale of the land.
Jesus G. Villamar for defendant-appellant. Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of
said consideration, and this would seem to be the main factor that influenced its decision
CONCEPCION, C.J.:p in plaintiff's favor. It should be noted, however, that:
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of (1) Article 1354 applies to contracts in general, whereas the second paragraph of Article
Appeals, which certified the case to Us, upon the ground that it involves a question 1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral
purely of law. promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar.
14

(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 only have a binding effect if supported by a consideration which means
requires the concurrence of a condition, namely, that the promise be "supported by a that the option can still be withdrawn, even if accepted, if the same is
consideration distinct from the price." Accordingly, the promisee can not compel the not supported by any consideration. It is not disputed that the option is
promisor to comply with the promise, unless the former establishes the existence of said without consideration. It can therefore be withdrawn notwithstanding
distinct consideration. In other words, the promisee has the burden of proving such the acceptance of it by appellee.
consideration. Plaintiff herein has not even alleged the existence thereof in his complaint. It is true that under article 1324 of the new Civil Code, the general rule
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a regarding offer and acceptance is that, when the offerer gives to the
special defense, the absence of said consideration for her promise to sell and, by joining offeree a certain period to accept, "the offer may be withdrawn at any
in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of time before acceptance" except when the option is founded upon
said averment in defendant's answer. Indeed as early as March 14, 1908, it had been consideration, but this general rule must be interpreted as modified by
held, in Bauermann v. Casas,3 that: the provision of article 1479 above referred to, which applies to "a
One who prays for judgment on the pleadings without offering proof as promise to buy and sell" specifically. As already stated, this rule
to the truth of his own allegations, and without giving the opposing requires that a promise to sell to be valid must be supported by a
party an opportunity to introduce evidence, must be understood consideration distinct from the price.
to admit the truth of all the material and relevant allegations of the We are not oblivious of the existence of American authorities which
opposing party, and to rest his motion for judgment on those hold that an offer, once accepted, cannot be withdrawn, regardless of
allegations taken together with such of his own as are admitted in the whether it is supported or not by a consideration (12 Am. Jur. 528).
pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis These authorities, we note, uphold the general rule applicable to offer
supplied.) and acceptance as contained in our new Civil Code. But we are
This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v. prevented from applying them in view of the specific provision
Herminia Verde.5 embodied in article 1479. While under the "offer of option" in question
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific appellant has assumed a clear obligation to sell its barge to appellee
Co.,6 from which We quote: and the option has been exercised in accordance with its terms, and
The main contention of appellant is that the option granted to appellee there appears to be no valid or justifiable reason for appellant to
to sell to it barge No. 10 for the sum of P30,000 under the terms stated withdraw its offer, this Court cannot adopt a different attitude because
above has no legal effect because it is not supported by any the law on the matter is clear. Our imperative duty is to apply it unless
consideration and in support thereof it invokes article 1479 of the new modified by Congress.
Civil Code. The article provides: However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian
"ART. 1479. A promise to buy and sell a determinate Tek,8 decided later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
thing for a price certain is reciprocally demandable. Co.,9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied
An accepted unilateral promise to buy or sell a the former where a unilateral promise to sell similar to the one sued upon here was
determinate thing for a price certain is binding upon involved, treating such promise as an option which, although not binding as a contract in
the promisor if the promise is supported by a itself for lack of a separate consideration, nevertheless generated a bilateral contract of
consideration distinct from the price." purchase and sale upon acceptance. Speaking through Associate Justice, later Chief
On the other hand, Appellee contends that, even granting that the Justice, Cesar Bengzon, this Court said:
"offer of option" is not supported by any consideration, that option Furthermore, an option is unilateral: a promise to sell at the price fixed
became binding on appellant when the appellee gave notice to it of its whenever the offeree should decide to exercise his option within the
acceptance, and that having accepted it within the period of option, the specified time. After accepting the promise and before he exercises his
offer can no longer be withdrawn and in any event such withdrawal is option, the holder of the option is not bound to buy. He is free either to
ineffective. In support this contention, appellee invokes article 1324 of buy or not to buy later. In this case, however, upon accepting herein
the Civil Code which provides: petitioner's offer a bilateral promise to sell and to buy ensued, and the
"ART. 1324. When the offerer has allowed the respondent ipso facto assumed the obligation of a purchaser. He did
offeree a certain period to accept, the offer may be not just get the right subsequently to buy or not to buy. It was not a
withdrawn any time before acceptance by mere option then; it was a bilateral contract of sale.
communicating such withdrawal, except when the Lastly, even supposing that Exh. A granted an option which is not
option is founded upon consideration as something binding for lack of consideration, the authorities hold that:
paid or promised." "If the option is given without a consideration, it is a
There is no question that under article 1479 of the new Civil Code "an mere offer of a contract of sale, which is not binding
option to sell," or "a promise to buy or to sell," as used in said article, to until accepted. If, however, acceptance is made
be valid must be "supported by a consideration distinct from the price." before a withdrawal, it constitutes a binding contract
This is clearly inferred from the context of said article that a unilateral of sale, even though the option was not supported by
promise to buy or to sell, even if accepted, is only binding if supported a sufficient consideration. ... . (77 Corpus Juris
by consideration. In other words, "an accepted unilateral promise can
15

Secundum, p. 652. See also 27 Ruling Case Law Appellants," which reversed the decision of the Regional Trial Court (Branch 121) at
339 and cases cited.) Caloocan City in Civil Case No. C-12942.
"It can be taken for granted, as contended by the The facts of the case are as follows:
defendant, that the option contract was not valid for Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa,
lack of consideration. But it was, at least, an offer to Caloocan City, as evidenced by Transfer Certificate of Title No. (18431) 18938, of the
sell, which was accepted by letter, and of the Register of Deeds of Rizal.
acceptance the offerer had knowledge before said In July 1971, Macaria sold a portion of 300 square meters of the lot to the Spouses Julio
offer was withdrawn. The concurrence of both acts and Marina and Villamor for the total amount of P21,000.00. Earlier, Macaria borrowed
— the offer and the acceptance — could at all P2,000.00 from the spouses which amount was deducted from the total purchase price of
events have generated a contract, if none there was the 300 square meter lot sold. The portion sold to the Villamor spouses is now covered
before (arts. 1254 and 1262 of the Civil Code)." by TCT No. 39935 while the remaining portion which is still in the name of Macaria
(Zayco vs. Serra, 44 Phil. 331.) Labing-isa is covered by TCT No. 39934 (pars. 5 and 7, Complaint). On November 11,
In other words, since there may be no valid contract without a cause or consideration, the 1971, Macaria executed a "Deed of Option" in favor of Villamor in which the remaining
promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice 300 square meter portion (TCT No. 39934) of the lot would be sold to Villamor under the
of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell conditions stated therein. The document reads:
which, if accepted, results in a perfected contract of sale. DEED OF OPTION
This view has the advantage of avoiding a conflict between Articles 1324 — on the This Deed of Option, entered into in the City of Manila, Philippines, this 11th day
general principles on contracts — and 1479 — on sales — of the Civil Code, in line with of November, 1971, by and between Macaria Labing-isa, of age, married to
the cardinal rule of statutory construction that, in construing different provisions of one Roberto Reyes, likewise of age, and both resideing on Reparo St., Baesa,
and the same law or code, such interpretation should be favored as will reconcile or Caloocan City, on the one hand, and on the other hand the spouses Julio
harmonize said provisions and avoid a conflict between the same. Indeed, the Villamor and Marina V. Villamor, also of age and residing at No. 552 Reparo St.,
presumption is that, in the process of drafting the Code, its author has maintained a corner Baesa Road, Baesa, Caloocan City.
consistent philosophy or position. Moreover, the decision in Southwestern Sugar & WITNESSETH
Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modified by Art. That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an
1479 of the Civil Code, in effect, considers the latter as an exception to the former, and area of 600 square meters, more or less, more particularly described in TCT No.
exceptions are not favored, unless the intention to the contrary is clear, and it is not so, (18431) 18938 of the Office of the Register of Deeds for the province of Rizal,
insofar as said two (2) articles are concerned. What is more, the reference, in both the issued in may name, I having inherited the same from my deceased parents, for
second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or which reason it is my paraphernal property;
founded upon a consideration, strongly suggests that the two (2) provisions intended to That I, with the conformity of my husband, Roberto Reyes, have sold one-half
enforce or implement the same principle. thereof to the aforesaid spouses Julio Villamor and Marina V. Villamor at the
Upon mature deliberation, the Court is of the considered opinion that it should, as it price of P70.00 per sq. meter, which was greatly higher than the actual
hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar reasonable prevailing value of lands in that place at the time, which portion,
as inconsistent therewith, the view adhered to in the Southwestern Sugar & Molasses after segregation, is now covered by TCT No. 39935 of the Register of Deeds
Co. case should be deemed abandoned or modified. for the City of Caloocan, issued on August 17, 1971 in the name of the
WHEREFORE, the decision appealed from is hereby affirmed, with costs against aforementioned spouses vendees;
defendant-appellant Severina Rigos. It is so ordered. That the only reason why the Spouses-vendees Julio Villamor and Marina V.
Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur. Villamor, agreed to buy the said one-half portion at the above-stated price of
about P70.00 per square meter, is because I, and my husband Roberto Reyes,
Castro, J., took no part. have agreed to sell and convey to them the remaining one-half portion still
owned by me and now covered by TCT No. 39935 of the Register of Deeds for
G.R. No. 97332 October 10, 1991 the City of Caloocan, whenever the need of such sale arises, either on our part
SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners, or on the part of the spouses (Julio) Villamor and Marina V. Villamor, at the
vs. same price of P70.00 per square meter, excluding whatever improvement may
THE HON. COURT OF APPEALS AND SPOUSES MACARIA LABINGISA REYES be found the thereon;
AND ROBERTO REYES,respondents. That I am willing to have this contract to sell inscribed on my aforesaid title as
Tranquilino F. Meris for petitioners. an encumbrance upon the property covered thereby, upon payment of the
Agripino G. Morga for private respondents. corresponding fees; and
That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the
above provisions of this Deed of Option.
MEDIALDEA, J.: IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila,
This is a petition for review on certiorari of the decision of the Court of Appeals in CA- Philippines, by all the persons concerned, this 11th day of November, 1971.
G.R. No. 24176 entitled, "Spouses Julio Villamor and Marina Villamor, Plaintiffs- JULIO VILLAMOR MACARIA LABINGISA
Appellees, versus Spouses Macaria Labing-isa Reyes and Roberto Reyes, Defendants- With My Conformity:
16

MARINA VILLAMOR ROBERTO REYES APPELLANTS IS STILL VALID AND BINDING DESPITE THE LAPSE OF
Signed in the Presence Of: MORE THAN THIRTEEN (13) YEARS FROM THE EXECUTION OF THE
MARIANO Z. SUNIGA CONTRACT;
ROSALINDA S. EUGENIO 2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS
ACKNOWLEDGMENT OBSCURE WORDS AND STIPULATIONS WHICH SHOULD BE RESOLVED
REPUBLIC OF THE PHILIPPINES) AGAINST THE PLAINTIFF-APPELLEES WHO UNILATERALLY DRAFTED
CITY OF MANILA ) S.S. AND PREPARED THE SAME;
At the City of Manila, on the 11th day of November, 1971, personally appeared 3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE
before me Roberto Reyes, Macaria Labingisa, Julio Villamor and Marina INTENTION AND PURPOSE OF THE PARTIES DESPITE ADVERSE,
Ventura-Villamor, known to me as the same persons who executed the CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PLAINTIFF-
foregoing Deed of Option, which consists of two (2) pages including the page APPELLEES;
whereon this acknowledgement is written, and signed at the left margin of the 4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT
first page and at the bottom of the instrument by the parties and their witnesses, OF THEIR IGNORANCE PLACING THEM AT A DISADVANTAGE IN THE
and sealed with my notarial seal, and said parties acknowledged to me that the DEED OF OPTION;
same is their free act and deed. The Residence Certificates of the parties were 5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN
exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila on Jan. FAVOR OF THE DEFENDANT-APPELLANTS; and
27, 1971, and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria 6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-
Labingisa, A-3339130 and B-1266104, both issued at Caloocan City on April 15, APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY WAY OF
1971, their joint Tax Acct. Number being 3028-767-6; Julio Villamor, A-804, ATTORNEY'S FEES. (pp. 31-32, Rollo)
issued at Manila on Jan. 14, 1971, and B-138, issued at Manila on March 1, On February 12, 1991, the Court of Appeals rendered a decision reversing the decision
1971; and Marina Ventura-Villamor, A-803, issued at Manila on Jan. 14, 1971, of the trial court and dismissing the complaint. The reversal of the trial court's decision
their joint Tax Acct. Number being 608-202-6. was premised on the finding of respondent court that the Deed of Option is void for lack
ARTEMIO M. MALUBAY of consideration.
Notary Public The Villamor spouses brought the instant petition for review on certiorari on the following
Until December 31, 1972 grounds:
PTR No. 338203, Manila I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE
January 15, 1971 PHRASE WHENEVER THE NEED FOR SUCH SALE ARISES ON OUR
Doc. No. 1526; (PRIVATE RESPONDENT) PART OR ON THE PART OF THE SPOUSES
Page No. 24; JULIO D. VILLAMOR AND MARINA V. VILLAMOR' CONTAINED IN THE
Book No. 38; DEED OF OPTION DENOTES A SUSPENSIVE CONDITION;
Series of 1971. (pp. 25-29, Rollo) II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED
According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN
repurchase the lot sold by them to the Villamor spouses but Marina Villamor refused and NOT FINDING, THAT THE SAID CONDITION HAD ALREADY BEEN
reminded them instead that the Deed of Option in fact gave them the option to purchase FULFILLED;
the remaining portion of the lot. III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED
The Villamors, on the other hand, claimed that they had expressed their desire to PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN
purchase the remaining 300 square meter portion of the lot but the Reyeses had been HOLDING THAT THE IMPOSITION OF SAID CONDITION PREVENTED THE
ignoring them. Thus, on July 13, 1987, after conciliation proceedings in the barangay PERFECTION OF THE CONTRACT OF SALE DESPITE THE EXPRESS
level failed, they filed a complaint for specific performance against the Reyeses. OFFER AND ACCEPTANCE CONTAINED IN THE DEED OF OPTION;
On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF
spouses, the dispositive portion of which states: OPTION IS VOID FOR LACK OF CONSIDERATION;
WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT
in favor of the plaintiffs and against the defendants ordering the defendant CONSIDERATION IS NECESSARY TO SUPPORT THE DEED OF OPTION
MACARIA LABING-ISA REYES and ROBERTO REYES, to sell unto the DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED
plaintiffs the land covered by T.C.T No. 39934 of the Register of Deeds of THEREIN. (p. 12, Rollo)
Caloocan City, to pay the plaintiffs the sum of P3,000.00 as and for attorney's The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby
fees and to pay the cost of suit. the private respondents agreed to sell their lot to petitioners "whenever the need of such
The counterclaim is hereby DISMISSED, for LACK OF MERIT. sale arises, either on our part (private respondents) or on the part of Julio Villamor and
SO ORDERED. (pp. 24-25, Rollo) Marina Villamor (petitioners)." The court a quo, rule that the Deed of Option was a
Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court valid written agreement between the parties and made the following conclusions:
of Appeals on the following assignment of errors: xxx xxx xxx
1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11, It is interesting to state that the agreement between the parties are evidence by
1971 BETWEEN THE PLAINTIFF-APPELLEES AND DEFENDANT- a writing, hence, the controverting oral testimonies of the herein defendants
17

cannot be any better than the documentary evidence, which, in this case, is the the deed of option as appearing in the deed itself is the petitioner's having agreed to buy
Deed of Option (Exh. "A" and "A-a") the 300 square meter portion of private respondents' land at P70.00 per square meter
The law provides that when the terms of an agreement have been reduced to "which was greatly higher than the actual reasonable prevailing price." This cause or
writing it is to be considered as containing all such terms, and therefore, there consideration is clear from the deed which stated:
can be, between the parties and their successors in interest no evidence of their That the only reason why the spouses-vendees Julio Villamor and Marina V.
terms of the agreement, other than the contents of the writing. ... (Section 7 Villamor agreed to buy the said one-half portion at the above stated price of
Rule 130 Revised Rules of Court) Likewise, it is a general and most inflexible about P70.00 per square meter, is because I, and my husband Roberto Reyes,
rule that wherever written instruments are appointed either by the requirements have agreed to sell and convey to them the remaining one-half portion still
of law, or by the contract of the parties, to be the repositories and memorials of owned by me ... (p. 26, Rollo)
truth, any other evidence is excluded from being used, either as a substitute for The respondent appellate court failed to give due consideration to petitioners' evidence
such instruments, or to contradict or alter them. This is a matter both of principle which shows that in 1969 the Villamor spouses bough an adjacent lot from the brother of
and of policy; of principle because such instruments are in their nature and Macaria Labing-isa for only P18.00 per square meter which the private respondents did
origin entitled to a much higher degree of credit than evidence of policy, not rebut. Thus, expressed in terms of money, the consideration for the deed of option is
because it would be attended with great mischief if those instruments upon the difference between the purchase price of the 300 square meter portion of the lot in
which man's rights depended were liable to be impeached by loose collateral 1971 (P70.00 per sq.m.) and the prevailing reasonable price of the same lot in 1971.
evidence. Where the terms of an agreement are reduced to writing, the Whatever it is, (P25.00 or P18.00) though not specifically stated in the deed of option,
document itself, being constituted by the parties as the expositor of their was ascertainable. Petitioner's allegedly paying P52.00 per square meter for the option
intentions, it is the only instrument of evidence in respect of that may, as opined by the appellate court, be improbable but improbabilities does not
agreement which the law will recognize so long as it exists for the purpose of invalidate a contract freely entered into by the parties.
evidence. (Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy, W.R. 68, The "deed of option" entered into by the parties in this case had unique features.
cited in Francisco's Rules of Court, Vol. VII Part I p. 153) (Emphasis supplied, Ordinarily, an optional contract is a privilege existing in one person, for which he had paid
pp. 126-127, Records). a consideration and which gives him the right to buy, for example, certain merchandise or
The respondent appellate court, however, ruled that the said deed of option is void for certain specified property, from another person, if he chooses, at any time within the
lack of consideration. The appellate court made the following disquisitions: agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look
Plaintiff-appellees say they agreed to pay P70.00 per square meter for the closely at the "deed of option" signed by the parties, We will notice that the first part
portion purchased by them although the prevailing price at that time was only covered the statement on the sale of the 300 square meter portion of the lot to Spouses
P25.00 in consideration of the option to buy the remainder of the land. This Villamor at the price of P70.00 per square meter "which was higher than the actual
does not seem to be the case. In the first place, the deed of sale was never reasonable prevailing value of the lands in that place at that time (of sale)." The second
produced by them to prove their claim. Defendant-appellants testified that no part stated that the only reason why the Villamor spouses agreed to buy the said lot at a
copy of the deed of sale had ever been given to them by the plaintiff-appellees. much higher price is because the vendor (Reyeses) also agreed to sell to the Villamors
In the second place, if this was really the condition of the prior sale, we see no the other half-portion of 300 square meters of the land. Had the deed stopped there,
reason why it should be reiterated in the Deed of Option. On the contrary, the there would be no dispute that the deed is really an ordinary deed of option granting the
alleged overprice paid by the plaintiff-appellees is given in the Deed as reason Villamors the option to buy the remaining 300 square meter-half portion of the lot in
for the desire of the Villamors to acquire the land rather than as a consideration consideration for their having agreed to buy the other half of the land for a much higher
for the option given to them, although one might wonder why they took nearly price. But, the "deed of option" went on and stated that the sale of the other half would be
13 years to invoke their right if they really were in due need of the lot. made "whenever the need of such sale arises, either on our (Reyeses) part or on the part
At all events, the consideration needed to support a unilateral promise to sell is of the Spouses Julio Villamor and Marina V. Villamor. It appears that while the option to
a dinstinct one, not something that is as uncertain as P70.00 per square meter buy was granted to the Villamors, the Reyeses were likewise granted an option to sell. In
which is allegedly 'greatly higher than the actual prevailing value of lands.' A other words, it was not only the Villamors who were granted an option to buy for which
sale must be for a price certain (Art. 1458). For how much the portion conveyed they paid a consideration. The Reyeses as well were granted an option to sell should the
to the plaintiff-appellees was sold so that the balance could be considered the need for such sale on their part arise.
consideration for the promise to sell has not been shown, beyond a mere In the instant case, the option offered by private respondents had been accepted by the
allegation that it was very much below P70.00 per square meter. petitioner, the promise, in the same document. The acceptance of an offer to sell for a
The fact that plaintiff-appellees might have paid P18.00 per square meter for price certain created a bilateral contract to sell and buy and upon acceptance, the
another land at the time of the sale to them of a portion of defendant-appellant's offer, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian
lot does not necessarily prove that the prevailing market price at the time of the Tek, 102 Phil. 948). Demandabilitiy may be exercised at any time after the execution of
sale was P18.00 per square meter. (In fact they claim it was P25.00). It is the deed. In Sanchez v. Rigos, No. L-25494, June 14, 1972, 45 SCRA 368, 376, We
improbable that plaintiff-appellees should pay P52.00 per square meter for the held:
privilege of buying when the value of the land itself was allegedly P18.00 per In other words, since there may be no valid contract without a cause of
square meter. (pp. 34-35, Rollo) consideration, the promisory is not bound by his promise and may, accordingly
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
contracts, the essential reason which moves the contracting parties to enter into the however, of the nature of an offer to sell which, if accepted, results in a
contract." The cause or the impelling reason on the part of private respondent executing perfected contract of sale.
18

A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there G.R. No. 109125 December 2, 1994
is a meeting of minds upon the thing which is the object of the contract and upon the ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
price. From that moment, the parties may reciprocally demand perform of contracts." vs.
Since there was, between the parties, a meeting of minds upon the object and the price, THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
there was already a perfected contract of sale. What was, however, left to be done was CORPORATION, respondents.
for either party to demand from the other their respective undertakings under the Antonio M. Albano for petitioners.
contract. It may be demanded at any time either by the private respondents, who may Umali, Soriano & Associates for private respondent.
compel the petitioners to pay for the property or the petitioners, who may compel the
private respondents to deliver the property. VITUG, J.:
However, the Deed of Option did not provide for the period within which the parties may Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04
demand the performance of their respective undertakings in the instrument. The parties December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and
could not have contemplated that the delivery of the property and the payment thereof effect the orders of execution of the trial court, dated 30 August 1991 and 27 September
could be made indefinitely and render uncertain the status of the land. The failure of 1991, in Civil Case No. 87-41058.
either parties to demand performance of the obligation of the other for an unreasonable The antecedents are recited in good detail by the appellate court thusly:
length of time renders the contract ineffective. On July 29, 1987 a Second Amended Complaint for Specific
Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
within ten (10) years. The Deed of Option was executed on November 11, 1971. The against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the
acceptance, as already mentioned, was also accepted in the same instrument. The Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058,
complaint in this case was filed by the petitioners on July 13, 1987, seventeen (17) years alleging, among others, that plaintiffs are tenants or lessees of
from the time of the execution of the contract. Hence, the right of action had prescribed. residential and commercial spaces owned by defendants described as
There were allegations by the petitioners that they demanded from the private Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied
respondents as early as 1984 the enforcement of their rights under the contract. Still, it said spaces since 1935 and have been religiously paying the rental
was beyond the ten (10) years period prescribed by the Civil Code. In the case of Santos and complying with all the conditions of the lease contract; that on
v. Ganayo, L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and several occasions before October 9, 1986, defendants informed
subscribing to the observations of the court a quo held, thus: plaintiffs that they are offering to sell the premises and are giving them
... Assuming that Rosa Ganayo, the oppositor herein, had the right based on the priority to acquire the same; that during the negotiations, Bobby Cu
Agreement to Convey and Transfer as contained in Exhibits '1' and '1-A', her Unjieng offered a price of P6-million while plaintiffs made a counter
failure or the abandonment of her right to file an action against Pulmano offer of P5-million; that plaintiffs thereafter asked the defendants to put
Molintas when he was still a co-owner of the on-half (1/2) portion of the 10,000 their offer in writing to which request defendants acceded; that in reply
square meters is now barred by laches and/or prescribed by law because she to defendant's letter, plaintiffs wrote them on October 24, 1986 asking
failed to bring such action within ten (10) years from the date of the written that they specify the terms and conditions of the offer to sell; that when
agreement in 1941, pursuant to Art. 1144 of the New Civil Code, so that when plaintiffs did not receive any reply, they sent another letter dated
she filed the adverse claim through her counsel in 1959 she had absolutely no January 28, 1987 with the same request; that since defendants failed
more right whatsoever on the same, having been barred by laches. to specify the terms and conditions of the offer to sell and because of
It is of judicial notice that the price of real estate in Metro Manila is continuously on the information received that defendants were about to sell the property,
rise. To allow the petitioner to demand the delivery of the property subject of this case plaintiffs were compelled to file the complaint to compel defendants to
thirteen (13) years or seventeen (17) years after the execution of the deed at the price of sell the property to them.
only P70.00 per square meter is inequitous. For reasons also of equity and in Defendants filed their answer denying the material allegations of the
consideration of the fact that the private respondents have no other decent place to live, complaint and interposing a special defense of lack of cause of action.
this Court, in the exercise of its equity jurisdiction is not inclined to grant petitioners' After the issues were joined, defendants filed a motion for summary
prayer. judgment which was granted by the lower court. The trial court found
ACCORDINGLY, the petition is DENIED. The decision of respondent appellate court is that defendants' offer to sell was never accepted by the plaintiffs for
AFFIRMED for reasons cited in this decision. Judgement is rendered dismissing the the reason that the parties did not agree upon the terms and conditions
complaint in Civil Case No. C-12942 on the ground of prescription and laches. of the proposed sale, hence, there was no contract of sale at all.
SO ORDERED. Nonetheless, the lower court ruled that should the defendants
Narvasa (Chairman) and Cruz, JJ., concur. subsequently offer their property for sale at a price of P11-million or
Griño-Aquino, J., took no part. below, plaintiffs will have the right of first refusal. Thus the dispositive
portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor
of the defendants and against the plaintiffs
summarily dismissing the complaint subject to the
aforementioned condition that if the defendants
subsequently decide to offer their property for sale
19

for a purchase price of Eleven Million Pesos or property with all the improvements found therein
lower, then the plaintiffs has the option to purchase including all the rights and interest in the said
the property or of first refusal, otherwise, defendants property free from all liens and encumbrances of
need not offer the property to the plaintiffs if the whatever nature, except the pending ejectment
purchase price is higher than Eleven Million Pesos. proceeding;
SO ORDERED. 2. That the VENDEE shall pay the Documentary
Aggrieved by the decision, plaintiffs appealed to this Court in Stamp Tax, registration fees for the transfer of title in
CA-G.R. CV No. 21123. In a decision promulgated on September 21, his favor and other expenses incidental to the sale of
1990 (penned by Justice Segundino G. Chua and concurred in by above-described property including capital gains tax
Justices Vicente V. Mendoza and Fernando A. Santiago), this Court and accrued real estate taxes.
affirmed with modification the lower court's judgment, holding: As a consequence of the sale, TCT No. 105254/T-881 in the name of
In resume, there was no meeting of the minds the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No.
between the parties concerning the sale of the 195816 was issued in the name of petitioner on December 3, 1990.
property. Absent such requirement, the claim for On July 1, 1991, petitioner as the new owner of the subject property
specific performance will not lie. Appellants' demand wrote a letter to the lessees demanding that the latter vacate the
for actual, moral and exemplary damages will premises.
likewise fail as there exists no justifiable ground for On July 16, 1991, the lessees wrote a reply to petitioner stating that
its award. Summary judgment for defendants was petitioner brought the property subject to the notice of lis
properly granted. Courts may render summary pendens regarding Civil Case No. 87-41058 annotated on TCT No.
judgment when there is no genuine issue as to any 105254/T-881 in the name of the Cu Unjiengs.
material fact and the moving party is entitled to a The lessees filed a Motion for Execution dated August 27, 1991 of the
judgment as a matter of law (Garcia vs. Court of Decision in Civil Case No. 87-41058 as modified by the Court of
Appeals, 176 SCRA 815). All requisites obtaining, Appeals in CA-G.R. CV No. 21123.
the decision of the court a quo is legally justifiable. On August 30, 1991, respondent Judge issued an order (Annex A,
WHEREFORE, finding the appeal unmeritorious, the Petition) quoted as follows:
judgment appealed from is hereby AFFIRMED, but Presented before the Court is a Motion for Execution
subject to the following modification: The court a filed by plaintiff represented by Atty. Antonio Albano.
quo in the aforestated decision gave the plaintiffs- Both defendants Bobby Cu Unjieng and Rose Cu
appellants the right of first refusal only if the property Unjieng represented by Atty. Vicente Sison and Atty.
is sold for a purchase price of Eleven Million pesos Anacleto Magno respectively were duly notified in
or lower; however, considering the mercurial and today's consideration of the motion as evidenced by
uncertain forces in our market economy today. We the rubber stamp and signatures upon the copy of
find no reason not to grant the same right of first the Motion for Execution.
refusal to herein appellants in the event that the The gist of the motion is that the Decision of the
subject property is sold for a price in excess of Court dated September 21, 1990 as modified by the
Eleven Million pesos. No pronouncement as to Court of Appeals in its decision in CA G.R. CV-
costs. 21123, and elevated to the Supreme Court upon the
SO ORDERED. petition for review and that the same was denied by
The decision of this Court was brought to the Supreme Court by the highest tribunal in its resolution dated May 6,
petition for review on certiorari. The Supreme Court denied the appeal 1991 in G.R. No.
on May 6, 1991 "for insufficiency in form and substances" (Annex H, L-97276, had now become final and executory. As a
Petition). consequence, there was an Entry of Judgment by
On November 15, 1990, while CA-G.R. CV No. 21123 was pending the Supreme Court as of June 6, 1991, stating that
consideration by this Court, the Cu Unjieng spouses executed a Deed the aforesaid modified decision had already become
of Sale (Annex D, Petition) transferring the property in question to final and executory.
herein petitioner Buen Realty and Development Corporation, subject to It is the observation of the Court that this property in
the following terms and conditions: dispute was the subject of the Notice of Lis
1. That for and in consideration of the sum of Pendens and that the modified decision of this Court
FIFTEEN MILLION PESOS (P15,000,000.00), promulgated by the Court of Appeals which had
receipt of which in full is hereby acknowledged, the become final to the effect that should the defendants
VENDORS hereby sells, transfers and conveys for decide to offer the property for sale for a price of P11
and in favor of the VENDEE, his heirs, executors, Million or lower, and considering the mercurial and
administrators or assigns, the above-described uncertain forces in our market economy today, the
20

same right of first refusal to herein sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b)
plaintiffs/appellants in the event that the subject the object which is the prestation or conduct; required to be observed (to give, to do or
property is sold for a price in excess of Eleven not to do); and (c) the subject-persons who, viewed from the demandability of the
Million pesos or more. obligation, are the active (obligee) and the passive (obligor) subjects.
WHEREFORE, defendants are hereby ordered to Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a
execute the necessary Deed of Sale of the property meeting of minds between two persons whereby one binds himself, with respect to the
in litigation in favor of plaintiffs Ang Yu Asuncion, other, to give something or to render some service (Art. 1305, Civil Code). A contract
Keh Tiong and Arthur Go for the consideration of undergoes various stages that include its negotiation or preparation, its perfection and,
P15 Million pesos in recognition of plaintiffs' right of finally, its consummation. Negotiation covers the period from the time the prospective
first refusal and that a new Transfer Certificate of contracting parties indicate interest in the contract to the time the contract is concluded
Title be issued in favor of the buyer. (perfected). The perfection of the contract takes place upon the concurrence of the
All previous transactions involving the same property essential elements thereof. A contract which is consensual as to perfection is so
notwithstanding the issuance of another title to Buen established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance,
Realty Corporation, is hereby set aside as having on the object and on the cause thereof. A contract which requires, in addition to the
been executed in bad faith. above, the delivery of the object of the agreement, as in a pledge or commodatum, is
SO ORDERED. commonly referred to as a real contract. In a solemn contract, compliance with certain
On September 22, 1991 respondent Judge issued another order, the formalities prescribed by law, such as in a donation of real property, is essential in order
dispositive portion of which reads: to make the act valid, the prescribed form being thereby an essential element thereof.
WHEREFORE, let there be Writ of Execution issue The stage of consummation begins when the parties perform their respective
in the above-entitled case directing the Deputy undertakings under the contract culminating in the extinguishment thereof.
Sheriff Ramon Enriquez of this Court to implement Until the contract is perfected, it cannot, as an independent source of obligation, serve as
said Writ of Execution ordering the defendants a binding juridical relation. In sales, particularly, to which the topic for discussion about
among others to comply with the aforesaid Order of the case at bench belongs, the contract is perfected when a person, called the seller,
this Court within a period of one (1) week from obligates himself, for a price certain, to deliver and to transfer ownership of a thing or
receipt of this Order and for defendants to execute right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil
the necessary Deed of Sale of the property in Code provides:
litigation in favor of the plaintiffs Ang Yu Asuncion, Art. 1458. By the contract of sale one of the contracting parties
Keh Tiong and Arthur Go for the consideration of obligates himself to transfer the ownership of and to deliver a
P15,000,000.00 and ordering the Register of Deeds determinate thing, and the other to pay therefor a price certain in
of the City of Manila, to cancel and set aside the title money or its equivalent.
already issued in favor of Buen Realty Corporation A contract of sale may be absolute or conditional.
which was previously executed between the latter When the sale is not absolute but conditional, such as in a "Contract to Sell" where
and defendants and to register the new title in favor invariably the ownership of the thing sold is retained until the fulfillment of a positive
of the aforesaid plaintiffs Ang Yu Asuncion, Keh suspensive condition (normally, the full payment of the purchase price), the breach of the
Tiong and Arthur Go. condition will prevent the obligation to convey title from acquiring an obligatory
SO ORDERED. force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although
On the same day, September 27, 1991 the corresponding writ of denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is
execution (Annex C, Petition) was issued.1 devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated,
On 04 December 1991, the appellate court, on appeal to it by private respondent, set e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon
aside and declared without force and effect the above questioned orders of the court a actual or constructive delivery (e.g., by the execution of a public document) of the
quo. property sold. Where the condition is imposed upon the perfection of the contract itself,
In this petition for review on certiorari, petitioners contend that Buen Realty can be held the failure of the condition would prevent such perfection. 3 If the condition is imposed on
bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT the obligation of a party which is not fulfilled, the other party may either waive the
No. 195816 issued in the name of Buen Realty, at the time of the latter's purchase of the condition or refuse to proceed with the sale (Art. 1545, Civil Code).4
property on 15 November 1991 from the Cu Unjiengs. An unconditional mutual promise to buy and sell, as long as the object is made
We affirm the decision of the appellate court. determinate and the price is fixed, can be obligatory on the parties, and compliance
A not too recent development in real estate transactions is the adoption of such therewith may accordingly be exacted.5
arrangements as the right of first refusal, a purchase option and a contract to sell. For An accepted unilateral promise which specifies the thing to be sold and the price to
ready reference, we might point out some fundamental precepts that may find some be paid, when coupled with a valuable consideration distinct and separate from the price,
relevance to this discussion. is what may properly be termed a perfected contract of option. This contract is legally
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil
obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) Code, viz:
The vinculum juris or juridical tie which is the efficient cause established by the various Art. 1479. . . .
21

An accepted unilateral promise to buy or to sell a determinate thing for elements to establish the vinculum juris would still be indefinite and inconclusive) but by,
a price certain is binding upon the promissor if the promise is among other laws of general application, the pertinent scattered provisions of the Civil
supported by a consideration distinct from the price. (1451a)6 Code on human conduct.
Observe, however, that the option is not the contract of sale itself.7 The optionee has the Even on the premise that such right of first refusal has been decreed under a final
right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is judgment, like here, its breach cannot justify correspondingly an issuance of a writ of
accepted before a breach of the option, a bilateral promise to sell and to buy ensues and execution under a judgment that merely recognizes its existence, nor would it sanction
both parties are then reciprocally bound to comply with their respective undertakings. 8 an action for specific performance without thereby negating the indispensable element of
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect consensuality in the perfection of contracts.11 It is not to say, however, that the right of
promise (policitacion) is merely an offer. Public advertisements or solicitations and the first refusal would be inconsequential for, such as already intimated above, an unjustified
like are ordinarily construed as mere invitations to make offers or only as proposals. disregard thereof, given, for instance, the circumstances expressed in Article 1912 of the
These relations, until a contract is perfected, are not considered binding commitments. Civil Code, can warrant a recovery for damages.
Thus, at any time prior to the perfection of the contract, either negotiating party may stop The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded
the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective a "right of first refusal" in favor of petitioners. The consequence of such a declaration
immediately after its manifestation, such as by its mailing and not necessarily when the entails no more than what has heretofore been said. In fine, if, as it is here so conveyed
offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to us, petitioners are aggrieved by the failure of private respondents to honor the right of
to the offeree within which to accept the offer, the following rules generally govern: first refusal, the remedy is not a writ of execution on the judgment, since there is none to
(1) If the period is not itself founded upon or supported by a consideration, the offeror is execute, but an action for damages in a proper forum for the purpose.
still free and has the right to withdraw the offer before its acceptance, or, if an Furthermore, whether private respondent Buen Realty Development Corporation, the
acceptance has been made, before the offeror's coming to know of such fact, by alleged purchaser of the property, has acted in good faith or bad faith and whether or not
communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, it should, in any case, be considered bound to respect the registration of the lis
Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral pendens in Civil Case No. 87-41058 are matters that must be independently addressed
promise to sell under Art. 1479, modifying the previous decision in South Western Sugar in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No.
vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque, 87-41058, cannot be held subject to the writ of execution issued by respondent Judge, let
Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to alone ousted from the ownership and possession of the property, without first being duly
withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could afforded its day in court.
give rise to a damage claim under Article 19 of the Civil Code which ordains that "every We are also unable to agree with petitioners that the Court of Appeals has erred in
person must, in the exercise of his rights and in the performance of his duties, act with holding that the writ of execution varies the terms of the judgment in Civil Case No. 87-
justice, give everyone his due, and observe honesty and good faith." 41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, observed:
and it would be a breach of that contract to withdraw the offer during the agreed period. Finally, the questioned writ of execution is in variance with the decision
The option, however, is an independent contract by itself, and it is to be distinguished of the trial court as modified by this Court. As already stated, there was
from the projected main agreement (subject matter of the option) which is obviously yet nothing in said decision 13 that decreed the execution of a deed of sale
to be concluded. If, in fact, the optioner-offeror withdraws the offer before its between the Cu Unjiengs and respondent lessees, or the fixing of the
acceptance (exercise of the option) by the optionee-offeree, the latter may not sue price of the sale, or the cancellation of title in the name of petitioner
for specific performance on the proposed contract ("object" of the option) since it has (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila
failed to reach its own stage of perfection. The optioner-offeror, however, renders himself vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor
liable for damages for breach of the option. In these cases, care should be taken of the vs. CA, 122 SCRA 885).
real nature of the consideration given, for if, in fact, it has been intended to be part of the It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not
consideration for the main contract with a right of withdrawal on the part of the optionee, have decreed at the time the execution of any deed of sale between the Cu Unjiengs and
the main contract could be deemed perfected; a similar instance would be an "earnest petitioners.
money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code). WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a quo.
Needless to point out, it cannot be deemed a perfected contract of sale under Article Costs against petitioners.
1458 of the Civil Code. Neither can the right of first refusal, understood in its normal SO ORDERED.
concept, per se be brought within the purview of an option under the second paragraph Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason,
of Article 1479, aforequoted, or possibly of an offer under Article 13199 of the same Puno and Mendoza, JJ., concur.
Code. An option or an offer would require, among other things, 10 a clear certainty on both Kapunan, J., took no part.
the object and the cause or consideration of the envisioned contract. In a right of first Feliciano, J., is on leave.
refusal, while the object might be made determinate, the exercise of the right, however, EN BANC
would be dependent not only on the grantor's eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that obviously are yet
to be later firmed up. Prior thereto, it can at best be so described as merely belonging to
a class of preparatory juridical relations governed not by contracts (since the essential
22

