Sales Part V Page |1
G.R. No. 166862. December 20, 2006.*
MANILA METAL CONTAINER CORPORATION, petitioner, REYNALDO
C. TOLENTINO, intervenor, vs. PHILIPPINE NATIONAL BANK,
respondent, DMCI-PROJECT DEVELOPERS, INC., intervenor.
Contracts; Requisites; Contracts are perfected by mere consent which is
manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract.—A contract is a meeting
of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service. Under Article 1318 of
the New Civil Code, there is no contract unless the following requisites
concur: (1) Consent of the contracting parties; (2) Object certain which is
the subject matter of the contract; (3) Cause of the obligation which is
established. Contracts are perfected by mere consent which is manifested by
the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. Once perfected, they bind other
contracting parties and the obligations arising therefrom have the form of
law between the parties and should be complied with in good faith. The
parties are bound not only to the fulfillment of what has been expressly
stipulated but also to the consequences which, according to their nature,
may be in keeping with good faith, usage and law.
Same; Sales; A definite agreement as to the price is an essential element of
a binding agreement to sell personal or real property because it seriously
affects the rights and obligations of the parties; When the contract of sale is
not perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.—By the contract of sale, one
of the contracting parties obligates himself to transfer the ownership of and
deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent. The absence of any of the essential elements will
negate the existence of a perfected contract of sale. As the Court ruled in
Boston Bank of the Philippines v. Manalo, 482 SCRA 108 (2006): A definite
agreement as to the price is an essential element of a binding agreement to
sell personal or real property because it seriously affects the rights and
obligations of the parties. Price is an essential element in the formation of a
binding and enforceable contract of sale. The fixing of the price can never be
left to the decision of one of the contracting parties. But a price fixed by one
of the contracting parties, if accepted by the other, gives rise to a perfected
sale. A contract of sale is consensual in nature and is perfected upon mere
meeting of the minds. When there is merely an offer by one party without
acceptance of the other, there is no contract. When the contract of sale is
not perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.
Same; Same; Stages of a Contract of Sale.—In San Miguel Properties
Philippines, Inc. v. Huang, 336 SCRA 737 (2000), the Court ruled that the
stages of a contract of sale are as follows: (1) negotiation, covering the
period from the time the prospective contracting parties indicate interest in
the contract to the time the contract is perfected; (2) perfection, which takes
place upon the concurrence of the essential elements of the sale which are
the meeting of the minds of the parties as to the object of the contract and
upon the price; and (3) consummation, which begins when the parties
perform their respective undertakings under the contract of sale, culminating
in the extinguishment thereof.
Same; Same; Same; To convert an offer into a contract, the acceptance
must be absolute and must not qualify the terms of the offer—it must be
plain, unequivocal, unconditional and without variance of any sort from the
proposal.—A negotiation is formally initiated by an offer, which, however,
must be certain. At any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. At this stage, the offer may be
withdrawn; the withdrawal is effective immediately after its manifestation. To
convert the offer into a contract, the acceptance must be absolute and must
not qualify the terms of the offer; it must be plain, unequivocal,
unconditional and without variance of any sort from the proposal.
Same; Same; Same; A counter-offer is considered in law, a rejection of the
original offer and an attempt to end the negotiation between the parties on a
different basis.—A qualified acceptance or one that involves a new proposal
constitutes a counter-offer and a rejection of the original offer. A counter-
offer is considered in law, a rejection of the original offer and an attempt to
end the negotiation between the parties on a different basis. Consequently,
when something is desired which is not exactly what is proposed in the offer,

such acceptance is not sufficient to guarantee consent because any
modification or variation from the terms of the offer annuls the offer. The
acceptance must be identical in all respects with that of the offer so as to
produce consent or meeting of the minds.
Same; Same; Corporation Law; Board of Directors; Contracts or acts of a
corporation must be made either by the board of directors or by a corporate
agent duly authorized by the board—absent such valid
delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or
connected with the performance of authorized duties of such director, are
held not binding on the corporation.—There is no evidence that the SAMD
was authorized by respondent’s Board of Directors to accept petitioner’s offer
and sell the property for P1,574,560.47. Any acceptance by the SAMD of
petitioner’s offer would not bind respondent. As this Court ruled in AF Realty
Development, Inc. vs. Diesehuan Freight Services, Inc., 373 SCRA 385
(2002): Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board of
directors. Just as a natural person may authorize another to do certain acts
in his behalf, so may the board of directors of a corporation validly delegate
some of its functions to individual officers or agents appointed by it. Thus,
contracts or acts of a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the board. Absent such
valid delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not in the
course of, or connected with the performance of authorized duties of such
director, are held not binding on the corporation.
Same; Same; Earnest Money; 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.—The P725,000.00
was merely a deposit to be applied as part of the purchase price of the
property, in the event that respondent would approve the recommendation
of SAMD for respondent to accept petitioner’s offer to purchase the property
for P1,574,560.47. Unless and until the respondent accepted the offer on
these terms, no perfected contract of sale would arise. Absent proof of the
Sales Part V Page |2
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.
PETITION for review on certiorari of the decision and resolution of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Calleja, Saulog Law Offices for petitioner.
The Legal Department for respondent PNB.
John R. Sadullo and Francis Allan A. Rubio for intervenor DMCI-PPI.
Manila Metal Container Corporation vs. Philippine National Bank, 511 SCRA
444, G.R. No. 166862 December 20, 2006
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of
Appeals (CA) in CA-G.R. No. 46153 which affirmed the decision2 of the
Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551,
and its Resolution3 denying the motion for reconsideration filed by petitioner
Manila Metal Container Corporation (MMCC).
The Antecedents
Petitioner was the owner of a 8,015 square meter parcel of land located in
Mandaluyong (now a City), Metro Manila. The property was covered by
Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of
Rizal. To secure a P900,000.00 loan it had obtained from respondent
Philippine National Bank (PNB), petitioner executed a real estate mortgage
over the lot. Respondent PNB later granted petitioner a new credit
accommodation of P1,000,000.00; and, on November 16, 1973, petitioner
executed an Amendment4 of Real Estate Mortgage over its property. On
March 31, 1981, petitioner secured another loan of P653,000.00 from
respondent PNB, payable in quarterly installments of P32,650.00, plus
interests and other charges.5

On August 5, 1982, respondent PNB filed a petition for extrajudicial
foreclosure of the real estate mortgage and sought to have the property sold
at public auction for P911,532.21, petitioner's outstanding obligation to
respondent PNB as of June 30, 1982,6 plus interests and attorney's fees.
After due notice and publication, the property was sold at public auction on
September 28, 1982 where respondent PNB was declared the winning bidder
for P1,000,000.00. The Certificate of Sale7 issued in its favor was registered
with the Office of the Register of Deeds of Rizal, and was annotated at the
dorsal portion of the title on February 17, 1983. Thus, the period to redeem
the property was to expire on February 17, 1984.
Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting
that it be granted an extension of time to redeem/repurchase the
property.8 In its reply dated August 30, 1983, respondent PNB informed
petitioner that the request had been referred to its Pasay City Branch for
appropriate action and recommendation. 9
In a letter10 dated February 10, 1984, petitioner reiterated its request for a
one year extension from February 17, 1984 within which to
redeem/repurchase the property on installment basis. It reiterated its
request to repurchase the property on installment.11 Meanwhile, some PNB
Pasay City Branch personnel informed petitioner that as a matter of policy,
the bank does not accept "partial redemption."12
Since petitioner failed to redeem the property, the Register of Deeds
cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of
respondent PNB.13 Petitioner's offers had not yet been acted upon by
respondent PNB.
Meanwhile, the Special Assets Management Department (SAMD) had
prepared a statement of account, and as of June 25, 1984 petitioner's
obligation amounted to P1,574,560.47. This included the bid price
of P1,056,924.50, interest, advances of insurance premiums, advances on
realty taxes, registration expenses, miscellaneous expenses and publication
cost.14 When apprised of the statement of account, petitioner
remitted P725,000.00 to respondent PNB as "deposit to repurchase," and
Official Receipt No. 978191 was issued to it. 15
In the meantime, the SAMD recommended to the management of
respondent PNB that petitioner be allowed to repurchase the property
Sales Part V Page |3
for P1,574,560.00. In a letter dated November 14, 1984, the PNB
management informed petitioner that it was rejecting the offer and the
recommendation of the SAMD. It was suggested that petitioner purchase the
property for P2,660,000.00, its minimum market value. Respondent PNB
gave petitioner until December 15, 1984 to act on the proposal; otherwise,
its P725,000.00 deposit would be returned and the property would be sold to
other interested buyers.16
Petitioner, however, did not agree to respondent PNB's proposal. Instead, it
wrote another letter dated December 12, 1984 requesting for a
reconsideration. Respondent PNB replied in a letter dated December 28,
1984, wherein it reiterated its proposal that petitioner purchase the property
for P2,660,000.00. PNB again informed petitioner that it would return the
deposit should petitioner desire to withdraw its offer to purchase the
property.17 On February 25, 1985, petitioner, through counsel, requested
that PNB reconsider its letter dated December 28, 1984. Petitioner declared
that it had already agreed to the SAMD's offer to purchase the property
for P1,574,560.47, and that was why it had paid P725,000.00. Petitioner
warned respondent PNB that it would seek judicial recourse should PNB insist
on the position.18
On June 4, 1985, respondent PNB informed petitioner that the PNB Board of
Directors had accepted petitioner's offer to purchase the property, but
for P1,931,389.53 in cash less the P725,000.00 already deposited with
it.19 On page two of the letter was a space above the typewritten name of
petitioner's President, Pablo Gabriel, where he was to affix his signature.
However, Pablo Gabriel did not conform to the letter but merely indicated
therein that he had received it.20 Petitioner did not respond, so PNB
requested petitioner in a letter dated June 30, 1988 to submit an amended
offer to repurchase.
Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It
maintained that respondent PNB had agreed to sell the property
for P1,574,560.47, and that since its P725,000.00 downpayment had been
accepted, respondent PNB was proscribed from increasing the purchase price
of the property.21 Petitioner averred that it had a net balance payable in the
amount of P643,452.34. Respondent PNB, however, rejected petitioner's
offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.22
On August 28, 1989, petitioner filed a complaint against respondent PNB for
"Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or

Specific Performance with Damages." To support its cause of action for
specific performance, it alleged the following:
34. As early as June 25, 1984, PNB had accepted the down payment
from Manila Metal in the substantial amount of P725,000.00 for the
redemption/repurchase price of P1,574,560.47 as approved by its
SMAD and considering the reliance made by Manila Metal and the
long time that has elapsed, the approval of the higher management
of the Bank to confirm the agreement of its SMAD is clearly a
potestative condition which cannot legally prejudice Manila Metal
which has acted and relied on the approval of SMAD. The Bank
cannot take advantage of a condition which is entirely dependent
upon its own will after accepting and benefiting from the substantial
payment made by Manila Metal.
35. PNB approved the repurchase price of P1,574,560.47 for which it
accepted P725,000.00 from Manila Metal. PNB cannot take
advantage of its own delay and long inaction in demanding a higher
amount based on unilateral computation of interest rate without the
consent of Manila Metal.
Petitioner later filed an amended complaint and supported its claim for
damages with the following arguments:
36. That in order to protect itself against the wrongful and malicious
acts of the defendant Bank, plaintiff is constrained to engage the
services of counsel at an agreed fee of P50,000.00 and to incur
litigation expenses of at least P30,000.00, which the defendant PNB
should be condemned to pay the plaintiff Manila Metal.
37. That by reason of the wrongful and malicious actuations of
defendant PNB, plaintiff Manila Metal suffered besmirched reputation
for which defendant PNB is liable for moral damages of at
least P50,000.00.
38. That for the wrongful and malicious act of defendant PNB which
are highly reprehensible, exemplary damages should be awarded in
favor of the plaintiff by way of example or correction for the public
good of at least P30,000.00.23
Sales Part V Page |4
Petitioner prayed that, after due proceedings, judgment be rendered in its
favor, thus:
a) Declaring the Amended Real Estate Mortgage (Annex "A") null
and void and without any legal force and effect.
b) Declaring defendant's acts of extra-judicially foreclosing the
mortgage over plaintiff's property and setting it for auction sale null
and void.
c) Ordering the defendant Register of Deeds to cancel the new title
issued in the name of PNB (TCT NO. 43792) covering the property
described in paragraph 4 of the Complaint, to reinstate TCT
No. 37025 in the name of Manila Metal and to cancel the annotation
of the mortgage in question at the back of the TCT
No. 37025 described in paragraph 4 of this Complaint.
d) Ordering the defendant PNB to return and/or deliver physical
possession of the TCT No. 37025 described in paragraph 4 of this
Complaint to the plaintiff Manila Metal.
e) Ordering the defendant PNB to pay the plaintiff Manila Metal's
actual damages, moral and exemplary damages in the aggregate
amount of not less than P80,000.00 as may be warranted by the
evidence and fixed by this Honorable Court in the exercise of its
sound discretion, and attorney's fees of P50,000.00 and litigation
expenses of at least P30,000.00 as may be proved during the trial,
and costs of suit.
Plaintiff likewise prays for such further reliefs which may be deemed
just and equitable in the premises.24
In its Answer to the complaint, respondent PNB averred, as a special and
affirmative defense, that it had acquired ownership over the property after
the period to redeem had elapsed. It claimed that no contract of sale was
perfected between it and petitioner after the period to redeem the property
had expired.
During pre-trial, the parties agreed to submit the case for decision, based on
their stipulation of facts.25 The parties agreed to limit the issues to the
following:

1. Whether or not the June 4, 1985 letter of the defendant
approving/accepting plaintiff's offer to purchase the property is still
valid and legally enforceable.
2. Whether or not the plaintiff has waived its right to purchase the
property when it failed to conform with the conditions set forth by
the defendant in its letter dated June 4, 1985.
3. Whether or not there is a perfected contract of sale between the
parties.26
While the case was pending, respondent PNB demanded, on September 20,
1989, that petitioner vacate the property within 15 days from notice, 27 but
petitioners refused to do so.
On March 18, 1993, petitioner offered to repurchase the property
for P3,500,000.00.28 The offer was however rejected by respondent PNB, in
a letter dated April 13, 1993. According to it, the prevailing market value of
the property was approximately P30,000,000.00, and as a matter of policy, it
could not sell the property for less than its market value.29 On June 21,
1993, petitioner offered to purchase the property for P4,250,000.00 in
cash.30 The offer was again rejected by respondent PNB on September 13,
1993.31
On May 31, 1994, the trial court rendered judgment dismissing the amended
complaint and respondent PNB's counterclaim. It ordered respondent PNB to
refund the P725,000.00 deposit petitioner had made. 32 The trial court ruled
that there was no perfected contract of sale between the parties; hence,
petitioner had no cause of action for specific performance against
respondent. The trial court declared that respondent had rejected petitioner's
offer to repurchase the property. Petitioner, in turn, rejected the terms and
conditions contained in the June 4, 1985 letter of the SAMD. While petitioner
had offered to repurchase the property per its letter of July 14, 1988, the
amount of P643,422.34 was way below the P1,206,389.53 which respondent
PNB had demanded. It further declared that the P725,000.00 remitted by
petitioner to respondent PNB on June 4, 1985 was a "deposit," and not a
downpayment or earnest money.
On appeal to the CA, petitioner made the following allegations:
I
Sales Part V Page |5
THE LOWER COURT ERRED IN RULING THAT DEFENDANT-
APPELLEE'S LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING
PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE SUBJECT
PROPERTY IS NOT VALID AND ENFORCEABLE.
II
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT
AND DEFENDANT-APPELLEE.
III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-
APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT
PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET
FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE
1985.
IV
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT
WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT
IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE
BALANCE OF THEIR PURCHASE PRICE.
V
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT
THERE WAS NO VALID RESCISSION OR CANCELLATION OF
SUBJECT CONTRACT OF REPURCHASE.
VI
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED
AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER.
VII

THE LOWER COURT ERRED IN DISMISSING THE AMENDED
COMPLAINT OF PLAINTIFF-APPELLANT.
VIII
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-
APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES,
ATTOTRNEY'S FEES AND LITIGATION EXPENSES.33
Meanwhile, on June 17, 1993, petitioner's Board of Directors approved
Resolution No. 3-004, where it waived, assigned and transferred its rights
over the property covered by TCT No. 33099 and TCT No. 37025 in favor of
Bayani Gabriel, one of its Directors.34 Thereafter, Bayani Gabriel executed a
Deed of Assignment over 51% of the ownership and management of the
property in favor of Reynaldo Tolentino, who later moved for leave to
intervene as plaintiff-appellant. On July 14, 1993, the CA issued a resolution
granting the motion,35 and likewise granted the motion of Reynaldo
Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion
to withdraw as intervenor.36
The CA rendered judgment on May 11, 2000 affirming the decision of the
RTC.37 It declared that petitioner obviously never agreed to the selling price
proposed by respondent PNB (P1,931,389.53) since petitioner had kept on
insisting that the selling price should be lowered to P1,574,560.47. Clearly
therefore, there was no meeting of the minds between the parties as to the
price or consideration of the sale.
The CA ratiocinated that petitioner's original offer to purchase the subject
property had not been accepted by respondent PNB. In fact, it made a
counter-offer through its June 4, 1985 letter specifically on the selling price;
petitioner did not agree to the counter-offer; and the negotiations did not
prosper. Moreover, petitioner did not pay the balance of the purchase price
within the sixty-day period set in the June 4, 1985 letter of respondent PNB.
Consequently, there was no perfected contract of sale, and as such, there
was no contract to rescind.
According to the appellate court, the claim for damages and the counterclaim
were correctly dismissed by the court a quo for no evidence was presented
to support it. Respondent PNB's letter dated June 30, 1988 cannot revive the
failed negotiations between the parties. Respondent PNB merely asked
petitioner to submit an amended offer to repurchase. While petitioner
Sales Part V Page |6
reiterated its request for a lower selling price and that the balance of the
repurchase be reduced, however, respondent rejected the proposal in a
letter dated August 1, 1989.
Petitioner filed a motion for reconsideration, which the CA likewise denied.
Thus, petitioner filed the instant petition for review on certiorari, alleging
that:
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN
IT RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE
BETWEEN THE PETITIONER AND RESPONDENT.
II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN
IT RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE
PETITIONER IS NOT AN EARNEST MONEY.
III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
WHEN IT RULED THAT THE FAILURE OF THE PETITIONER-
APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS
CONTAINED IN PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE
WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE
BETWEEN THE PARTIES.
IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT
NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE
OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4,
1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL
CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT
OF SALE BETWEEN THE PARTIES.
V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD
THAT THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18,
1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT
PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS
NO PERFECTED CONTRACT OF SALE.38
The threshold issue is whether or not petitioner and respondent PNB had
entered into a perfected contract for petitioner to repurchase the property
from respondent.

Petitioner maintains that it had accepted respondent's offer made through
the SAMD, to sell the property for P1,574,560.00. When the acceptance was
made in its letter dated June 25, 1984; it then deposited P725,000.00 with
the SAMD as partial payment, evidenced by Receipt No. 978194 which
respondent had issued. Petitioner avers that the SAMD's acceptance of the
deposit amounted to an acceptance of its offer to repurchase. Moreover, as
gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of
Directors had approved petitioner's offer to purchase the property. It claims
that this was the suspensive condition, the fulfillment of which gave rise to
the contract. Respondent could no longer unilaterally withdraw its offer to
sell the property for P1,574,560.47, since the acceptance of the offer
resulted in a perfected contract of sale; it was obliged to remit to respondent
the balance of the original purchase price of P1,574,560.47, while
respondent was obliged to transfer ownership and deliver the property to
petitioner, conformably with Article 1159 of the New Civil Code.
Petitioner posits that respondent was proscribed from increasing the interest
rate after it had accepted respondent's offer to sell the property
for P1,574,560.00. Consequently, respondent could no longer validly make a
counter-offer of P1,931,789.88 for the purchase of the property. It likewise
maintains that, although the P725,000.00 was considered as "deposit for the
repurchase of the property" in the receipt issued by the SAMD, the amount
constitutes earnest money as contemplated in Article 1482 of the New Civil
Code. Petitioner cites the rulings of this Court in Villonco v.
Bormaheco39 and Topacio v. Court of Appeals.40
Petitioner avers that its failure to append its conformity to the June 4, 1984
letter of respondent and its failure to pay the balance of the price as fixed by
respondent within the 60-day period from notice was to protest respondent's
breach of its obligation to petitioner. It did not amount to a rejection of
respondent's offer to sell the property since respondent was merely seeking
to enforce its right to pay the balance of P1,570,564.47. In any event,
respondent had the option either to accept the balance of the offered price
or to cause the rescission of the contract.
Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent
during the pendency of the case in the RTC were merely to compromise the
pending lawsuit, they did not constitute separate offers to repurchase the
property. Such offer to compromise should not be taken against it, in
accordance with Section 27, Rule 130 of the Revised Rules of Court.
Sales Part V Page |7
For its part, respondent contends that the parties never graduated from the
"negotiation stage" as they could not agree on the amount of the repurchase
price of the property. All that transpired was an exchange of proposals and
counter-proposals, nothing more. It insists that a definite agreement on the
amount and manner of payment of the price are essential elements in the
formation of a binding and enforceable contract of sale. There was no such
agreement in this case. Primarily, the concept of "suspensive condition"
signifies a future and uncertain event upon the fulfillment of which the
obligation becomes effective. It clearly presupposes the existence of a valid
and binding agreement, the effectivity of which is subordinated to its
fulfillment. Since there is no perfected contract in the first place, there is no
basis for the application of the principles governing "suspensive conditions."
According to respondent, the Statement of Account prepared by SAMD as of
June 25, 1984 cannot be classified as a counter-offer; it is simply a recital of
its total monetary claims against petitioner. Moreover, the amount stated
therein could not likewise be considered as the counter-offer since as
admitted by petitioner, it was only recommendation which was subject to
approval of the PNB Board of Directors.
Neither can the receipt by the SAMD of P725,000.00 be regarded as
evidence of a perfected sale contract. As gleaned from the
parties' Stipulation of Facts during the proceedings in the court a quo, the
amount is merely an acknowledgment of the receipt of P725,000.00 as
deposit to repurchase the property. The deposit of P725,000.00 was
accepted by respondent on the condition that the purchase price would still
be approved by its Board of Directors. Respondent maintains that its
acceptance of the amount was qualified by that condition, thus not absolute.
Pending such approval, it cannot be legally claimed that respondent is
already bound by any contract of sale with petitioner.
According to respondent, petitioner knew that the SAMD has no capacity to
bind respondent and that its authority is limited to administering, managing
and preserving the properties and other special assets of PNB. The SAMD
does not have the power to sell, encumber, dispose of, or otherwise alienate
the assets, since the power to do so must emanate from its Board of
Directors. The SAMD was not authorized by respondent's Board to enter into
contracts of sale with third persons involving corporate assets. There is
absolutely nothing on record that respondent authorized the SAMD, or made
it appear to petitioner that it represented itself as having such authority.

Respondent reiterates that SAMD had informed petitioner that its offer to
repurchase had been approved by the Board subject to the condition, among
others, "that the selling price shall be the total bank's claim as of
documentation date x x x payable in cash (P725,000.00 already deposited)
within 60 days from notice of approval." A new Statement of Account was
attached therein indicating the total bank's claim to be P1,931,389.53 less
deposit of P725,000.00, or P1,206,389.00. Furthermore, while respondent's
Board of Directors accepted petitioner's offer to repurchase the property, the
acceptance was qualified, in that it required a higher sale price and subject
to specified terms and conditions enumerated therein. This qualified
acceptance was in effect a counter-offer, necessitating petitioner's
acceptance in return.
The Ruling of the Court
The ruling of the appellate court that there was no perfected contract of sale
between the parties on June 4, 1985 is correct.
A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service.41 Under Article 1318 of the New Civil Code, there is no contract
unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent which is manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to
constitute the contract.42 Once perfected, they bind other contracting parties
and the obligations arising therefrom have the form of law between the
parties and should be complied with in good faith. The parties are bound not
only to the fulfillment of what has been expressly stipulated but also to the
consequences which, according to their nature, may be in keeping with good
faith, usage and law.43
Sales Part V Page |8
By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent. 44 The absence of any
of the essential elements will negate the existence of a perfected contract of
sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:45
A definite agreement as to the price is an essential element of a
binding agreement to sell personal or real property because it
seriously affects the rights and obligations of the parties. Price is an
essential element in the formation of a binding and enforceable
contract of sale. The fixing of the price can never be left to the
decision of one of the contracting parties. But a price fixed by one of
the contracting parties, if accepted by the other, gives rise to a
perfected sale.46
A contract of sale is consensual in nature and is perfected upon mere
meeting of the minds. When there is merely an offer by one party without
acceptance of the other, there is no contract.47 When the contract of sale is
not perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.48
In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the
stages of a contract of sale are as follows: (1) negotiation, covering the
period from the time the prospective contracting parties indicate interest in
the contract to the time the contract is perfected; (2) perfection, which takes
place upon the concurrence of the essential elements of the sale which are
the meeting of the minds of the parties as to the object of the contract and
upon the price; and (3) consummation, which begins when the parties
perform their respective undertakings under the contract of sale, culminating
in the extinguishment thereof.
A negotiation is formally initiated by an offer, which, however, must be
certain.50 At any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. At this stage, the offer may be
withdrawn; the withdrawal is effective immediately after its manifestation. To
convert the offer into a contract, the acceptance must be absolute and must
not qualify the terms of the offer; it must be plain, unequivocal,
unconditional and without variance of any sort from the proposal. In Adelfa
Properties, Inc. v. Court of Appeals,51 the Court ruled that:

x x x The rule is that except where a formal acceptance is so
required, although the acceptance must be affirmatively and clearly
made and must be evidenced by some acts or conduct
communicated to the offeror, it may be shown by acts, conduct, or
words of the accepting party that clearly manifest a present intention
or determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party recognizing
the existence of the contract of sale.52
A qualified acceptance or one that involves a new proposal constitutes a
counter-offer and a rejection of the original offer. A counter-offer is
considered in law, a rejection of the original offer and an attempt to end the
negotiation between the parties on a different basis. 53 Consequently, when
something is desired which is not exactly what is proposed in the offer, such
acceptance is not sufficient to guarantee consent because any modification
or variation from the terms of the offer annuls the offer. 54 The acceptance
must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds.
In this case, petitioner had until February 17, 1984 within which to redeem
the property. However, since it lacked the resources, it requested for more
time to redeem/repurchase the property under such terms and conditions
agreed upon by the parties.55 The request, which was made through a letter
dated August 25, 1983, was referred to the respondent's main branch for
appropriate action.56 Before respondent could act on the request, petitioner
again wrote respondent as follows:
1. Upon approval of our request, we will pay your goodselves ONE
HUNDRED & FIFTY THOUSAND PESOS (P150,000.00);
2. Within six months from date of approval of our request, we will
pay another FOUR HUNDRED FIFTY THOUSAND PESOS
(P450,000.00); and
3. The remaining balance together with the interest and other
expenses that will be incurred will be paid within the last six months
of the one year grave period requested for.57
When the petitioner was told that respondent did not allow "partial
redemption,"58 it sent a letter to respondent's President reiterating its offer
Sales Part V Page |9
to purchase the property.59 There was no response to petitioner's letters
dated February 10 and 15, 1984.
The statement of account prepared by the SAMD stating that the net claim
of respondent as of June 25, 1984 was P1,574,560.47 cannot be considered
an unqualified acceptance to petitioner's offer to purchase the property. The
statement is but a computation of the amount which petitioner was obliged
to pay in case respondent would later agree to sell the property, including
interests, advances on insurance premium, advances on realty taxes,
publication cost, registration expenses and miscellaneous expenses.
There is no evidence that the SAMD was authorized by respondent's Board of
Directors to accept petitioner's offer and sell the property for P1,574,560.47.
Any acceptance by the SAMD of petitioner's offer would not bind respondent.
As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight
Services, Inc.:60
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board
of directors. Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts of a
corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not in
the course of, or connected with the performance of authorized
duties of such director, are held not binding on the corporation.
Thus, a corporation can only execute its powers and transact its business
through its Board of Directors and through its officers and agents when
authorized by a board resolution or its by-laws.61
It appears that the SAMD had prepared a recommendation for respondent to
accept petitioner's offer to repurchase the property even beyond the one-
year period; it recommended that petitioner be allowed to redeem the
property and pay P1,574,560.00 as the purchase price. Respondent later
approved the recommendation that the property be sold to petitioner. But
instead of the P1,574,560.47 recommended by the SAMD and to which
petitioner had previously conformed, respondent set the purchase price

at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was
qualified, hence can be at most considered as a counter-offer. If petitioner
had accepted this counter-offer, a perfected contract of sale would have
arisen; as it turns out, however, petitioner merely sought to have the
counter-offer reconsidered. This request for reconsideration would later be
rejected by respondent.
We do not agree with petitioner's contention that the P725,000.00 it had
remitted to respondent was "earnest money" which could be considered as
proof of the perfection of a contract of sale under Article 1482 of the New
Civil Code. The provision reads:
ART. 1482. Whenever earnest money is given in a contract of sale, it
shall be considered as part of the price and as proof of the
perfection of the contract.
This contention is likewise negated by the stipulation of facts which the
parties entered into in the trial court:
8. On June 8, 1984, the Special Assets Management Department
(SAMD) of PNB prepared an updated Statement of Account showing
MMCC's total liability to PNB as of June 25, 1984 to be
P1,574,560.47 and recommended this amount as the repurchase
price of the subject property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to
repurchase the property. The deposit of P725,000 was accepted
by PNB on the condition that the purchase price is still
subject to the approval of the PNB Board.62
Thus, the P725,000.00 was merely a deposit to be applied as part of the
purchase price of the property, in the event that respondent would approve
the recommendation of SAMD for respondent to accept petitioner's offer to
purchase the property for P1,574,560.47. Unless and until the respondent
accepted the offer on these terms, no perfected contract of sale would arise.
Absent proof of the concurrence of all the essential elements of a contract of
sale, the giving of earnest money cannot establish the existence of a
perfected contract of sale.63
It appears that, per its letter to petitioner dated June 4, 1985, the
respondent had decided to accept the offer to purchase the property
S a l e s P a r t V P a g e | 10
for P1,931,389.53. However, this amounted to an amendment of
respondent's qualified acceptance, or an amended counter-offer, because
while the respondent lowered the purchase price, it still declared that its
acceptance was subject to the following terms and conditions:
1. That the selling price shall be the total Bank's claim as of
documentation date (pls. see attached statement of account as of 5-
31-85), payable in cash (P725,000.00 already deposited) within sixty
(60) days from notice of approval;
2. The Bank sells only whatever rights, interests and participation it
may have in the property and you are charged with full knowledge
of the nature and extent of said rights, interests and participation
and waive your right to warranty against eviction.
3. All taxes and other government imposts due or to become due on
the property, as well as expenses including costs of documents and
science stamps, transfer fees, etc., to be incurred in connection with
the execution and registration of all covering documents shall be
borne by you;
4. That you shall undertake at your own expense and account the
ejectment of the occupants of the property subject of the sale, if
there are any;
5. That upon your failure to pay the balance of the purchase price
within sixty (60) days from receipt of advice accepting your offer,
your deposit shall be forfeited and the Bank is thenceforth
authorized to sell the property to other interested parties.
6. That the sale shall be subject to such other terms and conditions
that the Legal Department may impose to protect the interest of the
Bank.64
It appears that although respondent requested petitioner to conform to its
amended counter-offer, petitioner refused and instead requested respondent
to reconsider its amended counter-offer. Petitioner's request was ultimately
rejected and respondent offered to refund its P725,000.00 deposit.
In sum, then, there was no perfected contract of sale between petitioner and
respondent over the subject property.
 S a l e s P a r t V P a g e | 11

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.

The assailed decision is AFFIRMED. Costs against petitioner Manila Metal

Container Corporation.

SO ORDERED.

Ynares-Santiago, J., Working Chairperson, Austria-Martinez, and Chico-

Nazario, JJ., concur.
Panganiban, C.J., retired as of December 7, 2006.

G.R. No. 124791. February 10, 1999.*
JOSE RAMON CARCELLER, petitioner, vs. COURT OF APPEALS and
STATE INVESTMENT HOUSES, INC., respondents.
Civil Law; Contracts; An option is a separate agreement distinct from the
contract which the parties may enter into upon the consummation of the
option.—An option is a preparatory contract in which one party grants to the
other, for a fixed period and under specified conditions, the power to decide,
whether or not to enter into a principal contract. It binds the party who has
given the option, not to enter into the principal contract with any other
person during the period designated, and, within that period, to enter into
such contract with the one to whom the option was granted, if the latter
should decide to use the option. It is a separate agreement distinct from the
contract which the parties may enter into upon the consummation of the
option.
Same; Same; Statutory Construction; Analysis and construction should not
be limited to the words used in the contract, as they may not accurately
reflect the parties’ true intent.—The contracting parties’ primary intent in
entering into said lease contract with option to purchase confirms, in our
view, the correctness of respondent court’s ruling. Analysis and construction,
however, should not be limited to the words used in the contract, as they
may not accurately reflect the parties’ true intent. The reasonableness of the
result obtained, after said analysis, ought likewise to be carefully considered.
Same; Same; Same; It is well-settled that in construing a written agreement,
the reason behind and the circumstances surrounding its execution are of
paramount importance.—It is well-settled in both law and jurisprudence, that
contracts are the law between the contracting parties and should be fulfilled,
if their terms are clear and leave no room for doubt as to the intention of the
contracting parties. Further, it is well-settled that in construing a written
agreement, the reason behind and the circumstances surrounding its
execution are of paramount importance. Sound construction requires one to
be placed mentally in the situation occupied by the parties concerned at the
time the writing was executed. Thereby, the intention of the contracting
parties could be made to prevail, because their agreement has the force of
law between them.
S a l e s P a r t V P a g e | 12
Same; Same; Same; To ascertain the intent of the parties in a contractual
relationship, it is imperative that the various stipulations provided for in the
contract be construed together, consistent with the parties’
contemporaneous and subsequent acts as regards the execution of the
contract.—Moreover, to ascertain the intent of the parties in a contractual
relationship, it is imperative that the various stipulations provided for in the
contract be construed together, consistent with the parties’
contemporaneous and subsequent acts as regards the execution of the
contract. And once the intention of the parties has been ascertained, that
element is deemed as an integral part of the contract as though it has been
originally expressed in unequivocal terms.
Same; Same; Same; Court found the delay neither “substantial” nor
“fundamental” and did not amount to a breach that would defeat the
intention of the parties when they executed the lease contract with option to
purchase.—The lease contract provided that to exercise the option, petitioner
had to send a letter to SIHI, manifesting his intent to exercise said option
within the lease period ending January 30, 1986. However, what petitioner
did was to request on January 15, 1986, for a six-month extension of the
lease contract, for the alleged purpose of raising funds intended to purchase
the property subject of the option. It was only after the request was denied
on February 14, 1986, that petitioner notified SIHI of his desire to exercise
the option formally. This was by letter dated February 18, 1986. In private
respondent’s view, there was already a delay of 18 days, fatal to petitioner’s
cause. But respondent court found the delay neither “substantial” nor
“fundamental” and did not amount to a breach that would defeat the
intention of the parties when they executed the lease contract with option to
purchase.
PETITION for review on certiorari of a decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Blanco Law Firm for petitioner.
Carceller vs. Court of Appeals

De Borja, Medialdea, Bello, Guevarra, Serapio & Gerodias for private
respondent. Carceller vs. Court of Appeals, 302 SCRA 718, G.R. No. 124791
February 10, 1999
QUISUMBING, J.:
Before us is a petition for review of the Decision 1 dated September 21, 1995
of the Court of Appeals 2 in CA - G. R. CV No. 37520, as well as its
Resolution 3 dated April 25, 1996, denying both parties’ motion for partial
reconsideration or clarification. The assailed decision affirmed with
modification the judgment 4 of the Regional Trial Court of Cebu City, Branch
5, in Civil Case No. CEB 4700, and disposed of the controversy as
follows:jgc:chanrobles.com.ph
"However, We do not find it just that the appellee, in exercising his option to
buy, should pay appellant SIHI only P1,800,000.00. In fairness to appellant
SIHI, the purchase price must be based on the prevailing market price of
real property in Bulacao, Cebu City." (Emphasis supplied)
The factual background of this case is quite simple.
Private respondent State Investment Houses, Inc. (SIHI) is the registered
owner of two (2) parcels of land with a total area of 9,774 square meters,
including all the improvements thereon, located at Bulacao, Cebu City,
covered by Transfer Certificate of Titles Nos. T-89152 and T-89153 of the
Registry of Deeds of Cebu City.
On January 10, 1985, petitioner and SIHI entered into a lease contract with
option to purchase 5 over said two parcels of land, at a monthly rental of
Ten Thousand (P10,000.00) pesos for a period of eighteen (18) months,
beginning on August 1, 1984 until January 30, 1986. The pertinent portion of
the lease contract subject of the dispute reads in part:jgc:chanrobles.com.ph
"4. As part of the consideration of this agreement, the LESSOR hereby
grants unto the LESSEE the exclusive right, option and privilege to purchase,
within the lease period, the leased premises thereon for the aggregate
amount of P1,800,000.00 payable as follows:chanrob1es virtual 1aw library
a. Upon the signing of the Deed of Sale, the LESSEE shall immediately
pay P360,000.00.
S a l e s P a r t V P a g e | 13
b. The balance of P 1,440,000.00 shall be paid in equal installments of
P41,425.87 over sixty (60) consecutive months computed with interest at
24% per annum on the diminishing balance; Provided, that the LESSEE shall
have the right to accelerate payments at anytime in which event the
stipulated interest for the remaining installments shall no longer be imposed.
. . . The option shall be exercised by a written notice to the LESSOR at
anytime within the option period and the document of sale over the afore-
described properties has to be consummated within the month immediately
following the month when the LESSEE exercised his option under this
contract." 6
On January 7, 1986, or approximately three (3) weeks before the expiration
of the lease contract, SIHI notified petitioner of the impending termination of
the lease agreement, and of the short period of time left within which he
could still validly exercise the option. It likewise requested petitioner to
advise them of his decision on the option, on or before January 20, 1986. 7
In a letter dated January 15, 1986, which was received by SIHI on January
29, 1986, petitioner requested for a six-month extension of the lease
contract, alleging that he needs ample time to raise sufficient funds in order
to exercise the option. To support his request, petitioner averred that he had
already made a substantial investment on the property, and had been
punctual in paying his monthly rentals. 8
On February 14, 1986, SIHI notified petitioner that his request was
disapproved. Nevertheless, it offered to lease the same property to petitioner
at the rate of Thirty Thousand (P30,000.00) pesos a month, for a period of
one (1) year. It further informed the petitioner of its decision to offer for sale
said leased property to the general public. 9
On February 18, 1986, petitioner notified SIHI of his decision to exercise the
option to purchase the property and at the same time he made
arrangements for the payment of the down payment thereon in the amount
of Three Hundred Sixty Thousand (P360,000.00) pesos. 10
On February 20, 1986, SIHI sent another letter to petitioner, reiterating its
previous stand on the latter’s offer, stressing that the period within which the
option should have been exercised had already lapsed. SIHI asked petitioner

to vacate the property within ten (10) days from notice, and to pay rental
and penalty due. 11
Hence, on February 28, 1986, a complaint for specific performance and
damages 12 was filed by petitioner against SIHI before the Regional Trial
Court of Cebu City, to compel the latter to honor its commitment and
execute the corresponding deed of sale.
After trial, the court a quo promulgated its decision dated April 1, 1991, the
dispositive portion of which reads:jgc:chanrobles.com.ph
"In the light of the foregoing considerations, the Court hereby renders
judgment in Civil Case No. CEB 4700, ordering the defendant to execute a
deed of sale in favor of the plaintiff, covering the parcels of land together
with all the improvements thereon, covered by Transfer Certificates of Title
Nos. 89152 and 89153 of the Registry of Deeds of Cebu City, in accordance
with the lease contract executed on January 10, 1984 between the plaintiff
and the defendant, but the purchase price may be by "one shot payment" of
P1,800,000.00; and the defendant to pay attorney’s fee of P20,000.00.
No damages awarded." 13
Not satisfied with the judgment, SIHI elevated the case to the Court of
Appeals by way of a petition for review.
On September 21, 1995, respondent court rendered its decision, affirming
the trial court’s judgment, but modified the basis for assessing the purchase
price. While respondent court affirmed appellee’s option to buy the property,
it added that, "the purchase price must be based on the prevailing market
price of real property in Bulacao, Cebu City." 14
Baffled by the modification made by respondent court, both parties filed a
motion for reconsideration and/or clarification, with petitioner, on one hand,
praying that the prevailing market price be the value of the property in
February 1986, the time when the sale would have been consummated.
SIHI, on the other hand, prayed that the market price of the property be
based on the prevailing price index at least 10 years later, that is, 1996.
Respondent court conducted further hearings to clarify the matter, but no
agreement was reached by the parties. Thus, on April 25, 1996, respondent
court promulgated the assailed resolution, which denied both parties’
S a l e s P a r t V P a g e | 14
motions, and directed the trial court to conduct further hearings to ascertain
the prevailing market value of real properties in Bulacao, Cebu City and fix
the value of the property subject of the controversy. 14a
Hence, the instant petition for review.
The fundamental issue to be resolved is, should petitioner be allowed to
exercise the option to purchase the leased property, despite the alleged
delay in giving the required notice to private respondent?
An option is a preparatory contract in which one party grants to the other,
for a fixed period and under specified conditions, the power to decide,
whether or not to enter into a principal contract. It binds the party who has
given the option, not to enter into the principal contract with any other
person during the period designated, and, within that period, to enter into
such contract with the one to whom the option was granted, if the latter
should decide to use the option. 15 It is a separate agreement distinct from
the contract which the parties may enter into upon the consummation of the
option. 16
Considering the circumstances in this case, we find no reason to disturb the
findings of respondent court, that petitioner’s letter to SIHI, dated January
15, 1986, was fair notice to the latter of the former’s intent to exercise the
option, despite the request for the extension of the lease contract. As stated
in said letter to SIHI, petitioner was requesting for an extension (of the
contract) for six months "to allow us to generate sufficient funds in order to
exercise our option to buy the subject property." 17 The analysis by the
Court of Appeals of the evidence on record and the process by which it
arrived at its findings on the basis thereof, impel this Court’s assent to said
findings. They are consistent with the parties’ primary intent, as hereafter
discussed, when they executed the lease contract. As respondent court
ruled:jgc:chanrobles.com.ph
"We hold that the appellee [herein petitioner] acted with honesty and good
faith. Verily, We are in accord with the trial court that he should be allowed
to exercise his option to purchase the lease property. In fact, SIHI will not be
prejudiced. A contrary ruling, however, will definitely cause damage to the
appellee, it appearing that he has introduced considerable improvements on
the property and has borrowed huge loan from the Technology Resources
Center." 17a

The contracting parties’ primary intent in entering into said lease contract
with option to purchase confirms, in our view, the correctness of respondent
court’s ruling. Analysis and construction, however, should not be limited to
the words used in the contract, as they may not accurately reflect the
parties’ true intent. The reasonableness of the result obtained, after said
analysis, ought likewise to be carefully considered.
It is well-settled in both law and jurisprudence, that contracts are the law
between the contracting parties and should be fulfilled, if their terms are
clear and leave no room for doubt as to the intention of the contracting
parties. 18 Further, it is well-settled that in construing a written agreement,
the reason behind and the circumstances surrounding its execution are of
paramount importance. Sound construction requires one to be placed
mentally in the situation occupied by the parties concerned at the time the
writing was executed. Thereby, the intention of the contracting parties could
be made to prevail, because their agreement has the force of law between
them. 19
Moreover, to ascertain the intent of the parties in a contractual relationship,
it is imperative that the various stipulations provided for in the contract be
construed together, consistent with the parties’ contemporaneous and
subsequent acts as regards the execution of the contract. 20 And once the
intention of the parties has been ascertained, that element is deemed as an
integral part of the contract as though it has been originally expressed in
unequivocal terms.
As sufficiently established during the trial, SIHI, prior to its negotiation with
petitioner, was already beset with financial problems. SIHI was experiencing
difficulty in meeting the claims of its creditors. Thus, in order to reprogram
the company’s financial investment plan and facilitate its rehabilitation and
viability, SIHI, being a quasi-banking financial institution, had been placed
under the supervision and control of the Central Bank (CB). It was in dire
need of liquidating its assets, so to speak, in order to stay afloat financially.
Thus, SIHI was compelled to dispose some of its assets, among which is the
subject leased property, to generate sufficient funds to augment its badly-
depleted financial resources. This then brought about the execution of the
lease contract with option to purchase between SIHI and the petitioner.
The lease contract provided that to exercise the option, petitioner had to
send a letter to SIHI, manifesting his intent to exercise said option within the
S a l e s P a r t V P a g e | 15
lease period ending January 30, 1986. However, what petitioner did was to
request on January 15, 1986, for a six-month extension of the lease
contract, for the alleged purpose of raising funds intended to purchase the
property subject of the option. It was only after the request was denied on
February 14, 1986, that petitioner notified SIHI of his desire to exercise the
option formally. This was by letter dated February 18, 1986. In private
respondent’s view, there was already a delay of 18 days, fatal to petitioner’s
cause. But respondent court found the delay neither "substantial" nor
"fundamental" and did not amount to a breach that would defeat the
intention of the parties when they executed the lease contract with option to
purchase. 20a
In allowing petitioner to exercise the option, however, both lower courts are
in accord in their decision, rationalizing that a contrary ruling would definitely
cause damage to the petitioner, as he had the whole place renovated to
make the same suitable and conducive for the business he established there.
Moreover, judging from the subsequent acts of the parties, it is undeniable
that SIHI really intended to dispose of said leased property, which petitioner
indubitably intended to buy.
SIHI’s agreement to enter first into a lease contract with option to purchase
with herein petitioner, is a clear proof of its intent to promptly dispose said
property although the full financial returns may materialize only in a year’s
time. Furthermore, its letter dated January 7, 1986, reminding the petitioner
of the short period of time left within which to consummate their agreement,
clearly showed its desire to sell that property. Also, SIHI’s letter dated
February 14, 1986 supported the conclusion that it was bent on disposing
said property. For this letter made mention of the fact that, "said property is
now for sale to the general public" .
Petitioner’s determination to purchase said property is equally indubitable.
He introduced permanent improvements on the leased property,
demonstrating his intent to acquire dominion in a year’s time. To increase his
chances of acquiring the property, he secured an P8 Million loan from the
Technology Resources Center (TRC), thereby augmenting his capital. He
averred that he applied for a loan since he planned to pay the purchase price
in one single payment, instead of paying in installment, which would entail
the payment of additional interest at the rate of 24% per annum, compared
to 7 3/4% per annum interest for the TRC loan. His letter earlier requesting
extension was premised, in fact, on his need for time to secure the needed
financing through a TRC loan.
 S a l e s P a r t V P a g e | 16

In contractual relations, the law allows the parties reasonable leeway on the said property. The case is hereby remanded to Regional Trial Court of Cebu,
terms of their agreement, which is the law between them. 21 Note that by Branch 5, for further proceedings to determine promptly the fair market
contract SIHI had given petitioner 4 periods: (a) the option to purchase the value of said real property as of February 1986, in Bulacao, Cebu City.
property for P1,800,000.00 within the lease period, that is, until January 30,
1986; (b) the option to be exercised within the option period by written Costs against private Respondent.
notice at anytime; (c) the "document of sale...to be consummated within the
month immediately following the month" when petitioner exercises the SO ORDERED.
option; and (d) the payment in equal installments of the purchase price over
a period of 60 months. In our view, petitioner’s letter of January 15, 1986
Bellosillo, Puno, Mendoza and Buena, JJ., concur.
and his formal exercise of the option on February 18, 1986 were within a
reasonable time-frame consistent with periods given and the known intent of
the parties to the agreement dated January 10, 1985. A contrary view would
be harsh and iniquitous indeed.

In Tuason, Jr., etc. v. De Asis, 22 this Court opined that "in a contract of
lease, if the lessor makes an offer to the lessee to purchase the property on
or before the termination of the lease, and the lessee fails to accept or make
the purchase on time, the lessee losses the right to buy the property later on
the terms and conditions set in the offer." Thus, on one hand, petitioner
herein could not insist on buying the said property based on the price agreed
upon in the lease agreement, even if his option to purchase it is recognized.
On the other hand, SIHI could not take advantage of the situation to
increase the selling price of said property by nearly 90% of the original price.
Such leap in the price quoted would show an opportunistic intent to exploit
the situation as SIHI knew for a fact that petitioner badly needed the
property for his business and that he could afford to pay such higher amount
after having secured an P8 Million loan from the TRC. If the courts were to
allow SIHI to take advantage of the situation, the result would have been an
injustice to petitioner, because SIHI would be unjustly enriched at his
expense. Courts of law, being also courts of equity, may not countenance
such grossly unfair results without doing violence to its solemn obligation to
administer fair and equal justice for all.

WHEREFORE, the appealed decision of respondent court, insofar as it affirms

the judgment of the trial court in granting petitioner the opportunity to
exercise the option to purchase the subject property, is hereby AFFIRMED.
However the purchase price should be based on the fair market value of real
property in Bulacao, Cebu City, as of February 1986, when the contract
would have been consummated. Further, petitioner is hereby ordered to pay
private respondent SIHI legal interest on the said purchase price beginning
February 1986 up to the time it is actually paid, as well as the taxes due on
said property, considering that petitioner have enjoyed the beneficial use of
 S a l e s P a r t V P a g e | 17

G.R. No. 134971. March 25, 2004.* the contention of the petitioner that the deeds of assignment executed by
the defendants-tenants are perfected option contracts. An option is a
HERMINIO TAYAG, petitioner, vs. AMANCIA LACSON, ROSENDO contract by which the owner of the property agrees with another person that
LACSON, ANTONIO LACSON, JUAN LACSON, TEODOSIA LACSON- he shall have the right to buy his property at a fixed price within a certain
ESPINOSA and THE COURT OF APPEALS, respondents. time. It is a condition offered or contract by which the owner stipulates with
another that the latter shall have the right to buy the property at a fixed
Remedial Law; Injunction; While generally the grant of a writ of preliminary
price within a certain time, or under, or in compliance with certain terms and
injunction rests on the sound discretion of the trial court taking cognizance
conditions, or which gives to the owner of the property the right to sell or
of the case, extreme caution must be observed in the exercise of such
demand a sale. It imposes no binding obligation on the person holding the
discretion.—A preliminary injunction is an extraordinary event calculated to
option, aside from the consideration for the offer. Until accepted, it is not,
preserve or maintain the status quo of things ante litem and is generally
properly speaking, treated as a contract. The second party gets in praesenti,
availed of to prevent actual or threatened acts, until the merits of the case
not lands, not an agreement that he shall have the lands, but the right to call
can be heard. Injunction is accepted as the strong arm of equity or a
for and receive lands if he elects. An option contract is a separate and
transcendent remedy. While generally the grant of a writ of preliminary
distinct contract from which the parties may enter into upon the conjunction
injunction rests on the sound discretion of the trial court taking cognizance
of the option.
of the case, extreme caution must be observed in the exercise of such
discretion. Same; Same; Damages; Requisites before Art. 1314 of the Civil Code may
apply.—In So Ping Bun v. Court of Appeals, we held that for the said law to
Same; Same; Requisites for the issuance of a writ of preliminary injunction;
apply, the pleader is burdened to prove the following: (1) the existence of a
The possibility of irreparable damage without proof of adequate existing
valid contract; (2) knowledge by the third person of the existence of the
rights is not a ground for injunction.—For the court to issue a writ of
contract; and (3) interference by the third person in the contractual relation
preliminary injunction, the petitioner was burdened to establish the
without legal justification.
following: (1) a right in esse or a clear and unmistakable right to be
protected; (2) a violation of that right; (3) that there is an urgent and PETITION for review on certiorari of a decision of the Court of Appeals.
permanent act and urgent necessity for the writ to prevent serious damage.
Thus, in the absence of a clear legal right, the issuance of the injunctive writ The facts are stated in the opinion of the Court.
constitutes a grave abuse of discretion. Where the complainant’s right is
doubtful or disputed, injunction is not proper. Injunction is a preservative Ernesto L. Pineda for petitioner.
remedy aimed at protecting substantial rights and interests. It is not
Rafael De Claro for private respondents.
designed to protect contingent or future rights. The possibility of irreparable
damage without proof of adequate existing rights is not a ground for
DECISION
injunction.
CALLEJO, SR., J.:
Civil Law; Contracts; Options; Words and Phrases; An option is a contract by
which the owner of the property agrees with another person that he shall
Before us is a petition for review on certiorari of the Decision 1 and the
have the right to buy his property at a fixed price within a certain time; An Resolution2 of respondent Court of Appeals in CA-G.R. SP No. 44883.
option contract is a separate and distinct contract from which the parties
may enter into upon the conjunction of the option.—We do not agree with

The Case for the Petitioner
Respondents Angelica Tiotuyco Vda. de Lacson, 3 and her children Amancia,
Antonio, Juan, and Teodosia, all surnamed Lacson, were the registered
owners of three parcels of land located in Mabalacat, Pampanga, covered by
Transfer Certificates of Title (TCT) Nos. 35922-R, 35923-R, and 35925-R,
registered in the Register of Deeds of San Fernando, Pampanga. The
properties, which were tenanted agricultural lands,4 were administered by
Renato Espinosa for the owner.
On March 17, 1996, a group of original farmers/tillers, namely, Julio
Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso
Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino,
Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga
Laxamana, Felicencia de Leon, Emiliano Ramos, and another group, namely,
Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo
Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez,
Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto
Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de
Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores, 5 individually
executed in favor of the petitioner separate Deeds of Assignment 6 in which
the assignees assigned to the petitioner their respective rights as
tenants/tillers of the landholdings possessed and tilled by them for and in
consideration of P50.00 per square meter. The said amount was made
payable "when the legal impediments to the sale of the property to the
petitioner no longer existed." The petitioner was also granted the exclusive
right to buy the property if and when the respondents, with the concurrence
of the defendants-tenants, agreed to sell the property. In the interim, the
petitioner gave varied sums of money to the tenants as partial payments,
and the latter issued receipts for the said amounts.
On July 24, 1996, the petitioner called a meeting of the defendants-tenants
to work out the implementation of the terms of their separate
agreements.7 However, on August 8, 1996, the defendants-tenants, through
Joven Mariano, wrote the petitioner stating that they were not attending the
meeting and instead gave notice of their collective decision to sell all their
rights and interests, as tenants/lessees, over the landholding to the
respondents.8 Explaining their reasons for their collective decision, they
wrote as follows:
S a l e s P a r t V P a g e | 18
Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating
napagkasunduan, hindi tumanggap ng ibang buyer o ahente, pero sinira
ninyo ang aming pagtitiwala sa pamamagitan ng demanda ninyo at
pagbibigay ng problema sa amin na hindi naman nagbenta ng lupa.
Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan
o ang aming lupang sinasaka sa landowner o sa mga pamilyang Lacson,
dahil ayaw naming magkaroon ng problema.
Kaya kung ang sasabihin ninyong ito’y katangahan, lalo sigurong magiging
katangahan kung ibebenta pa namin sa inyo ang aming lupang sinasaka,
kaya pasensya na lang Mister Tayag. Dahil sinira ninyo ang aming
pagtitiwala at katapatan.9
On August 19, 1996, the petitioner filed a complaint with the Regional Trial
Court of San Fernando, Pampanga, Branch 44, against the defendants-
tenants, as well as the respondents, for the court to fix a period within which
to pay the agreed purchase price of P50.00 per square meter to the
defendants, as provided for in the Deeds of Assignment. The petitioner also
prayed for a writ of preliminary injunction against the defendants and the
respondents therein.10 The case was docketed as Civil Case No. 10910.
In his complaint, the petitioner alleged, inter alia, the following:
4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez,
Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita
Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana,
Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de
Leon, Emiliano Ramos are original farmers or direct tillers of
landholdings over parcels of lands covered by Transfer Certificate of
Title Nos. 35922-R, 35923-R and 35925-R which are registered in
the names of defendants LACSONS; while defendants Felino G.
Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo
Quiambao, Roman Laxamana, Eddie San Luis, Alfredo Gozun, Jose
Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro
Tolentino, Ceferino de Leon, Alberto Hernandez, and Aurelio Flores
are sub-tenants over the same parcel of land.
5. That on March 17, 1996 the defendants TIAMSON, et al., entered
into Deeds of Assignment with the plaintiff by which the defendants
assigned all their rights and interests on their landholdings to the
 S a l e s P a r t V P a g e | 19

plaintiff and that on the same date (March 17, 1996), the defendants 11. Ruben Torres
received from the plaintiff partial payments in the amounts - - - - - -
corresponding to their names. Subsequent payments were also P P
[Son of Mariano P 10,000 ------
received: 33,587.31 43,587.31
Torres
(deceased)]
1st 2nd CHECK
TOTAL 12. Meliton P
PAYMENT PAYMENT NO. P 10,000 12,944.77 231269
Allanigue 22,944.77
1.Julio Tiamson - P P
P 20,000 231281 13. Dominga
----- 10,621.54 30,621.54 P 5,000 22,269.02 231275 27,269.02
Laxamana
2. Renato Gozun P 10,000 96,000 106,000.00
14. Felicencia de
- - - - - - 10,000 ------ ------ ------
Leon
[son of Felix
Gozun 15. Emiliano
(deceased)] 5,000 18,869.60 231280 23,869.60
Ramos
3. Rosita P 16. Felino G.
P 5,000 14,374.24 231274 10,000 ------ ------ ------
Hernandez - - - - 19,374.24 Tolentino
4. Bienvenido P 10,000 14,465.90 231285 24,465.90 17. Rica Gozun 5,000 ------ ------ ------
Tongol - - -
[Son of Abundio 18. Perla Gozun 10,000 ------ ------ ------
Tongol
(deceased)] 19. Benigno
10,000 ------ ------ ------
Tolentino
5. Alfonso Flores
P 30,000 26,648.40 231271 56,648.40 20. Rodolfo
------ 10,000 ------ ------ ------
Quiambao
6. Norma
P 10,000 41,501.10 231279 51,501.10 21. Roman
Quiambao - - - - 10,000 ------ ------ ------
Laxamana
7. Rosita
P 10,000 22,126.08 231284 32,126.08 22. Eddie San
Tolentino - - - - - 10,000 ------ ------ ------
Luis
8. Jose Sosa - - -
P 10,000 14,861.31 231291 24,861.31 23. Ricardo
------ 10,000 ------ ------ ------
Hernandez
9. Francisco
P 10,000 24,237.62 231283 34,237.62 24. Nicenciana
Tolentino, Sr. 10,000 ------ ------ ------
Miranda
10. Emiliano
P 10,000 ------ ------ ------ 25. Jose Gozun 10,000 ------ ------ ------
Laxamana - -
 S a l e s P a r t V P a g e | 20

26. Alfredo Sosa 5,000 ------ ------ ------ inducing or have induced the defendants TIAMSON, et. al., to violate
their contracts with the plaintiff;
27. Jose Tiamson 10,000 ------ ------ ------
9. That by reason of the malicious acts of all the defendants, plaintiff
28. Augusto suffered moral damages in the forms of mental anguish, mental
5,000 ------ ------ ------
Tolentino torture and serious anxiety which in the sum of P500,000.00 for
which defendants should be held liable jointly and severally.11
29. Sixto
10,000 ------ ------ ------
Hernandez
In support of his plea for injunctive relief, the petitioner, as plaintiff,
30. Alex also alleged the following in his complaint:
10,000 ------ ------ ------
Quiambao
11. That to maintain the status quo, the defendants TIAMSON, et
31. Isidro al., should be restrained from rescinding their contracts with the
10,000 ------ ------ ------
Tolentino plaintiff, and the defendants LACSONS should also be restrained
32. Ceferino de from accepting any offer of sale or alienation with the defendants
------ 11,378.70 231270 ------ TIAMSON, et al., in whatever form, the latter’s rights and interests in
Leon
the properties mentioned in paragraph 4 hereof; further, the
33. Alberto LACSONS should be restrained from encumbering/alienating the
10,000 ------ ------ ------ subject properties covered by TCT No. 35922-R, 35923-R and TCT
Hernandez
No. 35925-R, Registry of Deeds of San Fernando, Pampanga;
34. Orlando
10,000 ------ ------ ------
Florez 12. That the defendants TIAMSON, et al., threaten to rescind their
contracts with the plaintiff and are also bent on selling/alienating
35. Aurelio Flores 10,000 ------ ------ ------
their rights and interests over the subject properties to their co-
defendants (LACSONS) or any other persons to the damage and
6. That on July 24, 1996, the plaintiff wrote the defendants prejudice of the plaintiff who already invested much money, efforts
TIAMSON, et al., inviting them for a meeting regarding the and time in the said transactions;
negotiations/implementations of the terms of their Deeds of
Assignment; 13. That the plaintiff is entitled to the reliefs being demanded in the
complaint;
7. That on August 8, 1996, the defendants TIAMSON, et al., through
Joven Mariano, replied that they are no longer willing to pursue with 14. That to prevent irreparable damages and prejudice to the
the negotiations, and instead they gave notice to the plaintiff that plaintiff, as the latter has no speedy and adequate remedy under the
they will sell all their rights and interests to the registered owners ordinary course of law, it is essential that a Writ of Preliminary
(defendants LACSONS). Injunction be issued enjoining and restraining the defendants
TIAMSON, et al., from rescinding their contracts with the plaintiff
A copy of the letter is hereto attached as Annex "A" etc.; and from selling/alienating their properties to the LACSONS or other
persons;
8. That the defendants TIAMSON, et. al., have no right to deal with
the defendants LACSON or with any third persons while their 15. That the plaintiff is willing and able to put up a reasonable bond
contracts with the plaintiff are subsisting; defendants LACSONS are to answer for the damages which the defendants would suffer

should the injunction prayed for and granted be found without
basis.12
The petitioner prayed, that after the proceedings, judgment be rendered as
follows:
1. Pending the hearing, a Writ of Preliminary Injunction be issued
prohibiting, enjoining and restraining defendants Julio Tiamson,
Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores,
Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino
Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga
Laxamana, Felicencia de Leon, Emiliano Ramos, Felino G. Tolentino,
Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao,
Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana
Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto
Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and
Aurelio Flores from rescinding their contracts with the plaintiff and
from alienating their rights and interest over the aforementioned
properties in favor of defendants LACSONS or any other third
persons; and prohibiting the defendants LACSONS from
encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-R of
the Registry of Deeds of San Fernando, Pampanga.
2. And pending the hearing of the Prayer for a Writ of Preliminary
Injunction, it is prayed that a restraining order be issued restraining
the aforementioned defendants (TIAMSON, et al.) from rescinding
their contracts with the plaintiff and from alienating the subject
properties to the defendants LACSONS or any third persons; further,
restraining and enjoining the defendants LACSONS from
encumbering/selling the properties covered by TCT Nos. 35922-R,
35923-R, and 35925-R of the Registry of Deeds of San Fernando,
Pampanga.
3. Fixing the period within which plaintiff shall pay the balance of the
purchase price to the defendants TIAMSON, et al., after the lapse of
legal impediment, if any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum of
P500,000.00 as moral damages;
S a l e s P a r t V P a g e | 21
6. Ordering the defendants to pay the plaintiff attorney’s fees in the
sum of P100,000.00 plus litigation expenses of P50,000.00;
Plaintiff prays for such other relief as may be just and equitable under the
premises.13
In their answer to the complaint, the respondents as defendants asserted
that (a) the defendant Angelica Vda. de Lacson had died on April 24, 1993;
(b) twelve of the defendants were tenants/lessees of respondents, but the
tenancy status of the rest of the defendants was uncertain; (c) they never
induced the defendants Tiamson to violate their contracts with the
petitioner; and, (d) being merely tenants-tillers, the defendants-tenants had
no right to enter into any transactions involving their properties without their
knowledge and consent. They also averred that the transfers or assignments
of leasehold rights made by the defendants-tenants to the petitioner is
contrary to Presidential Decree (P.D.) No. 27 and Republic Act No. 6657, the
Comprehensive Agrarian Reform Program (CARP).14 The respondents
interposed counterclaims for damages against the petitioner as plaintiff.
The defendants-tenants Tiamson, et al., alleged in their answer with
counterclaim for damages, that the money each of them received from the
petitioner were in the form of loans, and that they were deceived into
signing the deeds of assignment:
a) That all the foregoing allegations in the Answer are hereby
repleaded and incorporated in so far as they are material and
relevant herein;
b) That the defendants Tiamson, et al., in so far as the Deeds of
Assignment are concern[ed] never knew that what they did sign is a
Deed of Assignment. What they knew was that they were made to
sign a document that will serve as a receipt for the loan granted [to]
them by the plaintiff;
c) That the Deeds of Assignment were signed through the
employment of fraud, deceit and false pretenses of plaintiff and
made the defendants believe that what they sign[ed] was a mere
receipt for amounts received by way of loans;
d) That the documents signed in blank were filled up and completed
after the defendants Tiamson, et al., signed the documents and their

completion and accomplishment was done in the absence of said
defendants and, worst of all, defendants were not provided a copy
thereof;
e) That as completed, the Deeds of Assignment reflected that the
defendants Tiamson, et al., did assign all their rights and interests in
the properties or landholdings they were tilling in favor of the
plaintiff. That if this is so, assuming arguendo that the documents
were voluntarily executed, the defendants Tiamson, et al., do not
have any right to transfer their interest in the landholdings they are
tilling as they have no right whatsoever in the landholdings, the
landholdings belong to their co-defendants, Lacson, et al., and
therefore, the contract is null and void;
f) That while it is admitted that the defendants Tiamson, et al.,
received sums of money from plaintiffs, the same were received as
approved loans granted by plaintiff to the defendants Tiamson, et
al., and not as part consideration of the alleged Deeds of
Assignment; and by way of:…15
At the hearing of the petitioner’s plea for a writ of preliminary injunction, the
respondents’ counsel failed to appear. In support of his plea for a writ of
preliminary injunction, the petitioner adduced in evidence the Deeds of
Assignment,16 the receipts17 issued by the defendants-tenants for the
amounts they received from him; and the letter 18 the petitioner received
from the defendants-tenants. The petitioner then rested his case.
The respondents, thereafter, filed a Comment/Motion to dismiss/deny the
petitioner’s plea for injunctive relief on the following grounds: (a) the Deeds
of Assignment executed by the defendants-tenants were contrary to public
policy and P.D. No. 27 and Rep. Act No. 6657; (b) the petitioner failed to
prove that the respondents induced the defendants-tenants to renege on
their obligations under the "Deeds of Assignment;" (c) not being privy to the
said deeds, the respondents are not bound by the said deeds; and, (d) the
respondents had the absolute right to sell and dispose of their property and
to encumber the same and cannot be enjoined from doing so by the trial
court.
The petitioner opposed the motion, contending that it was premature for the
trial court to resolve his plea for injunctive relief, before the respondents and
the defendants-tenants adduced evidence in opposition thereto, to afford the
S a l e s P a r t V P a g e | 22
petitioner a chance to adduce rebuttal evidence and prove his entitlement to
a writ of preliminary injunction. The respondents replied that it was the
burden of the petitioner to establish the requisites of a writ of preliminary
injunction without any evidence on their part, and that they were not bound
to adduce any evidence in opposition to the petitioner’s plea for a writ of
preliminary injunction.
On February 13, 1997, the court issued an Order 19 denying the motion of the
respondents for being premature. It directed the hearing to proceed for the
respondents to adduce their evidence. The court ruled that the petitioner, on
the basis of the material allegations of the complaint, was entitled to
injunctive relief. It also held that before the court could resolve the
petitioner’s plea for injunctive relief, there was need for a hearing to enable
the respondents and the defendants-tenants to adduce evidence to
controvert that of the petitioner. The respondents filed a motion for
reconsideration, which the court denied in its Order dated April 16, 1997.
The trial court ruled that on the face of the averments of the complaint, the
pleadings of the parties and the evidence adduced by the petitioner, the
latter was entitled to injunctive relief unless the respondents and the
defendants-tenants adduced controverting evidence.
The respondents, the petitioners therein, filed a petition for certiorari in the
Court of Appeals for the nullification of the February 13, 1997 and April 16,
1997 Orders of the trial court. The case was docketed as CA-G.R. SP No.
44883. The petitioners therein prayed in their petition that:
1. An order be issued declaring the orders of respondent court dated
February 13, 1997 and April 16, 1997 as null and void;
2. An order be issued directing the respondent court to issue an
order denying the application of respondent Herminio Tayag for the
issuance of a Writ of Preliminary Injunction and/or restraining order.
3. In the meantime, a Writ of Preliminary Injunction be issued
against the respondent court, prohibiting it from issuing its own writ
of injunction against Petitioners, and thereafter making said
injunction to be issued by this Court permanent.
Such other orders as may be deemed just & equitable under the premises
also prayed for.20

The respondents asserted that the Deeds of Assignment executed by the
assignees in favor of the petitioner were contrary to paragraph 13 of P.D.
No. 27 and the second paragraph of Section 70 of Rep. Act No. 6657, and,
as such, could not be enforced by the petitioner for being null and void. The
respondents also claimed that the enforcement of the deeds of assignment
was subject to a supervening condition:
3. That this exclusive and absolute right given to the assignee shall be
exercised only when no legal impediments exist to the lot to effect the
smooth transfer of lawful ownership of the lot/property in the name of the
ASSIGNEE.21
The respondents argued that until such condition took place, the petitioner
would not acquire any right to enforce the deeds by injunctive relief.
Furthermore, the petitioner’s plea in his complaint before the trial court, to
fix a period within which to pay the balance of the amounts due to the
tenants under said deeds after the "lapse" of any legal impediment, assumed
that the deeds were valid, when, in fact and in law, they were not. According
to the respondents, they were not parties to the deeds of assignment;
hence, they were not bound by the said deeds. The issuance of a writ of
preliminary injunction would restrict and impede the exercise of their right to
dispose of their property, as provided for in Article 428 of the New Civil
Code. They asserted that the petitioner had no cause of action against them
and the defendants-tenants.
On April 17, 1998, the Court of Appeals rendered its decision against the
petitioner, annulling and setting aside the assailed orders of the trial court;
and permanently enjoining the said trial court from proceeding with Civil
Case No. 10901. The decretal portion of the decision reads as follows:
However, even if private respondent is denied of the injunctive relief he
demands in the lower court still he could avail of other course of action in
order to protect his interest such as the institution of a simple civil case of
collection of money against TIAMSON, et al.
For all the foregoing considerations, the orders dated 13 February 1997 and
16 April 1997 are hereby NULLIFIED and ordered SET ASIDE for having been
issued with grave abuse of discretion amounting to lack or excess of
jurisdiction. Accordingly, public respondent is permanently enjoined from
proceeding with the case designated as Civil Case No. 10901.22
S a l e s P a r t V P a g e | 23
The CA ruled that the respondents could not be enjoined from alienating or
even encumbering their property, especially so since they were not privies to
the deeds of assignment executed by the defendants-tenants. The
defendants-tenants were not yet owners of the portions of the landholdings
respectively tilled by them; as such, they had nothing to assign to the
petitioner. Finally, the CA ruled that the deeds of assignment executed by
the defendants-tenants were contrary to P.D. No. 27 and Rep. Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the petitioner’s
motion for reconsideration.23
Hence, the petitioner filed his petition for review on certiorari before this
Court, contending as follows:
I
A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE
USED AS EVIDENCE OR BASIS FOR ANY CONCLUSION, AS THIS
ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN THE LOWER COURT
(RTC).24
II
THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A PETITION
FOR PRELIMINARY INJUNCTION AT A TIME WHEN THE LOWER COURT
(RTC) IS STILL RECEIVING EVIDENCE PRECISELY TO DETERMINE
WHETHER OR NOT THE WRIT OF PRELIMINARY INJUNCTION BEING
PRAYED FOR BY TAYAG SHOULD BE GRANTED OR NOT.25
III
THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN EVIDENCE, TO
SUPPORT ITS CONCLUSION THAT THE TENANTS ARE NOT YET "AWARDEES
OF THE LAND REFORM.26
IV
THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF
THE ENTIRE PROCEEDINGS BELOW INCLUDING THE TRIAL ON THE MERITS

OF THE CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY THE
PROPRIETY OF MAINTAINING THE STATUS QUO.27
V The Comment/Motion of the
THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF
THE OTHER 35 TENANTS WHO DO NOT QUESTION THE JURISDICTION OF
THE LOWER COURT (RTC) OVER THE CASE AND WHO ARE IN FACT STILL
PRESENTING THEIR EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR,
AND TO PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY FILED
AGAINST THE PETITIONER.28
VI
THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE FILED BY
TAYAG FOR "FIXING OF PERIOD" UNDER ART. 1197 OF THE NEW CIVIL
CODE AND FOR "DAMAGES" AGAINST THE LACSONS UNDER ART. 1314 OF
THE SAME CODE. THIS CASE CANNOT BE SUPPRESSED OR RENDERED
NUGATORY UNCEREMONIOUSLY.29
The petitioner faults the Court of Appeals for permanently enjoining the trial
court from proceeding with Civil Case No. 10910. He opines that the same
was too drastic, tantamount to a dismissal of the case. He argues that at
that stage, it was premature for the appellate court to determine the merits
of the case since no evidentiary hearing thereon was conducted by the trial
court. This, the Court of Appeals cannot do, since neither party moved for
the dismissal of Civil Case No. 10910. The petitioner points out that the
Court of Appeals, in making its findings, went beyond the issue raised by the
private respondents, namely, whether or not the trial court committed a
grave abuse of discretion amounting to excess or lack of jurisdiction when it
denied the respondent’s motion for the denial/dismissal of the petitioner’s
plea for a writ of preliminary injunction. He, likewise, points out that the
appellate court erroneously presumed that the leaseholders were not DAR
awardees and that the deeds of assignment were contrary to law. He
contends that leasehold tenants are not prohibited from conveying or
waiving their leasehold rights in his favor. He insists that there is nothing
illegal with his contracts with the leaseholders, since the same shall be
effected only when there are no more "legal impediments."
At bottom, the petitioner contends that, at that stage, it was premature for
the appellate court to determine the merits of his case since no evidentiary
S a l e s P a r t V P a g e | 24
hearing on the merits of his complaint had yet been conducted by the trial
court.
Respondents to Dismiss/Deny
Petitioner’s Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the respondents to
dismiss/deny the petitioner’s plea for a writ of preliminary injunction after
the petitioner had adduced his evidence, testimonial and documentary, and
had rested his case on the incident, was proper and timely. It bears stressing
that the petitioner had the burden to prove his right to a writ of preliminary
injunction. He may rely solely on the material allegations of his complaint or
adduce evidence in support thereof. The petitioner adduced his evidence to
support his plea for a writ of preliminary injunction against the respondents
and the defendants-tenants and rested his case on the said incident. The
respondents then had three options: (a) file a motion to deny/dismiss the
motion on the ground that the petitioner failed to discharge his burden to
prove the factual and legal basis for his plea for a writ of preliminary
injunction and, if the trial court denies his motion, for them to adduce
evidence in opposition to the petitioner’s plea; (b) forgo their motion and
adduce testimonial and/or documentary evidence in opposition to the
petitioner’s plea for a writ of preliminary injunction; or, (c) waive their right
to adduce evidence and submit the incident for consideration on the basis of
the pleadings of the parties and the evidence of the petitioner. The
respondents opted not to adduce any evidence, and instead filed a motion to
deny or dismiss the petitioner’s plea for a writ of preliminary injunction
against them, on their claim that the petitioner failed to prove his entitlement
thereto. The trial court cannot compel the respondents to adduce evidence in
opposition to the petitioner’s plea if the respondents opt to waive their right
to adduce such evidence. Thus, the trial court should have resolved the
respondents’ motion even without the latter’s opposition and the
presentation of evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders

In its February 13, 1997 Order, the trial court ruled that the petitioner was
entitled to a writ of preliminary injunction against the respondents on the
basis of the material averments of the complaint. In its April 16, 1997 Order,
the trial court denied the respondents’ motion for reconsideration of the
previous order, on its finding that the petitioner was entitled to a writ of
preliminary injunction based on the material allegations of his complaint, the
evidence on record, the pleadings of the parties, as well as the applicable
laws:
… For the record, the Court denied the LACSONS’ COMMENT/MOTION on the
basis of the facts culled from the evidence presented, the pleadings and the
law applicable unswayed by the partisan or personal interests, public opinion
or fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics). 30
Section 3, Rule 58 of the Rules of Court, as amended, enumerates the
grounds for the issuance of a writ of preliminary injunction, thus:
(a) That the applicant is entitled to the relief demanded, and the
whole or part of such relief consists in restraining the commission or
continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or
perpetually;
(b) That the commission, continuance or non-performance of the act
or acts complained of during the litigation would probably work
injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or
is attempting to do, or is procuring or suffering to be done, some act
or acts probably in violation of the rights of the applicant respecting
the subject of the action or proceeding, and tending to render the
judgment ineffectual.
A preliminary injunction is an extraordinary event calculated to preserve or
maintain the status quo of things ante litem and is generally availed of to
prevent actual or threatened acts, until the merits of the case can be heard.
Injunction is accepted as the strong arm of equity or a transcendent
remedy.31 While generally the grant of a writ of preliminary injunction rests
on the sound discretion of the trial court taking cognizance of the case,
extreme caution must be observed in the exercise of such
discretion.32 Indeed, in Olalia v. Hizon,33 we held:
S a l e s P a r t V P a g e | 25
It has been consistently held that there is no power the exercise of which is
more delicate, which requires greater caution, deliberation and sound
discretion, or more dangerous in a doubtful case, than the issuance of an
injunction. It is the strong arm of equity that should never be extended
unless to cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the
freedom of action of the defendant and should not be granted lightly or
precipitately. It should be granted only when the court is fully satisfied that
the law permits it and the emergency demands it.34
The very foundation of the jurisdiction to issue writ of injunction rests in the
existence of a cause of action and in the probability of irreparable injury,
inadequacy of pecuniary compensation and the prevention of the multiplicity
of suits. Where facts are not shown to bring the case within these conditions,
the relief of injunction should be refused.35
For the court to issue a writ of preliminary injunction, the petitioner was
burdened to establish the following: (1) a right in esse or a clear and
unmistakable right to be protected; (2) a violation of that right; (3) that
there is an urgent and permanent act and urgent necessity for the writ to
prevent serious damage.36 Thus, in the absence of a clear legal right, the
issuance of the injunctive writ constitutes a grave abuse of discretion. Where
the complainant’s right is doubtful or disputed, injunction is not proper.
Injunction is a preservative remedy aimed at protecting substantial rights
and interests. It is not designed to protect contingent or future rights. The
possibility of irreparable damage without proof of adequate existing rights is
not a ground for injunction.37
We have reviewed the pleadings of the parties and found that, as contended
by the respondents, the petitioner failed to establish the essential requisites
for the issuance of a writ of preliminary injunction. Hence, the trial court
committed a grave abuse of its discretion amounting to excess or lack of
jurisdiction in denying the respondents’ comment/motion as well as their
motion for reconsideration.
First. The trial court cannot enjoin the respondents, at the instance of the
petitioner, from selling, disposing of and encumbering their property. As the
registered owners of the property, the respondents have the right to enjoy
and dispose of their property without any other limitations than those

established by law, in accordance with Article 428 of the Civil Code. The right
to dispose of the property is the power of the owner to sell, encumber,
transfer, and even destroy the property. Ownership also includes the right to
recover the possession of the property from any other person to whom the
owner has not transmitted such property, by the appropriate action for
restitution, with the fruits, and for indemnification for damages. 38 The right
of ownership of the respondents is not, of course, absolute. It is limited by
those set forth by law, such as the agrarian reform laws. Under Article 1306
of the New Civil Code, the respondents may enter into contracts covering
their property with another under such terms and conditions as they may
deem beneficial provided they are not contrary to law, morals, good conduct,
public order or public policy.
The respondents cannot be enjoined from selling or encumbering their
property simply and merely because they had executed Deeds of Assignment
in favor of the petitioner, obliging themselves to assign and transfer their
rights or interests as agricultural farmers/laborers/sub-tenants over the
landholding, and granting the petitioner the exclusive right to buy the
property subject to the occurrence of certain conditions. The respondents
were not parties to the said deeds. There is no evidence that the
respondents agreed, expressly or impliedly, to the said deeds or to the terms
and conditions set forth therein. Indeed, they assailed the validity of the said
deeds on their claim that the same were contrary to the letter and spirit of
P.D. No. 27 and Rep. Act No. 6657. The petitioner even admitted when he
testified that he did not know any of the respondents, and that he had not
met any of them before he filed his complaint in the RTC. He did not even
know that one of those whom he had impleaded as defendant, Angelica Vda.
de Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are residents of the
United States?
A: I do not know, sir.
Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson
had already been dead?
S a l e s P a r t V P a g e | 26
A: I am aware of that, sir.39
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie against
petitioners. As owners of the lands being tilled by TIAMSON, et al.,
petitioners, under the law, have the right to enjoy and dispose of the same.
Thus, they have the right to possess the lands, as well as the right to
encumber or alienate them. This principle of law notwithstanding, private
respondent in the lower court sought to restrain the petitioners from
encumbering and/or alienating the properties covered by TCT No. 35922-R,
35923-R and TCT No. 35925-R of the Registry of Deeds of San Fernando,
Pampanga. This cannot be allowed to prosper since it would constitute a
limitation or restriction, not otherwise established by law on their right of
ownership, more so considering that petitioners were not even privy to the
alleged transaction between private respondent and TIAMSON, et al.40
Second. A reading the averments of the complaint will show that the
petitioner clearly has no cause of action against the respondents for the
principal relief prayed for therein, for the trial court to fix a period within
which to pay to each of the defendants-tenants the balance of the P50.00
per square meter, the consideration under the Deeds of Assignment
executed by the defendants-tenants. The respondents are not parties or
privies to the deeds of assignment. The matter of the period for the
petitioner to pay the balance of the said amount to each of the defendants-
tenants is an issue between them, the parties to the deed.
Third. On the face of the complaint, the action of the petitioner against the
respondents and the defendants-tenants has no legal basis. Under the Deeds
of Assignment, the obligation of the petitioner to pay to each of the
defendants-tenants the balance of the purchase price was conditioned on the
occurrence of the following events: (a) the respondents agree to sell their
property to the petitioner; (b) the legal impediments to the sale of the
landholding to the petitioner no longer exist; and, (c) the petitioner decides
to buy the property. When he testified, the petitioner admitted that the legal
impediments referred to in the deeds were (a) the respondents’ refusal to
sell their property; and, (b) the lack of approval of the Department of
Agrarian Reform:
Q : There is no specific agreement prior to the execution of those
documents as when they will pay?

A : We agreed to that, that I will pay them when there are no legal
impediment, sir.
Q : Many of the documents are unlattered (sic) and you want to
convey to this Honorable Court that prior to the execution of these
documents you have those tentative agreement for instance that the
amount or the cost of the price is to be paid when there are no legal
impediment, you are using the word "legal impediment," do you
know the meaning of that?
A : When there are (sic) no more legal impediment exist, sir.
Q : Did you make how (sic) to the effect that the meaning of that
phrase that you used the unlettered defendants?
A : We have agreed to that, sir.
ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer my question
not to answer in the way he wanted it.
COURT:
Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
S a l e s P a r t V P a g e | 27
A : I explain[ed] to them, sir, that the legal impediment then
especially if the Lacsons will not agree to sell their shares to me or to
us it would be hard to (sic) me to pay them in full. And those
covered by DAR. I explain[ed] to them and it was clearly stated in
the title that there is [a] prohibited period of time before you can sell
the property. I explained every detail to them. 41
It is only upon the occurrence of the foregoing conditions that the petitioner
would be obliged to pay to the defendants-tenants the balance of the P50.00
per square meter under the deeds of assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will mutually agree
to sell the said lot to the ASSIGNEE, who is given an exclusive and
absolute right to buy the lot, the ASSIGNOR shall receive the sum of
FIFTY PESOS (P50.00) per square meter as consideration of the total
area actually tilled and possessed by the ASSIGNOR, less whatever
amount received by the ASSIGNOR including commissions, taxes and
all allowable deductions relative to the sale of the subject properties.
3. That this exclusive and absolute right given to the ASSIGNEE shall
be exercised only when no legal impediments exist to the lot to
effect the smooth transfer of lawful ownership of the lot/property in
the name of the ASSIGNEE;
4. That the ASSIGNOR will remain in peaceful possession over the
said property and shall enjoy the fruits/earnings and/or harvest of
the said lot until such time that full payment of the agreed purchase
price had been made by the ASSIGNEE.42
There is no showing in the petitioner’s complaint that the respondents had
agreed to sell their property, and that the legal impediments to the
agreement no longer existed. The petitioner and the defendants-tenants had
yet to submit the Deeds of Assignment to the Department of Agrarian
Reform which, in turn, had to act on and approve or disapprove the same. In
fact, as alleged by the petitioner in his complaint, he was yet to meet with
the defendants-tenants to discuss the implementation of the deeds of
assignment. Unless and until the Department of Agrarian Reform approved
the said deeds, if at all, the petitioner had no right to enforce the same in a
court of law by asking the trial court to fix a period within which to pay the
balance of the purchase price and praying for injunctive relief.

We do not agree with the contention of the petitioner that the deeds of
assignment executed by the defendants-tenants are perfected option
contracts.43 An option is a contract by which the owner of the property
agrees with another person that he shall have the right to buy his property
at a fixed price within a certain time. It is a condition offered or contract by
which the owner stipulates with another that the latter shall have the right to
buy the property at a fixed price within a certain time, or under, or in
compliance with certain terms and conditions, or which gives to the owner of
the property the right to sell or demand a sale. It imposes no binding
obligation on the person holding the option, aside from the consideration for
the offer. Until accepted, it is not, properly speaking, treated as a
contract.44 The second party gets in praesenti, not lands, not an agreement
that he shall have the lands, but the right to call for and receive lands if he
elects.45 An option contract is a separate and distinct contract from which the
parties may enter into upon the conjunction of the option. 46
In this case, the defendants-tenants-subtenants, under the deeds of
assignment, granted to the petitioner not only an option but the exclusive
right to buy the landholding. But the grantors were merely the defendants-
tenants, and not the respondents, the registered owners of the property. Not
being the registered owners of the property, the defendants-tenants could
not legally grant to the petitioner the option, much less the "exclusive right"
to buy the property. As the Latin saying goes, "NEMO DAT QUOD NON
HABET."
Fourth. The petitioner impleaded the respondents as parties-defendants
solely on his allegation that the latter induced or are inducing the
defendants-tenants to violate the deeds of assignment, contrary to the
provisions of Article 1314 of the New Civil Code which reads:
Art. 1314. Any third person who induces another to violate his contract shall
be liable for damages to the other contracting party.
In So Ping Bun v. Court of Appeals,47 we held that for the said law to apply,
the pleader is burdened to prove the following: (1) the existence of a valid
contract; (2) knowledge by the third person of the existence of the contract;
and (3) interference by the third person in the contractual relation without
legal justification.
Where there was no malice in the interference of a contract, and the impulse
behind one’s conduct lies in a proper business interest rather than in
S a l e s P a r t V P a g e | 28
wrongful motives, a party cannot be a malicious interferer. Where the
alleged interferer is financially interested, and such interest motivates his
conduct, it cannot be said that he is an officious or malicious intermeddler.48
In fine, one who is not a party to a contract and who interferes thereon is
not necessarily an officious or malicious intermeddler. The only evidence
adduced by the petitioner to prove his claim is the letter from the
defendants-tenants informing him that they had decided to sell their rights
and interests over the landholding to the respondents, instead of honoring
their obligation under the deeds of assignment because, according to them,
the petitioner harassed those tenants who did not want to execute deeds of
assignment in his favor, and because the said defendants-tenants did not
want to have any problem with the respondents who could cause their
eviction for executing with the petitioner the deeds of assignment as the said
deeds are in violation of P.D. No. 27 and Rep. Act No. 6657.49 The
defendants-tenants did not allege therein that the respondents induced them
to breach their contracts with the petitioner. The petitioner himself admitted
when he testified that his claim that the respondents induced the
defendants-assignees to violate contracts with him was based merely on
what "he heard," thus:
Q: Going to your last statement that the Lacsons induces (sic) the
defendants, did you see that the Lacsons were inducing the
defendants?
A: I heard and sometime in [the] first week of August, sir, they went
in the barrio (sic). As a matter of fact, that is the reason why they
sent me letter that they will sell it to the Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the
alleged negotiator and has the authority to sell the property.50
Even if the respondents received an offer from the defendants-tenants to
assign and transfer their rights and interests on the landholding, the
respondents cannot be enjoined from entertaining the said offer, or even
negotiating with the defendants-tenants. The respondents could not even be
expected to warn the defendants-tenants for executing the said deeds in
violation of P.D. No. 27 and Rep. Act No. 6657. Under Section 22 of the

latter law, beneficiaries under P.D. No. 27 who have culpably sold, disposed
of, or abandoned their land, are disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his purpose in
having the defendants-tenants execute the Deeds of Assignment in his favor
was to acquire the landholding without any tenants thereon, in the event
that the respondents agreed to sell the property to him. The petitioner knew
that under Section 11 of Rep. Act No. 3844, if the respondents agreed to sell
the property, the defendants-tenants shall have preferential right to buy the
same under reasonable terms and conditions:
SECTION 11. Lessee’s Right of Pre-emption. – In case the agricultural lessor
desires to sell the landholding, the agricultural lessee shall have the
preferential right to buy the same under reasonable terms and conditions:
Provided, That the entire landholding offered for sale must be pre-empted by
the Land Authority if the landowner so desires, unless the majority of the
lessees object to such acquisition: Provided, further, That where there are
two or more agricultural lessees, each shall be entitled to said preferential
right only to the extent of the area actually cultivated by him. …51
Under Section 12 of the law, if the property was sold to a third person
without the knowledge of the tenants thereon, the latter shall have the right
to redeem the same at a reasonable price and consideration. By assigning
their rights and interests on the landholding under the deeds of assignment
in favor of the petitioner, the defendants-tenants thereby waived, in favor of
the petitioner, who is not a beneficiary under Section 22 of Rep. Act No.
6657, their rights of preemption or redemption under Rep. Act No. 3844. The
defendants-tenants would then have to vacate the property in favor of the
petitioner upon full payment of the purchase price. Instead of acquiring
ownership of the portions of the landholding respectively tilled by them, the
defendants-tenants would again become landless for a measly sum of P50.00
per square meter. The petitioner’s scheme is subversive, not only of public
policy, but also of the letter and spirit of the agrarian laws. That the scheme
of the petitioner had yet to take effect in the future or ten years hence is not
a justification. The respondents may well argue that the agrarian laws had
been violated by the defendants-tenants and the petitioner by the mere
execution of the deeds of assignment. In fact, the petitioner has
implemented the deeds by paying the defendants-tenants amounts of money
and even sought their immediate implementation by setting a meeting with
the defendants-tenants. In fine, the petitioner would not wait for ten years
to evict the defendants-tenants. For him, time is of the essence.
S a l e s P a r t V P a g e | 29
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.
We agree with the petitioner’s contention that the appellate court erred
when it permanently enjoined the RTC from continuing with the proceedings
in Civil Case No. 10910. The only issue before the appellate court was
whether or not the trial court committed a grave abuse of discretion
amounting to excess or lack of jurisdiction in denying the respondents’
motion to deny or dismiss the petitioner’s plea for a writ of preliminary
injunction. Not one of the parties prayed to permanently enjoin the trial
court from further proceeding with Civil Case No. 10910 or to dismiss the
complaint. It bears stressing that the petitioner may still amend his
complaint, and the respondents and the defendants-tenants may file motions
to dismiss the complaint. By permanently enjoining the trial court from
proceeding with Civil Case No. 10910, the appellate court acted arbitrarily
and effectively dismissed the complaint motu proprio, including the
counterclaims of the respondents and that of the defendants-tenants. The
defendants-tenants were even deprived of their right to prove their special
and affirmative defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED.
The Decision of the Court of Appeals nullifying the February 13, 1996 and
April 16, 1997 Orders of the RTC is AFFIRMED. The writ of injunction issued
by the Court of Appeals permanently enjoining the RTC from further
proceeding with Civil Case No. 10910 is hereby LIFTED and SET ASIDE. The
Regional Trial Court of Mabalacat, Pampanga, Branch 44, is ORDERED to
continue with the proceedings in Civil Case No. 10910 as provided for by the
Rules of Court, as amended.
SO ORDERED.
Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.