G.R. No. 106063 November 21, 1996 Both contracts of lease provides (sic) identically worded paragraph 8,
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, which reads:
INC., petitioners, That if the LESSOR should desire to sell the leased
vs. premises, the LESSEE shall be given 30-days
MAYFAIR THEATER, INC., respondent. exclusive option to purchase the same.
In the event, however, that the leased premises is
HERMOSISIMA, JR., J.: sold to someone other than the LESSEE, the
Before us is a petition for review of the decision1 of the Court of LESSOR is bound and obligated, as it hereby binds
Appeals2 involving questions in the resolution of which the respondent appellate and obligates itself, to stipulate in the Deed of Sale
court analyzed and interpreted particular provisions of our laws on contracts and hereof that the purchaser shall recognize this lease
sales. In its assailed decision, the respondent court reversed the trial and be bound by all the terms and conditions
court3 which, in dismissing the complaint for specific performance with damages thereof.
and annulment of contract,4 found the option clause in the lease contracts Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr.
entered into by private respondent Mayfair Theater, Inc. (hereafter, Mayfair) and Henry Yang, President of Mayfair, through a telephone conversation
petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of that Carmelo was desirous of selling the entire Claro M. Recto
performance and unsupported by a consideration and the subsequent sale of property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was
the subject property to petitioner Equatorial Realty Development, Inc. (hereafter, offering to buy the whole property for US Dollars 1,200,000, and Mr.
Equatorial) to have been made without any breach of or prejudice to, the said Pascal asked Mr. Yang if the latter was willing to buy the property for
lease contracts.5 Six to Seven Million Pesos.
We reproduce below the facts as narrated by the respondent court, which Mr. Yang replied that he would let Mr. Pascal know of his decision. On
narration, we note, is almost verbatim the basis of the statement of facts as August 23, 1974, Mayfair replied through a letter stating as follows:
rendered by the petitioners in their pleadings: It appears that on August 19, 1974 your Mr. Henry
Carmelo owned a parcel of land, together with two 2-storey buildings Pascal informed our client's Mr. Henry Yang through
constructed thereon located at Claro M Recto Avenue, Manila, and the telephone that your company desires to sell your
covered by TCT No. 18529 issued in its name by the Register of above-mentioned C.M. Recto Avenue property.
Deeds of Manila. Under your company's two lease contracts with our
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair client, it is uniformly provided:
for the latter's lease of a portion of Carmelo's property particularly 8. That if the LESSOR should desire to sell the
described, to wit: leased premises the LESSEE shall be given 30-days
A PORTION OF THE SECOND FLOOR of the two- exclusive option to purchase the same. In the event,
storey building, situated at C.M. Recto Avenue, however, that the leased premises is sold to
Manila, with a floor area of 1,610 square meters. someone other than the LESSEE, the LESSOR is
THE SECOND FLOOR AND MEZZANINE of the bound and obligated, as it is (sic) herebinds (sic) and
two-storey building, situated at C.M. Recto Avenue, obligates itself, to stipulate in the Deed of Sale
Manila, with a floor area of 150 square meters. thereof that the purchaser shall recognize this lease
for use by Mayfair as a motion picture theater and for a term of twenty and be bound by all the terms and conditions hereof
(20) years. Mayfair thereafter constructed on the leased property a (sic).
movie house known as "Maxim Theatre." Carmelo did not reply to this letter.
Two years later, on March 31, 1969, Mayfair entered into a second On September 18, 1974, Mayfair sent another letter to Carmelo
contract of lease with Carmelo for the lease of another portion of purporting to express interest in acquiring not only the leased premises
Carmelo's property, to wit: but "the entire building and other improvements if the price is
A PORTION OF THE SECOND FLOOR of the two- reasonable. However, both Carmelo and Equatorial questioned the
storey building, situated at C.M. Recto Avenue, authenticity of the second letter.
Manila, with a floor area of 1,064 square meters. Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto
THE TWO (2) STORE SPACES AT THE GROUND Avenue land and building, which included the leased premises housing
FLOOR and MEZZANINE of the two-storey building the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed
situated at C.M. Recto Avenue, Manila, with a floor of Absolute Sale, for the total sum of P11,300,000.00.
area of 300 square meters and bearing street In September 1978, Mayfair instituted the action a quo for specific
numbers 1871 and 1875, performance and annulment of the sale of the leased premises to
for similar use as a movie theater and for a similar term of twenty (20) Equatorial. In its Answer, Carmelo alleged as special and affirmative
years. Mayfair put up another movie house known as "Miramar defense (a) that it had informed Mayfair of its desire to sell the entire
Theatre" on this leased property. C.M. Recto Avenue property and offered the same to Mayfair, but the
latter answered that it was interested only in buying the areas under
23

lease, which was impossible since the property was not a from July 31, 1978; P70,000 00 per month as
condominium; and (b) that the option to purchase invoked by Mayfair is reasonable compensation for the use of the
null and void for lack of consideration. Equatorial, in its Answer, premises covered by the contracts (sic) of lease
pleaded as special and affirmative defense that the option is void for dated (June 1, 1967 from June 1, 1987 until plaintiff
lack of consideration (sic) and is unenforceable by reason of its vacates the premises plus legal interest from June 1,
impossibility of performance because the leased premises could not be 1987; P55,000.00 per month as reasonable
sold separately from the other portions of the land and building. It compensation for the use of the premises covered
counterclaimed for cancellation of the contracts of lease, and for by the contract of lease dated March 31, 1969 from
increase of rentals in view of alleged supervening extraordinary March 30, 1989 until plaintiff vacates the premises
devaluation of the currency. Equatorial likewise cross-claimed against plus legal interest from March 30, 1989; and
co-defendant Carmelo for indemnification in respect of Mayfair's P40,000.00 as attorney's fees;
claims. (4) Dismissing defendant Equatorial's crossclaim
During the pre-trial conference held on January 23, 1979, the parties against defendant Carmelo & Bauermann.
stipulated on the following: The contracts of lease dated June 1, 1967 and
1. That there was a deed of sale of the contested March 31, 1969 are declared expired and all persons
premises by the defendant Carmelo . . . in favor of claiming rights under these contracts are directed to
defendant Equatorial . . .; vacate the premises.6
2. That in both contracts of lease there appear (sic) The trial court adjudged the identically worded paragraph 8 found in both
the stipulation granting the plaintiff exclusive option aforecited lease contracts to be an option clause which however cannot be
to purchase the leased premises should the lessor deemed to be binding on Carmelo because of lack of distinct consideration
desire to sell the same (admitted subject to the therefor.
contention that the stipulation is null and void); The court a quo ratiocinated:
3. That the two buildings erected on this land are not Significantly, during the pre-trial, it was admitted by the parties that the
of the condominium plan; option in the contract of lease is not supported by a separate
4. That the amounts stipulated and mentioned in consideration. Without a consideration, the option is therefore not
paragraphs 3 (a) and (b) of the contracts of lease binding on defendant Carmelo & Bauermann to sell the C.M. Recto
constitute the consideration for the plaintiff's property to the former. The option invoked by the plaintiff appears in
occupancy of the leased premises, subject of the the contracts of lease . . . in effect there is no option, on the ground
same contracts of lease, Exhibits A and B; that there is no consideration. Article 1352 of the Civil Code, provides:
xxx xxx xxx Contracts without cause or with unlawful cause,
6. That there was no consideration specified in the produce no effect whatever. The cause is unlawful if
option to buy embodied in the contract; it is contrary to law, morals, good custom, public
7. That Carmelo & Bauermann owned the land and order or public policy.
the two buildings erected thereon; Contracts therefore without consideration produce no effect
8. That the leased premises constitute only the whatsoever. Article 1324 provides:
portions actually occupied by the theaters; and When the offeror has allowed the offeree a certain
9. That what was sold by Carmelo & Bauermann to period to accept, the offer may be withdrawn at any
defendant Equatorial Realty is the land and the two time before acceptance by communicating such
buildings erected thereon. withdrawal, except when the option is founded upon
xxx xxx xxx consideration, as something paid or promised.
After assessing the evidence, the court a quo rendered the appealed in relation with Article 1479 of the same Code:
decision, the decretal portion of which reads as follows: A promise to buy and sell a determine thing for a
WHEREFORE, judgment is hereby rendered: price certain is reciprocally demandable.
(1) Dismissing the complaint with costs against the An accepted unilateral promise to buy or to sell a
plaintiff; determine thing for a price certain is binding upon
(2) Ordering plaintiff to pay defendant Carmelo & the promissor if the promise is supported by a
Bauermann P40,000.00 by way of attorney's fees on consideration distinct from the price.
its counterclaim; The plaintiff cannot compel defendant Carmelo to comply with the
(3) Ordering plaintiff to pay defendant Equatorial promise unless the former establishes the existence of a distinct
Realty P35,000.00 per month as reasonable consideration. In other words, the promisee has the burden of proving
compensation for the use of areas not covered by the consideration. The consideration cannot be presumed as in Article
the contract (sic) of lease from July 31, 1979 until 1354:
plaintiff vacates said area (sic) plus legal interest
24

Although the cause is not stated in the contract, it is Article 1324 speaks of an "offer" made by an offeror which the offeree
presumed that it exists and is lawful unless the may or may not accept within a certain period. Under this article, the
debtor proves the contrary. offer may be withdrawn by the offeror before the expiration of the
where consideration is legally presumed to exists. Article 1354 applies period and while the offeree has not yet accepted the offer. However,
to contracts in general, whereas when it comes to an option it is the offer cannot be withdrawn by the offeror within the period if a
governed particularly and more specifically by Article 1479 whereby consideration has been promised or given by the offeree in exchange
the promisee has the burden of proving the existence of consideration for the privilege of being given that period within which to accept the
distinct from the price. Thus, in the case of Sanchez vs. Rigor, 45 offer. The consideration is distinct from the price which is part of the
SCRA 368, 372-373, the Court said: offer. The contract that arises is known as option. In the case
(1) Article 1354 applies to contracts in general, of Beaumont vs. Prieto, 41 Phil. 670, the Supreme court, citing
whereas the second paragraph of Article 1479 refers Bouvier, defined an option as follows: "A contract by virtue of which A,
to sales in particular, and, more specifically, to an in consideration of the payment of a certain sum to B, acquires the
accepted unilateral promise to buy or to sell. In other privilege of buying from or selling to B, certain securities or properties
words, Article 1479 is controlling in the case at bar. within a limited time at a specified price," (pp. 686-7).
(2) In order that said unilateral promise may be Article 1479, second paragraph, on the other hand, contemplates of an
binding upon the promissor, Article 1479 requires the "accepted unilateral promise to buy or to sell a determinate thing for a
concurrence of a condition, namely, that the promise price within (which) is binding upon the promisee if the promise is
be supported by a consideration distinct from the supported by a consideration distinct from the price." That "unilateral
price. promise to buy or to sell a determinate thing for a price certain" is
Accordingly, the promisee cannot compel the called an offer. An "offer", in laws, is a proposal to enter into a contract
promissor to comply with the promise, unless the (Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the
former establishes the existence of said distinct proposal must be certain as to the object, the price and other essential
consideration. In other words, the promisee has the terms of the contract (Art. 1319, Civil Code).
burden of proving such consideration. Plaintiff herein Based on the foregoing discussion, it is evident that the provision
has not even alleged the existence thereof in his granting Mayfair "30-days exclusive option to purchase" the leased
complaint. 7 premises is NOT AN OPTION in the context of Arts. 1324 and 1479,
It follows that plaintiff cannot compel defendant Carmelo & Bauermann second paragraph, of the Civil Code. Although the provision is certain
to sell the C.M. Recto property to the former. as to the object (the sale of the leased premises) the price for which
Mayfair taking exception to the decision of the trial court, the battleground the object is to be sold is not stated in the provision Otherwise stated,
shifted to the respondent Court of Appeals. Respondent appellate court the questioned stipulation is not by itself, an "option" or the "offer to
reversed the court a quo and rendered judgment: sell" because the clause does not specify the price for the subject
1. Reversing and setting aside the appealed Decision; property.
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and Although the provision giving Mayfair "30-days exclusive option to
return to Equatorial the amount of P11,300,000.00 within fifteen (15) purchase" cannot be legally categorized as an option, it is,
days from notice of this Decision, and ordering Equatorial Realty nevertheless, a valid and binding stipulation. What the trial court failed
Development, Inc. to accept such payment; to appreciate was the intention of the parties behind the questioned
3. Upon payment of the sum of P11,300,000, directing Equatorial proviso.
Realty Development, Inc. to execute the deeds and documents xxx xxx xxx
necessary for the issuance and transfer of ownership to Mayfair of the The provision in question is not of the pro-forma type customarily found
lot registered under TCT Nos. 17350, 118612, 60936, and 52571; and in a contract of lease. Even appellees have recognized that the
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the stipulation was incorporated in the two Contracts of Lease at the
amount as adjudged, declaring the Deed of Absolute Sale between the initiative and behest of Mayfair. Evidently, the stipulation was intended
defendants-appellants Carmelo & Bauermann, Inc. and Equatorial to benefit and protect Mayfair in its rights as lessee in case Carmelo
Realty Development, Inc. as valid and binding upon all the parties.8 should decide, during the term of the lease, to sell the leased property.
Rereading the law on the matter of sales and option contracts, respondent This intention of the parties is achieved in two ways in accordance with
Court of Appeals differentiated between Article 1324 and Article 1479 of the the stipulation. The first is by giving Mayfair "30-days exclusive option
Civil Code, analyzed their application to the facts of this case, and concluded to purchase" the leased property. The second is, in case Mayfair would
that since paragraph 8 of the two lease contracts does not state a fixed price for opt not to purchase the leased property, "that the purchaser (the new
the purchase of the leased premises, which is an essential element for a owner of the leased property) shall recognize the lease and be bound
contract of sale to be perfected, what paragraph 8 is, must be a right of first by all the terms and conditions thereof."
refusal and not an option contract. It explicated: In other words, paragraph 8 of the two Contracts of lease, particularly
Firstly, the court a quo misapplied the provisions of Articles 1324 and the stipulation giving Mayfair "30-days exclusive option to purchase the
1479, second paragraph, of the Civil Code. (leased premises)," was meant to provide Mayfair the opportunity to
25

purchase and acquire the leased property in the event that Carmelo which We, therefore, take judicial notice of the two theaters stand on
should decide to dispose of the property. In order to realize this the parcels of land covered by TCT No. 17350 with an area of 622.10
intention, the implicit obligation of Carmelo once it had decided to sell sq. m and TCT No. 118612 with an area of 2,100.10 sq. m. The
the leased property, was not only to notify Mayfair of such decision to existence of four separate parcels of land covering the whole Recto
sell the property, but, more importantly, to make an offer to sell the property demonstrates the legal and physical possibility that each
leased premises to Mayfair, giving the latter a fair and reasonable parcel of land, together with the buildings and improvements thereof,
opportunity to accept or reject the offer, before offering to sell or selling could have been sold independently of the other parcels.
the leased property to third parties. The right vested in Mayfair is At the time both parties executed the contracts, they were aware of the
analogous to the right of first refusal, which means that Carmelo physical and structural conditions of the buildings on which the
should have offered the sale of the leased premises to Mayfair before theaters were to be constructed in relation to the remainder of the
offering it to other parties, or, if Carmelo should receive any offer from whole Recto property. The peculiar language of the stipulation would
third parties to purchase the leased premises, then Carmelo must first tend to limit Mayfair's right under paragraph 8 of the Contract of Lease
give Mayfair the opportunity to match that offer. to the acquisition of the leased areas only. Indeed, what is being
In fact, Mr. Pascal understood the provision as giving Mayfair a right of contemplated by the questioned stipulation is a departure from the
first refusal when he made the telephone call to Mr. Yang in 1974. Mr. customary situation wherein the buildings and improvements are
Pascal thus testified: included in and form part of the sale of the subjacent land. Although
Q Can you tell this Honorable this situation is not common, especially considering the non-
Court how you made the offer to condominium nature of the buildings, the sale would be valid and
Mr. Henry Yang by telephone? capable of being performed. A sale limited to the leased premises only,
A I have an offer from another if hypothetically assumed, would have brought into operation the
party to buy the property and provisions of co-ownership under which Mayfair would have become
having the offer we decided to the exclusive owner of the leased premises and at the same time a co-
make an offer to Henry Yang on a owner with Carmelo of the subjacent land in proportion to Mayfair's
first-refusal basis. (TSN November interest over the premises sold to it.10
8, 1983, p. 12.). Carmelo and Equatorial now comes before us questioning the correctness and
and on cross-examination: legal basis for the decision of respondent Court of Appeals on the basis of the
Q When you called Mr. Yang on following assigned errors:
August 1974 can you remember I
exactly what you have told him in THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING
connection with that matter, Mr. THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS
Pascal? ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO
A More or less, I told him that I THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF
received an offer from another LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR
party to buy the property and I was AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH
offering him first choice of the OPTION IN THEIR STIPULATION OF FACTS.
enter property. (TSN, November II
29, 1983, p. 18). WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE
We rule, therefore, that the foregoing interpretation best renders COURT OF APPEALS ERRED IN DIRECTING EQUATORIAL TO
effectual the intention of the parties.9 EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS
which the requirement of distinct consideration indispensable in an option RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE
contract, has no application, respondent appellate court also addressed the CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO 30
claim of Carmelo and Equatorial that assuming arguendo that the option is valid DAYS FROM NOTICE.
and effective, it is impossible of performance because it covered only the leased III
premises and not the entire Claro M. Recto property, while Carmelo's offer to THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
sell pertained to the entire property in question. The Court of Appeals ruled as DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE
to this issue in this wise: ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT
We are not persuaded by the contentions of the defendants-appellees. WAS NOT EVEN PRAYED FOR IN THE COMPLAINT.
It is to be noted that the Deed of Absolute Sale between Carmelo and IV
Equatorial covering the whole Claro M. Recto property, made THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES
reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571. IN THE ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED
Based on the information submitted by Mayfair in its appellant's Brief THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL
(pp. 5 and 46) which has not been controverted by the appellees, and HERRERA, TO RESOLVE ALL THE MOTIONS IN THE
26

"COMPLETION PROCESS" AND TO STILL RESOLVE THE MERITS It is unquestionable that, by means of the document Exhibit E, to wit,
OF THE CASE IN THE "DECISION STAGE".11 the letter of December 4, 1911, quoted at the beginning of this
decision, the defendant Valdes granted to the plaintiff Borck the right to
We shall first dispose of the fourth assigned error respecting alleged purchase the Nagtajan Hacienda belonging to Benito Legarda, during
irregularities in the raffle of this case in the Court of Appeals. Suffice it to say the period of three months and for its assessed valuation, a grant
that in our Resolution,12 dated December 9, 1992, we already took note of this which necessarily implied the offer or obligation on the part of the
matter and set out the proper applicable procedure to be the following: defendant Valdes to sell to Borck the said hacienda during the period
On September 20, 1992, counsel for petitioner Equatorial Realty and for the price mentioned . . . There was, therefore, a meeting of
Development, Inc. wrote a letter-complaint to this Court alleging certain minds on the part of the one and the other, with regard to the
irregularities and infractions committed by certain lawyers, and stipulations made in the said document. But it is not shown that there
Justices of the Court of Appeals and of this Court in connection with was any cause or consideration for that agreement, and this omission
case CA-G.R. CV No. 32918 (now G.R. No. 106063). This partakes of is a bar which precludes our holding that the stipulations contained in
the nature of an administrative complaint for misconduct against Exhibit E is a contract of option, for, . . . there can be no contract
members of the judiciary. While the letter-complaint arose as an without the requisite, among others, of the cause for the obligation to
incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the be established.
disposition thereof should be separate and independent from Case In his Law Dictionary, edition of 1897, Bouvier defines an option as a
G.R. No. 106063. However, for purposes of receiving the requisite contract, in the following language:
pleadings necessary in disposing of the administrative complaint, this A contract by virtue of which A, in consideration of
Division shall continue to have control of the case. Upon completion the payment of a certain sum to B, acquires the
thereof, the same shall be referred to the Court En Banc for proper privilege of buying from, or selling to B, certain
disposition.13 securities or properties within a limited time at a
This court having ruled the procedural irregularities raised in the fourth assigned specified price. (Story vs. Salamon, 71 N.Y., 420.)
error of Carmelo and Equatorial, to be an independent and separate subject for From vol. 6, page 5001, of the work "Words and Phrases," citing the
an administrative complaint based on misconduct by the lawyers and justices case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17)
implicated therein, it is the correct, prudent and consistent course of action not the following quotation has been taken:
to pre-empt the administrative proceedings to be undertaken respecting the said An agreement in writing to give a person the option
irregularities. Certainly, a discussion thereupon by us in this case would entail a to purchase lands within a given time at a named
finding on the merits as to the real nature of the questioned procedures and the price is neither a sale nor an agreement to sell. It is
true intentions and motives of the players therein. simply a contract by which the owner of property
In essence, our task is two-fold: (1) to define the true nature, scope and efficacy agrees with another person that he shall have the
of paragraph 8 stipulated in the two contracts of lease between Carmelo and right to buy his property at a fixed price within a
Mayfair in the face of conflicting findings by the trial court and the Court of certain time. He does not sell his land; he does not
Appeals; and (2) to determine the rights and obligations of Carmelo and then agree to sell it; but he does sell something; that
Mayfair, as well as Equatorial, in the aftermath of the sale by Carmelo of the is, the right or privilege to buy at the election or
entire Claro M. Recto property to Equatorial. option of the other party. The second party gets in
Both contracts of lease in question provide the identically worded paragraph 8, praesenti, not lands, nor an agreement that he shall
which reads: have lands, but he does get something of value; that
That if the LESSOR should desire to sell the leased premises, the is, the right to call for and receive lands if he elects.
LESSEE shall be given 30-days exclusive option to purchase the The owner parts with his right to sell his lands,
same. except to the second party, for a limited period. The
In the event, however, that the leased premises is sold to someone second party receives this right, or, rather, from his
other than the LESSEE, the LESSOR is bound and obligated, as it point of view, he receives the right to elect to buy.
hereby binds and obligates itself, to stipulate in the Deed of Sale But the two definitions above cited refer to the contract of option, or,
thereof that the purchaser shall recognize this lease and be bound by what amounts to the same thing, to the case where there was cause or
all the terms and conditions thereof.14 consideration for the obligation, the subject of the agreement made by
We agree with the respondent Court of Appeals that the aforecited contractual the parties; while in the case at bar there was no such cause or
stipulation provides for a right of first refusal in favor of Mayfair. It is not an consideration. 16 (Emphasis ours.)
option clause or an option contract. It is a contract of a right of first refusal. The rule so early established in this jurisdiction is that the deed of option or the
As early as 1916, in the case of Beaumont vs. Prieto,15 unequivocal was our option clause in a contract, in order to be valid and enforceable, must, among
characterization of an option contract as one necessarily involving the choice other things, indicate the definite price at which the person granting the option,
granted to another for a distinct and separate consideration as to whether or not is willing to sell.
to purchase a determinate thing at a predetermined fixed price. Notably, in one case we held that the lessee loses his right to buy the leased property for
a named price per square meter upon failure to make the purchase within the time
27

specified;17 in one other case we freed the landowner from her promise to sell her land if Thus, at any time prior to the perfection of the contract, either
the prospective buyer could raise P4,500.00 in three weeks because such option was not negotiating party may stop the negotiation. The offer, at this stage,
supported by a distinct consideration;18 in the same vein in yet one other case, we also may be withdrawn; the withdrawal is effective immediately after its
invalidated an instrument entitled, "Option to Purchase" a parcel of land for the sum of manifestation, such as by its mailing and not necessarily when the
P1,510.00 because of lack of consideration;19 and as an exception to the doctrine offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270).
enumerated in the two preceding cases, in another case, we ruled that the option to buy Where a period is given to the offeree within which to accept the offer,
the leased premises for P12,000.00 as stipulated in the lease contract, is not without the following rules generally govern:
consideration for in reciprocal contracts, like lease, the obligation or promise of each (1) If the period is not itself founded upon or supported by a
party is the consideration for that of the other. 20 In all these cases, the selling price of the consideration, the offeror is still free and has the right to withdraw the
object thereof is always predetermined and specified in the option clause in the contract offer before its acceptance, or if an acceptance has been made, before
or in the separate deed of option. We elucidated, thus, in the very recent case of Ang Yu the offeror's coming to know of such fact, by communicating that
Asuncion vs. Court of Appeals21 that: withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins,
. . . In sales, particularly, to which the topic for discussion about the Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to
case at bench belongs, the contract is perfected when a person, called a unilateral promise to sell under Art. 1479, modifying the previous
the seller, obligates himself, for a price certain, to deliver and to decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see
transfer ownership of a thing or right to another, called the buyer, over also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc. vs.
which the latter agrees. Article 1458 of the Civil Code provides: Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The
Art. 1458. By the contract of sale one of the right to withdraw, however, must not be exercised whimsically or
contracting parties obligates himself to transfer the arbitrarily; otherwise, it could give rise to a damage claim under Article
ownership of and to deliver a determinate thing, and 19 of the Civil Code which ordains that "every person must, in the
the other to pay therefor a price certain in money or exercise of his rights and in the performance of his duties, act with
its equivalent. justice, give everyone his due, and observe honesty and good faith."
A contract of sale may be absolute or conditional. (2) If the period has a separate consideration, a contract of "option"
When the sale is not absolute but conditional, such as in a "Contract to deemed perfected, and it would be a breach of that contract to
Sell" where invariably the ownership of the thing sold in retained until withdraw the offer during the agreed period. The option, however, is an
the fulfillment of a positive suspensive condition (normally, the full independent contract by itself; and it is to be distinguished from the
payment of the purchase price), the breach of the condition will prevent projected main agreement (subject matter of the option) which is
the obligation to convey title from acquiring an obligatory force. . . . obviously yet to be concluded. If, in fact, the optioner-offeror withdraws
An unconditional mutual promise to buy and sell, as long as the object the offer before its acceptance (exercise of the option) by the optionee-
is made determinate and the price is fixed, can be obligatory on the offeree, the latter may not sue for specific performance on the
parties, and compliance therewith may accordingly be exacted. proposed contract ("object" of the option) since it has failed to reach its
An accepted unilateral promise which specifies the thing to be sold and own stage of perfection. The optioner-offeror, however, renders himself
the price to be paid, when coupled with a valuable consideration liable for damages for breach of the opinion. . .
distinct and separate from the price, is what may properly be termed a In the light of the foregoing disquisition and in view of the wording of the
perfected contract of option. This contract is legally binding, and in questioned provision in the two lease contracts involved in the instant case, we
sales, it conforms with the second paragraph of Article 1479 of the Civil so hold that no option to purchase in contemplation of the second paragraph of
Code, viz: Article 1479 of the Civil Code, has been granted to Mayfair under the said lease
Art. 1479. . . . contracts.
An accepted unilateral promise to buy or to sell a Respondent Court of Appeals correctly ruled that the said paragraph 8 grants
determinate thing for a price certain is binding upon the right of first refusal to Mayfair and is not an option contract. It also correctly
the promisor if the promise is supported by a reasoned that as such, the requirement of a separate consideration for the
consideration distinct from the price. (1451a). option, has no applicability in the instant case.
Observe, however, that the option is not the contract of sale itself. The There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March
optionee has the right, but not the obligation, to buy. Once the option is 31, 1969 contracts which would bring them into the ambit of the usual offer or
exercised timely, i.e., the offer is accepted before a breach of the option requiring an independent consideration.
option, a bilateral promise to sell and to buy ensues and both parties An option is a contract granting a privilege to buy or sell within an agreed time
are then reciprocally bound to comply with their respective and at a determined price. It is a separate and distinct contract from that which
undertakings. the parties may enter into upon the consummation of the option. It must be
Let us elucidate a little. A negotiation is formally initiated by an offer. supported by consideration.22 In the instant case, the right of first refusal is an
An imperfect promise (policitacion) is merely an offer. Public integral part of the contracts of lease. The consideration is built into the
advertisements or solicitations and the like are ordinarily construed as reciprocal obligations of the parties.
mere invitations to make offers or only as proposals. These relations, To rule that a contractual stipulation such as that found in paragraph 8 of the
until a contract is perfected, are not considered binding commitments. contracts is governed by Article 1324 on withdrawal of the offer or Article 1479
28

on promise to buy and sell would render in effectual or "inutile" the provisions on to the celebration of said contract. It is a relief allowed for the
right of first refusal so commonly inserted in leases of real estate nowadays. protection of one of the contracting parties and even third persons from
The Court of Appeals is correct in stating that Paragraph 8 was incorporated all injury and damage the contract may cause, or to protect some
into the contracts of lease for the benefit of Mayfair which wanted to be assured incompatible and preferent right created by the contract. Rescission
that it shall be given the first crack or the first option to buy the property at the implies a contract which, even if initially valid, produces a lesion or
price which Carmelo is willing to accept. It is not also correct to say that there is pecuniary damage to someone that justifies its invalidation for reasons
no consideration in an agreement of right of first refusal. The stipulation is part of equity.
and parcel of the entire contract of lease. The consideration for the lease It is true that the acquisition by a third person of the property subject of
includes the consideration for the right of first refusal. Thus, Mayfair is in effect the contract is an obstacle to the action for its rescission where it is
stating that it consents to lease the premises and to pay the price agreed upon shown that such third person is in lawful possession of the subject of
provided the lessor also consents that, should it sell the leased property, then, the contract and that he did not act in bad faith. However, this rule is
Mayfair shall be given the right to match the offered purchase price and to buy not applicable in the case before us because the petitioner is not
the property at that price. As stated in Vda. De Quirino vs. Palarca,23 in considered a third party in relation to the Contract of Sale nor may its
reciprocal contract, the obligation or promise of each party is the consideration possession of the subject property be regarded as acquired lawfully
for that of the other. and in good faith.
The respondent Court of Appeals was correct in ascertaining the true nature of Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of
the aforecited paragraph 8 to be that of a contractual grant of the right of first Sale. Moreover, the petitioner cannot be deemed a purchaser in good
refusal to Mayfair. faith for the record shows that it categorically admitted it was aware of
We shall now determine the consequential rights, obligations and liabilities of the lease in favor of the Bonnevies, who were actually occupying the
Carmelo, Mayfair and Equatorial. subject property at the time it was sold to it. Although the Contract of
The different facts and circumstances in this case call for an amplification of the Lease was not annotated on the transfer certificate of title in the name
precedent in Ang Yu Asuncion vs. Court of Appeals.24 of the late Jose Reynoso and Africa Reynoso, the petitioner cannot
First and foremost is that the petitioners acted in bad faith to render Paragraph deny actual knowledge of such lease which was equivalent to and
8 "inutile". indeed more binding than presumed notice by registration.
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was A purchaser in good faith and for value is one who buys the property of
that Mayfair will have the right of first refusal in the event Carmelo sells the another without notice that some other person has a right to or interest
leased premises. It is undisputed that Carmelo did recognize this right of in such property and pays a full and fair price for the same at the time
Mayfair, for it informed the latter of its intention to sell the said property in 1974. of such purchase or before he has notice of the claim or interest of
There was an exchange of letters evidencing the offer and counter-offers made some other person in the property. Good faith connotes an honest
by both parties. Carmelo, however, did not pursue the exercise to its logical intention to abstain from taking unconscientious advantage of another.
end. While it initially recognized Mayfair's right of first refusal, Carmelo violated Tested by these principles, the petitioner cannot tenably claim to be a
such right when without affording its negotiations with Mayfair the full process to buyer in good faith as it had notice of the lease of the property by the
ripen to at least an interface of a definite offer and a possible corresponding Bonnevies and such knowledge should have cautioned it to look
acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo deeper into the agreement to determine if it involved stipulations that
abandoned negotiations, kept a low profile for some time, and then sold, without would prejudice its own interests.
prior notice to Mayfair, the entire Claro M Recto property to Equatorial. The petitioner insists that it was not aware of the right of first priority
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the granted by the Contract of Lease. Assuming this to be true, we
property in question rescissible. We agree with respondent Appellate Court that nevertheless agree with the observation of the respondent court that:
the records bear out the fact that Equatorial was aware of the lease contracts If Guzman-Bocaling failed to inquire about the terms
because its lawyers had, prior to the sale, studied the said contracts. As such, of the Lease Contract, which includes Par. 20 on
Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, priority right given to the Bonnevies, it had only itself
rescission lies. to blame. Having known that the property it was
. . . Contract of Sale was not voidable but rescissible. Under Article buying was under lease, it behooved it as a prudent
1380 to 1381(3) of the Civil Code, a contract otherwise valid may person to have required Reynoso or the broker to
nonetheless be subsequently rescinded by reason of injury to third show to it the Contract of Lease in which Par. 20 is
persons, like creditors. The status of creditors could be validly contained.25
accorded the Bonnevies for they had substantial interests that were Petitioners assert the alleged impossibility of performance because the entire
prejudiced by the sale of the subject property to the petitioner without property is indivisible property. It was petitioner Carmelo which fixed the limits of
recognizing their right of first priority under the Contract of Lease. the property it was leasing out. Common sense and fairness dictate that instead
According to Tolentino, rescission is a remedy granted by law to the of nullifying the agreement on that basis, the stipulation should be given effect
contracting parties and even to third persons, to secure reparation for by including the indivisible appurtenances in the sale of the dominant portion
damages caused to them by a contract, even if this should be valid, by under the right of first refusal. A valid and legal contract where the ascendant or
means of the restoration of things to their condition at the moment prior the more important of the two parties is the landowner should be given effect, if
29

possible, instead of being nullified on a selfish pretext posited by the owner. After having sold the property for P11,300,000.00, why should it be given
Following the arguments of petitioners and the participation of the owner in the another chance to sell it at an increased price?
attempt to strip Mayfair of its rights, the right of first refusal should include not Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that
only the property specified in the contracts of lease but also the appurtenant there was nothing to execute because a contract over the right of first refusal
portions sold to Equatorial which are claimed by petitioners to be indivisible. belongs to a class of preparatory juridical relations governed not by the law on
Carmelo acted in bad faith when it sold the entire property to Equatorial without contracts but by the codal provisions on human relations. This may apply here if
informing Mayfair, a clear violation of Mayfair's rights. While there was a series the contract is limited to the buying and selling of the real property. However,
of exchanges of letters evidencing the offer and counter-offers between the the obligation of Carmelo to first offer the property to Mayfair is embodied in a
parties, Carmelo abandoned the negotiations without giving Mayfair full contract. It is Paragraph 8 on the right of first refusal which created the
opportunity to negotiate within the 30-day period. obligation. It should be enforced according to the law on contracts instead of the
Accordingly, even as it recognizes the right of first refusal, this Court should also panoramic and indefinite rule on human relations. The latter remedy
order that Mayfair be authorized to exercise its right of first refusal under the encourages multiplicity of suits. There is something to execute and that is for
contract to include the entirety of the indivisible property. The boundaries of the Carmelo to comply with its obligation to the property under the right of the first
property sold should be the boundaries of the offer under the right of first refusal according to the terms at which they should have been offered then to
refusal. As to the remedy to enforce Mayfair's right, the Court disagrees to a Mayfair, at the price when that offer should have been made. Also, Mayfair has
certain extent with the concluding part of the dissenting opinion of Justice Vitug. to accept the offer. This juridical relation is not amorphous nor is it merely
The doctrine enunciated in Ang Yu Asuncion vs.Court of Appeals should be preparatory. Paragraphs 8 of the two leases can be executed according to their
modified, if not amplified under the peculiar facts of this case. terms.
As also earlier emphasized, the contract of sale between Equatorial and On the question of interest payments on the principal amount of
Carmelo is characterized by bad faith, since it was knowingly entered into in P11,300,000.00, it must be borne in mind that both Carmelo and Equatorial
violation of the rights of and to the prejudice of Mayfair. In fact, as correctly acted in bad faith. Carmelo knowingly and deliberately broke a contract entered
observed by the Court of Appeals, Equatorial admitted that its lawyers had into with Mayfair. It sold the property to Equatorial with purpose and intend to
studied the contract of lease prior to the sale. Equatorial's knowledge of the withhold any notice or knowledge of the sale coming to the attention of Mayfair.
stipulations therein should have cautioned it to look further into the agreement All the circumstances point to a calculated and contrived plan of non-
to determine if it involved stipulations that would prejudice its own interests. compliance with the agreement of first refusal.
Since Mayfair has a right of first refusal, it can exercise the right only if the On the part of Equatorial, it cannot be a buyer in good faith because it bought
fraudulent sale is first set aside or rescinded. All of these matters are now the property with notice and full knowledge that Mayfair had a right to or interest
before us and so there should be no piecemeal determination of this case and in the property superior to its own. Carmelo and Equatorial took unconscientious
leave festering sores to deteriorate into endless litigation. The facts of the case advantage of Mayfair.
and considerations of justice and equity require that we order rescission here Neither may Carmelo and Equatorial avail of considerations based on equity
and now. Rescission is a relief allowed for the protection of one of the which might warrant the grant of interests. The vendor received as payment
contracting parties and even third persons from all injury and damage the from the vendee what, at the time, was a full and fair price for the property. It
contract may cause or to protect some incompatible and preferred right by the has used the P11,300,000.00 all these years earning income or interest from
contract.26 The sale of the subject real property by Carmelo to Equatorial should the amount. Equatorial, on the other hand, has received rents and otherwise
now be rescinded considering that Mayfair, which had substantial interest over profited from the use of the property turned over to it by Carmelo. In fact, during
the subject property, was prejudiced by the sale of the subject property to all the years that this controversy was being litigated, Mayfair paid rentals
Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate regularly to the buyer who had an inferior right to purchase the property. Mayfair
within the 30-day stipulated period.27 is under no obligation to pay any interests arising from this judgment to either
This Court has always been against multiplicity of suits where all remedies Carmelo or Equatorial.
according to the facts and the law can be included. Since Carmelo sold the WHEREFORE, the petition for review of the decision of the Court of Appeals,
property for P11,300,000.00 to Equatorial, the price at which Mayfair could have dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The
purchased the property is, therefore, fixed. It can neither be more nor less. Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc.
There is no dispute over it. The damages which Mayfair suffered are in terms of and Carmelo & Bauermann, Inc. is hereby deemed rescinded; petitioner
actual injury and lost opportunities. The fairest solution would be to allow Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty
Mayfair to exercise its right of first refusal at the price which it was entitled to Development the purchase price. The latter is directed to execute the deeds
accept or reject which is P11,300,000.00. This is clear from the records. and documents necessary to return ownership to Carmelo and Bauermann of
To follow an alternative solution that Carmelo and Mayfair may resume the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater,
negotiations for the sale to the latter of the disputed property would be unjust Inc. to buy the aforesaid lots for P11,300,000.00.
and unkind to Mayfair because it is once more compelled to litigate to enforce SO ORDERED.
its right. It is not proper to give it an empty or vacuous victory in this case. From Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza and Francisco, JJ.,
the viewpoint of Carmelo, it is like asking a fish if it would accept the choice of concur.
being thrown back into the river. Why should Carmelo be rewarded for and Narvasa, C.J., took no part.
allowed to profit from, its wrongdoing? Prices of real estate have skyrocketed.
30

[G.R. No. 111538. February 26, 1997] 9. That in case the properties subject of the lease agreement are sold or
PARAAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, vs. COURT OF encumbered, Lessors shall impose as a condition that the buyer or
APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact, mortgagee thereof shall recognize and be bound by all the terms and
LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents. conditions of this lease agreement and shall respect this Contract of
DECISION Lease as if they are the LESSORS thereof and in case of sale, LESSEE
PANGANIBAN, J.: shall have the first option or priority to buy the properties subject of the
Do allegations in a complaint showing violation of a contractual right of first option lease;
or priority to buy the properties subject of the lease constitute a valid cause of action? Is 7. On September 21, 1988, defendant Santos sold the eight parcels of land
the grantee of such right entitled to be offered the same terms and conditions as those subject of the lease to defendant David Raymundo for a consideration of
given to a third party who eventually bought such properties? In short, is such right of first FIVE MILLION (P5,000,000.00) PESOS. The said sale was in contravention
refusal enforceable by an action for specific performance? of the contract of lease, for the first option or priority to buy was not offered by
These questions are answered in the affirmative by this Court in resolving this defendant Santos to the plaintiff.Xerox copy of the deed of sale is hereto
petition for review under Rule 45 of the Rules of Court challenging the Decision[1] of the attached as Annex M.
Court of Appeals[2] promulgated on March 29, 1993, in CA-G.R. CV No. 34987 8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing
entitled Paraaque Kings Enterprises, Inc. vs. Catalina L. Santos, et al., which affirmed the same of the sale of the properties to defendant Raymundo, the said letter
the order[3] of September 2, 1991, of the Regional Trial Court of Makati, Branch was personally handed by the attorney-in-fact of defendant Santos, Xerox
57,[4] dismissing Civil Case No. 91-786 for lack of a valid cause of action. copy of the letter is hereto attached as Annex N.
Facts of the Case 9. Upon learning of this fact plaintiffs representative wrote a letter to defendant
On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati Santos, requesting her to rectify the error and consequently realizing the
a complaint,[5] which is reproduced in full below: error, she had it reconveyed to her for the same consideration of FIVE
Plaintiff, by counsel, respectfully states that: MILLION (P5,000,000.00) PESOS. Xerox copies of the letter and the deed of
1. Plaintiff is a private corporation organized and existing under and by virtue reconveyance are hereto attached as Annexes O and P.
of the laws of the Philippines, with principal place of business of (sic) Dr. A. 10. Subsequently the property was offered for sale to plaintiff by the defendant
Santos Avenue, Paraaque, Metro Manila, while defendant Catalina L. Santos, for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was
is of legal age, widow, with residence and postal address at 444 Plato Street, given ten (10) days to make good of the offer, but therefore (sic) the said
Ct., Stockton, California, USA, represented in this action by her attorney-in- period expired another letter came from the counsel of defendant Santos,
fact, Luz B. Protacio, with residence and postal address at No, 12, San containing the same tenor of (sic) the former letter.Xerox copies of the letters
Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a are hereto attached as Annexes Q and R.
general power of attorney. Defendant David A. Raymundo, is of legal age, 11. On May 8, 1989, before the period given in the letter offering the
single, with residence and postal address at 1918 Kamias Street, Damarias properties for sale expired, plaintiffs counsel wrote counsel of defendant
Village, Makati, Metro Manila, where they (sic) may be served with summons Santos offering to buy the properties for FIVE MILLION (P5,000,000.00)
and other court processes. Xerox copy of the general power of attorney is PESOS. Xerox copy of the letter is hereto attached as Annex S.
hereto attached as Annex A. 12. On May 15, 1989, before they replied to the offer to purchase, another
2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land deed of sale was executed by defendant Santos (in favor of) defendant
located at (sic) Paraaque, Metro Manila with transfer certificate of title nos. S- Raymundo for a consideration of NINE MILLION (P9,000,000.00)
19637, S-19638 and S-19643 to S-19648. Xerox copies of the said title (sic) PESOS. Xerox copy of the second deed of sale is hereto attached as Annex
are hereto attached as Annexes B to I, respectively. T.
3. On November 28, 1977, a certain Frederick Chua leased the above- 13. Defendant Santos violated again paragraph 9 of the contract of lease by
described property from defendant Catalina L. Santos, the said lease was executing a second deed of sale to defendant Raymundo.
registered in the Register of Deeds. Xerox copy of the lease is hereto 14. It was only on May 17, 1989, that defendant Santos replied to the letter of
attached as Annex J. the plaintiffs offer to buy or two days after she sold her properties. In her reply
4. On February 12, 1979, Frederick Chua assigned all his rights and interest she stated among others that the period has lapsed and the plaintiff is not a
and participation in the leased property to Lee Ching Bing, by virtue of a deed privy (sic) to the contract. Xerox copy of the letter is hereto attached as Annex
of assignment and with the conformity of defendant Santos, the said U.
assignment was also registered. Xerox copy of the deed of assignment is 15. On June 28, 1989, counsel for plaintiff informed counsel of defendant
hereto attached as Annex K. Santos of the fact that plaintiff is the assignee of all rights and interest of the
5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest former lessor. Xerox copy of the letter is hereto attached as Annex V.
in the leased property to Paraaque Kings Enterprises, Incorporated by virtue 16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that
of a deed of assignment and with the conformity of defendant Santos, the the new owner is defendant Raymundo. Xerox copy of the letter is hereto
same was duly registered, Xerox copy of the deed of assignment is hereto attached as Annex W.
attached as Annex L. 17. From the preceding facts it is clear that the sale was simulated and that
6. Paragraph 9 of the assigned leased (sic) contract provides among others that: there was a collusion between the defendants in the sales of the leased
properties, on the ground that when plaintiff wrote a letter to defendant
31