G.R. No. 97332. October 10, 1991.*
SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners,
vs. THE HON. COURT OF APPEALS AND SPOUSES MACARIA
LABINGISA REYES AND ROBERTO REYES, respondents.
Civil Law; Contracts; Sales; As expressed in Gonzales v. Trinidad, 67 Phil.
682, consideration is "the why of the contracts, the essential reason which
moves the contracting parties to enter into the contract."—As expressed in
Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts,
the essential reason which moves the contracting parties to enter into the
contract." The cause or the impelling reason on the part of private
respondent in executing the deed of option as appearing in the deed itself is
the petitioners' having agreed to buy the 300 square meter portion of private
respondents' land at P70.00 per square meter "which was greatly higher
than the actual reasonable prevailing price."
Same; Same; Same; The acceptance of an offer to sell for a price certain
created a bilateral contract to sell and buy and upon acceptance, the offeree,
ipso facto assumes obligations of a vendee.—In the instant case, the option
offered by private respondents had been accepted by the petitioner, the
promisee, in the same document. The acceptance of an offer to sell for a
price certain created a bilateral contract to sell and buy and upon
acceptance, the offeree, ipso facto assumes obligations of a vendee (See
Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandability may be
exercised at any time after the execution of the deed.
Same; Same; Same; A contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.—A contract of sale is, under Article 1475 of the Civil Code,"
perfected at the moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price. From that moment, the parties
may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts." Since there was, between the parties, a
meeting of minds upon the object and the price, there was already a
perfected contract of sale. What was, however, left to be done was for either
party to demand from the other their respective undertakings under the
contract. It may be demanded at any time either by the private respondents,
S a l e s P a r t V P a g e | 30
who may compel the petitioners to pay for the property or the petitioners,
who may compel the private respondents to deliver the property.
Same; Same; Same; Prescription; Failure of either parties to demand
performance of the obligation of the other for an unreasonable length of
time renders the contract ineffective.—However, the Deed of Option did not
provide for the period within which the parties may demand the performance
of their respective undertakings in the instrument. The parties could not
have contemplated that the delivery of the property and the payment thereof
could be made indefinitely and render uncertain the status of the land. The
failure of either parties to demand performance of the obligation of the other
for an unreasonable length of time renders the contract ineffective.
Same; Same; Same; Same; Actions upon a written contract must be brought
within ten (10) years.—Under Article 1144 (1) of the Civil Code, actions upon
a written contract must be brought within ten (10) years. The Deed of
Option was executed on November 11, 1971. The acceptance, as already
mentioned, was also accepted in the same instrument. The complaint in this
case was filed by the petitioners on July 13, 1987, seventeen (17) years from
the time of the execution of the contract. Hence, the right of action had
prescribed.
PETITION for certiorari to review the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Tranquilino F. Meris for petitioners.
Agripino G. Morga for private respondents. Villamor vs. Court of Appeals,
202 SCRA 607,
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the Court of
Appeals in CA-G.R. No. 24176 entitled, "Spouses Julio Villamor and Marina
Villamor, Plaintiffs-Appellees, versus Spouses Macaria Labing-isa Reyes and
Roberto Reyes, Defendants-Appellants," which reversed the decision of the
Regional Trial Court (Branch 121) at Caloocan City in Civil Case No. C-12942.

The facts of the case are as follows:
Macaria Labingisa Reyes was the owner of a 600-square meter lot located at
Baesa, Caloocan City, as evidenced by Transfer Certificate of Title No.
(18431) 18938, of the Register of Deeds of Rizal.
In July 1971, Macaria sold a portion of 300 square meters of the lot to the
Spouses Julio and Marina and Villamor for the total amount of P21,000.00.
Earlier, Macaria borrowed P2,000.00 from the spouses which amount was
deducted from the total purchase price of the 300 square meter lot sold. The
portion sold to the Villamor spouses is now covered by TCT No. 39935 while
the remaining portion which is still in the name of Macaria Labing-isa is
covered by TCT No. 39934 (pars. 5 and 7, Complaint). On November 11,
1971, Macaria executed a "Deed of Option" in favor of Villamor in which the
remaining 300 square meter portion (TCT No. 39934) of the lot would be
sold to Villamor under the conditions stated therein. The document reads:
DEED OF OPTION
This Deed of Option, entered into in the City of Manila, Philippines,
this 11th day of November, 1971, by and between Macaria Labing-
isa, of age, married to Roberto Reyes, likewise of age, and both
resideing on Reparo St., Baesa, Caloocan City, on the one hand, and
on the other hand the spouses Julio Villamor and Marina V. Villamor,
also of age and residing at No. 552 Reparo St., corner Baesa Road,
Baesa, Caloocan City.
WITNESSETH
That, I Macaria Labingisa, am the owner in fee simple of a parcel of
land with an area of 600 square meters, more or less, more
particularly described in TCT No. (18431) 18938 of the Office of the
Register of Deeds for the province of Rizal, issued in may name, I
having inherited the same from my deceased parents, for which
reason it is my paraphernal property;
That I, with the conformity of my husband, Roberto Reyes, have
sold one-half thereof to the aforesaid spouses Julio Villamor and
Marina V. Villamor at the price of P70.00 per sq. meter, which was
greatly higher than the actual reasonable prevailing value of lands in
that place at the time, which portion, after segregation, is now
S a l e s P a r t V P a g e | 31
covered by TCT No. 39935 of the Register of Deeds for the City of
Caloocan, issued on August 17, 1971 in the name of the
aforementioned spouses vendees;
That the only reason why the Spouses-vendees Julio Villamor and
Marina V. Villamor, agreed to buy the said one-half portion at the
above-stated price of about P70.00 per square meter, is because I,
and my husband Roberto Reyes, have agreed to sell and convey to
them the remaining one-half portion still owned by me and now
covered by TCT No. 39935 of the Register of Deeds for the City of
Caloocan, whenever the need of such sale arises, either on our part
or on the part of the spouses (Julio) Villamor and Marina V. Villamor,
at the same price of P70.00 per square meter, excluding whatever
improvement may be found the thereon;
That I am willing to have this contract to sell inscribed on my
aforesaid title as an encumbrance upon the property covered
thereby, upon payment of the corresponding fees; and
That we, Julio Villamor and Marina V. Villamor, hereby agree to, and
accept, the above provisions of this Deed of Option.
IN WITNESS WHEREOF, this Deed of Option is signed in the City of
Manila, Philippines, by all the persons concerned, this 11th day of
November, 1971.
JULIO VILLAMOR MACARIA LABINGISA
With My Conformity:
MARINA VILLAMOR ROBERTO REYES
Signed in the Presence Of:
MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO
ACKNOWLEDGMENT

REPUBLIC OF THE PHILIPPINES)
CITY OF MANILA ) S.S.
At the City of Manila, on the 11th day of November, 1971, personally
appeared before me Roberto Reyes, Macaria Labingisa, Julio Villamor
and Marina Ventura-Villamor, known to me as the same persons who
executed the foregoing Deed of Option, which consists of two (2)
pages including the page whereon this acknowledgement is written,
and signed at the left margin of the first page and at the bottom of
the instrument by the parties and their witnesses, and sealed with
my notarial seal, and said parties acknowledged to me that the same
is their free act and deed. The Residence Certificates of the parties
were exhibited to me as follows: Roberto Reyes, A-22494, issued at
Manila on Jan. 27, 1971, and B-502025, issued at Makati, Rizal on
Feb. 18, 1971; Macaria Labingisa, A-3339130 and B-1266104, both
issued at Caloocan City on April 15, 1971, their joint Tax Acct.
Number being 3028-767-6; Julio Villamor, A-804, issued at Manila on
Jan. 14, 1971, and B-138, issued at Manila on March 1, 1971; and
Marina Ventura-Villamor, A-803, issued at Manila on Jan. 14, 1971,
their joint Tax Acct. Number being 608-202-6.
ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971
Doc. No. 1526;
Page No. 24;
Book No. 38;
Series of 1971. (pp. 25-29, Rollo)
According to Macaria, when her husband, Roberto Reyes, retired in 1984,
they offered to repurchase the lot sold by them to the Villamor spouses but
Marina Villamor refused and reminded them instead that the Deed of Option
in fact gave them the option to purchase the remaining portion of the lot.
The Villamors, on the other hand, claimed that they had expressed their
desire to purchase the remaining 300 square meter portion of the lot but the
Reyeses had been ignoring them. Thus, on July 13, 1987, after conciliation
S a l e s P a r t V P a g e | 32
proceedings in the barangay level failed, they filed a complaint for specific
performance against the Reyeses.
On July 26, 1989, judgment was rendered by the trial court in favor of the
Villamor spouses, the dispositive portion of which states:
WHEREFORE, and (sic) in view of the foregoing, judgment is hereby
rendered in favor of the plaintiffs and against the defendants
ordering the defendant MACARIA LABING-ISA REYES and ROBERTO
REYES, to sell unto the plaintiffs the land covered by T.C.T No.
39934 of the Register of Deeds of Caloocan City, to pay the plaintiffs
the sum of P3,000.00 as and for attorney's fees and to pay the cost
of suit.
The counterclaim is hereby DISMISSED, for LACK OF MERIT.
SO ORDERED. (pp. 24-25, Rollo)
Not satisfied with the decision of the trial court, the Reyes spouses appealed
to the Court of Appeals on the following assignment of errors:
1. HOLDING THAT THE DEED OF OPTION EXECUTED ON
NOVEMBER 11, 1971 BETWEEN THE PLAINTIFF-APPELLEES AND
DEFENDANT-APPELLANTS IS STILL VALID AND BINDING DESPITE
THE LAPSE OF MORE THAN THIRTEEN (13) YEARS FROM THE
EXECUTION OF THE CONTRACT;
2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS
OBSCURE WORDS AND STIPULATIONS WHICH SHOULD BE
RESOLVED AGAINST THE PLAINTIFF-APPELLEES WHO
UNILATERALLY DRAFTED AND PREPARED THE SAME;
3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE
INTENTION AND PURPOSE OF THE PARTIES DESPITE ADVERSE,
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PLAINTIFF-
APPELLEES;
4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON
ACCOUNT OF THEIR IGNORANCE PLACING THEM AT A
DISADVANTAGE IN THE DEED OF OPTION;

5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT
IN FAVOR OF THE DEFENDANT-APPELLANTS; and
6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-
APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY WAY OF
ATTORNEY'S FEES. (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision reversing
the decision of the trial court and dismissing the complaint. The reversal of
the trial court's decision was premised on the finding of respondent court
that the Deed of Option is void for lack of consideration.
The Villamor spouses brought the instant petition for review on certiorari on
the following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE
PHRASE WHENEVER THE NEED FOR SUCH SALE ARISES ON OUR
(PRIVATE RESPONDENT) PART OR ON THE PART OF THE SPOUSES
JULIO D. VILLAMOR AND MARINA V. VILLAMOR' CONTAINED IN
THE DEED OF OPTION DENOTES A SUSPENSIVE CONDITION;
II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE
QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF
APPEALS ERRED IN NOT FINDING, THAT THE SAID CONDITION
HAD ALREADY BEEN FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE
QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF
APPEALS ERRED IN HOLDING THAT THE IMPOSITION OF SAID
CONDITION PREVENTED THE PERFECTION OF THE CONTRACT OF
SALE DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED
IN THE DEED OF OPTION;
IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED
OF OPTION IS VOID FOR LACK OF CONSIDERATION;
V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT
CONSIDERATION IS NECESSARY TO SUPPORT THE DEED OF
OPTION DESPITE THE EXPRESS OFFER AND ACCEPTANCE
CONTAINED THEREIN. (p. 12, Rollo)
S a l e s P a r t V P a g e | 33
The pivotal issue to be resolved in this case is the validity of the Deed of
Option whereby the private respondents agreed to sell their lot to petitioners
"whenever the need of such sale arises, either on our part (private
respondents) or on the part of Julio Villamor and Marina Villamor
(petitioners)." The court a quo, rule that the Deed of Option was a
valid written agreement between the parties and made the following
conclusions:
xxx xxx xxx
It is interesting to state that the agreement between the parties are
evidence by a writing, hence, the controverting oral testimonies of
the herein defendants cannot be any better than the documentary
evidence, which, in this case, is the Deed of Option (Exh. "A" and "A-
a")
The law provides that when the terms of an agreement have been
reduced to writing it is to be considered as containing all such terms,
and therefore, there can be, between the parties and their
successors in interest no evidence of their terms of the agreement,
other than the contents of the writing. ... (Section 7 Rule 130
Revised Rules of Court) Likewise, it is a general and most inflexible
rule that wherever written instruments are appointed either by the
requirements of law, or by the contract of the parties, to be the
repositories and memorials of truth, any other evidence is excluded
from being used, either as a substitute for such instruments, or to
contradict or alter them. This is a matter both of principle and of
policy; of principle because such instruments are in their nature and
origin entitled to a much higher degree of credit than evidence of
policy, because it would be attended with great mischief if those
instruments upon which man's rights depended were liable to be
impeached by loose collateral evidence. Where the terms of an
agreement are reduced to writing, the document itself, being
constituted by the parties as the expositor of their intentions, it is
the only instrument of evidence in respect of that agreement which
the law will recognize so long as it exists for the purpose of
evidence. (Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy,
W.R. 68, cited in Francisco's Rules of Court, Vol. VII Part I p. 153)
(Emphasis supplied, pp. 126-127, Records).

The respondent appellate court, however, ruled that the said deed of option
is void for lack of consideration. The appellate court made the following
disquisitions:
Plaintiff-appellees say they agreed to pay P70.00 per square meter
for the portion purchased by them although the prevailing price at
that time was only P25.00 in consideration of the option to buy the
remainder of the land. This does not seem to be the case. In the
first place, the deed of sale was never produced by them to prove
their claim. Defendant-appellants testified that no copy of the deed
of sale had ever been given to them by the plaintiff-appellees. In the
second place, if this was really the condition of the prior sale, we see
no reason why it should be reiterated in the Deed of Option. On the
contrary, the alleged overprice paid by the plaintiff-appellees is given
in the Deed as reason for the desire of the Villamors to acquire the
land rather than as a consideration for the option given to them,
although one might wonder why they took nearly 13 years to invoke
their right if they really were in due need of the lot.
At all events, the consideration needed to support a unilateral
promise to sell is a dinstinct one, not something that is as uncertain
as P70.00 per square meter which is allegedly 'greatly higher than
the actual prevailing value of lands.' A sale must be for a price
certain (Art. 1458). For how much the portion conveyed to the
plaintiff-appellees was sold so that the balance could be considered
the consideration for the promise to sell has not been shown,
beyond a mere allegation that it was very much below P70.00 per
square meter.
The fact that plaintiff-appellees might have paid P18.00 per square
meter for another land at the time of the sale to them of a portion of
defendant-appellant's lot does not necessarily prove that the
prevailing market price at the time of the sale was P18.00 per square
meter. (In fact they claim it was P25.00). It is improbable that
plaintiff-appellees should pay P52.00 per square meter for the
privilege of buying when the value of the land itself was allegedly
P18.00 per square meter. (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why
of the contracts, the essential reason which moves the contracting parties to
enter into the contract." The cause or the impelling reason on the part of
S a l e s P a r t V P a g e | 34
private respondent executing the deed of option as appearing in the deed
itself is the petitioner's having agreed to buy the 300 square meter portion of
private respondents' land at P70.00 per square meter "which was greatly
higher than the actual reasonable prevailing price." This cause or
consideration is clear from the deed which stated:
That the only reason why the spouses-vendees Julio Villamor and
Marina V. Villamor agreed to buy the said one-half portion at the
above stated price of about P70.00 per square meter, is because I,
and my husband Roberto Reyes, have agreed to sell and convey to
them the remaining one-half portion still owned by me ... (p.
26, Rollo)
The respondent appellate court failed to give due consideration to
petitioners' evidence which shows that in 1969 the Villamor spouses bough
an adjacent lot from the brother of Macaria Labing-isa for only P18.00 per
square meter which the private respondents did not rebut. Thus, expressed
in terms of money, the consideration for the deed of option is the difference
between the purchase price of the 300 square meter portion of the lot in
1971 (P70.00 per sq.m.) and the prevailing reasonable price of the same lot
in 1971. Whatever it is, (P25.00 or P18.00) though not specifically stated in
the deed of option, was ascertainable. Petitioner's allegedly paying P52.00
per square meter for the option may, as opined by the appellate court, be
improbable but improbabilities does not invalidate a contract freely entered
into by the parties.
The "deed of option" entered into by the parties in this case had unique
features. Ordinarily, an optional contract is a privilege existing in one person,
for which he had paid a consideration and which gives him the right to buy,
for example, certain merchandise or certain specified property, from another
person, if he chooses, at any time within the agreed period at a fixed price
(Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed
of option" signed by the parties, We will notice that the first part covered the
statement on the sale of the 300 square meter portion of the lot to Spouses
Villamor at the price of P70.00 per square meter "which was higher than the
actual reasonable prevailing value of the lands in that place at that time (of
sale)." The second part stated that the only reason why the Villamor spouses
agreed to buy the said lot at a much higher price is because the vendor
(Reyeses) also agreed to sell to the Villamors the other half-portion of 300
square meters of the land. Had the deed stopped there, there would be no
dispute that the deed is really an ordinary deed of option granting the

Villamors the option to buy the remaining 300 square meter-half portion of
the lot in consideration for their having agreed to buy the other half of the
land for a much higher price. But, the "deed of option" went on and stated
that the sale of the other half would be made "whenever the need of such
sale arises, either on our (Reyeses) part or on the part of the Spouses Julio
Villamor and Marina V. Villamor. It appears that while the option to buy was
granted to the Villamors, the Reyeses were likewise granted an option to
sell. In other words, it was not only the Villamors who were granted an
option to buy for which they paid a consideration. The Reyeses as well were
granted an option to sell should the need for such sale on their part arise.
In the instant case, the option offered by private respondents had been
accepted by the petitioner, the promise, in the same document. The
acceptance of an offer to sell for a price certain created a bilateral contract
to sell and buy and upon acceptance, the offer, ipso facto assumes
obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil.
948). Demandabilitiy may be exercised at any time after the execution of the
deed. In Sanchez v. Rigos, No. L-25494, June 14, 1972, 45 SCRA 368, 376,
We held:
In other words, since there may be no valid contract without a cause
of consideration, the promisory is not bound by his promise and
may, accordingly withdraw it. Pending notice of its withdrawal, his
accepted promise partakes, however, of the nature of an offer to sell
which, if accepted, results in a perfected contract of sale.
A contract of sale is, under Article 1475 of the Civil Code, "perfected at the
moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price. From that moment, the parties may
reciprocally demand perform of contracts." Since there was, between the
parties, a meeting of minds upon the object and the price, there was already
a perfected contract of sale. What was, however, left to be done was for
either party to demand from the other their respective undertakings under
the contract. It may be demanded at any time either by the private
respondents, who may compel the petitioners to pay for the property or the
petitioners, who may compel the private respondents to deliver the property.
However, the Deed of Option did not provide for the period within which the
parties may demand the performance of their respective undertakings in the
instrument. The parties could not have contemplated that the delivery of the
property and the payment thereof could be made indefinitely and render
S a l e s P a r t V P a g e | 35
uncertain the status of the land. The failure of either parties to demand
performance of the obligation of the other for an unreasonable length of
time renders the contract ineffective.
Under Article 1144 (1) of the Civil Code, actions upon written contract must
be brought within ten (10) years. The Deed of Option was executed on
November 11, 1971. The acceptance, as already mentioned, was also
accepted in the same instrument. The complaint in this case was filed by the
petitioners on July 13, 1987, seventeen (17) years from the time of the
execution of the contract. Hence, the right of action had prescribed. There
were allegations by the petitioners that they demanded from the private
respondents as early as 1984 the enforcement of their rights under the
contract. Still, it was beyond the ten (10) years period prescribed by the Civil
Code. In the case of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and
subscribing to the observations of the court a quo held, thus:
... Assuming that Rosa Ganayo, the oppositor herein, had the right
based on the Agreement to Convey and Transfer as contained in
Exhibits '1' and '1-A', her failure or the abandonment of her right to
file an action against Pulmano Molintas when he was still a co-owner
of the on-half (1/2) portion of the 10,000 square meters is now
barred by laches and/or prescribed by law because she failed to
bring such action within ten (10) years from the date of the written
agreement in 1941, pursuant to Art. 1144 of the New Civil Code, so
that when she filed the adverse claim through her counsel in 1959
she had absolutely no more right whatsoever on the same, having
been barred by laches.
It is of judicial notice that the price of real estate in Metro Manila is
continuously on the rise. To allow the petitioner to demand the delivery of
the property subject of this case thirteen (13) years or seventeen (17) years
after the execution of the deed at the price of only P70.00 per square meter
is inequitous. For reasons also of equity and in consideration of the fact that
the private respondents have no other decent place to live, this Court, in the
exercise of its equity jurisdiction is not inclined to grant petitioners' prayer.
ACCORDINGLY, the petition is DENIED. The decision of respondent appellate
court is AFFIRMED for reasons cited in this decision. Judgement is rendered
dismissing the complaint in Civil Case No. C-12942 on the ground of
prescription and laches.

G.R. No. 97332 October 10, 1991
NICOLAS SANCHEZ, plaintiff-appellee, vs. SEVERINA RIGOS,
defendant-appellant.
Civil law; Obligations and Contracts; Sales; Consideration not presumed in an
accepted unilateral promise to buy or lo sell.—Article 1354 of the Civil Code
which presumes the existence of a consideration in every contract applies to
contracts in general, whereas the second paragraph of Article 1479 thereof
refers to “sales” in particular, and, more specifically, to “an accepted
unilateral promise to buy or to sell.” It is Article 1479 that controls
defendant’s unilateral promise to sell her property to the plaintiff.
Same; Same; Same; Promisee in an accepted unilateral promise to sell must
prove existence of consideration.—In order that said unilateral promise may
be “binding” upon the promisor, Article 1479 requires the concurrence of a
condition, namely, that the promise be “supported by a consideration distinct
from the price.” Accordingly, the promisee can not compel the promisor to
comply with the promise, unless the former establishes the existence of said
distinct consideration. In other words, the promisee has the burden of
proving such consideration,
Same; Same; Same; Accepted promise to sell is an offer to sell and when
accepted becomes a contract of sale.—In accepted unilateral promise to sell,
since there may be no valid contract without a cause or consideration, the
promisor is not bound by his promise and may, accordingly, withdraw it.
Pending notice of its withdrawal, his accepted promise partakes, however, of
the nature of an offer to sell which, if accepted, results in a perfected
contract of sale.
Same; Statutory construction; Provisions of same law should be reconciled.—
This view has the advantage of avoiding a conflict between Article 1324—on
the general principles of contracts—and 1479—on sales—of the Civil Code, in
line with the cardinal rule of statutory construction that, in construing
different provisions of one and the same law or code, such interpretation
should be favored as will reconcile or harmonize said provision and avoid a
conflict between the same.
S a l e s P a r t V P a g e | 36
Same; Same, Exceptions not favored unless dearly intended.—The decision
in Southwestern Sugar So Molasses Co. vs. Atlantic Gulf and Pacific Co.,
holding that Art. 1324 is modified by Art. 1479 of the Civil Code, in effect,
considers the latter as an exception to the former, and exceptions are not
favored, unless the intention to the contrary is clear, and it is not so. insofar
as said two articles are concerned.
ANTONIO, J., concurring:
Civil law; Obligations and Contracts; Sales; Offeror cannot withdraw offer
arbitrarily,—While the law permits the offeror to withdraw the offer at any
time before acceptance even before the period has expired, some writers
hold the view, that the offeror can not exercise this right in an arbitrary or
capricious manner. This is upon the principle that an offer implies an
obligation on the part of offeror to maintain it for such length of time as to
permit the offeree to decide whether to accept or not, and therefore cannot
arbitrarily revoke the offer without being liable for damage which the offeree
may suffer. A contrary view would remove the stability and security of
business transactions.
APPEAL from a decision of the Court of First Instance of Nueva Ecija. Tan
Torres, J .
The facts are stated in the opinion of the Court.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant. Sanchez vs. Rigos, 45 SCRA
368, No. L-25494 June 14, 1972
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the
Court of Appeals, which certified the case to Us, upon the ground that it
involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and
defendant Severina Rigos executed an instrument entitled "Option to
Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell"

to Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of
Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more
particularly described in Transfer Certificate of Title No. NT-12528 of said
province, within two (2) years from said date with the understanding that
said option shall be deemed "terminated and elapsed," if "Sanchez shall fail
to exercise his right to buy the property" within the stipulated period.
Inasmuch as several tenders of payment of the sum of Pl,510.00, made by
Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963,
the former deposited said amount with the Court of First Instance of Nueva
Ecija and commenced against the latter the present action, for specific
performance and damages.
After the filing of defendant's answer — admitting some allegations of the
complaint, denying other allegations thereof, and alleging, as special
defense, that the contract between the parties "is a unilateral promise to sell,
and the same being unsupported by any valuable consideration, by force of
the New Civil Code, is null and void" — on February 11, 1964, both parties,
assisted by their respective counsel, jointly moved for a judgment on the
pleadings. Accordingly, on February 28, 1964, the lower court rendered
judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially
consigned by him and to execute, in his favor, the requisite deed of
conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as
attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our
Civil Code, which provides:
ART. 1479. A promise to buy and sell a determinate thing for
a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under
consideration, "defendant agreed and committed to sell" and "the plaintiff
agreed and committed to buy" the land described in the option, copy of
which was annexed to said pleading as Annex A thereof and is quoted on the
margin.1 Hence, plaintiff maintains that the promise contained in the contract
is "reciprocally demandable," pursuant to the first paragraph of said Article
S a l e s P a r t V P a g e | 37
1479. Although defendant had really "agreed, promised and committed"
herself to sell the land to the plaintiff, it is not true that the latter had, in
turn, "agreed and committed himself " to buy said property. Said Annex A
does not bear out plaintiff's allegation to this effect. What is more, since
Annex A has been made "an integral part" of his complaint, the provisions of
said instrument form part "and parcel"2 of said pleading.
The option did not impose upon plaintiff the obligation to
purchase defendant's property. Annex A is not a "contract to buy and sell." It
merely granted plaintiff an "option" to buy. And both parties so understood
it, as indicated by the caption, "Option to Purchase," given by them to said
instrument. Under the provisions thereof, the defendant "agreed, promised
and committed" herself to sell the land therein described to the plaintiff for
P1,510.00, but there is nothing in the contract to indicate that her
aforementioned agreement, promise and undertaking is supported by a
consideration "distinct from the price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the
existence of said consideration, and this would seem to be the main factor
that influenced its decision in plaintiff's favor. It should be noted, however,
that:
(1) Article 1354 applies to contracts in general, whereas the second
paragraph of Article 1479 refers to "sales" in particular, and, more
specifically, to "an accepted unilateral promise to buy or to sell." In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor,
Article 1479 requires the concurrence of a condition, namely, that the
promise be "supported by a consideration distinct from the price."
Accordingly, the promisee can not compel the promisor to comply with the
promise, unless the former establishes the existence of said distinct
consideration. In other words, the promisee has the burden of proving such
consideration. Plaintiff herein has not even alleged the existence thereof in
his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and
pleaded as a special defense, the absence of said consideration for her
promise to sell and, by joining in the petition for a judgment on the
pleadings, plaintiff has impliedly admitted the truth of said averment in

defendant's answer. Indeed as early as March 14, 1908, it had been held,
in Bauermann v. Casas,3 that:
One who prays for judgment on the pleadings without
offering proof as to the truth of his own allegations, and
without giving the opposing party an opportunity to
introduce evidence, must be understood to admit the truth
of all the material and relevant allegations of the opposing
party, and to rest his motion for judgment on those
allegations taken together with such of his own as are
admitted in the pleadings. (La Yebana Company vs. Sevilla,
9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa4 and Mercy's
Incorporated v. Herminia Verde.5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf &
Pacific Co.,6 from which We quote:
The main contention of appellant is that the option granted
to appellee to sell to it barge No. 10 for the sum of P30,000
under the terms stated above has no legal effect because it
is not supported by any consideration and in support thereof
it invokes article 1479 of the new Civil Code. The article
provides:
"ART. 1479. A promise to buy and sell a
determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or sell
a determinate thing for a price certain is
binding upon the promisor if the promise is
supported by a consideration distinct from
the price."
On the other hand, Appellee contends that, even granting
that the "offer of option" is not supported by any
consideration, that option became binding on appellant
when the appellee gave notice to it of its acceptance, and
that having accepted it within the period of option, the offer
S a l e s P a r t V P a g e | 38
can no longer be withdrawn and in any event such
withdrawal is ineffective. In support this contention, appellee
invokes article 1324 of the Civil Code which provides:
"ART. 1324. When the offerer has allowed
the offeree a certain period to accept, the
offer may be withdrawn any time before
acceptance by communicating such
withdrawal, except when the option is
founded upon consideration as something
paid or promised."
There is no question that under article 1479 of the new Civil
Code "an option to sell," or "a promise to buy or to sell," as
used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred
from the context of said article that a unilateral promise to
buy or to sell, even if accepted, is only binding if supported
by consideration. In other words, "an accepted unilateral
promise can only have a binding effect if supported by a
consideration which means that the option can still be
withdrawn, even if accepted, if the same is not supported by
any consideration. It is not disputed that the option is
without consideration. It can therefore be withdrawn
notwithstanding the acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the
general rule regarding offer and acceptance is that, when
the offerer gives to the offeree a certain period to accept,
"the offer may be withdrawn at any time before acceptance"
except when the option is founded upon consideration, but
this general rule must be interpreted as modified by the
provision of article 1479 above referred to, which applies to
"a promise to buy and sell" specifically. As already stated,
this rule requires that a promise to sell to be valid must be
supported by a consideration distinct from the price.
We are not oblivious of the existence of American authorities
which hold that an offer, once accepted, cannot be
withdrawn, regardless of whether it is supported or not by a
consideration (12 Am. Jur. 528). These authorities, we note,

uphold the general rule applicable to offer and acceptance
as contained in our new Civil Code. But we are prevented
from applying them in view of the specific provision
embodied in article 1479. While under the "offer of option"
in question appellant has assumed a clear obligation to sell
its barge to appellee and the option has been exercised in
accordance with its terms, and there appears to be no valid
or justifiable reason for appellant to withdraw its offer, this
Court cannot adopt a different attitude because the law on
the matter is clear. Our imperative duty is to apply it unless
modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua
Hian Tek,8 decided later that Southwestern Sugar & Molasses Co. v. Atlantic
Gulf & Pacific Co.,9 saw no distinction between Articles 1324 and 1479 of the
Civil Code and applied the former where a unilateral promise to sell similar to
the one sued upon here was involved, treating such promise as an option
which, although not binding as a contract in itself for lack of a separate
consideration, nevertheless generated a bilateral contract of purchase and
sale upon acceptance. Speaking through Associate Justice, later Chief
Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the
price fixed whenever the offeree should decide to exercise
his option within the specified time. After accepting the
promise and before he exercises his option, the holder of the
option is not bound to buy. He is free either to buy or not to
buy later. In this case, however, upon accepting herein
petitioner's offer a bilateral promise to sell and to buy
ensued, and the respondent ipso facto assumed the
obligation of a purchaser. He did not just get the right
subsequently to buy or not to buy. It was not a mere option
then; it was a bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which
is not binding for lack of consideration, the authorities hold
that:
"If the option is given without a
consideration, it is a mere offer of a contract
of sale, which is not binding until accepted.
S a l e s P a r t V P a g e | 39
If, however, acceptance is made before a
withdrawal, it constitutes a binding contract
of sale, even though the option was not
supported by a sufficient consideration. ... .
(77 Corpus Juris Secundum, p. 652. See also
27 Ruling Case Law 339 and cases cited.)
"It can be taken for granted, as contended
by the defendant, that the option contract
was not valid for lack of consideration. But it
was, at least, an offer to sell, which was
accepted by letter, and of the acceptance
the offerer had knowledge before said offer
was withdrawn. The concurrence of both
acts — the offer and the acceptance —
could at all events have generated a
contract, if none there was before (arts.
1254 and 1262 of the Civil Code)." (Zayco
vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract without a cause or
consideration, the promisor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles 1324 —
on the general principles on contracts — and 1479 — on sales — of the Civil
Code, in line with the cardinal rule of statutory construction that, in
construing different provisions of one and the same law or code, such
interpretation should be favored as will reconcile or harmonize said
provisions and avoid a conflict between the same. Indeed, the presumption
is that, in the process of drafting the Code, its author has maintained a
consistent philosophy or position. Moreover, the decision in Southwestern
Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. , 10 holding that Art. 1324
is modified by Art. 1479 of the Civil Code, in effect, considers the latter as
an exception to the former, and exceptions are not favored, unless the
intention to the contrary is clear, and it is not so, insofar as said two (2)
articles are concerned. What is more, the reference, in both the second
paragraph of Art. 1479 and Art. 1324, to an option or promise supported by
 S a l e s P a r t V P a g e | 40

or founded upon a consideration, strongly suggests that the two (2)

provisions intended to enforce or implement the same principle.

Upon mature deliberation, the Court is of the considered opinion that it

should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll &
Co. case, and that, insofar as inconsistent therewith, the view adhered to in
the Southwestern Sugar & Molasses Co. case should be deemed abandoned
or modified.

WHEREFORE, the decision appealed from is hereby affirmed, with costs

against defendant-appellant Severina Rigos. It is so ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ.,

concur.

Castro, J., took no part.


G.R. No. 83759. July 12, 1991.*
SPOUSES CIPRIANO VASQUEZ and VALERIANA GAYANELO,
petitioners, vs. HONORABLE COURT OF APPEALS and SPOUSES
MARTIN VALLEJERA and APOLONIA OLEA, respondents.
Sales; Right to Repurchase; The promisee has the burden of proving that the
right to repurchase was supported by a consideration distinct from the
price.—In the instant case and contrary to the appellate court’s finding, it is
clear that the right to repurchase was not supported by a consideration
distinct from the price. The rule is that the promisee has the burden of
proving such consideration. Unfortunately, the private respondents,
promisees in the right to repurchase failed to prove such consideration. They
did not even allege the existence thereof in their complaint. (See Sanchez v.
Rigos supra) Therefore, in order that the Sanchez case can be applied, the
evidence must show that the private respondents accepted the right to
repurchase.
Same; Same; The annotation and registration of the right to repurchase at
the back of the certificate of title of the petitioners can not be considered as
acceptance of the right to repurchase.—The annotation and registration of
the right to repurchase at the back of the certificate of title of the petitioners
can not be considered as acceptance of the right to repurchase. Annotation
at the back of the certificate of title of registered land is for the purpose of
binding purchasers of such registered land. Thus, we ruled in the case of Bel
Air Village Association, Inc. v. Dionisio (174 SCRA 589 [1989]), citing
Tanchoco v. Aquino (154 SCRA 1 [1987]), and Constantino v. Espiritu (45
SCRA 557 [1972]) that purchasers of a registered land are bound by the
annotations found at the back of the certificate of title covering the subject
parcel of land. In effect, the annotation of the right to repurchase found at
the back of the certificate of title over the subject parcel of land of the
private respondents only served as notice of the existence of such unilateral
promise of the petitioners to resell the same to the private respondents.
This, however, can not be equated with acceptance of such right to
repurchase by the private respondent.
Same; Same; The signature of the petitioners in the document called right to
repurchase does not signify acceptance of the right to repurchase.—Neither
S a l e s P a r t V P a g e | 41
can the signature of the petitioners in the document called “right to
repurchase” signify acceptance of the right to repurchase. The respondents
did not sign the offer. Acceptance should be made by the promisee, in this
case, the private respondents and not the promisors, the petitioners herein.
It would be absurd to require the promisor of an option to buy to accept his
own offer instead of the promisee to whom the option to buy is given.
PETITION for review from the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Dionisio C. Isidto for petitioners.
Raymundo Lozada, Jr. for private respondents. Vasquez vs. Court of
Appeals, 199 SCRA 102, G.R. No. 83759 July 12, 1991
GUTIERREZ, JR., J.:
This petition seeks to reverse the decision of the Court of Appeals which
affirmed the earlier decision of the Regional Trial Court, 6th Judicial Region,
Branch 56, Himamaylan, Negros Occidental in Civil Case No. 839 (for specific
performance and damages) ordering the petitioners (defendants in the civil
case) to resell Lot No. 1860 of the Cadastral Survey of Himamaylan, Negros
Occidental to the respondents (plaintiffs in the civil case) upon payment by
the latter of the amount of P24,000.00 as well as the appellate court's
resolution denying a motion for reconsideration. In addition, the appellate
court ordered the petitioners to pay the amount of P5,000.00 as necessary
and useful expenses in accordance with Article 1616 of the Civil Code.
The facts of the case are not in dispute. They are summarized by the
appellate court as follows:
On January 15, 1975, the plaintiffs-spouses (respondents herein)
filed this action against the defendants-spouses (petitioners herein)
seeking to redeem Lot No. 1860 of the Himamaylan Cadastre which
was previously sold by plaintiffs to defendants on September 21,
1964.

The said lot was registered in the name of plaintiffs. On October
1959, the same was leased by plaintiffs to the defendants up to crop
year 1966-67, which was extended to crop year 1968-69. After the
execution of the lease, defendants took possession of the lot, up to
now and devoted the same to the cultivation of sugar.
On September 21, 1964, the plaintiffs sold the lot to the defendants
under a Deed of Sale for the amount of P9,000.00. The Deed of Sale
was duly ratified and notarized. On the same day and along with the
execution of the Deed of Sale, a separate instrument, denominated
as Right to Repurchase (Exh. E), was executed by the parties
granting plaintiffs the right to repurchase the lot for P12,000.00, said
Exh. E likewise duly ratified and notarized. By virtue of the sale,
defendants secured TCT No. T-58898 in their name. On January 2,
1969, plaintiffs sold the same lot to Benito Derrama, Jr., after
securing the defendants' title, for the sum of P12,000.00. Upon the
protestations of defendant, assisted by counsel, the said second sale
was cancelled after the payment of P12,000.00 by the defendants to
Derrama.
Defendants resisted this action for redemption on the premise that
Exh. E is just an option to buy since it is not embodied in the same
document of sale but in a separate document, and since such option
is not supported by a consideration distinct from the price, said deed
for right to repurchase is not binding upon them.
After trial, the court below rendered judgment against the
defendants, ordering them to resell lot No. 1860 of the Himamaylan
Cadastre to the plaintiffs for the repurchase price of P24,000.00,
which amount combines the price paid for the first sale and the price
paid by defendants to Benito Derrama, Jr.
Defendants moved for, but were denied reconsideration. Excepting
thereto, defendants-appealed, . . . (Rollo, pp. 44-45)
The petition was given due course in a resolution dated February 12, 1990.
The petitioners insist that they can not be compelled to resell Lot No. 1860
of the Himamaylan Cadastre. They contend that the nature of the sale over
the said lot between them and the private respondents was that of an
absolute deed of sale and that the right thereafter granted by them to the
S a l e s P a r t V P a g e | 42
private respondents (Right to Repurchase, Exhibit "E") can only be either an
option to buy or a mere promise on their part to resell the property. They
opine that since the "RIGHT TO REPURCHASE" was not supported by any
consideration distinct from the purchase price it is not valid and binding on
the petitioners pursuant to Article 1479 of the Civil Code.
The document denominated as "RIGHT TO REPURCHASE" (Exhibit E)
provides:
RIGHT TO REPURCHASE
KNOW ALL MEN BY THESE PRESENTS:
I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses Martin
Vallejera and Apolonia Olea, their heirs and assigns, the right to
repurchase said Lot No. 1860 for the sum of TWELVE THOUSAND
PESOS (P12,000.00), Philippine Currency, within the period TEN (10)
YEARS from the agricultural year 1969-1970 when my contract of
lease over the property shall expire and until the agricultural year
1979-1980.
IN WITNESS WHEREOF, I have hereunto signed my name at
Binalbagan, Negros Occidental, this 21st day of September, 1964.
SGD. CIPRIANO VASQUEZ
SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS
(Rollo, p. 47)
The Court of Appeals, applying the principles laid down in the case of
Sanchez v. Rigos, 45 SCRA 368 [1972] decided in favor of the private
respondents.
In the Sanchez case, plaintiff-appellee Nicolas Sanchez and defendant-
appellant Severino Rigos executed a document entitled "Option to Purchase,"
whereby Mrs. Rigos "agreed, promised and committed . . . to sell" to
Sanchez for the sum of P1,510.00, a registered parcel of land within 2 years
from execution of the document with the condition that said option shall be
deemed "terminated and lapsed," if "Sanchez shall fail to exercise his right to

buy the property" within the stipulated period. In the same document,
Sanchez" . . . hereby agree and conform with all the conditions set forth in
the option to purchase executed in my favor, that I bind myself with all the
terms and conditions." (Emphasis supplied) The notarized document was
signed both by Sanchez and Rigos.
After several tenders of payment of the agreed sum of P1,510.00 made by
Sanchez within the stipulated period were rejected by Rigos, the former
deposited said amount with the Court of First Instance of Nueva Ecija and
filed an action for specific performance and damages against Rigos.
The lower court rendered judgment in favor of Sanchez and ordered Rigos to
accept the sum judicially consigned and to execute in Sanchez' favor the
requisite deed of conveyance. Rigos appealed the case to the Court of
Appeals which certified to this Court on the ground that it involves a pure
question of law.
This Court after deliberating on two conflicting principles laid down in the
cases of Southwestern Sugar and Molasses Co. v. Atlantic Gulf and Pacific
Co., (97 Phil. 249 [1955]) and Atkins, Kroll & Co., Inc. v. Cua Hian Tek, 102
Phil. 948 [1958]) arrived at the conclusion that Article 1479 of the Civil Code
which provides: ––
Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promissory if the promise is
supported by a consideration distinct from the price.
and Article 1324 thereof which provides:
Art. 1324. When the offerer has allowed the offerer a certain period
to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or
promised.
should be reconciled and harmonized to avoid a conflict between the two
provisions. In effect, the Court abandoned the ruling in the Southwestern
S a l e s P a r t V P a g e | 43
Sugar and Molasses Co. case and reiterated the ruling in the Atkins, Kroll and
Co. case, to wit:
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v.
Cua Hian Tek, (102 Phil. 948, 951-952) decided later than
Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,
(supra) saw no distinction between Articles 1324 and 1479 of the
Civil Code and applied the former where a unilateral promise to sell
similar to the one sued upon here was involved, treating such
promise as an option which, although not binding as a contract in
itself for lack of separate consideration, nevertheless generated a
bilateral contract of purchase and sale upon acceptance. Speaking
through Associate Justice, later Chief Justice, Cesar Bengzon, this
Court said:
Furthermore, an option is unilateral: a promise to sell at the
price fixed whenever the offeree should decide to exercise
his option within the specified time. After accepting the
promise and before he exercises his option, the holder of the
option is not bound to buy. He is free either to buy or not to
buy later. In this case however, upon accepting herein
petitioner's offer a bilateral promise to sell and to buy
ensued, and the respondent ipso facto assumed the
obligation of a purchaser. He did not just get the right
subsequently to buy or not to buy. It was not a mere option
then; it was bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which
is not binding for lack of consideration, the authorities hold
that
If the option is given without a consideration, it is a mere
offer of a contract of sale, which is not binding until
accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale, even
though the option was not supported by a sufficient
consideration . . . (77 Corpus Juris Secundum p.
652. See also 27 Ruling Case Law 339 and cases cited.)
This Court affirmed the lower court's decision although the promise to sell
was not supported by a consideration distinct from the price. It was obvious

that Sanchez, the promisee, accepted the option to buy before Rigos, the
promisor, withdrew the same. Under such circumstances, the option to
purchase was converted into a bilateral contract of sale which bound both
parties.
In the instant case and contrary to the appellate court's finding, it is clear
that the right to repurchase was not supported by a consideration distinct
from the price. The rule is that the promisee has the burden of proving such
consideration. Unfortunately, the private respondents, promisees in the right
to repurchase failed to prove such consideration. They did not even allege
the existence thereof in their complaint. ( See Sanchez v. Rigos supra)
Therefore, in order that the Sanchez case can be applied, the evidence must
show that the private respondents accepted the right to repurchase.
The record, however, does not show that the private respondents accepted
the "Right to Repurchase" the land in question. We disagree with the
appellate court's finding that the private respondents accepted the "right to
repurchase" under the following circumstances: . . as evidenced by the
annotation and registration of the same on the back of the transfer of
certificate of title in the name of appellants. As vividly appearing therein, it
was signed by appellant himself and witnessed by his wife so that for all
intents and purposes the Vasquez spouses are estopped from disregarding
its obvious purpose and intention."
The annotation and registration of the right to repurchase at the back of the
certificate of title of the petitioners can not be considered as acceptance of
the right to repurchase. Annotation at the back of the certificate of title of
registered land is for the purpose of binding purchasers of such registered
land. Thus, we ruled in the case of Bel Air Village Association, Inc. v.
Dionisio (174 SCRA 589 [1989]), citing Tanchoco v. Aquino (154 SCRA 1
[1987]), and Constantino v. Espiritu (45 SCRA 557 [1972]) that purchasers
of a registered land are bound by the annotations found at the back of the
certificate of title covering the subject parcel of land. In effect, the
annotation of the right to repurchase found at the back of the certificate of
title over the subject parcel of land of the private respondents only served as
notice of the existence of such unilateral promise of the petitioners to resell
the same to the private respondents. This, however, can not be equated
with acceptance of such right to repurchase by the private respondent.
S a l e s P a r t V P a g e | 44
Neither can the signature of the petitioners in the document called "right to
repurchase" signify acceptance of the right to repurchase. The respondents
did not sign the offer. Acceptance should be made by the promisee, in this
case, the private respondents and not the promisors, the petitioners herein.
It would be absurd to require the promisor of an option to buy to accept his
own offer instead of the promisee to whom the option to buy is given.
Furthermore, the actions of the private respondents –– (a) filing a complaint
to compel re-sale and their demands for resale prior to filing of the complaint
cannot be considered acceptance. As stated in Vda. de Zulueta v. Octaviano
(121 SCRA 314 [1983]):
And even granting, arguendo that the sale was a pacto de retro sale,
the evidence shows that Olimpia, through her lawyer, opted to
repurchase the land only on 16 February 1962, approximately two
years beyond the stipulated period, that is not later than May, 1960.
If Olimpia could not locate Aurelio, as she contends, and based on
her allegation that the contract between her was one of sale with
right to repurchase, neither, however, did she tender the redemption
price to private respondent Isauro, but merely wrote him letters
expressing her readiness to repurchase the property.
It is clear that the mere sending of letters by the vendor expressing
his desire to repurchase the property without accompanying tender
of the redemption price fell short of the requirements of law. (Lee v.
Court of Appeals, 68 SCRA 197 [1972])
Neither did petitioner make a judicial consignation of the repurchase
price within the agreed period.
In a contract of sale with a right of repurchase, the redemptioner
who may offer to make the repurchase on the option date of
redemption should deposit the full amount in court . . . (Rumbaoa v.
Arzaga, 84 Phil. 812 [1949])
To effectively exercise the right to repurchase the vendor a retro
must make an actual and simultaneous tender of payment or
consignation. (Catangcatang v. Legayada, 84 SCRA 51 [1978])

The private respondents' ineffectual acceptance of the option to buy
validated the petitioner's refusal to sell the parcel which can be considered
as a withdrawal of the option to buy.
We agree with the petitioners that the case of Vda. de Zulueta v. Octaviano,
(supra) is in point.
Stripped of non-essentials the facts of the Zulueta case are as follows: On
November 25, 1952 (Emphasis supplied) Olimpia Fernandez Vda. de Zulueta,
the registered owner of a 5.5 hectare riceland sold the lot to private
respondent Aurelio B. Octaviano for P8,600.00 subject to certain terms and
conditions. The contract was an absolute and definite sale. On the same day,
November 25, 1952, (Emphasis supplied) the vendee, Aurelio signed another
document giving the vendor Zulueta the "option to repurchase" the property
at anytime after May 1958 but not later than May 1960. When however,
Zulueta tried to exercise her "option to buy" the property, Aurelio resisted
the same prompting Zulueta to commence suit for recovery of ownership
and possession of the property with the then Court of First Instance of Iloilo.
The trial court ruled in favor of Zulueta. Upon appeal, however, the Court of
Appeals reversed the trial court's decision.
We affirmed the appellate court's decision and ruled:
The nature of the transaction between Olimpia and Aurelio, from the
context of Exhibit "E" is not a sale with right to repurchase.
Conventional redemption takes place "when the vendor reserves the
right to repurchase the thing sold, with the obligation to comply with
the provisions of Article 1616 and other stipulations which may have
been agreed upon. (Article 1601, Civil Code).
In this case, there was no reservation made by the vendor, Olimpia,
in the document Exhibit "E" the "option to repurchase" was
contained in a subsequent document and was made by the vendee,
Aurelio. Thus, it was more of an option to buy or a mere promise on
the part of the vendee, Aurelio, to resell the property to the vendor,
Olimpia. (10 Manresa, p. 311 cited in Padilla's Civil Code Annotated,
Vol. V, 1974 ed., p. 467) As held in Villarica v. Court of Appeals (26
SCRA 189 [1968]):
S a l e s P a r t V P a g e | 45
The right of repurchase is not a right granted the vendor by
the vendee in a subsequent instrument, but is a
right reserved by the vendor in the same instrument of sale
as one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can no
longer reserve the right to repurchase, and any right
thereafter granted the vendor by the vendee in a separate
instrument cannot be a right of repurchase but some other
right like the option to buy in the instant case. . . (Emphasis
supplied)
The appellate court rejected the application of the Zulueta case by stating:
. . . [A]s found by the trial court from which we quote with approval
below, the said cases involve the lapse of several days for the
execution of separate instruments after the execution of the deed of
sale, while the instant case involves the execution of an instrument,
separate as it is, but executed on the same day, and notarized by
the same notary public, to wit:
A close examination of Exh. "E" reveals that although it is a separate
document in itself, it is far different from the document which was
pronounced as an option by the Supreme Court in the Villarica case.
The option in the Villarica case was executed several days after the
execution of the deed of sale. In the present case, Exh. "E" was
executed and ratified by the same notary public and the Deed of
Sale of Lot No. 1860 by the plaintiffs to the defendants were
notarized by the same notary public and entered in the same page
of the same notarial register . . .
The latter case (Vda. de Zulueta v. Octaviano, supra), likewise
involved the execution of the separate document after an
intervention of several days and the question of laches was decided
therein, which is not present in the instant case. That distinction is
therefore crucial and We are of the opinion that the appellee's right
to repurchase has been adequately provided for and reserved in
conformity with Article 1601 of the Civil Code, which states:
Conventional redemption shall take place when the vendor reserves
the right to repurchase the thing sold, with the obligation to comply
 S a l e s P a r t V P a g e | 46

with the provision of Article 1616 and other stipulations which may
have been agreed upon. (Rollo, pp. 46-47)

Obviously, the appellate court's findings are not reflected in the cited
decision.1âwphi1 As in the instant case, the option to repurchase involved in
the Zulueta case was executed in a separate document but on the same
date that the deed of definite sale was executed.