Santos to rectify the error, she immediately have (sic) the property Instead of filing their respective answers, respondents filed motions to dismiss
reconveyed it (sic) to her in a matter of twelve (12) days. anchored on the grounds of lack of cause of action, estoppel and laches.
18. Defendants have the same counsel who represented both of them in their On September 2, 1991, the trial court issued the order dismissing the complaint for
exchange of communication with plaintiffs counsel, a fact that led to the lack of a valid cause of action. It ratiocinated thus:
conclusion that a collusion exist (sic) between the defendants. Upon the very face of the plaintiffs Complaint itself, it therefore indubitably appears that
19. When the property was still registered in the name of defendant Santos, the defendant Santos had verily complied with paragraph 9 of the Lease Agreement by
her collector of the rental of the leased properties was her brother-in-law twice offering the properties for sale to the plaintiff for P15 M. The said offers, however,
David Santos and when it was transferred to defendant Raymundo the were plainly rejected by the plaintiff which scorned the said offer as RIDICULOUS. There
collector was still David Santos up to the month of June, 1990. Xerox copies was therefore a definite refusal on the part of the plaintiff to accept the offer of defendant
of cash vouchers are hereto attached as Annexes X to HH, respectively. Santos. For in acquiring the said properties back to her name, and in so making the
20. The purpose of this unholy alliance between defendants Santos and offers to sell both by herself (attorney-in-fact) and through her counsel, defendant Santos
Raymundo is to mislead the plaintiff and make it appear that the price of the was indeed conscientiously complying with her obligation under paragraph 9 of the
leased property is much higher than its actual value of FIVE MILLION Lease Agreement. x x x
(P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a xxxxxxxxx
higher price. This is indeed one instance where a Complaint, after barely commencing to create a
21. Plaintiff has made considerable investments in the said leased property by cause of action, neutralized itself by its subsequent averments which erased or
erecting a two (2) storey, six (6) doors commercial building amounting to extinguished its earlier allegations of an impending wrong. Consequently, absent any
THREE MILLION (P3,000,000.00) PESOS. This considerable improvement actionable wrong in the very face of the Complaint itself, the plaintiffs subsequent
was made on the belief that eventually the said premises shall be sold to the protestations of collusion is bereft or devoid of any meaning or purpose. x x x
plaintiff. The inescapable result of the foregoing considerations point to no other conclusion than
22. As a consequence of this unlawful act of the defendants, plaintiff will incurr that the Complaint actually does not contain any valid cause of action and should
(sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the actual cost therefore be as it is hereby ordered DISMISSED. The Court finds no further need to
of the building and as such defendants should be charged of the same consider the other grounds of estoppel and laches inasmuch as this resolution is
amount for actual damages. sufficient to dispose the matter.[6]
23. As a consequence of the collusion, evil design and illegal acts of the Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the
defendants, plaintiff in the process suffered mental anguish, sleepless nights, trial court, and further reasoned that:
bismirched (sic) reputation which entitles plaintiff to moral damages in the x x x Appellants protestations that the P15 million price quoted by appellee Santos was
amount of FIVE MILLION (P5,000,000.00) PESOS. reduced to P9 million when she later resold the leased properties to Raymundo has no
24. The defendants acted in a wanton, fraudulent, reckless, oppressive or valid legal moorings because appellant, as a prospective buyer, cannot dictate its own
malevolent manner and as a deterrent to the commission of similar acts, they price and forcibly ram it against appellee Santos, as owner, to buy off her leased
should be made to answer for exemplary damages, the amount left to the properties considering the total absence of any stipulation or agreement as to the price or
discretion of the Court. as to how the price should be computed under paragraph 9 of the lease contract, x x x[7]
25. Plaintiff demanded from the defendants to rectify their unlawful acts that Petitioner moved for reconsideration but was denied in an order dated August 20,
they committed, but defendants refused and failed to comply with plaintiffs 1993.[8]
just and valid and (sic) demands. Xerox copies of the demand letters are Hence this petition. Subsequently, petitioner filed an Urgent Motion for the Issuance
hereto attached as Annexes KK to LL, respectively. of Restraining Order and/or Writ of Preliminary Injunction and to Hold Respondent David
26. Despite repeated demands, defendants failed and refused without A. Raymundo in Contempt of Court.[9] The motion sought to enjoin respondent
justifiable cause to satisfy plaintiffs claim, and was constrained to engaged Raymundo and his counsel from pursuing the ejectment complaint filed before the
(sic) the services of undersigned counsel to institute this action at a contract barangay captain of San Isidro, Paraaque, Metro Manila; to direct the dismissal of said
fee of P200,000.00, as and for attorneys fees, exclusive of cost and expenses ejectment complaint or of any similar action that may have been filed; and to require
of litigation. respondent Raymundo to explain why he should not be held in contempt of court for
PRAYER forum-shopping. The ejectment suit initiated by respondent Raymundo against petitioner
WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the arose from the expiration of the lease contract covering the property subject of this
plaintiff and against defendants and ordering that: case. The ejectment suit was decided in favor of Raymundo, and the entry of final
a. The Deed of Sale between defendants dated May 15, 1989, be annulled judgment in respect thereof renders the said motion moot and academic.
and the leased properties be sold to the plaintiff in the amount Issue
of P5,000,000.00; The principal legal issue presented before us for resolution is whether the
b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual aforequoted complaint alleging breach of the contractual right of first option or priority to
damages; buy states a valid cause of action.
c. Defendants pay the sum of P5,000,000.00 as moral damages; Petitioner contends that the trial court as well as the appellate tribunal erred in
d. Defendants pay exemplary damages left to the discretion of the Court; dismissing the complaint because it in fact had not just one but at least three (3) valid
e. Defendants pay the sum of not less than P200,000.00 as attorneys fees. causes of action, to wit: (1) breach of contract, (2) its right of first refusal founded in law,
Plaintiff further prays for other just and equitable reliefs plus cost of suit. and (3) damages.
32

Respondents Santos and Raymundo, in their separate comments, aver that the facts proving the existence of a cause of action at the outset; this will have to be done at
petition should be denied for not raising a question of law as the issue involved is purely the trial on the merits of the case. To sustain a motion to dismiss for lack of cause of
factual -- whether respondent Santos complied with paragraph 9 of the lease agreement action, the complaint must show that the claim for relief does not exist, rather than that a
-- and for not having complied with Section 2, Rule 45 of the Rules of Court, requiring the claim has been defectively stated, or is ambiguous, indefinite or uncertain. [13]
filing of twelve (12) copies of the petitioners brief. Both maintain that the complaint filed Equally important, a defendant moving to dismiss a complaint on the ground of lack
by petitioner before the Regional Trial Court of Makati stated no valid cause of action and of cause of action is regarded as having hypothetically admitted all the averments
that petitioner failed to substantiate its claim that the lower courts decided the same in a thereof.[14]
way not in accord with law and applicable decisions of the Supreme Court; or that the A careful examination of the complaint reveals that it sufficiently alleges an
Court of Appeals has sanctioned departure by a trial court from the accepted and usual actionable contractual breach on the part of private respondents. Under paragraph 9 of
course of judicial proceedings so as to merit the exercise by this Court of the power of the contract of lease between respondent Santos and petitioner, the latter was granted
review under Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel and the first option or priority to purchase the leased properties in case Santos decided to
laches as grounds for dismissal, claiming that petitioners payment of rentals of the sell. If Santos never decided to sell at all, there can never be a breach, much less an
leased property to respondent Raymundo from June 15, 1989, to June 30, 1990, was an enforcement of such right. But on September 21, 1988, Santos sold said properties to
acknowledgment of the latters status as new owner-lessor of said property, by virtue of Respondent Raymundo without first offering these to petitioner. Santos indeed realized
which petitioner is deemed to have waived or abandoned its first option to purchase. her error, since she repurchased the properties after petitioner complained. Thereafter,
Private respondents likewise contend that the deed of assignment of the lease she offered to sell the properties to petitioner for P15 million, which petitioner, however,
agreement did not include the assignment of the option to purchase. Respondent rejected because of the ridiculous price. But Santos again appeared to have violated the
Raymundo further avers that he was not privy to the contract of lease, being neither the same provision of the lease contract when she finally resold the properties to respondent
lessor nor lessee adverted to therein, hence he could not be held liable for violation Raymundo for only P9 million without first offering them to petitioner at such
thereof. price. Whether there was actual breach which entitled petitioner to damages and/or other
The Courts Ruling just or equitable relief, is a question which can better be resolved after trial on the merits
Preliminary Issue: Failure to File Sufficient Copies of Brief where each party can present evidence to prove their respective allegations and
We first dispose of the procedural issue raised by respondents, particularly defenses.[15]
petitioners failure to file twelve (12) copies of its brief. We have ruled that when non- The trial and appellate courts based their decision to sustain respondents motion to
compliance with the Rules was not intended for delay or did not result in prejudice to the dismiss on the allegations of Paraaque Kings Enterprises that Santos had actually
adverse party, dismissal of appeal on mere technicalities in cases where appeal is a offered the subject properties for sale to it prior to the final sale in favor of Raymundo, but
matter of right -- may be stayed, in the exercise of the courts equity jurisdiction. [10] It does that the offer was rejected. According to said courts, with such offer, Santos had verily
not appear that respondents were unduly prejudiced by petitioners nonfeasance. Neither complied with her obligation to grant the right of first refusal to petitioner.
has it been shown that such failure was intentional. We hold, however, that in order to have full compliance with the contractual right
Main Issue: Validity of Cause of Action granting petitioner the first option to purchase, the sale of the properties for the amount
We do not agree with respondents contention that the issue involved of P9 million, the price for which they were finally sold to respondent Raymundo, should
is purely factual. The principal legal question, as stated earlier, is whether the complaint have likewise been first offered to petitioner.
filed by herein petitioner in the lower court states a valid cause of action. Since such The Court has made an extensive and lengthy discourse on the concept of, and
question assumes the facts alleged in the complaint as true, it follows that the obligations under, a right of first refusal in the case of Guzman, Bocaling & Co. vs.
determination thereof is one of law, and not of facts. There is a question of law in a given Bonnevie.[16] In that case, under a contract of lease, the lessees (Raul and Christopher
case when the doubt or difference arises as to what the law is on a certain state of facts, Bonnevie) were given a right of first priority to purchase the leased property in case the
and there is a question of fact when the doubt or difference arises as to the truth or the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies
falsehood of alleged facts.[11] was P600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the
At the outset, petitioner concedes that when the ground for a motion to dismiss is other hand, the selling price offered by Reynoso to and accepted by Guzman was
lack of cause of action, such ground must appear on the face of the complaint; that to only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to
determine the sufficiency of a cause of action, only the facts alleged in the complaint and be paid only when the property was cleared of occupants. We held that even if the
no others should be considered; and that the test of sufficiency of the facts alleged in a Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso
petition or complaint to constitute a cause of action is whether, admitting the facts could not sell it to another for a lower price and under more favorable terms and
alleged, the court could render a valid judgment upon the same in accordance with the conditions without first offering said favorable terms and price to the Bonnevies as
prayer of the petition or complaint. well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso
A cause of action exists if the following elements are present: (1) a right in favor of thereafter lawfully sell the subject property to others, and only under the same terms and
the plaintiff by whatever means and under whatever law it arises or is created; (2) an conditions previously offered to the Bonnevies.
obligation on the part of the named defendant to respect or not to violate such right, and Of course, under their contract, they specifically stipulated that the Bonnevies could
(3) an act or omission on the part of such defendant violative of the right of plaintiff or exercise the right of first priority, all things and conditions being equal. This Court
constituting a breach of the obligation of defendant to the plaintiff for which the latter may interpreted this proviso to mean that there should be identity of terms and conditions to
maintain an action for recovery of damages.[12] be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy
In determining whether allegations of a complaint are sufficient to support a cause the right of first priority.We hold that the same rule applies even without the same proviso
of action, it must be borne in mind that the complaint does not have to establish or allege if the right of first refusal (or the first option to buy) is not to be rendered illusory.
33

From the foregoing, the basis of the right of the first refusal * must be the current One of such rights included in the contract of lease and, therefore, in the
offer to sell of the seller or offer to purchase of any prospective buyer. Only after the assignments of rights was the lessees right of first option or priority to buy the properties
grantee** fails to exercise its right of first priority under the same terms and within the subject of the lease, as provided in paragraph 9 of the assigned lease contract. The deed
period contemplated, could the owner validly offer to sell the property to a third person, of assignment need not be very specific as to which rights and obligations were passed
again, under the same terms as offered to the grantee ***. on to the assignee. It is understood in the general provision aforequoted that all specific
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair rights and obligations contained in the contract of lease are those referred to as being
Theater, Inc.[17] which was decided en banc. This Court upheld the right of first refusal of assigned. Needless to state, respondent Santos gave her unqualified conformity to both
the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to assignments of rights.
Equatorial Realty considering that Mayfair, which had substantial interest over the Respondent Raymundo privy to the Contract of Lease
subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to With respect to the contention of respondent Raymundo that he is not privy to the
Mayfair every opportunity to negotiate within the 30-day stipulated period (underscoring lease contract, not being the lessor nor the lessee referred to therein, he could thus not
supplied). have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped
In that case, two contracts of lease between Carmelo and Mayfair provided that if into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed
the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 all the obligations of the lessor under the lease contract. Moreover, he received benefits
days exclusive option to purchase the same. Carmelo initially offered to sell the leased in the form of rental payments. Furthermore, the complaint, as well as the petition,
property to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing prayed for the annulment of the sale of the properties to him. Both pleadings also alleged
the property though it invoked the 30-day period. Nothing was heard thereafter from collusion between him and respondent Santos which defeated the exercise by petitioner
Carmelo. Four years later, the latter sold its entire Recto Avenue property, including the of its right of first refusal.
leased premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The In order then to accord complete relief to petitioner, respondent Raymundo was a
Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly necessary, if not indispensable, party to the case.[22] A favorable judgment for the
violating the right of first refusal* of Mayfair, and Equatorial for purchasing the property petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the
despite being aware of the contract stipulation. In addition to rescission of the contract of property over which petitioner would like to assert its right of first option to buy.
sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at the same Having come to the conclusion that the complaint states a valid cause of action for
price of P11,300,000.00. breach of the right of first refusal and that the trial court should thus not have dismissed
No cause of action under P.D. 1517 the complaint, we find no more need to pass upon the question of whether the complaint
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform states a cause of action for damages or whether the complaint is barred by estoppel or
Law, as another source of its right of first refusal. It claims to be covered under said law, laches. As these matters require presentation and/or determination of facts, they can be
being the rightful occupant of the land and its structures since it is the lawful lessee best resolved after trial on the merits.
thereof by reason of contract. Under the lease contract, petitioner would have occupied While the lower courts erred in dismissing the complaint, private respondents,
the property for fourteen (14) years at the end of the contractual period. however, cannot be denied their day in court. While, in the resolution of a motion to
Without probing into whether petitioner is rightfully a beneficiary under said law, dismiss, the truth of the facts alleged in the complaint are theoretically admitted, such
suffice it to say that this Court has previously ruled that under Section 6[18] of P.D. 1517, admission is merely hypothetical and only for the purpose of resolving the motion. In
the terms and conditions of the sale in the exercise of the lessees right of first refusal to case of denial, the movant is not to be deprived of the right to submit its own case and to
purchase shall be determined by the Urban Zone Expropriation and Land Management submit evidence to rebut the allegations in the complaint. Neither will the grant of the
Committee. Hence, x x x certain prerequisites must be complied with by anyone who motion by a trial court and the ultimate reversal thereof by an appellate court have the
wishes to avail himself of the benefits of the decree.[19] There being no allegation in its effect of stifling such right.[23] So too, the trial court should be given the opportunity to
complaint that the prerequisites were complied with, it is clear that the complaint did fail evaluate the evidence, apply the law and decree the proper remedy. Hence, we remand
to state a cause of action on this ground. the instant case to the trial court to allow private respondents to have their day in court.
Deed of Assignment included the option to purchase WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court
Neither do we find merit in the contention of respondent Santos that the assignment and Court of Appeals are hereby REVERSED and SET ASIDE. The case
of the lease contract to petitioner did not include the option to purchase. The provisions is REMANDED to the Regional Trial Court of Makati for further proceedings.
of the deeds of assignment with regard to matters assigned were very clear. Under the SO ORDERED.
first assignment between Frederick Chua as assignor and Lee Ching Bing as assignee, it Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.
was expressly stated that:
x x x the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein [G.R. No. 140479. March 8, 2001]
ASSIGNEE, all his rights, interest and participation over said premises afore-described, x ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners,
x x[20](underscoring supplied) vs. PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN,
And under the subsequent assignment executed between Lee Ching Bing as FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.
assignor and the petitioner, represented by its Vice President Vicenta Lo Chiong, as DECISION
assignee, it was likewise expressly stipulated that: GONZAGA-REYES, J.:
x x x the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and This is a petition for review on certiorari under Rule 45 of the Rules of Court
participation over said leased premises, x x x[21] (underscoring supplied) seeking reversal of the Decision[1] of the Court of Appeals dated June 25, 1999 in CA-
G.R. CV No. 53963. The Court of Appeals decision reversed and set aside the
34

Decision[2]dated May 13, 1996 of Branch 217 of the Regional Trial Court of Quezon City to the rental payment of the premises. It was also at this instance that the lessees were
in Civil Case No. Q-93-18582. furnished with a copy of the Deed of Sale and discovered that they were deceived by de
The case was originally filed on December 10, 1993 by Paterno Inquing, Irene Leon since the sale between her and Rene Joaquin/Rosencor took place in September
Guillermo and Federico Bantugan, herein respondents, against Rosencor Development 4, 1990 while de Leon made the offer to them only in October 1990 or after the sale with
Corporation (hereinafter Rosencor), Rene Joaquin, and Eufrocina de Leon. Originally, Rosencor had been consummated. The lessees also noted that the property was sold
the complaint was one for annulment of absolute deed of sale but was later amended to only for P726,000.00.
one for rescission of absolute deed of sale. A complaint-for intervention was thereafter The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an
filed by respondents Fernando Magbanua and Danna Lizza Tiangco. The complaint-in- additional P274,000.00 to complete their P1,000.000.00 earlier offer. When their offer
intervention was admitted by the trial court in an Order dated May 4, 1994. [3] was refused, they filed the present action praying for the following: a) rescission of the
The facts of the case, as stated by the trial court and adopted by the appellate Deed of Absolute Sale between de Leon and Rosencor dated September 4, 1990; b) the
court, are as follows: defendants Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon; and
This action was originally for the annulment of the Deed of Absolute Sale dated c) de Leon be ordered to reimburse the plaintiffs for the repairs of the property, or apply
September 4, 1990 between defendants Rosencor and Eufrocina de Leon but later the said amount as part of the price for the purchase of the property in the sum of
amended (sic) praying for the rescission of the deed of sale. P100,000.00.[4]
Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two- After trial on the merits, the Regional Trial Court rendered a Decision[5] dated May
story residential apartment located at No. 150 Tomas Morato Ave., Quezon City covered 13, 1996 dismissing the complaint. The trial court held that the right of redemption on
by TCT No. 96161 and owned by spouses Faustino and Cresencia Tiangco. The lease which the complaint was based was merely an oral one and as such, is unenforceable
was not covered by any contract. The lessees were renting the premises then for under the law. The dispositive portion of the May 13, 1996 Decision is as follows:
P150.00 a month and were allegedly verbally granted by the lessors the pre-emptive WHEREFORE, in view of the foregoing, the Court DISMISSES the instant
right to purchase the property if ever they decide to sell the same. action. Plaintiffs and plaintiffs-intervenors are hereby ordered to pay their respective
Upon the death of the spouses Tiangcos in 1975, the management of the property was monthly rental of P1,000.00 per month reckoned from May 1990 up to the time they
adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees were leave the premises. No costs.
allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter SO ORDERED.[6]
had knowledge that this right was extended to the former by the late spouses Not satisfied with the decision of the trial court, respondents herein filed a Notice of
Tiangcos. The lessees continued to stay in the premises and allegedly spent their own Appeal dated June 3, 1996. On the same date, the trial court issued an Order for the
money amounting from P50,000.00 to P100,000.00 for its upkeep. These expenses were elevation of the records of the case to the Court of Appeals. On August 8, 1997,
never deducted from the rentals which already increased to P1,000.00. respondents filed their appellate brief before the Court of Appeals.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they On June 25, 1999, the Court of Appeals rendered its decision[7] reversing the
vacate the premises so that the demolition of the building be undertaken. They refused to decision of the trial court. The dispositive portion of the June 25, 1999 decision is as
leave the premises. In that same month, de Leon refused to accept the lessees rental follows:
payment claiming that they have run out of receipts and that a new collector has been WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the
assigned to receive the payments. Thereafter, they received a letter from Eufrocina de Regional Trial Court (Branch 217) in Quezon City in Case No. Q-93-18582 is hereby
Leon offering to sell to them the property they were leasing for P2,000,000.00. xxx. REVERSED and SET ASIDE. In its stead, a new one is rendered ordering:
The lessees offered to buy the property from de Leon for the amount of (1) The rescission of the Deed of Absolute Sale executed between the
P1,000,000.00. De Leon told them that she will be submitting the offer to the other appellees on September 4, 1990;
heirs. Since then, no answer was given by de Leon as to their offer to buy the property. (2) The reconveyance of the subject premises to appellee Eufrocina de Leon;
However, in November 1990, Rene Joaquin came to the leased premises introducing (3) The heirs of Faustino and Crescencia Tiangco, thru appellee Eufrocina de
himself as its new owner. Leon, to afford the appellants thirty days within which to exercise their right
In January 1991, the lessees again received another letter from Atty. Aguila demanding of first refusal by paying the amount of ONE MILLION PESOS
that they vacate the premises. A month thereafter, the lessees received a letter from de (P1,000,000.00) for the subject property; and
Leon advising them that the heirs of the late spouses Tiangcos have already sold the (4) The appellants to, in turn, pay the appellees back rentals from May 1990
property to Rosencor. The following month Atty. Aguila wrote them another letter up to the time this decision is promulgated.
demanding the rental payment and introducing herself as counsel for Rosencor/Rene No pronouncement as to costs.
Joaquin, the new owners of the premises. SO ORDERED.[8]
The lessees requested from de Leon why she had disregarded the pre-emptive right she Petitioners herein filed a Motion for Reconsideration of the decision of the Court of
and the late Tiangcos have promised them. They also asked for a copy of the deed of Appeals but the same was denied in a Resolution dated October 15, 1999.[9]
sale between her and the new owners thereof but she refused to heed their request. In Hence, this petition for review on certiorari where petitioners Rosencor
the same manner, when they asked Rene Joaquin a copy of the deed of sale, the latter Development Corporation and Rene Joaquin raise the following assignment of errors [10]:
turned down their request and instead Atty. Aguila wrote them several letters demanding I.
that they vacate the premises. The lessees offered to tender their rental payment to de THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE
Leon but she refused to accept the same. RESCISSION OF THE ABSOLUTE DEED OF SALE BETWEEN EUFROCINA DE
In April 1992 before the demolition can be undertaken by the Buiding Official, the LEON AND PETITIONER ROSENCOR.
barangay interceded between the parties herein after which Rosencor raised the issue as II.
35

THE COURT OF APPEALS COMMITTED MANIFEST ERROR IN MANDATING The purpose of the statute is to prevent fraud and perjury in the enforcement of
THAT EUFROCINA DE LEON AFFORD RESPONDENTS THE OPPORTUNITY obligations depending for their evidence on the unassisted memory of witnesses by
TO EXERCISE THEIR RIGHT OF FIRST REFUSAL. requiring certain enumerated contracts and transactions to be evidenced by a writing
III. signed by the party to be charged.[11] Moreover, the statute of frauds refers to specific
THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT kinds of transactions and cannot apply to any other transaction that is not enumerated
RESPONDENTS HAVE ESTABLISHED THEIR RIGHT OF FIRST REFUSAL therein.[12] The application of such statute presupposes the existence of a perfected
DESPITE PETITIONERS RELIANCE ON THEIR DEFENSE BASED ON THE contract.[13]
STATUTE OF FRAUDS. The question now is whether a right of first refusal is among those enumerated in
Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and the list of contracts covered by the Statute of Frauds. More specifically, is a right of first
Crescencia Tiangco, did not appeal the decision of the Court of Appeals. refusal akin to an agreement for the leasing of a longer period than one year, or for the
At the onset, we note that both the Court of Appeals and the Regional Trial Court sale of real property or of an interest therein as contemplated by Article 1403, par. 2(e) of
relied on Article 1403 of the New Civil Code, more specifically the provisions on the the New Civil Code.
statute of frauds, in coming out with their respective decisions. The trial court, in denying We have previously held that not all agreements affecting land must be put into
the petition for reconveyance, held that right of first refusal relied upon by petitioners was writing to attain enforceability[14]. Thus, we have held that the setting up of
not reduced to writing and as such, is unenforceable by virtue of the said article. The boundaries,[15] the oral partition of real property[16], and an agreement creating a right of
Court of Appeals, on the other hand, also held that the statute of frauds governs the right way[17] are not covered by the provisions of the statute of frauds. The reason simply is
of first refusal claimed by respondents. However, the appellate court ruled that that these agreements are not among those enumerated in Article 1403 of the New Civil
respondents had duly proven the same by reason of petitioners waiver of the protection Code.
of the statute by reason of their failure to object to the presentation of oral evidence of A right of first refusal is not among those listed as unenforceable under the statute
the said right. of frauds. Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code
Both the appellate court and the trial court failed to discuss, however, the threshold presupposes the existence of a perfected, albeit unwritten, contract of sale.[18] A right of
issue of whether or not a right of first refusal is indeed covered by the provisions of the first refusal, such as the one involved in the instant case, is not by any means a
New Civil Code on the statute of frauds. The resolution of the issue on the applicability of perfected contract of sale of real property. At best, it is a contractual grant, not of the sale
the statute of frauds is important as it will determine the type of evidence which may be of the real property involved, but of the right of first refusal over the property sought to be
considered by the trial court as proof of the alleged right of first refusal. sold[19]
The term statute of frauds is descriptive of statutes which require certain classes of It is thus evident that the statute of frauds does not contemplate cases involving a
contracts to be in writing. This statute does not deprive the parties of the right to contract right of first refusal. As such, a right of first refusal need not be written to be enforceable
with respect to the matters therein involved, but merely regulates the formalities of the and may be proven by oral evidence.
contract necessary to render it enforceable. Thus, they are included in the provisions of The next question to be ascertained is whether or not respondents have
the New Civil Code regarding unenforceable contracts, more particularly Art. 1403, satisfactorily proven their right of first refusal over the property subject of the Deed of
paragraph 2. Said article provides, as follows: Absolute Sale dated September 4, 1990 between petitioner Rosencor and Eufrocina de
Art. 1403. The following contracts are unenforceable, unless they are ratified: Leon.
xxx On this point, we agree with the factual findings of the Court of Appeals that
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the respondents have adequately proven the existence of their right of first refusal. Federico
following cases an agreement hereafter made shall be unenforceable by action, unless Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that they were
the same, or some note or memorandum thereof, be in writing, and subscribed by the promised by the late spouses Faustino and Crescencia Tiangco and, later on, by their
party charged, or by his agent; evidence, therefore, of the agreement cannot be received heirs a right of first refusal over the property they were currently leasing should they
without the writing, or a secondary evidence of its contents: decide to sell the same. Moreover, respondents presented a letter[20] dated October 9,
a) An agreement that by its terms is not to be performed within a year from the making 1990 where Eufrocina de Leon, the representative of the heirs of the spouses Tiangco,
thereof; informed them that they had received an offer to buy the disputed property for
b) A special promise to answer for the debt, default, or miscarriage of another; P2,000,000.00 and offered to sell the same to the respondents at the same price if they
c) An agreement made in consideration of marriage, other than a mutual promise to were interested. Verily, if Eufrocina de Leon did not recognize respondents right of first
marry; refusal over the property they were leasing, then she would not have bothered to offer
d) An agreement for the sale of goods, chattels or things in action, at a price not less the property for sale to the respondents.
than five hundred pesos, unless the buyer accept and receive part of such goods and It must be noted that petitioners did not present evidence before the trial court
chattels, or the evidences, or some of them, of such things in action, or pay at the time contradicting the existence of the right of first refusal of respondents over the disputed
some part of the purchase money; but when a sale is made by auction and entry is made property. They only presented petitioner Rene Joaquin, the vice-president of petitioner
by the auctioneer in his sales book, at the time of the sale, of the amount and kind of Rosencor, who admitted having no personal knowledge of the details of the sales
property sold, terms of sale, price, names of purchasers and person on whose account transaction between Rosencor and the heirs of the spouses Tiangco [21] They also
the sale is made, it is a sufficient memorandum; dispensed with the testimony of Eufrocina de Leon[22] who could have denied the
e) An agreement for the leasing of a longer period than one year, or for the sale of real existence or knowledge of the right of first refusal. As such, there being no evidence to
property or of an interest therein; the contrary, the right of first refusal claimed by respondents was substantially proven by
f) A representation to the credit of a third person. respondents before the lower court.
36

Having ruled upon the question as to the existence of respondents right of first therein had a right of first refusal over the said property, it could only exercise the said
refusal, the next issue to be answered is whether or not the Court of Appeals erred in right if the fraudulent sale is first set aside or rescinded. Thus:
ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that
Rosencor and Eufrocina de Leon and in decreeing that the heirs of the spouses Tiangco Mayfair will have the right of first refusal in the event Carmelo sells the leased
should afford respondents the exercise of their right of first refusal. In other words, may a premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed
contract of sale entered into in violation of a third partys right of first refusal be rescinded the latter of its intention to sell the said property in 1974. There was an exchange of
in order that such third party can exercise said right? letters evidencing the offer and counter-offers made by both parties. Carmelo, however,
The issue is not one of first impression. did not pursue the exercise to its logical end. While it initially recognized Mayfairs right of
In Guzman, Bocaling and Co, Inc. vs. Bonnevie[23], the Court upheld the decision of first refusal, Carmelo violated such right when without affording its negotiations with
a lower court ordering the rescission of a deed of sale which violated a right of first Mayfair the full process to ripen to at least an interface of a definite offer and a possible
refusal granted to one of the parties therein. The Court held: corresponding acceptance within the 30-day exclusive option time granted Mayfair,
xxx Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without
the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by prior notice to Mayfair, the entire Claro M. Recto property to Equatorial.
reason of injury to third persons, like creditors. The status of creditors could be validly Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property
accorded the Bonnevies for they had substantial interests that were prejudiced by the in question, rescissible. We agree with respondent Appellate Court that the records bear
sale of the subject property to the petitioner without recognizing their right of first priority out the fact that Equatorial was aware of the lease contracts because its lawyers had,
under the Contract of Lease. prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim that
According to Tolentino, rescission is a remedy granted by law to the contracting parties to be a purchaser in good faith, and, therefore, rescission lies.
and even to third persons, to secure reparations for damages caused to them by a XXX
contract, even if this should be valid, by means of the restoration of things to their As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
condition at the moment prior to the celebration of said contract. It is a relief allowed for characterized by bad faith, since it was knowingly entered into in violation of the rights of
the protection of one of the contracting parties and even third persons from all injury and and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals,
damage the contract may cause, or to protect some incompatible and preferent right Equatorial admitted that its lawyers had studied the contract of lease prior to the
created by the contract. Rescission implies a contract which, even if initially valid, sale. Equatorials knowledge of the stipulations therein should have cautioned it to look
produces a lesion or pecuniary damage to someone that justifies its invalidation for further into the agreement to determine if it involved stipulations that would prejudice its
reasons of equity. own interests.
It is true that the acquisition by a third person of the property subject of the contract is an Since Mayfair had a right of first refusal, it can exercise the right only if the fraudulent
obstacle to the action for its rescission where it is shown that such third person is in sale is first set aside or rescinded. All of these matters are now before us and so there
lawful possession of the subject of the contract and that he did not act in bad should be no piecemeal determination of this case and leave festering sores to
faith. However, this rule is not applicable in the case before us because the petitioner is deteriorate into endless litigation. The facts of the case and considerations of justice and
not considered a third party in relation to the Contract of Sale nor may its possession of equity require that we order rescission here and now. Rescission is a relief allowed for
the subject property be regarded as acquired lawfully and in good faith. the protection of one of the contracting parties and even third persons from all injury and
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, damage the contract may cause or to protect some incompatible and preferred right by
the petitioner cannot be deemed a purchaser in good faith for the record shows that it the contract. The sale of the subject real property should now be rescinded considering
categorically admitted that it was aware of the lease in favor of the Bonnevies, who were that Mayfair, which had substantial interest over the subject property, was prejudiced by
actually occupying the subject property at the time it was sold to it. Although the Contract the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every
of Lease was not annotated on the transfer certificate of title in the name of the late Jose opportunity to negotiate within the 30-day stipulate period.[27]
Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,[28] the Court held that
which was equivalent to and indeed more binding than presumed notice by registration. the allegations in a complaint showing violation of a contractual right of first option or
A purchaser in good faith and for value is one who buys the property of another without priority to buy the properties subject of the lease constitute a valid cause of action
notice that some other person has a right to or interest in such property without and pays enforceable by an action for specific performance. Summarizing the rulings in the two
a full and fair price for the same at the time of such purchase or before he has notice of previously cited cases, the Court affirmed the nature of and concomitant rights and
the claim or interest of some other person in the property. Good faith connotes an honest obligations of parties under a right of first refusal. Thus:
intention to abstain from taking unconscientious advantage of another. Tested by these We hold however, that in order to have full compliance with the contractual right granting
principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice petitioner the first option to purchase, the sale of the properties for the amount of
of the lease of the property by the Bonnevies and such knowledge should have P9,000,000.00, the price for which they were finally sold to respondent Raymundo,
cautioned it to look deeper into the agreement to determine if it involved stipulations that should have likewise been offered to petitioner.
would prejudice its own interests. The Court has made an extensive and lengthy discourse on the concept of, and
Subsequently[24] in Equatorial Realty and Development, Inc. vs. Mayfair Theater, obligations under, a right of first refusal in the case of Guzman, Bocaling & Co. vs.
Inc. , the Court, en banc, with three justices dissenting,[26] ordered the rescission of a
[25] Bonnevie. In that case, under a contract of lease, the lessees (Raul and Christopher
contract entered into in violation of a right of first refusal. Using the ruling in Guzman Bonnevie) were given a "right of first priority" to purchase the leased property in case the
Bocaling & Co., Inc. vs. Bonnevie as basis, the Court decreed that since respondent lessor (Reynoso) decided to sell.The selling price quoted to the Bonnevies was
600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the other
37

hand, the selling price offered by Reynoso to and accepted by Guzman was only It was then held that the Contract of Sale there, which violated the right of first refusal,
P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be was rescissible.
paid only when the property was cleared of occupants. We held that even if the In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L
Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso & R Corporation over the subject properties since the Deed of Real Estate Mortgage
could not sell it to another for a lower price and under more favorable terms and containing such a provision was duly registered with the Register of Deeds. As such,
conditions without first offering said favorable terms and price to the Bonnevies as PWHAS is presumed to have been notified thereof by registration, which equates to
well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso notice to the whole world.
thereafter lawfully sell the subject property to others, and only under the same terms and XXX
conditions previously offered to the Bonnevies. All things considered, what then are the relative rights and obligations of the parties? To
XXX recapitulate: the sale between the spouses Litonjua and PWHAS is valid, notwithstanding
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair the absence of L & R Corporation's prior written consent thereto. Inasmuch as the sale to
Theater, Inc. which was decided en banc. This Court upheld the right of first refusal of PWHAS was valid, its offer to redeem and its tender of the redemption price, as
the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to successor-in-interest of the spouses Litonjua, within the one-year period should have
Equatorial Realty "considering that Mayfair, which had substantial interest over the been accepted as valid by the L & R Corporation. However, while the sale is, indeed,
subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to valid, the same is rescissible because it ignored L & R Corporation's right of first refusal.
Mayfair every opportunity to negotiate within the 30-day stipulated period" Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the sale entered into in violation of a right of first refusal of another person, while valid, is
LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 days rescissible.
exclusive option to purchase the same." Carmelo initially offered to sell the leased There is, however, a circumstance which prevents the application of this doctrine in
property to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing the case at bench. In the cases cited above, the Court ordered the rescission of sales
the property though it invoked the 30-day period. Nothing was heard thereafter from made in violation of a right of first refusal precisely because the vendees therein could
Carmelo. Four years later, the latter sold its entire Recto Avenue property, including the not have acted in good faith as they were aware or should have been aware of the right
leased premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The of first refusal granted to another person by the vendors therein. The rationale for this is
Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly found in the provisions of the New Civil Code on rescissible contracts. Under Article 1381
violating the right of first option of Mayfair, and Equatorial for purchasing the property of the New Civil Code, paragraph 3, a contract validly agreed upon may be rescinded if it
despite being aware of the contract stipulation. In addition to rescission of the contract of is undertaken in fraud of creditors when the latter cannot in any manner collect the claim
sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at the same due them. Moreover, under Article 1385, rescission shall not take place when the things
price of P11,300,000.00. which are the object of the contract are legally in the possession of third persons who did
In the recent case of Litonjua vs. L&R Corporation,[29] the Court, also citing the case not act in bad faith.[30]
of Guzman, Bocaling & Co. vs. Bonnevie, held that the sale made therein in violation of a It must be borne in mind that, unlike the cases cited above, the right of first refusal
right of first refusal embodied in a mortgage contract, was rescissible. Thus: involved in the instant case was an oral one given to respondents by the deceased
While petitioners question the validity of paragraph 8 of their mortgage contract, they spouses Tiangco and subsequently recognized by their heirs. As such, in order to hold
appear to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants that petitioners were in bad faith, there must be clear and convincing proof that
upon L&R Corporation the right of first refusal over the mortgaged property in the event petitioners were made aware of the said right of first refusal either by the respondents or
the mortgagor decides to sell the same. We see nothing wrong in this provision. The right by the heirs of the spouses Tiangco.
of first refusal has long been recognized as valid in our jurisdiction. The consideration for It is axiomatic that good faith is always presumed unless contrary evidence is
the loan mortgage includes the consideration for the right of first refusal. L&R adduced.[31] A purchaser in good faith is one who buys the property of another without
Corporation is in effect stating that it consents to lend out money to the spouses Litonjua notice that some other person has a right or interest in such a property and pays a full
provided that in case they decide to sell the property mortgaged to it, then L&R and fair price at the time of the purchase or before he has notice of the claim or interest
Corporation shall be given the right to match the offered purchase price and to buy the of some other person in the property.[32] In this regard, the rule on constructive notice
property at that price. Thus, while the spouses Litonjua had every right to sell their would be inapplicable as it is undisputed that the right of first refusal was an oral one and
mortgaged property to PWHAS without securing the prior written consent of L&R that the same was never reduced to writing, much less registered with the Registry of
Corporation, they had the obligation under paragraph 9, which is a perfectly valid Deeds. In fact, even the lease contract by which respondents derive their right to
provision, to notify the latter of their intention to sell the property and give it priority over possess the property involved was an oral one.
other buyers. It is only upon the failure of L&R Corporation to exercise its right of first On this point, we hold that the evidence on record fails to show that petitioners
refusal could the spouses Litonjua validly sell the subject properties to the others, under acted in bad faith in entering into the deed of sale over the disputed property with the
the same terms and conditions offered to L&R Corporation. heirs of the spouses Tiangco.Respondents failed to present any evidence that prior to
What then is the status of the sale made to PWHAS in violation of L & R Corporation's the sale of the property on September 4, 1990, petitioners were aware or had notice of
contractual right of first refusal? On this score, we agree with the Amended Decision of the oral right of first refusal.
the Court of Appeals that the sale made to PWHAS is rescissible. The case of Guzman, Respondents point to the letter dated June 1, 1990[33] as indicative of petitioners
Bocaling & Co. v. Bonnevie is instructive on this point. knowledge of the said right. In this letter, a certain Atty. Erlinda Aguila demanded that
XXX respondent Irene Guillermo vacate the structure they were occupying to make way for its
demolition.
38

We fail to see how the letter could give rise to bad faith on the part of the Vitug, J., in the result; reiterated the Courts opinion in Ang Yu vs. CA (238 SCRA
petitioner. No mention is made of the right of first refusal granted to respondents. The 602).
name of petitioner Rosencor or any of it officers did not appear on the letter and the letter
did not state that Atty. Aguila was writing in behalf of petitioner. In fact, Atty. Aguila stated [G.R. No. 140182. April 12, 2005]
during trial that she wrote the letter in behalf of the heirs of the spouses TANAY RECREATION CENTER AND DEVELOPMENT CORP., petitioner,
Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing in behalf of vs. CATALINA MATIENZO FAUSTO+ and ANUNCIACION FAUSTO
petitioner Rosencor, there is no showing that Rosencor was aware at that time that such PACUNAYEN, respondents.
a right of first refusal existed. DECISION
Neither was there any showing that after receipt of this June 1, 1990 letter, AUSTRIA-MARTINEZ, J.:
respondents notified Rosencor or Atty. Aguila of their right of first refusal over the Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee
property. Respondents did not try to communicate with Atty. Aguila and inform her about of a 3,090-square meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina
their preferential right over the disputed property. There is even no showing that they Matienzo Fausto,[1] under a Contract of Lease executed on August 1, 1971. On this
contacted the heirs of the spouses Tiangco after they received this letter to remind them property stands the Tanay Coliseum Cockpit operated by petitioner. The lease contract
of their right over the property. provided for a 20-year term, subject to renewal within sixty days prior to its expiration.
Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de The contract also provided that should Fausto decide to sell the property, petitioner shall
Leon, where she recognized the right of first refusal of respondents, as indicative of the have the priority right to purchase the same.[2]
bad faith of petitioners. We do not agree. Eufrocina de Leon wrote the letter on her own On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the
behalf and not on behalf of petitioners and, as such, it only shows that Eufrocina de Leon lease.[3] However, it was Faustos daughter, respondent Anunciacion F. Pacunayen, who
was aware of the existence of the oral right of first refusal. It does not show that replied, asking that petitioner remove the improvements built thereon, as she is now the
petitioners were likewise aware of the existence of the said right. Moreover, the letter absolute owner of the property.[4] It appears that Fausto had earlier sold the property to
was made a month after the execution of the Deed of Absolute Sale on September 4, Pacunayen on August 8, 1990, for the sum of P10,000.00 under a Kasulatan ng Bilihan
1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There is no Patuluyan ng Lupa,[5] and title has already been transferred in her name under Transfer
showing that prior to the date of the execution of the said Deed, petitioners were put on Certificate of Title (TCT) No. M-35468.[6]
notice of the existence of the right of first refusal. Despite efforts, the matter was not resolved. Hence, on September 4, 1991,
Clearly, if there was any indication of bad faith based on respondents evidence, it petitioner filed an Amended Complaint for Annulment of Deed of Sale, Specific
would only be on the part of Eufrocina de Leon as she was aware of the right of first Performance with Damages, and Injunction, docketed as Civil Case No. 372-M.[7]
refusal of respondents yet she still sold the disputed property to Rosencor. However, bad In her Answer, respondent claimed that petitioner is estopped from assailing the
faith on the part of Eufrocina de Leon does not mean that petitioner Rosencor likewise validity of the deed of sale as the latter acknowledged her ownership when it merely
acted in bad faith. There is no showing that prior to the execution of the Deed of Absolute asked for a renewal of the lease. According to respondent, when they met to discuss the
Sale, petitioners were made aware or put on notice of the existence of the oral right of matter, petitioner did not demand for the exercise of its option to purchase the property,
first refusal. Thus, absent clear and convincing evidence to the contrary, petitioner and it even asked for grace period to vacate the premises. [8]
Rosencor will be presumed to have acted in good faith in entering into the Deed of After trial on the merits, the Regional Trial Court of Morong, Rizal (Branch 78),
Absolute Sale over the disputed property. rendered judgment extending the period of the lease for another seven years from
Considering that there is no showing of bad faith on the part of the petitioners, the August 1, 1991 at a monthly rental of P10,000.00, and dismissed petitioners claim for
Court of Appeals thus erred in ordering the rescission of the Deed of Absolute Sale dated damages.[9]
September 4, 1990 between petitioner Rosencor and the heirs of the spouses On appeal, docketed as CA-G.R. CV No. 43770, the Court of Appeals (CA) affirmed
Tiangco. The acquisition by Rosencor of the property subject of the right of first refusal is with modifications the trial courts judgment per its Decision dated June 14, 1999. [10] The
an obstacle to the action for its rescission where, as in this case, it was shown that dispositive portion of the decision reads:
Rosencor is in lawful possession of the subject of the contract and that it did not act in WHEREFORE, the appealed decision is AFFIRMED AND ACCORDINGLY MODIFIED
bad faith.[34] AS DISCUSSED.
This does not mean however that respondents are left without any remedy for the Furthermore, we resolved:
unjustified violation of their right of first refusal. Their remedy however is not an action for 1.0. That TRCDC VACATE the leased premises immediately;
the rescission of the Deed of Absolute Sale but an action for damages against the heirs 2.0. To GRANT the motion of Pacunayen to allow her to withdraw the amount
of the spouses Tiangco for the unjustified disregard of their right of first refusal[35]. of P320,000.00, deposited according to records, with this court.
WHEREFORE, premises considered, the decision of the Court of Appeals dated 3.0. To order TRCDC to MAKE THE NECESSARY ACCOUNTING regarding the
June 25, 1999 is REVERSED and SET ASIDE. The Decision dated May 13, 1996 of the amounts it had already deposited (for unpaid rentals for the extended period of seven [7]
Quezon City Regional Trial Court, Branch 217 is hereby REINSTATED insofar as it years of the contract of lease). In case it had not yet completed its deposit, to
dismisses the action for rescission of the Deed of Absolute Sale dated September 4, immediately pay the remaining balance to Pacunayen.
1990 and orders the payment of monthly rentals of P1,000.00 per month reckoned from 4.0. To order TRCDC to PAY the amount of P10,000.00 as monthly rental, with regard to
May 1990 up to the time respondents leave the premises. its continued stay in the leased premises even after the expiration of the extended period
SO ORDERED. of seven (7) years, computed from August 1, 1998, until it finally vacates therefrom.
Melo, (Chairman), Panganiban, and Sandoval-Gutierrez, JJ., concur. SO ORDERED.[11]
39