While it is true that this Court in the Zulueta case found Zulueta guilty of
laches, this, however, was not the primary reason why this Court disallowed
the redemption of the property by Zulueta. It is clear from the decision that
the ruling in the Zulueta case was based mainly on the finding that the
transaction between Zulueta and Octaviano was not a sale with right to
repurchase and that the "option to repurchase was but an option to buy or a
mere promise on the part of Octaviano to resell the property to Zulueta.

In the instant case, since the transaction between the petitioners and private
respondents was not a sale with right to repurchase, the private respondents
cannot avail of Article 1601 of the Civil Code which provides for conventional
redemption.

WHEREFORE, the petition is GRANTED. The questioned decision and

resolution of the Court of Appeals are hereby REVERSED and SET ASIDE.
The complaint in Civil Case No. 839 of the then Court of First Instance of
Negros Occidental 12th Judicial District Branch 6 is DISMISSED. No costs.

SO ORDERED.

Fernan, C.J., Feliciano, Bidin and Davide, Jr., JJ., concur.


No. L-32873. August 18, 1972.
AQUILINO N IETES, petitioner, vs. H ON.COURT OF A PPEALS &
DR.PABLO C. GARCIA,respondents.
Remedial law; Witnesses; A Doctor of Medicine and school owner is not
expected to doubt his signatures.—The claim that he did not know whether
the signatures on Exhibits B and C were his and that he was doubtful about
it is manifestly incredible coming from a man of his intelligence—A Doctor of
Medicine and the owner of an educational institution.
Civil law; Sales; Option to buy is governed by provision on reciprocal
obligations.—In the case of an option to buy, the creditor may validly and
effectively exercise his right by merely advising the debtor of the former’s
decision to buy and expressing his readiness to pay the stipulated price,
provided that the same is available and actually delivered to the debtor upon
execution and delivery by him of the corresponding deed of sale. Unless and
until the debtor shall have done this, the creditor is not and cannot be in
default in the discharge of his obligation to pay. In other words, notice of the
creditor’s decision to exercise his option to buy need not be coupled with
actual payment of the price, so long as this is delivered to the owner of the
property upon performance of his part of the agreement.
Same; Same; Option to buy exercised by payment of sum in excess of
rental.—There is a valid and effective exercise of the option to buy a
property leased where the lessor acknowl-edges receipt from the lessee of
sum in excess of the monthly rentals due and describes such payment as
“partial payment on the purchase of the property” described in the contract
of lease with option to buy.
PETITION FOR REVIEW by certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Conrado V. del Rosario for petitioner.
Romeo D. Magat for private respondent. , 46 SCRA 654, No. L-32873
August 18, 1972
S a l e s P a r t V P a g e | 47
CONCEPCION, C.J.:p
Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the
Court of Appeals.
It appears that, on October 19, 1959, said petitioner and respondent Dr.
Pablo C. Garcia entered into a "Contract of Lease with Option to Buy,"
pursuant to the terms and conditions set forth in the deed Exhibits A and A-
1, (also, marked as Exhibit 2) namely:
That the LESSOR is an owner of the ANGELES
EDUCATIONAL INSTITUTE situated at Angeles, Pampanga, a
school which is duly recognized by the Government;
That the lessor agrees to lease the above stated school to
the LESSEE under the following terms and conditions:
1. That the term will be for a period of five (5) years;
2. That the price of the rent is FIVE THOUSAND PESOS
(P5,000) per year payable in the following manners:
a. That the amount of FIVE THOUSAND
FIVE HUNDRED PESOS (P5,500) will be paid
upon the execution of this Contract of
Lease;
b. That the amount of FOUR THOUSAND
FIVE HUNDRED PESOS (P4,500) is payable
on or before the 30th day of October, 1959;
c. That the remaining balance of FIFTEEN
THOUSAND PESOS (P15,000) will be paid on
or before March 30, 1960;
3. That all improvements made during the lease by the
LESSEE will be owned by the LESSOR after the expiration of
the term of this Contract of Lease;

4. That the LESSOR agrees to give the LESSEE an option to
buy the land and the school building, for a price of ONE
HUNDRED THOUSAND PESOS (P100,000) within the period
of the Contract of Lease;
5. That should the LESSEE buy the lot, land and the school
building within the stipulated period, the unused payment
for the Contract of Lease will be considered as part payment
for the sale of the land and school;
6. That an inventory of all properties in the school will be
made on March 31, 1960;
6A. That the term of this Contract will commence in June
1960 and will terminate in June 1965;
7. That the LESSEE will be given full control and
responsibilities over all the properties of the school and over
all the supervisions and administrations of the school;
8. That the LESSEE agrees to help the LESSOR to collect the
back accounts of students incurred before the execution of
this contract.
Instead of paying the lessor in the manner set forth in paragraph 2 of said
contract, Nietes had, as of August 4, 1961, made payments as follows:
October 6,1960 ....................................... P18,957.00 (Exh.
D)
November 23, 1960 ................................. 300.00 (Exh. E)
December 21, 1960 ................................. 200.00 (Exh. F)
January 14, 1961 ..................................... 500.00 (Exh. G)
February 16, 1961 ................................... 3,000.00 (Exh.
H)
March 12, 1961 ....................................... 1,000.00 (Exh. I)
S a l e s P a r t V P a g e | 48
March 13, 1961 ....................................... 700.00 (Exh. J)
August 4, 1961 ........................................ 100.00 (Exh. K)
_________
TOTAL ..................................... P24,757.00
Moreover, Nietes maintains that, on September 4, 1961, and December 13,
1962, he paid Garcia the additional sums of P3,000 and P2,200, respectively,
for which Garcia issued receipts Exhibit B and C, reading:
Received the amount of (P3,000.00) Three Thousand Pesos
from Mrs. Nietes as per advance pay for the school, the
contract of lease being paid.
(Sgd.) PABLO GARCIA (Exh. B)
To Whom it May Concern:
This is to certify that I received the sum of Two Thousand
Two Hundred Pesos, Philippine Currency, from Mrs.
Catherine R. Nietes as the partial payment on the purchase
of the property as specified on the original contract of
"Contract of Lease with the First Option to Buy" originally
contracted and duly signed.
(Sgd.) DR. PABLO GARCIA (Exh. C)
On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter
Exhibit 1 (also Exhibit V) stating:
The Director
Philippine Institute of Electronics
Angeles, Pampanga
Sir:
I regret to inform you that our client, Dr. Pablo Garcia,
desires to rescind your contract, dated 19 October 1959
because of the following:

1. That you had not maintained the building, subject of the
lease contract in good condition.
2. That you had not been using the original name of the
school — Angeles Institute, thereby extinguishing its
existence in the eyes of the public and injuring its prestige.
3. That through your fault, no inventory has been made of
all properties of the school.
4. That up to this time, you had not collected or much less
helped in the collection of back accounts of former students.
This is to remind you that the foregoing obligations had
been one, if not, the principal moving factors which had
induced the lessor in agreeing with the terms embodied in
your contract of lease, without which fulfillment, said
contract could not have come into existence. It is not simply
one of those reminders that we make mention, that our
client under the circumstances, is not only entitled to a
rescission of the contract. He is likewise entitled to damages
— actual, compensatory and exemplary.
In view of the serious nature of the breach which warrant
and sanction drastic legal remedies against you, we
earnestly request you to please see the undersigned at the
above-named address two days from receipt hereof.
Otherwise, if we shall not hear from you, the foregoing will
serve notice on your part to vacate the premises within five
(5) days to be counted from date of notice.
Very truly yours,
(Sgd.) VICTOR T. LLAMAS, JR.
to which counsel for Nietes replied in the following
language:
Atty. Victor T. Llamas, Jr.
Victor Llamas Law Office
Corner Rivera-Zamora Streets
Dagupan City
S a l e s P a r t V P a g e | 49
Dear Sir:
Your letter dated July 31, 1964 addressed to my client, the
Director of the Philippine Institute of Electronics, Angeles
City, has been referred to me and in reply, please, be
informed that my client has not violated any provision of the
CONTRACT OF LEASE WITH OPTION TO BUY, executed by
him as LESSEE and Dr. Pablo Garcia as LESSOR. For this
reason, there is no basis for rescission of the contract nor of
the demands contained in your letter.
In this connection, I am also serving this formal notice upon
your client Dr. Pablo Garcia, thru you, that my client Mr.
AQUILINO T. NIETES will exercise his OPTION to buy the
land and building subject matter of the lease and that my
said client is ready to pay the balance of the purchase price
in accordance with the contract. Please, inform Dr. Pablo
Garcia to make available the land title and execute the
corresponding Deed of Sale pursuant to this notice, and that
if he fails to do so within fifteen (15) days from the receipt
of this letter, we shall take the corresponding action to
enforce the agreement.
Truly yours,
(Sgd.) CONRADO V. DEL ROSARIO
Counsel for Mr. Aquilino T. Nietes
Angeles City
On July 26, 1965, Nietes deposited with the branch office of the Agro-
Industrial Bank in Angeles City checks amounting to P84,860.50, as balance
of the purchase price of the property, but he withdrew said sum of
P84,860.50 on August 12, 1965, after the checks had been cleared. On
August 2, 1965, he commenced the present action, in the Court of First
Instance of Pampanga, for specific performance of Dr. Garcia's alleged
obligation to execute in his (Nietes') favor a deed of absolute sale of the
leased property, free from any lien or encumbrance whatsoever, he having
meanwhile mortgaged it to the People's Bank and Trust Company, and to
compel him (Garcia) to accept whatever balance of the purchase price is due
him, as well as to recover from him the aggregate sum of P90,000 by way of
damages, apart from attorney's fees and the costs.

Dr. Garcia filed an answer admitting some allegations of the complaint and
denying other allegations thereof, as well as setting up a counterclaim for
damages in the sum of P150,000.
After due trial, said court rendered its decision, the dispositive part of which
reads:
WHEREFORE, in view of the preponderance of evidence in
favor of the plaintiff and against the defendant, judgment is
hereby rendered ordering the latter to execute the Deed of
Absolute Sale of property originally leased together with the
school building and other improvements thereon which are
covered by the contract, Annex "A", upon payment of the
former of the balance (whatever be the amount) of the
stipulated purchase price; to free the said property from any
mortgage or encumbrance and deliver the title thereto to the
plaintiff free from any lien or encumbrance, and should said
defendant fail to do so, the proceeds from the purchase
price be applied to the payment of the encumbrance so that
the title may be conveyed to the plaintiff; to pay the plaintiff
the sum of P1,000.00 as attorney's fees, and the cost of this
suit.
Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial
court had neither dismissed the complaint nor upheld his counterclaim and
failed to order Nietes to vacate the property in question, and Nietes insofar
as the trial court had granted him no more than nominal damages in the
sum of P1,000, as attorney's fees.
After appropriate proceedings, a special division of Court of Appeals
rendered its decision, on October 18, 1969, affirming, in effect, that of the
trial court, except as regards said attorney's fees, which were eliminated.
The dispositive part of said decision of the Court of Appeals reads:
WHEREFORE, with the modification that the attorney's fees awarded by the
trial court in favor of the plaintiff is eliminated, the appealed judgment is
hereby affirmed in all other respects, and the defendant is ordered to
execute the corresponding deed of sale for the school building and lot in
question in favor of the plaintiff upon the latter's full payment of the balance
of the purchase price. The costs of this proceedings shall be taxed against
the defendant-appellant.
S a l e s P a r t V P a g e | 50
On motion for reconsideration of defendant Garcia, said special division set
aside its aforementioned decision and rendered another one, promulgated on
March 10, 1970 reversing the appealed decision of the court of first instance,
and dismissing the complaint of Nietes, with costs again him. Hence, the
present petition of Nietes for review certiorari of the second decision of the
Court of Appeals, dated March 10, 1970, to which petition We gave due
course.
Said decision of the Court of Appeals, reversing that of the Court of First
Instance, is mainly predicated upon the theory that, under the contract
between the parties, "the full purchase price must be paid before the option
counsel be exercised," because "there was no need nor sense providing that
"the unused payment for the Contract Lease will be considered as part
payment for the sale the land and school'" inasmuch as "otherwise there is
substantial amount from which such unused rental could be deducted"; that
the statement in the letter, Exhibit L, of Nietes, dated August 7, 1964, to the
effect that he "will exercise his OPTION to buy the land and building,"
indication that he did not consider the receipts, Exhibits B and for P3,000
and P2,200, respectively, "as an effective exercise of his option to buy"; that
the checks for P84,860.50 deposited by Nietes with the Agro-Industrial
Development Bank, did not constitute a proper tender of payment, which, at
any rate, was "made beyond the stipulated 5-year period"; that such deposit
"was not seriously made, because on August 12, 1965, the same was
withdrawn from the Bank and ostensibly remains in the lessee's hand"; and
that "the fact that such deposit was made by the lessee shows that he
himself believed that he should have paid the entire amount of the purchase
price before he could avail of the option to buy, otherwise, the deposit was a
senseless gesture ... ."
Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him
"were part of the price of the contract of lease between the parties which
were paid late and not within the periods and/or schedules fixed by the
contract (Annex A.)." What is more, on the witness stand, Garcia claimed
that he did "not know" whether the signatures on Exhibits B and C — the
receipt for P3,000 and P2,200, respectively — were his, and even said that
he was "doubtful" about it.
This testimony is manifestly incredible, for a man of his intelligence — a
Doctor of Medicine and the owner of an educational institution — could not
possibly "not know" or entertain doubts as to whether or not the
aforementioned signatures are his and the payments therein acknowledged

had been received by him. His dubious veracity becomes even more
apparent when we consider the allegations in paragraph (4) of his answer —
referring to paragraphs 5 and 6 of the complaint alleging, inter alia, the
aforementioned partial payments of P3,000 and P2,200, on account of the
stipulated sale price — to the effect that said sums " paid to the herein
defendant were part of the price of the contract of lease." In other words,
payment of said sums of P3,000 and P2,200 is admitted in said answer.
Besides, the rentals for the whole period of the lease aggregated P25,000
only, whereas said sums of P3,000 and P2,200, when added to the payments
previously made by Nietes, give a grand total of P29,957.00, or P4,957 in
excess of the agreed rentals for the entire period of five years. Thus, Dr.
Garcia was less than truthful when he tried to cast doubt upon the fact of
payment of said sums of P3,000 and P2,200, as well as when he claimed
that the same were part of the rentals collectible by him.
We, likewise, find ourselves unable to share the view taken by the Court of
Appeals. Neither the tenor of the contract Exhibits A and A-1 (also Exhibit 2)
nor the behaviour of Dr. Garcia — as reflected in the receipts Exhibits B and
C — justifies such view. The contract does not say that Nietes had to pay the
stipulated price of P100,000 before exercising his option to buy the property
in question. Accordingly, said option is governed by the general principles on
obligations, pursuants to which:
In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other
begins.1
In the case of an option to buy, the creditor may validly and effectively
exercise his right by merely advising the debtor of the former's decision to
buy and expressing his readiness to pay the stipulated price, provided that
the same is available and actually delivered to the debtor upon execution
and delivery by him of the corresponding deed of sale. Unless and until the
debtor shall have done this the creditor is not and cannot be in default in the
discharge of his obligation to pay.2 In other words, notice of the creditor's
decision to exercise his option to buy need not be coupled with actual
payment of the price, so long as this is delivered to the owner of the
property upon performance of his part of the agreement. Nietes need not
have deposited, therefore, with the Agro-Industrial Bank checks amounting
altogether to P84,860.50 on July 26, 1965, and the withdrawal thereof soon
S a l e s P a r t V P a g e | 51
after does not and cannot affect his cause of action in the present case. In
making such deposit, he may have had the intent to show his ability to pay
the balance of the sum due to Dr. Garcia as the sale price of his property. In
short, said deposit and its subsequent withdrawal cannot affect the result of
the present case.
Nietes was entitled to exercise his option to buy "within the period of the
Contract of Lease," which — pursuant to paragraph 6-A of said contract —
commenced "in June 1960" and was to "terminate in June 1965." As early as
September 4, 1961, or well "within the period of the Contract of Lease ,"
Nietes had paid Dr. Garcia the following sums:
October 6, 1960 ............................ P18,957.00 (Exh. D)
November 23, 1960 ....................... 300.00 (Exh E)
December 21, 1960 ....................... 200.00 (Exh. F)
January 14, 1961 ........................... 500.00 (Exh. G)
February 16, 1961 ......................... 3,000.00 (Exh. H)
March 12, 1961 ............................. 1,000.00 (Exh. I)
March 13, 1961 ............................. 700.00 (Exh. J)
August 4, 1961 ............................... 100.00 (Exh. K)
September 4, 1961 ......................... 3,000.00 (Exh. B)
________
TOTAL ............................... P27,757.00
It is true that Nietes was bound, under the contract, to pay P5,500 on
October 19, 1959, P4,500 on or before October 30, 1959, and P15,000 on or
before March 30, 1960, or the total sum of P25,000, from October 19, 1959
to March 30, 1960, whereas his first payment was not made until October
10, 1960, when he delivered the sum of P18,957 to Dr. Garcia, and the latter
had by August 4, 1961, received from the former the aggregate sum of
P24,757. This is, however, P243.00 only less than the P25,000 due as of

March 30, 1960, so that Nietes may be considered as having complied
substantially with the terms agreed upon. Indeed, Dr. Garcia seems to have
either agreed thereto or not considered that Nietes had thereby violated the
contract, because the letter of the former, dated July 31, 1964, demanding
rescission of the contract, did not mention said acts or omissions of Nietes
among his alleged violations thereof enumerated in said communication. In
fact, when, on September 4, 1961, Mrs. Nietes turned over the sum of
P3,000 to Dr. Garcia, he issued the receipt Exhibit B, stating that said
payment had been made "as per advance pay for the school, the Contract of
Lease being paid" — in other words, in accordance or conformity with said
contract. Besides, when, on December 13, 1962, Mrs. Nietes delivered the
additional sum of P2,200, Dr. Garcia issued a receipt accepting said amount
"as the partial payment on the purchase price of the property as specified on
the original contract," thus further indicating that the payment, in his
opinion, conformed with said contract, and that, accordingly, the same
was in full force and effect.
In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had
received the total sum of P27,757, or P2,757 in excess of the P25,000
representing the rentals for the entire period of the lease, and over
P21,200 in excess of the rentals for the unexpired portion of the lease, from
September 4, 1961 to June 1965. This circumstance indicates clearly that
Nietes had, on September 4, 1961, chosen to exercise and did exercise then
his option to buy. What is more, this is borne out by the receipt issued by Dr.
Garcia for the payment of P2,200, on December 13, 1962, to which he
referred therein as a "partial payment on the purchase of the property as
specified on the original contract of 'Contract of Lease with the First Option
to Buy' ... ."
Further confirmation is furnished by the letter of Nietes, Exhibit L, of August
1964 — also, within the period of the lease — stating that he "will exercise
his OPTION to buy the land and building subject matter of the lease." It is
not correct to construe this expression — as did the appealed decision — as
implying that the option had not been or was not yet being exercised, or as a
mere announcement of the intent to avail of it at some future time. This
interpretation takes said expression out of the context of Exhibit L, which
positively states, also, that Nietes "is ready to pay the balance of the
purchase price in accordance with the contract," and requests counsel for Dr.
Garcia to inform or advise him "to make available the land title and execute
the corresponding Deed of Sale pursuant to this notice, and that if he fails to
do so within fifteen (15) days ... we shall take the corresponding action to
enforce the agreement." Such demand and said readiness to pay the balance
S a l e s P a r t V P a g e | 52
of the purchase price leave no room for doubt that, as stated in Exhibit L,
the same is "a formal notice" that Nietes had exercised his option, and
expected Dr. Garcia to comply, within fifteen (15) days, with his part of the
bargain. Surely, there would have been no point for said demand and
readiness to pay, if Nietes had not yet exercised his option to buy.
The provision in paragraph 5 of the Contract, to the effect that "should the
LESSEE" choose to make use of his option to buy "the unused payment for
the Contract of Lease will be considered as payment for the sale of the land
and school, "simply means that the rental paid for the unused portion of the
lease shall be applied to and deducted from the sale price of P100,000 to be
paid by Nietes at the proper time — in other words, simultaneously with the
delivery to him of the corresponding deed of sale, duly executed by Dr.
Garcia.
It is, consequently, Our considered opinion that Nietes had validly and
effectively exercised his option to buy the property of Dr. Garcia, at least, on
December 13, 1962, when he acknowledged receipt from Mrs. Nietes of the
sum of P2,200 then delivered by her "in partial payment on the purchase of
the property" described in the "Contract of Lease with Option to Buy"; that
from the aggregate sum of P29,957.00 paid to him up to that time, the sum
of P12,708.33 should be deducted as rental for the period from June 1960 to
December 13, 1962, or roughly thirty (30) months and a half, thereby
leaving a balance of P17,248.67, consisting of P12,291.67, representing the
rentals for the unused period of the lease, plus P4,957.00 paid in excess of
said rental and advanced solely on account of the purchase price; that
deducting said sum of P17,248.67 from the agreed price of P100,000.00,
there results a balance of P82,751.33 which should be paid by Nietes to Dr.
Garcia, upon execution by the latter of the corresponding deed of absolute
sale of the property in question, free from any lien or encumbrance
whatsoever, in favor of Nietes, and the delivery to him of said deed of sale,
as well as of the owner's duplicate of the certificate of title to said property;
and that Dr. Garcia should indemnify Nietes in the sum of P2,500 as and for
attorney's fees.
Thus modified, the decision of the Court of First Instance of Pampanga is
hereby affirmed in all other respects, and that of the Court of Appeals
reversed, with costs against respondent herein, Dr. Pablo C. Garcia. It is so
ordered.
 S a l e s P a r t V P a g e | 53

Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Makasiar

Antonio and Esguerra, JJ., concur.

Castro, J., took no part.


G.R. No. 109125. December 2, 1994.*
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Obligations; Essential elements of an obligation.—An obligation is a juridical
necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is
constituted upon the concurrence of the essential elements thereof, viz: (a)
The vinculum juris or juridical tie which is the efficient cause established by
the various sources of obligations (law, contracts, quasi-contracts, delicts
and quasi-delicts); (b) the object which is the prestation or conduct, required
to be observed (to give, to do or not to do); and (c) the subject-persons
who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.
Same; Contracts; Various stages of a contract.—Among the sources of an
obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds
between two persons whereby one binds himself, with respect to the other,
to give something or to render some service (Art. 1305, Civil Code). A
contract undergoes various stages that include its negotiation or preparation,
its perfection and, finally, its consummation. Negotiation covers the period
from the time the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected). The perfection of
the contract takes place upon the concurrence of the essential elements
thereof. A contract which is consensual as to perfection is so established
upon a mere meeting of minds, i.e., the concurrence of offer and
acceptance, on the object and on the cause thereof. A contract which
requires, in addition to the above, the delivery of the object of the
agreement, as in a pledge or commodatum, is commonly referred to as a
real contract. In a solemn contract, compliance with certain formalities
prescribed by law, such as in a donation of real property, is essential in order
to make the act valid, the prescribed form being thereby an essential
element thereof. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating in the
extinguishment thereof.
S a l e s P a r t V P a g e | 54
Same; Same; Sales; In sales, the contract is perfected when the seller
obligates himself, for a price certain, to deliver and to transfer ownership of
a thing or right to the buyer, over which the latter agrees.—Until the
contract is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation. In sales, particularly, to which the topic
for discussion about the case at bench belongs, the contract is perfected
when a person, called the seller, obligates himself, for a price certain, to
deliver and to transfer ownership of a thing or right to another, called the
buyer, over which the latter agrees.
Same; Same; Same; When the sale is not absolute but conditional, the
breach of the condition will prevent the obligation to convey title from
acquiring an obligatory force.—When the sale is not absolute but conditional,
such as in a “Contract to Sell” where invariably the ownership of the thing
sold is retained until the fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price), the breach of the
condition will prevent the obligation to convey title from acquiring an
obligatory force. In Dignos vs. Court of Appeals (158 SCRA 375), we have
said that, although denominated a “Deed of Conditional Sale,” a sale is still
absolute where the contract is devoid of any proviso that title is reserved or
the right to unilaterally rescind is stipulated, e.g., until or unless the price is
paid. Ownership will then be transferred to the buyer upon actual or
constructive delivery (e.g., by the execution of a public document) of the
property sold. Where the condition is imposed upon the perfection of the
contract itself, the failure of the condition would prevent such perfection. If
the condition is imposed on the obligation of a party which is not fulfilled,
the other party may either waive the condition or refuse to proceed with the
sale (Art. 1545, Civil Code).
Same; Same; Same; An unconditional mutual promise to buy and sell, with
an object that is determinate and the price fixed, can be obligatory on the
parties.—An unconditional mutual promise to buy and sell, as long as the
object is made determinate and the price is fixed, can be obligatory on the
parties, and compliance therewith may accordingly be exacted.
Same; Same; Same; Options; An accepted unilateral promise which specifies
the thing to be sold and the price to be paid, when coupled with a valuable

consideration distinct and separate from the price, may be termed a
perfected contract of option.—An accepted unilateral promise which specifies
the thing to be sold and the price to be paid, when coupled with a valuable
consideration distinct and separate from the price, is what may properly be
termed a perfected contract of option. This contract is legally binding, and in
sales, it conforms with the second paragraph of Article 1479 of the Civil
Code. Observe, however, that the option is not the contract of sale itself.
The optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.
Same; Same; Same; Same; Rules applicable where a period is given to the
offeree within which to accept the offer.—Where a period is given to the
offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration,
the offeror is still free and has the right to withdraw the offer before its
acceptance, or, if an acceptance has been made, before the offeror’s coming
to know of such fact, by communicating that withdrawal to the offeree. The
right to withdraw, however, must not be exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage claim under Article 19 of the Civil
Code; (2) If the period has a separate consideration, a contract of “option” is
deemed perfected, and it would be a breach of that contract to withdraw the
offer during the agreed period. The option, however, is an independent
contract by itself, and it is to be distinguished from the projected main
agreement (subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may
not sue for specific performance on the proposed contract (“object” of the
option) since it has failed to reach its own stage of perfection. The optionee-
offeror, however, renders himself liable for damages for breach of the
option. In these cases, care should be taken on the real nature of the
consideration given, for if, in fact, it has been intended to be part of the
consideration for the main contract with a right of withdrawal on the part of
the optionee, the main contract could be deemed perfected; a similar
instance would be an “earnest money” in a contract of sale that can evidence
its perfection (Art. 1482, Civil Code).
S a l e s P a r t V P a g e | 55
Same; Same; Same; Same; Words and Phrases; “Right of First Refusal,”
Explained; In the law on sales, the so-called “right of first refusal” is an
innovative juridical relation, but it cannot be deemed a perfected contract of
sale under Article 1458 of the Civil Code.—In the law on sales, the so-called
“right of first refusal” is an innovative juridical relation. Needless to point out,
it cannot be deemed a perfected contract of sale under Article 1458 of the
Civil Code, Neither can the right of first refusal, understood in its normal
concept, per se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under Article
1319 of the same Code. An option or an offer would require, among other
things, a clear certainty on both the object and the cause or consideration of
the envisioned contract. In a right of first refusal, while the object might be
made determinate, the exercise of the right, however, would be dependent
not only on the grantor’s eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that obviously
are yet to be later firmed up. Prior thereto, it can at best be so described as
merely belonging to a class of preparatory juridical relations governed not by
contracts (since the essential elements to establish the vinculum juris would
still be indefinite and inconclusive) but by, among other laws of general
application, the pertinent scattered provisions of the Civil Code on human
conduct.
Same; Same; Same; Same; Same; Same; Breach of a right of first refusal
decreed under a final judgment does not entitle the aggrieved party to a writ
of execution of the judgment but to an action for damages.—Even on the
premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of
a writ of execution under a judgment that merely recognizes its existence,
nor would it sanction an action for specific performance without thereby
negating the indispensable element of consensuality in the perfection of
contracts. It is not to say, however, that the right of first refusal would be
inconsequential for, such as already intimated above, an unjustified
disregard thereof, given, for instance, the circumstances expressed in Article
19 of the Civil Code, can warrant a recovery for damages. The final
judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a “right of first refusal” in favor of petitioners. The consequence of
such a declaration entails no more than what has heretofore been said. In

fine, if, as it is here so conveyed to us, petitioners are aggrieved by the
failure of private respondents to honor the right of first refusal, the remedy
is not a writ of execution on the judgment, since there is none to execute,
but an action for damages in a proper forum for the purpose.
Due Process; Actions; A party not impleaded in an action cannot be held
subject to the writ of execution issued therein.—Furthermore, whether
private respondent Buen Realty Development Corporation, the
allegedpurchaser of the property, has acted in good faith or bad faith and
whether or not it should, in any case, be considered bound to respect the
registration of the lis pendens in Civil Case No. 87-41058 are matters that
must be independently addressed in appropriate proceedings. Buen Realty,
not having been impleaded in Civil Case No. 87-41058, cannot be held
subject to the writ of execution issued by respondent Judge, let alone ousted
from the ownership and possession of the property, without first being duly
afforded its day in court.
PETITION for review of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent. Ang Yu Asuncion vs.
Court of Appeals, 238 SCRA 602, G.R. No. 109125 December 2, 1994
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals,
dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside and
declaring without force and effect the orders of execution of the trial court,
dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong,
S a l e s P a r t V P a g e | 56
et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose
Tan before the Regional Trial Court, Branch 31, Manila in
Civil Case No. 87-41058, alleging, among others, that
plaintiffs are tenants or lessees of residential and
commercial spaces owned by defendants described as Nos.
630-638 Ongpin Street, Binondo, Manila; that they have
occupied said spaces since 1935 and have been religiously
paying the rental and complying with all the conditions of
the lease contract; that on several occasions before October
9, 1986, defendants informed plaintiffs that they are offering
to sell the premises and are giving them priority to acquire
the same; that during the negotiations, Bobby Cu Unjieng
offered a price of P6-million while plaintiffs made a counter
offer of P5-million; that plaintiffs thereafter asked the
defendants to put their offer in writing to which request
defendants acceded; that in reply to defendant's letter,
plaintiffs wrote them on October 24, 1986 asking that they
specify the terms and conditions of the offer to sell; that
when plaintiffs did not receive any reply, they sent another
letter dated January 28, 1987 with the same request; that
since defendants failed to specify the terms and conditions
of the offer to sell and because of information received that
defendants were about to sell the property, plaintiffs were
compelled to file the complaint to compel defendants to sell
the property to them.
Defendants filed their answer denying the material
allegations of the complaint and interposing a special
defense of lack of cause of action.
After the issues were joined, defendants filed a motion for
summary judgment which was granted by the lower court.
The trial court found that defendants' offer to sell was never
accepted by the plaintiffs for the reason that the parties did
not agree upon the terms and conditions of the proposed
sale, hence, there was no contract of sale at all.
Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a
price of P11-million or below, plaintiffs will have the right of
first refusal. Thus the dispositive portion of the decision
states:

WHEREFORE, judgment is hereby rendered
in favor of the defendants and against the
plaintiffs summarily dismissing the complaint
subject to the aforementioned condition that
if the defendants subsequently decide to
offer their property for sale for a purchase
price of Eleven Million Pesos or lower, then
the plaintiffs has the option to purchase the
property or of first refusal, otherwise,
defendants need not offer the property to
the plaintiffs if the purchase price is higher
than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on
September 21, 1990 (penned by Justice Segundino G. Chua
and concurred in by Justices Vicente V. Mendoza and
Fernando A. Santiago), this Court affirmed with modification
the lower court's judgment, holding:
In resume, there was no meeting of the
minds between the parties concerning the
sale of the property. Absent such
requirement, the claim for specific
performance will not lie. Appellants' demand
for actual, moral and exemplary damages
will likewise fail as there exists no justifiable
ground for its award. Summary judgment
for defendants was properly granted. Courts
may render summary judgment when there
is no genuine issue as to any material fact
and the moving party is entitled to a
judgment as a matter of law (Garcia vs.
Court of Appeals, 176 SCRA 815). All
requisites obtaining, the decision of the
court a quo is legally justifiable.
WHEREFORE, finding the appeal
unmeritorious, the judgment appealed from
S a l e s P a r t V P a g e | 57
is hereby AFFIRMED, but subject to the
following modification: The court a quo in
the aforestated decision gave the plaintiffs-
appellants the right of first refusal only if the
property is sold for a purchase price of
Eleven Million pesos or lower; however,
considering the mercurial and uncertain
forces in our market economy today. We
find no reason not to grant the same right
of first refusal to herein appellants in the
event that the subject property is sold for a
price in excess of Eleven Million pesos. No
pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court
by petition for review on certiorari. The Supreme Court
denied the appeal on May 6, 1991 "for insufficiency in form
and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was
pending consideration by this Court, the Cu Unjieng spouses
executed a Deed of Sale (Annex D, Petition) transferring the
property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and
conditions:
1. That for and in consideration of the sum
of FIFTEEN MILLION PESOS
(P15,000,000.00), receipt of which in full is
hereby acknowledged, the VENDORS hereby
sells, transfers and conveys for and in favor
of the VENDEE, his heirs, executors,
administrators or assigns, the above-
described property with all the
improvements found therein including all the
rights and interest in the said property free
from all liens and encumbrances of
whatever nature, except the pending
ejectment proceeding;

2. That the VENDEE shall pay the
Documentary Stamp Tax, registration fees
for the transfer of title in his favor and other
expenses incidental to the sale of above-
described property including capital gains
tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the
name of the Cu Unjieng spouses was cancelled and, in lieu
thereof, TCT No. 195816 was issued in the name of
petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject
property wrote a letter to the lessees demanding that the
latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner
stating that petitioner brought the property subject to the
notice of lis pendens regarding Civil Case No. 87-41058
annotated on TCT No. 105254/T-881 in the name of the Cu
Unjiengs.
The lessees filed a Motion for Execution dated August 27,
1991 of the Decision in Civil Case No. 87-41058 as modified
by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order
(Annex A, Petition) quoted as follows:
Presented before the Court is a Motion for
Execution filed by plaintiff represented by
Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng
represented by Atty. Vicente Sison and Atty.
Anacleto Magno respectively were duly
notified in today's consideration of the
motion as evidenced by the rubber stamp
and signatures upon the copy of the Motion
for Execution.
S a l e s P a r t V P a g e | 58
The gist of the motion is that the Decision of
the Court dated September 21, 1990 as
modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated
to the Supreme Court upon the petition for
review and that the same was denied by the
highest tribunal in its resolution dated May
6, 1991 in G.R. No.
L-97276, had now become final and
executory. As a consequence, there was an
Entry of Judgment by the Supreme Court as
of June 6, 1991, stating that the aforesaid
modified decision had already become final
and executory.
It is the observation of the Court that this
property in dispute was the subject of
the Notice of Lis Pendens and that the
modified decision of this Court promulgated
by the Court of Appeals which had become
final to the effect that should the defendants
decide to offer the property for sale for a
price of P11 Million or lower, and
considering the mercurial and uncertain
forces in our market economy today, the
same right of first refusal to herein
plaintiffs/appellants in the event that the
subject property is sold for a price in excess
of Eleven Million pesos or more.
WHEREFORE, defendants are hereby
ordered to execute the necessary Deed of
Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go for the consideration of P15
Million pesos in recognition of plaintiffs' right
of first refusal and that a new Transfer
Certificate of Title be issued in favor of the
buyer.

All previous transactions involving the same
property notwithstanding the issuance of
another title to Buen Realty Corporation, is
hereby set aside as having been executed in
bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another
order, the dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution
issue in the above-entitled case directing the
Deputy Sheriff Ramon Enriquez of this Court
to implement said Writ of Execution ordering
the defendants among others to comply
with the aforesaid Order of this Court within
a period of one (1) week from receipt of this
Order and for defendants to execute the
necessary Deed of Sale of the property in
litigation in favor of the plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the
consideration of P15,000,000.00 and
ordering the Register of Deeds of the City of
Manila, to cancel and set aside the title
already issued in favor of Buen Realty
Corporation which was previously executed
between the latter and defendants and to
register the new title in favor of the
aforesaid plaintiffs Ang Yu Asuncion, Keh
Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding
writ of execution (Annex C, Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private
respondent, set aside and declared without force and effect the above
questioned orders of the court a quo.
S a l e s P a r t V P a g e | 59
In this petition for review on certiorari, petitioners contend that Buen Realty
can be held bound by the writ of execution by virtue of the notice of lis
pendens, carried over on TCT No. 195816 issued in the name of Buen
Realty, at the time of the latter's purchase of the property on 15 November
1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of
such arrangements as the right of first refusal, a purchase option and a
contract to sell. For ready reference, we might point out some fundamental
precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do ( Art. 1156,
Civil Code). The obligation is constituted upon the concurrence of the
essential elements thereof, viz: (a) The vinculum juris or juridical tie which is
the efficient cause established by the various sources of obligations (law,
contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is
the prestation or conduct; required to be observed (to give, to do or not to
do); and (c) the subject-persons who, viewed from the demandability of the
obligation, are the active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code),
which is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service (Art. 1305, Civil Code). A contract undergoes various stages that
include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is
concluded (perfected). The perfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract which
is consensual as to perfection is so established upon a mere meeting of
minds, i.e., the concurrence of offer and acceptance, on the object and on
the cause thereof. A contract which requires, in addition to the above, the
delivery of the object of the agreement, as in a pledge or commodatum, is
commonly referred to as a real contract. In a solemn contract, compliance
with certain formalities prescribed by law, such as in a donation of real
property, is essential in order to make the act valid, the prescribed form
being thereby an essential element thereof. The stage
of consummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly, to which
the topic for discussion about the case at bench belongs, the contract is
perfected when a person, called the seller, obligates himself, for a price
certain, to deliver and to transfer ownership of a thing or right to another,
called the buyer, over which the latter agrees. Article 1458 of the Civil Code
provides:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold is retained until the
fulfillment of a positive suspensive condition (normally, the full payment of
the purchase price), the breach of the condition will prevent the obligation to
convey title from acquiring an obligatory force. 2 In Dignos vs. Court of
Appeals (158 SCRA 375), we have said that, although denominated a "Deed
of Conditional Sale," a sale is still absolute where the contract is devoid of
any proviso that title is reserved or the right to unilaterally rescind is
stipulated, e.g., until or unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive delivery (e.g., by the
execution of a public document) of the property sold. Where the condition is
imposed upon the perfection of the contract itself, the failure of the condition
would prevent such perfection.3 If the condition is imposed on the obligation
of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is
made determinate and the price is fixed, can be obligatory on the parties,
and compliance therewith may accordingly be exacted.5
An accepted unilateral promise which specifies the thing to be sold and the
price to be paid, when coupled with a valuable consideration
distinct and separate from the price, is what may properly be termed a
perfected contract of option. This contract is legally binding, and in sales, it
conforms with the second paragraph of Article 1479 of the Civil Code, viz:
S a l e s P a r t V P a g e | 60
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price. (1451a)6
Observe, however, that the option is not the contract of sale itself.7 The
optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public advertisements or
solicitations and the like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a contract is perfected, are
not considered binding commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party may stop the negotiation.
The offer, at this stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mailing and not necessarily
when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270).
Where a period is given to the offeree within which to accept the offer, the
following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration,
the offeror is still free and has the right to withdraw the offer before its
acceptance, or, if an acceptance has been made, before the offeror's coming
to know of such fact, by communicating that withdrawal to the offeree
(see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948 ,
holding that this rule is applicable to a unilateral promise to sell under Art.
1479, modifying the previous decision in South Western Sugar vs. Atlantic
Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque,
Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The
right to withdraw, however, must not be exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage claim under Article 19 of the Civil
Code which ordains that "every person must, in the exercise of his rights and
in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is
deemed perfected, and it would be a breach of that contract to withdraw the
offer during the agreed period. The option, however, is an independent
contract by itself, and it is to be distinguished from the projected main
agreement (subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may
not sue for specific performance on the proposed contract ("object" of the
option) since it has failed to reach its own stage of perfection. The optioner-
offeror, however, renders himself liable for damages for breach of the
option. In these cases, care should be taken of the real nature of
the consideration given, for if, in fact, it has been intended to be part of the
consideration for the main contract with a right of withdrawal on the part of
the optionee, the main contract could be deemed perfected; a similar
instance would be an "earnest money" in a contract of sale that can evidence
its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative
juridical relation. Needless to point out, it cannot be deemed a perfected
contract of sale under Article 1458 of the Civil Code. Neither can the right of
first refusal, understood in its normal concept, per se be brought within the
purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 9 of the same Code.
An option or an offer would require, among other things, 10 a clear certainty
on both the object and the cause or consideration of the envisioned contract.
In a right of first refusal, while the object might be made determinate, the
exercise of the right, however, would be dependent not only on the grantor's
eventual intention to enter into a binding juridical relation with another but
also on terms, including the price, that obviously are yet to be later firmed
up. Prior thereto, it can at best be so described as merely belonging to a
class of preparatory juridical relations governed not by contracts (since the
essential elements to establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general application, the pertinent
scattered provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a
final judgment, like here, its breach cannot justify correspondingly an
issuance of a writ of execution under a judgment that merely recognizes its
existence, nor would it sanction an action for specific performance without
thereby negating the indispensable element of consensuality in the
perfection of contracts.11 It is not to say, however, that the right of first
refusal would be inconsequential for, such as already intimated above, an
S a l e s P a r t V P a g e | 61
unjustified disregard thereof, given, for instance, the circumstances
expressed in Article 1912 of the Civil Code, can warrant a recovery for
damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has
merely accorded a "right of first refusal" in favor of petitioners. The
consequence of such a declaration entails no more than what has heretofore
been said. In fine, if, as it is here so conveyed to us, petitioners are
aggrieved by the failure of private respondents to honor the right of first
refusal, the remedy is not a writ of execution on the judgment, since there is
none to execute, but an action for damages in a proper forum for the
purpose.
Furthermore, whether private respondent Buen Realty Development
Corporation, the alleged purchaser of the property, has acted in good faith or
bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are
matters that must be independently addressed in appropriate proceedings.
Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot
be held subject to the writ of execution issued by respondent Judge, let
alone ousted from the ownership and possession of the property, without
first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has
erred in holding that the writ of execution varies the terms of the judgment
in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of
Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with
the decision of the trial court as modified by this Court. As
already stated, there was nothing in said decision 13 that
decreed the execution of a deed of sale between the Cu
Unjiengs and respondent lessees, or the fixing of the price of
the sale, or the cancellation of title in the name of petitioner
(Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng
Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137
SCRA 730; Pastor vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058
could not have decreed at the time the execution of any deed of sale
between the Cu Unjiengs and petitioners.
 S a l e s P a r t V P a g e | 62

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside

the questioned Orders, dated 30 August 1991 and 27 September 1991, of
the court a quo. Costs against petitioners.