In arriving at the assailed decision, the CA acknowledged the priority right of petitioner before she sold it to respondent. It was only after petitioner failed to exercise its
TRCDC to purchase the property in question. However, the CA interpreted such right to right of first priority could Fausto then lawfully sell the property to respondent.
mean that it shall be applicable only in case the property is sold to strangers and not to The rule is that a sale made in violation of a right of first refusal is valid. However, it
Faustos relative. The CA stated that (T)o interpret it otherwise as to comprehend all may be rescinded, or, as in this case, may be the subject of an action for specific
sales including those made to relatives and to the compulsory heirs of the seller at that performance.[22]In Riviera Filipina, Inc. vs. Court of Appeals,[23] the Court discussed the
would be an absurdity, and her (Faustos) only motive for such transfer was precisely one concept and interpretation of the right of first refusal and the consequences of a breach
of preserving the property within her bloodline and that someone administer the thereof, to wit:
property.[12] The CA also ruled that petitioner already acknowledged the transfer of . . . It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie where the Court
ownership and is deemed to have waived its right to purchase the property.[13] The CA held that a lease with a proviso granting the lessee the right of first priority all things and
even further went on to rule that even if the sale is annulled, petitioner could not achieve conditions being equal meant that there should be identity of the terms and conditions to
anything because the property will be eventually transferred to Pacunayen after Faustos be offered to the lessee and all other prospective buyers, with the lessee to enjoy the
death.[14] right of first priority. A deed of sale executed in favor of a third party who cannot be
Petitioner filed a motion for reconsideration but it was denied per Resolution dated deemed a purchaser in good faith, and which is in violation of a right of first refusal
September 14, 1999.[15] granted to the lessee is not voidable under the Statute of Frauds but rescissible under
Dissatisfied, petitioner elevated the case to this Court on petition for review Articles 1380 to 1381 (3) of the New Civil Code.
on certiorari, raising the following grounds: Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals, the
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE Court en banc departed from the doctrine laid down in Guzman, Bocaling & Co. v.
ERROR IN HOLDING THAT THE CONTRACTUAL STIPULATION GIVING Bonnevie and refused to rescind a contract of sale which violated the right of first
PETITIONER THE PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES refusal. The Court held that the so-called right of first refusal cannot be deemed a
SHALL ONLY APPLY IF THE LESSOR DECIDES TO SELL THE SAME TO perfected contract of sale under Article 1458 of the New Civil Code and, as such, a
STRANGERS; breach thereof decreed under a final judgment does not entitle the aggrieved party to a
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE writ of execution of the judgment but to an action for damages in a proper forum for the
ERROR IN HOLDING THAT PETITIONERS PRIORITY RIGHT TO PURCHASE THE purpose.
LEASED PREMISES IS INCONSEQUENTIAL.[16] In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., the
The principal bone of contention in this case refers to petitioners priority right to Court en banc reverted back to the doctrine in Guzman Bocaling & Co. v.
purchase, also referred to as the right of first refusal. Bonnevie stating that rescission is a relief allowed for the protection of one of the
Petitioners right of first refusal in this case is expressly provided for in the notarized contracting parties and even third persons from all injury and damage the contract may
Contract of Lease dated August 1, 1971, between Fausto and petitioner, to wit: cause or to protect some incompatible and preferred right by the contract.
7. That should the LESSOR decide to sell the leased premises, the LESSEE shall have Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of Appeals, the
the priority right to purchase the same;[17] Court affirmed the nature of and the concomitant rights and obligations of parties under a
When a lease contract contains a right of first refusal, the lessor is under a legal right of first refusal. The Court, summarizing the rulings in Guzman, Bocaling & Co. v.
duty to the lessee not to sell to anybody at any price until after he has made an offer to Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held that
sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a in order to have full compliance with the contractual right granting petitioner the first
right that the lessor's first offer shall be in his favor. [18] Petitioners right of first refusal is option to purchase, the sale of the properties for the price for which they were finally sold
an integral and indivisible part of the contract of lease and is inseparable from the whole to a third person should have likewise been first offered to the former. Further, there
contract. The consideration for the lease includes the consideration for the right of first should be identity of terms and conditions to be offered to the buyer holding a right of first
refusal[19] and is built into the reciprocal obligations of the parties. refusal if such right is not to be rendered illusory. Lastly, the basis of the right of first
It was erroneous for the CA to rule that the right of first refusal does not apply when refusal must be the current offer to sell of the seller or offer to purchase of any
the property is sold to Faustos relative.[20] When the terms of an agreement have been prospective buyer.
reduced to writing, it is considered as containing all the terms agreed upon. As such, The prevailing doctrine therefore, is that a right of first refusal means identity of
there can be, between the parties and their successors in interest, no evidence of such terms and conditions to be offered to the lessee and all other prospective buyers and a
terms other than the contents of the written agreement, except when it fails to express contract of sale entered into in violation of a right of first refusal of another person, while
the true intent and agreement of the parties.[21] In this case, the wording of the stipulation valid, is rescissible.[24]
giving petitioner the right of first refusal is plain and unambiguous, and leaves no room It was also incorrect for the CA to rule that it would be useless to annul the sale
for interpretation. It simply means that should Fausto decide to sell the leased property between Fausto and respondent because the property would still remain with respondent
during the term of the lease, such sale should first be offered to petitioner. The stipulation after the death of her mother by virtue of succession, as in fact, Fausto died in March
does not provide for the qualification that such right may be exercised only when the sale 1996, and the property now belongs to respondent, being Faustos heir. [25]
is made to strangers or persons other than Faustos kin. Thus, under the terms of For one, Fausto was bound by the terms and conditions of the lease contract.
petitioners right of first refusal, Fausto has the legal duty to petitioner not to sell the Under the right of first refusal clause, she was obligated to offer the property first to
property to anybody, even her relatives, at any price until after she has made an offer to petitioner before selling it to anybody else. When she sold the property to respondent
sell to petitioner at a certain price and said offer was rejected by petitioner. Pursuant to without offering it to petitioner, the sale while valid is rescissible so that petitioner may
their contract, it was essential that Fausto should have first offered the property to exercise its option under the contract.
40

With the death of Fausto, whatever rights and obligations she had over the The CA likewise found that petitioner acknowledged the legitimacy of the sale to
property, including her obligation under the lease contract, were transmitted to her heirs respondent and it is now barred from exercising its right of first refusal. According to the
by way of succession, a mode of acquiring the property, rights and obligation of the appellate court:
decedent to the extent of the value of the inheritance of the heirs. Article 1311 of the Civil Second, when TRCDC, in a letter to Fausto, signified its intention to renew the lease
Code provides: contract, it was Pacunayen who answered the letter on June 19, 1991. In that letter
ART. 1311. Contracts take effect only between the parties, their assigns and heirs, Pacunayen demanded that TRCDC vacate the leased premises within sixty (60) days
except in case where the rights and obligations arising from the contract are not and informed it of her ownership of the leased premises. The pertinent portion of the
transmissible by their nature, or by stipulation or by provision of law. The heir is not liable letter reads:
beyond the value of the property he received from the decedent. Furtherly, please be advised that the land is no longer under the absolute ownership of
A lease contract is not essentially personal in character. [26] Thus, the rights and my mother and the undersigned is now the real and absolute owner of the land.
obligations therein are transmissible to the heirs. The general rule is that heirs are bound Instead of raising a howl over the contents of the letter, as would be its expected and
by contracts entered into by their predecessors-in-interest except when the rights and natural reaction under the circumstances, TRCDC surprisingly kept silent about the
obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) whole thing. As we mentioned in the factual antecedents of this case, it even invited
provision of law.[27] Pacunayen to its special board meeting particularly to discuss with her the renewal of the
In this case, the nature of the rights and obligations are, by their nature, lease contract. Again, during that meeting, TRCDC did not mention anything that could
transmissible. There is also neither contractual stipulation nor provision of law that makes be construed as challenging Pacunayens ownership of the leased premises. Neither did
the rights and obligations under the lease contract intransmissible. The lease contract TRCDC assert its priority right to purchase the same against Pacunayen.[32]
between petitioner and Fausto is a property right, which is a right that passed on to The essential elements of estoppel are: (1) conduct of a party amounting to false
respondent and the other heirs, if any, upon the death of Fausto. representation or concealment of material facts or at least calculated to convey the
In DKC Holdings Corporation vs. Court of Appeals,[28] the Court held that the impression that the facts are otherwise than, and inconsistent with, those which the party
Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with subsequently attempts to assert; (2) intent, or at least expectation, that this conduct shall
DKC Holdings Corporation was binding upon her sole heir, Victor, even after her demise be acted upon by, or at least influence, the other party; and (3) knowledge, actual or
and it subsists even after her death. The Court ruled that: constructive, of the real facts.[33]
. . . Indeed, being an heir of Encarnacion, there is privity of interest between him and his The records are bereft of any proposition that petitioner waived its right of first
deceased mother. He only succeeds to what rights his mother had and what is valid refusal under the contract such that it is now estopped from exercising the same. In a
and binding against her is also valid and binding as against him. This is clear letter dated June 17, 1991, petitioner wrote to Fausto asking for a renewal of the term of
from Paraaque Kings Enterprises vs. Court of Appeals, where this Court rejected a lease.[34] Petitioner cannot be faulted for merely seeking a renewal of the lease contract
similar defense- because obviously, it was working on the assumption that title to the property is still in
With respect to the contention of respondent Raymundo that he is not privy to Faustos name and the latter has the sole authority to decide on the fate of the property.
the lease contract, not being the lessor nor the lessee referred to therein, he Instead, it was respondent who replied, advising petitioner to remove all the
could thus not have violated its provisions, but he is nevertheless a proper improvements on the property, as the lease is to expire on the 1 st of August 1991.
party. Clearly, he stepped into the shoes of the owner-lessor of the land as, Respondent also informed petitioner that her mother has already sold the property to
by virtue of his purchase, he assumed all the obligations of the lessor under her.[35] In order to resolve the matter, a meeting was called among petitioners
the lease contract. Moreover, he received benefits in the form of rental stockholders, including respondent, on July 27, 1991, where petitioner, again, proposed
payments. Furthermore, the complaint, as well as the petition, prayed for the that the lease be renewed. Respondent, however, declined. While petitioner may have
annulment of the sale of the properties to him. Both pleadings also alleged sought the renewal of the lease, it cannot be construed as a relinquishment of its right of
collusion between him and respondent Santos which defeated the exercise by first refusal. Estoppel must be intentional and unequivocal. [36]
petitioner of its right of first refusal. Also, in the excerpts from the minutes of the special meeting, it was further stated
In order then to accord complete relief to petitioner, respondent Raymundo that the possibility of a sale was likewise considered.[37] But respondent also refused to
was a necessary, if not indispensable, party to the case. A favorable sell the land, while the improvements, if for sale shall be subject for appraisal.[38] After
judgment for the petitioner will necessarily affect the rights of respondent respondent refused to sell the land, it was then that petitioner filed the complaint for
Raymundo as the buyer of the property over which petitioner would like to annulment of sale, specific performance and damages.[39] Petitioners acts of seeking all
assert its right of first option to buy.[29] (Emphasis supplied) possible avenues for the amenable resolution of the conflict do not amount to an
Likewise in this case, the contract of lease, with all its concomitant provisions, intentional and unequivocal abandonment of its right of first refusal.
continues even after Faustos death and her heirs merely stepped into her Respondent was well aware of petitioners right to priority of sale, and that the sale
shoes.[30] Respondent, as an heir of Fausto, is therefore bound to fulfill all its terms and made to her by her mother was merely for her to be able to take charge of the latters
conditions. affairs. As admitted by respondent in her Appellees Brief filed before the CA, viz.:
There is no personal act required from Fausto such that respondent cannot perform After June 19, 1991, TRCDC invited Pacunayen to meeting with the officers of the
it. Faustos obligation to deliver possession of the property to petitioner upon the exercise corporation. . . . In the same meeting, Pacunayens attention was called to the
by the latter of its right of first refusal may be performed by respondent and the other provision of the Contract of Lease had by her mother with TRCDC, particularly
heirs, if any. Similarly, nonperformance is not excused by the death of the party when the paragraph 7 thereof, which states:
other party has a property interest in the subject matter of the contract. [31] 7. That should the lessor decide to sell the leased premises, the LESSEE shall have the
priority right to purchase the same.
41

Of course, in the meeting she had with the officers of TRCDC, Pacunayen explained that generate income of not less than P100,000.00 until the end of September 1991, aside
the sale made in her favor by her mother was just a formality so that she may have the from the expected rentals from the cockpit space lessees in the amount of P11,000.00.[46]
proper representation with TRCDC in the absence of her parents, more so that her father Under Article 2199 of the Civil Code, it is provided that:
had already passed away, and there was no malice in her mine (sic) and that of her Except as provided by law or by stipulation, one is entitled to an adequate
mother, or any intention on their part to deceive TRCDC. All these notwithstanding, and compensation only for such pecuniary loss suffered by him as he has duly proved.
for her to show their good faith in dealing with TRCDC, Pacunayen started the ground Such compensation is referred to as actual or compensatory damages. (Emphasis
work to reconvey ownership over the whole land, now covered by Transfer Certificare supplied)
(sic) of Title No. M-259, to and in the name of her mother (Fausto), but the latter was The rule is that actual or compensatory damages cannot be presumed, but must be
becoming sickly, old and weak, and they found no time to do it as early as they wanted proved with reasonable degree of certainty. A court cannot rely on speculations,
to.[40] (Emphasis supplied) conjectures, or guesswork as to the fact and amount of damages, but must depend upon
Given the foregoing, the Kasulatan ng Bilihan Patuluyan ng Lupa dated August 8, competent proof that they have been suffered by the injured party and on the best
1990 between Fausto and respondent must be rescinded. Considering, however, that obtainable evidence of the actual amount thereof. It must point out specific facts, which
Fausto already died on March 16, 1996, during the pendency of this case with the could afford a basis for measuring whatever compensatory or actual damages are
CA, her heirs should have been substituted as respondents in this case. Considering borne.[47]
further that the Court cannot declare respondent Pacunayen as the sole heir, as it is not In the present case, there is no question that the Tanay Coliseum Cockpit was
the proper forum for that purpose, the right of petitioner may only be enforced against the closed for two months and TRCDC did not gain any income during said period. But there
heirs of the deceased Catalina Matienzo Fausto, represented by respondent Pacunayen. is nothing on record to substantiate petitioners claim that it was bound to lose
In Paraaque Kings Enterprises, Inc. vs. Court of Appeals,[41] it was ruled that the some P111,000.00 from such closure. TRCDCs president, Ambrosio Sacramento,
basis of the right of the first refusal must be the current offer to sell of the seller or offer to testified that they suffered income losses with the closure of the cockpit from August 2,
purchase of any prospective buyer. It is only after the grantee fails to exercise its right of 1991 until it re-opened on October 20, 1991.[48] Mr. Sacramento, however, cannot state
first priority under the same terms and within the period contemplated, could the owner with certainty the amount of such unrealized income.[49] Meanwhile, TRCDCs accountant,
validly offer to sell the property to a third person, again, under the same terms as offered Merle Cruz, stated that based on the corporations financial statement for the years 1990
to the grantee. The circumstances of this case, however, dictate the application of a and 1991,[50] they derived the amount of P120,000.00 as annual income from
different ruling. An offer of the property to petitioner under identical terms and conditions rent.[51] From said financial statement, it is safe to presume that TRCDC generated a
of the offer previously given to respondent Pacunayen would be inequitable. The subject monthly income of P10,000.00 a month (P120,000.00 annual income divided by 12
property was sold in 1990 to respondent Pacunayen for a measly sum of P10,000.00. months). At best therefore, whatever actual damages that petitioner suffered from the
Obviously, the value is in a small amount because the sale was between a mother and cockpits closure for a period of two months can be reasonably summed up only
daughter. As admitted by said respondent, the sale made in her favor by her mother was to P20,000.00.
just a formality so that she may have the proper representation with TRCDC in the Such award of damages shall earn interest at the legal rate of six percent (6%) per
absence of her parents[42] Consequently, the offer to be made to petitioner in this case annum, which shall be computed from the time of the filing of the Complaint on August
should be under reasonable terms and conditions, taking into account the fair market 22, 1991, until the finality of this decision. After the present decision becomes final and
value of the property at the time it was sold to respondent. executory, the rate of interest shall increase to twelve percent (12%) per annum from
In its complaint, petitioner prayed for the cancellation of TCT No. M-35468 in the such finality until its satisfaction, this interim period being deemed to be equivalent to a
name of respondent Pacunayen,[43] which was issued by the Register of Deeds of forbearance of credit.[52] This is in accord with the guidelines laid down by the Court
Morong on February 7, 1991.[44] Under ordinary circumstances, this would be the logical in Eastern Shipping Lines, Inc. vs. Court of Appeals,[53] regarding the manner of
effect of the rescission of the Kasulatan ng Bilihan Patuluyan ng Lupa between the computing legal interest, viz.:
deceased Fausto and respondent Pacunayen. However, the circumstances in this case II. With regard particularly to an award of interest in the concept of actual and
are not ordinary. The buyer of the subject property is the sellers own daughter. If and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
when the title (TCT No. M-35468) in respondent Pacunayens name is cancelled and as follows:
reinstated in Faustos name, and thereafter negotiations between petitioner and 1. When the obligation is breached, and it consists in the payment of a sum of money,
respondent Pacunayen for the purchase of the subject property break down, then the i.e., a loan or forbearance of money, the interest due should be that which may have
subject property will again revert to respondent Pacunayen as she appears to be one of been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
Faustos heirs. This would certainly be a winding route to traverse. Sound reason from the time it is judicially demanded. In the absence of stipulation, the rate of interest
therefore dictates that title should remain in the name of respondent Pacunayen, for and shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
in behalf of the other heirs, if any, to be cancelled only when petitioner successfully demand under and subject to the provisions of Article 1169 of the Civil Code.
exercises its right of first refusal and purchases the subject property. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an
Petitioner further seeks the award of the following damages in its favor: interest on the amount of damages awarded may be imposed at the discretion of the
(1) P100,000.00 as actual damages; (2) P1,100,000.00 as compensation for lost goodwill court at the rate of 6% per annum. No interest, however, shall be adjudged on
or reputation; (3) P100,000.00 as moral damages; (4) P100,000.00 as exemplary unliquidated claims or damages except when or until the demand can be established with
damages; (5) P50,000.00 as attorneys fees; (6) P1,000.00 appearance fee per hearing; reasonable certainty. Accordingly, where the demand is established with reasonable
and (7) the costs of suit.[45] certainty, the interest shall begin to run from the time the claim is made judicially or
According to petitioner, respondents act in fencing the property led to the closure of extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
the Tanay Coliseum Cockpit and petitioner was unable to conduct cockfights and established at the time the demand is made, the interest shall begin to run only from the
42

date the judgment of the court is made (at which time quantification of damages may be property affected by the controversy or involved in the employment; (6) the skill and the
deemed to have been reasonably ascertained). The actual base for the computation of experience called for in the performance of the services; (7) the professional character
legal interest shall, in any case, be on the amount finally adjudged. and the social standing of the attorney; and (8) the results secured, it being a recognized
3. When the judgment of the court awarding a sum of money becomes final and rule that an attorney may properly charge a much larger fee when it is contingent than
executory, the rate of legal interest, whether the case falls under paragraph 1 or when it is not.[62] Considering the foregoing, the award of P10,000.00 as attorneys fees,
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this including the costs of suit, is reasonable under the circumstances.
interim period being deemed to be by then an equivalent to a forbearance of credit. [54] WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. The
Petitioner also claims the amount of P1,100,000.00 as compensation for lost Court of Appeals Decision dated June 14, 1999 in CA-G.R. CV No. 43770 is MODIFIED
goodwill or reputation. It alleged that with the unjust and wrongful conduct of the as follows:
defendants as above-described, plaintiff stands to lose its goodwill and reputation (1) the Kasulatan ng Bilihan Patuluyan ng Lupa dated August 8, 1990 between Catalina
established for the past 20 years.[55] Matienzo Fausto and respondent Anunciacion Fausto Pacunayen is hereby deemed
An award of damages for loss of goodwill or reputation falls under actual or rescinded;
compensatory damages as provided in Article 2205 of the Civil Code, to wit: (2) The Heirs of the deceased Catalina Matienzo Fausto who are hereby deemed
Art. 2205. Damages may be recovered: substituted as respondents, represented by respondent Anunciacion Fausto Pacunayen,
(1) For loss or impairment of earning capacity in cases of temporary or permanent are ORDEREDto recognize the obligation of Catalina Matienzo Fausto under the
personal injury; Contract of Lease with respect to the priority right of petitioner Tanay Recreation Center
(2) For injury to the plaintiffs business standing or commercial credit. and Development Corp. to purchase the subject property under reasonable terms and
Even if it is not recoverable as compensatory damages, it may still be awarded in conditions;
the concept of temperate or moderate damages.[56] In arriving at a reasonable level of (3) Transfer Certificate of Title No. M-35468 shall remain in the name of respondent
temperate damages to be awarded, trial courts are guided by the ruling that: Anunciacion Fausto Pacunayen, which shall be cancelled in the event petitioner
. . . There are cases where from the nature of the case, definite proof of pecuniary loss successfully purchases the subject property;
cannot be offered, although the court is convinced that there has been such loss. For (4) Respondent is ORDERED to pay petitioner Tanay Recreation Center and
instance, injury to one's commercial credit or to the goodwill of a business firm is often Development Corporation the amount of Twenty Thousand Pesos (P20,000.00) as actual
hard to show certainty in terms of money. Should damages be denied for that reason? damages, plus interest thereon at the legal rate of six percent (6%) per annum from the
The judge should be empowered to calculate moderate damages in such cases, rather filing of the Complaint until the finality of this Decision. After this Decision becomes final
than that the plaintiff should suffer, without redress from the defendant's wrongful act. and executory, the applicable rate shall be twelve percent (12%) per annum until its
(Araneta v. Bank of America, 40 SCRA 144, 145)[57] satisfaction; and,
In this case, aside from the nebulous allegation of petitioner in its amended (5) Respondent is ORDERED to pay petitioner the amount of Ten Thousand Pesos
complaint, there is no evidence on record, whether testimonial or documentary, to (P10,000.00) as attorneys fees, and to pay the costs of suit.
adequately support such claim. Hence, it must be denied. (6) Let the case be remanded to the Regional Trial Court, Morong, Rizal (Branch 78) for
Petitioners claim for moral damages must likewise be denied. The award of moral further proceedings on the determination of the reasonable terms and conditions of the
damages cannot be granted in favor of a corporation because, being an artificial person offer to sell by respondents to petitioner, without prejudice to possible mediation between
and having existence only in legal contemplation, it has no feelings, no emotions, no the parties.
senses. It cannot, therefore, experience physical suffering and mental anguish, which The rest of the unaffected dispositive portion of the Court of Appeals Decision is
can be experienced only by one having a nervous system.[58] Petitioner being a AFFIRMED.
corporation,[59] the claim for moral damages must be denied. SO ORDERED.
With regard to the claim for exemplary damages, it is a requisite in the grant thereof Puno, (Chairman), Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.
that the act of the offender must be accompanied by bad faith or done in wanton,
fraudulent or malevolent manner.[60] Moreover, where a party is not entitled to actual or [G.R. No. 103577. October 7, 1996]
moral damages, an award of exemplary damages is likewise baseless. [61] In this case, ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL,
petitioner failed to show that respondent acted in bad faith, or in wanton, fraudulent or ANNABELLE C. GONZALES (for herself and on behalf of Floraida C.
malevolent manner. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A.
Petitioner likewise claims the amount of P50,000.00 as attorneys fees, the sum ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs. THE
of P1,000.00 for every appearance of its counsel, plus costs of suit. It is well settled that COURT OF APPEALS, CONCEPCION D. ALCARAZ and RAMONA
no premium should be placed on the right to litigate and not every winning party is PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-
entitled to an automatic grant of attorney's fees. The party must show that he falls under fact, respondents.
one of the instances enumerated in Article 2208 of the Civil Code. In this case, since DECISION
petitioner was compelled to engage the services of a lawyer and incurred expenses to MELO, J.:
protect its interest and right over the subject property, the award of attorneys fees is The petition before us has its roots in a complaint for specific performance to
proper. However there are certain standards in fixing attorney's fees, to wit: (1) the compel herein petitioners (except the last named, Catalina Balais Mabanag) to
amount and the character of the services rendered; (2) labor, time and trouble involved; consummate the sale of a parcel of land with its improvements located along Roosevelt
(3) the nature and importance of the litigation and business in which the services were Avenue in Quezon City entered into by the parties sometime in January 1985 for the
rendered; (4) the responsibility imposed; (5) the amount of money and the value of the price of P1,240,000.00.
43

The undisputed facts of the case were summarized by respondent court in this documentary exhibits.Thus, plaintiffs therein (now private respondents) proffered their
wise: documentary evidence accordingly marked as Exhibits A through J, inclusive of their
On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter referred corresponding submarkings.Adopting these same exhibits as their own, then defendants
to as Coronels) executed a document entitled Receipt of Down Payment (Exh. A) in favor (now petitioners) accordingly offered and marked them as Exhibits 1 through 10, likewise
of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is inclusive of their corresponding submarkings. Upon motion of the parties, the trial court
reproduced hereunder: gave them thirty (30) days within which to simultaneously submit their respective
RECEIPT OF DOWN PAYMENT memoranda, and an additional 15 days within which to submit their corresponding
P1,240,000.00 - Total amount comment or reply thereto, after which, the case would be deemed submitted for
50,000.00 - Down payment resolution.
------------------------------------------ On April 14, 1988, the case was submitted for resolution before Judge Reynaldo
P1,190,000.00 - Balance Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as
119627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00. follows:
We bind ourselves to effect the transfer in our names from our deceased father, WHEREFORE, judgment for specific performance is hereby rendered ordering defendant
Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land
down payment above-stated. embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT No.
On our presentation of the TCT already in or name, We will immediately execute the 331582) of the Registry of Deeds for Quezon City, together with all the improvements
deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall existing thereon free from all liens and encumbrances, and once accomplished, to
immediately pay the balance of the P1,190,000.00. immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the
Clearly, the conditions appurtenant to the sale are the following: plaintiffs are ordered to pay defendants the whole balance of the purchase price
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos upon amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the
execution of the document aforestated; Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and
2. The Coronels will cause the transfer in their names of the title of the property declared to be without force and effect. Defendants and intervenor and all other persons
registered in the name of their deceased father upon receipt of the Fifty Thousand claiming under them are hereby ordered to vacate the subject property and deliver
(P50,000.00) Pesos down payment; possession thereof to plaintiffs. Plaintiffs claim for damages and attorneys fees, as well
3. Upon the transfer in their names of the subject property, the Coronels will execute the as the counterclaims of defendants and intervenors are hereby dismissed.
deed of absolute sale in favor of Ramona and the latter will pay the former the whole No pronouncement as to costs.
balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos. So Ordered.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz Macabebe, Pampanga for Quezon City, March 1, 1989.
(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of (Rollo, p. 106)
Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh. 2). A motion for reconsideration was filed by petitioners before the new presiding judge
On February 6, 1985, the property originally registered in the name of the Coronels father of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly:
was transferred in their names under TCT No. 327043 (Exh. D; Exh 4) The prayer contained in the instant motion, i.e., to annul the decision and to render anew
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to decision by the undersigned Presiding Judge should be denied for the following
intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One reasons: (1) The instant case became submitted for decision as of April 14, 1988 when
Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid the parties terminated the presentation of their respective documentary evidence and
Three Hundred Thousand (P300,000.00) Pesos (Exhs. F-3; Exh. 6-C) when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that they
For this reason, Coronels canceled and rescinded the contract (Exh. A) with Ramona by were allowed to file memoranda at some future date did not change the fact that the
depositing the down payment paid by Concepcion in the bank in trust for Ramona hearing of the case was terminated before Judge Roura and therefore the same should
Patricia Alcaraz. be submitted to him for decision; (2) When the defendants and intervenor did not object
On February 22, 1985, Concepcion, et. al., filed a complaint for a specific performance to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the
against the Coronels and caused the annotation of a notice of lis pendens at the back of decision, when they met for the first time before the undersigned Presiding Judge at the
TCT No. 327403 (Exh. E; Exh. 5). hearing of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering were deemed to have acquiesced thereto and they are now estopped from questioning
the same property with the Registry of Deeds of Quezon City (Exh. F; Exh. 6). said authority of Judge Roura after they received the decision in question which happens
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject to be adverse to them; (3) While it is true that Judge Reynaldo Roura was merely a
property in favor of Catalina (Exh. G; Exh. 7). Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge
On June 5, 1985, a new title over the subject property was issued in the name of with full authority to act on any pending incident submitted before this Court during his
Catalina under TCT No. 351582 (Exh. H; Exh. 8). incumbency. When he returned to his Official Station at Macabebe, Pampanga, he did
(Rollo, pp. 134-136) not lose his authority to decide or resolve cases submitted to him for decision or
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon resolution because he continued as Judge of the Regional Trial Court and is of co-equal
City) the parties agreed to submit the case for decision solely on the basis of rank with the undersigned Presiding Judge. The standing rule and supported by
44

jurisprudence is that a Judge to whom a case is submitted for decision has the authority b) Determinate subject matter; and
to decide the case notwithstanding his transfer to another branch or region of the same c) Price certain in money or its equivalent.
court (Sec. 9, Rule 135, Rule of Court). Under this definition, a Contract to Sell may not be considered as a
Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 Contract of Sale because the first essential element is lacking. In a contract to sell, the
rendered in the instant case, resolution of which now pertains to the undersigned prospective seller explicitly reserves the transfer of title to the prospective buyer,
Presiding Judge, after a meticulous examination of the documentary evidence presented meaning, the prospective seller does not as yet agree or consent to transfer ownership of
by the parties, she is convinced that the Decision of March 1, 1989 is supported by the property subject of the contract to sell until the happening of an event, which for
evidence and, therefore, should not be disturbed. present purposes we shall take as the full payment of the purchase price. What the seller
IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or to Annul agrees or obliges himself to do is to fulfill his promise to sell the subject property when
Decision and Render Anew Decision by the Incumbent Presiding Judge dated March 20, the entire amount of the purchase price is delivered to him. In other words the full
1989 is hereby DENIED. payment of the purchase price partakes of a suspensive condition, the non-fulfillment of
SO ORDERED. which prevents the obligation to sell from arising and thus, ownership is retained by the
Quezon City, Philippines, July 12, 1989. prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz
(Rollo, pp. 108-109) (96 SCRA 741 [1980]), this Court had occasion to rule:
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court Hence, We hold that the contract between the petitioner and the respondent was a
of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its decision fully contract to sell where the ownership or title is retained by the seller and is not to pass
agreeing with the trial court. until the full payment of the price, such payment being a positive suspensive condition
Hence, the instant petition which was filed on March 5, 1992. The last pleading, and failure of which is not a breach, casual or serious, but simply an event that prevented
private respondents Reply Memorandum, was filed on September 15, 1993. The case the obligation of the vendor to convey title from acquiring binding force.
was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the Stated positively, upon the fulfillment of the suspensive condition which is the full
voluntary inhibition of the Justice to whom the case was last assigned. payment of the purchase price, the prospective sellers obligation to sell the subject
While we deem it necessary to introduce certain refinements in the disquisition of property by entering into a contract of sale with the prospective buyer becomes
respondent court in the affirmance of the trial courts decision, we definitely find the demandable as provided in Article 1479 of the Civil Code which states:
instant petition bereft of merit. Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
The heart of the controversy which is the ultimate key in the resolution of the other demandable.
issues in the case at bar is the precise determination of the legal significance of the An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
document entitled Receipt of Down Payment which was offered in evidence by both binding upon the promissor of the promise is supported by a consideration distinct from
parties. There is no dispute as to the fact that the said document embodied the binding the price.
contract between Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio A contract to sell may thus be defined as a bilateral contract whereby the
P. Coronel on the other, pertaining to a particular house and lot covered by TCT No. prospective seller, while expressly reserving the ownership of the subject property
119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as despite delivery thereof to the prospective buyer, binds himself to sell the said property
follows: exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is,
Art. 1305. A contract is a meeting of minds between two persons whereby one binds full payment of the purchase price.
himself, with respect to the other, to give something or to render some service. A contract to sell as defined hereinabove, may not even be considered as a
While, it is the position of private respondents that the Receipt of Down Payment conditional contract of sale where the seller may likewise reserve title to the property
embodied a perfected contract of sale, which perforce, they seek to enforce by means of subject of the sale until the fulfillment of a suspensive condition, because in a conditional
an action for specific performance, petitioners on their part insist that what the document contract of sale, the first element of consent is present, although it is conditioned upon
signified was a mere executory contract to sell, subject to certain suspensive conditions, the happening of a contingent event which may or may not occur. If the suspensive
and because of the absence of Ramona P. Alcaraz, who left for the United States of condition is not fulfilled, the perfection of the contract of sale is completely abated
America, said contract could not possibly ripen into a contract of absolute sale. (cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However,
Plainly, such variance in the contending parties contention is brought about by the if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that
way each interprets the terms and/or conditions set forth in said private if there had already been previous delivery of the property subject of the sale to the
instrument. Withal, based on whatever relevant and admissible evidence may be buyer, ownership thereto automatically transfers to the buyer by operation of law without
available on record, this Court, as were the courts below, is now called upon to adjudge any further act having to be performed by the seller.
what the real intent of the parties was at the time the said document was executed. In a contract to sell, upon the fulfillment of the suspensive condition which is the full
The Civil Code defines a contract of sale, thus: payment of the purchase price, ownership will not automatically transfer to the buyer
Art. 1458. By the contract of sale one of the contracting parties obligates himself to although the property may have been previously delivered to him. The prospective seller
transfer the ownership of and to deliver a determinate thing, and the other to pay therefor still has to convey title to the prospective buyer by entering into a contract of absolute
a price certain in money or its equivalent. sale.
Sale, by its very nature, is a consensual contract because it is perfected by mere It is essential to distinguish between a contract to sell and a conditional contract of
consent. The essential elements of a contract of sale are the following: sale specially in cases where the subject property is sold by the owner not to the party
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange the seller contracted with, but to a third person, as in the case at bench. In a contract to
for the price; sell, there being no previous sale of the property, a third person buying such property
45

despite the fulfillment of the suspensive condition such as the full payment of the Thus, the parties did not merely enter into a contract to sell where the sellers, after
purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective compliance by the buyer with certain terms and conditions, promised to sell the property
buyer cannot seek the relief of reconveyance of the property. There is no double sale in to the latter. What may be perceived from the respective undertakings of the parties to
such case. Title to the property will transfer to the buyer after registration because there the contract is that petitioners had already agreed to sell the house and lot they inherited
is no defect in the owner-sellers title per se, but the latter, of course, may be sued for from their father, completely willing to transfer ownership of the subject house and lot to
damages by the intending buyer. the buyer if the documents were then in order. It just so happened, however, that the
In a conditional contract of sale, however, upon the fulfillment of the suspensive transfer certificate of title was then still in the name of their father. It was more expedient
condition, the sale becomes absolute and this will definitely affect the sellers title to first effect the change in the certificate of title so as to bear their names. That is why
thereto. In fact, if there had been previous delivery of the subject property, the sellers they undertook to cause the issuance of a new transfer of the certificate of title in their
ownership or title to the property is automatically transferred to the buyer such that, the names upon receipt of the down payment in the amount of P50,000.00. As soon as the
seller will no longer have any title to transfer to any third person. Applying Article 1544 of new certificate of title is issued in their names, petitioners were committed to immediately
the Civil Code, such second buyer of the property who may have had actual or execute the deed of absolute sale. Only then will the obligation of the buyer to pay the
constructive knowledge of such defect in the sellers title, or at least was charged with the remainder of the purchase price arise.
obligation to discover such defect, cannot be a registrant in good faith. Such second There is no doubt that unlike in a contract to sell which is most commonly entered
buyer cannot defeat the first buyers title. In case a title is issued to the second buyer, the into so as to protect the seller against a buyer who intends to buy the property in
first buyer may seek reconveyance of the property subject of the sale. installment by withholding ownership over the property until the buyer effects full
With the above postulates as guidelines, we now proceed to the task of deciphering payment therefor, in the contract entered into in the case at bar, the sellers were the
the real nature of the contract entered into by petitioners and private respondents. ones who were unable to enter into a contract of absolute sale by reason of the fact that
It is a canon in the interpretation of contracts that the words used therein should be the certificate of title to the property was still in the name of their father. It was the sellers
given their natural and ordinary meaning unless a technical meaning was intended (Tan in this case who, as it were, had the impediment which prevented, so to speak, the
vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said execution of an contract of absolute sale.
Receipt of Down Payment that they -- What is clearly established by the plain language of the subject document is that
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of when the said Receipt of Down Payment was prepared and signed by petitioners Romulo
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT A. Coronel, et. al., the parties had agreed to a conditional contract of sale, consummation
No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of which is subject only to the successful transfer of the certificate of title from the name
of P1,240,000.00. of petitioners father, Constancio P. Coronel, to their names.
without any reservation of title until full payment of the entire purchase price, the natural The Court significantly notes that this suspensive condition was, in fact, fulfilled on
and ordinary idea conveyed is that they sold their property. February 6, 1985 (Exh. D; Exh. 4). Thus, on said date, the conditional contract of sale
When the Receipt of Down payment is considered in its entirety, it becomes more between petitioners and private respondent Ramona P. Alcaraz became obligatory, the
manifest that there was a clear intent on the part of petitioners to transfer title to the only act required for the consummation thereof being the delivery of the property by
buyer, but since the transfer certificate of title was still in the name of petitioners father, means of the execution of the deed of absolute sale in a public instrument, which
they could not fully effect such transfer although the buyer was then willing and able to petitioners unequivocally committed themselves to do as evidenced by the Receipt of
immediately pay the purchase price. Therefore, petitioners-sellers undertook upon Down Payment.
receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies
issuance of a new certificate of title in their names from that of their father, after which, to the case at bench. Thus,
they promised to present said title, now in their names, to the latter and to execute the Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds
deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the upon the thing which is the object of the contract and upon the price.
purchase price. From that moment, the parties may reciprocally demand performance, subject to the
The agreement could not have been a contract to sell because the sellers herein provisions of the law governing the form of contracts.
made no express reservation of ownership or title to the subject parcel of Art. 1181. In conditional obligations, the acquisition of rights, as well as the
land. Furthermore, the circumstance which prevented the parties from entering into an extinguishment or loss of those already acquired, shall depend upon the happening of
absolute contract of sale pertained to the sellers themselves (the certificate of title was the event which constitutes the condition.
not in their names) and not the full payment of the purchase price. Under the established Since the condition contemplated by the parties which is the issuance of a
facts and circumstances of the case, the Court may safely presume that, had the certificate of title in petitioners names was fulfilled on February 6, 1985, the respective
certificate of title been in the names of petitioners-sellers at that time, there would have obligations of the parties under the contract of sale became mutually demandable, that
been no reason why an absolute contract of sale could not have been executed and is, petitioners, as sellers, were obliged to present the transfer certificate of title already in
consummated right there and then. their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith
promise to sell the property to private respondent upon the fulfillment of the suspensive pay the balance of the purchase price amounting to P1,190,000.00.
condition.On the contrary, having already agreed to sell the subject property, they It is also significant to note that in the first paragraph in page 9 of their petition,
undertook to have the certificate of title change to their names and immediately petitioners conclusively admitted that:
thereafter, to execute the written deed of absolute sale. 3. The petitioners-sellers Coronel bound themselves to effect the transfer in
our names from our deceased father Constancio P. Coronel, the transfer
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certificate of title immediately upon receipt of the downpayment above- Aside from this, petitioners are precluded from raising their supposed lack of
stated". The sale was still subject to this suspensive capacity to enter into an agreement at that time and they cannot be allowed to now take
condition. (Emphasis supplied.) a posture contrary to that which they took when they entered into the agreement with
(Rollo, p. 16) private respondent Ramona P. Alcaraz. The Civil Code expressly states that:
Petitioners themselves recognized that they entered into a contract of sale subject Art. 1431. Through estoppel an admission or representation is rendered conclusive upon
to a suspensive condition. Only, they contend, continuing in the same paragraph, that: the person making it, and cannot be denied or disproved as against the person relying
. . . Had petitioners-sellers not complied with this condition of first transferring the title to thereon.
the property under their names, there could be no perfected contract of sale. (Emphasis Having represented themselves as the true owners of the subject property at the time of
supplied.) sale, petitioners cannot claim now that they were not yet the absolute owners thereof at
(Ibid.) that time.
not aware that they have set their own trap for themselves, for Article 1186 of the Civil Petitioners also contend that although there was in fact a perfected contract of sale
Code expressly provides that: between them and Ramona P. Alcaraz, the latter breach her reciprocal obligation when
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents she rendered impossible the consummation thereof by going to the United States of
its fulfillment. America, without leaving her address, telephone number, and Special Power of Attorney
Besides, it should be stressed and emphasized that what is more controlling than (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended
these mere hypothetical arguments is the fact that the condition herein referred to was Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were
actually and indisputably fulfilled on February 6, 1985, when a new title was issued in correct in unilaterally rescinding the contract of sale.
the names of petitioners as evidenced by TCT No. 327403 (Exh. D; Exh. 4). We do not agree with petitioners that there was a valid rescission of the contract of
The inevitable conclusion is that on January 19, 1985, as evidenced by the sale in the instant case. We note that these supposed grounds for petitioners rescission,
document denominated as Receipt of Down Payment (Exh. A; Exh. 1), the parties are mere allegations found only in their responsive pleadings, which by express provision
entered into a contract of sale subject to the suspensive condition that the sellers shall of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11,
effect the issuance of new certificate title from that of their fathers name to their names Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting
and that, on February 6, 1985, this condition was fulfilled (Exh. D; Exh. 4). evidence to substantiate petitioners allegations. We have stressed time and again that
We, therefore, hold that, in accordance with Article 1187 which pertinently provides allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil.
- 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence
Art. 1187. The effects of conditional obligation to give, once the condition has been (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
fulfilled, shall retroact to the day of the constitution of the obligation . . . Even assuming arguendo that Ramona P. Alcaraz was in the United States of
In obligations to do or not to do, the courts shall determine, in each case, the retroactive America on February 6, 1985, we cannot justify petitioners-sellers act of unilaterally and
effect of the condition that has been complied with. extrajudicially rescinding the contract of sale, there being no express stipulation
the rights and obligations of the parties with respect to the perfected contract of sale authorizing the sellers to extrajudicially rescind the contract of sale. (cf. Dignos vs. CA,
became mutually due and demandable as of the time of fulfillment or occurrence of the 158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132 SCRA 722 [1984])
suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations Moreover, petitioners are estopped from raising the alleged absence of Ramona P.
of both seller and buyer arose. Alcaraz because although the evidence on record shows that the sale was in the name of
Petitioners also argue there could been no perfected contract on January 19, 1985 Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D.
because they were then not yet the absolute owners of the inherited property. Alcaraz, Ramonas mother, who had acted for and in behalf of her daughter, if not also in
We cannot sustain this argument. her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her
Article 774 of the Civil Code defines Succession as a mode of transferring own personal Check (Exh. B; Exh. 2) for and in behalf of Ramona P. Alcaraz. There is no
ownership as follows: evidence showing that petitioners ever questioned Concepcions authority to represent
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any
obligations to the extent and value of the inheritance of a person are transmitted through objection as regards payment being effected by a third person. Accordingly, as far as
his death to another or others by his will or by operation of law. petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to
Petitioners-sellers in the case at bar being the sons and daughters of the decedent rescind the contract of sale.
Constancio P. Coronel are compulsory heirs who were called to succession by operation Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as
of law.Thus, at the point their father drew his last breath, petitioners stepped into his her obligation to pay the full purchase price is concerned. Petitioners who are precluded
shoes insofar as the subject property is concerned, such that any rights or obligations from setting up the defense of the physical absence of Ramona P. Alcaraz as above-
pertaining thereto became binding and enforceable upon them. It is expressly provided explained offered no proof whatsoever to show that they actually presented the new
that rights to the succession are transmitted from the moment of death of the decedent transfer certificate of title in their names and signified their willingness and readiness to
(Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]). execute the deed of absolute sale in accordance with their agreement. Ramonas
Be it also noted that petitioners claim that succession may not be declared unless corresponding obligation to pay the balance of the purchase price in the amount
the creditors have been paid is rendered moot by the fact that they were able to effect of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she
the transfer of the title to the property from the decedents name to their names on cannot be deemed to have been in default.
February 6, 1985. Article 1169 of the Civil Code defines when a party in a contract involving reciprocal
obligations may be considered in default, to wit:
47

Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the second sale in good faith, that is, without knowledge of any defect in the title of the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation. property sold.
xxx As clearly borne out by the evidence in this case, petitioner Mabanag could not
In reciprocal obligations, neither party incurs in delay if the other does not comply or is have in good faith, registered the sale entered into on February 18, 1985 because as
not ready to comply in a proper manner with what is incumbent upon him. From the early as February 22, 1985, a notice of lis pendens had been annotated on the transfer
moment one of the parties fulfill his obligation, delay by the other begins. (Emphasis certificate of title in the names of petitioners, whereas petitioner Mabanag registered the
supplied.) said sale sometime in April, 1985. At the time of registration, therefore, petitioner
There is thus neither factual nor legal basis to rescind the contract of sale between Mabanag knew that the same property had already been previously sold to private
petitioners and respondents. respondents, or, at least, she was charged with knowledge that a previous buyer is
With the foregoing conclusions, the sale to the other petitioner, Catalina B. claiming title to the same property. Petitioner Mabanag cannot close her eyes to the
Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will defect in petitioners title to the property at the time of the registration of the property.
apply, to wit: This Court had occasions to rule that:
Art. 1544. If the same thing should have been sold to different vendees, the ownership If a vendee in a double sale registers the sale after he has acquired knowledge that there
shall be transferred to the person who may have first taken possession thereof in good was a previous sale of the same property to a third party or that another person claims
faith, if it should be movable property. said property in a previous sale, the registration will constitute a registration in bad faith
Should it be immovable property, the ownership shall belong to the person acquiring it and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing
who in good faith first recorded it in the Registry of Property. Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554;
Should there be no inscription, the ownership shall pertain to the person who in good Fernandez vs. Mercader, 43 Phil. 581.)
faith was first in the possession; and, in the absence thereof to the person who presents Thus, the sale of the subject parcel of land between petitioners and Ramona P.
the oldest title, provided there is good faith. Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina B.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 Mabanag on February 18, 1985, was correctly upheld by both the courts below.
as proof of the second contract of sale was registered with the Registry of Deeds of Although there may be ample indications that there was in fact an agency between
Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina Ramona as principal and Concepcion, her mother, as agent insofar as the subject
B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply. contract of sale is concerned, the issue of whether or not Concepcion was also acting in
The above-cited provision on double sale presumes title or ownership to pass to the her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such
buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale assumption disputed between mother and daughter. Thus, We will not touch this issue
ahead of the first buyer, and (b) should there be no inscription by either of the two and no longer disturb the lower courts ruling on this point.
buyers, when the second buyer, in good faith, acquires possession of the property ahead WHEREFORE, premises considered, the instant petition is hereby DISMISSED and
of the first buyer.Unless, the second buyer satisfies these requirements, title or the appealed judgment AFFIRMED.
ownership will not transfer to him to the prejudice of the first buyer. SO ORDERED.
In his commentaries on the Civil Code, an accepted authority on the subject, now a Narvasa, C.J. (Chairman), Davide, Jr., and Francisco, JJ., concur.
distinguished member of the Court, Justice Jose C. Vitug, explains: Panganiban, J., no part.
The governing principle is prius tempore, potior jure (first in time, stronger in
right). Knowledge by the first buyer of the second sale cannot defeat the first buyers G.R. No. 124242 January 21, 2005
rights except when the second buyer first registers in good faith the second sale SAN LORENZO DEVELOPMENT CORPORATION, petitioner,
(Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second vs.
buyer of the first sale defeats his rights even if he is first to register, since knowledge COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA
taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. ZAVALLA LU, respondents.
58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 DECISION
SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second TINGA, J.:
paragraph, that the second realty buyer must act in good faith in registering his deed of From a coaptation of the records of this case, it appears that respondents Miguel Lu and
sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in
95843, 02 September 1992). Sta. Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604). 15,808 square meters or a total of 3.1616 hectares.
Petitioners point out that the notice of lis pendens in the case at bar was annotated On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to
on the title of the subject property only on February 22, 1985, whereas, the second sale respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos
between petitioners Coronels and petitioner Mabanag was supposedly perfected prior (₱15.00) per square meter. Babasanta made a downpayment of fifty thousand pesos
thereto or on February 18, 1985. The idea conveyed is that at the time petitioner (₱50,000.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same
Mabanag, the second buyer, bought the property under a clean title, she was unaware of date. Several other payments totaling two hundred thousand pesos (₱200,000.00) were
any adverse claim or previous sale, for which reason she is a buyer in good faith. made by Babasanta.
We are not persuaded by such argument. Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution
In a case of double sale, what finds relevance and materiality is not whether or not of a final deed of sale in his favor so that he could effect full payment of the purchase
the second buyer in good faith but whether or not said second buyer registers such price. In the same letter, Babasanta notified the spouses about having received
48

information that the spouses sold the same property to another without his knowledge Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene.
and consent. He demanded that the second sale be cancelled and that a final deed of SLDC filed its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta’s
sale be issued in his favor. motion for the issuance of a preliminary injunction was likewise granted by the trial court
In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having in its Order dated 11 January 199110 conditioned upon his filing of a bond in the amount
agreed to sell the property to him at fifteen pesos (₱15.00) per square meter. She, of fifty thousand pesos (₱50,000.00).
however, reminded Babasanta that when the balance of the purchase price became due, SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu
he requested for a reduction of the price and when she refused, Babasanta backed out of executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it
the sale. Pacita added that she returned the sum of fifty thousand pesos (₱50,000.00) to paid an option money in the amount of three hundred sixteen thousand one hundred
Babasanta through Eugenio Oya. sixty pesos (₱316,160.00) out of the total consideration for the purchase of the two lots of
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court one million two hundred sixty-four thousand six hundred forty pesos (₱1,264,640.00).
(RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and After the Spouses Lu received a total amount of six hundred thirty-two thousand three
Damages1 against his co-respondents herein, the Spouses Lu. Babasanta alleged that hundred twenty pesos (₱632,320.00) they executed on 3 May 1989 a Deed of Absolute
the lands covered by TCT No. T- 39022 and T-39023 had been sold to him by the Sale with Mortgage in its favor. SLDC added that the certificates of title over the property
spouses at fifteen pesos (₱15.00) per square meter. Despite his repeated demands for were delivered to it by the spouses clean and free from any adverse claims and/or notice
the execution of a final deed of sale in his favor, respondents allegedly refused. of lis pendens. SLDC further alleged that it only learned of the filing of the complaint
In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta sometime in the early part of January 1990 which prompted it to file the motion to
and when the total advances of Pacita reached fifty thousand pesos (₱50,000.00), the intervene without delay. Claiming that it was a buyer in good faith, SLDC argued that it
latter and Babasanta, without the knowledge and consent of Miguel Lu, had verbally had no obligation to look beyond the titles submitted to it by the Spouses Lu particularly
agreed to transform the transaction into a contract to sell the two parcels of land to because Babasanta’s claims were not annotated on the certificates of title at the time the
Babasanta with the fifty thousand pesos (₱50,000.00) to be considered as the lands were sold to it.
downpayment for the property and the balance to be paid on or before 31 December After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale
1987. Respondents Lu added that as of November 1987, total payments made by of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two
Babasanta amounted to only two hundred thousand pesos (₱200,000.00) and the latter hundred thousand pesos (₱200,000.00) with legal interest plus the further sum of fifty
allegedly failed to pay the balance of two hundred sixty thousand pesos (₱260,000.00) thousand pesos (₱50,000.00) as and for attorney’s fees. On the complaint-in-
despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of intervention, the trial court ordered the Register of Deeds of Laguna, Calamba Branch to
the price from fifteen pesos (₱15.00) to twelve pesos (₱12.00) per square meter and cancel the notice of lis pendens annotated on the original of the TCT No. T-39022 (T-
when the Spouses Lu refused to grant Babasanta’s request, the latter rescinded the 7218) and No. T-39023 (T-7219).
contract to sell and declared that the original loan transaction just be carried out in that Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta
the spouses would be indebted to him in the amount of two hundred thousand pesos and SLDC did not register the respective sales in their favor, ownership of the property
(₱200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Manager’s Check should pertain to the buyer who first acquired possession of the property. The trial court
No. 05020269 in the amount of two hundred thousand pesos (₱200,000.00) in the name equated the execution of a public instrument in favor of SLDC as sufficient delivery of the
of Babasanta to show that she was able and willing to pay the balance of her loan property to the latter. It concluded that symbolic possession could be considered to have
obligation. been first transferred to SLDC and consequently ownership of the property pertained to
Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed SLDC who purchased the property in good faith.
for the issuance of a writ of preliminary injunction with temporary restraining order and Respondent Babasanta appealed the trial court’s decision to the Court of Appeals
the inclusion of the Register of Deeds of Calamba, Laguna as party defendant. He alleging in the main that the trial court erred in concluding that SLDC is a purchaser in
contended that the issuance of a preliminary injunction was necessary to restrain the good faith and in upholding the validity of the sale made by the Spouses Lu in favor of
transfer or conveyance by the Spouses Lu of the subject property to other persons. SLDC.
The Spouses Lu filed their Opposition4 to the amended complaint contending that it Respondent spouses likewise filed an appeal to the Court of Appeals. They contended
raised new matters which seriously affect their substantive rights under the original that the trial court erred in failing to consider that the contract to sell between them and
complaint. However, the trial court in its Order dated 17 January 1990 5 admitted the Babasanta had been novated when the latter abandoned the verbal contract of sale and
amended complaint. declared that the original loan transaction just be carried out. The Spouses Lu argued
On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) that since the properties involved were conjugal, the trial court should have declared the
filed a Motion for Intervention6 before the trial court. SLDC alleged that it had legal verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for
interest in the subject matter under litigation because on 3 May 1989, the two parcels of lack of knowledge and consent of Miguel Lu. They further averred that the trial court
land involved, namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute erred in not dismissing the complaint filed by Babasanta; in awarding damages in his
Sale with Mortgage.7 It alleged that it was a buyer in good faith and for value and favor and in refusing to grant the reliefs prayed for in their answer.
therefore it had a better right over the property in litigation. On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the
In his Opposition to SLDC’s motion for intervention,8 respondent Babasanta demurred judgment of the trial court. It declared that the sale between Babasanta and the Spouses
and argued that the latter had no legal interest in the case because the two parcels of Lu was valid and subsisting and ordered the spouses to execute the necessary deed of
land involved herein had already been conveyed to him by the Spouses Lu and hence, conveyance in favor of Babasanta, and the latter to pay the balance of the purchase
the vendors were without legal capacity to transfer or dispose of the two parcels of land price in the amount of two hundred sixty thousand pesos (₱260,000.00). The appellate
to the intervenor. court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and
49

void on the ground that SLDC was a purchaser in bad faith. The Spouses Lu were further Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu
ordered to return all payments made by SLDC with legal interest and to pay attorney’s informed the Court that due to financial constraints they have no more interest to pursue
fees to Babasanta. their rights in the instant case and submit themselves to the decision of the Court of
SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate Appeals.16
court.12 However, in a Manifestation dated 20 December 1995,13 the Spouses Lu On the other hand, respondent Babasanta argued that SLDC could not have acquired
informed the appellate court that they are no longer contesting the decision dated 4 ownership of the property because it failed to comply with the requirement of registration
October 1995. of the sale in good faith. He emphasized that at the time SLDC registered the sale in its
In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the favor on 30 June 1990, there was already a notice of lis pendens annotated on the titles
motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20 of the property made as early as 2 June 1989. Hence, petitioner’s registration of the sale
December 1995. The appellate court denied SLDC’s motion for reconsideration on the did not confer upon it any right. Babasanta further asserted that petitioner’s bad faith in
ground that no new or substantial arguments were raised therein which would warrant the acquisition of the property is evident from the fact that it failed to make necessary
modification or reversal of the court’s decision dated 4 October 1995. inquiry regarding the purpose of the issuance of the two hundred thousand pesos
Hence, this petition. (₱200,000.00) manager’s check in his favor.
SLDC assigns the following errors allegedly committed by the appellate court: The core issue presented for resolution in the instant petition is who between SLDC and
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A Babasanta has a better right over the two parcels of land subject of the instant case in
BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU view of the successive transactions executed by the Spouses Lu.
OBTAINED FROM IT THE CASH ADVANCE OF ₱200,000.00, SAN LORENZO WAS To prove the perfection of the contract of sale in his favor, Babasanta presented a
PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY. document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED (₱50,000.00) as partial payment for 3.6 hectares of farm lot situated at Barangay Pulong,
FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT Sta. Cruz, Sta. Rosa, Laguna.17 While the receipt signed by Pacita did not mention the
IN POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT price for which the property was being sold, this deficiency was supplied by Pacita Lu’s
AND TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN, letter dated 29 May 198918 wherein she admitted that she agreed to sell the 3.6 hectares
ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES. of land to Babasanta for fifteen pesos (₱15.00) per square meter.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT An analysis of the facts obtaining in this case, as well as the evidence presented by the
RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN parties, irresistibly leads to the conclusion that the agreement between Babasanta and
LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED the Spouses Lu is a contract to sell and not a contract of sale.
PROPERTY. Contracts, in general, are perfected by mere consent,19 which is manifested by the
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS meeting of the offer and the acceptance upon the thing which are to constitute the
FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT contract. The offer must be certain and the acceptance absolute. 20 Moreover, contracts
REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING shall be obligatory in whatever form they may have been entered into, provided all the
THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD essential requisites for their validity are present.21
FAITH. 15 The receipt signed by Pacita Lu merely states that she accepted the sum of fifty
SLDC contended that the appellate court erred in concluding that it had prior notice of thousand pesos (₱50,000.00) from Babasanta as partial payment of 3.6 hectares of farm
Babasanta’s claim over the property merely on the basis of its having advanced the lot situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the
amount of two hundred thousand pesos (₱200,000.00) to Pacita Lu upon the latter’s ownership of the property until full payment of the price which is a distinguishing feature
representation that she needed the money to pay her obligation to Babasanta. It argued of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu
that it had no reason to suspect that Pacita was not telling the truth that the money would never intended to transfer ownership to Babasanta except upon full payment of the
be used to pay her indebtedness to Babasanta. At any rate, SLDC averred that the purchase price.
amount of two hundred thousand pesos (₱200,000.00) which it advanced to Pacita Lu Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his
would be deducted from the balance of the purchase price still due from it and should not repeated requests for the execution of the final deed of sale in his favor so that he could
be construed as notice of the prior sale of the land to Babasanta. It added that at no effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta
instance did Pacita Lu inform it that the lands had been previously sold to Babasanta. himself recognized that ownership of the property would not be transferred to him until
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately such time as he shall have effected full payment of the price. Moreover, had the sellers
took possession of the property and asserted its rights as new owner as opposed to intended to transfer title, they could have easily executed the document of sale in its
Babasanta who has never exercised acts of ownership. Since the titles bore no adverse required form simultaneously with their acceptance of the partial payment, but they did
claim, encumbrance, or lien at the time it was sold to it, SLDC argued that it had every not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a
reason to rely on the correctness of the certificate of title and it was not obliged to go perfected contract to sell.
beyond the certificate to determine the condition of the property. Invoking the The distinction between a contract to sell and a contract of sale is quite germane. In a
presumption of good faith, it added that the burden rests on Babasanta to prove that it contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in
was aware of the prior sale to him but the latter failed to do so. SLDC pointed out that the a contract to sell, by agreement the ownership is reserved in the vendor and is not to
notice of lis pendens was annotated only on 2 June 1989 long after the sale of the pass until the full payment of the price.22 In a contract of sale, the vendor has lost and
property to it was consummated on 3 May 1989.1awphi1.nét cannot recover ownership until and unless the contract is resolved or rescinded; whereas
in a contract to sell, title is retained by the vendor until the full payment of the price, such
50

payment being a positive suspensive condition and failure of which is not a breach but an perfected contract between the parties was a sale, ownership could not have passed to
event that prevents the obligation of the vendor to convey title from becoming effective. 23 Babasanta in the absence of delivery, since in a contract of sale ownership is transferred
The perfected contract to sell imposed upon Babasanta the obligation to pay the balance to the vendee only upon the delivery of the thing sold.37
of the purchase price. There being an obligation to pay the price, Babasanta should have However, it must be stressed that the juridical relationship between the parties in a
made the proper tender of payment and consignation of the price in court as required by double sale is primarily governed by Article 1544 which lays down the rules of preference
law. Mere sending of a letter by the vendee expressing the intention to pay without the between the two purchasers of the same property. It provides:
accompanying payment is not considered a valid tender of payment. 24 Consignation of Art. 1544. If the same thing should have been sold to different vendees, the ownership
the amounts due in court is essential in order to extinguish Babasanta’s obligation to pay shall be transferred to the person who may have first taken possession thereof in good
the balance of the purchase price. Glaringly absent from the records is any indication that faith, if it should be movable property.
Babasanta even attempted to make the proper consignation of the amounts due, thus, Should it be immovable property, the ownership shall belong to the person acquiring it
the obligation on the part of the sellers to convey title never acquired obligatory force. who in good faith first recorded it in the Registry of Property.
On the assumption that the transaction between the parties is a contract of sale and not Should there be no inscription, the ownership shall pertain to the person who in good
a contract to sell, Babasanta’s claim of ownership should nevertheless fail. faith was first in the possession; and, in the absence thereof, to the person who presents
Sale, being a consensual contract, is perfected by mere consent 25 and from that the oldest title, provided there is good faith.
moment, the parties may reciprocally demand performance. 26 The essential elements of The principle of primus tempore, potior jure (first in time, stronger in right) gains greater
a contract of sale, to wit: (1) consent or meeting of the minds, that is, to transfer significance in case of double sale of immovable property. When the thing sold twice is
ownership in exchange for the price; (2) object certain which is the subject matter of the an immovable, the one who acquires it and first records it in the Registry of Property,
contract; (3) cause of the obligation which is established. 27 both made in good faith, shall be deemed the owner.38 Verily, the act of registration must
The perfection of a contract of sale should not, however, be confused with its be coupled with good faith— that is, the registrant must have no knowledge of the defect
consummation. In relation to the acquisition and transfer of ownership, it should be noted or lack of title of his vendor or must not have been aware of facts which should have put
that sale is not a mode, but merely a title. A mode is the legal means by which dominion him upon such inquiry and investigation as might be necessary to acquaint him with the
or ownership is created, transferred or destroyed, but title is only the legal basis by which defects in the title of his vendor.39
to affect dominion or ownership.28 Under Article 712 of the Civil Code, "ownership and Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired
other real rights over property are acquired and transmitted by law, by donation, by knowledge of Babasanta’s claim. Babasanta, however, strongly argues that the
testate and intestate succession, and in consequence of certain contracts, by tradition." registration of the sale by SLDC was not sufficient to confer upon the latter any title to the
Contracts only constitute titles or rights to the transfer or acquisition of ownership, while property since the registration was attended by bad faith. Specifically, he points out that
delivery or tradition is the mode of accomplishing the same. 29 Therefore, sale by itself at the time SLDC registered the sale on 30 June 1990, there was already a notice of lis
does not transfer or affect ownership; the most that sale does is to create the obligation pendens on the file with the Register of Deeds, the same having been filed one year
to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually before on 2 June 1989.
transfers ownership. Did the registration of the sale after the annotation of the notice of lis pendens obliterate
Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee the effects of delivery and possession in good faith which admittedly had occurred prior
from the moment it is delivered to him in any of the ways specified in Article 1497 to to SLDC’s knowledge of the transaction in favor of Babasanta?
1501.30 The word "delivered" should not be taken restrictively to mean transfer of actual We do not hold so.
physical possession of the property. The law recognizes two principal modes of delivery, It must be stressed that as early as 11 February 1989, the Spouses Lu executed
to wit: (1) actual delivery; and (2) legal or constructive delivery. the Option to Buy in favor of SLDC upon receiving ₱316,160.00 as option money from
Actual delivery consists in placing the thing sold in the control and possession of the SLDC. After SLDC had paid more than one half of the agreed purchase price of
vendee.31 Legal or constructive delivery, on the other hand, may be had through any of ₱1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed of
the following ways: the execution of a public instrument evidencing the sale; 32 symbolical Absolute Salein favor or SLDC. At the time both deeds were executed, SLDC had no
tradition such as the delivery of the keys of the place where the movable sold is being knowledge of the prior transaction of the Spouses Lu with Babasanta. Simply stated,
kept;33 traditio longa manu or by mere consent or agreement if the movable sold cannot from the time of execution of the first deed up to the moment of transfer and delivery of
yet be transferred to the possession of the buyer at the time of the sale; 34 traditio brevi possession of the lands to SLDC, it had acted in good faith and the subsequent
manu if the buyer already had possession of the object even before the annotation of lis pendens has no effect at all on the consummated sale between SLDC
sale;35 and traditio constitutum possessorium, where the seller remains in possession of and the Spouses Lu.
the property in a different capacity.36 A purchaser in good faith is one who buys property of another without notice that some
Following the above disquisition, respondent Babasanta did not acquire ownership by the other person has a right to, or interest in, such property and pays a full and fair price for
mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the same at the time of such purchase, or before he has notice of the claim or interest of
the property. For one, the agreement between Babasanta and the Spouses Lu, though some other person in the property.40 Following the foregoing definition, we rule that
valid, was not embodied in a public instrument. Hence, no constructive delivery of the SLDC qualifies as a buyer in good faith since there is no evidence extant in the records
lands could have been effected. For another, Babasanta had not taken possession of the that it had knowledge of the prior transaction in favor of Babasanta. At the time of the
property at any time after the perfection of the sale in his favor or exercised acts of sale of the property to SLDC, the vendors were still the registered owners of the property
dominion over it despite his assertions that he was the rightful owner of the lands. Simply and were in fact in possession of the lands.l^vvphi1.net Time and again, this Court has
stated, there was no delivery to Babasanta, whether actual or constructive, which is ruled that a person dealing with the owner of registered land is not bound to go beyond
essential to transfer ownership of the property. Thus, even on the assumption that the the certificate of title as he is charged with notice of burdens on the property which are
51

noted on the face of the register or on the certificate of title. 41 In assailing knowledge of the property in good faith in contrast to Babasanta, who neither registered nor possessed
the transaction between him and the Spouses Lu, Babasanta apparently relies on the the property at any time, SLDC’s right is definitely superior to that of Babasanta’s.
principle of constructive notice incorporated in Section 52 of the Property Registration At any rate, the above discussion on the rules on double sale would be purely academic
Decree (P.D. No. 1529) which reads, thus: for as earlier stated in this decision, the contract between Babasanta and the Spouses Lu
Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, is not a contract of sale but merely a contract to sell. In Dichoso v. Roxas,47 we had the
lien, attachment, order, judgment, instrument or entry affecting registered land shall, if occasion to rule that Article 1544 does not apply to a case where there was a sale to one
registered, filed, or entered in the office of the Register of Deeds for the province or city party of the land itself while the other contract was a mere promise to sell the land or at
where the land to which it relates lies, be constructive notice to all persons from the time most an actual assignment of the right to repurchase the same land. Accordingly, there
of such registering, filing, or entering. was no double sale of the same land in that case.
However, the constructive notice operates as such¾by the express wording of Section WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of
52¾from the time of the registration of the notice of lis pendens which in this case was Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional
effected only on 2 June 1989, at which time the sale in favor of SLDC had long been Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs.
consummated insofar as the obligation of the Spouses Lu to transfer ownership over the SO ORDERED.
property to SLDC is concerned. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta MANILA METAL CONTAINER G.R. No. 166862
the annotation of the notice of lis pendens cannot help Babasanta’s position a bit and it is CORPORATION,
irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice of lis Petitioner,
pendens, as the Court held in Nataño v. Esteban,42 serves as a warning to a prospective Present:
purchaser or incumbrancer that the particular property is in litigation; and that he should REYNALDO C. TOLENTINO,
keep his hands off the same, unless he intends to gamble on the results of the litigation." Intervenor, PANGANIBAN, C.J., Chairperson,*
Precisely, in this case SLDC has intervened in the pending litigation to protect its rights. YNARES-SANTIAGO,**
Obviously, SLDC’s faith in the merit of its cause has been vindicated with the Court’s AUSTRIA-MARTINEZ,
present decision which is the ultimate denouement on the controversy. - versus - CALLEJO, SR., and
The Court of Appeals has made capital43 of SLDC’s averment in its Complaint-in- CHICO-NAZARIO, JJ.
Intervention44 that at the instance of Pacita Lu it issued a check for ₱200,000.00 payable PHILIPPINE NATIONAL BANK,
to Babasanta and the confirmatory testimony of Pacita Lu herself on cross- Respondent,
examination.45 However, there is nothing in the said pleading and the testimony which DMCI-PROJECT DEVELOPERS, Promulgated:
explicitly relates the amount to the transaction between the Spouses Lu and Babasanta INC.,
for what they attest to is that the amount was supposed to pay off the advances made by Intervenor. December 20, 2006
Babasanta to Pacita Lu. In any event, the incident took place after the Spouses Lu had x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
already executed the Deed of Absolute Sale with Mortgage in favor of SLDC and
therefore, as previously explained, it has no effect on the legal position of SLDC. DECISION
Assuming ex gratia argumenti that SLDC’s registration of the sale had been tainted by
the prior notice of lis pendensand assuming further for the same nonce that this is a case CALLEJO, SR., J.:
of double sale, still Babasanta’s claim could not prevail over that of SLDC’s. In Abarquez
v. Court of Appeals,46 this Court had the occasion to rule that if a vendee in a double sale
registers the sale after he has acquired knowledge of a previous sale, the registration Before us is a petition for review on certiorari of the Decision[1] of the Court of
constitutes a registration in bad faith and does not confer upon him any right. If the Appeals (CA) in CA-G.R. No. 46153 which affirmed the decision[2] of the Regional Trial
registration is done in bad faith, it is as if there is no registration at all, and the buyer who Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its
has taken possession first of the property in good faith shall be preferred. Resolution[3] denying the motion for reconsideration filed by petitioner Manila Metal
In Abarquez, the first sale to the spouses Israel was notarized and registered only after Container Corporation (MMCC).
the second vendee, Abarquez, registered their deed of sale with the Registry of Deeds,
but the Israels were first in possession. This Court awarded the property to the Israels
because registration of the property by Abarquez lacked the element of good faith. While The Antecedents
the facts in the instant case substantially differ from that in Abarquez, we would not
hesitate to rule in favor of SLDC on the basis of its prior possession of the property in Petitioner was the owner of a 8,015 square meter parcel of land located
good faith. Be it noted that delivery of the property to SLDC was immediately effected in Mandaluyong (now a City), Metro Manila. The property was covered by Transfer
after the execution of the deed in its favor, at which time SLDC had no knowledge at all Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To secure
of the prior transaction by the Spouses Lu in favor of Babasanta.1a\^/phi1.net a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB),
The law speaks not only of one criterion. The first criterion is priority of entry in the petitioner executed a real estate mortgage over the lot. Respondent PNB later granted
registry of property; there being no priority of such entry, the second is priority of petitioner a new credit accommodation of P1,000,000.00; and, on November 16,
possession; and, in the absence of the two priorities, the third priority is of the date of 1973, petitioner executed an Amendment[4] of Real Estate Mortgage over its property.
title, with good faith as the common critical element. Since SLDC acquired possession of
52

On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent reconsider its letter dated December 28, 1984. Petitioner declared that it had already
PNB, payable in quarterly installments of P32,650.00, plus interests and other charges.[5] agreed to the SAMDs offer to purchase the property for P1,574,560.47, and that was why
it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial
On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure recourse should PNB insist on the position.[18]
of the real estate mortgage and sought to have the property sold at public auction
for P911,532.21, petitioners outstanding obligation to respondent PNB as of June 30, On June 4, 1985, respondent PNB informed petitioner that the PNB Board of
1982,[6] plus interests and attorneys fees. Directors had accepted petitioners 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
After due notice and publication, the property was sold at public auction space above the typewritten name of petitioners President, Pablo Gabriel, where he was
on September 28, 1982 where respondent PNB was declared the winning bidder to affix his signature. However, Pablo Gabriel did not conform to the letter but merely
for P1,000,000.00. The Certificate of Sale[7] issued in its favor was registered with the indicated therein that he had received it.[20] Petitioner did not respond, so PNB requested
Office of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase.
title on February 17, 1983. Thus, the period to redeem the property was to expire
on February 17, 1984.
Petitioner rejected respondents proposal in a letter dated July 14, 1988. It
Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be maintained that respondent PNB had agreed to sell the property for P1,574,560.47, and
granted an extension of time to redeem/repurchase the property. [8] In its reply that since its P725,000.00 downpayment had been accepted, respondent PNB was
dated August 30, 1983, respondent PNB informed petitioner that the request had been proscribed from increasing the purchase price of the property.[21] Petitioner averred that it
referred to its Pasay City Branch for appropriate action and recommendation.[9] had a net balance payable in the amount of P643,452.34. Respondent PNB, however,
rejected petitioners offer to pay the balance of P643,452.34 in a letter dated August 1,
In a letter[10] dated February 10, 1984, petitioner reiterated its request for a one year 1989.[22]
extension from February 17, 1984 within which to redeem/repurchase the property on
installment basis. It reiterated its request to repurchase the property on On August 28, 1989, petitioner filed a complaint against respondent PNB for
installment.[11] Meanwhile, some PNB Pasay City Branch personnel informed petitioner Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific
that as a matter of policy, the bank does not accept partial redemption. [12] Performance with Damages. To support its cause of action for specific performance, it
alleged the following:
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 34. As early as June 25, 1984, PNB had accepted the down payment
PNB.[13]Petitioners offers had not yet been acted upon by respondent PNB. from Manila Metal in the substantial amount of P725,000.00 for
the redemption/repurchase price of P1,574,560.47 as approved by
Meanwhile, the Special Assets Management Department (SAMD) had prepared a its SMAD and considering the reliance made by Manila Metal and
statement of account, and as of June 25, 1984 petitioners obligation amounted the long time that has elapsed, the approval of the higher
to P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of management of the Bank to confirm the agreement of its SMAD is
insurance premiums, advances on realty taxes, registration expenses, miscellaneous clearly a potestative condition which cannot legally prejudice
expenses and publication cost.[14] When apprised of the statement of account, petitioner Manila Metal which has acted and relied on the approval of
remitted P725,000.00 to respondent PNB as deposit to repurchase, and Official Receipt SMAD. The Bank cannot take advantage of a condition which is
No. 978191 was issued to it.[15] entirely dependent upon its own will after accepting and benefiting
from the substantial payment made by Manila Metal.
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 35. PNB approved the repurchase price of P1,574,560.47 for which it
dated November 14, 1984, the PNB management informed petitioner that it was rejecting accepted P725,000.00 from Manila Metal. PNB cannot take
the offer and the recommendation of the SAMD. It was suggested that petitioner advantage of its own delay and long inaction in demanding a
purchase the property for P2,660,000.00, its minimum market value. Respondent PNB higher amount based on unilateral computation of interest rate
gave petitioner until December 15, 1984 to act on the proposal; otherwise, without the consent of Manila Metal.
its P725,000.00 deposit would be returned and the property would be sold to other
interested buyers.[16] Petitioner later filed an amended complaint and supported its claim for damages
with the following arguments:
Petitioner, however, did not agree to respondent PNBs proposal. Instead, it wrote another
letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied 36. That in order to protect itself against the wrongful and malicious
in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner acts of the defendant Bank, plaintiff is constrained to engage the
purchase the property for P2,660,000.00. PNB again informed petitioner that it would services of counsel at an agreed fee of P50,000.00 and to incur
return the deposit should petitioner desire to withdraw its offer to purchase the litigation expenses of at least P30,000.00, which the defendant
property.[17] On February 25, 1985, petitioner, through counsel, requested that PNB PNB should be condemned to pay the plaintiff Manila Metal.
53

1. Whether or not the June 4, 1985 letter of the defendant
37. That by reason of the wrongful and malicious actuations of approving/accepting plaintiffs offer to purchase the property is still
defendant PNB, plaintiff Manila Metal suffered besmirched valid and legally enforceable.
reputation for which defendant PNB is liable for moral damages of
at least P50,000.00. 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
38. That for the wrongful and malicious act of defendant PNB which the defendant in its letter dated June 4, 1985.
are highly reprehensible, exemplary damages should be awarded
in favor of the plaintiff by way of example or correction for the 3. Whether or not there is a perfected contract of sale between the
public good of at least P30,000.00.[23] parties.[26]

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, While the case was pending, respondent PNB demanded, on September 20,
thus: 1989, that petitioner vacate the property within 15 days from notice,[27] but petitioners
refused to do so.
a) Declaring the Amended Real Estate Mortgage (Annex A) null and
void and without any legal force and effect. 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
b) Declaring defendants acts of extra-judicially foreclosing the dated April 13, 1993. According to it, the prevailing market value of the property was
mortgage over plaintiffs property and setting it for auction sale null approximately P30,000,000.00, and as a matter of policy, it could not sell the property for
and void. less than its market value.[29] On June 21, 1993, petitioner offered to purchase the
property for P4,250,000.00 in cash.[30] The offer was again rejected by respondent PNB
c) Ordering the defendant Register of Deeds to cancel the new title on September 13, 1993.[31]
issued in the name of PNB (TCT NO. 43792) covering the
property described in paragraph 4 of the Complaint, to reinstate On May 31, 1994, the trial court rendered judgment dismissing the amended
TCT No. 37025 in the name of Manila Metal and to cancel the complaint and respondent PNBs counterclaim. It ordered respondent PNB to refund
annotation of the mortgage in question at the back of the TCT theP725,000.00 deposit petitioner had made.[32] The trial court ruled that there was no
No. 37025 described in paragraph 4 of this Complaint. 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
d) Ordering the defendant PNB to return and/or deliver physical rejected petitioners offer to repurchase the property. Petitioner, in turn, rejected the terms
possession of the TCT No. 37025 described in paragraph 4 of this and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had
Complaint to the plaintiff Manila Metal. 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
e) Ordering the defendant PNB to pay the plaintiff Manila Metals demanded. It further declared that the P725,000.00 remitted by petitioner to respondent
actual damages, moral and exemplary damages in the aggregate PNB on June 4, 1985 was a deposit, and not a downpayment or earnest money.
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 On appeal to the CA, petitioner made the following allegations:
sound discretion, and attorneys fees of P50,000.00 and litigation
expenses of at least P30,000.00 as may be proved during the trial, I
and costs of suit. THE LOWER COURT ERRED IN RULING THAT DEFENDANT-
APPELLEES LETTER DATED 4 JUNE
Plaintiff likewise prays for such further reliefs which may be 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANTS OFFER
deemed just and equitable in the premises.[24] TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND
ENFORCEABLE.
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 II
redeem had elapsed. It claimed that no contract of sale was perfected between it and THE LOWER COURT ERRED IN RULING THAT THERE WAS NO
petitioner after the period to redeem the property had expired. PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-
APPELLANT AND DEFENDANT-APPELLEE.
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: III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-
APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT
54

PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS According to the appellate court, the claim for damages and the counterclaim
SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 were correctly dismissed by the court a quo for no evidence was presented to support
JUNE 1985. it.Respondent PNBs letter dated June 30, 1988 cannot revive the failed negotiations
between the parties. Respondent PNB merely asked petitioner to submit an amended
IV offer to repurchase. While petitioner reiterated its request for a lower selling price and
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT that the balance of the repurchase be reduced, however, respondent rejected the
IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT proposal in a letter dated August 1, 1989.
DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO
COMPLETE THE BALANCE OF THEIR PURCHASE PRICE. Petitioner filed a motion for reconsideration, which the CA likewise denied.

V Thus, petitioner filed the instant petition for review on certiorari, alleging that:
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT
THERE WAS NO VALID RESCISSION OR CANCELLATION OF I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
SUBJECT CONTRACT OF REPURCHASE. WHEN IT RULED THAT THERE IS NO PERFECTED
CONTRACT OF SALE BETWEEN THE PETITIONER AND
VI RESPONDENT.
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF
FAILED AND REFUSED TO SUBMIT THE AMENDED REPURCHASE II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
OFFER. WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00
PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.
VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
COMPLAINT OF PLAINTIFF-APPELLANT. WHEN IT RULED THAT THE FAILURE OF THE
PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY
VIII TO THE TERMS CONTAINED IN PNBS JUNE 4, 1985
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF- LETTER MEANS THAT THERE WAS NO VALID AND
APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES, LEGALLY ENFORCEABLE CONTRACT OF SALE
ATTOTRNEYS FEES AND LITIGATION EXPENSES.[33] BETWEEN THE PARTIES.

Meanwhile, on June 17, 1993, petitioners Board of Directors approved IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
Resolution No. 3-004, where it waived, assigned and transferred its rights over the THAT NON-PAYMENT OF THE PETITIONER-APPELLANT
property covered by TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one OF THE BALANCE OF THE OFFERED PRICE IN THE
of its Directors.[34] Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% LETTER OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60)
of the ownership and management of the property in favor of Reynaldo Tolentino, who DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO
later moved for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued VALID AND LEGALLY ENFORCEABLE CONTRACT OF
a resolution granting the motion,[35] and likewise granted the motion of SALE BETWEEN THE PARTIES.
Reynaldo Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion to
withdraw as intervenor.[36] V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD
THAT THE LETTERS OF PETITIONER-APPELLANT
The CA rendered judgment on May 11, 2000 affirming the decision of the DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING
RTC.[37] It declared that petitioner obviously never agreed to the selling price proposed by TO BUY THE SUBJECT PROPERTY AT DIFFERENT
respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling AMOUNT WERE PROOF THAT THERE IS NO PERFECTED
price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of the CONTRACT OF SALE.[38]
minds between the parties as to the price or consideration of the sale.

The CA ratiocinated that petitioners original offer to purchase the subject The threshold issue is whether or not petitioner and respondent PNB had entered into a
property had not been accepted by respondent PNB. In fact, it made a counter-offer perfected contract for petitioner to repurchase the property from respondent.
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 Petitioner maintains that it had accepted respondents offer made through the
the balance of the purchase price within the sixty-day period set in the June 4, 1985 letter SAMD, to sell the property for P1,574,560.00. When the acceptance was made in its
of respondent PNB. Consequently, there was no perfected contract of sale, and as such, letter dated June 25, 1984; it then deposited P725,000.00 with the SAMD as partial
there was no contract to rescind. payment, evidenced by Receipt No. 978194 which respondent had issued. Petitioner
avers that the SAMDs acceptance of the deposit amounted to an acceptance of its offer
55

to repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the of P725,000.00 as deposit to repurchase the property. The deposit of P725,000.00 was
PNB Board of Directors had approved petitioners offer to purchase the property. It claims accepted by respondent on the condition that the purchase price would still be approved
that this was the suspensive condition, the fulfillment of which gave rise to the by its Board of Directors. Respondent maintains that its acceptance of the amount was
contract. Respondent could no longer unilaterally withdraw its offer to sell the property qualified by that condition, thus not absolute. Pending such approval, it cannot be legally
for P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of claimed that respondent is already bound by any contract of sale with petitioner.
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 According to respondent, petitioner knew that the SAMD has no capacity to bind
property to petitioner, conformably with Article 1159 of the New Civil Code. 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,
Petitioner posits that respondent was proscribed from increasing the interest encumber, dispose of, or otherwise alienate the assets, since the power to do so must
rate after it had accepted respondents offer to sell the property emanate from its Board of Directors. The SAMD was not authorized by respondents
for P1,574,560.00.Consequently, respondent could no longer validly make a counter- Board to enter into contracts of sale with third persons involving corporate assets. There
offer of P1,931,789.88 for the purchase of the property. It likewise maintains that, is absolutely nothing on record that respondent authorized the SAMD, or made it appear
although the P725,000.00 was considered as deposit for the repurchase of the property to petitioner that it represented itself as having such authority.
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 Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had
Court in Villonco v. Bormaheco[39] and Topacio v. Court of Appeals.[40] been approved by the Board subject to the condition, among others, that the selling price
shall be the total banks claim as of documentation date x x x payable in cash
Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of (P725,000.00 already deposited)
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 respondents breach of its obligation to
petitioner. It did not amount to a rejection of respondents offer to sell the property since within 60 days from notice of approval. A new Statement of Account was attached therein
respondent was merely seeking to enforce its right to pay the balance indicating the total banks claim to be P1,931,389.53 less deposit of P725,000.00,
of P1,570,564.47. In any event, respondent had the option either to accept the balance of or P1,206,389.00. Furthermore, while respondents Board of Directors accepted
the offered price or to cause the rescission of the contract. petitioners 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
Petitioners letters dated March 18, 1993 and June 21, 1993 to respondent during the therein. This qualified acceptance was in effect a counter-offer, necessitating petitioners
pendency of the case in the RTC were merely to compromise the pending lawsuit, they acceptance in return.
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 The Ruling of the Court
Rules of Court.
The ruling of the appellate court that there was no perfected contract of sale between the
For its part, respondent contends that the parties never graduated from the parties on June 4, 1985 is correct.
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, A contract is a meeting of minds between two persons whereby one binds himself, with
nothing more. It insists that a definite agreement on the amount and manner of payment respect to the other, to give something or to render some service. [41] Under Article 1318
of the price are essential elements in the formation of a binding and enforceable contract of the New Civil Code, there is no contract unless the following requisites concur:
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 (1) Consent of the contracting parties;
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 (2) Object certain which is the subject matter of the contract;
there is no perfected contract in the first place, there is no basis for the application of the
principles governing suspensive conditions. (3) Cause of the obligation which is established.