SO ORDERED.

Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo,
Quiason, Puno and Mendoza, JJ., concur.

Kapunan, J., took no part.

Feliciano, J., is on leave.


G.R. No. 106063. November 21, 1996.*
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &
BAUERMANN, INC., petitioners, vs. MAYFAIR THEATER, INC.,
respondent.
Civil Law; Contracts; Sales; The contractual stipulation provides for a right of
first refusal in favor of Mayfair.—We agree with the respondent Court of
Appeals that the aforecited contractual stipulation provides for a right of first
refusal in favor of Mayfair. It is not an option clause or an option contract. It
is a contract of a right of first refusal.
Same; Same; Same; The deed of option or the option clause in a contract in
order to be valid and enforceable must among other things indicate the
definite price at which the person granting the option is willing to sell.—The
rule so early established in this jurisdiction is that the deed of option or the
option clause in a contract, in order to be valid and enforceable, must,
among other things, indicate the definite price at which the person granting
the option, is willing to sell.
Same; Same; Same; An accepted unilateral promise which specifies the thing
to be sold and the price to be paid when coupled with a valuable
consideration distinct and separate from the price is what may properly be
termed a perfected contract of option.—An accepted unilateral promise
which specifies the thing to be sold and the price to be paid, when coupled
with a valuable consideration distinct and separate from the price, is what
may properly be termed a perfected contract of option. This contract is
legally binding, and in sales, it conforms with the second paragraph of Article
1479 of the Civil Code, viz: ‘ART. 1479. x x x An accepted unilateral promise
to buy or to sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the
price.
Same; Same; Same; The option is not the contract of sale itself.—Observe,
however, that the option is not the contract of sale itself. The optionee has
the right, but not the obligation, to buy. Once the option is exercised timely,
i.e., the offer is accepted before a breach of the option, a bilateral promise
S a l e s P a r t V P a g e | 63
to sell and to buy ensues and both parties are then reciprocally bound to
comply with their respective undertakings.
Same; Same; Same; Respondent Court of Appeals correctly ruled that
paragraph 8 grants the right of first refusal to Mayfair and is not an option
contract.—In the light of the foregoing disquisition and in view of the
wording of the questioned provision in the two lease contracts involved in
the instant case, we so hold that no option to purchase in contemplation of
the second paragraph of Article 1479 of the Civil Code, has been granted to
Mayfair under the said lease contracts. Respondent Court of Appeals
correctly ruled that the said paragraph 8 grants the right of first refusal to
Mayfair and is not an option contract. It also correctly reasoned that as such,
the requirement of a separate consideration for the option, has no
applicability in the instant case.
Same; Same; Same; An option is a contract granting a privilege to buy or sell
within an agreed time and at a determined price.—An option is a contract
granting a privilege to buy or sell within an agreed time and at a determined
price. It is a separate and distinct contract from that which the parties may
enter into upon the consummation of the option. It must be supported by
consideration. In the instant case, the right of first refusal is an integral part
of the contracts of lease. The consideration is built into the reciprocal
obligations of the parties.
Same; Same; Same; Rescission; Rescission is a relief allowed for the
protection of one of the contracting parties and even third persons from all
injury and damage the contract may cause or to protect some incompatible
and preferred right by the contract.—The facts of the case and
considerations of justice and equity require that we order rescission here and
now. Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the
contract may cause or to protect some incompatible and preferred right by
the contract. The sale of the subject real property by Carmelo to Equatorial
should now be rescinded considering that Mayfair, which had substantial
interest over the subject property, was prejudiced by the sale of the subject
 S a l e s P a r t V P a g e | 64

property to Equatorial without Carmelo conferring to Mayfair every Book IV of the Civil Code, can only be “a juridical necessity to give, to do or
opportunity to negotiate within the 30-day stipulated period. not to do” (Art. 1156, Civil Code), and one that is constituted by law,
contracts, quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil Code)
PADILLA, J., Separate Opinion: which all have their respective legal significance rather well settled in law.
The law certainly must have meant to provide congruous, albeit contextual,
Civil Law; Contracts; Sales; Court should categorically recognize Mayfair’s
consequences to its provisions. Interpretare et concordore legibus est
right of first refusal under its contract of lease with Carmelo and Bauermann,
optimus interpretendi. As a valid source of an obligation, a contract must
Inc. and order the rescission of the sale of the Claro M. Recto property by
have the concurrence of (a) consent of the contracting parties, (b) object
the latter to Equatorial.—I am of the considered view (like Mr. Justice Jose A.
certain (subject matter of the contract) and (c) cause (Art. 1318, Civil Code).
R. Melo) that the Court in this case should categorically recognize Mayfair’s
These requirements, clearly defined, are essential. The consent
right of first refusal under its contract of lease with Carmelo and Bauermann,
contemplated by the law is that which is manifested by the meeting of the
Inc. (hereafter, Carmelo) and, because of Carmelo’s and Equatorial’s bad
offer and of the acceptance upon the object and the cause of the obligation.
faith in riding “roughshod” over Mayfair’s right of first refusal, the Court
The offer must be certain and the acceptance absolute (Article 1319 of the
should order the rescission of the sale of the Claro M. Recto property by the
Civil Code). Thus, a right of first refusal cannot have the effect of a contract
latter to Equatorial (Art. 1380-1381[3], Civil Code). The Court should, in this
because, by its very essence, certain basic terms would have yet to be
same case, to avoid multiplicity of suits, likewise allow Mayfair to effectively
determined and fixed.
exercise said right of first refusal, by paying Carmelo the sum of
P11,300,000.00 for the entire subject property, without any need of PETITION for review of a decision of the Court of Appeals.
instituting a separate action for damages against Carmelo and/or Equatorial.
The facts are stated in the opinion of the Court.
Same; Same; Same; There appears no basis in law for adding 12% per
annum compounded interest to the purchase price of P11,300,000.00 Romulo, Mabanta, Buenaventura, Sayoc & De los Angelesfor Equitorial
payable by Mayfair to Carmelo.—There appears to be no basis in law for Realty Dev., Inc.
adding 12% per annum compounded interest to the purchase price of
P11,300,000.00 payable by Mayfair to Carmelo since there was no such Emilio S. Samson, E. Balderrama-Samson and Mary Ann B. Samson for
stipulation in writing between the parties (Mayfair and Carmelo) but, more Carmelo & Bauermann, Inc.
importantly, because Mayfair neither incurred in delay in the performance of
Antonio P. Barredo and De Borja, Medialdea, Ata, Bello, Guevarra &
its obligation nor committed any breach of contract. Indeed, why should
Serapio for respondent. Equatorial Realty Development, Inc. vs. Mayfair
Mayfair be penalized by way of making it pay 12% per annum compounded
Theater, Inc., 264 SCRA 483, G.R. No. 106063 November 21, 1996
interest when it was Carmelo which violated Mayfair’s right of first refusal
under the contract?
HERMOSISIMA, JR., J.:
VITUG, J., Dissenting Opinion:
Before us is a petition for review of the decision1 of the Court of
Civil Law; Contracts: Sales; A right of first refusal cannot have the effect of a Appeals2 involving questions in the resolution of which the
respondent appellate court analyzed and interpreted particular
contract because by its very essence certain basic terms would have yet to
provisions of our laws on contracts and sales. In its assailed
be determined and fixed.—An obligation, and so a conditional obligation as
decision, the respondent court reversed the trial court 3 which, in
well (albeit subject to the occurrence of the condition), in its context under dismissing the complaint for specific performance with damages and

annulment of contract,4 found the option clause in the lease
contracts entered into by private respondent Mayfair Theater, Inc.
(hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc.
(hereafter, Carmelo) to be impossible of performance and
unsupported by a consideration and the subsequent sale of the
subject property to petitioner Equatorial Realty Development, Inc.
(hereafter, Equatorial) to have been made without any breach of or
prejudice to, the said lease contracts.5
We reproduce below the facts as narrated by the respondent court,
which narration, we note, is almost verbatim the basis of the
statement of facts as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey
buildings constructed thereon located at Claro M Recto
Avenue, Manila, and covered by TCT No. 18529 issued in its
name by the Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease
with Mayfair for the latter's lease of a portion of Carmelo's
property particularly described, to wit:
A PORTION OF THE SECOND FLOOR of the
two-storey building, situated at C.M. Recto
Avenue, Manila, with a floor area of 1,610
square meters.
THE SECOND FLOOR AND MEZZANINE of
the two-storey building, situated at C.M.
Recto Avenue, Manila, with a floor area of
150 square meters.
for use by Mayfair as a motion picture theater and for a term
of twenty (20) years. Mayfair thereafter constructed on the
leased property a movie house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a
second contract of lease with Carmelo for the lease of
another portion of Carmelo's property, to wit:
S a l e s P a r t V P a g e | 65
A PORTION OF THE SECOND FLOOR of the
two-storey building, situated at C.M. Recto
Avenue, Manila, with a floor area of 1,064
square meters.
THE TWO (2) STORE SPACES AT THE
GROUND FLOOR and MEZZANINE of the
two-storey building situated at C.M. Recto
Avenue, Manila, with a floor area of 300
square meters and bearing street numbers
1871 and 1875,
for similar use as a movie theater and for a similar term of
twenty (20) years. Mayfair put up another movie house
known as "Miramar Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the
leased premises, the LESSEE shall be given
30-days exclusive option to purchase the
same.
In the event, however, that the leased
premises is sold to someone other than the
LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates
itself, to stipulate in the Deed of Sale hereof
that the purchaser shall recognize this lease
and be bound by all the terms and
conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo
informed Mr. Henry Yang, President of Mayfair, through a
telephone conversation that Carmelo was desirous of selling
the entire Claro M. Recto property. Mr. Pascal told Mr. Yang
that a certain Jose Araneta was offering to buy the whole
property for US Dollars 1,200,000, and Mr. Pascal asked Mr.
Yang if the latter was willing to buy the property for Six to
Seven Million Pesos.

Mr. Yang replied that he would let Mr. Pascal know of his
decision. On August 23, 1974, Mayfair replied through a
letter stating as follows:
It appears that on August 19, 1974 your Mr.
Henry Pascal informed our client's Mr. Henry
Yang through the telephone that your
company desires to sell your above-
mentioned C.M. Recto Avenue property.
Under your company's two lease contracts
with our client, it is uniformly provided:
8. That if the LESSOR should desire to sell
the leased premises the LESSEE shall be
given 30-days exclusive option to purchase
the same. In the event, however, that the
leased premises is sold to someone other
than the LESSEE, the LESSOR is bound and
obligated, as it is (sic) herebinds (sic) and
obligates itself, to stipulate in the Deed of
Sale thereof that the purchaser shall
recognize this lease and be bound by all the
terms and conditions hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to
Carmelo purporting to express interest in acquiring not only
the leased premises but "the entire building and other
improvements if the price is reasonable. However, both
Carmelo and Equatorial questioned the authenticity of the
second letter.
Four years later, on July 30, 1978, Carmelo sold its entire
C.M. Recto Avenue land and building, which included the
leased premises housing the "Maxim" and "Miramar"
theatres, to Equatorial by virtue of a Deed of Absolute Sale,
for the total sum of P11,300,000.00.
S a l e s P a r t V P a g e | 66
In September 1978, Mayfair instituted the action a quo for
specific performance and annulment of the sale of the
leased premises to Equatorial. In its Answer, Carmelo
alleged as special and affirmative defense (a) that it had
informed Mayfair of its desire to sell the entire C.M. Recto
Avenue property and offered the same to Mayfair, but the
latter answered that it was interested only in buying the
areas under lease, which was impossible since the property
was not a condominium; and (b) that the option to purchase
invoked by Mayfair is null and void for lack of consideration.
Equatorial, in its Answer, pleaded as special and affirmative
defense that the option is void for lack of consideration (sic)
and is unenforceable by reason of its impossibility of
performance because the leased premises could not be sold
separately from the other portions of the land and building.
It counterclaimed for cancellation of the contracts of lease,
and for increase of rentals in view of alleged supervening
extraordinary devaluation of the currency. Equatorial
likewise cross-claimed against co-defendant Carmelo for
indemnification in respect of Mayfair's claims.
During the pre-trial conference held on January 23, 1979,
the parties stipulated on the following:
1. That there was a deed of sale of the
contested premises by the defendant
Carmelo . . . in favor of defendant Equatorial
. . .;
2. That in both contracts of lease there
appear (sic) the stipulation granting the
plaintiff exclusive option to purchase the
leased premises should the lessor desire to
sell the same (admitted subject to the
contention that the stipulation is null and
void);
3. That the two buildings erected on this
land are not of the condominium plan;

4. That the amounts stipulated and
mentioned in paragraphs 3 (a) and (b) of
the contracts of lease constitute the
consideration for the plaintiff's occupancy of
the leased premises, subject of the same
contracts of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified
in the option to buy embodied in the
contract;
7. That Carmelo & Bauermann owned the
land and the two buildings erected thereon;
8. That the leased premises constitute only
the portions actually occupied by the
theaters; and
9. That what was sold by Carmelo &
Bauermann to defendant Equatorial Realty is
the land and the two buildings erected
thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the
appealed decision, the decretal portion of which reads as
follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs
against the plaintiff;
(2) Ordering plaintiff to pay defendant
Carmelo & Bauermann P40,000.00 by way
of attorney's fees on its counterclaim;
S a l e s P a r t V P a g e | 67
(3) Ordering plaintiff to pay defendant
Equatorial Realty P35,000.00 per month as
reasonable compensation for the use of
areas not covered by the contract (sic) of
lease from July 31, 1979 until plaintiff
vacates said area (sic) plus legal interest
from July 31, 1978; P70,000 00 per month
as reasonable compensation for the use of
the premises covered by the contracts (sic)
of lease dated (June 1, 1967 from June 1,
1987 until plaintiff vacates the premises plus
legal interest from June 1, 1987; P55,000.00
per month as reasonable compensation for
the use of the premises covered by the
contract of lease dated March 31, 1969 from
March 30, 1989 until plaintiff vacates the
premises plus legal interest from March 30,
1989; and P40,000.00 as attorney's fees;
(4) Dismissing defendant Equatorial's
crossclaim against defendant Carmelo &
Bauermann.
The contracts of lease dated June 1, 1967
and March 31, 1969 are declared expired
and all persons claiming rights under these
contracts are directed to vacate the
premises.6
The trial court adjudged the identically worded paragraph 8 found in
both aforecited lease contracts to be an option clause which
however cannot be deemed to be binding on Carmelo because of
lack of distinct consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the
parties that the option in the contract of lease is not
supported by a separate consideration. Without a
consideration, the option is therefore not binding on
defendant Carmelo & Bauermann to sell the C.M. Recto

property to the former. The option invoked by the plaintiff
appears in the contracts of lease . . . in effect there is no
option, on the ground that there is no consideration. Article
1352 of the Civil Code, provides:
Contracts without cause or with unlawful
cause, produce no effect whatever. The
cause is unlawful if it is contrary to law,
morals, good custom, public order or public
policy.
Contracts therefore without consideration produce no effect
whatsoever. Article 1324 provides:
When the offeror has allowed the offeree a
certain period to accept, the offer may be
withdrawn at any time before acceptance by
communicating such withdrawal, except
when the option is founded upon
consideration, as something paid or
promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing
for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to
sell a determine thing for a price certain is
binding upon the promissor if the promise is
supported by a consideration distinct from
the price.
The plaintiff cannot compel defendant Carmelo to comply
with the promise unless the former establishes the existence
of a distinct consideration. In other words, the promisee has
the burden of proving the consideration. The consideration
cannot be presumed as in Article 1354:
S a l e s P a r t V P a g e | 68
Although the cause is not stated in the
contract, it is presumed that it exists and is
lawful unless the debtor proves the
contrary.
where consideration is legally presumed to exists. Article
1354 applies to contracts in general, whereas when it comes
to an option it is governed particularly and more specifically
by Article 1479 whereby the promisee has the burden of
proving the existence of consideration distinct from the
price. Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368,
372-373, the Court said:
(1) Article 1354 applies to contracts in
general, whereas the second paragraph of
Article 1479 refers to sales in particular,
and, more specifically, to an accepted
unilateral promise to buy or to sell. In other
words, Article 1479 is controlling in the case
at bar.
(2) In order that said unilateral promise may
be binding upon the promissor, Article 1479
requires the concurrence of a condition,
namely, that the promise be supported by a
consideration distinct from the price.
Accordingly, the promisee cannot compel
the promissor to comply with the promise,
unless the former establishes the existence
of said distinct consideration. In other
words, the promisee has the burden of
proving such consideration. Plaintiff herein
has not even alleged the existence thereof
in his complaint. 7
It follows that plaintiff cannot compel defendant Carmelo &
Bauermann to sell the C.M. Recto property to the former.

Mayfair taking exception to the decision of the trial court, the
battleground shifted to the respondent Court of Appeals. Respondent
appellate court reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to
pay and return to Equatorial the amount of P11,300,000.00
within fifteen (15) days from notice of this Decision, and
ordering Equatorial Realty Development, Inc. to accept such
payment;
3. Upon payment of the sum of P11,300,000, directing
Equatorial Realty Development, Inc. to execute the deeds
and documents necessary for the issuance and transfer of
ownership to Mayfair of the lot registered under TCT Nos.
17350, 118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable
to pay the amount as adjudged, declaring the Deed of
Absolute Sale between the defendants-appellants Carmelo &
Bauermann, Inc. and Equatorial Realty Development, Inc. as
valid and binding upon all the parties.8
Rereading the law on the matter of sales and option contracts,
respondent Court of Appeals differentiated between Article 1324 and
Article 1479 of the Civil Code, analyzed their application to the facts
of this case, and concluded that since paragraph 8 of the two lease
contracts does not state a fixed price for the purchase of the leased
premises, which is an essential element for a contract of sale to be
perfected, what paragraph 8 is, must be a right of first refusal and
not an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles
1324 and 1479, second paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an offeror which
the offeree may or may not accept within a certain period.
Under this article, the offer may be withdrawn by the offeror
before the expiration of the period and while the offeree has
not yet accepted the offer. However, the offer cannot be
S a l e s P a r t V P a g e | 69
withdrawn by the offeror within the period if a consideration
has been promised or given by the offeree in exchange for
the privilege of being given that period within which to
accept the offer. The consideration is distinct from the price
which is part of the offer. The contract that arises is known
as option. In the case of Beaumont vs. Prieto, 41 Phil. 670,
the Supreme court, citing Bouvier, defined an option as
follows: "A contract by virtue of which A, in consideration of
the payment of a certain sum to B, acquires the privilege of
buying from or selling to B, certain securities or properties
within a limited time at a specified price," (pp. 686-7).
Article 1479, second paragraph, on the other hand,
contemplates of an "accepted unilateral promise to buy or to
sell a determinate thing for a price within (which) is binding
upon the promisee if the promise is supported by a
consideration distinct from the price." That "unilateral
promise to buy or to sell a determinate thing for a price
certain" is called an offer. An "offer", in laws, is a proposal to
enter into a contract (Rosenstock vs. Burke, 46 Phil. 217).
To constitute a legal offer, the proposal must be certain as
to the object, the price and other essential terms of the
contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the
provision granting Mayfair "30-days exclusive option to
purchase" the leased premises is NOT AN OPTION in the
context of Arts. 1324 and 1479, second paragraph, of the
Civil Code. Although the provision is certain as to the object
(the sale of the leased premises) the price for which the
object is to be sold is not stated in the provision Otherwise
stated, the questioned stipulation is not by itself, an "option"
or the "offer to sell" because the clause does not specify the
price for the subject property.
Although the provision giving Mayfair "30-days exclusive
option to purchase" cannot be legally categorized as an
option, it is, nevertheless, a valid and binding stipulation.
What the trial court failed to appreciate was the intention of
the parties behind the questioned proviso.
 S a l e s P a r t V P a g e | 70

xxx xxx xxx Q Can you tell this

Honorable Court how you
The provision in question is not of the pro-forma type made the offer to Mr. Henry
customarily found in a contract of lease. Even appellees Yang by telephone?
have recognized that the stipulation was incorporated in the
two Contracts of Lease at the initiative and behest of A I have an offer from
Mayfair. Evidently, the stipulation was intended to benefit another party to buy the
and protect Mayfair in its rights as lessee in case Carmelo property and having the
should decide, during the term of the lease, to sell the offer we decided to make
leased property. This intention of the parties is achieved in an offer to Henry Yang on a
two ways in accordance with the stipulation. The first is by first-refusal basis. (TSN
giving Mayfair "30-days exclusive option to purchase" the November 8, 1983, p. 12.).
leased property. The second is, in case Mayfair would opt
not to purchase the leased property, "that the purchaser and on cross-examination:
(the new owner of the leased property) shall recognize the
lease and be bound by all the terms and conditions thereof." Q When you called Mr. Yang
on August 1974 can you
In other words, paragraph 8 of the two Contracts of lease, remember exactly what you
particularly the stipulation giving Mayfair "30-days exclusive have told him in connection
option to purchase the (leased premises)," was meant to with that matter, Mr.
provide Mayfair the opportunity to purchase and acquire the Pascal?
leased property in the event that Carmelo should decide to
dispose of the property. In order to realize this intention, the A More or less, I told him
implicit obligation of Carmelo once it had decided to sell the that I received an offer from
leased property, was not only to notify Mayfair of such another party to buy the
decision to sell the property, but, more importantly, to make property and I was offering
an offer to sell the leased premises to Mayfair, giving the him first choice of the enter
latter a fair and reasonable opportunity to accept or reject property. (TSN, November
the offer, before offering to sell or selling the leased 29, 1983, p. 18).
property to third parties. The right vested in Mayfair is
analogous to the right of first refusal, which means that
We rule, therefore, that the foregoing interpretation best
Carmelo should have offered the sale of the leased premises
renders effectual the intention of the parties.9
to Mayfair before offering it to other parties, or, if Carmelo
should receive any offer from third parties to purchase the
leased premises, then Carmelo must first give Mayfair the Besides the ruling that paragraph 8 vests in Mayfair the right of first
opportunity to match that offer. refusal as to which the requirement of distinct consideration
indispensable in an option contract, has no application, respondent
appellate court also addressed the claim of Carmelo and Equatorial
In fact, Mr. Pascal understood the provision as giving
that assuming arguendo that the option is valid and effective, it is
Mayfair a right of first refusal when he made the telephone
impossible of performance because it covered only the leased
call to Mr. Yang in 1974. Mr. Pascal thus testified:
premises and not the entire Claro M. Recto property, while Carmelo's

offer to sell pertained to the entire property in question. The Court
of Appeals ruled as to this issue in this wise:
We are not persuaded by the contentions of the defendants-
appellees. It is to be noted that the Deed of Absolute Sale
between Carmelo and Equatorial covering the whole Claro
M. Recto property, made reference to four titles: TCT Nos.
17350, 118612, 60936 and 52571. Based on the information
submitted by Mayfair in its appellant's Brief (pp. 5 and 46)
which has not been controverted by the appellees, and
which We, therefore, take judicial notice of the two theaters
stand on the parcels of land covered by TCT No. 17350 with
an area of 622.10 sq. m and TCT No. 118612 with an area
of 2,100.10 sq. m. The existence of four separate parcels of
land covering the whole Recto property demonstrates the
legal and physical possibility that each parcel of land,
together with the buildings and improvements thereof, could
have been sold independently of the other parcels.
At the time both parties executed the contracts, they were
aware of the physical and structural conditions of the
buildings on which the theaters were to be constructed in
relation to the remainder of the whole Recto property. The
peculiar language of the stipulation would tend to limit
Mayfair's right under paragraph 8 of the Contract of Lease to
the acquisition of the leased areas only. Indeed, what is
being contemplated by the questioned stipulation is a
departure from the customary situation wherein the
buildings and improvements are included in and form part of
the sale of the subjacent land. Although this situation is not
common, especially considering the non-condominium
nature of the buildings, the sale would be valid and capable
of being performed. A sale limited to the leased premises
only, if hypothetically assumed, would have brought into
operation the provisions of co-ownership under which
Mayfair would have become the exclusive owner of the
leased premises and at the same time a co-owner with
Carmelo of the subjacent land in proportion to Mayfair's
interest over the premises sold to it.10
S a l e s P a r t V P a g e | 71
Carmelo and Equatorial now comes before us questioning the
correctness and legal basis for the decision of respondent Court of
Appeals on the basis of the following assigned errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING
THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE
IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN
DOING SO THE COURT OF APPEALS DISREGARDED THE
CONTRACTS OF LEASE WHICH CLEARLY AND
UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE
ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR
STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE
COURT OF APPEALS ERRED IN DIRECTING EQUATORIAL TO
EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER
MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS
RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN
THE CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION
TO 30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DIRECTED IMPLEMENTATION OF ITS DECISION EVEN
BEFORE ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A
RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE
COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL
RULES IN THE ASSIGNMENT OF APPEALED CASES WHEN IT
ALLOWED THE SAME DIVISION XII, PARTICULARLY
JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE
MOTIONS IN THE "COMPLETION PROCESS" AND TO STILL

RESOLVE THE MERITS OF THE CASE IN THE "DECISION
STAGE".11
We shall first dispose of the fourth assigned error respecting alleged
irregularities in the raffle of this case in the Court of Appeals. Suffice
it to say that in our Resolution,12 dated December 9, 1992, we
already took note of this matter and set out the proper applicable
procedure to be the following:
On September 20, 1992, counsel for petitioner Equatorial
Realty Development, Inc. wrote a letter-complaint to this
Court alleging certain irregularities and infractions committed
by certain lawyers, and Justices of the Court of Appeals and
of this Court in connection with case CA-G.R. CV No. 32918
(now G.R. No. 106063). This partakes of the nature of an
administrative complaint for misconduct against members of
the judiciary. While the letter-complaint arose as an incident
in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the
disposition thereof should be separate and independent from
Case G.R. No. 106063. However, for purposes of receiving
the requisite pleadings necessary in disposing of the
administrative complaint, this Division shall continue to have
control of the case. Upon completion thereof, the same shall
be referred to the Court En Banc for proper disposition.13
This court having ruled the procedural irregularities raised in the
fourth assigned error of Carmelo and Equatorial, to be an
independent and separate subject for an administrative complaint
based on misconduct by the lawyers and justices implicated therein,
it is the correct, prudent and consistent course of action not to pre-
empt the administrative proceedings to be undertaken respecting the
said irregularities. Certainly, a discussion thereupon by us in this
case would entail a finding on the merits as to the real nature of the
questioned procedures and the true intentions and motives of the
players therein.
In essence, our task is two-fold: (1) to define the true nature, scope
and efficacy of paragraph 8 stipulated in the two contracts of lease
between Carmelo and Mayfair in the face of conflicting findings by
S a l e s P a r t V P a g e | 72
the trial court and the Court of Appeals; and (2) to determine the
rights and obligations of Carmelo and Mayfair, as well as Equatorial,
in the aftermath of the sale by Carmelo of the entire Claro M. Recto
property to Equatorial.
Both contracts of lease in question provide the identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises,
the LESSEE shall be given 30-days exclusive option to
purchase the same.
In the event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate
in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and
conditions thereof.14
We agree with the respondent Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of
Mayfair. It is not an option clause or an option contract . It is a
contract of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto,15 unequivocal
was our characterization of an option contract as one necessarily
involving the choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate thing
at a predetermined fixed price.
It is unquestionable that, by means of the document Exhibit
E, to wit, the letter of December 4, 1911, quoted at the
beginning of this decision, the defendant Valdes granted to
the plaintiff Borck the right to purchase the Nagtajan
Hacienda belonging to Benito Legarda, during the period of
three months and for its assessed valuation, a grant which
necessarily implied the offer or obligation on the part of the
defendant Valdes to sell to Borck the said hacienda during
the period and for the price mentioned . . . There was,
therefore, a meeting of minds on the part of the one and the
other, with regard to the stipulations made in the said

document. But it is not shown that there was any cause or
consideration for that agreement, and this omission is a bar
which precludes our holding that the stipulations contained
in Exhibit E is a contract of option, for, . . . there can be no
contract without the requisite, among others, of the cause
for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an
option as a contract, in the following language:
A contract by virtue of which A, in
consideration of the payment of a certain
sum to B, acquires the privilege of buying
from, or selling to B, certain securities or
properties within a limited time at a
specified price. (Story vs. Salamon, 71 N.Y.,
420.)
From vol. 6, page 5001, of the work "Words and Phrases,"
citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5;
24 Am. St. Rep., 17) the following quotation has been taken:
An agreement in writing to give a person
the option to purchase lands within a given
time at a named price is neither a sale nor
an agreement to sell. It is simply a contract
by which the owner of property agrees with
another person that he shall have the right
to buy his property at a fixed price within a
certain time. He does not sell his land; he
does not then agree to sell it; but he does
sell something; that is, the right or privilege
to buy at the election or option of the other
party. The second party gets in praesenti,
not lands, nor an agreement that he shall
have lands, but he does get something of
value; that is, the right to call for and
receive lands if he elects. The owner parts
with his right to sell his lands, except to the
second party, for a limited period. The
second party receives this right, or, rather,
S a l e s P a r t V P a g e | 73
from his point of view, he receives the right
to elect to buy.
But the two definitions above cited refer to the contract of
option, or, what amounts to the same thing, to the case
where there was cause or consideration for the obligation,
the subject of the agreement made by the parties; while in
the case at bar there was no such cause or
consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of
option or the option clause in a contract, in order to be valid and
enforceable, must, among other things, indicate the definite price at
which the person granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased
property for a named price per square meter upon failure to make the
purchase within the time specified;17 in one other case we freed the
landowner from her promise to sell her land if the prospective buyer could
raise P4,500.00 in three weeks because such option was not supported by a
distinct consideration;18 in the same vein in yet one other case, we also
invalidated an instrument entitled, "Option to Purchase" a parcel of land for
the sum of P1,510.00 because of lack of consideration;19 and as an exception
to the doctrine enumerated in the two preceding cases, in another case, we
ruled that the option to buy the leased premises for P12,000.00 as stipulated
in the lease contract, is not without consideration for in reciprocal contracts,
like lease, the obligation or promise of each party is the consideration for
that of the other. 20 In all these cases, the selling price of the object thereof
is always predetermined and specified in the option clause in the contract or
in the separate deed of option. We elucidated, thus, in the very recent case
of Ang Yu Asuncion vs. Court of Appeals21 that:
. . . In sales, particularly, to which the topic for discussion
about the case at bench belongs, the contract is perfected
when a person, called the seller, obligates himself, for a
price certain, to deliver and to transfer ownership of a thing
or right to another, called the buyer, over which the latter
agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to

transfer the ownership of and to deliver a
determinate thing, and the other to pay
therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or
conditional.
When the sale is not absolute but conditional, such as in a
"Contract to Sell" where invariably the ownership of the
thing sold in retained until the fulfillment of a positive
suspensive condition (normally, the full payment of the
purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force.
...
An unconditional mutual promise to buy and sell, as long as
the object is made determinate and the price is fixed, can be
obligatory on the parties, and compliance therewith may
accordingly be exacted.
An accepted unilateral promise which specifies the thing to
be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the price,
is what may properly be termed a perfected contract of
option. This contract is legally binding, and in sales, it
conforms with the second paragraph of Article 1479 of the
Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to
sell a determinate thing for a price certain is
binding upon the promisor if the promise is
supported by a consideration distinct from
the price. (1451a).
Observe, however, that the option is not the contract of sale
itself. The optionee has the right, but not the obligation, to
buy. Once the option is exercised timely, i.e., the offer is
accepted before a breach of the option, a bilateral promise
S a l e s P a r t V P a g e | 74
to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective
undertakings.
Let us elucidate a little. A negotiation is formally initiated by
an offer. An imperfect promise (policitacion) is merely an
offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or
only as proposals. These relations, until a contract is
perfected, are not considered binding commitments. Thus,
at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this
stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mailing
and not necessarily when the offeree learns of the
withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period
is given to the offeree within which to accept the offer, the
following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to
withdraw the offer before its acceptance, or if an acceptance
has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see
Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua,
102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the
previous decision in South Western Sugar vs. Atlantic Gulf,
97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of
Parañaque, Inc. vs. Remolado, 135 SCRA 409; Sanchez vs.
Rigos, 45 SCRA 368). The right to withdraw, however, must
not be exercised whimsically or arbitrarily; otherwise, it
could give rise to a damage claim under Article 19 of the
Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty
and good faith."
(2) If the period has a separate consideration, a contract of
"option" deemed perfected, and it would be a breach of that
contract to withdraw the offer during the agreed period. The

option, however, is an independent contract by itself; and it
is to be distinguished from the projected main agreement
(subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the
offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific
performance on the proposed contract ("object" of the
option) since it has failed to reach its own stage of
perfection. The optioner-offeror, however, renders himself
liable for damages for breach of the opinion. . .
In the light of the foregoing disquisition and in view of the wording
of the questioned provision in the two lease contracts involved in the
instant case, we so hold that no option to purchase in contemplation
of the second paragraph of Article 1479 of the Civil Code, has been
granted to Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph
8 grants the right of first refusal to Mayfair and is not an option
contract. It also correctly reasoned that as such, the requirement of
a separate consideration for the option, has no applicability in the
instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967
and March 31, 1969 contracts which would bring them into the ambit
of the usual offer or option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an
agreed time and at a determined price. It is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. It must be supported by
consideration.22 In the instant case, the right of first refusal is an
integral part of the contracts of lease. The consideration is built into
the reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph
8 of the contracts is governed by Article 1324 on withdrawal of the
offer or Article 1479 on promise to buy and sell would render in
effectual or "inutile" the provisions on right of first refusal so
commonly inserted in leases of real estate nowadays. The Court of
Appeals is correct in stating that Paragraph 8 was incorporated into
S a l e s P a r t V P a g e | 75
the contracts of lease for the benefit of Mayfair which wanted to be
assured that it shall be given the first crack or the first option to buy
the property at the price which Carmelo is willing to accept. It is not
also correct to say that there is no consideration in an agreement of
right of first refusal. The stipulation is part and parcel of the entire
contract of lease. The consideration for the lease includes the
consideration for the right of first refusal. Thus, Mayfair is in effect
stating that it consents to lease the premises and to pay the price
agreed upon provided the lessor also consents that, should it sell the
leased property, then, Mayfair shall be given the right to match the
offered purchase price and to buy the property at that price. As
stated in Vda. De Quirino vs. Palarca,23 in reciprocal contract, the
obligation or promise of each party is the consideration for that of
the other.
The respondent Court of Appeals was correct in ascertaining the true
nature of the aforecited paragraph 8 to be that of a contractual
grant of the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and
liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an
amplification of the precedent in Ang Yu Asuncion vs. Court of
Appeals.24
First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is undisputed that
Carmelo did recognize this right of Mayfair, for it informed the latter
of its intention to sell the said property in 1974. There was an
exchange of letters evidencing the offer and counter-offers made by
both parties. Carmelo, however, did not pursue the exercise to its
logical end. While it initially recognized Mayfair's right of first refusal,
Carmelo violated such right when without affording its negotiations
with Mayfair the full process to ripen to at least an interface of a
definite offer and a possible corresponding acceptance within the
"30-day exclusive option" time granted Mayfair, Carmelo abandoned

negotiations, kept a low profile for some time, and then sold,
without prior notice to Mayfair, the entire Claro M Recto property to
Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale
to it of the property in question rescissible. We agree with
respondent Appellate Court that the records bear out the fact that
Equatorial was aware of the lease contracts because its lawyers had,
prior to the sale, studied the said contracts. As such, Equatorial
cannot tenably claim to be a purchaser in good faith, and, therefore,
rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under
Article 1380 to 1381(3) of the Civil Code, a contract
otherwise valid may nonetheless be subsequently rescinded
by reason of injury to third persons, like creditors. The
status of creditors could be validly accorded the Bonnevies
for they had substantial interests that were prejudiced by
the sale of the subject property to the petitioner without
recognizing their right of first priority under the Contract of
Lease.
According to Tolentino, rescission is a remedy granted by
law to the contracting parties and even to third persons, to
secure reparation for damages caused to them by a
contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior
to the celebration of said contract. It is a relief allowed for
the protection of one of the contracting parties and even
third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferent right
created by the contract. Rescission implies a contract which,
even if initially valid, produces a lesion or pecuniary damage
to someone that justifies its invalidation for reasons of
equity.
It is true that the acquisition by a third person of the
property subject of the contract is an obstacle to the action
for its rescission where it is shown that such third person is
in lawful possession of the subject of the contract and that
he did not act in bad faith. However, this rule is not
S a l e s P a r t V P a g e | 76
applicable in the case before us because the petitioner is not
considered a third party in relation to the Contract of Sale
nor may its possession of the subject property be regarded
as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the
Contract of Sale. Moreover, the petitioner cannot be deemed
a purchaser in good faith for the record shows that it
categorically admitted it was aware of the lease in favor of
the Bonnevies, who were actually occupying the subject
property at the time it was sold to it. Although the Contract
of Lease was not annotated on the transfer certificate of title
in the name of the late Jose Reynoso and Africa Reynoso,
the petitioner cannot deny actual knowledge of such lease
which was equivalent to and indeed more binding than
presumed notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person
has a right to or interest in such property and pays a full and
fair price for the same at the time of such purchase or
before he has notice of the claim or interest of some other
person in the property. Good faith connotes an honest
intention to abstain from taking unconscientious advantage
of another. Tested by these principles, the petitioner cannot
tenably claim to be a buyer in good faith as it had notice of
the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the
agreement to determine if it involved stipulations that would
prejudice its own interests.
The petitioner insists that it was not aware of the right of
first priority granted by the Contract of Lease. Assuming this
to be true, we nevertheless agree with the observation of
the respondent court that:
If Guzman-Bocaling failed to inquire about
the terms of the Lease Contract, which
includes Par. 20 on priority right given to the
Bonnevies, it had only itself to blame.
Having known that the property it was

buying was under lease, it behooved it as a
prudent person to have required Reynoso or
the broker to show to it the Contract of
Lease in which Par. 20 is contained.25
Petitioners assert the alleged impossibility of performance because
the entire property is indivisible property. It was petitioner Carmelo
which fixed the limits of the property it was leasing out. Common
sense and fairness dictate that instead of nullifying the agreement
on that basis, the stipulation should be given effect by including the
indivisible appurtenances in the sale of the dominant portion under
the right of first refusal. A valid and legal contract where the
ascendant or the more important of the two parties is the landowner
should be given effect, if possible, instead of being nullified on a
selfish pretext posited by the owner. Following the arguments of
petitioners and the participation of the owner in the attempt to strip
Mayfair of its rights, the right of first refusal should include not only
the property specified in the contracts of lease but also the
appurtenant portions sold to Equatorial which are claimed by
petitioners to be indivisible. Carmelo acted in bad faith when it sold
the entire property to Equatorial without informing Mayfair, a clear
violation of Mayfair's rights. While there was a series of exchanges of
letters evidencing the offer and counter-offers between the parties,
Carmelo abandoned the negotiations without giving Mayfair full
opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court
should also order that Mayfair be authorized to exercise its right of
first refusal under the contract to include the entirety of the
indivisible property. The boundaries of the property sold should be
the boundaries of the offer under the right of first refusal . As to the
remedy to enforce Mayfair's right, the Court disagrees to a certain
extent with the concluding part of the dissenting opinion of Justice
Vitug. The doctrine enunciated in Ang Yu Asuncion vs.Court of
Appeals should be modified, if not amplified under the peculiar facts
of this case.
As also earlier emphasized, the contract of sale between Equatorial
and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of
Mayfair. In fact, as correctly observed by the Court of Appeals,
S a l e s P a r t V P a g e | 77
Equatorial admitted that its lawyers had studied the contract of lease
prior to the sale. Equatorial's knowledge of the stipulations therein
should have cautioned it to look further into the agreement to
determine if it involved stipulations that would prejudice its own
interests.
Since Mayfair has a right of first refusal, it can exercise the right only
if the fraudulent sale is first set aside or rescinded. All of these
matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate
into endless litigation. The facts of the case and considerations of
justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible and
preferred right by the contract.26 The sale of the subject real
property by Carmelo to Equatorial should now be rescinded
considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by the sale of the subject property
to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period.27
This Court has always been against multiplicity of suits where all
remedies according to the facts and the law can be included. Since
Carmelo sold the property for P11,300,000.00 to Equatorial, the
price at which Mayfair could have purchased the property is,
therefore, fixed. It can neither be more nor less. There is no dispute
over it. The damages which Mayfair suffered are in terms of actual
injury and lost opportunities. The fairest solution would be to allow
Mayfair to exercise its right of first refusal at the price which it was
entitled to accept or reject which is P11,300,000.00. This is clear
from the records.
To follow an alternative solution that Carmelo and Mayfair may
resume negotiations for the sale to the latter of the disputed
property would be unjust and unkind to Mayfair because it is once
more compelled to litigate to enforce its right. It is not proper to give
it an empty or vacuous victory in this case. From the viewpoint of
Carmelo, it is like asking a fish if it would accept the choice of being
thrown back into the river. Why should Carmelo be rewarded for and
allowed to profit from, its wrongdoing? Prices of real estate have
 S a l e s P a r t V P a g e | 78

skyrocketed. After having sold the property for P11,300,000.00, why
should it be given another chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court
stated that there was nothing to execute because a contract over
the right of first refusal belongs to a class of preparatory juridical
relations governed not by the law on contracts but by the codal
provisions on human relations. This may apply here if the contract is
limited to the buying and selling of the real property. However, the
obligation of Carmelo to first offer the property to Mayfair is
embodied in a contract. It is Paragraph 8 on the right of first refusal
which created the obligation. It should be enforced according to the
law on contracts instead of the panoramic and indefinite rule on
human relations. The latter remedy encourages multiplicity of suits.
There is something to execute and that is for Carmelo to comply
with its obligation to the property under the right of the first refusal
according to the terms at which they should have been offered then
to Mayfair, at the price when that offer should have been made.
Also, Mayfair has to accept the offer. This juridical relation is not
amorphous nor is it merely preparatory. Paragraphs 8 of the two
leases can be executed according to their terms.
On the question of interest payments on the principal amount of
P11,300,000.00, it must be borne in mind that both Carmelo and
Equatorial acted in bad faith. Carmelo knowingly and deliberately
broke a contract entered into with Mayfair. It sold the property to
Equatorial with purpose and intend to withhold any notice or
knowledge of the sale coming to the attention of Mayfair. All the
circumstances point to a calculated and contrived plan of non-
compliance with the agreement of first refusal.
on the other hand, has received rents and otherwise profited from
the use of the property turned over to it by Carmelo. In fact, during
all the years that this controversy was being litigated, Mayfair paid
rentals regularly to the buyer who had an inferior right to purchase
the property. Mayfair is under no obligation to pay any interests
arising from this judgment to either Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
DENIED. The Deed of Absolute Sale between petitioners Equatorial
Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby
deemed rescinded; petitioner Carmelo & Bauermann is ordered to
return to petitioner Equatorial Realty Development the purchase
price. The latter is directed to execute the deeds and documents
necessary to return ownership to Carmelo and Bauermann of the
disputed lots. Carmelo & Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED.
Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza and
Francisco, JJ., concur.
Narvasa, C.J., took no part.

On the part of Equatorial, it cannot be a buyer in good faith because

it bought the property with notice and full knowledge that Mayfair
had a right to or interest in the property superior to its own. Carmelo
and Equatorial took unconscientious advantage of Mayfair.

Neither may Carmelo and Equatorial avail of considerations based on

equity which might warrant the grant of interests. The vendor
received as payment from the vendee what, at the time, was a full
and fair price for the property. It has used the P11,300,000.00 all
these years earning income or interest from the amount. Equatorial,

G.R. No. 111538. February 26, 1997.*
PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her
attorney-in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO,
respondents.
Actions; Pleadings and Practice; Procedural Rules; When noncompliance with
the Rules was not intended for delay or did not result in prejudice to the
adverse party, dismissal of appeal on mere technicalities—in cases where
appeal is a matter of right—may be stayed, in the exercise of the court’s
equity jurisdiction.—We first dispose of the procedural issue raised by
respondents, particularly petitioner’s failure to file twelve (12) copies of its
brief. We have ruled that when non-compliance with the Rules was not
intended for delay or did not result in prejudice to the adverse party,
dismissal of appeal on mere technicalities—in cases where appeal is a matter
of right—may be stayed, in the exercise of the court’s equity jurisdiction. It
does not appear that respondents were unduly prejudiced by petitioner’s
nonfeasance. Neither has it been shown that such failure was intentional.
Same; Words and Phrases; Questions of Law and Questions of Fact; There is
a question of law in a given case when the doubt or difference arises as to
what the law is on a certain state of facts, and there is a question of fact
when the doubt or difference arises as to the truth or the falsehood of
alleged facts.—We do not agree with respondents’ contention that the issue
involved is purely factual. The principal legal question, as stated earlier, is
whether the complaint filed by herein petitioner in the lower court states a
valid cause of action. Since such question assumes the facts alleged in the
complaint as true, it follows that the determination thereof is one of law, and
not of facts. There is a question of law in a given case when the doubt or
difference arises as to what the law is on a certain state of facts, and there is
a question of fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts.
Same; Cause of Action, Elements of.—A cause of action exists if the
following elements are present: (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect or not to violate
S a l e s P a r t V P a g e | 79
such right; and (3) an act or omission on the part of such defendant violative
of the right of plaintiff or constituting a breach of the obligation of defendant
to the plaintiff for which the latter may maintain an action for recovery of
damages.
Same; Same; To sustain a motion to dismiss for lack of cause of action, the
complaint must show that the claim does not exist, rather than that a claim
has been defectively stated, or is ambiguous, indefinite or uncertain.—In
determining whether allegations of a complaint are sufficient to support a
cause of action, it must be borne in mind that the complaint does not have
to establish or allege facts proving the existence of a cause of action at the
outset; this will have to be done at the trial on the merits of the case. To
sustain a motion to dismiss for lack of cause of action, the complaint must
show that the claim for relief does not exist, rather than that a claim has
been defectively stated, or is ambiguous, indefinite or uncertain.
Contracts; Sales; Right of First Refusal; In order to have full compliance with
the contractual right granting a party the first option to purchase, the sale of
the properties for the price for which they were finally sold to a third person
should have likewise been first offered to the former.—We hold, however,
that in order to have full compliance with the contractual right granting
petitioner the first option to purchase, the sale of the properties for the
amount of P9 million, the price for which they were finally sold to respondent
Raymundo, should have likewise been first offered to petitioner.
Same; Same; Same; There should be identity of terms and conditions to be
offered to the buyer holding a right of first refusal (or the first option to buy)
if such right is not to be rendered illusory.—Of course, under their contract,
they specifically stipulated that the Bonnevies could exercise the right of first
priority, “all things and conditions being equal.” This Court interpreted this
proviso to mean that there should be identity of terms and conditions to be
offered to the Bonnevies and all other prospective buyers, with the
Bonnevies to enjoy the right of first priority. We hold that the same rule
applies even without the same proviso if the right of first refusal (or the first
option to buy) is not to be rendered illusory.
Same; Same; Same; The basis of the right of first refusal must be the
current offer to sell of the seller or offer to purchase of any prospective

buyer.—From the foregoing, the basis of the right of first refusal must be the
current offer to sell of the seller or offer to purchase of any prospective
buyer. Only after the optionee fails to exercise its right of first priority under
the same terms and within the period contemplated, could the owner validly
offer to sell the property to a third person, again, under the same terms as
offered to the optionee.
Statutes; Urban Land Reform Law (P.D. 1517); In the absence of allegations
in the complaint that the prerequisites for the availment of benefits under
P.D. 1517 have been complied with, the complaint fails to state a cause of
action.—Without probing into whether petitioner is rightfully a beneficiary
under said law, suffice it to say that this Court has previously ruled that
under Section 6 of P.D. 1517, “the terms and conditions of the sale in the
exercise of the lessee’s right of first refusal to purchase shall be determined
by the Urban Zone Expropriation and Land Management Committee. Hence,
x x x certain prerequisites must be complied with by anyone who wishes to
avail himself of the benefits of the decree.” There being no allegation in its
complaint that the prerequisites were complied with, it is clear that the
complaint did fail to state a cause of action on this ground.
Contracts; Assignments; A deed of assignment need not be very specific as
to which rights and obligations were passed on to the assignee if it is
understood in the general provision that all specific rights and obligations
contained in the contract of lease are those referred to as being assigned.—
One of such rights included in the contract of lease and, therefore, in the
assignments of rights was the lessee’s right of first option or priority to buy
the properties subject of the lease, as provided in paragraph 9 of the
assigned lease contract. The deed of assignment need not be very specific as
to which rights and obligations were passed on to the assignee. It is
understood in the general provision aforequoted that all specific rights and
obligations contained in the contract of lease are those referred to as being
assigned. Needless to state, respondent Santos gave her unqualified
conformity to both assignments of rights.
Actions; Pleadings and Practice; Motions to Dismiss; While in the resolution
of a motion to dismiss, the truth of the facts alleged in the complaint are
theoretically admitted, such admission is merely hypothetical and only for the
S a l e s P a r t V P a g e | 80
purpose of resolving the motion—in case of denial, the movant is not
deprived of the right to submit its own case and to submit evidence to rebut
the allegations in the complaint, and neither will the grant of the motion by a
trial court and the ultimate reversal thereof by an appellate court have the
effect of stifling such right.—While the lower courts erred in dismissing the
complaint, private respondents, however, cannot be denied their day in
court. While, in the resolution of a motion to dismiss, the truth of the facts
alleged in the complaint are theoretically admitted, such admission is merely
hypothetical and only for the purpose of resolving the motion. In case of
denial, the movant is not to be deprived of the right to submit its own case
and to submit evidence to rebut the allegations in the complaint. Neither will
the grant of the motion by a trial court and the ultimate reversal thereof by
an appellate court have the effect of stifling such right. So too, the trial court
should be given the opportunity to evaluate the evidence, apply the law and
decree the proper remedy. Hence, we remand the instant case to the trial
court to allow private respondents to have their day in court.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Gancayco Law Offices for petitioner.
Delfin R. Supapo, Jr. for private respondent D.A. Raymund.
M.B. Tomacruz Law Office for private respondent. Parañaque Kings
Enterprises, Inc. vs. Court of Appeals, 268 SCRA 727, G.R. No. 111538
February 26, 1997
PANGANIBAN, J.:
Do allegations in a complaint showing violation of a contractual right of "first
option or priority to buy the properties subject of the lease" constitute a valid
cause of action? Is the grantee of such right entitled to be offered the same
terms and conditions as those given to a third party who eventually bought
such properties? In short, is such right of first refusal enforceable by an
action for specific performance?

These questions are answered in the affirmative by this Court in resolving
this petition for review under Rule 45 of the Rules of Court challenging the
Decision 1 of the Court of Appeals 2 promulgated on March 29, 1993, in CA-
G.R. CV No. 34987 entitled "Parañaque Kings Enterprises, Inc. vs. Catalina L.
Santos, et al.," which affirmed the order 3of September 2, 1991, of the
Regional Trial Court of Makati, Branch 57, 4 dismissing Civil Case No. 91-786
for lack of a valid cause of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial Court of
Makati a complaint, 5 which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing
under and by virtue of the laws of the Philippines, with
principal place of business of (sic) Dr. A. Santos Avenue,
Parañaque, Metro Manila, while defendant Catalina L.
Santos, is of legal age, widow, with residence and postal
address at 444 Plato Street, Ct., Stockton, California, USA,
represented in this action by her attorney-in-fact, Luz B.
Protacio, with residence and postal address at No, 12, San
Antonio Street, Magallanes Village, Makati, Metro Manila, by
virtue of a general power of attorney. Defendant David A.
Raymundo, is of legal age, single, with residence and postal
address at 1918 Kamias Street, Damariñas Village, Makati,
Metro Manila, where they (sic) may be served with summons
and other court processes. Xerox copy of the general power
of attorney is hereto attached as Annex "A".
2. Defendant Catalina L. Santos is the owner of eight (8)
parcels of land located at (sic) Parañaque, Metro Manila with
transfer certificate of title nos. S-19637, S-19638 and S-
19643 to S-19648. Xerox copies of the said title (sic) are
hereto attached as Annexes "B" to "I", respectively.
3. On November 28, 1977, a certain Frederick Chua leased
the above-described property from defendant Catalina L.
Santos, the said lease was registered in the Register of
S a l e s P a r t V P a g e | 81
Deeds. Xerox copy of the lease is hereto attached as Annex
"J".
4. On February 12, 1979, Frederick Chua assigned all his
rights and interest and participation in the leased property to
Lee Ching Bing, by virtue of a deed of assignment and with
the conformity of defendant Santos, the said assignment
was also registered. Xerox copy of the deed of assignment is
hereto attached as Annex "K".
5. On August 6, 1979, Lee Ching Bing also assigned all his
rights and interest in the leased property to Parañaque Kings
Enterprises, Incorporated by virtue of a deed of assignment
and with the conformity of defendant Santos, the same was
duly registered, Xerox copy of the deed of assignment is
hereto attached as Annex "L".
6. Paragraph 9 of the assigned leased (sic) contract provides
among others that:
"9. That in case the properties subject of the
lease agreement are sold or encumbered,
Lessors shall impose as a condition that the
buyer or mortgagee thereof shall recognize
and be bound by all the terms and
conditions of this lease agreement and shall
respect this Contract of Lease as if they are
the LESSORS thereof and in case of sale,
LESSEE shall have the first option or priority
to buy the properties subject of the lease;"
7. On September 21, 1988, defendant Santos sold the eight
parcels of land subject of the lease to defendant David
Raymundo for a consideration of FIVE MILLION
(P5,000,000.00) PESOS. The said sale was in contravention
of the contract of lease, for the first option or priority to buy
was not offered by defendant Santos to the plaintiff. Xerox
copy of the deed of sale is hereto attached as Annex "M".
8. On March 5, 1989, defendant Santos wrote a letter to the
plaintiff informing the same of the sale of the properties to

defendant Raymundo, the said letter was personally handed
by the attorney-in-fact of defendant Santos, Xerox copy of
the letter is hereto attached as Annex "N".
9. Upon learning of this fact plaintiff's representative wrote a
letter to defendant Santos, requesting her to rectify the error
and consequently realizing the error, she had it reconveyed
to her for the same consideration of FIVE MILLION
(P5,000,000.00) PESOS. Xerox copies of the letter and the
deed of reconveyance are hereto attached as Annexes "O"
and "P".
10. Subsequently the property was offered for sale to
plaintiff by the defendant for the sum of FIFTEEN MILLION
(P15,000,000.00) PESOS. Plaintiff was given ten (10) days to
make good of the offer, but therefore (sic) the said period
expired another letter came from the counsel of defendant
Santos, containing the same tenor of (sic) the former letter.
Xerox copies of the letters are hereto attached as Annexes
"Q" and "R".
11. On May 8, 1989, before the period given in the letter
offering the properties for sale expired, plaintiff's counsel
wrote counsel of defendant Santos offering to buy the
properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox
copy of the letter is hereto attached as Annex "S".
12. On May 15, 1989, before they replied to the offer to
purchase, another deed of sale was executed by defendant
Santos (in favor of) defendant Raymundo for a consideration
of NINE MILLION (P9,000,000.00) PESOS. Xerox copy of the
second deed of sale is hereto attached as Annex "T".
13. Defendant Santos violated again paragraph 9 of the
contract of lease by executing a second deed of sale to
defendant Raymundo.
14. It was only on May 17, 1989, that defendant Santos
replied to the letter of the plaintiff's offer to buy or two days
after she sold her properties. In her reply she stated among
others that the period has lapsed and the plaintiff is not a
S a l e s P a r t V P a g e | 82
privy (sic) to the contract. Xerox copy of the letter is hereto
attached as Annex "U".
15. On June 28, 1989, counsel for plaintiff informed counsel
of defendant Santos of the fact that plaintiff is the assignee
of all rights and interest of the former lessor. Xerox copy of
the letter is hereto attached as Annex "V".
16. On July 6, 1989, counsel for defendant Santos informed
the plaintiff that the new owner is defendant Raymundo.
Xerox copy of the letter is hereto attached as Annex "W".
17. From the preceding facts it is clear that the sale was
simulated and 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 Santos
to rectify the error, she immediately have (sic) the property
reconveyed it (sic) to her in a matter of twelve (12) days.
18. Defendants have the same counsel who represented
both of them in their exchange of communication with
plaintiff's counsel, a fact that led to the conclusion that a
collusion exist (sic) between the defendants.
19. When the property was still registered in the name of
defendant Santos, her collector of the rental of the leased
properties was her brother-in-law David Santos and when it
was transferred to defendant Raymundo the collector was
still David Santos up to the month of June, 1990. Xerox
copies of cash vouchers are hereto attached as Annexes "X"
to "HH", respectively.
20. The purpose of this unholy alliance between defendants
Santos and Raymundo is to mislead the plaintiff and make it
appear that the price of the leased property is much higher
than its actual value of FIVE MILLION (P5,000,000.00)
PESOS, so that plaintiff would purchase the properties at a
higher price.
21. Plaintiff has made considerable investments in the said
leased property by erecting a two (2) storey, six (6) doors
 S a l e s P a r t V P a g e | 83

commercial building amounting to THREE MILLION a. The Deed of Sale

(P3,000,000.00) PESOS. This considerable improvement was between defendants dated
made on the belief that eventually the said premises shall be May 15, 1989, be annulled
sold to the plaintiff. and the leased properties
be sold to the plaintiff in the
22. As a consequence of this unlawful act of the defendants, amount of P5,000,000.00;
plaintiff will incurr (sic) total loss of THREE MILLION
(P3,000,000.00) PESOS as the actual cost of the building b. Dependants (sic) pay
and as such defendants should be charged of the same plaintiff the sum of
amount for actual damages. P3,000,000.00 as actual
damages;
23. As a consequence of the collusion, evil design and illegal
acts of the defendants, plaintiff in the process suffered c. Defendants pay the sum
mental anguish, sleepless nights, bismirched (sic) reputation of P5,000,000.00 as moral
which entitles plaintiff to moral damages in the amount of damages;
FIVE MILLION (P5,000,000.00) PESOS.
d. Defendants pay
24. The defendants acted in a wanton, fraudulent, reckless, exemplary damages left to
oppressive or malevolent manner and as a deterrent to the the discretion of the Court;
commission of similar acts, they should be made to answer
for exemplary damages, the amount left to the discretion of e. Defendants pay the sum
the Court. of not less than
P200,000.00 as attorney's
25. Plaintiff demanded from the defendants to rectify their fees.
unlawful acts that they committed, but defendants refused
and failed to comply with plaintiffs just and valid and ( sic) Plaintiff further prays for
demands. Xerox copies of the demand letters are hereto other just and equitable
attached as Annexes "KK" to "LL", respectively. reliefs plus cost of suit.

26. Despite repeated demands, defendants failed and
refused without justifiable cause to satisfy plaintiff's claim,
and was constrained to engaged (sic) the services of
undersigned counsel to institute this action at a contract fee
of P200,000.00, as and for attorney's fees, exclusive of cost
and expenses of litigation.
Instead of filing their respective answers, respondents filed motions to
dismiss anchored on the grounds of lack of cause of action, estoppel and
laches.
On September 2, 1991, the trial court issued the order dismissing the
complaint for lack of a valid cause of action. It ratiocinated thus:

PRAYER Upon the very face of the plaintiff's Complaint itself, it

therefore indubitably appears that the defendant Santos had
WHEREFORE, it is respectfully prayed, that judgment be verily complied with paragraph 9 of the Lease Agreement by
rendered in favor of the plaintiff and against defendants and twice offering the properties for sale to the plaintiff for ~1 5
ordering that: M. The said offers, however, were plainly rejected by the

plaintiff which scorned the said offer as "RIDICULOUS".
There was therefore a definite refusal on the part of the
plaintiff to accept the offer of defendant Santos. For in
acquiring the said properties back to her name, and in so
making the offers to sell both by herself (attorney-in-fact)
and through her counsel, defendant Santos was indeed
conscientiously complying with her obligation under
paragraph 9 of the Lease Agreement. . . . .
xxx xxx xxx
This is indeed one instance where a Complaint, after barely
commencing to create a cause of action, neutralized itself by
its subsequent averments which erased or extinguished its
earlier allegations of an impending wrong. Consequently,
absent any actionable wrong in the very face of the
Complaint itself, the plaintiffs subsequent protestations of
collusion is bereft or devoid of any meaning or purpose. . . .
.
The inescapable result of the foregoing considerations point
to no other conclusion than that the Complaint actually does
not contain any valid cause of action and should therefore
be as it is hereby ordered DISMISSED. The Court finds no
further need to consider the other grounds of estoppel and
laches inasmuch as this resolution is sufficient to dispose the
matter. 6
Petitioners appealed to the Court of Appeals which affirmed in toto the ruling
of the trial court, and further reasoned that:
. . . . Appellant's protestations that the P15 million price
quoted by appellee Santos was reduced to P9 million when
she later resold the leased properties to Raymundo has no
valid legal moorings because appellant, as a prospective
buyer, cannot dictate its own price and forcibly ram it
against appellee Santos, as owner, to buy off her leased
properties considering the total absence of any stipulation or
agreement as to the price or as to how the price should be
computed under paragraph 9 of the lease contract, . . . . 7
S a l e s P a r t V P a g e | 84
Petitioner moved for reconsideration but was denied in an order dated
August 20, 1993. 8
Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the
Issuance of Restraining Order and/or Writ of Preliminary Injunction and to
Hold Respondent David A. Raymundo in Contempt of Court." 9 The motion
sought to enjoin respondent Raymundo and his counsel from pursuing the
ejectment complaint filed before the barangay captain of San Isidro,
Parañaque, Metro Manila; to direct the dismissal of said ejectment complaint
or of any similar action that may have been filed; and to require respondent
Raymundo to explain why he should not be held in contempt of court for
forum-shopping. The ejectment suit initiated by respondent Raymundo
against petitioner arose from the expiration of the lease contract covering
the property subject of this case. The ejectment suit was decided in favor of
Raymundo, and the entry of final judgment in respect thereof renders the
said motion moot and academic.
Issue
The principal legal issue presented before us for resolution is whether the
aforequoted complaint alleging breach of the contractual right of "first option
or priority to buy" states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal erred
in dismissing the complaint because it in fact had not just one but at least
three (3) valid causes of action, to wit: (1) breach of contract, (2) its right of
first refusal founded in law, and (3) damages.
Respondents Santos and Raymundo, in their separate comments, aver that
the petition should be denied for not raising a question of law as the issue
involved is purely factual — whether respondent Santos complied with
paragraph 9 of the lease agreement — and for not having complied with
Section 2, Rule 45 of the Rules of Court, requiring the filing of twelve (12)
copies of the petitioner's brief. Both maintain that the complaint filed by
petitioner before the Regional Trial Court of Makati stated no valid cause of
action and that petitioner failed to substantiate its claim that the lower courts
decided the same "in a way not in accord with law and applicable decisions
of the Supreme Court"; or that the Court of Appeals has "sanctioned
departure by a trial court from the accepted and usual course of judicial
proceedings" so as to merit the exercise by this Court of the power of review
under Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel

and laches as grounds for dismissal, claiming that petitioner's payment of
rentals of the leased property to respondent Raymundo from June 15, 1989,
to June 30, 1990, was an acknowledgment of the latter's status as new
owner-lessor of said property, by virtue of which petitioner is deemed to
have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of the
lease agreement did not include the assignment of the option to purchase.
Respondent Raymundo further avers that he was not privy to the contract of
lease, being neither the lessor nor lessee adverted to therein, hence he could
not be held liable for violation thereof.
The Court's Ruling
Preliminary Issue: Failure to File
Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents, particularly
petitioner's failure to file twelve (12) copies of its brief. We have ruled that
when non-compliance with the Rules was not intended for delay or did not
result in prejudice to the adverse party, dismissal of appeal on mere
technicalities — in cases where appeal is a matter of right — may be stayed,
in the exercise of the court's equity jurisdiction. 10 It does not appear that
respondents were unduly prejudiced by petitioner's nonfeasance. Neither has
it been shown that such failure was intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents' contention that the issue involved
is purely factual. The principal legal question, as stated earlier, is whether
the complaint filed by herein petitioner in the lower court states a valid cause
of action. Since such question assumes the facts alleged in the complaint as
true, it follows that the determination thereof is one of law, and not of facts.
There is a question of law in a given case when the doubt or difference
arises as to what the law is on a certain state of facts, and there is a
question of fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts. 11
At the outset, petitioner concedes that when the ground for a motion to
dismiss is lack of cause of action, such ground must appear on the face of
the complaint; that to determine the sufficiency of a cause of action, only the
S a l e s P a r t V P a g e | 85
facts alleged in the complaint and no others should be considered; and that
the test of sufficiency of the facts alleged in a petition or complaint to
constitute a cause of action is whether, admitting the facts alleged, the court
could render a valid judgment upon the same in accordance with the prayer
of the petition or complaint.
A cause of action exists if the following elements are present: (1) a right in
favor of the plaintiff by whatever means and under whatever law it arises or
is created; (2) an obligation on the part of the named defendant to respect
or not to violate such right, and (3) an act or omission on the part of such
defendant violative of the right of plaintiff or constituting a breach of the
obligation of defendant to the plaintiff for which the latter may maintain an
action for recovery of damages. 12
In determining whether allegations of a complaint are sufficient to support a
cause of action, it must be borne in mind that the complaint does not have
to establish or allege facts proving the existence of a cause of action at the
outset; this will have to be done at the trial on the merits of the case. To
sustain a motion to dismiss for lack of cause of action, the complaint must
show that the claim for relief does not exist, rather than that a claim has
been defectively stated, or is ambiguous, indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the ground
of lack of cause of action is regarded as having hypothetically admitted all
the averments thereof. 14
A careful examination of the complaint reveals that it sufficiently alleges an
actionable contractual breach on the part of private respondents. Under
paragraph 9 of the contract of lease between respondent Santos and
petitioner, the latter was granted the "first option or priority" to purchase the
leased properties in case Santos decided to sell. If Santos never decided to
sell at all, there can never be a breach, much less an enforcement of such
"right." But on September 21, 1988, Santos sold said properties to
Respondent Raymundo without first offering these to petitioner. Santos
indeed realized her error, since she repurchased the properties after
petitioner complained. Thereafter, she offered to sell the properties to
petitioner for P15 million, which petitioner, however, rejected because of the
"ridiculous" price. But Santos again appeared to have violated the same
provision of the lease contract when she finally resold the properties to
respondent Raymundo for only P9 million without first offering them to
petitioner at such price. Whether there was actual breach which entitled

petitioner to damages and/or other just or equitable relief, is a question
which can better be resolved after trial on the merits where each party can
present evidence to prove their respective allegations and defenses. 15
The trial and appellate courts based their decision to sustain respondents'
motion to dismiss on the allegations of Parañaque Kings Enterprises that
Santos had actually offered the subject properties for sale to it prior to the
final sale in favor of Raymundo, but that the offer was rejected. According to
said courts, with such offer, Santos had verily complied with her obligation to
grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the contractual
right granting petitioner the first option to purchase, the sale of the
properties for the amount of P9 million, the price for which they were finally
sold to respondent Raymundo, should have likewise been first offered to
petitioner.
The Court has made an extensive and lengthy discourse on the concept of,
and obligations under, a right of first refusal in the case of Guzman, Bocaling
& Co. vs. Bonnevie. 16 In that case, under a contract of lease, the lessees
(Raul and Christopher Bonnevie) were given a "right of first priority" to
purchase the leased property in case the lessor (Reynoso) decided to sell.
The selling price quoted to the Bonnevies was 600,000.00 to be fully paid in
cash, less a mortgage lien of P100,000.00. On the other hand, the selling
price offered by Reynoso to and accepted by Guzman was only P400,000.00
of which P137,500.00 was to be paid in cash while the balance was to be
paid only when the property was cleared of occupants. We held that even if
the Bonnevies could not buy it at the price quoted (P600,000.00),
nonetheless, Reynoso could not sell it to another for a lower price and
under more favorable terms and conditions without first offering said
favorable terms and price to the Bonnevies as well. Only if the Bonnevies
failed to exercise their right of first priority could Reynoso thereafter lawfully
sell the subject property to others, and only under the same terms and
conditions previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the
Bonnevies could exercise the right of first priority, "all things and conditions
being equal." This Court interpreted this proviso to mean that there should
be identity of terms and conditions to be offered to the Bonnevies and all
other prospective buyers, with the Bonnevies to enjoy the right of first
priority. We hold that the same rule applies even without the same proviso if
S a l e s P a r t V P a g e | 86
the right of first refusal (or the first option to buy) is not to be
rendered illusory.
From the foregoing, the basis of the right of first refusal* must be
the current offer to sell of the seller or offer to purchase of any prospective
buyer. Only after the optionee fails to exercise its right of first priority under
the same terms and within the period contemplated, could the owner validly
offer to sell the property to a third person, again, under the same terms as
offered to the optionee.
This principle was reiterated in the very recent case of Equatorial Realty
vs. Mayfair Theater, Inc. 17 which was decided en banc. This Court upheld
the right of first refusal of the lessee Mayfair, and rescinded the sale of the
property by the lessor Carmelo to Equatorial Realty "considering that
Mayfair, which had substantial interest over the subject property, was
prejudiced by its sale to Equatorial without Carmelo conferring to
Mayfair every opportunity to negotiate within the 30-day stipulated period"
(emphasis supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided
"that if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30 days exclusive option to purchase the same." Carmelo
initially offered to sell the leased property to Mayfair for six to seven million
pesos. Mayfair indicated interest in purchasing the property though it
invoked the 30-day period. Nothing was heard thereafter from Carmelo. Four
years later, the latter sold its entire Recto Avenue property, including the
leased premises, to Equatorial for P11,300,000.00 without priorly informing
Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith:
Carmelo for knowingly violating the right of first option of Mayfair, and
Equatorial for purchasing the property despite being aware of the contract
stipulation. In addition to rescission of the contract of sale, the Court ordered
Carmelo to allow Mayfair to buy the subject property at the same price of
P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land
Reform Law, as another source of its right of first refusal. It claims to be
covered under said law, being the "rightful occupant of the land and its
structures" since it is the lawful lessee thereof by reason of contract. Under

the lease contract, petitioner would have occupied the property for fourteen
(14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said
law, suffice it to say that this Court has previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the
exercise of the lessee's right of first refusal to purchase shall be determined
by the Urban Zone Expropriation and Land Management Committee. Hence, .
. . . certain prerequisites must be complied with by anyone who wishes to
avail himself of the benefits of the decree." 19There being no allegation in its
complaint that the prerequisites were complied with, it is clear that the
complaint did fail to state a cause of action on this ground.
Deed of Assignment included
the option to purchase
Neither do we find merit in the contention of respondent Santos that the
assignment of the lease contract to petitioner did not include the option to
purchase. The provisions of the deeds of assignment with regard to matters
assigned were very clear. Under the first assignment between Frederick
Chua as assignor and Lee Ching Bing as assignee, it was expressly stated
that:
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and
ASSIGNS to herein ASSIGNEE, all his rights, interest and
participation over said premises afore-described, . . .
. 20 (emphasis supplied)
And under the subsequent assignment executed between Lee Ching Bing as
assignor and the petitioner, represented by its Vice President Vicenta Lo
Chiong, as assignee, it was likewise expressly stipulated that;
. . . . the ASSIGNOR hereby sells, transfers and assigns all
his rights, interest and participation over said leased
premises, . . . . 21 (emphasis supplied)
One of such rights included in the contract of lease and, therefore, in the
assignments of rights was the lessee's right of first option or priority to buy
the properties subject of the lease, as provided in paragraph 9 of the
assigned lease contract. The deed of assignment need not be very specific as
to which rights and obligations were passed on to the assignee. It is
S a l e s P a r t V P a g e | 87
understood in the general provision aforequoted that all specific rights
and obligationscontained in the contract of lease are those referred to as
being assigned. Needless to state, respondent Santos gave her unqualified
conformity to both assignments of rights.
Respondent Raymundo privy
to the Contract of Lease
With respect to the contention of respondent Raymundo that he is not privy
to the lease contract, not being the lessor nor the lessee referred to therein,
he could thus not have violated its provisions, but he is nevertheless a
proper party. Clearly, he stepped into the shoes of the owner-lessor of the
land as, by virtue of his purchase, he assumed all the obligations of the
lessor under the lease contract. Moreover, he received benefits in the form
of rental payments. Furthermore, the complaint, as well as the petition,
prayed for the annulment of the sale of the properties to him. Both pleadings
also alleged collusion between him and respondent Santos which defeated
the exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo
was a necessary, if not indispensable, party to the case. 22 A favorable
judgment for the petitioner will necessarily affect the rights of respondent
Raymundo as the buyer of the property over which petitioner would like to
assert its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause of
action for breach of the right of first refusal and that the trial court should
thus not have dismissed the complaint, we find no more need to pass upon
the question of whether the complaint states a cause of action for damages
or whether the complaint is barred by estoppel or laches. As these matters
require presentation and/or determination of facts, they can be best resolved
after trial on the merits.
While the lower courts erred in dismissing the complaint, private
respondents, however, cannot be denied their day in court. While, in the
resolution of a motion to dismiss, the truth of the facts alleged in the
complaint are theoretically admitted, such admission is merely hypothetical
and only for the purpose of resolving the motion. In case of denial, the
movant is not to be deprived of the right to submit its own case and to
submit evidence to rebut the allegations in the complaint. Neither will the
grant of the motion by a trial court and the ultimate reversal thereof by an
 S a l e s P a r t V P a g e | 88

appellate court have the effect of stifling such right. 23 So too, the trial court
should be given the opportunity to evaluate the evidence, apply the law and
decree the proper remedy. Hence, we remand the instant case to the trial
court to allow private respondents to have their day in court.

WHEREFORE, the petition is GRANTED. The assailed decisions of the trial

court and Court of Appeals are hereby REVERSED and SET ASIDE. The case
is REMANDED to the Regional Trial Court of Makati for further proceedings.

SO ORDERED.

Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.


G.R. No. 149734. November 19, 2004.*
DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners, vs.
AYALA CORPORATION, respondent.
Civil Law; Contracts; Default; Requirements; In order that the debtor may be
in default it is necessary that the following requisites be present.—In order
that the debtor may be in default it is necessary that the following requisites
be present: (1) that the obligation be demandable and already liquidated;
(2) that the debtor delays performance; and (3) that the creditor requires
the performance judicially or extrajudicially.
Same; Same; Sales; Option Contract; Right of First Refusal; Distinguished;
The Court has clearly distinguished between an option and a right of first
refusal.—An option is a preparatory contract in which one party grants to
another, for a fixed period and at a determined price, the privilege to buy or
sell, or to decide whether or not to enter into a principal contract. It binds
the party who has given the option not to enter into the principal contract
with any other person during the period designated, and within that period,
to enter into such contract with the one to whom the option was granted, if
the latter should decide to use the option. It is a separate and distinct
contract from that which the parties may enter into upon the consummation
of the option. It must be supported by consideration. In a right of first
refusal, on the other hand, while the object might be made determinate, the
exercise of the right 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 are yet to be firmed up.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Candelaria, Candelaria & Candelaria Law Firm for petitioners.
Poblador, Bautista & Reyes for respondent. Vazquez vs. Ayala Corporation,
443 SCRA 231, G.R. No. 149734 November 19, 2004
TINGA, J.:
S a l e s P a r t V P a g e | 89
The rise in value of four lots in one of the country's prime residential
developments, Ayala Alabang Village in Muntinlupa City, over a period of six
(6) years only, represents big money. The huge price difference lies at the
heart of the present controversy. Petitioners insist that the lots should be
sold to them at 1984 prices while respondent maintains that the prevailing
market price in 1990 should be the selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed this Petition for Review on
Certiorari2 dated October 11, 2001 assailing the Decision3 of the Court of
Appeals dated September 6, 2001 which reversed the Decision 4 of the
Regional Trial Court (RTC) and dismissed their complaint for specific
performance and damages against Ayala Corporation.
Despite their disparate rulings, the RTC and the appellate court agree on the
following antecedents:5
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M.
Vasquez (hereafter, Vasquez spouses) entered into a Memorandum
of Agreement (MOA) with Ayala Corporation (hereafter, AYALA) with
AYALA buying from the Vazquez spouses, all of the latter's shares of
stock in Conduit Development, Inc. (hereafter, Conduit). The main
asset of Conduit was a 49.9 hectare property in Ayala Alabang,
Muntinlupa, which was then being developed by Conduit under a
development plan where the land was divided into Villages 1, 2 and
3 of the "Don Vicente Village." The development was then being
undertaken for Conduit by G.P. Construction and Development Corp.
(hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire property, less what
was defined as the "Retained Area" consisting of 18,736 square
meters. This "Retained Area" was to be retained by the Vazquez
spouses. The area to be developed by Ayala was called the
"Remaining Area". In this "Remaining Area" were 4 lots adjacent to
the "Retained Area" and Ayala agreed to offer these lots for sale to
the Vazquez spouses at the prevailing price at the time of purchase.
The relevant provisions of the MOA on this point are:
"5.7. The BUYER hereby commits that it will develop the 'Remaining
Property' into a first class residential subdivision of the same class as
its New Alabang Subdivision, and that it intends to complete the first

phase under its amended development plan within three (3) years
from the date of this Agreement. x x x"
5.15. The BUYER agrees to give the SELLERS a first option to
purchase four developed lots next to the "Retained Area" at the
prevailing market price at the time of the purchase."
The parties are agreed that the development plan referred to in
paragraph 5.7 is not Conduit's development plan, but Ayala's
amended development plan which was still to be formulated as of
the time of the MOA. While in the Conduit plan, the 4 lots to be
offered for sale to the Vasquez Spouses were in the first phase
thereof or Village 1, in the Ayala plan which was formulated a year
later, it was in the third phase, or Phase II-c.
Under the MOA, the Vasquez spouses made several express
warranties, as follows:
"3.1. The SELLERS shall deliver to the BUYER:
xxx
3.1.2. The true and complete list, certified by the Secretary and
Treasurer of the Company showing:
xxx
D. A list of all persons and/or entities with whom the Company has
pending contracts, if any.
xxx
3.1.5. Audited financial statements of the Company as at Closing
date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are subject to
fulfillment prior to or at the Closing, of the following conditions:
S a l e s P a r t V P a g e | 90
4.1. The representations and warranties by the SELLERS contained
in this Agreement shall be true and correct at the time of Closing as
though such representations and warranties were made at such
time; and
xxx
6. Representation and Warranties by the SELLERS
The SELLERS jointly and severally represent and warrant to the
BUYER that at the time of the execution of this Agreement and at
the Closing:
xxx
6.2.3. There are no actions, suits or proceedings pending, or to the
knowledge of the SELLERS, threatened against or affecting the
SELLERS with respect to the Shares or the Property; and
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required to be
submitted at Closing in accordance with Par. 3.1.5 above, the
SELLER jointly and severally warrant to the BUYER that:
7.1.1 The said Audited Financial Statements shall show that on the
day of Closing, the Company shall own the "Remaining Property",
free from all liens and encumbrances and that the Company shall
have no obligation to any party except for billings payable to GP
Construction & Development Corporation and advances made by
Daniel Vazquez for which BUYER shall be responsible in accordance
with Par. 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited
Financial Statements of the Company as of Closing, and those
disclosed to BUYER, the Company as of the date thereof, has no
liabilities of any nature whether accrued, absolute, contingent or
otherwise, including, without limitation, tax liabilities due or to
become due and whether incurred in respect of or measured in

respect of the Company's income prior to Closing or arising out of
transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of
any basis for any assertion against the Company as at closing or any
liability of any nature and in any amount not fully reflected or
reserved against such Audited Financial Statements referred to
above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or
before the Closing, the Company is not engaged in or a party to, or
to the best of the knowledge of the SELLERS, threatened with, any
legal action or other proceedings before any court or administrative
body, nor do the SELLERS know or have reasonable grounds to
know of any basis for any such action or proceeding or of any
governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists
in the due performance and observance by the Company of any
term, covenant or condition of any instrument or agreement to
which the company is a party or by which it is bound, and no
condition exists which, with notice or lapse of time or both, will
constitute such default or breach."
After the execution of the MOA, Ayala caused the suspension of
work on Village 1 of the Don Vicente Project. Ayala then received a
letter from one Maximo Del Rosario of Lancer General Builder
Corporation informing Ayala that he was claiming the amount of
P1,509,558.80 as the subcontractor of G.P. Construction...
G.P. Construction not being able to reach an amicable settlement
with Lancer, on March 22, 1982, Lancer sued G.P. Construction,
Conduit and Ayala in the then Court of First Instance of Manila in
Civil Case No. 82-8598. G.P. Construction in turn filed a cross-claim
against Ayala. G.P. Construction and Lancer both tried to enjoin
Ayala from undertaking the development of the property. The suit
was terminated only on February 19, 1987, when it was dismissed
with prejudice after Ayala paid both Lancer and GP Construction the
total of P4,686,113.39.
S a l e s P a r t V P a g e | 91
Taking the position that Ayala was obligated to sell the 4 lots
adjacent to the "Retained Area" within 3 years from the date of the
MOA, the Vasquez spouses sent several "reminder" letters of the
approaching so-called deadline. However, no demand after April 23,
1984, was ever made by the Vasquez spouses for Ayala to sell the 4
lots. On the contrary, one of the letters signed by their authorized
agent, Engr. Eduardo Turla, categorically stated that they expected
"development of Phase 1 to be completed by February 19, 1990,
three years from the settlement of the legal problems with the
previous contractor."
By early 1990 Ayala finished the development of the vicinity of the 4
lots to be offered for sale. The four lots were then offered to be sold
to the Vasquez spouses at the prevailing price in 1990. This was
rejected by the Vasquez spouses who wanted to pay at 1984 prices,
thereby leading to the suit below.
After trial, the court a quo rendered its decision, the dispositive
portion of which states:
"THEREFORE, judgment is hereby rendered in favor of plaintiffs and
against defendant, ordering defendant to sell to plaintiffs the
relevant lots described in the Complaint in the Ayala Alabang Village
at the price of P460.00 per square meter amounting to
P1,349,540.00; ordering defendant to reimburse to plaintiffs
attorney's fees in the sum of P200,000.00 and to pay the cost of the
suit."
In its decision, the court a quo concluded that the Vasquez spouses
were not obligated to disclose the potential claims of GP
Construction, Lancer and Del Rosario; Ayala's accountants should
have opened the records of Conduit to find out all claims; the
warranty against suit is with respect to "the shares of the Property"
and the Lancer suit does not affect the shares of stock sold to Ayala;
Ayala was obligated to develop within 3 years; to say that Ayala was
under no obligation to follow a time frame was to put the Vasquezes
at Ayala's mercy; Ayala did not develop because of a slump in the
real estate market; the MOA was drafted and prepared by the AYALA
who should suffer its ambiguities; the option to purchase the 4 lots
is valid because it was supported by consideration as the option is

incorporated in the MOA where the parties had prestations to each
other. [Emphasis supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in
holding that petitioners did not breach their warranties under the
MOA6 dated April 23, 1981; that it was obliged to develop the land where the
four (4) lots subject of the option to purchase are located within three (3)
years from the date of the MOA; that it was in delay; and that the option to
purchase was valid because it was incorporated in the MOA and the
consideration therefor was the commitment by Ayala Corporation to
petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC Decision.
According to the appellate court, Ayala Corporation was never informed
beforehand of the existence of the Lancer claim. In fact, Ayala Corporation
got a copy of the Lancer subcontract only on May 29, 1981 from G.P.
Construction's lawyers. The Court of Appeals thus held that petitioners
violated their warranties under the MOA when they failed to disclose Lancer's
claims. Hence, even conceding that Ayala Corporation was obliged to
develop and sell the four (4) lots in question within three (3) years from the
date of the MOA, the obligation was suspended during the pendency of the
case filed by Lancer.
Interpreting the MOA's paragraph 5.7 above-quoted, the appellate court held
that Ayala Corporation committed to develop the first phase of its own
amended development plan and not Conduit's development plan. Nowhere
does the MOA provide that Ayala Corporation shall follow Conduit's
development plan nor is Ayala Corporation prohibited from changing the
sequence of the phases of the property it will develop.
Anent the question of delay, the Court of Appeals ruled that there was no
delay as petitioners never made a demand for Ayala Corporation to sell the
subject lots to them. According to the appellate court, what petitioners sent
were mere reminder letters the last of which was dated prior to April 23,
1984 when the obligation was not yet demandable. At any rate, the Court of
Appeals found that petitioners in fact waived the three (3)-year period when
they sent a letter through their agent, Engr. Eduardo Turla, stating that they
"expect that the development of Phase I will be completed by 19 February
1990, three years from the settlement of the legal problems with the
previous contractor."7
S a l e s P a r t V P a g e | 92
The appellate court likewise ruled that paragraph 5.15 above-quoted is not
an option contract but a right of first refusal there being no separate
consideration therefor. Since petitioners refused Ayala Corporation's offer to
sell the subject lots at the reduced 1990 price of P5,000.00 per square
meter, they have effectively waived their right to buy the same.
In the instant Petition, petitioners allege that the appellate court erred in
ruling that they violated their warranties under the MOA; that Ayala
Corporation was not obliged to develop the "Remaining Property" within
three (3) years from the execution of the MOA; that Ayala was not in delay;
and that paragraph 5.15 of the MOA is a mere right of first refusal.
Additionally, petitioners insist that the Court should review the factual
findings of the Court of Appeals as they are in conflict with those of the trial
court.
Ayala Corporation filed a Comment on the Petition8 dated March 26, 2002,
contending that the petition raises questions of fact and seeks a review of
evidence which is within the domain of the Court of Appeals. Ayala
Corporation maintains that the subcontract between GP Construction, with
whom Conduit contracted for the development of the property under a
Construction Contract dated October 10, 1980, and Lancer was not disclosed
by petitioners during the negotiations. Neither was the liability for Lancer's
claim included in the Audited Financial Statements submitted by petitioners
after the signing of the MOA. These justify the conclusion that petitioners
breached their warranties under the afore-quoted paragraphs of the MOA.
Since the Lancer suit ended only in February 1989, the three (3)-year period
within which Ayala Corporation committed to develop the property should
only be counted thence. Thus, when it offered the subject lots to petitioners
in 1990, Ayala Corporation was not yet in delay.
In response to petitioners' contention that there was no action or proceeding
against them at the time of the execution of the MOA on April 23, 1981,
Ayala Corporation avers that the facts and circumstances which gave rise to
the Lancer claim were already extant then. Petitioners warranted that their
representations under the MOA shall be true and correct at the time of
"Closing" which shall take place within four (4) weeks from the signing of the
MOA.9 Since the MOA was signed on April 23, 1981, "Closing" was
approximately the third week of May 1981. Hence, Lancer's claims,
articulated in a letter which Ayala Corporation received on May 4, 1981, are
among the liabilities warranted against under paragraph 7.1.2 of the MOA.