According to respondent, the Statement of Account prepared by SAMD as of June 25, Contracts are perfected by mere consent which is manifested by the meeting of the offer
1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary and the acceptance upon the thing and the cause which are to constitute the
claims against petitioner. Moreover, the amount stated therein could not likewise be contract.[42] Once perfected, they bind other contracting parties and the obligations
considered as the counter-offer since as admitted by petitioner, it was only arising therefrom have the form of law between the parties and should be complied with
recommendation which was subject to approval of the PNB Board of Directors. 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
Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a keeping with good faith, usage and law.[43]
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
56

By the contract of sale, one of the contracting parties obligates himself to transfer the must be identical in all respects with that of the offer so as to produce consent or meeting
ownership of and deliver a determinate thing, and the other to pay therefor a price certain of the minds.
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 In this case, petitioner had until February 17, 1984 within which to redeem the
Philippines v. Manalo:[45] 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
A definite agreement as to the price is an essential element of a parties.[55] The request, which was made through a letter dated August 25, 1983, was
binding agreement to sell personal or real property because it seriously referred to the respondents main branch for appropriate action. [56] Before respondent
affects the rights and obligations of the parties. Price is an essential could act on the request, petitioner again wrote respondent as follows:
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 1. Upon approval of our request, we will pay
the contracting parties. But a price fixed by one of the contracting your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS
parties, if accepted by the other, gives rise to a perfected sale. [46] (P150,000.00);

A contract of sale is consensual in nature and is perfected upon mere meeting of the 2. Within six months from date of approval of our request, we will pay
minds. When there is merely an offer by one party without acceptance of the other, there another FOUR HUNDRED FIFTY THOUSAND PESOS
is no contract.[47] When the contract of sale is not perfected, it cannot, as an independent (P450,000.00); and
source of obligation, serve as a binding juridical relation between the parties. [48]
3. The remaining balance together with the interest and other
In San Miguel Properties Philippines, Inc. v. Huang,[49] the Court ruled that the stages of expenses that will be incurred will be paid within the last six
a contract of sale are as follows: (1) negotiation, covering the period from the time the months of the one year grave period requested for.[57]
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 When the petitioner was told that respondent did not allow partial redemption,[58] it sent
the contract and upon the price; and (3) consummation, which begins when the parties a letter to respondents President reiterating its offer to purchase the property.[59]There
perform their respective undertakings under the contract of sale, culminating in the was no response to petitioners letters dated February 10 and 15, 1984.
extinguishment thereof.
The statement of account prepared by the SAMD stating that the net claim of
respondent as of June 25, 1984 was P1,574,560.47 cannot be considered an unqualified
A negotiation is formally initiated by an offer, which, however, must be certain.[50] At any acceptance to petitioners offer to purchase the property. The statement is but a
time prior to the perfection of the contract, either negotiating party may stop the computation of the amount which petitioner was obliged to pay in case respondent would
negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective later agree to sell the property, including interests, advances on insurance premium,
immediately after its manifestation. To convert the offer into a contract, the acceptance advances on realty taxes, publication cost, registration expenses and miscellaneous
must be absolute and must not qualify the terms of the offer; it must be plain, expenses.
unequivocal, unconditional and without variance of any sort from the
proposal. In Adelfa Properties, Inc. v. Court of Appeals,[51] the Court ruled that: There is no evidence that the SAMD was authorized by respondents Board of
Directors to accept petitioners offer and sell the property for P1,574,560.47. Any
x x x The rule is that except where a formal acceptance is so required, acceptance by the SAMD of petitioners offer would not bind respondent. As this Court
although the acceptance must be affirmatively and clearly made and ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:[60]
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 Section 23 of the Corporation Code expressly provides that
be shown by the acts, conduct, or words of a party recognizing the the corporate powers of all corporations shall be exercised by the
existence of the contract of sale.[52] 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
A qualified acceptance or one that involves a new proposal constitutes a counter-offer corporation validly delegate some of its functions to individual
and a rejection of the original offer. A counter-offer is considered in law, a rejection of the officers or agents appointed by it. Thus, contracts or acts of a
original offer and an attempt to end the negotiation between the parties on a different corporation must be made either by the board of directors or by a
basis.[53] Consequently, when something is desired which is not exactly what is proposed corporate agent duly authorized by the board. Absent such valid
in the offer, such acceptance is not sufficient to guarantee consent because any delegation/authorization, the rule is that the declarations of an
modification or variation from the terms of the offer annuls the offer. [54] The acceptance individual director relating to the affairs of the corporation, but not in
57

the course of, or connected with the performance of authorized duties It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided
of such director, are held not binding on the corporation. to accept the offer to purchase the property for P1,931,389.53. However, this amounted
to an amendment of respondents qualified acceptance, or an amended counter-offer,
because while the respondent lowered the purchase price, it still declared that its
Thus, a corporation can only execute its powers and transact its business acceptance was subject to the following terms and conditions:
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 petitioners 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 1. That the selling price shall be the total Banks claim as of
as the purchase price. Respondent later approved the recommendation that the property documentation date (pls. see attached statement of account as
be sold to petitioner. But instead of the P1,574,560.47 recommended by the SAMD and of 5-31-85), payable in cash (P725,000.00 already deposited)
to which petitioner had previously conformed, respondent set the purchase price within sixty (60) days from notice of approval;
at P2,660,000.00. In fine, respondents acceptance of petitioners offer was qualified,
hence can be at most considered as a counter-offer. If petitioner had accepted this 2. The Bank sells only whatever rights, interests and
counter-offer, a perfected contract of sale would have arisen; as it turns out, however, participation it may have in the property and you are charged
petitioner merely sought to have the counter-offer reconsidered. This request for with full knowledge of the nature and extent of said rights,
reconsideration would later be rejected by respondent. interests and participation and waive your right to warranty
against eviction.
We do not agree with petitioners contention that the P725,000.00 it had remitted
to respondent was earnest money which could be considered as proof of the perfection 3. All taxes and other government imposts due or to become due
of a contract of sale under Article 1482 of the New Civil Code. The provision reads: 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
ART. 1482. Whenever earnest money is given in a contract of covering documents shall be borne by you;
sale, it shall be considered as part of the price and as proof of the
perfection of the contract. 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;
This contention is likewise negated by the stipulation of facts which the parties
entered into in the trial court: 5. That upon your failure to pay the balance of the purchase
price within sixty (60) days from receipt of advice accepting your
8. On June 8, 1984, the Special Assets Management offer, your deposit shall be forfeited and the Bank is thenceforth
Department (SAMD) of PNB prepared an updated Statement of authorized to sell the property to other interested parties.
Account showing MMCCs total liability to PNB as of June 25, 1984 to
be P1,574,560.47 and recommended this amount as the repurchase 6. That the sale shall be subject to such other terms and
price of the subject property. conditions that the Legal Department may impose to protect the
interest of the Bank.[64]
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 It appears that although respondent requested petitioner to conform to its
subject to the approval of the PNB Board.[62] amended counter-offer, petitioner refused and instead requested respondent to
reconsider its amended counter-offer. Petitioners request was ultimately rejected and
respondent offered to refund its P725,000.00 deposit.
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 In sum, then, there was no perfected contract of sale between petitioner and
recommendation of SAMD for respondent to accept petitioners offer to purchase the respondent over the subject property.
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] IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
58

The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Roman Cuison Sr., wrote the banks Officer-in-Charge, Remedios Calaguas, a letter
Corporation. indicating her offered terms of repurchase. She stated:
1. That I will pay the interest of P115,538.66, plus the
SO ORDERED. additional expenses of P17,293.69, the total amount of which
is P132,832.35 on August 8, 1986;

TRADERS ROYAL BANK, G.R. No. 174286 2. That I will pay 20% of the bid price of P949,632.84, plus
Petitioner, whatever interest accruing within sixty (60) days from August
Present: 8, 1986;

- versus - QUISUMBING, Chairperson, 3. That whatever remaining balance after the above two (2)
*YNARES-SANTIAGO, payments shall be amortized for five (5) years on equal
VELASCO, JR., monthly installments including whatever interest accruing
**LEONARDO-DE CASTRO, and lease on diminishing balance.[5]
BRION, JJ.
CUISON LUMBER CO., INC., CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00 (on
and JOSEFA JERODIAS VDA. DE CUISON, September 3, 1986). The bank received and regarded these amounts as earnest money
Respondents. Promulgated: for the repurchase of the subject property. On October 20, 1986, the bank sent Atty.
Roman Cuison, Jr. (Atty. Cuison), as the president and general manager of CLCI, a letter
June 5, 2009 informing CLCI of the banks board of directors resolution of October 10, 1986 (TRB
Repurchase Agreement), laying down the conditions for the repurchase of the subject
x ----------------------------------------------------------------------------------------x property:
This is to formally inform you that our Board of Directors, in its
regular meeting held on October 10, 1986, passed a resolution for the
DECISION repurchase of your property acquired by the bank, subject to the
following terms and conditions, viz:
BRION, J.:
1. That the repurchase price shall be at total banks claim as
of the date of implementation;
We review in this petition for review on certiorari[1] the decision[2] and resolution[3] of the
Court of Appeals (CA) in CA-G.R. CV No. 49900. The CA affirmed with modifications the 2. That client shall initially pay P132,000.00 within fifteen (15)
decision[4] of the Regional Trial Court (RTC), Davao City, Branch 13. The RTC ruled in days from the expiration of the redemption period (August 8, 1986) and
favor of respondents Cuison Lumber Co., Inc. (CLCI) and Josefa Vda. De Cuison (Mrs. further payment of P200,632.84, representing 20% of the bid price, to
Cuison), collectively referred to as respondents, in the action they commenced for breach be remitted on or before October 31, 1986;
of contract, specific performance, damages, and attorneys fees, with prayer for the
issuance of a writ of preliminary injunction against petitioner Traders Royal Bank (bank). 3. That the balance of P749,000.00 to be paid in three (3)
years in twelve (12) quarterly amortizations, with interest rate at 26%
computed on diminishing balance;
THE BACKGROUND FACTS
4. That all the interest and other charges starting from August
8, 1986 to date of approval shall be paid first before implementation of
On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then president, the request; interest as of October 31, 1986 is P65,669.53;
Roman Cuison Sr., obtained two loans from the bank. The loans were secured by a real
estate mortgage over a parcel of land covered by Transfer Certificate of Title No. 10282 5. Possession of the property shall be deemed transferred
(subject property). CLCI failed to pay the loan, prompting the bank to extrajudicially after signing of the Contract to Sell. However, title to the property shall
foreclose the mortgage on the subject property. The bank was declared the highest be delivered only upon full payment of the repurchase price via Deed
bidder at the public auction that followed, conducted on August 1, 1985. A Certificate of of Absolute Sale;
Sale and a Sheriffs Final Certificate of Sale were subsequently issued in the banks favor.
6. Registration fees, documentary stamps, transfer taxes at
In a series of written communications between CLCI and the bank, CLCI the date of sale and other similar government impost shall be for the
manifested its intention to restructure its loan obligations and to repurchase the subject exclusive account of the buyer;
property. On July 31, 1986, Mrs. Cuison, the widow and administratrix of the estate of
59

7. The improvement of the property shall at all times be A year later, CLCI inquired about the status of its request. The bank responded
covered by insurance against loss with a policy to be obtained from a that the request was still under consideration by the banks Manila office. On September
reputable company which designates the bank as beneficiary but 30, 1988, the bank informed CLCI that it would resell the subject property at an offered
premiums shall be paid by the client; price of P3 million, and gave CLCI 15 days to make a formal offer; otherwise, the bank
would sell the subject property to third parties. On October 26, 1988, CLCI offered to
8. That the sale is good for thirty (30) days from the buyers repurchase the subject property for P1.5 million, given that it had already tendered the
receipt of notice of approval of the offer; otherwise, sale is amount of P400,000.00 as earnest money.
automatically cancelled;
CLCI subsequently claimed that the bank breached the terms of repurchase, as
9. Effective upon signing of the Contract to Sell, all realty it had wrongly considered its payments (in the amounts of P140,485.18, P200,000.00
taxes which will become due on the property shall be for the account of and P100,000.00) as earnest money, instead of applying them to the purchase price.
the buyer; Through its counsel, CLCI demanded that the bank rectify the repurchase agreement to
reflect the true consideration agreed upon for which the earnest money had been given.
10. That the first quarterly installment shall be due within The bank did not act on the demand. Instead, it informed CLCI that the amounts it
ninety (90) days of approval hereof, and the succeeding installment received were not earnest money, and that the bank was willing to return these sums,
shall be due every three (3) months thereafter; less the amounts forfeited to answer for the unremitted rentals on the subject property.

11. Upon default of the buyer to pay two (2) successive In view of these developments, CLCI and Mrs. Cuison, on February 10, 1989,
quarterly installments, contract is automatically cancelled at the Banks filed with the RTC a complaint for breach of contract, specific performance, damages,
option and all payments already made shall be treated as rentals or as and attorneys fees against the bank. On April 20, 1989, the bank filed its Answer alleging
liquidated damages; and that the TRB repurchase agreement was already cancelled given CLCIs failure to comply
with its provisions; by way of counterclaim, the bank also demanded the payment of the
12. Other terms and conditions that the bank may further accrued rentals in the subject property as of January 31, 1989, and the award of moral
impose to protect its interest. damages and exemplary damages as well as attorneys fees and litigation expenses for
the unfounded suit instituted against the bank by CLCI.[9] After trial on the merits, the
Should you agree with the above terms and conditions please RTC ruled in respondents favor. The dispositive portion of its November 4, 1994 Decision
sign under Conforme on the space provided below. states:

We attach herewith your Statement of Account[6] as of WHEREFORE, premises considered, judgment is hereby rendered in
October 31, 1986, for your reference. favor of plaintiffs and against the defendant bank, ordering said
defendant bank to:
Thank you.
1. Execute and consummate a Contract to Sell which is
Very truly yours, reflective of the true consideration indicated in the Resolution of the
(Signed) Board of Directors of Traders Royal Bank held on October 10, 1986
(Exhibit F and Exhibit 13), duly accrediting the amount of P435,000 as
Conforme: (Not signed)[7] earnest money to be part of the price, the mode of payment being on
quarterly installment, but the period within which the first quarterly
payment being on quarterly payment shall be made to commence
CLCI failed to comply with the above terms notwithstanding the extensions of upon the execution of said Contract to Sell;
time given by the bank. Nevertheless, CLCI tendered, on February 3, 1987, a check
forP135,091.57 to cover fifty percent (50%) of the twenty percent (20%) bid price. The 2. Pay to plaintiffs the amounts of P50,000.00 in concept of
check, however, was returned for insufficiency of funds. On May 13, 1987, CLCI moral damages, P20,000.00 as exemplary damages;
tendered an additional P50,000.00.[8] On May 29, 1987, the bank sent Atty. Cuison a
letter informing him that the P185,000.00 CLCI paid was not a deposit, but formed part of 3. Pay attorneys fees of P20,000.00; and
the earnest money under the TRB Repurchase Agreement. On August 28, 1987, Atty.
Cuison, by letter, requested that CLCIs outstanding obligation of P1,221,075.61 (as of 4. Pay litigation expenses in the amount of P2,000.00.
July 31, 1987) be reduced to P1 million, and the amount of P221,075.61 be condoned by
the bank. To show its commitment to the request, CLCI paid the bank P100,000.00 The counterclaim of defendant bank is hereby dismissed.
and P200,000.00 on August 28, 1987. The bank credited both payments as earnest
money. SO ORDERED.
60

On appeal to the CA, the bank pointed out the misappreciation of facts the RTC
committed and argued that: first, the repurchase agreement did not ripen into a perfected The bank subsequently moved but failed to secure a reconsideration of the CA
contract; and second, even assuming that there was a perfected repurchase agreement, decision. The bank thus came to us with the following
the bank had the right to revoke it and apply the payments already made to the rentals
due for the use of the subject property, or as liquidated damages under paragraph 11 of ISSUES
the TRB Repurchase Agreement, since CLCI violated its terms and conditions. Further,
the bank contended that CLCI had abandoned the TRB Repurchase Agreement in its I.
letters dated August 28, 1987 and October 26, 1988 when it proposed to repurchase the THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
subject property for P1 million and P1.5 million, respectively. Lastly, the bank objected to APPREHENDING THE SIGNIFICATION (SIC) OF THE TERM OFFER
the award of damages in the plaintiffs favor. ON THE ONE HAND AND ACCEPTANCE ON THE OTHER HAND IN
SALES CONTRACT WHICH ERROR LED IT TO ARRIVE AT A
THE CA DECISION WRONG CONCLUSION OF LAW.

On March 31, 2006, the CA issued the challenged Decision and affirmed the RTCs II.
factual findings and legal conclusions. Although it deleted the awards of attorneys fees,
moral and exemplary damages, the CA ruled that there was a perfected contract to THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS
repurchase the subject property given the banks acceptance (as stated in the letter dated INTERPRETATION OF THE STIPULATIONS AND TERMS AND
October 20, 1986) of CLCIs proposal contained in Mrs. Cuisons letter of July 31, CONDITIONS EMBODIED IN THE PROPOSED REPURCHASE
1986. The CA distinguished between a condition imposed on the perfection of the AGREEMENT xxx WHICH LED IT TO ERRONEOUSLY CONCLUDE
contract and a condition imposed on the performance of an obligation, and declared that THAT THERE WAS A PERFECTED REPURCHASE AGREEMENT
the conditions laid down in the letter dated October 20, 1986 merely relate to the manner BETWEEN RESPONDENTS AND PETITIONER AND WHICH
the obligation is to be performed and implemented; failure to comply with the latter INTERPRETATION IS NOT IN ACCORDANCE WITH THE
obligation does not result in the failure of the contract and only gives the other party the APPLICABLE LAW AND ESTABLISHED JURISPRUDENCE.
options and/or remedies to protect its interest. The CA held that the same conclusion
obtains even if the letter of October 20, 1986 is considered a counter-offer by the bank; Reduced to the most basic, the main issue posed is whether or not a
CLCIs payment of P135,000.00 operated as an implied acceptance of the banks counter- perfected contract of repurchase existed and can be enforced between the parties.
offer, notwithstanding CLCIs failure to expressly manifest its conforme. In light of these THE COURTS RULING
findings, the CA went on to acknowledge the validity of the terms of paragraph 11 of the
TRB Repurchase Agreement, but nonetheless held that CLCI has not yet violated its We GRANT the petition.
terms given the banks previous acts (i.e., the grant of extensions to pay), which showed
that it had waived the agreements original terms of payment.
The case presents to us as threshold issue the presence or absence of consent
The CA rejected the theory that CLCI had abandoned the terms of the TRB as a requisite for a perfected contract to repurchase the subject property. The RTC ruled
Repurchase Agreement and found no incompatibility between the agreement and the that a perfected contract existed based mainly on the following facts: first, the existence
contents of the August 28, 1987 and October 26, 1988 letters which did not show an of the TRB Repurchase Agreement which clearly depicts the repurchase agreement of
implied abandonment by CLCI, nor the latters expressed intent to cancel or abandon the the subject property under the terms therein embodied; and second, the payment of
perfected repurchase agreement. In the same manner, the CA struck down the banks earnest money in the total amount of P435,000.00 which forms part of the price and, as
position that CLCIs payments were deposits rather than earnest money. The appellate initial payment, is proof of the perfection of the contract.[12] In concurring with the
court reasoned that while the amounts tendered cannot be strictly considered as earnest foregoing findings on appeal, the CA, in turn, declared that there was a meeting of the
money under Article 1482 of the New Civil Code,[10] they were nevertheless within the minds between the parties on the offer and acceptance
concept of earnest money under this Courts ruling in Spouses Doromal, Sr. v. for the repurchase of the subject property under the following quoted facts:
CA,[11] since they were paid as a guarantee so that the buyer would not back out of the
contract. It may be recalled that it was Mrs. Cuison, through her letter
of July 31, 1986, who proposed to repurchase the foreclosed property.
The CA however ruled that the award of moral and exemplary damages, She in fact had tendered right away an amount of P50,000.00 as
attorneys fees and litigation expenses lacked factual and legal support. The CA found partial payment of the P132,000.00 she had promised to pay as initial
that the bank acted in good faith and based its actions on the erroneous belief that CLCI payment. In response, TRB sent a letter dated October 20, 1986 to
had already abandoned the repurchase agreement. Likewise, the award of moral Atty. Cuison informing him of the resolution passed by the Board of
damages was not in order as there was no showing that CLCIs reputation was debased Directors of TRB acknowledging the proposal of Ms. Cuison to
or besmirched by the banks action of applying the previous payments made to the repurchase the property. Under the circumstance, the proposal made
interest and rentals due on the subject property; neither is Mrs. Cuison entitled to moral by Ms. Cuison constituted the offer contemplated by law, and the reply
damages without any evidence to justify this award. The CA also ruled that there was of TRB was the corresponding acceptance of the proposal-offer.
nothing in the records to warrant the awards of exemplary damages and attorneys fees.
61

xxx amount representing the partial payment by the buyer with the corresponding interest
stated in the buyers letter (offer) and considered them evidence of the perfection of the
Conceding arguendo that TRBs letter-response October 20, 1986 sale. Under these circumstances, we also declared that a change in a phrase in the offer
constituted a counter-offer or politacion, CLCIs ensuing remittance to purchase, that does not essentially change the terms of the offer, does not amount to
of P135,000.00 as initial payment of the price, operates effectively as a rejection of the offer and the tender of a counter-offer.
an implied acceptance of TRBs counter-offer. The absence of a
signature to signify plaintiffs conforme to the repurchase agreement is In Schuback & Sons Philippine Trading Corp. v. CA,[21] we declared a meeting
of no moment. While the conformeportion of the subject repurchase of minds between the vendor and the vendee even though the quantity of goods
agreement indeed bears no signature at all, this fact, however, does purchased had not been fully determined. We noted that the vendee, after expressing his
not detract from the accomplished fact that plaintiffs had acquiesced or intention to purchase the merchandise, simultaneously enclosed a purchase order whose
assented to the standing conditional counter-offer of TRB. receipt prompted the vendor to immediately order the merchandise. We also took into
Plaintiffs conforme would at best be a mere formality considering that account the act of the vendee in requesting for a discount as proof of his acceptance of
the repurchase agreement had already been perfected, if impliedly. [13] the quoted price.

Based on these findings, the crucial points that the lower courts apparently Yuviengco v. Dacuycuy[22] yielded a different result, as we considered that the
considered were Mrs. Cuisons letter of July 31, 1986 to the bank; the banks letter of letter and telegrams sent by the parties to each other showed that there was no meeting
October 20, 1986 to CLCI; and the parties subsequent conduct showing their of minds in the absence of an unconditional acceptance to the terms of the contract of
acknowledgement of the existence of their agreement, specifically, the respondents sale; otherwise, the buyers would not have included the phrase to negotiate details when
payments (designated as earnest money) and the banks acceptance of these they agreed to the property that was subject of the proposed contract.
payments. However, unlike the RTCs conclusion that relied on CLCIs payment and the
banks acceptance of the payment as earnest money, the CA concluded that there was a Similarly, in Philippine National Bank v. CA,[23] we ruled that there was no
perfected contract, either because of the banks acceptance of CLCIs offer (made through perfected contract of sale because the specified terms and conditions imposed under the
Mrs. Cuisons letter of July 31, 1986), or by CLCIs implied acceptance indicated by its facts of the case constituted counter-offers against each other that were not accepted by
initial payments in compliance with the terms of the TRB Repurchase Agreement. either of the parties. This case involved a first contract, involving the same property,
which the parties mutually cancelled; we said that the terms of this earlier contract cannot
The petitioner bank, of course, argues differently and concludes that the be considered in determining the acceptance and compliance with the terms of a
undisputed facts of the case show that there was no meeting of the minds between the proposed second contract a distinct and separate contract from the one earlier aborted.
parties given CLCIs failure to give its consent and conformity to the banks letter of
October 20, 1986, confirmed by the testimony of Atty. Cuison, no less, when he denied The incomplete details of the agreement led us to conclude in Insular Life
that CLCI consented to the agreements terms of implementation. Assurance Co. Ltd. v. Assets Builders Corp.[24] that no perfected contract existed; there
were other matters or details in addition to the subject matter and the consideration [that]
Our task in this petition for review on certiorari is not to review the factual would be stipulated and agreed. We likewise considered the subsequent acts between
findings of the CA and the RTC, but to determine whether or not, on the basis of the said the parties and the existence of a second proposal which belied the perfection of any
findings, the conclusions of law reached by the said courts are correct. initial contract.

Under the law, a contract is perfected by mere consent, that is, from the The recent Navarra v. Planters Development Bank[25] is another case where we
moment that there is a meeting of the offer and the acceptance upon the thing and the saw no perfected contract, as the offer was incomplete for lack of agreed details on the
cause that constitute the contract.[14] The law requires that the offer must be certain and manner of paying the purchase price; there was also no acceptance as the letter of
the acceptance absolute and unqualified.[15] An acceptance of an offer may be express Planters Development Bank indicated the need to discuss other details of the
and implied; a qualified offer constitutes a counter-offer.[16] Case law holds that an offer, transaction.
to be considered certain, must be definite,[17] while an acceptance is considered absolute
and unqualified when it is identical in all respects with that of the offer so as to produce All these cases illustrate the rule that the concurrence of the offer and
consent or a meeting of the minds.[18] We have also previously held that the acceptance is vital to the birth and the perfection of a contract. The clear and neat
ascertainment of whether there is a meeting of minds on the offer and acceptance principle is that the offer must be certain and definite with respect to the cause or
depends on the circumstances surrounding the case.[19] consideration and object of the proposed contract, while the acceptance of this offer
express or implied must be unmistakable, unqualified, and identical in all respects to the
In Villonco Realty Co. v. Bormacheco,[20] the Court found a perfected contract of offer. The required concurrence, however, may not always be immediately clear and may
sale between the parties after considering the parties written communications showing have to be read from the attendant circumstances; in fact, a binding contract may exist
the offer (counter-offer) and acceptance by the seller who formally manifested his between the parties whose minds have met, although they did not affix their signatures to
conformity with the offer in the buyers letter. We took note of the acts of the parties the any written document.[26]
payment of the buyer of an amount representing the partial payment under the contract;
the acceptance of the partial payment by the seller; the allowance of the buyer for the
seller to encash the check containing the partial payment; the subsequent return of the
62

The facts of the present case, although ambivalent in some respects, A We consider that as a negotiated agreement pending the
point on the whole to the conclusion that both parties agreed to the repurchase of documentation of the formal contract to sell which is stated
the subject property. under the repurchase agreement.

A reading of the petitioners letter of October 20, 1986 informing CLCI that the Q In other words, at the time you received this document Exh. F, which
banks board of directors passed a resolution for the repurchase of [your] property shows was on October 23, 1986 date of receipt, was there already a
that the tenor of acceptance, except for the repurchase price, was subject to conditions meeting of the minds between the parties?
not identical in all respects with the CLCIs letter-offer of July 31, 1986. In this sense, the A That is precisely we put [sic] the earnest money because we were of
banks October 20, 1986 letter was effectively a counter-offer that CLCI must be shown to the opinion that the bank is already agreeable to the
have accepted absolutely and unqualifiedly in order to give birth to a perfected contract. implementation of the repurchase agreement.
Evidence exists showing that CLCI did not sign any document to show its conformity with xxx
the banks counter-offer. Testimony also exists explaining why CLCI did not sign; Atty. COURT
Cuison testified that CLCI did not agree with the implementation of the repurchase
transaction since the bank made a wrong computation.[27] Q Insofar as Exh. F is concerned?
These indicators notwithstanding, we find that CLCI accepted the terms of the TRC A There was initially, that is precisely we [sic] deposited in
Repurchase Agreement and thus unqualifiedly accepted the banks counter-offer under consideration of the repurchase agreement.[31]
the TRB Repurchase Agreement and, in fact, partially executed the agreement, as
shown from the following undisputed evidence:
The bank, for its part, showed its recognition of the existence of a repurchase agreement
(a) The letter-reply dated November 29, 1986 of Atty. Cuison, as president between itself and CLCI by the following acts:
and general manager of CLCI, to the bank (in response to the banks
demand letter dated November 27, 1986 to pay 20% of the bid price); (a) The letter dated November 27, 1986 of the bank, reminding CLCI that it
CLCI requested an extension of time, until the end of December 1986, to was remiss in its commitments to pay 20% of the bid price under the
pay its due obligation;[28] terms of the TRB Repurchase Agreement;

(b) Mrs. Cuisons letter-reply of February 3, 1987 (to the banks letter of (b) In the same letter, the bank gave CLCI an extension of time (until
January 13, 1987) showed that she acknowledged CLCIs failure to November 30, 1986) to comply with its past due obligations under the
comply with its requested extension and proposed a new payment agreement;
scheme that would be reasonable given CLCIs critical economic
difficulties; Mrs. Cuizon tendered a check for P135,091.57, which (c) The banks acceptance of CLCIs payments as earnest money for the
represented 50% of the 20% bid price;[29] repurchase of the property;

(c) The CLCIs continuous payments of the repurchase price after their (d) CLCIs continued possession of the subject property with the banks
receipt of the banks letter of October 20, 1986; consent;
(e) The banks grant of extensions to CLCI for the payment of its obligations
(d) CLCIs possession of the subject property pursuant to paragraph 5 of the under the contract;
TRB Repurchase Agreement, notwithstanding the absence of a signed
contract to sell between the parties; (f) The Statement of Account dated July 31, 1987 showing that the bank
applied CLCIs payments according to the terms of the TRB Repurchase
xxx Agreement;

We counted the following facts, too, as indicators leading to the conclusion that a (g) The letter of January 26, 1989 of the banks counsel, Atty. Abarquez,
perfected contract existed: CLCI did not raise any objection to the terms and conditions addressed to CLCIs counsel, showing the banks recognition that there
of the TRB Repurchase Agreement, and instead, unconditionally paid without protests or was an agreement between the bank and CLCI, which the latter failed to
objections[30]; CLCIs acknowledgment of their obligations under the TRB Repurchase honor; and
Agreement (as shown by Atty. Cuisons letter of November 29, 1986); and Atty. Cuisons
admission that the TRB Repurchase Agreement was already a negotiated agreement (h) The testimonies of the banks witnesses Mr. Eulogio Giramis[32] and Ms.
between CLCI and the bank, as shown by the following testimony: Arlene Aportadera,[33] the banks employees who handled the CLCI
transactions who admitted the existence of the repurchase agreement
Q When you received this document, this Exh. F from the defendant with CLCI and the latters failure to comply with the agreements terms.
bank, did you already consider this as an agreement?
63

Admittedly, some evidence on record may be argued to point to the absence of
a meeting of the minds (more particularly, the previous offers made by CLCI to change xxx xxx xxx
the payment scheme of the repurchase of the subject property which was not accepted;
the banks expressed intent to offer the subject property for sale to third persons at a 10. That the first quarterly installment shall be due within ninety (90)
higher price; and the unaccepted counter-offer by the respondents after the bank days of approval hereof, and the succeeding installment shall be
increased the purchase price).[34] These incidents, however, were the results of CLCIs due every three (3) months thereafter;
failure to comply with its obligations to pay the amounts due on the stipulated time and
were made after the parties minds had met on the terms of the contract. The seemingly
contrary indications, therefore, do not go into and affect the perfection of the contract; The approval referred to under paragraph 10 is the approval by the bank of the
they came after the contract had been perfected and, as discussed below, were repurchase of the subject property, as indicated in the banks letter of October 20, 1986
indicative of the banks cancellation of the repurchase agreement. which states, This is to formally inform you that our Board of Directors in its regular
meeting held on October 10, 1986, passed a resolution for the repurchase of your
In light of this conclusion, we now determine the consequential rights, property acquired by the bank. It was on the basis of this approval and the quoted terms
obligations and liabilities of the parties. It is at this point that we diverge from the of the agreement that the bank issued its Statement of Account dated July 31, 1987
conclusions of the CA and the RTC, as we conclude that while there was a perfected indicating that the respondents were already in default, not only with respect to the 20%
contract between the parties, the bank effectively cancelled the contract when it of the bid price, but also with the three quarterly installments.
communicated with CLCI that it would sell the subject property at a higher price to third
parties, giving CLCI 15 days to make a formal offer, and disregarding CLCIs counter- Third, the respondents themselves claim that the bank violated the agreement
offer to buy the subject property for P1.5 million. We arrive at this conclusion after when it applied the respondents payments to the interest and penalties due without the
considering the following reasons: respondents consent, instead of applying these to the repurchase price for the subject
property.[38] An examination of the provisions of the TRB Repurchase Agreement reveals
First, the bank communicated its intent not to proceed with the repurchase as that the bank is allowed to apply the respondents payments first to the amounts due as
above outlined and formally cancelled the TRB Repurchase Agreement in its letters interests and other charges, before applying any payment to the repurchase
dated January 11 and 30, 1989 to CLCI.[35] Thus, CLCIs rights acquired under the TRB price. Paragraph 4 of the agreement provides:
Repurchase Agreement to repurchase the subject property have been defeated by its 4. That all the interest and other charges starting from August 8, 1986
own failure to comply with its obligations under the agreement. The right to cancel for to date of approval shall be paid first before implementation of the
breach is provided under paragraph 11 of the TRB Repurchase Agreement, as follows: request; interest as of October 31, 1986 is P65,669.53;

11. Upon default of the buyer to pay two (2) successive quarterly Under these terms, the bank cannot be faulted for the application of payments it made.
installments, contract is automatically cancelled at the Banks Likewise, the bank cannot be faulted for the application of other amounts paid as rentals
option and all payments already made shall be treated as rentals as this is allowed under paragraph 11, quoted above, of the agreement.
or as liquidated damages;
Fourth, the petitioner bank cannot be said, as the CA ruled, to have already
We note, additionally, that the TRB Repurchase Agreement is in the nature of a contract waived the terms of the TRB Repurchase Agreement by extending the time to pay and
to sell where the title to the subject property remains in the banks name, as the vendor, subsequently accepting late payments. The CAs conclusion lacks factual and legal basis
and shall only pass to the respondents, as vendees, upon the full payment of the taking into account that the Statement of Account of July 31, 1987, heretofore cited,
repurchase price.[36] The settled rule for contracts to sell is that the full payment of the which shows that the bank considered the respondents already in default. At this point,
purchase price is a positive suspensive condition; the failure to pay in full is not to be Atty. Cuison, by letter, requested that part of its outstanding obligation be condoned by
considered a breach, casual or serious, but simply an event that prevents the obligation the bank, paying P300,000.00 as of August 31, 1987, which amount the bank accepted
of the vendor to convey title from acquiring any obligatory force.[37] Viewed in this light, as earnest money. For one whole year thereafter, neither party moved. Significantly, the
the bank cannot be compelled to perform its obligations under the TRB Repurchase respondents, who had continuing payments to make and who had the burden of
Agreement that has been rendered ineffective by the respondents non-performance of complying with the terms of the agreement, failed to act except to ask the bank for the
their own obligations. status of its requested condonation. Under these facts, a continuing breach of the
agreement took place, even granting that a waiver had intervened as of August 31,
Second, the respondents violated the terms and conditions of the TRB 1987. Thus, the bank was well within its right to consider the agreement cancelled when,
Repurchase Agreement when they failed to pay their obligations under the agreement as in September 1988, it changed the repurchase terms to P3.0 million. We find it significant
these obligations fell due. Paragraphs 2 and 10 of the TRB Repurchase Agreement are that the respondents, instead of asserting its rights under the TRB Repurchase
clear on the respondents obligation to pay the bid price and the quarterly Agreement, counter-offered P1.5 million with the P400,000.00 already paid as part of the
installments.Paragraphs 2 and 10 state: purchase price.At that point, it was clear that even the respondents themselves
2. That client shall initially pay P132,000.00 within fifteen (15) days considered the TRB Repurchase Agreement cancelled.
from the expiration of the redemption period (August 8, 1986) and
further payment of P200,632.84 representing 20% of the bid price Lastly, the perfected repurchase agreement itself provides for the respondents
to be remitted on or before October 31, 1986; possession of the subject property; in fact, the respondents have been in continuous
64

possession of the subject property since October 1986, despite the absence of a contract shall begin to run from the time the claim is made judicially or
to sell apparently with the banks consent. The agreement also provides under its extrajudicially (Art. 1169 Civil Code) but when such certainty
paragraph 11 that upon the respondents default and the cancellation of the agreement, cannot be so reasonably established at the time the demand is
all payments already made shall be treated as rentals or as liquidated damages. made, the interest shall begin to run only from the date the
judgment of the court is made (at which time quantification
The undisputed facts show that the bank has been deprived of the use and of damages may be deemed to have been reasonably
benefit of its property that has been in the possession of the respondents for the latters ascertained). The actual base for the computation of legal interest
use and benefit without paying any rentals thereon. The records reveal that until now, the shall, in any case, be on the amount finally adjudged.
respondents are still in possession of the subject property. [39] 3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
We note that subsequent to the banks counterclaim for the payment of rentals under paragraph 1 or paragraph 2, above, shall be 12% per
due as of January 31, 1989, the bank also seeks to recover the rentals that accrued after annum from such finality until its satisfaction, this interim period being
January 31, 1989, which as of August 8, 1993 amounted to P1,123,500.00 as shown by deemed to be by then an equivalent to a forbearance of credit.
the evidence presented by the bank before the RTC and in the pleadings it had filed [Emphasis supplied]
before the RTC, CA, and the Court.[40] Although this claim was not alleged in the banks
Answer being an after-acquired claim which was only raised during the trial proper The records are unclear on when the bank made a demand outside of the
through the testimony dated August 17, 1993 of Ms. Arlene Aportadera, [41] the bank is judicial proceedings for the rentals on the subject property. [48] However, the records show
not barred from recovering these rentals. As we explained in Banco de Oro Universal that the bank made a counterclaim for the payments of the rentals due as of January 31,
Bank v. CA,[42] a party is not barred from setting up a claim even after the filing of the 1989 in its Answer and subsequently, a claim for the after-acquired rentals was made by
answer if the claim did not exist or had not matured at the time said party filed its answer. the bank through the testimony of Ms. Arlene Aportadera. Applying Eastern Shipping
Moreover, we note that the respondents did not object to the presentation of this Lines, the payment of interest for the rentals shall be reckoned from the date the judicial
evidence, hence, the issue of rentals from August 8, 1993 and onwards was tried with demand was made by the bank or on April 20, 1989 when the bank set up its
the implied consent of the parties; applying Section 5, Rule 10 of the 1997 Rules of Civil counterclaim for rentals in the subject property.
Procedure,[43] the issue should be treated in all respects as if it had been raised in the
pleadings.[44] Given the implied consent, judgment may be validly rendered on this issue Under the circumstances, we can impose a 6% interest on the rentals from April
even if no motion had been filed and no amendment had been ordered. [45] 20, 1989 up to the finality of this decision. Thereafter, the interest shall be computed at
12% per annum from such finality up to full satisfaction.
In National Power Corporation v. CA,[46] we held that where there is a variance
in the defendants pleadings and the evidence adduced by it at the trial, the Court may We find no basis for the award of exemplary damages. Article 2232 of the Civil
treat the pleading as amended to conform to the evidence. Code declares:
Article 2232. In contracts and quasi-contracts, the court may
Additionally, the respondents are also liable to pay interest by way of damages award exemplary damages if the defendant acted in a wanton,
for their failure to pay the rentals due for the use of the subject property. In Eastern fraudulent, reckless, oppressive, or malevolent manner.
Shipping Lines v. CA,[47] we laid down the following guidelines with respect to the award
and the computation of legal interest, as follows: Considering the factual circumstances we have discussed above, we can hardly
II. With regard particularly to an award of interest in the concept of characterize respondents act of insisting on the enforcement of the repurchase
actual and compensatory damages, the rate of interest, as well as the agreement as wanton, fraudulent, reckless, oppressive, or malevolent.
accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a As there is no basis for an award of exemplary damages, the awards of
sum of money, i.e., a loan or forbearance of money, the interest due attorneys fees and litigation expenses to the bank are not justified under Article 2208 of
should be that which may have been stipulated in writing. Furthermore, the Civil Code.
the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest WHEREFORE, premises considered, we hereby GRANT the petition. The
shall be 12% per annum to be computed from default, i.e., from judicial Decision dated March 31, 2006 and Resolution dated August 11, 2006 of the Court of
or extrajudicial demand under and subject to the provisions of Appeals in CA-G.R. CV No. 49900 are hereby REVERSED and SET ASIDE.
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, The complaint in Civil Case No. 19416-89 for breach of contract, specific
is breached, an interest on the amount of damages awarded may be performance, damages, and attorneys fees, with preliminary injunction filed by Cuison
imposed at the discretion of the court at the rate of6% per Lumber Co., Inc. and Mrs. Cuison against Traders Royal Bank is hereby DISMISSED.
annum. No interest, however, shall be adjudged on unliquidated The respondents are ordered to vacate the subject property and to restore its possession
claims or damages except when or until the demand can be to the petitioner bank.
established with reasonable certainty.Accordingly, where the
demand is established with reasonable certainty, the interest
65