Moreover, Ayala Corporation asserts that the warranties under the MOA are
not just against suits but against all kinds of liabilities not reflected in the
Audited Financial Statements. It cannot be faulted for relying on the express
warranty that except for billings payable to GP Construction and advances
made by petitioner Daniel Vazquez in the amount of P38,766.04, Conduit has
no other liabilities. Hence, petitioners cannot claim that Ayala Corporation
should have examined and investigated the Audited Financial Statements of
Conduit and should now assume all its obligations and liabilities including the
Lancer suit and the cross-claim of GP Construction.
Furthermore, Ayala Corporation did not make a commitment to complete the
development of the first phase of the property within three (3) years from
the execution of the MOA. The provision refers to a mere declaration of
intent to develop the first phase of its (Ayala Corporation's) own
development plan and not Conduit's. True to its intention, Ayala Corporation
did complete the development of the first phase (Phase II-A) of its amended
development plan within three (3) years from the execution of the MOA.
However, it is not obliged to develop the third phase (Phase II-C) where the
subject lots are located within the same time frame because there is no
contractual stipulation in the MOA therefor. It is free to decide on its own the
period for the development of Phase II-C. If petitioners wanted to impose
the same three (3)-year timetable upon the third phase of the amended
development plan, they should have filed a suit to fix the time table in
accordance with Article 119710 of the Civil Code. Having failed to do so, Ayala
Corporation cannot be declared to have been in delay.
Ayala Corporation further contends that no demand was made on it for the
performance of its alleged obligation. The letter dated October 4, 1983 sent
when petitioners were already aware of the Lancer suit did not demand the
delivery of the subject lots by April 23, 1984. Instead, it requested Ayala
Corporation to keep petitioners posted on the status of the case. Likewise,
the letter dated March 4, 1984 was merely an inquiry as to the date when
the development of Phase 1 will be completed. More importantly, their letter
dated June 27, 1988 through Engr. Eduardo Turla expressed petitioners'
expectation that Phase 1 will be completed by February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right
of first refusal and not an option contract.
Petitioners filed their Reply11 dated August 15, 2002 reiterating the
arguments in their Petition and contending further that they did not violate
S a l e s P a r t V P a g e | 93
their warranties under the MOA because the case was filed by Lancer only on
April 1, 1982, eleven (11) months and eight (8) days after the signing of the
MOA on April 23, 1981. Ayala Corporation admitted that it received Lancer's
claim before the "Closing" date. It therefore had all the time to rescind the
MOA. Not having done so, it can be concluded that Ayala Corporation itself
did not consider the matter a violation of petitioners' warranty.
Moreover, petitioners submitted the Audited Financial Statements of Conduit
and allowed an acquisition audit to be conducted by Ayala Corporation. Thus,
the latter bought Conduit with "open eyes."
Petitioners also maintain that they had no knowledge of the impending case
against Conduit at the time of the execution of the MOA. Further, the MOA
makes Ayala Corporation liable for the payment of all billings of GP
Construction. Since Lancer's claim was actually a claim against GP
Construction being its sub-contractor, it is Ayala Corporation and not
petitioners which is liable.
Likewise, petitioners aver that although Ayala Corporation may change the
sequence of its development plan, it is obliged under the MOA to develop the
entire area where the subject lots are located in three (3) years.
They also assert that demand was made on Ayala Corporation to comply
with their obligation under the MOA. Apart from their reminder letters dated
January 24, February 18 and March 5, 1984, they also sent a letter dated
March 4, 1984 which they claim is a categorical demand for Ayala
Corporation to comply with the provisions of the MOA.
The parties were required to submit their respective memoranda in the
Resolution12 dated November 18, 2002. In compliance with this directive,
petitioners submitted their Memorandum 13 dated February 14, 2003 on even
date, while Ayala Corporation filed its Memorandum 14 dated February 14,
2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant
petition.
It is well-settled that the jurisdiction of this Court in cases brought to it from
the Court of Appeals by way of petition for review under Rule 45 is limited to
reviewing or revising errors of law imputed to it, its findings of fact being
conclusive on this Court as a matter of general principle. However, since in

the instant case there is a conflict between the factual findings of the trial
court and the appellate court, particularly as regards the issues of breach of
warranty, obligation to develop and incurrence of delay, we have to consider
the evidence on record and resolve such factual issues as an exception to
the general rule.15 In any event, the submitted issue relating to the
categorization of the right to purchase granted to petitioners under the MOA
is legal in character.
The next issue that presents itself is whether petitioners breached their
warranties under the MOA when they failed to disclose the Lancer claim. The
trial court declared they did not; the appellate court found otherwise.
Ayala Corporation summarizes the clauses of the MOA which petitioners
allegedly breached when they failed to disclose the Lancer claim:
a) Clause 7.1.1. – that Conduit shall not be obligated to anyone
except to GP Construction for P38,766.04, and for advances made by
Daniel Vazquez;
b) Clause 7.1.2. – that except as reflected in the audited financial
statements Conduit had no other liabilities whether accrued,
absolute, contingent or otherwise;
c) Clause 7.2. – that there is no basis for any assertion against
Conduit of any liability of any value not reflected or reserved in the
financial statements, and those disclosed to Ayala;
d) Clause 7.6.3. – that Conduit is not threatened with any legal
action or other proceedings; and
e) Clause 7.6.4. – that Conduit had not breached any term,
condition, or covenant of any instrument or agreement to which it is
a party or by which it is bound.16
The Court is convinced that petitioners did not violate the foregoing
warranties.
The exchanges of communication between the parties indicate that
petitioners substantially apprised Ayala Corporation of the Lancer claim or
S a l e s P a r t V P a g e | 94
the possibility thereof during the period of negotiations for the sale of
Conduit.
In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala
Corporation's Mr. Adolfo Duarte (Mr. Duarte) that prior to the completion of
the sale of Conduit, Ayala Corporation asked for and was given information
that GP Construction sub-contracted, presumably to Lancer, a greater
percentage of the project than it was allowed. Petitioners gave this
information to Ayala Corporation because the latter intimated a desire to
"break the contract of Conduit with GP." Ayala Corporation did not deny this.
In fact, Mr. Duarte's letter18 dated March 6, 1984 indicates that Ayala
Corporation had knowledge of the Lancer subcontract prior to its acquisition
of Conduit. Ayala Corporation even admitted that it "tried to explore…legal
basis to discontinue the contract of Conduit with GP" but found this "not
feasible when information surfaced about the tacit consent of Conduit to the
sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of the Lancer claim before the
date of Closing of the MOA. Lancer's letter 19 dated April 30, 1981 informing
Ayala Corporation of its unsettled claim with GP Construction was received
by Ayala Corporation on May 4, 1981, well before the "Closing" 20 which
occurred four (4) weeks after the date of signing of the MOA on April 23,
1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted hereunder likewise
indicate that certain matters pertaining to the liabilities of Conduit were
disclosed by petitioners to Ayala Corporation although the specifics thereof
were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on the
day of Closing, the Company shall own the "Remaining Property",
free from all liens and encumbrances and that the Company shall
have no obligation to any party except for billings payable to GP
Construction & Development Corporation and advances made by
Daniel Vazquez for which BUYER shall be responsible in accordance
with Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited
Financial Statements of the Company as of Closing, and those
disclosed to BUYER, the Company as of the date hereof, has no
liabilities of any nature whether accrued, absolute, contingent or

otherwise, including, without limitation, tax liabilities due or to
become due and whether incurred in respect of or measured in
respect of the Company's income prior to Closing or arising out of
transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of
any basis for any assertion against the Company as at Closing of any
liability of any nature and in any amount not fully reflected or
reserved against such Audited Financial Statements referred to
above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or
before the Closing, the Company is not engaged in or a party to, or
to the best of the knowledge of the SELLERS, threatened with, any
legal action or other proceedings before any court or administrative
body, nor do the SELLERS know or have reasonable grounds to
know of any basis for any such action or proceeding or of any
governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists
in the due performance and observance by the Company of any
term, covenant or condition of any instrument or agreement to
which the Company is a party or by which it is bound, and no
condition exists which, with notice or lapse of time or both, will
constitute such default or breach."21 [Emphasis supplied]
Hence, petitioners' warranty that Conduit is not engaged in, a party to, or
threatened with any legal action or proceeding is qualified by Ayala
Corporation's actual knowledge of the Lancer claim which was disclosed to
Ayala Corporation before the "Closing."
At any rate, Ayala Corporation bound itself to pay all billings payable to GP
Construction and the advances made by petitioner Daniel Vazquez.
Specifically, under paragraph 2 of the MOA referred to in paragraph 7.1.1,
Ayala Corporation undertook responsibility "for the payment of all billings of
the contractor GP Construction & Development Corporation after the first
billing and any payments made by the company and/or SELLERS shall be
reimbursed by BUYER on closing which advances to date is P1,159,012.87."22
S a l e s P a r t V P a g e | 95
The billings knowingly assumed by Ayala Corporation necessarily include the
Lancer claim for which GP Construction is liable. Proof of this is Ayala
Corporation's letter23 to GP Construction dated before "Closing" on May 4,
1981, informing the latter of Ayala Corporation's receipt of the Lancer claim
embodied in the letter dated April 30, 1981, acknowledging that it is taking
over the contractual responsibilities of Conduit, and requesting copies of all
sub-contracts affecting the Conduit property. The pertinent excerpts of the
letter read:
…
In this connection, we wish to inform you that this morning we
received a letter from Mr. Maximo D. Del Rosario, President of
Lancer General Builders Corporation apprising us of the existence of
subcontracts that they have with your corporation. They have also
furnished us with a copy of their letter to you dated 30 April 1981.
Since we are taking over the contractual responsibilities of Conduit
Development, Inc., we believe that it is necessary, at this point in
time, that you furnish us with copies of all your subcontracts
affecting the property of Conduit, not only with Lancer General
Builders Corporation, but all subcontracts with other parties as
well…24
Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief25 dated
July 9, 1992 a copy of the letter26 dated May 28, 1981 of GP Construction's
counsel addressed to Conduit furnishing the latter with copies of all sub-
contract agreements entered into by GP Construction. Since it was addressed
to Conduit, it can be presumed that it was the latter which gave Ayala
Corporation a copy of the letter thereby disclosing to the latter the existence
of the Lancer sub-contract.
The ineluctable conclusion is that petitioners did not violate their warranties
under the MOA. The Lancer sub-contract and claim were substantially
disclosed to Ayala Corporation before the "Closing" date of the MOA. Ayala
Corporation cannot disavow knowledge of the claim.
Moreover, while in its correspondence with petitioners, Ayala Corporation did
mention the filing of the Lancer suit as an obstacle to its development of the
property, it never actually brought up nor sought redress for petitioners'

alleged breach of warranty for failure to disclose the Lancer claim until it filed
its Answer27 dated February 17, 1992.
We now come to the correct interpretation of paragraph 5.7 of the MOA.
Does this paragraph express a commitment or a mere intent on the part of
Ayala Corporation to develop the property within three (3) years from date
thereof? Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the 'Remaining
Property' into a first class residential subdivision of the same class as
its New Alabang Subdivision, and that it intends to complete the first
phase under its amended development plan within three (3) years
from the date of this Agreement….28
Notably, while the first phrase of the paragraph uses the word "commits" in
reference to the development of the "Remaining Property" into a first class
residential subdivision, the second phrase uses the word "intends" in relation
to the development of the first phase of the property within three (3) years
from the date of the MOA. The variance in wording is significant. While
"commit"29 connotes a pledge to do something, "intend"30 merely signifies a
design or proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's legal
division who assisted in drafting the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer on that
point.
ATTY. BLANCO
Don't talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to emphasize
the tentative character of the period of development because it will
be noted that the sentence refers to and I quote "to complete the
first phase under its amended development plan within three (3)
S a l e s P a r t V P a g e | 96
years from the date of this agreement, at the time of the execution
of this agreement, your Honor." That amended development plan
was not yet in existence because the buyer had manifested to the
seller that the buyer could amend the subdivision plan originally
belonging to the seller to conform with its own standard of
development and second, your Honor, (interrupted)31
It is thus unmistakable that this paragraph merely expresses an intention on
Ayala Corporation's part to complete the first phase under its amended
development plan within three (3) years from the execution of the MOA.
Indeed, this paragraph is so plainly worded that to misunderstand its import
is deplorable.
More focal to the resolution of the instant case is paragraph 5.7's clear
reference to the first phase of Ayala Corporation's amended development
plan as the subject of the three (3)-year intended timeframe for
development. Even petitioner Daniel Vazquez admitted on cross-examination
that the paragraph refers not to Conduit's but to Ayala Corporation's
development plan which was yet to be formulated when the MOA was
executed:
Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is
stated as follows: "The Buyer hereby commits that to develop the remaining
property into a first class residential subdivision of the same class as New
Alabang Subdivision, and that they intend to complete the first phase under
its amended development plan within three years from the date of this
agreement."
Now, my question to you, Dr. Vasquez is that there is no dispute that the
amended development plan here is the amended development plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit "D-5" which is the original plan of
Conduit?
A: No, it is not.
Q: This Exhibit "D-5" was the plan that was being followed by GP
Construction in 1981?

A: Yes, sir.
Q: And point of fact during your direct examination as of the date of
the agreement, this amended development plan was still to be
formulated by Ayala?
A: Yes, sir.32
As correctly held by the appellate court, this admission is crucial because
while the subject lots to be sold to petitioners were in the first phase of the
Conduit development plan, they were in the third or last phase of the Ayala
Corporation development plan. Hence, even assuming that paragraph 5.7
expresses a commitment on the part of Ayala Corporation to develop the first
phase of its amended development plan within three (3) years from the
execution of the MOA, there was no parallel commitment made as to the
timeframe for the development of the third phase where the subject lots are
located.
Lest it be forgotten, the point of this petition is the alleged failure of Ayala
Corporation to offer the subject lots for sale to petitioners within three (3)
years from the execution of the MOA. It is not that Ayala Corporation
committed or intended to develop the first phase of its amended
development plan within three (3) years. Whether it did or did not is actually
beside the point since the subject lots are not located in the first phase
anyway.
We now come to the issue of default or delay in the fulfillment of the
obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order
that delay may exist:
(1) When the obligation or the law expressly so declares; or
S a l e s P a r t V P a g e | 97
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins.
In order that the debtor may be in default it is necessary that the following
requisites be present: (1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance; and (3) that the creditor
requires the performance judicially or extrajudicially.33
Under Article 1193 of the Civil Code, obligations for whose fulfillment a day
certain has been fixed shall be demandable only when that day comes.
However, no such day certain was fixed in the MOA. Petitioners, therefore,
cannot demand performance after the three (3) year period fixed by the
MOA for the development of the first phase of the property since this is not
the same period contemplated for the development of the subject lots. Since
the MOA does not specify a period for the development of the subject lots,
petitioners should have petitioned the court to fix the period in accordance
with Article 119734 of the Civil Code. As no such action was filed by
petitioners, their complaint for specific performance was premature, the
obligation not being demandable at that point. Accordingly, Ayala
Corporation cannot likewise be said to have delayed performance of the
obligation.
Even assuming that the MOA imposes an obligation on Ayala Corporation to
develop the subject lots within three (3) years from date thereof, Ayala
Corporation could still not be held to have been in delay since no demand
was made by petitioners for the performance of its obligation.
As found by the appellate court, petitioners' letters which dealt with the
three (3)-year timetable were all dated prior to April 23, 1984, the date when
the period was supposed to expire. In other words, the letters were sent
before the obligation could become legally demandable. Moreover, the

letters were mere reminders and not categorical demands to perform. More
importantly, petitioners waived the three (3)-year period as evidenced by
their agent, Engr. Eduardo Turla's letter to the effect that petitioners agreed
that the three (3)-year period should be counted from the termination of the
case filed by Lancer. The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23, 1981, it
was undertaken by your goodselves to complete the development of
Phase I within three (3) years. Dr. & Mrs. Vazquez were made to
understand that you were unable to accomplish this because of legal
problems with the previous contractor. These legal problems were
resolved as of February 19, 1987, and Dr. & Mrs. Vazquez therefore
expect that the development of Phase I will be completed by
February 19, 1990, three years from the settlement of the legal
problems with the previous contractor. The reason for this is, as you
know, that security-wise, Dr. & Mrs. Vazquez have been advised not
to construct their residence till the surrounding area (which is Phase
I) is developed and occupied. They have been anxious to build their
residence for quite some time now, and would like to receive
assurance from your goodselves regarding this, in compliance with
the agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention of
Dr. & Mrs. Vazquez to exercise their option to purchase the two lots
on each side (a total of 4 lots) adjacent to their "Retained Area".
They are concerned that although over a year has elapsed since the
settlement of the legal problems, you have not presented them with
the size, configuration, etc. of these lots. They would appreciate
being provided with these at your earliest convenience. 35
Manifestly, this letter expresses not only petitioners' acknowledgement that
the delay in the development of Phase I was due to the legal problems with
GP Construction, but also their acquiescence to the completion of the
development of Phase I at the much later date of February 19, 1990. More
importantly, by no stretch of semantic interpretation can it be construed as a
categorical demand on Ayala Corporation to offer the subject lots for sale to
petitioners as the letter merely articulates petitioners' desire to exercise their
S a l e s P a r t V P a g e | 98
option to purchase the subject lots and concern over the fact that they have
not been provided with the specifications of these lots.
The letters of petitioners' children, Juan Miguel and Victoria Vazquez, dated
January 23, 198436 and February 18, 198437 can also not be considered
categorical demands on Ayala Corporation to develop the first phase of the
property within the three (3)-year period much less to offer the subject lots
for sale to petitioners. The letter dated January 23, 1984 reads in part:
You will understand our interest in the completion of the roads to
our property, since we cannot develop it till you have constructed
the same. Allow us to remind you of our Memorandum of
Agreement, as per which you committed to develop the roads to our
property "as per the original plans of the company", and that
1. The back portion should have been developed before the front
portion – which has not been the case.
2. The whole project – front and back portions be completed by
1984.38
The letter dated February 18, 1984 is similarly worded. It states:
In this regard, we would like to remind you of Articles 5.7 and 5.9 of our
Memorandum of Agreement which states respectively:… 39
Even petitioner Daniel Vazquez' letter40 dated March 5, 1984 does not make
out a categorical demand for Ayala Corporation to offer the subject lots for
sale on or before April 23, 1984. The letter reads in part:
…and that we expect from your goodselves compliance with our
Memorandum of Agreement, and a definite date as to when the road
to our property and the development of Phase I will be completed.41
At best, petitioners' letters can only be construed as mere reminders which
cannot be considered demands for performance because it must appear that
the tolerance or benevolence of the creditor must have ended.42

The petition finally asks us to determine whether paragraph 5.15 of the MOA
can properly be construed as an option contract or a right of first refusal.
Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to purchase
four developed lots next to the "Retained Area" at the prevailing
market price at the time of the purchase.43
The Court has clearly distinguished between an option contract and a right of
first refusal. An option is a preparatory contract in which one party grants to
another, for a fixed period and at a determined price, the privilege to buy or
sell, or to decide whether or not to enter into a principal contract. It binds
the party who has given the option not to enter into the principal contract
with any other person during the period designated, and within that period,
to enter into such contract with the one to whom the option was granted, if
the latter should decide to use the option. It is a separate and distinct
contract from that which the parties may enter into upon the consummation
of the option. It must be supported by consideration.44
In a right of first refusal, on the other hand, while the object might be made
determinate, the exercise of the right 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 are yet to be firmed up.45
Applied to the instant case, paragraph 5.15 is obviously a mere right of first
refusal and not an option contract. Although the paragraph has a definite
object, i.e., the sale of subject lots, the period within which they will be
offered for sale to petitioners and, necessarily, the price for which the
subject lots will be sold are not specified. The phrase "at the prevailing
market price at the time of the purchase" connotes that there is no definite
period within which Ayala Corporation is bound to reserve the subject lots for
petitioners to exercise their privilege to purchase. Neither is there a fixed or
determinable price at which the subject lots will be offered for sale. The price
is considered certain if it may be determined with reference to another thing
certain or if the determination thereof is left to the judgment of a specified
person or persons.46
Further, paragraph 5.15 was inserted into the MOA to give petitioners the
first crack to buy the subject lots at the price which Ayala Corporation would
be willing to accept when it offers the subject lots for sale. It is not
S a l e s P a r t V P a g e | 99
supported by an independent consideration. As such it is not governed by
Articles 1324 and 1479 of the Civil Code, viz:
Art. 1324. When the offeror has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or
promised.
Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
Consequently, the "offer" may be withdrawn anytime by communicating the
withdrawal to the other party.47
In this case, Ayala Corporation offered the subject lots for sale to petitioners
at the price of P6,500.00/square meter, the prevailing market price for the
property when the offer was made on June 18, 1990. 48 Insisting on paying
for the lots at the prevailing market price in 1984 of P460.00/square meter,
petitioners rejected the offer. Ayala Corporation reduced the price to
P5,000.00/square meter but again, petitioners rejected the offer and instead
made a counter-offer in the amount of P2,000.00/square meter.49 Ayala
Corporation rejected petitioners' counter-offer. With this rejection, petitioners
lost their right to purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation breached petitioners'
right of first refusal and should be compelled by an action for specific
performance to sell the subject lots to petitioners at the prevailing market
price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario,
JJ., concur.

G.R. No. 117355. April 5, 2002.*
RIVIERA FILIPINA, INC. petitioner, vs. COURT OF APPEALS, JUAN
L. REYES (now deceased), substituted by his heirs, namely,
Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and
Fidel B. Reyes, PHILIPPINE CYPRESS CONSTRUCTION &
DEVELOPMENT CORPORATION, CORNHILL TRADING
CORPORATION and URBAN DEVELOPMENT BANK, respondents.
Appeals; Certiorari; Pleadings and Practice; The distinctions between Rule 45
and Rule 65 are far and wide, the most notable of which is that errors of
jurisdiction are best reviewed in a special civil action for certiorari under Rule
65, while errors of judgment are corrective only by appeal in a petition for
review under Rule 45.—The distinctions between Rule 45 and 65 are far and
wide, the most notable of which is that errors of jurisdiction are best
reviewed in a special civil action for certiorari under Rule 65, while errors of
judgment are correctible only by appeal in a petition for review under Rule
45. The rationale for the distinction is simple. When a court exercises its
jurisdiction an error committed while so engaged does not deprive it of the
jurisdiction being exercised when the error is committed. If it did, every error
committed by a court would deprive it of its jurisdiction and every erroneous
judgment would be a void judgment. This cannot be allowed. The
administration of justice would not countenance such a rule. Thus, an error
of judgment that the court may commit in the exercise of its jurisdiction is
not correctible through the original special civil action of certiorari. Appeal
from a final disposition of the Court of Appeals, as in the case at bar, is by
way of a petition for review under Rule 45.
Contracts; Sales; Leases; Right of First Refusal; The concept and
interpretation of the right of first refusal and the consequences of a breach
thereof evolved in Philippine juristic sphere only within the last decade.—The
concept and interpretation of the right of first refusal and the consequences
of a breach thereof evolved in Philippine juristic sphere only within the last
decade. It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie
where the Court held that a lease with a proviso granting the lessee the right
of first priority “all things and conditions being equal” meant that there
should be identity of the terms and conditions to be offered to the lessee
S a l e s P a r t V P a g e | 100
and all other prospective buyers, with the lessee to enjoy the right of first
priority. A deed of sale executed in favor of a third party who cannot be
deemed a purchaser in good faith, and which is in violation of a right of first
refusal granted to the lessee is not voidable under the Statute of Frauds but
rescissible under Articles 1380 to 1381 (3) of the New Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals,
the Court en banc departed from the doctrine laid down in Guzman, Bocaling
& Co. v. Bonnevie and refused to rescind a contract of sale which violated
the right of first refusal. The Court held that the so-called “right of first
refusal” cannot be deemed a perfected contract of sale under Article 1458 of
the New Civil Code and, as such, a breach thereof decreed under a final
judgment does not entitle the aggrieved party to a writ of execution of the
judgment but to an action for damages in a proper forum for the purpose. In
the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater,
Inc. the Court en banc reverted back to the doctrine in Guzman, Bocaling &
Co. v. Bonnevie stating that rescission is a relief allowed for the protection of
one of the contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible and
preferred right by the contract.
Same; Same; Same; Same; Rescission; The prevailing doctrine is that a right
of first refusal means identity of terms and conditions to be offered to the
lessee and all other prospective buyers and a contract of sale entered into in
violation of a right of first refusal of another person, while valid, is
rescissible.—Thereafter in 1997, in Parañaque Kings Enterprises, Inc. v.
Court of Appeals, the Court affirmed the nature of and the concomitant
rights and obligations of parties under a right of first refusal. The Court,
summarizing the rulings in Guzman, Bocaling & Co. v. Bonnevie and
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held that in
order to have full compliance with the contractual right granting petitioner
the first option to purchase, the sale of the properties for the price for which
they were finally sold to a third person should have likewise been first
offered to the former. Further, there should be identity of terms and
conditions to be offered to the buyer holding a right of first refusal if such
right is not to be rendered illusory. Lastly, the basis of the right of first
refusal must be the current offer to sell of the seller or offer to purchase of
any prospective buyer. Thus, the prevailing doctrine is that a right of first

refusal means identity of terms and conditions to be offered to the lessee
and all other prospective buyers and a contract of sale entered into in
violation of a right of first refusal of another person, while valid, is
rescissible.
Same; Same; Same; Interpretation of Contracts; Statutory Construction;
General propositions do not decide specific cases—laws are interpreted in the
context of the peculiar factual situation of each proceeding; The court must
read a contract as the average person would read it and should not give it a
strained or forced construction—where the parties to a contract have given it
a practical construction by their conduct as by acts in partial performance,
such construction may be considered by the court in construing the contract,
determining its meaning and ascertaining the mutual intention of the parties
at the time for contracting.—However, we must remember that general
propositions do not decide specific cases. Rather, laws are interpreted in the
context of the peculiar factual situation of each proceeding. Each case has its
own flesh and blood and cannot be ruled upon on the basis of isolated
clinical classroom principles. Analysis and construction should not be limited
to the words used in the contract, as they may not accurately reflect the
parties’ true intent. The court must read a contract as the average person
would read it and should not give it a strained or forced construction. In the
case at bar, the Court finds relevant and significant the cardinal rule in the
interpretation of contracts that the intention of the parties shall be accorded
primordial consideration and in case of doubt, their contemporaneous and
subsequent acts shall be principally considered. Where the parties to a
contract have given it a practical construction by their conduct as by acts in
partial performance, such construction may be considered by the court in
construing the contract, determining its meaning and ascertaining the mutual
intention of the parties at the time for contracting. The parties’ practical
construction of their contract has been characterized as a clue or index to, or
as evidence of, their intention or meaning and as an important, significant,
convincing, persuasive, or influential factor in determining the proper
construction of the contract.
Same; Same; Same; Same; Fraud; Silence or concealment, by itself, does
not constitute fraud, unless there is a special duty to disclose certain facts,
or unless according to good faith and the usages of commerce the
S a l e s P a r t V P a g e | 101
communication should be made.—Nary a howl of protest or shout of
defiance spewed forth from Riviera’s lips, as it were, but a seemingly
whimper of acceptance when the counsel of Reyes strongly expressed in a
letter dated December 5, 1989 that Riviera had lost its right of first refusal.
Riviera cannot now be heard that had it been informed of the offer of Five
Thousand Three Hundred Pesos (P5,300.00) of Cypress and Cornhill it would
have matched said price. Its stubborn approach in its negotiations with
Reyes showed crystal-clear that there was never any need to disclose such
information and doing so would be just a futile effort on the part of Reyes.
Reyes was under no obligation to disclose the same. Pursuant to Article 1339
of the New Civil Code, silence or concealment, by itself, does not constitute
fraud, unless there is a special duty to disclose certain facts, or unless
according to good faith and the usages of commerce the communication
should be made. We apply the general rule in the case at bar since Riviera
failed to convincingly show that either of the exceptions are relevant to the
case at bar.
Same; Same; Same; Same; Neither abstract justice nor the rule of liberal
construction justifies the creation of a contract for the parties which they did
not make themselves or the imposition upon one party to a contract of an
obligation not assumed.—The Court would be rewriting the contract of Reyes
and Riviera under the guise of construction were we to interpret the right of
first refusal as Riviera propounds it, despite a contrary construction as
exhibited by its actions. A court, even the Supreme Court, has no right to
make new contracts for the parties or ignore those already made by them,
simply to avoid seeming hardships. Neither abstract justice nor the rule of
liberal construction justifies the creation of a contract for the parties which
they did not make themselves or the imposition upon one party to a contract
of an obligation not assumed.
Actions; Parties; Substitution of Parties; Death of a Party; The failure of a
counsel to comply with his duty under Section 16 of Rule 3 of the Revised
Rules of Court, to inform the court of the death of his client and no
substitution of such is effected, will not invalidate the proceedings and the
judgment thereon if the action survives the death of such party; The purpose
behind the rule on substitution of parties is the protection of the right of
every party to due process.—Section 16 and 17 of Rule 3 of the Revised

Rules of Court, upon which Riviera anchors its argument, has already been
amended by the 1997 Rules of Civil Procedure. Even applying the old Rules,
the failure of a counsel to comply with his duty under Section 16 of Rule 3 of
the Revised Rules of Court, to inform the court of the death of his client and
no substitution of such is effected, will not invalidate the proceedings and
the judgment thereon if the action survives the death of such party, as this
case does, since the death of Reyes did not extinguish his civil personality.
The appellate court was well within its jurisdiction to proceed as it did with
the case since the death of a party is not subject to its judicial notice.
Needless to stress, the purpose behind the rule on substitution of parties is
the protection of the right of every party to due process. This purpose has
been adequately met in this case since both parties argued their respective
positions through their pleadings in the trial court and the appellate court.
Besides, the Court has already acquired jurisdiction over the heirs of Reyes
by voluntarily submitting themselves to our jurisdiction.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the Opinion of the Court.
Fortunato Gupit, Jr. for petitioner.
Ireneo Santos Juan, Napoleon M. Gamo and Mendoza, Lacson, Mison &
Garcia for private respondents.
Guerrero, Ortega, Aquino and Roque Law Offices for respondent Urban
Bank. Riviera Filipina, Inc. vs. Court of Appeals, 380 SCRA 245, G.R. No.
117355 April 5, 2002.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision 1 of the Court of
Appeals2 dated June 6, 1994 in CA-G.R. CV No. 26513 affirming the
Decision3 dated March 20, 1990 of the Regional Trial Court of Quezon City,
Branch 89 dismissing Civil Case No. Q-89-3371.
Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc. (Riviera)
on August 31, 19894 to compel the defendants therein Juan L. Reyes, now
deceased, Philippine Cypress Construction & Development Corporation
S a l e s P a r t V P a g e | 102
(Cypress), Cornhill Trading Corporation (Cornhill) and Urban Development
Bank to transfer the title covering a 1,018 square meter parcel of land
located along EDSA, Quezon City for alleged violation of Riviera’s right of first
refusal.
It appears that on November 23, 1982, respondent Juan L. Reyes (Reyes, for
brevity) executed a Contract of Lease with Riviera. The ten-year (10)
renewable lease of Riviera, which started on August 1, 1982, involved a
1,018 square meter parcel of land located along Edsa, Quezon City, covered
and described in Transfer Certificate of Title No. 186326 of the Registry of
Deeds of Quezon City in the name of Juan L. Reyes. 5
The said parcel of land was subject of a Real Estate Mortgage executed by
Reyes in favor of Prudential Bank. Since the loan with Prudential Bank
remained unpaid upon maturity, the mortgagee bank extrajudicially
foreclosed the mortgage thereon. At the public auction sale, the mortgagee
bank emerged as the highest bidder. The redemption period was set to
expire on March 7, 1989. Realizing that he could not possibly raise in time
the money needed to redeem the subject property, Reyes decided to sell the
same.6
Since paragraph 11 of the lease contract expressly provided that the
"LESSEE shall have the right of first refusal should the LESSOR decide to sell
the property during the term of the lease,"7 Reyes offered to sell the subject
property to Riviera, through its President Vicente C. Angeles, for Five
Thousand Pesos (P5,000.00) per square meter. However, Angeles bargained
for Three Thousand Five Hundred Pesos (P3,500.00) per square meter. Since
Reyes was not amenable to the said price and insisted on Five Thousand
Pesos (P5,000.00) per square meter, Angeles requested Reyes to allow him
to consult the other members of the Board of Directors of Riviera. 8
Seven (7) months later, or sometime in October 1988, Angeles
communicated with Reyes Riviera’s offer to purchase the subject property for
Four Thousand Pesos (P4,000.00) per square meter. However, Reyes did not
accept the offer. This time he asked for Six Thousand Pesos (P6,000.00) per
square meter since the value of the property in the area had appreciated in
view of the plans of Araneta to develop the vicinity. 9
In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as counsel
for Reyes, informed Riviera that Reyes was selling the subject property for
Six Thousand Pesos (P6,000.00) per square meter, net of capital gains and

transfer taxes, registration fees, notarial fees and all other attendant
charges. He further stated therein that:
In this connection, conformably to the provisions stipulated in
Paragraph/Item No. 11 of your CONTRACT OF LEASE (Doc. No. 365,
Page No. 63, Book No. X, Series of 1982, of the Notarial Registry of
Notary Public Leovillo S. Agustin), notice is served upon your
goodselves for you to exercise "the right of first refusal" in the sale
of said property, for which purpose you are hereby given a period of
ten (10) days from your receipt hereof within which to thus purchase
the same under the terms and conditions aforestated, and failing
which you shall be deemed to have thereby waived such pre-
emptive right and my client shall thereafter be absolutely free to sell
the subject property to interested buyers. 10
To answer the foregoing letter and confirm their telephone conversation on
the matter, Riviera sent a letter dated November 22, 1988 to Atty. Juan,
counsel for Reyes, expressing Riviera’s interest to purchase the subject
property and that Riviera is already negotiating with Reyes which will take a
couple of days to formalize.11 Riviera increased its offer to Five Thousand
Pesos (P5,000.00) per square meter but Reyes did not accede to said price
as it was still lower than his quoted price of Six Thousand Pesos (P6,000.00)
per square meter.12 Angeles asked Reyes to give him until the end of
November 1988 for Riviera’s final decision. 1âwphi1.nêt
In a letter dated December 2, 1988, Angeles wrote Reyes confirming
Riviera’s intent to purchase the subject property for the fixed and final13 price
of Five Thousand Pesos (P5,000.00) per square meter, complete payment
within sixty (60) to ninety (90) days which "offer is what we feel should be
the market price of your property." Angeles asked that the decision of Reyes
and his written reply to the offer be given within fifteen (15) days since there
are also other properties being offered to them at the moment.14
In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated
December 5, 1988 informing Riviera that Riviera’s offer is not acceptable to
his client. He further expressed, "let it be made clear that, much as it is the
earnest desire of my client to really give you the preference to purchase the
subject property, you have unfortunately failed to take advantage of such
opportunity and thus lost your right of first refusal in sale of said property."15
S a l e s P a r t V P a g e | 103
Meanwhile, on December 4, 1988, Reyes confided to Rolando P. Traballo, a
close family friend and President of Cypress, his predicament about the
nearing expiry date of the redemption period of the foreclosed mortgaged
property with Prudential Bank, the money for which he could not raise on
time thereby offering the subject property to him for Six Thousand Pesos
(P6,000.00) per square meter. Traballo expressed interest in buying the said
property, told Reyes that he will study the matter and suggested for them to
meet the next day.16
They met the next day, December 5, 1988, at which time Traballo bargained
for Five Thousand Three Hundred Pesos (P5,300.00) per square meter. After
considering the reasons cited by Traballo for his quoted price, Reyes
accepted the same. However, since Traballo did not have the amount with
which to pay Reyes, he told the latter that he will look for a partner for that
purpose.17 Reyes told Traballo that he had already afforded Riviera its right
of first refusal but they cannot agree because Riviera’s final offer was for
Five Thousand Pesos (P5,000.00) per square meter.18
Sometime in January 1989, apprehensive of the impending expiration in
March 1989 of the redemption period of the foreclosed mortgaged property
with Prudential Bank and the deal between Reyes and Traballo was not yet
formally concluded, Reyes decided to approach anew Riviera. For this
purpose, he requested his nephew, Atty. Estanislao Alinea, to approach
Angeles and find out if the latter was still interested in buying the subject
property and ask him to raise his offer for the purchase of the said property
a little higher. As instructed, Atty. Alinea met with Angeles and asked the
latter to increase his offer of Five Thousand Pesos (P5,000.00) per square
meter but Angeles said that his offer is Five Thousand Pesos (P5,000.00) per
square meter.19
Following the meeting, Angeles sent a letter dated February 4, 1989 to
Reyes, through Atty. Alinea, that his offer is Five Thousand Pesos
(P5,000.00) per square meter payment of which would be fifty percent
(50%) down within thirty (30) days upon submission of certain documents in
three (3) days, the balance payable in five (5) years in equal monthly
installments at twelve percent (12%) interest in diminishing balance. 20 With
the terms of this second offer, Angeles admittedly downgraded the previous
offer of Riviera on December 2, 1988.21
Atty. Alinea conveyed to Reyes Riviera’s offer of Five Thousand Pesos
(P5,000.00) per square meter but Reyes did not agree. Consequently, Atty.

Alinea contacted again Angeles and asked him if he can increase his price.
Angeles, however, said he cannot add anymore. 22 Reyes did not expressly
offer his subject property to Riviera at the price of Five Thousand Three
Hundred Pesos (₱5,300.00) per square meter.23
Sometime in February 1989, Cypress and its partner in the venture, Cornhill
Trading Corporation, were able to come up with the amount sufficient to
cover the redemption money, with which Reyes paid to the Prudential Bank
to redeem the subject property.24 On May 1, 1989, a Deed of Absolute Sale
covering the subject property was executed by Reyes in favor of Cypress and
Cornhill for the consideration of Five Million Three Hundred Ninety Five
Thousand Four Hundred Pesos (₱5,395,400.00). 25 On the same date, Cypress
and Cornhill mortgaged the subject property to Urban Development Bank for
Three Million Pesos (₱3,000,000.00). 26
Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of the
subject property to it claiming that its right of first refusal under the lease
contract was violated. After several unsuccessful attempts, 27 Riviera filed the
suit to compel Reyes, Cypress, Cornhill and Urban Development Bank to
transfer the disputed title to the land in favor of Riviera upon its payment of
the price paid by Cypress and Cornhill.
Following trial on the merits, the trial court dismissed the complaint of
Riviera as well as the counterclaims and cross-claims of the other parties.28 It
ruled that the defendants therein did not violate Riviera’s right of first
refusal, ratiocinating in this wise:
Resolving the first issue, this Court takes note that since the
beginning of the negotiation between the plaintiff and defendant
Reyes for the purchase of the property, in question, the plaintiff was
firm and steadfast in its position, expressed in writing by its
President Vicente Angeles, that it was not willing to buy the said
property higher than ₱5,000.00, per square meter, which was far
lower than the asking price of defendant Reyes for ₱6,000.00, per
square meter, undoubtedly, because, in its perception, it would be
difficult for other parties to buy the property, at a higher price than
what it was offering, since it is in occupation of the property, as
lessee, the term of which was to expire after about four (4) years
more.
S a l e s P a r t V P a g e | 104
On the other hand, it was obvious, upon the basis of the last ditch
effort of defendant Reyes, thru his nephew, Atty. Alinea, to have the
plaintiff buy the property, in question, that he was willing to sell the
said property at a price less than ₱6,000.00 and a little higher than
₱5,000.00, per square meter, precisely, because Atty. Alinea, in
behalf of his uncle, defendant Reyes, sought plaintiff’s Angeles and
asked him to raise his price a little higher, indicating thereby the
willingness of defendant Reyes to sell said property at less than his
offer of ₱6,000.00, per square meter.
This being the case, it can hardly be validly said by the plaintiff that
he was deprived of his right of first refusal to buy the subject
property at a price of ₱5,300.00, per square meter which is the
amount defendants Cypress/Cornhill bought the said property from
defendant Reyes. For, it was again given such an opportunity to
exercise its right of first refusal by defendant Reyes had it only
signified its willingness to increase a little higher its purchase price
above ₱5,000.00, per square meter, when its President, Angeles,
was asked by Atty. Alinea to do so, instead of adamantly sticking to
its offer of only ₱5,000.00 per square meter, by reason of which,
therefore, the plaintiff had lost, for the second time, its right of first
refusal, even if defendant Reyes did not expressly offer to sell to it
the subject land at ₱5,300.00, per square meter, considering that by
the plea of Atty. Alinea, in behalf of defendant Reyes, for it to
increase its price a little, the plaintiff is to be considered as having
forfeited again its right of first refusal, it having refused to budged
from its regid (sic) offer to buy the subject property at no more than
₱5,000.00, per square meter.
As such, this Court holds that it was no longer necessary for the
defendant Reyes to expressly and categorically offer to the plaintiff
the subject property at ₱5,300.00, per square meter, in order that
he can comply with his obligation to give first refusal to the plaintiff
as stipulated in the Contract of Lease, the plaintiff having had
already lost its right of first refusal, at the first instance, by refusing
to buy the said property at ₱6,000.00, per square meter, which was
the asking price of defendant Reyes, since to do so would be a
useless ceremony and would only be an exercise in futility,
considering the firm and unbending position of the plaintiff, which
defendant Reyes already knew, that the plaintiff, at any event, was
not amenable to increasing its price at over ₱5,000.00, per square
meter.

Dissatisfied with the decision of the trial court, both parties appealed to the
Court of Appeals.29 However, the appellate court, through its Special Seventh
Division, rendered a Decision dated June 6, 1994 which affirmed the decision
of the trial court in its entirety.30 In sustaining the decision of the trial court,
the Court of Appeals adopted the above-quoted ratiocination of the trial
court and further added:
To put things in its proper perspective in accordance with the
peculiar attendant circumstances herein, particular stress should be
given to RIVIERA’s uncompromising counter offer of only ₱5,000.00
per square meter on all the occasions when REYES offered the
subject property to it. RIVIERA, in its letter to REYES dated
December 2, 1988 (Exhibit "D", p. 68, Rollo) justified its rigid offer
by saying that "the above offer is what we feel should be the market
price of your property." If that be the case, We are convinced, the
same manner that REYES was, that RIVIERA was unwilling to
increase its counter offer at any present or future time. RIVIERA’s
unilateral valuation of the subject property thus binds him, it cannot
now be heard to claim that it could have upped its offer had it been
informed of CYPRESS’ and CORNHILL’S offer of ₱5,000.00 (sic) per
square meter. Defendants CYPRESS and CORNHILL were therefore
right in saying that:
On the basic assumption that RIVIERA really meant what it
said in its letter, DR. REYES could not be faulted for
believing that RIVIERA was definitely NOT WILLING TO PAY
MORE THAN P5,000.00 PER SQUARE METER ON HIS
PROPERTY. The fault lies with the deceptive and insincere
words of RIVIERA. Injustice (sic) and equity, RIVIERA must
be deemed in estoppel in now belatedly asserting that it
would have been willing to pay a price higher than
₱5,000.00 x x x." (Defendants-Appellees Cypress’ and
Cornhill’s Brief, p. 8)
For this reason, no adverse inference can be drawn from REYES’
failure to disclose to RIVIERA the intervening counter-offer of
CYPRESS and CORNHILL.
It would have been far different had REYES’ non-disclosure of
CYPRESS’ and CORNHILL’s counter-offer to RIVIERA resulted in the
sale of the subject property at equal or less than RIVIERA’s offer; in
S a l e s P a r t V P a g e | 105
which case, REYES would have been rightly accused of cunningly
circumventing RIVIERA’s right of first refusal. But the
incontrovertible antecedents obtaining here clearly reveal REYES’
earnest efforts in respecting RIVIERA’s contractual right to initially
purchase the subject property. Not only once – but twice – did
REYES approach RIVIERA, the last one being the most telling
indication of REYES’ sincerest intention in RIVIERA eventually
purchasing the subject property if only the latter would increase a
little its offer of ₱5,000.00 per square meter. And to this REYES was
desperately willing to accede to despite the financial quandary he
was then in as the expiration of the redemption period drew closer
and closer, and despite the better offer of CYPRESS and CORNHILL.
REYES unquestionably had displayed good faith. Can the same be
said of RIVIERA? We do not think so. It appears that RIVIERA all
along was trying to push REYES’ back against the wall, for RIVIERA
was well-aware of REYES’ precarious financial needs at that time,
and by clinging to its offer, REYES might eventually succumb to its
offer out of sheer desperation. RIVIERA was, to be frank,
whimsically exercising its contractual right to the prejudice of REYES
who had commendably given RIVIERA extra leeway in exercising it.
And to this We say that no amount of jurisprudence RIVIERA might
avail of for the purpose of construing the right of first refusal,
however enlightening and persuasive they may be, will cover-up for
its arrogant exercise of its right as can be gleaned from the factual
premises. Equity in this case tilts in favor of defendants REYES,
CYPRESS and CORNHILL that the consummated sale between them
concerning the subject property be given this Court’s imprimatur, for
if RIVIERA lost its opportunity to acquire it, it has only itself to
blame. For after all, REYES’ fundamental and intrinsic right of
ownership which necessarily carries with it the exclusive right to
dispose of it to whoever he pleases, must ultimately prevail over
RIVIERA’s right of first refusal which it unscrupulously tried to
exercise.
From this decision, Riviera filed a motion for reconsideration,31 but the
appellate court denied the same in a Resolution dated September 22, 1994.32
Hence, Riviera interposed the instant petition anchored on the following
errors:33
I

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE
OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS
JURISDICTION IN RULING THAT PETITIONER RIVIERA FILIPINA,
INC. ALREADY LOST ITS RIGHT OF FIRST REFUSAL.
II
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE
OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS
JURISDICTION IN NOT FINDING THAT IT WAS THE PETITIONER,
NOT RESPONDENT JUAN L. REYES, WHICH HAD BEEN
THOROUGHLY DECEIVED BY THE LATTER OUT OF ITS RIGHTS TO
ITS CONTINUING PREJUDICE.
III
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE
OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS
JURISDICTION IN DENYING RECONSIDERATION.
IV
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE
OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS
JURISDICTION IN DECIDING PETITIONER’S APPEAL AT A TIME
WHEN THE PRINCIPAL APPELLEE IS ALLEGEDLY DEAD AND NO
PROPER SUBSTITUTION OF THE ALLEGED DECEASED PARTY HAS
BEEN MADE; HENCE, THE DECISION OF THE COURT OF APPEALS
AND ITS RESOLUTION DENYING RECONSIDERATION, IS NULL AND
VOID.
At the outset, we note that, while Riviera alleges that the Court of Appeals
committed grave abuse of discretion amounting to lack or excess of
jurisdiction, the instant petition is, as it should be, treated as a petition for
review under Rule 45 and not as a special civil action for certiorari under
Rule 65 of the Revised Rules of Court, now the 1997 Rules of Civil
Procedure.
The distinctions between Rule 45 and 65 are far and wide, the most notable
of which is that errors of jurisdiction are best reviewed in a special civil
action for certiorari under Rule 65, while errors of judgment are correctible
S a l e s P a r t V P a g e | 106
only by appeal in a petition for review under Rule 45. 34 The rationale for the
distinction is simple. When a court exercises its jurisdiction an error
committed while so engaged does not deprive it of the jurisdiction being
exercised when the error is committed. If it did, every error committed by a
court would deprive it of its jurisdiction and every erroneous judgment would
be a void judgment. This cannot be allowed. The administration of justice
would not countenance such a rule. Thus, an error of judgment that the
court may commit in the exercise of its jurisdiction is not correctible through
the original special civil action of certiorari. 35 Appeal from a final disposition
of the Court of Appeals, as in the case at bar, is by way of a petition for
review under Rule 45.36
In the petition at bar, Riviera posits the view that its right of first refusal was
totally disregarded or violated by Reyes by the latter’s sale of the subject
property to Cypress and Cornhill. It contends that the right of first refusal
principally amounts to a right to match in the sense that it needs another
offer for the right to be exercised.
The concept and interpretation of the right of first refusal and the
consequences of a breach thereof evolved in Philippine juristic sphere only
within the last decade. It all started in 1992 with Guzman, Bocaling & Co.
v. Bonnevie37 where the Court held that a lease with a proviso granting the
lessee the right of first priority "all things and conditions being equal" meant
that there should be identity of the terms and conditions to be offered to the
lessee and all other prospective buyers, with the lessee to enjoy the right of
first priority. A deed of sale executed in favor of a third party who cannot be
deemed a purchaser in good faith, and which is in violation of a right of first
refusal granted to the lessee is not voidable under the Statute of Frauds but
rescissible under Articles 1380 to 1381 (3) of the New Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of
Appeals,38 the Court en banc departed from the doctrine laid down
in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a contract
of sale which violated the right of first refusal. The Court held that the so-
called "right of first refusal" cannot be deemed a perfected contract of sale
under Article 1458 of the New Civil Code and, as such, a breach thereof
decreed under a final judgment does not entitle the aggrieved party to a writ
of execution of the judgment but to an action for damages in a proper forum
for the purpose.