The respondents are further ordered to pay reasonable compensation, for the Medrano, as President and General Manager of Paragon, to contact or sound off the
use and occupation of the subject property in the amount of P1,123,500.00, representing minority stockholders and to convince them to sell their shares to DBP at P65.00 per
the accrued rentals as of August 8, 1993, less the amount of P485,000.00 representing share, or 65% of the stocks par value of P100.00. Medrano followed the instructions and
deposits paid by the respondents. In additiodn, respondents are also ordered to pay the began to contact each member of the minority stockholders. He was able to contact all
amount of P13,700.00 a month by way of rentals starting from August 8, 1993 until they except one who was in Singapore. Medrano testified that all, including himself, agreed to
vacate the subject property. The rentals shall earn a corresponding legal interest of six sell, and all took steps to have their shares surrendered to DBP for payment.[4]They
percent (6%) per annum to be computed from April 20, 1989 until the finality of this made proposals to DBP and the Board of Directors of DBP approved the sale under DBP
decision. After this decision becomes final and executory, the rate of legal interest shall Resolution No. 4270 subject to the following terms and conditions: (1) that prior to the
be computed at twelve percent (12%) per annum from such finality until its satisfaction. implementation of the approval, 57,596 shares of Paragons stock issued to the
Costs against the respondents. stockholders concerned shall first be surrendered to the DBP; (2) that all the parties
SO ORDERED. concerned shall give their written conformity to the arrangement; and (3) that the
transaction shall be implemented within forty-five (45) days from the date of approval
DEVELOPMENT BANK OF THE PHILIPPINES, G.R. No. 167004 (December 24, 1980); otherwise, the same shall be deemed canceled. Medrano then
Petitioner, indorsed and delivered to DBP all his 37,681 shares which had a value of P2,449,265.00.
Present: DBP accepted said shares and took over Paragon.
DBP, through Jose de Ocampo, who was also a member of its Board of Governors, also
CARPIO MORALES, J., offered Medrano a commission of P185,010.00 if the latter could persuade all the other
- versus - Chairperson, Paragon minority stockholders to sell their shares. Medrano was able to convince only
BRION, two stockholders, Alberto Wong and Gerardo Ledonio III, to sell their respective shares.
BERSAMIN, Thus, his commission was reduced to P155,455.00.
VILLARAMA, JR., and Thereafter, Medrano demanded that DBP pay the value of his shares, which he had
SERENO, JJ. already turned over, and his P155,455.00 commission. When DBP did not heed his
demand, Medrano filed a complaint for specific performance and damages against DBP
on September 2, 1981.
DBP filed an Answer arguing that there was no perfected contract of sale as the three
conditions in DBP Resolution No. 4270 were not fulfilled. Likewise, certain minority
stockholders owning 17,635 shares refused to sell their shares. Hence, DBP exercised
its right to cancel the sale under Resolution No. 4270.
Later, during the pendency of the case, DBP conveyed the shares to the Asset
BEN P. MEDRANO and PRIVATIZATION Promulgated: Privatization Trust (APT) in a Deed of Transfer when the APT took over certain assets,
MANAGEMENT OFFICE [PMO], and assumed the liabilities, of government financial institutions including DBP. As the
Respondents. February 7, 2011 transferee of the shares, the APT was impleaded as party-defendant. DBP thereafter
filed a cross-claim against the APT which was later on substituted by the Privatization
Management Office (PMO). Medrano adopted his evidence against DBP as his evidence
against the APT while the APT adopted DBPs evidence and defenses against Medrano.
On the cross-claim, the APT raised the defense that the liabilities assumed by the
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x National Government and referred to in the Deed of Transfer are liabilities to local and
foreign intermediaries and guarantees and not to individual persons like Medrano.
DECISION On January 26, 1999, the RTC ruled in Medranos favor and dismissed DBPs cross-
VILLARAMA, JR., J.: claim against the APT, to wit:
This petition for review on certiorari assails the Decision[1]dated December 14, 2004 and WHEREFORE, in view of the foregoing, judgment is rendered in favor
Resolution[2]dated February 8, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. of the plaintiff and against defendant Development Bank of the
65436. The CA affirmed in toto the Decision[3]dated January 26, 1999 of the Regional Philippines ordering the latter to pay the former the following: (1) the
Trial Court (RTC) of Pasig City, Branch 158, ordering petitioner Development Bank of the amount of P2,449,265.00 representing the value of the purchase price
Philippines (DBP) to pay respondent Ben Medrano the following: (1) the amount of plaintiff's 37,681 shares in Paragon plus legal rate of interest from
of P2,449,265.00 representing the value of the purchase price of Medranos 37,681 date of first demand; (2) attorneys fees in the amount of P100,000.00;
shares in Paragon Paper Industries, Inc. plus legal interest from date of first demand; (2) and (3) the cost of suit.
attorneys fees in the amount of P100,000.00; and (3) the cost of suit.
The facts, as culled from the records, are as follows. The cross-claim of defendant DBP against the other defendant Asset
Respondent Ben Medrano was the President and General Manager of Paragon Paper Privatization Trust is dismissed because defendant Development Bank
Industries, Inc. (Paragon) wherein he owned 37,681 shares. Sometime in 1980, of the Philippines accountability to the plaintiff [is] based on act[s]
petitioner DBP sought to consolidate its ownership in Paragon. In one of the meetings of solely imputable to it.
the Paragon Executive Committee, the Chairman Jose B. de Ocampo, instructed
66

SO ORDERED.[5] MEDRANO CONTRARY TO LAW AND THE PERTINENT
Dissatisfied, DBP elevated the case to the CA. DBP prayed that the trial courts decision DECISIONS OF THIS HONORABLE SUPREME COURT.[11]
be reversed and that DBP be absolved from any and all liabilities to Medrano. Essentially, the issue in this case is whether the CA erred in applying Article
Medrano, for his part, prayed in his appellees brief that DBP be ordered to pay his 1545 of the Civil Code and holding that DBP exercised the second option under the said
commission of P155,445.00.[6] article to justify the order against DBP to pay the value of Medranos shares of stock. As a
On December 14, 2004, the CA issued the challenged Decision[7]and affirmed the side issue, DBP also questions the award of attorneys fees in Medranos favor.
decision of the trial court. The CA, however, refused to grant Medranos prayer for the In fine, DBP contends that the trial court and the CA both ruled that there was no
payment of commission because Medrano did not appeal the trial courts decision but perfected contract of sale in this case and that accordingly, it was erroneous for them to
instead prayed for the payment of his commission only in his appellees brief. order DBP to pay Medrano the value or price of the object of the sale. DBP insists that
The CA held that there existed between DBP and Medrano a contract of sale the proper order was to direct DBP or the PMO, which now has possession of the
and the conditions imposed by Resolution No. 4270 were merely conditions imposed on shares, to return the shares of stock. By ordering DBP to pay the purchase price of the
the performance of an obligation. Hence, while under Article 1545[8]of the Civil Code, stocks, DBP argues that the CA in effect created a new contract of sale between the
DBP had the right not to proceed with the agreement upon Medranos failure to comply parties.[12]
with the conditions, DBP was deemed to have waived the performance of the conditions DBP adds that the CA erred in applying Article 1545 of the Civil Code. According to DBP,
when it chose to retain Medranos shares and later transfer them to the APT. The CA Article 1545 of the Civil Code only applies to a perfected contract of sale and since there
noted that the retention of the shares was contrary to DBPs claim of rescission because is no such perfected contract in this case because of Medranos failure to meet all the
if indeed DBP rescinded the sale, then it should have returned to Medrano his shares conditions agreed upon, the application of this article by the CA is misplaced.
together with their fruits and the price with interests, as provided by Article 1385 [9]of Lastly, DBP questions the award of attorneys fees to Medrano. DBP maintains that there
the Civil Code. was no unjustified refusal to pay for the shares of stock transferred to DBP as there was
DBP filed a motion for reconsideration, but the same was denied by the CA in a no perfected contract of sale.
Resolution[10]dated February 8, 2005. Hence, this appeal. Medrano, for his part, argues that by retaining the shares of stock transferred to it and
DBP alleges that the CA erred later even appropriating and transferring them to the APT, DBP is deemed to have
I exercised the second option under Article 1545 of the Civil Code, that is, it waived
WHEN IT REACHED A CONCLUSION WHICH IS NOT A LOGICAL performance of the conditions imposed by Resolution No. 4270. The original conditional
CONSEQUENCE OF ITS FINDING THAT THERE WAS NO sale was thus converted into, and correctly treated by the courts a quo, as an absolute,
PERFECTED CONTRACT OF SALE BETWEEN DBP AND unconditional sale where compliance with the obligation of the buyer to pay the purchase
MEDRANO AND PROCEEDED TO MAKE A CONTRACT FOR THE price may be demanded.
PARTIES IN THE INSTANT CASE. As regards the award of attorneys fees, Medrano maintains that he was constrained to
II acquire the services of a lawyer and use legal means to enforce his rights over the
WHEN IT APPLIED ARTICLE 1545 OF THE CIVIL CODE OF THE shares in question. He argues that since DBP refused to pay for or return the shares that
PHILIPPINES NOTWITHSTANDING ITS FINDING THAT THERE he transferred to it, he was left with no other option but to go to court. Hence, the award
WAS NO PERFECTED CONTRACT OF SALE BETWEEN MEDRANO of attorney's fees is legally justified.
AND DBP. We sustain the CA.
III As a rule, a contract is perfected upon the meeting of the minds of the two parties. Under
WHEN IT FAILED TO EXERCISE ITS AUTHORITY TO RULE ON Article 1475[13]of the Civil Code, a contract of sale is perfected the moment there is a
MATTERS WHICH ARE THE NATURAL AND LOGICAL meeting of the minds on the thing which is the object of the contract and on the price.
CONSEQUENCE OF ITS FINDINGS OF FACTS OR THAT ARE In the case of Traders Royal Bank v. Cuison Lumber Co., Inc.,[14]the Court ruled:
INDISPENSABLE AND NECESSARY TO THE JUST RESOLUTION Under the law, a contract is perfected by mere consent, that
OF THE PLEADED ISSUES, EVEN IF NOT RAISED AS ISSUES IN is, from the moment that there is a meeting of the offer and
THE APPEAL. the acceptance upon the thing and the cause that constitute the
IV contract. The law requires that the offer must be certain
WHEN IT FAILED TO CONSIDER THE ESTABLISHED FACT THAT and the acceptance absolute and unqualified. An acceptance
THE ASSETS OF PARAGON PAPER INDUSTRIES, INC., of an offer may be express and implied; a qualified offer constitutes a
INCLUDING THE SUBJECT CERTIFICATE OF STOCKS, WERE counter-offer. Case law holds that an offer, to be considered certain,
TRANSFERRED TO THE ASSET PRIVATIZATION TRUST, NOW must be definite, while an acceptance is considered absolute and
THE PRIVATIZATION MANAGEMENT OFFICE, HEREIN CO- unqualified when it is identical in all respects with that of the offer so as
DEFENDANT. HENCE, THE PMO SHOULD BE THE PARTY THAT to produce consent or a meeting of the minds. We have also previously
SHOULD BE MADE TO RETURN THE SUBJECT CERTIFICATES OF held that the ascertainment of whether there is a meeting of minds on
STOCKS OR PAY THE SAID SHARES OF STOCKS. the offer and acceptance depends on the circumstances surrounding
V the case.
WHEN IT AFFIRMED THE AWARD OF ATTORNEYS FEES, the offer must be certain and definite with respect to the
DAMAGES AND COST OF SUIT IN FAVOR OF RESPONDENT cause or consideration and object of the proposed contract, while
the acceptance of this offer - express or implied - must be
67

unmistakable, unqualified, and identical in all respects to In civil law, DBPs act of keeping the shares delivered by Medrano without paying for
the offer. The required concurrence, however, may not always be them constitutes unjust enrichment. As we held in Car Cool Philippines, Inc. v. Ushio
immediately clear and may have to be read from the attendant Realty and Development Corporation[17],
circumstances; in fact, a binding contract may exist between the [t]here is unjust enrichment when a person unjustly retains a benefit to
parties whose minds have met, although they did not affix their the loss of another, or when a person retains money or property of
signatures to any written document. (Italics supplied.) another against the fundamental principles of justice, equity and good
Also, in Manila Metal Container Corporation v. Philippine National Bank,[15]the Court conscience. Article 22 of the Civil Code provides that [e]very person
ruled, who through an act of performance by another, or any other means,
A qualified acceptance or one that involves a new proposal constitutes acquires or comes into possession of something at the expense of the
a counter-offer and a rejection of the original offer. A counter-offer is latter without just or legal ground, shall return the same to him. The
considered in law, a rejection of the original offer and an attempt to end principle of unjust enrichment under Article 22 requires two conditions:
the negotiation between the parties on a different basis. (1) that a person is benefited without a valid basis or justification, and
Consequently, when something is desired which is not exactly what is (2) that such benefit is derived at anothers expense or damage.
proposed in the offer, such acceptance is not sufficient to guarantee It was not proper for DBP to hold on to Medranos shares of stock after it became obvious
consent because any modification or variation from the terms of the that he will not be able to comply with the conditions for the contract of sale. From that
offer annuls the offer. The acceptance must be identical in all respects point onwards, the prudent and fair thing to do for DBP was to return Medranos shares
with that of the offer so as to produce consent or meeting of the because DBP had no just or legal ground to retain them.
minds. (Italics supplied.) We find that equitable considerations militate against DBPs claimed right over the subject
In the present case, Medranos offer to sell the shares of the minority stockholders at the shares. First, it is clear that DBP did not buy the shares from Medrano as it even asserts
price of 65% of the par value was not absolutely and unconditionally accepted by there was no perfected contract of sale because of the failure of the latter to comply with
DBP.DBP imposed several conditions to its acceptance and it is clear that Medrano DBPs conditions. Second, it cannot be said that Medrano voluntarily donated his shares
indeed tried in good faith to comply with the conditions given by DBP but unfortunately of stock as he is in fact still trying to recover them 30 years later. Third, it cannot be said
failed to do so. Hence, there was no birth of a perfected contract of sale between the that DBP was merely holding the shares of stock for safekeeping as DBP even claims
parties. that the shares were transferred to the APT (now PMO). In fine, there is no reason
The petitioner is also correct that Paragraph 1, Article 1545 of the Civil Code speaks of a whatsoever for DBP to continue in the possession of the shares of stock against
perfected contract of sale. Paragraph 1, Article 1545 of the Civil Code provides: Medrano. For nearly 30 years, Medrano was deprived of his shares without any
ART. 1545. Where the obligation of either party to a contract of sale is compensation at all from DBP. To this Court, such situation is tantamount to the loss of
subject to any condition which is not performed, such party may refuse respondent's shares of stock, by reason of DBPs unjustified retention.
to proceed with the contract or he may waive performance of the As to the issue of attorneys fees, it is well settled that the law allows the courts discretion
condition. If the other party has promised that the condition should as to the determination of whether or not attorney's fees are appropriate. The
happen or be performed, such first mentioned party may also treat the surrounding circumstances of each case are to be considered in order to determine if
nonperformance of the condition as a breach of warranty. such fees are to be awarded. In the case of Servicewide Specialists, Incorporated v.
Court of Appeals,[18]the Court ruled:
x x x x (Italics supplied.) Article 2208 of the Civil Code allows attorney's fees to be
It is clear from a plain reading of this article that it speaks of a party to a contract of sale awarded by a court when its claimant is compelled to litigate with third
who fails in the performance of his/her obligation. The application of this article persons or to incur expenses to protect his interest by reason of an
presupposes that there is a perfected contract between the parties and that one of them unjustified act or omission on the part of the party from whom it is
fails in the performance of an obligation under the contract. sought.
The present case does not fall under this article because there is no perfected contract of In the present case, it is clear that Medrano was constrained to use legal means to
sale to speak of. Medranos failure to comply with the conditions set forth by DBP recover his shares of stock. Records showed that indeed respondent Medrano followed
prevented the perfection of the contract of sale. Hence, Medrano and DBP remained as up[19]the payment of his shares of stock that were transferred to DBP. After some time,
prospective-seller and prospective-buyer and not parties to a contract of sale. he became convinced that DBP will not pay for the shares of stock for reasons unknown
This notwithstanding, however, we cannot simply agree with DBPs argument that since to him. That was when he decided to bring the matter to court.
there is no perfected contract of sale, DBP should not be ordered to pay Medrano any DBPs unjustified refusal to pay for the shares or even offer an explanation to Medrano
amount. why payment was being withheld indicates bad faith on its part. Besides having no legal
The factual scenario of this case took place in 1980 or over thirty (30) years or just reason to hold on to Medranos shares of stock, DBP also refused to enlighten
ago. Medrano had turned over and delivered his own shares of stock to DBP in his Medrano of the reason why he was being denied payment. Further, Medranos failure to
attempt to comply with the conditions given by DBP. DBP then accepted the shares of comply with the conditions of the acceptance should have prompted DBP either to return
stock as partial fulfillment of the conditions that it imposed on Medrano. However, after the shares of Medrano or accept the shares of Medrano as a sale and pay a fair price or
the lapse of some time and after it became clear that Medrano would not be able to at least communicate to Medrano why his shares were being withheld. Instead, DBP did
comply with the conditions, DBP decided to retain Medranos shares of stock without nothing but to hold on to the shares. Because of this, Medrano was left with no other
paying Medrano.After the realization that DBP would in fact not pay him for his shares of option but to seek redress from the courts.
stock, Medrano was constrained to file a suit to enforce his rights.[16]
68

WHEREFORE, the Decision dated December 14, 2004 and Resolution dated February
8, 2005 of the Court of Appeals in CA-G.R. CV No. 65436 are hereby AFFIRMED. by the sellers: by the buyer:
No pronouncement as to costs.
LEONCIO G. CIFRA JR.
SO ORDERED.
and
G.R. No. 91901 June 3, 1991
SPOUSES LEONCIO G. CIFRA and AURORA R. JONGCO-CIFRA, petitioners,
AURORA R. JONGCO-CIFRA (s/t) MANUEL G. YU CHUA, M
vs.
COURT OF APPEALS and MANUEL G. YU CHUA, respondents. By:
Niceforo S. Agaton for petitioners.
Marcelino P. Arias for private respondent. (s/t) BENEDICTO F. CATALAN
Attorney-in-Fact
SIGNED IN THE PRESENCE OF: (s/t) LOURDES J. CATALAN
GANCAYCO, J.: EARNEST MONEY
The interpretation of a contract to sell or a promise to sell real property is in issue in this (on Page 2)
case. Addendum:
On December 27, 1985, petitioners spouses, represented by their attorney-in-fact In the event that the buyer shall fail to purchase the property
Benedicto Catalan, entered into an agreement with private respondent denominated after he is formally notified by the seller of the surrender of the
"Earnest Money" which provides as follows: premises by the present tenant or occupant, in addition to the
EARNEST MONEY forfeiture of the earnest money the buyer binds himself to pay
Received from Dr. Manuel G. Yu Chua the cash sum of FIVE the seller the sum of TWENTY THOUSAND PESOS
THOUSAND PESOS (P5,000.00) Philippine currency as earnest (P20,000.00) Philippine currency plus the attorney's fees and
money for the house and lot owned by the spouses Leoncio G. Cifra, other costs for any court case that may arise.
Jr. and Aurora R. Jongco-Cifra. The property is located at 665 Boni On the other hand, if the seller shall not make good his
Avenue, Mandaluyong, Metro-Manila, Philippines and more particularly promise to sell the above property even after the present
described in the Transfer Certificate of Title (TCT) No. 490040 (6093). tenant, William Lim Valencia, shall have surrendered the
The above property is presently mortgaged with the Social Security premises the seller binds himself to return the earnest money
System (SSS) with an outstanding balance of more or less FORTY and in addition pay the buyer the sum of TWENTY
THOUSAND PESOS (P40,000.00) as of November, 1985. The agreed THOUSAND PESOS (P20,000.00) Philippine currency plus
purchase price being ONE MILLION and ONE HUNDRED the attorney's fees and other costs of any court case that may
THOUSAND PESOS (1.1 M) shall be payable as follows: The sum arise.
equivalent to the above purchase price minus the outstanding
mortgage balance with the SSS and the above earnest money shall be
paid by the buyer to the seller upon the removal of the present tenant (s/t) BENEDICTO F. CATALAN <(s/t) MANUEL G. YU CHUA, M.D.br
or occupant from the premises and upon the execution of the Deed of />
Absolute Sale. (s/t) LOURDES J. CATALAN (s/t) Illegible1
It is the understanding of the parties that the buyer shall assume the
On May 25, 1986, Catalan informed private respondent of the desire of
mortgage or obligation of the seller with the SSS as of November
petitioners to rescind the contract by a letter which reads:
1985. The monthly amortization was last paid by the seller on
May 25, 1986
November 13, 1985 as evidenced by the Official Receipt (OR) No.
Dr. Manuel G. Yu Chua
988474 K issued by Bank of the Philippine Islands (BPI), Ayala (Main).
649-D Boni Avenue
Further, the seller promises to secure at the shortest possible time the
Mandaluyong, M.M.
certification of balance or up to date statement of account from the
Dear Dr. Yu Chua:
SSS and deliver the same to the buyer.
I regret to inform you that my sister-in law, Mrs. Aurora Cifra,
If and when the buyer purchases the property according to the terms
has asked me to request for a rescission of her offer to sell
and conditions above specified, the herein earnest money shall form a
their property at 665 Born Avenue. The negotiations for the
part of the purchase price otherwise the same shall be forfeited in favor
sale of the house and lot have taken such a long time without
of the seller.
your fault nor their fault and they have now missed the
IN WITNESS, WHEREOF. the parties executed this instrument at the
opportunity for which they wanted to apply the proceeds of
Municipality of Mandaluyong, Metro-Manila, Philippines, this 27th day
the sale.
of December 1985.
I intend to see you on May 31, 1986 to return the earnest
Earnest money received Earnest money paid money that you gave us. I would like to personally apologize
for the way thing turned out.
69

Very truly yours, unnecessary expenses on your part and on our part, but most of all, on your part as we
(s/t) Benedicto F. Catalan2 will file an action for damages aside from attorney's fees.
Atty. Marcelino Arias replied in behalf of private respondent: I hope we shall not go to court to avoid unnecessary expenses. We shall wait for your
MR. BENEDICTO F. CATALAN answer.
12 T. Evangelista, B.F. Homes (s/t) MARCELINO P. ARIAS4
Parañaque, Metro Manila Private respondent himself wrote a letter to Catalan dated June 18, 1986:
Dear Mr. Catalan: MR. & MRS. BENEDICTO CATALAN
This is in behalf of my client, Dr. Manuel G. Yu Chua, of 649-D Boni Ave., Mandaluyong, 12 Evangelista Street BF Homes,
Metro Manila. Parañaque, Metro Manila
Your letter dated May 25, 1986 sent through registered mail to my client was received by Dear Mr. & Mrs. Catalan:
my client today, May 29, 1986 and immediately referred the same to my office for proper At the outset, you knew I disliked attending court trials, that is why to avoid such
legal comment. possibility with your tenant, I agreed to the stiff price of P1.1 Million for the property at
My client shall pursue the agreement you have entered into and my client is willing to buy 665 Boni Avenue, Mandaluyong in exchange for your assurance that you will take care of
the property right now at 1.1 Million Pesos minus of course the Five Thousand ejecting your tenant. We signed our agreement to this effect last Dec. 27, 1985. You
(P5,000.00) Pesos earnest money and the outstanding SSS mortgage account over the gave your tenant a 90-day notice to vacate so that gave him up to the end of March 1986
premises which my client had assumed to pay. to look for another residence. Then suddenly, at the end of the 90-day period, you told
You have stated of course, that it is not the fault of my client nor the fault of your principal me that the tenant had just offered you a better price for the property and you were
and there being no fault of any of them, then there is no reason why the contract of considering it. That was bad faith, loud and clear! The tenant had waived any right to the
agreement to sell shall not be pushed through. property to all of us personally during the negotiations; and again, he confirmed this
My client is even willing to pay the amount of 1.1 Million Pesos as per agreement even if when he accepted the 90 day notice to vacate. Without showing my indignation at this
the present tenant in the premises is still occupying the said premises. Please take note trampling of my rights, I told you I was ready to buy the property even while the tenant
that the contract of lease executed by and between your principal and the present tenant was still residing there. In other words, I was willing now to suffer the inconvenience and
clearly provides that the tenant shall vacate the premises within ninety (90) days from added costs of trying to eject the tenant. You answered that you had to consult with your
notice of the sale of the property in question to any other third person. principal first and this would take about two weeks. The 2 weeks extended to two (2)
Off hand, my client shall certainly take this matter to court to enforce his right and should months and last May 29, 1986 1 received your letter rescinding our contract. So any
this happen, then we shall be asking for proper damages. undue delay has been on your part and deliberately at that. What you kept referring to as
Consequently, we reiterate that we are willing to buy the property now in the agreed lengthy negotiations were simply delaying tactics on your part.
amount as previously agreed upon. [sic] As I write this letter, you may have received my lawyer's second letter. Now as then, let
You are aware also that my client was deprived to buy a cheaper property of 614 sq. me say again that I do not like going to court if I can help it. But I feel you have done me
m. located at the corner of Boni and Mayon Sts. also in Mandaluyong for Nine Hundred a grave injustice and a court suit is the only civilized way to get a redress. My lawyer said
Thousand (P900,000.00) Pesos only in order to buy your property at 1.1 Million Pesos. the law is on my side and the court can compel you to sell me the property, aside from
Now, the property at the corner of Boni and Mayon Sts. is no longer for sale to the making you pay for the trial expenses, the damages and attorney's fees. At this late
damage and prejudice of my client. stage, I am still hoping you would change your mind and decide to proceed with the sale
Furthermore, my client had deposited the 1.1 Million Pesos in a bank earning only the without court intervention. Atty. Mar Arias gave you 10 days to reply. You can reach him
usual interest instead of a higher yielding business venture because he was anticipating at his address or at his radio program at DZME, 7:00 to 8:00 A.M., Monday to Friday.
for the consummation of your agreement to sell the property to my client. Please reply favorably but do it soon.
I hope we shall not meet in court to enforce my client's right over the premises to avoid Sincerely yours,
extra unnecessary expenses in court litigation. (s/t) Dr. MANUEL G. YU CHUN5
Very truly yours, On June 20,1986, Atty. Narciso Tadeo, representative of petitioners replied thereto:
(s/t) MARCELINO P. ARIAS Dr. Manuel G. Yu Chua
(Original reply received May 31, 1986 by (s/t) B.F. Catalan) 3 649-D Boni Avenue,
This was followed by another letter: Mandaluyong, Metro Manila
June 13, 1986 Dear Dr. Yu Chua:
R. BENEDICTO F. CATALAN Our clients, Mr. & Mrs. Leoncio Cifra, thru their attorney-in-fact, Mr.
12 T. Evangelists, B.F. Homes Benedicto F. Catalan have endorsed to us the letter of your lawyer,
Parañaque, Metro Manila Atty. Marcelino P. Arias dated May 29, 1986 relative to the cancellation
Dear Mr. Catalan: of the sale agreement on their property situated at 665 Boni Avenue,
This is a reiteration of our letter dated May 29, 1986 and received by you on May 31, Mandaluyong, Metro Manila.
1986. Up to now, we have not received any response from you. We will give you ten (10) You will kindly note that you paid on December 27, 1985 an earnest
days from receipt hereof within which to tell us in clear terms whether you will still money of P5,000.00. Under your said agreement, the balance of the
proceed with the sale of the property to my client, Dr. Manuel G. Yu Chua or not. agreed consideration of ONE MILLION ONE HUNDRED THOUSAND
Your silence would be interpreted by us to mean that you want us to take this matter to PESOS (P1,100,000.00) shall be paid to the seller (our clients) upon
court to vindicate the rights of our client and should this happen, it will be an additional removal of the present tenant of occupant from the premises and upon
70

the execution of the Deed of Absolute Sale. As correctly pointed out by Q — IS THE AWARD OF ATTORNEY'S FEES FOR P50,000.00
your counsel, the contract of lease between our clients and the present PROPER DESPITE THE FACT THAT THE OBLIGATION TO SELL IS
tenant provides, among others, that the tenant shall vacate the COUPLED WITH A PENAL CLAUSE IN CASE OF FAILURE TO
premises within ninety (90) days from notice of the sale of the property PERFORM, WHICH PENALTY IS CONSIDERED IN LAW A
to any third party. SUBSTITUTE FOR THE INDEMNITY OF WHATEVER KIND OF
To date, the tenant of the premises is still occupying the premises in DAMAGES PURSUANT TO THE EXPRESS PROVISIONS OF
question. The tenant's refusal to comply with his contractual obligation ARTICLE 1226 OF THE CIVIL CODE?8
to vacate the premises within the said period is certainly not the fault of The petition is impressed with merit.
our clients nor yourself. However, the unexpected delay had caused The provisions of Articles 1370 to 1375 of the Civil Code on the interpretation of
our clients' lost opportunity to apply the proceeds of the sale to a contracts are squarely applicable to this case:
business venture abroad. This matter was relayed to you by our Art. 1370. If the terms of a contract are clear and leave no doubt upon the
clients' attorney-in-fact in his letter dated May 25, 1986. intention of the contracting parties, the literal meaning of its stipulations shall
Under the foregoing circumstances, we believe that the rescission of control.
our client's offer to sell their said property is reasonable and justified. If the words appear to be contrary to the evident intention of the parties, the
Our clients' attorney-in-fact is ready to refund the P5,000.00 earnest latter shall prevail over the former.
money. Art. 1371. In order to judge the intention of the contracting parties, their
Very truly yours, contemporaneous and subsequent acts shall be principally considered.
(s/t) NARCISO A. TADEO6 Art. 1372. However generally the terms of a contract may be, they shall not be
On July 3, 1986 private respondent filed an action for specific performance of the above understood to comprehend things that are distinct and cases that are different
agreement in the Regional Trial Court at Pasig, Rizal, wherein after the issues were from those upon which the parties intended to agree.
joined and the trial on the merits a decision was rendered on May 25, 1987, the Art. 1373. If some stipulation of any contract should admit of several meanings,
dispositive part of which reads: it shall be understood as bearing that import which is most adequate to render it
IN VIEW OF THE FOREGOING, this Court renders judgment in favor of the effectual.
plaintiff and against the defendant ordering the said defendants: Art. 1374. The various stipulations of a contract shall be interpreted together,
a) To execute the corresponding deed of absolute sale in favor of plaintiff attributing to the doubtful ones that sense which may result from all of them
Manuel Yu Chua, over a parcel of land, together with all the improvements taken jointly.
found and existing thereon, located at 665 Boni Avenue, Mandaluyong, Metro Art. 1375. Words which may have different significations shall be understood in
Manila, covered by Transfer Certificate of Title (TCT) No. 490040 of the that which is most in keeping with the nature and object of the contract.
Registry of Deeds of Pasig, Metro Manila, upon payment by the plaintiff of the A reading of the subject contract which the parties labeled as "Earnest money" shows
amount of ONE MILLION ONE HUNDRED THOUSAND PESOS that it is an agreement to sell the real property described therein for the amount of P1.1
(P1,100,000.00), minus the earnest money of P5,000.00 and the outstanding M with assumption of the P40,000.00 mortgage, by which P5,000.00 was paid upon
mortgage balance with the Social Security System; signing of the agreement by private respondent to petitioner as earnest money, which is
b) Pay to the plaintiff the amount of P100,000.00 by way of moral damages; part of the consideration. The balance of the consideration shall be paid upon the
c) Pay to the said plaintiff the amount of P50,000.00 as attorney's fees; and removal of the tenant or occupant from the premises and upon the execution of the deed
d) Pay the costs of this suit.7 of absolute sale.
Acting on a motion for reconsideration filed by petitioners the trial court modified its In the addendum to the agreement it is stipulated that in case the buyer fails to purchase
decision by absolving Catalan, the agent, from paying moral damages, attorney's fees the property after the seller formally notified him of the surrender of the premises by the
and costs of the suit. tenant or occupant, in addition to the forfeiture of the earnest money, the buyer must pay
Petitioners interposed an appeal to the Court of Appeals wherein in due course a the seller P20,000.00 plus attorney's fees and other costs in case of litigation. On the
decision was rendered on December 20, 1989 which affirmed the appealed judgment other hand, if the seller does not make good his promise to sell the property even after
with the modification deleting the award of moral damages. A motion for reconsideration the present tenant shall have surrendered the premises, the seller binds himself to return
filed by petitioners was denied on January 30, 1990. the earnest money and in addition pay the buyer P20,000.00 plus the attorney's fees and
Hence, this petition for review on certiorari which presents two legal issues: other costs in case of litigation.
1) The major legal issue can be framed as follows: This is the literal and clear agreement of the parties.1âwphi1 From their
Q — DOES CHUA, THE RESPONDENT BUYER, HAVE THE RIGHT contemporaneous and subsequent acts it also appears that the proceeds of the sale of
TO DEMAND SPECIFIC PERFORMANCE FROM THE PETITIONERS the property by petitioners were intended to apply to a proposed business venture of
TO SELL THE HOUSE AND LOT TO HIM DESPITE THE FACT THAT petitioners abroad. As said proposed business did not prosper and the tenants/occupants
HE HAD AGREED TO A WAIVER OF SUCH A RIGHT WHEN HE of the premises have not yet vacated the premises, petitioners decided to rescind the
CONSENTED TO THE ADDENDUM STIPULATION RECOGNIZING contract of sale in accordance with the agreement.
THE RIGHT ON THE PART OF THE PETITIONERS TO CANCEL OR Under the addendum to the same agreement, both parties are given the freedom to back
ABROGATE THE SALE FOR ANY REASON BY PAYING THE out of the transaction provided that, in tie case of the seller, he must return the earnest
LIQUIDATED DAMAGES AGES STIPULATED THEREIN? money in addition to being liable to the buyer for P20,000.00, plus attorney's fees and
2) The minor legal issue may be framed as follows: other costs in case of litigation; and in case of the buyer, the earnest money is forfeited,
71

and he is liable to pay the seller P20,000.00 in damages plus attorneys fees and other both attorneys-in-fact for the purpose of selling the subject property
costs in case of litigation to the seller. This right which is afforded to both parties may be and signing any document for the settlement of the estate of the late
availed of by them, irrespective of whether or not the occupant of the premises had Francisco Q. Laforteza. The subsequent agency instrument (Exh. "2",
vacated the same. This stipulation is the law between the parties. record, pp. 371-373) contained similar provisions that both attorneys-
Consequently, the action for specific performance must fail. For the rescission of the in-fact should sign any document or paper executed in the exercise of
contract, petitioners must return the P5,000.00 earnest money and pay P20,000.00 to the their authority.
private respondent. However, they are not liable for attorneys fees, for it was private In the exercise of the above authority, on January 20, 1989, the heirs
respondent who brought the case to court as a result of which petitioners unnecessarily of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza
incurred expenses of litigation. and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated Agreement (Contract to Sell) with the plaintiff[2] over the subject
December 20, 1989 and its resolution dated January 30, 1990 are hereby REVERSED property for the sum of SIX HUNDRED THIRTY THOUSAND PESOS
and SET ASIDE. Another judgment is hereby rendered dismissing the complaint and (P630,000.00) payable as follows:
rescinding the subject contract to sell dated December 27, 1985 upon the petitioners (a) P30,000.00 as earnest money, to be forfeited in favor of the
reimbursing to private respondent the P5,000.00 earnest money and paying them defendants if the sale is not effected due to the fault of the plaintiff;
P20,000.00 as damages according to the same agreement. No costs in this instance. (b) P600,000.00 upon issuance of the new certificate of title in the
SO ORDERED. name of the late Francisco Q. Laforteza and upon execution of an
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur. extra-judicial settlement of the decedents estate with sale in favor of
[G.R. No. 137552. June 16, 2000] the plaintiff (Par. 2, Exh. "E", record, pp. 335-336).
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA, Significantly, the fourth paragraph of the Memorandum of Agreement
DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA, petitioners, vs. ALONZO (Contract to Sell) dated January 20, 1989 (Exh. "E", supra.) contained
MACHUCA, respondent. a provision as follows:
DECISION xxx. Upon issuance by the proper Court of the new title, the
GONZAGA_REYES, J.: BUYER-LESSEE shall be notified in writing and said BUYER-
This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of LESSEE shall have thirty (30) days to produce the balance
Appeals[1] in CA G.R. CV No. 47457 entitled "ALONZO MACHUCA versus ROBERTO Z. of P600,000.00 which shall be paid to the SELLER-LESSORS
LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETA-LAFORTEZA MICHAEL Z. upon the execution of the Extrajudicial Settlement with sale.
LAFORTEZA, and DENNIS Z. LAFORTEZA". On January 20, 1989, plaintiff paid the earnest money of THIRTY
The following facts as found by the Court of Appeals are undisputed: THOUSAND PESOS (P30,000.00), plus rentals for the subject
"The property involved consists of a house and lot located at No. 7757 property (Exh. "F", Plaintiff, record, p. 339).
Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila, On September 18, 1998[3], defendant heirs, through their counsel
covered by Transfer Certificate of Title (TCT) No. (220656) 8941 of the wrote a letter (Exh. 1, Defendants, record, p. 370) to the plaintiff
Registered of Deeds of Paraaque (Exhibit "D", Plaintiff, record, pp. furnishing the latter a copy of the reconstituted title to the subject
331-332). The subject property is registered in the name of the late property, advising him that he had thirty (3) days to produce the
Francisco Q. Laforteza, although it is conjugal in nature (Exhibit "8", balance of SIX HUNDRED PESOS (sic) (P600,000.00) under the
Defendants, record pp. 331-386). Memorandum of Agreement which plaintiff received on the same date.
On August 2, 1988, defendant Lea Zulueta-Laforteza executed a On October 18, 1989, plaintiff sent the defendant heirs a letter
Special Power of Attorney in favor of defendants Roberto Z. Laforteza requesting for an extension of the THIRTY (30) DAYS deadline up to
and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact November 15, 1989 within which to produce the balance of SIX
authorizing them jointly to sell the subject property and sign any HUNDRED THOUSAND PESOS (P600,000.00) (Exh. "G", Plaintiff,
document for the settlement of the estate of the late Francisco Q. record, pp. 341-342). Defendant Roberto Z. Laforteza, assisted by his
Laforteza (Exh. "A", Plaintiff, record, pp. 323-325). counsel Atty. Romeo L. Gutierrez, signed his conformity to the plaintiffs
Likewise on the same day, defendant Michael Z. Laforteza executed a letter request (Exh. "G-1 and "G-2", Plaintiff, record, p. 342). The
Special Power of Attorney in favor of defendants Roberto Z. Laforteza extension, however, does not appear to have been approved by
and Gonzalo Laforteza, Jr., likewise, granting the same authority (Exh. Gonzalo Z. Laforteza, the second attorney-in-fact as his conformity
"B", record, pp. 326-328). Both agency instruments contained a does not appear to have been secured.
provision that in any document or paper to exercise authority granted, On November 15, 1989, plaintiff informed the defendant heirs, through
the signature of both attorneys-in-fact must be affixed. defendant Roberto Z. Laforteza, that he already had the balance of SIX
On October 27, 1988, defendant Dennis Z. Laforteza executed a HUNDRED THOUSAND PESOS (P600,000.00) covered by United
Special Power of Attorney in favor of defendant Roberto Z. Laforteza Coconut Planters Bank Managers Check No. 000814 dated November
for the purpose of selling the subject property (Exh. "C", Plaintiff, 15, 1989 (TSN, August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344;
record, pp. 329-330). A year later, on October 30, 1989, Dennis Z. "M", records p. 350; and "N", record, p. 351). However, the defendants,
Laforteza executed another Special Power of Attorney in favor of refused to accept the balance (TSN, August 24, 1992, p. 14; Exhs. "M-
defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr. naming 1", Plaintiff, record, p. 350; and "N-1", Plaintiff, record, p. 351).
72

Defendant Roberto Z. Laforteza had told him that the subject property V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS
was no longer for sale (TSN, October 20, 1992, p. 19; Exh. "J", record, MAKE THEM LIABLE FOR MORAL DAMAGES?"[8]
p. 347). The petitioners contend that the Memorandum of Agreement is merely a lease
On November 20, 1998[4], defendants informed the plaintiff that they agreement with "option to purchase". As it was merely an option, it only gave the
were canceling the Memorandum of Agreement (Contract to Sell) in respondent a right to purchase the subject property within a limited period without
view of the plaintiffs failure to comply with his contractual obligations imposing upon them any obligation to purchase it. Since the respondents tender of
(Exh. "3"). payment was made after the lapse of the option agreement, his tender did not give rise to
Thereafter, plaintiff reiterated his request to tender payment of the the perfection of a contract of sale.
balance of SIX HUNDRED THOUSAND PESOS (P600,000.00). It is further maintained by the petitioners that the Court of Appeals erred in ruling that
Defendants, however, insisted on the rescission of the Memorandum rescission of the contract was already out of the question. Rescission implies that a
of Agreement. Thereafter, plaintiff filed the instant action for specific contract of sale was perfected unlike the Memorandum of Agreement in question which
performance. The lower court rendered judgment on July 6, 1994 in as previously stated is allegedly only an option contract.
favor of the plaintiff, the dispositive portion of which reads: Petitioner adds that at most, the Memorandum of Agreement (Contract to Sell) is a mere
WHEREFORE, judgment is hereby rendered in favor of contract to sell, as indicated in its title. The obligation of the petitioners to sell the
plaintiff Alonzo Machuca and against the defendant heirs of property to the respondent was conditioned upon the issuance of a new certificate of title
the late Francisco Q. Laforteza, ordering the said defendants. and the execution of the extrajudicial partition with sale and payment of the P600,000.00.
(a) To accept the balance of P600,000.00 as full payment of the This is why possession of the subject property was not delivered to the respondent as
consideration for the purchase of the house and lot located at No. 7757 the owner of the property but only as the lessee thereof. And the failure of the
Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila, respondent to pay the purchase price in full prevented the petitioners obligation to
covered by Transfer Certificate of Title No. (220656) 8941 of the convey title from acquiring obligatory force.
Registry of Deeds of Rizal Paraaque, Branch; Petitioners also allege that assuming for the sake of argument that a contract of sale was
(b) To execute a registrable deed of absolute sale over the subject indeed perfected, the Court of Appeals still erred in holding that respondents failure to
property in favor of the plaintiff; pay the purchase price of P600,000.00 was only a "slight or casual breach".
(c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as The petitioners also claim that the Court of Appeals erred in ruling that they were not
attorneys fees plus cost of suit. ready to comply with their obligation to execute the extrajudicial settlement. The Power of
SO ORDERED. (Rollo, pp. 74-75)."[5] Attorney to execute a Deed of Sale made by Dennis Z. Laforteza was sufficient and
Petitioners appealed to the Court of Appeals, which affirmed with modification the necessarily included the power to execute an extrajudicial settlement. At any rate, the
decision of the lower court; the dispositive portion of the Decision reads: respondent is estopped from claiming that the petitioners were not ready to comply with
"WHEREFORE, the questioned decision of the lower court is hereby their obligation for he acknowledged the petitioners ability to do so when he requested for
AFFIRMED with the MODIFICATION that defendant heirs Lea Zulueta- an extension of time within which to pay the purchase price. Had he truly believed that
Laforteza, Michael Z. Laforteza, Dennis Z. Laforteza and Roberto Z. the petitioners were not ready, he would not have needed to ask for said extension.
Laforteza including Gonzalo Z. Laforteza, Jr. are hereby ordered to pay Finally, the petitioners allege that the respondents uncorroborated testimony that third
jointly and severally the sum of FIFTY THOUSAND PESOS persons offered a higher price for the property is hearsay and should not be given any
(P50,000.00) as moral damages. evidentiary weight. Thus, the order of the lower court awarding moral damages was
SO ORDERED."[6] without any legal basis.
Motion for Reconsideration was denied but the Decision was modified so as to absolve The appeal is bereft of merit.
Gonzalo Z. Laforteza, Jr. from liability for the payment of moral damages. [7] Hence this A perusal of the Memorandum Agreement shows that the transaction between the
petition wherein the petitioners raise the following issues: petitioners and the respondent was one of sale and lease. The terms of the agreement
"I. WHETHER THE TRIAL AND APPELLATE COURTS read:
CORRECTLY CONSTRUED THE MEMORANDUM OF AGREEMENT "1. For and in consideration of the sum of PESOS: SIX HUNDRED
AS IMPOSING RECIPROCAL OBLIGATIONS. THIRTY THOUSAND (P630,000.00) payable in a manner herein below
II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT indicated, SELLER-LESSOR hereby agree to sell unto BUYER-
RESCISSION WILL NOT LIE IN THE INSTANT CASE. LESSEE the property described in the first WHEREAS of this
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM Agreement within six (6) months from the execution date hereof, or
RAISING THE ALLEGED DEFECT IN THE SPECIAL POWER OF upon issuance by the Court of a new owners certificate of title and the
ATTORNEY DATED 30 OCTOBER 1989 EXECUTED BY DENNIS execution of extrajudicial partition with sale of the estate of Francisco
LAFORTEZA. Laforteza, whichever is earlier;
IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF 2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY
AGREEMENT IMPOSES RECIPROCAL OBLIGATIONS, WHETHER THOUSAND (P630,000.00) shall be paid in the following manner:
THE PETITIONERS MAY BE COMPELLED TO SELL THE SUBJECT P30,000.00- as earnest money and as consideration for this
PROPERTY WHEN THE RESPONDENT FAILED TO MAKE A Agreement, which amount shall be forfeited in favor of
JUDICIAL CONSIGNATION OF THE PURCHASE PRICE? SELLER-LESSORS if the sale is not effected because of the
fault or option of BUYER-LESSEE;
73

P600,000.00- upon the issuance of the new certificate of title yet executed, the respondent would no longer be required to pay rentals and would
in the name of the late Francisco Laforteza and upon the continue to occupy and use the premises until the subject condition was complied with by
execution of an Extrajudicial Settlement of his estate with sale the petitioners.
in favor of BUYER-LESSEE free from lien or any The six-month period during which the respondent would be in possession of the
encumbrances. property as lessee, was clearly not a period within which to exercise an option. An option
3. Parties reasonably estimate that the issuance of a new title in place is a contract granting a privilege to buy or sell within an agreed time and at a determined
of the lost one, as well as the execution of extrajudicial settlement of price. An option contract is a separate and distinct contract from that which the parties
estate with sale to herein BUYER-LESSEE will be completed within six may enter into upon the consummation of the option.[13] An option must be supported by
(6) months from the execution of this Agreement. It is therefore agreed consideration.[14] An option contract is governed by the second paragraph of Article 1479
that during the six months period, BUYER-LESSEE will be leasing the of the Civil Code[15], which reads:
subject property for six months period at the monthly rate of PESOS: "Article 1479. xxx
THREE THOUSAND FIVE HUNDRED (P3,500.00). Provided however, An accepted unilateral promise to buy or to sell a determinate thing for
that if the issuance of new title and the execution of Extrajudicial a price certain is binding upon the promissor if the promise is
Partition is completed prior to the expiration of the six months period, supported by a consideration distinct from the price."
BUYER-LESSEE shall only be liable for rentals for the corresponding In the present case, the six-month period merely delayed the demandability of the
period commencing from his occupancy of the premises to the contract of sale and did not determine its perfection for after the expiration of the six-
execution and completion of the Extrajudicial Settlement of the estate, month period, there was an absolute obligation on the part of the petitioners and the
provided further that if after the expiration of six (6) months, the lost respondent to comply with the terms of the sale. The parties made a "reasonable
title is not yet replaced and the extra judicial partition is not executed, estimate" that the reconstitution of the lost title of the house and lot would take
BUYER-LESSEE shall no longer be required to pay rentals and shall approximately six months and thus presumed that after six months, both parties would be
continue to occupy, and use the premises until subject condition is able to comply with what was reciprocally incumbent upon them. The fact that after the
complied by SELLER-LESSOR; expiration of the six-month period, the respondent would retain possession of the house
4. It is hereby agreed that within reasonable time from the execution of and lot without need of paying rentals for the use therefor, clearly indicated that the
this Agreement and the payment by BUYER-LESSEE of the amount of parties contemplated that ownership over the property would already be transferred by
P30,000.00 as herein above provided, SELLER-LESSORS shall that time.
immediately file the corresponding petition for the issuance of a new The issuance of the new certificate of title in the name of the late Francisco Laforteza
title in lieu of the lost one in the proper Courts. Upon issuance by the and the execution of an extrajudicial settlement of his estate was not a condition which
proper Courts of the new title, the BUYER-LESSEE shall have thirty determined the perfection of the contract of sale. Petitioners contention that since the
(30) days to produce the balance of P600,000.00 which shall be paid condition was not met, they no longer had an obligation to proceed with the sale of the
to the SELLER-LESSORS upon the execution of the Extrajudicial house and lot is unconvincing. The petitioners fail to distinguish between a condition
Settlement with sale."[9] imposed upon the perfection of the contract and a condition imposed on the performance
A contract of sale is a consensual contract and is perfected at the moment there is a of an obligation. Failure to comply with the first condition results in the failure of a
meeting of the minds upon the thing which is the object of the contract and upon the contract, while the failure to comply with the second condition only gives the other party
price.[10] From that moment the parties may reciprocally demand performance subject to the option either to refuse to proceed with the sale or to waive the condition. Thus, Art.
the provisions of the law governing the form of contracts.[11] The elements of a valid 1545 of the Civil Code states:
contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the "Art. 1545. Where the obligation of either party to a contract of sale is
minds; (2) determinate subject matter and (3) price certain in money or its equivalent. [12] subject to any condition which is not performed, such party may refuse
In the case at bench, there was a perfected agreement between the petitioners and the to proceed with the contract or he may waive performance of the
respondent whereby the petitioners obligated themselves to transfer the ownership of condition. If the other party has promised that the condition should
and deliver the house and lot located at 7757 Sherwood St., Marcelo Green Village, happen or be performed, such first mentioned party may also treat the
Paraaque and the respondent to pay the price amounting to six hundred thousand pesos nonperformance of the condition as a breach of warranty.
(P600,000.00). All the elements of a contract of sale were thus present. However, the Where the ownership in the things has not passed, the buyer may treat
balance of the purchase price was to be paid only upon the issuance of the new the fulfillment by the seller of his obligation to deliver the same as
certificate of title in lieu of the one in the name of the late Francisco Laforteza and upon described and as warranted expressly or by implication in the contract
the execution of an extrajudicial settlement of his estate. Prior to the issuance of the of sale as a condition of the obligation of the buyer to perform his
"reconstituted" title, the respondent was already placed in possession of the house and promise to accept and pay for the thing."[16]
lot as lessee thereof for six months at a monthly rate of three thousand five hundred In the case at bar, there was already a perfected contract. The condition was imposed
pesos (P3,500.00). It was stipulated that should the issuance of the new title and the only on the performance of the obligations contained therein. Considering however that
execution of the extrajudicial settlement be completed prior to expiration of the six-month the title was eventually "reconstituted" and that the petitioners admit their ability to
period, the respondent would be liable only for the rentals pertaining to the period execute the extrajudicial settlement of their fathers estate, the respondent had a right to
commencing from the date of the execution of the agreement up to the execution of the demand fulfillment of the petitioners obligation to deliver and transfer ownership of the
extrajudicial settlement. It was also expressly stipulated that if after the expiration of the house and lot.
six month period, the lost title was not yet replaced and the extrajudicial partition was not
74

What further militates against petitioners argument that they did not enter into a contract rescission of the contract has been made upon him either judicially or
of sale is the fact that the respondent paid thirty thousand pesos (P30,000.00) as earnest by a notarial act. After the demand, the court may not grant him a new
money. Earnest money is something of value to show that the buyer was really in term."[25]
earnest, and given to the seller to bind the bargain.[17] Whenever earnest money is given It is not disputed that the petitioners did not make a judicial or notarial demand for
in a contract of sale, it is considered as part of the purchase price and proof of the rescission. The November 20, 1989 letter of the petitioners informing the respondent of
perfection of the contract.[18] the automatic rescission of the agreement did not amount to a demand for rescission, as
We do not subscribe to the petitioners view that the Memorandum Agreement was a it was not notarized.[26] It was also made five days after the respondents attempt to make
contract to sell. There is nothing contained in the Memorandum Agreement from which it the payment of the purchase price. This offer to pay prior to the demand for rescission is
can reasonably be deduced that the parties intended to enter into a contract to sell, i.e. sufficient to defeat the petitioners right under article 1592 of the Civil Code.[27] Besides,
one whereby the prospective seller would explicitly reserve the transfer of title to the the Memorandum Agreement between the parties did not contain a clause expressly
prospective buyer, meaning, the prospective seller does not as yet agree or consent to authorizing the automatic cancellation of the contract without court intervention in the
transfer ownership of the property subject of the contract to sell until the full payment of event that the terms thereof were violated. A seller cannot unilaterally and extrajudicially
the price, such payment being a positive suspensive condition, the failure of which is not rescind a contract of sale where there is no express stipulation authorizing him to
considered a breach, casual or serious, but simply an event which prevented the extrajudicially rescind.[28] Neither was there a judicial demand for the rescission thereof.
obligation from acquiring any obligatory force.[19] There is clearly no express reservation Thus, when the respondent filed his complaint for specific performance, the agreement
of title made by the petitioners over the property, or any provision which would impose was still in force inasmuch as the contract was not yet rescinded. At any rate, considering
non-payment of the price as a condition for the contracts entering into force. Although the that the six-month period was merely an approximation of the time it would take to
memorandum agreement was also denominated as a "Contract to Sell", we hold that the reconstitute the lost title and was not a condition imposed on the perfection of the
parties contemplated a contract of sale. A deed of sale is absolute in nature although contract and considering further that the delay in payment was only thirty days which was
denominated a conditional sale in the absence of a stipulation reserving title in the caused by the respondents justified but mistaken belief that an extension to pay was
petitioners until full payment of the purchase price.[20] In such cases, ownership of the granted to him, we agree with the Court of Appeals that the delay of one month in
thing sold passes to the vendee upon actual or constructive delivery thereof. [21] The mere payment was a mere casual breach that would not entitle the respondents to rescind the
fact that the obligation of the respondent to pay the balance of the purchase price was contract. Rescission of a contract will not be permitted for a slight or casual breach, but
made subject to the condition that the petitioners first deliver the reconstituted title of the only such substantial and fundamental breach as would defeat the very object of the
house and lot does not make the contract a contract to sell for such condition is not parties in making the agreement.[29]
inconsistent with a contract of sale.[22] Petitioners insistence that the respondent should have consignated the amount is not
The next issue to be addressed is whether the failure of the respondent to pay the determinative of whether respondents action for specific performance will lie. Petitioners
balance of the purchase price within the period allowed is fatal to his right to enforce the themselves point out that the effect of consignation is to extinguish the obligation. It
agreement. releases the debtor from responsibility therefor.[30] The failure of the respondent to
We rule in the negative. consignate the P600,000.00 is not tantamount to a breach of the contract for by the fact
Admittedly, the failure of the respondent to pay the balance of the purchase price was a of tendering payment, he was willing and able to comply with his obligation.
breach of the contract and was a ground for rescission thereof. The extension of thirty The Court of Appeals correctly found the petitioners guilty of bad faith and awarded
(30) days allegedly granted to the respondent by Roberto Z. Laforteza (assisted by his moral damages to the respondent. As found by the said Court, the petitioners refused to
counsel Attorney Romeo Gutierrez) was correctly found by the Court of Appeals to be comply with their obligation for the reason that they were offered a higher price therefor
ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as and the respondent was even offered P100,000.00 by the petitioners lawyer, Attorney
required by the Special Powers of Attorney.[23] However, the evidence reveals that after Gutierrez, to relinquish his rights over the property. The award of moral damages is in
the expiration of the six-month period provided for in the contract, the petitioners were accordance with Article 1191[31] of the Civil Code pursuant to Article 2220 which provides
not ready to comply with what was incumbent upon them, i.e. the delivery of the that moral damages may be awarded in case of a breach of contract where the
reconstituted title of the house and lot. It was only on September 18, 1989 or nearly eight defendant acted in bad faith. The amount awarded depends on the discretion of the court
months after the execution of the Memorandum of Agreement when the petitioners based on the circumstances of each case.[32]Under the circumstances, the award given
informed the respondent that they already had a copy of the reconstituted title and by the Court of Appeals amounting to P50,000.00 appears to us to be fair and
demanded the payment of the balance of the purchase price. The respondent could not reasonable.
therefore be considered in delay for in reciprocal obligations, neither party incurs in delay ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457 is
if the other party does not comply or is not ready to comply in a proper manner with what AFFIRMED and the instant petition is hereby DENIED.
was incumbent upon him.[24] No pronouncement as to costs.
Even assuming for the sake of argument that the petitioners were ready to comply with SO ORDERED.
their obligation, we find that rescission of the contract will still not prosper. The rescission Melo, (Chairman), Panganiban, and Purisima, JJ., concur.
of a sale of an immovable property is specifically governed by Article 1592 of the New Vitug, J., Abroad, On Official Business.
Civil Code, which reads: [G.R. No. 135929. April 20, 2001]
"In the sale of immovable property, even though it may have been LOURDES ONG LIMSON, petitioner, vs. COURT OF APPEALS, SPOUSES
stipulated that upon failure to pay the price at the time agreed upon the LORENZO DE VERA and ASUNCION SANTOS-DE VERA, TOMAS
rescission of the contract shall of right take place, the vendee may pay, CUENCA, JR., and SUNVAR REALTY DEVELOPMENT
even after the expiration of the period, as long as no demand for CORPORATION, respondents.
75

DECISION respondent spouses be now executed upon her payment of the balance of the purchase
BELLOSILLO, J.: price agreed upon, plus damages and attorneys fees.
Filed under Rule 45 of the Rules of Court this Petition for Review on In their Answer[4] respondent spouses maintained that petitioner had no sufficient
Certiorari seeks to review, reverse and set aside the Decision[1] of the Court of Appeals cause of action against them; that she was not the real party in interest; that the option to
dated 18 May 1998 reversing that of the Regional Trial Court dated 30 June 1993. The buy the property had long expired; that there was no perfected contract to sell between
petition likewise assails the Resolution[2] of the appellate court of 19 October 1998 them; and, that petitioner had no legal capacity to sue. Additionally, respondent spouses
denying petitioners Motion for Reconsideration. claimed actual, moral and exemplary damages, and attorneys fees against petitioner.
Petitioner Lourdes Ong Limson, in her 14 May 1979 Complaint filed before the trial On the other hand, respondents SUNVAR and Cuenca, in their Answer,[5] alleged
court,[3] alleged that in July 1978 respondent spouses Lorenzo de Vera and Asuncion that petitioner was not the proper party in interest and/or had no cause of action against
Santos-de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a them. But, even assuming that petitioner was the proper party in interest, they claimed
parcel of land consisting of 48,260 square meters, more or less, situated in Barrio San that she could only be entitled to the return of any amount received by respondent
Dionisio, Paraaque, Metro Manila; that respondent spouses informed her that they were spouses. In the alternative, they argued that petitioner had lost her option to buy the
the owners of the subject property; that on 31 July 1978 she agreed to buy the property property for failure to comply with the terms and conditions of the agreement as
at the price of P34.00 per square meter and gave the sum of P20,000.00 to respondent embodied in the receipt issued therefor. Moreover, they contended that at the time of the
spouses as "earnest money;" that respondent spouses signed a receipt therefor and execution of the Deed of Sale and the payment of consideration to respondent spouses,
gave her a 10-day option period to purchase the property; that respondent Lorenzo de they "did not know nor was informed" of petitioners interest or claim over the subject
Vera then informed her that the subject property was mortgaged to Emilio Ramos and property. They claimed furthermore that it was only after the signing of the Deed of
Isidro Ramos; that respondent Lorenzo de Vera asked her to pay the balance of the Sale and the payment of the corresponding amounts to respondent spouses that they
purchase price to enable him and his wife to settle their obligation with the Ramoses. came to know of the claim of petitioner as it was only then that they were furnished copy
Petitioner also averred that she agreed to meet respondent spouses and the of the title to the property where the Adverse Claim of petitioner was
Ramoses on 5 August 1978 at the Office of the Registry of Deeds of Makati, Metro annotated. Consequently, they also instituted a Cross-Claim against respondent spouses
Manila, to consummate the transaction but due to the failure of respondent Asuncion for bad faith in encouraging the negotiations between them without telling them of the
Santos-de Vera and the Ramoses to appear, no transaction was formalized. In a second claim of petitioner. The same respondents maintained that had they known of the claim
meeting scheduled on 11 August 1978 she claimed that she was willing and ready to pay of petitioner, they would not have initiated negotiations with respondent spouses for the
the balance of the purchase price but the transaction again did not materialize as purchase of the property. Thus, they prayed for reimbursement of all amounts and
respondent spouses failed to pay the back taxes of subject property. Subsequently, on monies received from them by respondent spouses, attorneys fees and expenses for
23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera three (3) checks litigation in the event that the trial court should annul the Deed of Sale and deprive them
in the total amount of P36,170.00 for the settlement of the back taxes of the property and of their ownership and possession of the subject land.
for the payment of the quitclaims of the three (3) tenants of subject land. The amount In their Answer to the Cross-Claim[6] of respondents SUNVAR and Cuenca,
was purportedly considered part of the purchase price and respondent Lorenzo de Vera respondent spouses insisted that they negotiated with the former only after the expiration
signed the receipts therefor. of the option period given to petitioner and her failure to comply with her commitments
Petitioner alleged that on 5 September 1978 she was surprised to learn from the thereunder. Respondent spouses contended that they acted legally and validly, in all
agent of respondent spouses that the property was the subject of a negotiation for the honesty and good faith. According to them, respondent SUNVAR made a verification of
sale to respondent Sunvar Realty Development Corporation (SUNVAR) represented by the title with the Office of the Register of Deeds of Metro Manila District IV before the
respondent Tomas Cuenca, Jr. On 15 September 1978 petitioner discovered that execution of the Deed of Absolute Sale. Also, they claimed that the Cross-Claimwas
although respondent spouses purchased the property from the Ramoses on 20 March barred by a written waiver executed by respondent SUNVAR in their favor. Thus,
1970 it was only on 15 September 1978 that TCT No. S-72946 covering the property was respondent spouses prayed for actual damages for the unjustified filing of the Cross-
issued to respondent spouses. As a consequence, she filed on the same day an Affidavit Claim, moral damages for the mental anguish and similar injuries they suffered by reason
of Adverse Claim with the Office of the Registry of Deeds of Makati, Metro Manila, which thereof, exemplary damages "to prevent others from emulating the bad example" of
was annotated on TCT No. S-72946. She also claimed that on the same day she respondents SUNVAR and Cuenca, plus attorneys fees.
informed respondent Cuenca of her "contract" to purchase the property. After a protracted trial and reconstitution of the court records due to the fire that
The Deed of Sale between respondent spouses and respondent SUNVAR was razed the Pasay City Hall on 18 January 1992, the Regional Trial Court rendered its 30
executed on 15 September 1978 and TCT No. S-72377 was issued in favor of the latter June 1993 Decision[7] in favor of petitioner. It ordered (a) the annulment and rescission of
on 26 September 1978 with the Adverse Claim of petitioner annotated thereon. Petitioner the Deed of Absolute Sale executed on 15 September 1978 by respondent spouses in
claimed that when respondent spouses sold the property in dispute to SUNVAR, her favor of respondent SUNVAR; (b) the cancellation and revocation of TCT No. S-75377 of
valid and legal right to purchase it was ignored if not violated.Moreover, she maintained the Registry of Deeds, Makati, Metro Manila, issued in the name of respondent Sunvar
that SUNVAR was in bad faith as it knew of her "contract" to purchase the subject Realty Development Corporation, and the restoration or reinstatement of TCT No. S-
property from respondent spouses. 72946 of the same Registry issued in the name of respondent spouses; (c) respondent
Finally, for the alleged unlawful and unjust acts of respondent spouses, which spouses to execute a deed of sale conveying ownership of the property covered by TCT
caused her damage, prejudice and injury, petitioner claimed that the Deed of Sale, No. S-72946 in favor of petitioner upon her payment of the balance of the purchase price
should be annuled and TCT No. S-72377 in the name of respondent SUNVAR canceled agreed upon; and, (d) respondent spouses to pay petitioner P50,000.00 as and for
and TCT No. S-72946 restored. She also insisted that a Deed of Sale between her and attorneys fees, and to pay the costs.
76

On appeal, the Court of Appeals completely reversed the decision of the trial this property to a third person. This option to buy is good within ten (10) days until the
court. It ordered (a) the Register of Deeds of Makati City to lift the Adverse Claim and absolute deed of sale is finally signed by the parties or the failure of the buyer to comply
such other encumbrances petitioner might have filed or caused to be annotated on TCT with the terms of the option to buy as herein attached.
No. S-75377; and, (b) petitioner to pay (1) respondent SUNVAR P50,000.00 as nominal In the interpretation of contracts, the ascertainment of the intention of the
damages, P30,000.00 as exemplary damages and P20,000 as attorneys fees; (2) contracting parties is to be discharged by looking to the words they used to project that
respondent spouses, P15,000.00 as nominal damages, P10,000.00 as exemplary intention in their contract, all the words, not just a particular word or two, and words in
damages and P10,000.00 as attorneys fees; and, (3) the costs. context, not words standing alone.[17] The above Receipt readily shows that respondent
Petitioner timely filed a Motion for Reconsideration which was denied by the Court spouses and petitioner only entered into a contract of option; a contract by which
of Appeals on 19 October 1998. Hence, this petition. respondent spouses agreed with petitioner that the latter shall have the right to buy the
At issue for resolution by the Court is the nature of the contract entered into formers property at a fixed price of P34.00 per square meter within ten (10) days from 31
between petitioner Lourdes Ong Limson on one hand, and respondent spouses Lorenzo July 1978.Respondent spouses did not sell their property; they did not also agree to sell
de Vera and Asuncion Santos-de Vera on the other. it; but they sold something, i.e., the privilege to buy at the election or option of
The main argument of petitioner is that there was a perfected contract to sell petitioner. The agreement imposed no binding obligation on petitioner, aside from the
between her and respondent spouses. On the other hand, respondent spouses and consideration for the offer.
respondents SUNVAR and Cuenca argue that what was perfected between petitioner The consideration of P20,000.00 paid by petitioner to respondent spouses was
and respondent spouses was a mere option. referred to as "earnest money." However, a careful examination of the words used
A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads indicates that the money is not earnest money but option money. "Earnest money" and
to the conclusion that the agreement between the parties was a contract of option and "option money" are not the same but distinguished thus: (a) earnest money is part of the
not a contract to sell. purchase price, while option money is the money given as a distinct consideration for an
An option, as used in the law of sales, is a continuing offer or contract by which the option contract; (b) earnest money is given only where there is already a sale, while
owner stipulates with another that the latter shall have the right to buy the property at a option money applies to a sale not yet perfected; and, (c) when earnest money is given,
fixed price within a time certain, or under, or in compliance with, certain terms and the buyer is bound to pay the balance, while when the would-be buyer gives option
conditions, or which gives to the owner of the property the right to sell or demand a money, he is not required to buy,[18] but may even forfeit it depending on the terms of the
sale. It is also sometimes called an "unaccepted offer." An option is not of itself a option.
purchase, but merely secures the privilege to buy. [8] It is not a sale of property but a sale There is nothing in the Receipt which indicates that the P20,000.00 was part of the
of the right to purchase.[9] It is simply a contract by which the owner of property agrees purchase price. Moreover, it was not shown that there was a perfected sale between the
with another person that he shall have the right to buy his property at a fixed price within parties where earnest money was given. Finally, when petitioner gave the "earnest
a certain time. He does not sell his land; he does not then agree to sell it; but he does money," the Receipt did not reveal that she was bound to pay the balance of the
sell something, i.e., the right or privilege to buy at the election or option of the other purchase price. In fact, she could even forfeit the money given if the terms of the option
party.[10] Its distinguishing characteristic is that it imposes no binding obligation on the were not met. Thus, the P20,000.00 could only be money given as consideration for the
person holding the option, aside from the consideration for the offer. Until acceptance, it option contract. That the contract between the parties is one of option is buttressed by
is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any the provision therein that should the transaction of the property not materialize without
title to, or any interest or right in the subject matter, but is merely a contract by which the fault of petitioner as buyer, respondent Lorenzo de Vera obligates himself to return the
owner of the property gives the optionee the right or privilege of accepting the offer and full amount of P20,000.00 "earnest money" with option to buy or forfeit the same on the
buying the property on certain terms.[11] fault of petitioner. It is further bolstered by the provision therein that guarantees petitioner
On the other hand, a contract, like a contract to sell, involves the meeting of minds that she or her representative would be notified in case the subject property was sold or
between two persons whereby one binds himself, with respect to the other, to give encumbered to a third person. Finally, the Receipt provided for a period within which the
something or to render some service.[12] Contracts, in general, are perfected by mere option to buy was to be exercised, i.e., "within ten (10) days" from 31 July 1978.
consent,[13] which is manifested by the meeting of the offer and the acceptance upon the Doubtless, the agreement between respondent spouses and petitioner was an
thing and the cause which are to constitute the contract. The offer must be certain and "option contract" or what is sometimes called an "unaccepted offer." During the option
the acceptance absolute.[14] period the agreement was not converted into a bilateral promise to sell and to buy where
The Receipt[15] that contains the contract between petitioner and respondent both respondent spouses and petitioner were then reciprocally bound to comply with their
spouses provides respective undertakings as petitioner did not timely, affirmatively and clearly accept the
Received from Lourdes Limson the sum of Twenty Thousand Pesos (P20,000.00) under offer of respondent spouses.
Check No. 22391 dated July 31, 1978 as earnest money with option to purchase a parcel The rule is that except where a formal acceptance is not required, although the
of land owned by Lorenzo de Vera located at Barrio San Dionisio, Municipality of acceptance must be affirmatively and clearly made and evidenced by some acts or
Paraaque, Province of Rizal with an area of forty eight thousand two hundred sixty conduct communicated to the offeror, it may be made either in a formal or an informal
square meters more or less at the price of Thirty Four Pesos (P34.00)[16] cash subject to manner, and may be shown by acts, conduct or words by the accepting party that clearly
the condition and stipulation that have been agreed upon by the buyer and me which will manifest a present intention or determination to accept the offer to buy or sell. But there
form part of the receipt. Should the transaction of the property not materialize not on the is nothing in the acts, conduct or words of petitioner that clearly manifest a present
fault of the buyer, I obligate myself to return the full amount of P20,000.00 earnest money intention or determination to accept the offer to buy the property of respondent spouses
with option to buy or forfeit on the fault of the buyer. I guarantee to notify the buyer within the 10-day option period. The only occasion within the option period when
Lourdes Limson or her representative and get her conformity should I sell or encumber petitioner could have demonstrated her acceptance was on 5 August 1978 when,
77

according to her, she agreed to meet respondent spouses and the Ramoses at the Office member of the Board of Directors of respondent SUNVAR, that the property was already
of the Register of Deeds of Makati. Petitioners agreement to meet with respondent sold to petitioner. Also, petitioner maintains that on 5 September 1978 respondent
spouses presupposes an invitation from the latter, which only emphasizes their Cuenca met with her and offered to buy the property from her at P45.00 per square
persistence in offering the property to the former. But whether that showed acceptance meter.Petitioner contends that these incidents, including the annotation of her Adverse
by petitioner of the offer is hazy and dubious. Claim on the title of subject property on 15 September 1978 show that respondent
On or before 10 August 1978, the last day of the option period, no affirmative or SUNVAR was aware of the perfected sale between her and respondent spouses, thus
clear manifestation was made by petitioner to accept the offer. Certainly, there was no making respondent SUNVAR a buyer in bad faith.
concurrence of private respondent spouses offer and petitioners acceptance thereof Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978,
within the option period. Consequently, there was no perfected contract to sell between are immaterial as they were beyond the option period given to petitioner. On the other
the parties. hand, the referral to sometime in August 1978 in the testimony of Hermigildo Sanchez as
On 11 August 1978 the option period expired and the exclusive right of petitioner to emphasized by petitioner in her petition is very vague. It could be within or beyond the
buy the property of respondent spouses ceased. The subsequent meetings and option period. Clearly then, even assuming that the meeting with Marixi Prieto actually
negotiations, specifically on 11 and 23 August 1978, between the parties only showed transpired, it could not necessarily mean that she knew of the agreement between
the desire of respondent spouses to sell their property to petitioner. Also, on 14 petitioner and respondent spouses for the purchase of subject property as the meeting
September 1978 when respondent spouses sent a telegram to petitioner demanding full could have occurred beyond the option period. In which case, no bad faith could be
payment of the purchase price on even date simply demonstrated an inclination to give attributed to respondent SUNVAR. If, on the other hand, the meeting was within the
her preference to buy subject property. Collectively, these instances did not indicate that option period, petitioner was remiss in her duty to prove so. Necessarily, we are left with
petitioner still had the exclusive right to purchase subject property. Verily, the the conclusion that respondent SUNVAR bought subject property from respondent
commencement of negotiations between respondent spouses and respondent SUNVAR spouses in good faith, for value and without knowledge of any flaw or defect in its title.
clearly manifested that their offer to sell subject property to petitioner was no longer The appellate court awarded nominal and exemplary damages plus attorneys fees
exclusive to her. to respondent spouses and respondent SUNVAR. But nominal damages are adjudicated
We cannot subscribe to the argument of petitioner that respondent spouses to vindicate or recognize the right of the plaintiff that has been violated or invaded by the
extended the option period when they extended the authority of their agent until 31 defendant.[19] In the instant case, the Court recognizes the rights of all the parties and
August 1978. The extension of the contract of agency could not operate to extend the finds no violation or invasion of the rights of respondents by petitioner. Petitioner, in filing
option period between the parties in the instant case. The extension must not be implied her complaint, only seeks relief, in good faith, for what she believes she was entitled to
but categorical and must show the clear intention of the parties. and should not be made to suffer therefor. Neither should exemplary damages be
As to whether respondent spouses were at fault for the non-consummation of their awarded to respondents as they are imposed only by way of example or correction for
contract with petitioner, we agree with the appellate court that they were not to be the public good and only in addition to the moral, temperate, liquidated or compensatory
blamed. First, within the option period, or on 4 August 1978, it was respondent spouses damages.[20] No such kinds of damages were awarded by the Court of Appeals, only
and not petitioner who initiated the meeting at the Office of the Register of Deeds of nominal, which was not justified in this case. Finally, attorneys fees could not also be
Makati. Second, that the Ramoses failed to appear on 4 August 1978 was beyond the recovered as the Court does not deem it just and equitable under the circumstances.
control of respondent spouses. Third, the succeeding meetings that transpired to WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals
consummate the contract were all beyond the option period and, as declared by the ordering the Register of Deeds of Makati City to lift the adverse claim and such other
Court of Appeals, the question of who was at fault was already immaterial. Fourth, even encumbrances petitioner Lourdes Ong Limson may have filed or caused to be annotated
assuming that the meetings were within the option period, the presence of petitioner was on TCT No. S-75377 is AFFIRMED, with the MODIFICATION that the award of nominal
not enough as she was not even prepared to pay the purchase price in cash as agreed and exemplary damages as well as attorneys fees is DELETED.
upon. Finally, even without the presence of the Ramoses, petitioner could have easily SO ORDERED.
made the necessary payment in cash as the price of the property was already set Mendoza, Quisumbing and Buena JJ., concur.
at P34.00 per square meter and payment of the mortgage could very well be left to De Leon, Jr., J., on leave.
respondent spouses.
Petitioner further claims that when respondent spouses sent her a telegram [G.R. No. 137290. July 31, 2000]
demanding full payment of the purchase price on 14 September 1978 it was an SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES ALFREDO
acknowledgment of their contract to sell, thus denying them the right to claim otherwise. HUANG and GRACE HUANG, respondents.
We do not agree. As explained above, there was no contract to sell between DECISION
petitioner and respondent spouses to speak of. Verily, the telegram could not operate to MENDOZA, J.:
estop them from claiming that there was such contract between them and This is a petition for review of the decision,[1] dated April 8, 1997, of the Court of Appeals
petitioner. Neither could it mean that respondent spouses extended the option which reversed the decision of the Regional Trial Court, Branch 153, Pasig City
period. The telegram only showed that respondent spouses were willing to give petitioner dismissing the complaint brought by respondents against petitioner for enforcement of a
a chance to buy subject property even if it was no longer exclusive. contract of sale.
The option period having expired and acceptance was not effectively made by The facts are not in dispute.
petitioner, the purchase of subject property by respondent SUNVAR was perfectly valid Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in
and entered into in good faith.Petitioner claims that in August 1978 Hermigildo Sanchez, the purchase and sale of real properties. Part of its inventory are two parcels of land
the son of respondent spouses agent, Marcosa Sanchez, informed Marixi Prieto, a totalling 1, 738 square meters at the corner of Meralco Avenue and General Capinpin
78

Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-82395 and PT- and (2) the complaint did not allege a cause of action because there was no "meeting of
82396 of the Register of Deeds of Pasig City. the minds" between the parties and, therefore, no perfected contract of sale. The motion
On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash. was opposed by respondents.
The offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as On December 12, 1994, the trial court granted petitioners motion and dismissed the
undisclosed principals. In a letter[2] dated March 24, 1994, Atty. Dauz signified her clients action. Respondents filed a motion for reconsideration, but it was denied by the trial
interest in purchasing the properties for the amount for which they were offered by court. They then appealed to the Court of Appeals which, on April 8, 1997, rendered a
petitioner, under the following terms: the sum of P500,000.00 would be given as earnest decision[6] reversing the judgment of the trial court. The appellate court held that all the
money and the balance would be paid in eight equal monthly installments from May to requisites of a perfected contract of sale had been complied with as the offer made on
December, 1994. However, petitioner refused the counter-offer. March 29, 1994, in connection with which the earnest money in the amount of P1 million
On March 29, 1994, Atty. Dauz wrote another letter[3] proposing the following terms for was tendered by respondents, had already been accepted by petitioner. The court cited
the purchase of the properties, viz: Art. 1482 of the Civil Code which provides that "[w]henever earnest money is given in a
This is to express our interest to buy your-above-mentioned property contract of sale, it shall be considered as part of the price and as proof of the perfection
with an area of 1, 738 sq. meters. For this purpose, we are enclosing of the contract." The fact the parties had not agreed on the mode of payment did not
herewith the sum of P1,000,000.00 representing earnest-deposit affect the contract as such is not an essential element for its validity. In addition, the court
money, subject to the following conditions. found that Sobrecarey had authority to act in behalf of petitioner for the sale of the
1. We will be given the exclusive option to purchase the property within properties.[7]
the 30 days from date of your acceptance of this offer. Petitioner moved for reconsideration of the trial courts decision, but its motion was
2. During said period, we will negotiate on the terms and conditions of denied. Hence, this petition.
the purchase; SMPPI will secure the necessary Management and Petitioner contends that the Court of Appeals erred in finding that there was a perfected
Board approvals; and we initiate the documentation if there is mutual contract of sale between the parties because the March 29, 1994 letter of respondents,
agreement between us. which petitioner accepted, merely resulted in an option contract, albeit it was
3. In the event that we do not come to an agreement on this unenforceable for lack of a distinct consideration. Petitioner argues that the absence of
transaction, the said amount of P1,000,000.00 shall be refundable to agreement as to the mode of payment was fatal to the perfection of the contract of sale.
us in full upon demand. . . . Petitioner also disputes the appellate courts ruling that Isidro A. Sobrecarey had authority
Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate to sell the subject real properties.[8]
real estate, indicated his conformity to the offer by affixing his signature to the letter and Respondents were required to comment within ten (10) days from notice. However,
accepted the "earnest-deposit" of P1 million. Upon request of respondent spouses, despite 13 extensions totalling 142 days which the Court had given to them, respondents
Sobrecarey ordered the removal of the "FOR SALE" sign from the properties. failed to file their comment. They were thus considered to have waived the filing of a
Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April comment.
8, 1994, Sobrecarey informed Atty. Dauz that petitioner was willing to sell the subject The petition is meritorious.
properties on a 90-day term. Atty. Dauz countered with an offer of six months within In holding that there is a perfected contract of sale, the Court of Appeals relied on the
which to pay. following findings: (1) earnest money was allegedly given by respondents and accepted
On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz by petitioner through its vice-president and operations manager, Isidro A. Sobrecarey;
that petitioner had not yet acted on her counter-offer. This prompted Atty. Dauz to and (2) the documentary evidence in the records show that there was a perfected
propose a four-month period of amortization. contract of sale.
On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to With regard to the alleged payment and acceptance of earnest money, the Court holds
June 13, 1994 within which to exercise her option to purchase the property, adding that that respondents did not give the P1 million as "earnest money" as provided by Art. 1482
within that period, "[we] hope to finalize [our] agreement on the matter." [4] Her request of the Civil Code. They presented the amount merely as a deposit of what would
was granted. eventually become the earnest money or downpayment should a contract of sale be
On July 7, 1994, petitioner, through its president and chief executive officer, Federico made by them. The amount was thus given not as a part of the purchase price and as
Gonzales, wrote Atty. Dauz informing her that because the parties failed to agree on the proof of the perfection of the contract of sale but only as a guarantee that respondents
terms and conditions of the sale despite the extension granted by petitioner, the latter would not back out of the sale. Respondents in fact described the amount as an
was returning the amount of P1 million given as "earnest-deposit."[5] "earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,[9] it was held:
On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the . . . While the P5,000 might have indeed been paid to Carlos in
execution within five days of a deed of sale covering the properties. Respondents October, 1967, there is nothing to show that the same was in the
attempted to return the "earnest-deposit" but petitioner refused on the ground that concept of the earnest money contemplated in Art. 1482 of the Civil
respondents option to purchase had already expired. Code, invoked by petitioner, as signifying perfection of the
On August 16, 1994, respondent spouses filed a complaint for specific performance sale. Viewed in the backdrop of the factual milieu thereof extant in the
against petitioner before the Regional Trial Court, Branch 133, Pasig City where it was record, We are more inclined to believe that the said P5,000.00 were
docketed as Civil Case No. 64660. paid in the concept of earnest money as the term was understood
Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the under the Old Civil Code, that is, as a guarantee that the buyer would
complaint alleging that (1) the alleged "exclusive option" of respondent spouses lacked a not back out, considering that it is not clear that there was already a
consideration separate and distinct from the purchase price and was thus unenforceable definite agreement as to the price then and that petitioners were
79

decided to buy 6/7 only of the property should respondent Javellana agreed on the object of sale and on the purchase price. By the buyers own admission,
refuse to agree to part with her 1/7 share.[10] however, the parties still had to agree on how and when the downpayment and the
In the present case, the P1 million "earnest-deposit" could not have been given as installments were to be paid. It was held:
earnest money as contemplated in Art. 1482 because, at the time when petitioner . . . Such being the situation, it can not, therefore, be said that a
accepted the terms of respondents offer of March 29, 1994, their contract had not yet definite and firm sales agreement between the parties had been
been perfected. This is evident from the following conditions attached by respondents to perfected over the lot in question. Indeed, this Court has already ruled
their letter, to wit: (1) that they be given the exclusive option to purchase the property before that a definite agreement on the manner of payment of the
within 30 days from acceptance of the offer; (2) that during the option period, the parties purchase price is an essential element in the formation of a binding
would negotiate the terms and conditions of the purchase; and (3) petitioner would and enforceable contract of sale. The fact, therefore, that the
secure the necessary approvals while respondents would handle the documentation. petitioners delivered to the respondent the sum of P10,000 as part of
The first condition for an option period of 30 days sufficiently shows that a sale was never the down-payment that they had to pay cannot be considered as
perfected. As petitioner correctly points out, acceptance of this condition did not give rise sufficient proof of the perfection of any purchase and sale agreement
to a perfected sale but merely to an option or an accepted unilateral promise on the part between the parties herein under Art. 1482 of the new Civil Code, as
of respondents to buy the subject properties within 30 days from the date of acceptance the petitioners themselves admit that some essential matter - the terms
of the offer. Such option giving respondents the exclusive right to buy the properties of the payment - still had to be mutually covenanted.[18]
within the period agreed upon is separate and distinct from the contract of sale which the Thus, it is not the giving of earnest money, but the proof of the concurrence of all the
parties may enter.[11] All that respondents had was just the option to buy the properties essential elements of the contract of sale which establishes the existence of a perfected
which privilege was not, however, exercised by them because there was a failure to sale.
agree on the terms of payment. No contract of sale may thus be enforced by In the absence of a perfected contract of sale, it is immaterial whether Isidro A.
respondents. Sobrecarey had the authority to enter into a contract of sale in behalf of petitioner. This
Furthermore, even the option secured by respondents from petitioner was fatally issue, therefore, needs no further discussion.
defective. Under the second paragraph of Art. 1479, an accepted unilateral promise to WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents
buy or sell a determinate thing for a price certain is binding upon the promisor only if the complaint is DISMISSED.
promise is supported by a distinct consideration. Consideration in an option contract may SO ORDERED.
be anything of value, unlike in sale where it must be the price certain in money or its Quisumbing, Buena, and De Leon, Jr., JJ., concur.
equivalent. There is no showing here of any consideration for the option. Lacking any Bellosillo, (Chairman), J., on leave.
proof of such consideration, the option is unenforceable.
Equally compelling as proof of the absence of a perfected sale is the second condition
that, during the option period, the parties would negotiate the terms and conditions of the
purchase. 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.[12] In the present case, the parties never got
past the negotiation stage. The alleged "indubitable evidence" [13] of a perfected sale cited
by the appellate court was nothing more than offers and counter-offers which did not
amount to any final arrangement containing the essential elements of a contract of sale.
While the parties already agreed on the real properties which were the objects of the sale
and on the purchase price, the fact remains that they failed to arrive at mutually
acceptable terms of payment, despite the 45-day extension given by petitioner.
The appellate court opined that the failure to agree on the terms of payment was no bar
to the perfection of the sale because Art. 1475 only requires agreement by the parties as
to the price of the object. This is error. In Navarro v. Sugar Producers Cooperative
Marketing Association, Inc.,[14] we laid down the rule that the manner of payment of the
purchase price is an essential element before a valid and binding contract of sale can
exist. Although the Civil Code does not expressly state that the minds of the parties must
also meet on the terms or manner of payment of the price, the same is needed,
otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of
Appeals,[15] agreement on the manner of payment goes into the price such that a
disagreement on the manner of payment is tantamount to a failure to agree on the
price.[16] In Velasco v. Court of Appeals,[17] the parties to a proposed sale had already