In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc.,39 the Court en banc reverted back to the doctrine
in Guzman Bocaling & Co. v. Bonnevie stating that rescission is a relief
allowed for the protection of one of the contracting parties and even third
persons from all injury and damage the contract may cause or to protect
some incompatible and preferred right by the contract.
Thereafter in 1997, in Parañaque Kings Enterprises, Inc. v. Court of
Appeals,40 the Court affirmed the nature of and the concomitant rights and
obligations of parties under a right of first refusal. The Court, summarizing
the rulings in Guzman, Bocaling & Co. v. Bonnevie and Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc., held that in order
to have full compliance with the contractual right granting petitioner the first
option to purchase, the sale of the properties for the price for which they
were finally sold to a third person should have likewise been first offered to
the former. Further, there should be identity of terms and conditions to be
offered to the buyer holding a right of first refusal if such right is not to be
rendered illusory. Lastly, the basis of the right of first refusal must be the
current offer to sell of the seller or offer to purchase of any prospective
buyer.
Thus, the prevailing doctrine is that a right of first refusal means identity of
terms and conditions to be offered to the lessee and all other prospective
buyers and a contract of sale entered into in violation of a right of first
refusal of another person, while valid, is rescissible.
However, we must remember that general propositions do not decide
specific cases. Rather, laws are interpreted in the context of the peculiar
factual situation of each proceeding. Each case has its own flesh and blood
and cannot be ruled upon on the basis of isolated clinical classroom
principles.41 Analysis and construction should not be limited to the words
used in the contract, as they may not accurately reflect the parties’ true
intent.42 The court must read a contract as the average person would read it
and should not give it a strained or forced construction.43
In the case at bar, the Court finds relevant and significant the cardinal rule in
the interpretation of contracts that the intention of the parties shall be
accorded primordial consideration and in case of doubt, their
contemporaneous and subsequent acts shall be principally
considered.44 Where the parties to a contract have given it a practical
construction by their conduct as by acts in partial performance, such
S a l e s P a r t V P a g e | 107
construction may be considered by the court in construing the contract,
determining its meaning and ascertaining the mutual intention of the parties
at the time for contracting. The parties’ practical construction of their
contract has been characterized as a clue or index to, or as evidence of, their
intention or meaning and as an important, significant, convincing,
persuasive, or influential factor in determining the proper construction of the
contract.45
An examination of the attendant particulars of the case do not persuade us
to uphold Riviera’s view. As clearly shown by the records and transcripts of
the case, the actions of the parties to the contract of lease, Reyes and
Riviera, shaped their understanding and interpretation of the lease provision
"right of first refusal" to mean simply that should the lessor Reyes decide to
sell the leased property during the term of the lease, such sale should first
be offered to the lessee Riviera. And that is what exactly ensued between
Reyes and Riviera, a series of negotiations on the price per square meter of
the subject property with neither party, especially Riviera, unwilling to budge
from his offer, as evidenced by the exchange of letters between the two
contenders.
It can clearly be discerned from Riviera’s letters dated December 2, 1988
and February 4, 1989 that Riviera was so intractable in its position and took
obvious advantage of the knowledge of the time element in its negotiations
with Reyes as the redemption period of the subject foreclosed property drew
near. Riviera strongly exhibited a "take-it or leave-it" attitude in its
negotiations with Reyes. It quoted its "fixed and final" price as Five
Thousand Pesos (P5,000.00) and not any peso more. It voiced out that it
had other properties to consider so Reyes should decide and make known its
decision "within fifteen days." Riviera, in its letter dated February 4, 1989,
admittedly, even downgraded its offer when Reyes offered anew the
property to it, such that whatever amount Reyes initially receives from
Riviera would absolutely be insufficient to pay off the redemption price of the
subject property. Naturally, Reyes had to disagree with Riviera’s highly
disadvantageous offer.
Nary a howl of protest or shout of defiance spewed forth from Riviera’s lips,
as it were, but a seemingly whimper of acceptance when the counsel of
Reyes strongly expressed in a letter dated December 5, 1989 that Riviera
had lost its right of first refusal. Riviera cannot now be heard that had it
been informed of the offer of Five Thousand Three Hundred Pesos
(P5,300.00) of Cypress and Cornhill it would have matched said price. Its

stubborn approach in its negotiations with Reyes showed crystal-clear that
there was never any need to disclose such information and doing so would
be just a futile effort on the part of Reyes. Reyes was under no obligation to
disclose the same. Pursuant to Article 1339 46 of the New Civil Code, silence
or concealment, by itself, does not constitute fraud, unless there is a special
duty to disclose certain facts, or unless according to good faith and the
usages of commerce the communication should be made. 47 We apply the
general rule in the case at bar since Riviera failed to convincingly show that
either of the exceptions are relevant to the case at bar.
In sum, the Court finds that in the interpretation of the right of first refusal
as understood by the parties herein, the question as to what is to be
included therein or what is meant by the same, as in all other provisions of
the contract, is for the parties and not for the court to determine, and this
question may not be resolved by what the parties might have provided had
they thought about it, which is evident from Riviera claims, or by what the
court might conclude regarding abstract fairness. 48
The Court would be rewriting the contract of Reyes and Riviera under the
guise of construction were we to interpret the right of first refusal as Riviera
propounds it, despite a contrary construction as exhibited by its actions. A
court, even the Supreme Court, has no right to make new contracts for the
parties or ignore those already made by them, simply to avoid seeming
hardships. Neither abstract justice nor the rule of liberal construction justifies
the creation of a contract for the parties which they did not make themselves
or the imposition upon one party to a contract of an obligation not
assumed.49
On the last error attributed to the Court of Appeals which is the effect on the
jurisdiction of the appellate court of the non-substitution of Reyes, who died
during the pendency of the appeal, the Court notes that when Riviera filed
its petition with this Court and assigned this error, it later filed on October
27, 1994 a Manifestation50 with the Court of Appeals stating that it has
discovered that Reyes is already dead, in view of which the appellate court
issued a Resolution dated December 16, 1994 which noted the manifestation
of Riviera and directed the counsel of Reyes to submit a copy of the latter’s
death certificate and to file the proper motion for substitution of
party.51 Complying therewith, the necessary motion for substitution of
deceased Reyes, who died on January 7, 1994, was filed by the heirs,
namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and
S a l e s P a r t V P a g e | 108
Fidel B. Reyes.52 Acting on the motion for substitution, the Court of Appeals
granted the same.53
Notwithstanding the foregoing, Section 1654 and 1755 of Rule 3 of the Revised
Rules of Court, upon which Riviera anchors its argument, has already been
amended by the 1997 Rules of Civil Procedure. 56 Even applying the old Rules,
the failure of a counsel to comply with his duty under Section 16 of Rule 3 of
the Revised Rules of Court, to inform the court of the death of his client and
no substitution of such is effected, will not invalidate the proceedings and
the judgment thereon if the action survives the death of such party, 57 as this
case does, since the death of Reyes did not extinguish his civil personality.
The appellate court was well within its jurisdiction to proceed as it did with
the case since the death of a party is not subject to its judicial notice.
Needless to stress, the purpose behind the rule on substitution of parties is
the protection of the right of every party to due process. This purpose has
been adequately met in this case since both parties argued their respective
positions through their pleadings in the trial court and the appellate court.
Besides, the Court has already acquired jurisdiction over the heirs of Reyes
by voluntarily submitting themselves to our jurisdiction.58
In view of all the foregoing, the Court is convinced that the appellate court
committed no reversible error in its challenged Decision.1âwphi1.nêt
WHEREFORE, the instant petition is hereby DENIED, and the Decision of
the Court of Appeals dated June 6, 1994 in CA-G.R. CV No. 26513
is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Bellosillo, Mendoza, and Quisumbing, JJ., concur.

G.R. No. 106837. August 4, 1993.*
HENRY MACION and ANGELES MACION, petitioners, vs. HON. JAPAL
M. GUIANI, in his capacity as Presiding Judge of the Regional Trial
Court Branch 14, Cotabato City and DELA VIDA INSTITUTE
represented by MS. JOSEPHINE LANZADERAS, respondents.
Obligations and Contracts; Interpretation of Contracts; Contemporaneous
and subsequent acts of parties considered.—The resolution of this case
hinges on whether the compromise agreement gives private respondent-
buyer the right to demand from petitioner-sellers the execution of a contract
to sell in favor of the former. Apparently, paragraph 7 of the compromise
agreement does not give such right to private respondent-buyer. x x x
However, in the interpretation of the compromise agreement, we must delve
into the contemporaneous and subsequent acts of the parties to fathom the
real intention of the parties. A review of the facts reveal that even prior to
the signing of the compromise agreement and the filing of Civil Case No. 592
before the trial court, the parties had already entered into a contract to sell.
Same; Contract to sell distinguished from contract of sale.—In our
jurisdiction, it has been held that an accepted bilateral promise to buy and
sell is in a sense similar to, but not exactly the same, as a perfected contract
of sale because there is already a meeting of minds upon the thing which is
the object of the contract and upon the price. But a contract of sale is
consummated only upon delivery and payment. It cannot be denied that the
compromise agreement, having been signed by both parties, is tantamount
to a bilateral promise to buy and sell a certain thing for a price certain.
Hence, this gives the contracting parties rights in personam, such that each
has the right to demand from the other the fulfillment of their respective
undertakings. Demandability may be exercised at any time after the
execution of the Deed. The order of respondent judge directing petitioners to
issue a contract to sell does not place petitioners in any danger of losing
their property without consideration, for, to repeat, in a contract to sell there
is no immediate transfer of ownership. In contracts to sell, payment is a
positive suspensive condition, failure of which does not constitute a breach
but an event that prevents the obligation of the vendor to convey title from
materializing, in accordance with Article 1184 of the Civil Code. Petitioners as
S a l e s P a r t V P a g e | 109
promisors were never obliged to convey title before the happening of the
suspensive condition. In fact, nothing stood in the way of their selling the
property to another after unsuccessful demand for said price upon the
expiration of the time agreed upon.
PETITION for certiorari of the order of the Regional Trial Court of Cotabato
City, Br. 14. Guiani, J.
The facts are stated in the opinion of the Court.
Leonardo J. Rendon for petitioners.
Mama Dalandag for private respondent Dela Vida Institute. Macion vs.
Guiani, 225 SCRA 102, G.R. No. 106837 August 4, 1993
ROMERO, J.:
The subject of this litigation revolves around two (2) parcels of adjoining lots
owned by petitioners which are the proposed extension sites of De La Vida
Institute, an educational institution located in Cotabato City.
On April 26, 1991, the petitioners and private respondent entered into a
contract to sell under which terms, private respondent, as president of De la
Vida Institute, assured petitioners that they would buy the said properties on
or before July 31, 1991 in the amount of P1,750,000.00. In the meantime,
petitioners surrendered the physical possession of the two lots to private
respondent who promptly built an edifice worth P800,000.00. 1
But on July 31, 1991, the sale did not materialize. Consequently, petitioners
filed a complaint for unlawful detainer against private respondent (MTCC Civil
Case No. 2739). In retaliation, private respondent filed a complaint for
reformation of the contract to sell executed on April 26, 1991 (Civil Case
592).2 Afterwards, the parties met to settle their differences.
On February 6, 1992, the parties entered into a compromise agreement
which stipulated among others that petitioners would give private
respondent five (5) months to raise the amount of P2,060,000.00; 3 that in
the event of failure to raise the said amount within the designated period,
private respondent would vacate the premises immediately. The compromise
agreement, inter alia, provided:

6. that upon the execution of this agreement, the defendant
will furnish the plaintiff with xerox copy of the land title for
each lot which the latter may use for the purpose of
providing information in securing a loan from any financing
or banking institution of their choice.
7. that if within the period of five (5) months from and after
February 6, 1992, the plaintiff succeeds in obtaining funds
for the purpose of settling their obligations with defendants
in the total sum of P2,060,000.00 the latter shall oblige
themselves to execute, sign and deliver to the former the
corresponding Deed of Sale for the two (2) lots which is the
subject of this case and turn-over to said plaintiff the
owner's duplicate copy of TCT Nos. T-22004 and T-22005 of
the Registry of Deeds for the City of Cotabato.
In affirmation of the compromise agreement, the Board of Trustees of De La
Vida College passed thereafter a resolution expressing full support to the
said agreement entered into between the parties.4
On March 10, 1992, private respondent wrote petitioners that "the
compromise agreement we have had in the presence of Judge Guiani is not
the same as per attached xerox copy you gave us." In that letter, which
essentially was a counter proposal, private respondent said that the price of
P2,060,000.00 was higher than they were willing to pay in the amount of
P2,000,000.00 only.5 Other matters taken up in the letter were: De la Vida
Institute would admit students and hold classes until July 6, 1992 but in case
they (private respondent) fail to deliver the said amount, they would
voluntarily vacate the premises and that "in the event that the bank and
other lending institutions give its nod and approval to our loan and require
the submission of other documents, you will give to us the Deed of Sale and
Owner's copies of the Titles of the two (2) to t expedite release of the
amount concerned."6
On March 25, 1992, the trial court approved the compromise agreement
dated February 6, 1992.
Two (2) months after, private respondents, alleging that they had negotiated
a loan from the Bank of the Philippine Islands, wrote letters dated May 19,
20 and 26 requesting petitioners to execute with them a contract to sell in
their favor. On May 28, 1992, private respondent filed with the trial court an
S a l e s P a r t V P a g e | 110
urgent motion for an order directing petitioners to execute a contract to sell
in private respondent's favor in accordance with paragraph 7 of the
compromise agreement.7
On July 8, 1992, petitioners filed a motion for execution of judgement
alleging that after a lapse of five (5) months from February 6, 1992, private
respondent have failed to settle their obligations with petitioners.8
In its order dated August 6, 1992, respondent judge denied the motion for
execution and directed petitioners to execute the required contract to sell in
favor of private respondent. Respondent judge opined that the proximate
cause of private respondent's failure to comply with the compromise
agreement was the refusal of petitioners to execute a contract to sell as
required under the agreement. Respondent judge added that petitioners
should have executed the contract to sell because anyway they would not be
prejudiced since there was no transfer of ownership involved in a contract to
sell.9
Hence this instant petition for certiorari, with prayer for a temporary
restraining order enjoining respondent judge from enforcing its August 6,
1992 order.
On October 7, 1992, petitioners filed an Omnibus Urgent Motion praying that
private respondent be ordered to consign with the court below P135,000.00
representing rentals from May 1991 to January 1992. In our resolution dated
November 18, 1992, we granted said prayer. On March 9, 1992, private
respondent consigned with the Office of the Clerk of Court the sum of
P135,000.00. On March 29, 1993, petitioners filed with the lower court a
motion to withdraw the consigned amount and on April 5, 1993, the trial
court released the consigned amount to petitioners. 10
The issue in the case at bar is whether or not respondent judge committed
grave abuse of discretion in ordering petitioner to execute a contract to sell
in favor of private respondent.
We dismiss the petition.
The resolution of this case hinges on whether the compromise agreement
gives private respondent-buyer the right to demand from petitioner-sellers
the execution of a contract to sell in favor of the former.

Apparently, paragraph 7 of the compromise agreement does not give such
right to private respondent-buyer. To wit:
7. that if within the period of five (5) months from and after
February 6, 1992, the plaintiff succeeds in obtaining funds
for the purpose of settling their obligations with defendants
in the total sum of P2,060,000.00 the latter shall oblige
themselves to execute, sign and deliver to the former the
corresponding Deed of Sale for the two (2) lots which is the
subject of this case and turn-over to said plaintiff the
owner's duplicate copy of TCT Nos. T-22004 and T-22005 of
the Registry of Deeds for the City of Cotabato. (Italics
provided).
From the aforecited paragraph, it is clear that the seller is obliged to execute
a Deed of Sale and not a Contract to Sell upon payment of the full price of
P2.06 million. Thereafter, the sellers would turn over to the buyers,
respondents herein, the owner's duplicate copy of Transfer Certificate of Title
Nos. T-22004 and T-22005.
However, in the interpretation of the compromise agreement, we must delve
in the contemporaneous and subsequent acts of the parties to fathom the
real intention of the parties. 11 A review of the facts reveal that even prior to
the signing of the compromise agreement and the filing of Civil Case No. 592
before the trial court, the parties had already entered into a contract to sell.
Thereafter, when the transaction failed to materialize, the parties filed suits
against each other; petitioners, their unlawful detainer case, and private
respondent a complaint for reformation of contract, alleging that petitioners
in fact had caused the preparation of the contract to sell dated April 26, 1991
with the understanding that the land would be used as a collateral in
obtaining a loan with DBP.
Said contract to sell was superseded by the compromise agreement entered
into on February 6, 1992 containing the abovequoted paragraph. It must be
recalled that private respondent was given five (5) months from February 6,
1992, i. e., on or before July 6, 1992 to secure the purchase price of the two
(2) lots. We note that within the time frame agreed upon by the parties,
private respondents wrote three (3) letters dated may 19, 20 and 26
requesting petitioners to execute a contract to sell in its favor.
S a l e s P a r t V P a g e | 111
Under these factual circumstances, we opine that the compromise
agreement must be interpreted as bestowing upon private respondent-buyer
the power to demand a contract to sell from petitioner-sellers. Where the
seller promised to execute a deed of absolute sale upon completing payment
of the price, it is a contract to sell. 12 In the case at bar, the sale is still in the
executory stage since the passing of title is subject to a suspensive
condition, namely, that if private respondent is able to secure the needed
funds to be used in the purchased of the two (2) lots owned by petitioners. A
mere executory sale, one where the sellers merely promise to transfer the
property at some future date, or where some conditions have to be fulfilled
before the contract is converted from an executory to an executed one, does
not pass ownership over the real estate being sold. 13
In our jurisdiction, it has been that an accepted bilateral promise to buy and
sell is in a sense similar to, but not exactly the same, as a perfected contract
of sale because there is already a meeting of minds upon the thing which is
the object of the contract and upon the price. 14 But a contract of sale is
consummated only upon the delivery and payment. It cannot be denied that
the compromise agreement, having been signed by both parties, is
tantamount to a bilateral promise to buy and sell a certain thing for a price
certain. Hence, this gives the contracting parties rights in personam, such
that each has the right to demand from the other the fulfillment of their
respective undertakings. 15 Demandability may be exercised at any time after
the execution of the Deed. 16
The order of respondent judge directing petitioners to issue a contract to sell
does not place petitioners in any danger of losing their property without
consideration, for, to repeat, in a contract to sell there is no immediate
transfer of ownership. In contracts to sell, payment is a positive suspensive
condition, failure of which does not constitute a breach but an event that
prevents the obligation of the vendor to convey title from materializing, in
accordance with Article 1184 of the Civil Code. 17 Petitioners as promisors
were never obliged to convey title before the happening of the suspensive
condition. In fact, nothing stood in the way of their selling the property to
another after a unsuccessful demand for said price upon the expiration of
the time agreed upon.
Since the period given by the petitioners under the compromise agreement
has already lapsed, we order the trial court to fix anew a period within which
private respondents could secure the needed funds for the purchase of the
land. 18 Moreover, considering that private respondents have only consigned
 S a l e s P a r t V P a g e | 112

rentals from May 1991 to January 1992 and have since accepted students for
the present school year, it is only proper that they be ordered to deposit the
monthly rentals collected thereafter with the trial court.

WHEREFORE, the instant petition is DISMISSED. Petitioners are hereby

ordered to EXECUTE a contract to sell in favor of private respondents. On the
other hand, private respondent is ordered to DEPOSIT with the trial court
current rentals pending consummation of the transaction between the
parties. The trial court is ordered to FIX anew the period within which private
respondents may be given the opportunity to raise funds for the purchase of
the two (2) adjoining lots owned by petitioners.

SO ORDERED.

No. L-26872. July 25, 1975.*
VILLONCO REALTY COMPANY, plaintiff-appellee and EDITH PEREZ
DE TAGLE, intervenor-appellee, vs. BORMAHECO, INC., FRANCISCO
N. CERVANTES and ROSARIO N. CERVANTES, defendants-
appellants.
Sales; Definition of.—By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its
equivalent. A contract of sale may be absolute or conditional.
Same; Requisites for perfection of.—The contract of sale is perfected at the
moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price. From that moment, the parties may
reciprocally demand performance, subject to the provisions of the law
governing the form of contracts.
Same; Same; Consent.—Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer. An acceptance may be express or
implied.
Same; Same; Offer and acceptance; Acceptance which contains request for
changes in offer but does not essentially change terms of offer does not
constitute a counter-offer.—It is true that an acceptance may contain a
request for certain changes in the terms of the offer and yet be a binding
acceptance. So long as it is clear that the meaning of the acceptance is
positively and unequivocally to accept the offer, whether such request is
granted or not, a contract is formed. The vendor’s change in a phrase of the
offer to purchase, which change does not essentially change the terms of the
offer, does not amount to a rejection of the offer and the tender of a
counter-offer.
Same; Payment of earnest money as part of price and as proof of perfection
of contract.—The controlling fact is that there was agreement between the
parties on the subject matter, the price and the mode of payment and that
S a l e s P a r t V P a g e | 113
part of the price was paid. Whenever earnest money is given in a contract of
sale, it shall be considered as part of the price and as proof of the perfection
of the contract.
Same; Sale subject to negative resolutory condition.—The vendor’s
acceptance of the part payment of one hundred thousand pesos shows that
the sale was conditionally consummated or partly executed subject to the
purchase by the vendor of the Punta property. The nonconsummation of that
purchase would be a negative resolutory condition.
Same; Obligations arising from contracts have force of low; Compliance in
good faith with obligations; Case at bar.—Obligations arising from contracts
have the force of law between the contracting parties and should be
complied with in good faith. Inasmuch as the sale was perfected and even
partly executed, the vendors as a matter of justice and good faith, are bound
to comply with their contractual commitments.
Pleadings and practice; Defenses not pleaded deemed waived; Case at
bar.—The defense that the vendor’s wife opposed the sale must have been
an afterthought or was evolved post litem motam since it was never
disclosed in the husband’s letter of rescission and in his letter to the real
estate broker. Moreover, the vendor’s wife did not testify at the trial to fortify
that defense which had already been waived for not having been pleaded.
Attorney’s fees; Recovery of; Case at bar.—It is evident that the vendor
acted in gross and evident bad faith in refusing to satisfy the valid and just
demand of the vendee for specific performance. It compelled the vendee to
incur expenses to protect its interest. Moreover, this is a case where it is just
and equitable that the plaintiff should recover attorney’s fees.
APPEAL from a decision of the Court of First Instance of Rizal. Andres Reyes,
J.
The facts are stated in the opinion of the Court.
Meer, Meer & Meer for plaintiff-appellee.
J. Villareal, Navarra & Associates for defendants-appellants.
 S a l e s P a r t V P a g e | 114

P. P. Gallardo & Associates for intervenor-appellee. Villonco Realty accompanied by Edith Perez de Tagle, discussed again the terms of the sale
Company vs. Bormaheco, Inc., 65 SCRA 352, No. L-26872 July 25, 1975 with Villonco.

AQUINO, J.:
This action was instituted by Villonco Realty Company against Bormaheco,
Inc. and the spouses Francisco N. Cervantes and Rosario N. Cervantes for
the specific performance of a supposed contract for the sale of land and the
improvements thereon for one million four hundred thousand pesos. Edith
Perez de Tagle, as agent, intervened in order to recover her commission.
The lower court enforced the sale. Bormaheco, Inc. and the Cervantes
spouses, as supposed vendors, appealed.
During the negotiations, Villonco Realty Company assumed that the lots
belonged to Bormaheco, Inc. and that Cervantes was duly authorized to sell
the same. Cervantes did not disclose to the broker and to Villonco Realty
Company that the lots were conjugal properties of himself and his wife and
that they were mortgaged to the DBP.
Bormaheco, Inc., through Cervantes, made a written offer dated February
12, 1964, to Romeo Villonco for the sale of the property. The offer reads
(Exh. B):

This Court took cognizance of the appeal because the amount involved is BORMAHECO, INC.
more than P200,000 and the appeal was perfected before Republic Act No.
5440 took effect on September 9, 1968. The facts are as follows: February 12,1964

Francisco N. Cervantes and his wife, Rosario P. Navarra-Cervantes, are the Mr. Romeo
owners of lots 3, 15 and 16 located at 245 Buendia Avenue, Makati, Rizal Villonco Villonco Building
with a total area of three thousand five hundred square meters (TCT Nos. Buendia Avenue
43530, 43531 and 43532, Exh. A, A-1 and A-2). The lots were mortgaged to Makati, Rizal.
the Development Bank of the Phil (DBP) on April 21, 1959 as security for a
loan of P441,000. The mortgage debt was fully paid on July 10, 1969. Dear Mr. Villonco:

Cervantes is the president of Bormaheco, Inc., a dealer and importer of This is with reference to our telephone conversation this
industrial and agricultural machinery. The entire lots are occupied by the noon on the matter of the sale of our propertylocated at
building, machinery and equipment of Bormaheco, Inc. and are adjacent to Buendia Avenue, with a total area of 3,500 sq. m., under the
the property of Villonco Realty Company situated at 219 Buendia Avenue. following conditions:

In the early part of February, 1964 there were negotiations for the sale of (1) That we are offering to sell to you the
the said lots and the improvements thereon between Romeo Villonco of above property at the price of P400.00 per
Villonco Realty Company "and Bormaheco, Inc., represented by its president, square meter;
Francisco N. Cervantes, through the intervention of Edith Perez de Tagle, a
real estate broker". (2) That a deposit of P100,000.00 must be
placed as earnest money on the purchase of
In the course of the negotiations, the brothers Romeo Villonco and Teofilo the above property which will become part
Villonco conferred with Cervantes in his office to discuss the price and terms payment of the property in the event that
of the sale. Later, Cervantes "went to see Villonco for the same reason until the sale is consummated;
some agreement" was arrived at. On a subsequent occasion, Cervantes,

(3) That this sale is to be consummated only
after I shall have also consummated my
purchase of another property located at Sta.
Ana, Manila;
(4) That if my negotiations with said
property will not be consummated by reason
beyond my control, I will return to you your
deposit of P100,000 and the sale of my
property to you will not also be
consummated; and
(5) That final negotiations on both
properties can be definitely known after 45
days.
If the above terms is (are) acceptable to your Board, please
issue out the said earnest money in favor of Bormaheco,
Inc., and deliver the same thru the bearer, Miss Edith Perez
de Tagle.
Very truly yours,
SGD. FRANCISCO N. CERVANTES
President
The property mentioned in Bormaheco's letter was the land of the National
Shipyards & Steel Corporation (Nassco), with an area of twenty thousand
square meters, located at Punta, Sta. Ana, Manila. At the bidding held on
January 17, 1964 that land was awarded to Bormaheco, Inc., the highest
bidder, for the price of P552,000. The Nassco Board of Directors in its
resolution of February 18, 1964 authorized the General Manager to sign the
necessary contract (Exh. H).
On February 28, 1964, the Nassco Acting General Manager wrote a letter to
the Economic Coordinator, requesting approval of that resolution. The Acting
Economic Coordinator approved the resolution on March 24, 1964 (Exh. 1).
In the meanwhile, Bormaheco, Inc. and Villonco Realty Company continued
their negotiations for the sale of the Buendia Avenue property. Cervantes
and Teofilo Villonco had a final conference on February 27, 1964. As a result
S a l e s P a r t V P a g e | 115
of that conference Villonco Realty Company, through Teofilo Villonco, in its
letter of March 4, 1964 made a revised counter- offer (Romeo Villonco's first
counter-offer was dated February 24, 1964, Exh. C) for the purchase of the
property. The counter-offer was accepted by Cervantes as shown in Exhibit
D, which is quoted below:
VILLONCO REALTY COMPANY
V. R. C. Building
219 Buendia Avenue, Makati,
Rizal, Philippines
March 4, 1964
Mr. Francisco Cervantes.
Bormaheco, Inc.
245 Buendia Avenue
Makati, Rizal
Dear Mr. Cervantes:
In reference to the letter of Miss E. Perez de Tagle dated
February 12th and 26, 1964 in respect to the terms and
conditions on the purchase of your property located at
Buendia Ave., Makati, Rizal, with a total area of 3,500 sq.
meters., we hereby revise our offer, as follows:
1. That the price of the property shall be P400.00 per sq. m.,
including the improvements thereon;
2. That a deposit of P100,000.00 shall be given to you as
earnest money which will become as part payment in the
event the sale is consummated;
3. This sale shall be cancelled, only if your deal with another
property in Sta. Ana shall not be consummated and in such
case, the P100,000-00 earnest money will be returned to us
with a 10% interest p.a. However, if our deal with you is
finalized, said P100,000.00 will become as part payment for
the purchase of your property without interest:

4. The manner of payment shall be as follows:
a. P100,000.00 earnest money and
650,000.00 as part of the down payment, or
P750,000.00 as total down payment
b. The balance is payable as follows:
P100,000.00 after 3 months
125,000.00 -do-
212,500.00 -do-
P650,000.00 Total
As regards to the other conditions which we have discussed
during our last conference on February 27, 1964, the same
shall be finalized upon preparation of the contract to sell.*
If the above terms and conditions are acceptable to you,
kindly sign your conformity hereunder. Enclosed is our check
for ONE HUNDRED THOUSAND (P100,000.00) PESOS, MBTC
Check No. 448314, as earnest money.
Very truly yours,
VILLONCO REALTY COMPANY
(Sgd.) TEOFILO VILLONCO
CONFORME:
BORMAHECO, INC.
(Sgd.) FRANCISCO CERVANTES
That this sale shall be subject to favorable consummation of
a property in Sta. Ana we are negotiating.
(Sgd.) FRANCISCO CERVANTES
The check for P100,000 (Exh. E) mentioned in the foregoing letter-contract
was delivered by Edith Perez de Tagle to Bormaheco, Inc. on March 4, 1964
and was received by Cervantes. In the voucher-receipt evidencing the
delivery the broker indicated in her handwriting that the earnest money was
S a l e s P a r t V P a g e | 116
"subject to the terms and conditions embodied in Bormaheco's letter" of
February 12 and Villonco Realty Company's letter of March 4, 1964 (Exh. E-
1; 14 tsn).
Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six days
after the signing of the contract of sale, Exhibit D, Cervantes returned the
earnest money, with interest amounting to P694.24 (at ten percent per
annum). Cervantes cited as an excuse the circumstance that "despite the
lapse of 45 days from February 12, 1964 there is no certainty yet" for the
acquisition of the Punta property (Exh. F; F-I and F-2). Villonco Realty
Company refused to accept the letter and the checks of Bormaheco, Inc.
Cervantes sent them by registered mail. When he rescinded the contract, he
was already aware that the Punta lot had been awarded to Bormaheco, Inc.
(25-26 tsn).
Edith Perez de Tagle, the broker, in a letter to Cervantes dated March 31,
1964 articulated her shock and surprise at Bormaheco's turnabout. She
reviewed the history of the deal and explained why Romeo Villonco could not
agree to the rescission of the sale (Exh. G).**
Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter, alleged
that the forty-five day period had already expired and the sale to
Bormaheco, Inc. of the Punta property had not been consummated.
Cervantes said that his letter was a "manifestation that we are no longer
interested to sell" the Buendia Avenue property to Villonco Realty Company
(Annex I of Stipulation of Facts). The latter was furnished with a copy of that
letter.
In a letter dated April 7, 1964 Villonco Realty Company returned the two
checks to Bormaheco, Inc., stating that the condition for the cancellation of
the contract had not arisen and at the same time announcing that an action
for breach of contract would be filed against Bormaheco, Inc. (Annex G of
Stipulation of Facts).1äwphï1.ñët
On that same date, April 7, 1964 Villonco Realty Company filed the complaint
(dated April 6) for specific performance against Bormaheco, Inc. Also on that
same date, April 7, at eight-forty-five in the morning, a notice of lis
pendens was annotated on the titles of the said lots.
Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded the
defense that the perfection of the contract of sale was subject to the

conditions (a) "that final acceptance or not shall be made after 45 days" (sic)
and (b) that Bormaheco, Inc. "acquires the Sta. Ana property".
On June 2, 1964 or during the pendency of this case, the Nassco Acting
General Manager wrote to Bormaheco, Inc., advising it that the Board of
Directors and the Economic Coordinator had approved the sale of the Punta
lot to Bormaheco, Inc. and requesting the latter to send its duly authorized
representative to the Nassco for the signing of the deed of sale (Exh. 1).
The deed of sale for the Punta land was executed on June 26, 1964.
Bormaheco, Inc. was represented by Cervantes (Exh. J. See Bormaheco, Inc.
vs. Abanes, L-28087, July 31, 1973, 52 SCRA 73).
In view of the disclosure in Bormaheco's amended answer that the three lots
were registered in the names of the Cervantes spouses and not in the name
of Bormaheco, Inc., Villonco Realty Company on July 21, 1964 filed an
amended complaint impleading the said spouses as defendants. Bormaheco,
Inc. and the Cervantes spouses filed separate answers.
As of January 15, 1965 Villonco Realty Company had paid to the
Manufacturers' Bank & Trust Company the sum of P8,712.25 as interests on
the overdraft line of P100,000 and the sum of P27.39 as interests daily on
the same loan since January 16, 1965. (That overdraft line was later settled
by Villonco Realty Company on a date not mentioned in its manifestation of
February 19, 1975).
Villonco Realty Company had obligated itself to pay the sum of P20,000 as
attorney's fees to its lawyers. It claimed that it was damaged in the sum of
P10,000 a month from March 24, 1964 when the award of the Punta lot to
Bormaheco, Inc. was approved. On the other hand, Bormaheco, Inc. claimed
that it had sustained damages of P200,000 annually due to the notice of lis
pendens which had prevented it from constructing a multi-story building on
the three lots. (Pars. 18 and 19, Stipulation of Facts). 1äwphï1.ñët
Miss Tagle testified that for her services Bormaheco, Inc., through
Cervantes, obligated itself to pay her a three percent commission on the
price of P1,400,000 or the amount of forty-two thousand pesos (14 tsn).
After trial, the lower court rendered a decision ordering the Cervantes
spouses to execute in favor of Bormaheco, Inc. a deed of conveyance for the
three lots in question and directing Bormaheco, Inc. (a) to convey the same
S a l e s P a r t V P a g e | 117
lots to Villonco Realty Company, (b) to pay the latter, as consequential
damages, the sum of P10,000 monthly from March 24, 1964 up to the
consummation of the sale, (c) to pay Edith Perez de Tagle the sum of
P42,000 as broker's commission and (d) pay P20,000 as to attorney's fees
(Civil Case No. 8109).
Bormaheco, Inc. and the Cervantes spouses appealed. Their principal
contentions are (a) that no contract of sale was perfected because Cervantes
made a supposedly qualified acceptance of the revised offer contained in
Exhibit D, which acceptance amounted to a counter-offer, and because the
condition that Bormaheco, inc. would acquire the Punta land within the forty-
five-day period was not fulfilled; (2) that Bormaheco, Inc. cannot be
compelled to sell the land which belongs to the Cervantes spouses and (3)
that Francisco N. Cervantes did not bind the conjugal partnership and his
wife when, as president of Bormaheco, Inc., he entered into negotiations
with Villonco Realty Company regarding the said land.
We hold that the appeal, except as to the issue of damages, is devoid of
merit.
"By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determining thing, and the other
to pay therefor a price certain in money or its equivalent. A contract of sale
may be absolute or conditional" (Art. 1458, Civil Code).
"The contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price. From
that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts" (Art. 1475, Ibid.).
"Contracts are perfected by mere consent, and from that moment the parties
are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law" (Art. 1315, Civil Code).
"Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer" (Art. 1319, Civil Code). "An acceptance may be express or
implied" (Art. 1320, Civil Code).

Bormaheco's acceptance of Villonco Realty Company's offer to purchase the
Buendia Avenue property, as shown in Teofilo Villonco's letter dated March
4, 1964 (Exh. D), indubitably proves that there was a meeting of minds upon
the subject matter and consideration of the sale. Therefore, on that date the
sale was perfected. (Compare with McCullough vs. Aenlle & Co., 3 Phil. 285;
Goyena vs. Tambunting, 1 Phil. 490). Not only that Bormaheco's acceptance
of the part payment of one hundred ,thousand pesos shows that the sale
was conditionally consummated or partly executed subject to the purchase
by Bormaheco, Inc. of the Punta property. The nonconsummation of that
purchase would be a negative resolutory condition (Taylor vs. Uy Tieng Piao,
43 Phil. 873).
On February 18, 1964 Bormaheco's bid for the Punta property was already
accepted by the Nassco which had authorized its General Manager to sign
the corresponding deed of sale. What was necessary only was the approval
of the sale by the Economic Coordinator and a request for that approval was
already pending in the office of that functionary on March 4, 1964.
Bormaheco, Inc. and the Cervantes spouses contend that the sale was not
perfected because Cervantes allegedly qualified his acceptance of Villonco's
revised offer and, therefore, his acceptance amounted to a counter-offer
which Villonco Realty Company should accept but no such acceptance was
ever transmitted to Bormaheco, Inc. which, therefore, could withdraw its
offer.
That contention is not well-taken. It should be stressed that there is no
evidence as to what changes were made by Cervantes in Villonco's revised
offer. And there is no evidence that Villonco Realty Company did not assent
to the supposed changes and that such assent was never made known to
Cervantes.
What the record reveals is that the broker, Miss Tagle, acted as intermediary
between the parties. It is safe to assume that the alleged changes or
qualifications made by Cervantes were approved by Villonco Realty Company
and that such approval was duly communicated to Cervantes or Bormaheco,
Inc. by the broker as shown by the fact that Villonco Realty Company paid,
and Bormaheco, Inc. accepted, the sum of P100,000 as earnest money or
down payment. That crucial fact implies that Cervantes was aware that
Villonco Realty Company had accepted the modifications which he had made
in Villonco's counter-offer. Had Villonco Realty Company not assented to
those insertions and annotations, then it would have stopped payment on its
S a l e s P a r t V P a g e | 118
check for P100,000. The fact that Villonco Realty Company allowed its check
to be cashed by Bormaheco, Inc. signifies that the company was in
conformity with the changes made by Cervantes and that Bormaheco, Inc.
was aware of that conformity. Had those insertions not been binding, then
Bormaheco, Inc. would not have paid interest at the rate of ten percent per
annum, on the earnest money of P100,000.
The truth is that the alleged changes or qualifications in the revised counter
— offer (Exh. D) are not material or are mere clarifications of what the
parties had previously agreed upon.
Thus, Cervantes' alleged insertion in his handwriting of the figure and the
words "12th and" in Villonco's counter-offer is the same as the statement
found in the voucher-receipt for the earnest money, which reads: "subject to
the terms and conditions embodied in Bormaheco's letter of Feb. 12, 1964
and your letter of March 4, 1964" (Exh. E-1).
Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of
Villonco's revised counter-offer and substituted for it the word "another" so
that the original phrase, "Nassco's property in Sta. Ana", was made to read
as "another property in Sta. Ana". That change is trivial. What Cervantes did
was merely to adhere to the wording of paragraph 3 of Bormaheco's original
offer (Exh. B) which mentions "another property located at Sta. Ana." His
obvious purpose was to avoid jeopardizing his negotiation with the Nassco
for the purchase of its Sta. Ana property by unduly publicizing it.
It is noteworthy that Cervantes, in his letter to the broker dated April 6, 1964
(Annex 1) or after the Nassco property had been awarded to Bormaheco,
Inc., alluded to the "Nassco property". At that time, there was no more need
of concealing from the public that Bormaheco, Inc. was interested in the
Nassco property.
Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum) after
the word "interest" in that same paragraph 3 of the revised counter-offer
(Exh. D) could not be categorized as a major alteration of that counter-offer
that prevented a meeting of the minds of the parties. It was understood that
the parties had contemplated a rate of ten percent per annum since ten
percent a month or semi-annually would be usurious.
Appellants Bormaheco, Inc. and Cervantes further contend that Cervantes, in
clarifying in the voucher for the earnest money of P100,000 that

Bormaheco's acceptance thereof was subject to the terms and conditions
embodied in Bormaheco's letter of February 12, 1964 and your (Villonco's)
letter of March 4, 1964" made Bormaheco's acceptance "qualified and
conditional".
That contention is not correct. There is no incompatibility between
Bormaheco's offer of February 12, 1964 (Exh. B) and Villonco's counter-offer
of March 4, 1964 (Exh. D). The revised counter-offer merely amplified
Bormaheco's original offer.
The controlling fact is that there was agreement between the parties on the
subject matter, the price and the mode of payment and that part of the price
was paid. "Whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the contract"
(Art. 1482, Civil Code).
"It is true that an acceptance may contain a request for certain changes in
the terms of the offer and yet be a binding acceptance. 'So long as it is clear
that the meaning of the acceptance is positively and unequivocally to accept
the offer, whether such request is granted or not, a contract is formed.' "
(Stuart vs. Franklin Life Ins. Co., 165 Fed. 2nd 965, citing Sec. 79, Williston
on Contracts).
Thus, it was held that the vendor's change in a phrase of the offer to
purchase, which change does not essentially change the terms of the offer,
does not amount to a rejection of the offer and the tender of a counter-offer
(Stuart vs. Franklin Life Ins. Co., supra).
The instant case is not governed by the rulings laid down in Beaumont vs.
Prieto, 41 Phil. 670, 985, 63 L. Ed. 770, and Zayco vs. Serra, 44 Phil. 326. In
those two cases the acceptance radically altered the offer and, consequently,
there was no meeting of the minds of the parties.
Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo Zayco his
sugar central for P1,000,000 on condition that the price be paid in cash, or, if
not paid in cash, the price would be payable within three years provided
security is given for the payment of the balance within three years with
interest. Zayco, instead of unconditionally accepting those terms, countered
that he was going to make a down payment of P100,000, that Serra's
mortgage obligation to the Philippine National Bank of P600,000 could be
transferred to Zayco's account and that he (plaintiff) would give a bond to
S a l e s P a r t V P a g e | 119
secure the payment of the balance of the price. It was held that the
acceptance was conditional or was a counter-offer which had to be accepted
by Serra. There was no such acceptance. Serra revoked his offer. Hence,
there was no perfected contract.
In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan
Hacienda owned by Benito Legarda, who had empowered Valdes to sell it.
Borck was given three months from December 4, 1911 to buy the hacienda
for P307,000. On January 17, 1912 Borck wrote to Valdes, offering to
purchase the hacienda for P307,000 payable on May 1, 1912. No reply was
made to that letter. Borck wrote other letters modifying his proposal.
Legarda refused to convey the property.
It was held that Borck's January 17th letter plainly departed from the terms
of the offer as to the time of payment and was a counter-offer which
amounted to a rejection of Valdes' original offer. A subsequent unconditional
acceptance could not revive that offer.
The instant case is different from Laudico and Harden vs. Arias Rodriguez,
43 Phil. 270 where the written offer to sell was revoked by the offer or
before the offeree's acceptance came to the offeror's knowledge.
Appellants' next contention is that the contract was not perfected because
the condition that Bormaheco, Inc. would acquire the Nassco land within
forty-five days from February 12, 1964 or on or before March 28, 1964 was
not fulfilled. This contention is tied up with the following letter of
Bormaheco, Inc. (Exh. F):
BORMAHECO, INC.
March 30, 1964
Villonco Realty Company
V.R.C. Building
219 Buendia Ave.,
Makati, Rizal
Gentlemen:

We are returning herewith your earnest money together
with interest thereon at 10% per annum. Please be informed
that despite the lapse of the 45 days from February 12, 1964
there is no certainty yet for us to acquire a substitute
property, hence the return of the earnest money as agreed
upon.
Very truly yours,
SGD. FRANCISCO N. CERVANTES
President
Encl.: P.N.B. Check No. 112994 J
P.N.B. Check No. 112996J
That contention is predicated on the erroneous assumption that Bormaheco,
Inc. was to acquire the Nassco land within forty-five days or on or before
March 28, 1964.
The trial court ruled that the forty-five-day period was merely an estimate or
a forecast of how long it would take Bormaheco, Inc. to acquire the Nassco
property and it was not "a condition or a deadline set for the defendant
corporation to decide whether or not to go through with the sale of its
Buendia property".
The record does not support the theory of Bormaheco, Inc. and the
Cervantes spouses that the forty-five-day period was the time within which
(a) the Nassco property and two Pasong Tamo lots should be acquired, (b)
when Cervantes would secure his wife's consent to the sale of the three lots
and (c) when Bormaheco, Inc. had to decide what to do with the DBP
encumbrance.
Cervantes in paragraph 3 of his offer of February 12, 1964 stated that the
sale of the Buendia lots would be consummated after he had consummated
the purchase of the Nassco property. Then, in paragraph 5 of the same offer
he stated "that final negotiations on both properties can be definitely
known after forty-five days" (See Exh. B).
It is deducible from the tenor of those statements that the consummation of
the sale of the Buendia lots to Villonco Realty Company was conditioned on
Bormaheco's acquisition of the Nassco land. But it was not spelled out that
S a l e s P a r t V P a g e | 120
such acquisition should be effected within forty-five days from February 12,
1964. Had it been Cervantes' intention that the forty-five days would be the
period within which the Nassco land should be acquired by Bormaheco, then
he would have specified that period in paragraph 3 of his offer so that
paragraph would read in this wise: "That this sale is to be consummated only
after I shall have consummated my purchase of another property located at
Sta. Ana, Manila within forty-five days from the date hereof ." He could have
also specified that period in his "conforme" to Villonco's counter-offer of
March 4, 1964 (Exh. D) so that instead of merely stating "that this sale shall
be subject to favorable consummation of a property in Sta. Ana we are
negotiating" he could have said: "That this sale shall be subject to favorable
consummation within forty-five days from February 12, 1964 of a property in
Sta. Ana we are negotiating".
No such specification was made. The term of forty-five days was not a part
of the condition that the Nassco property should be acquired. It is clear that
the statement "that final negotiations on both property can be definitely
known after 45 days" does not and cannot mean that Bormaheco, Inc.
should acquire the Nassco property within forty-five days from February 12,
1964 as pretended by Cervantes. It is simply a surmise that after forty-five
days (in fact when the forty-five day period should be computed is not clear)
it would be known whether Bormaheco, Inc. would be able to acquire the
Nassco property and whether it would be able to sell the Buendia property.
That aforementioned paragraph 5 does not even specify how long after the
forty-five days the outcome of the final negotiations would be known.
It is interesting to note that in paragraph 6 of Bormaheco's answer to the
amended complaint, which answer was verified by Cervantes, it was alleged
that Cervantes accepted Villonco's revised counter-offer of March 4, 1964
subject to the condition that "the final negotiations (acceptance) will have to
be made by defendant within 45 daysfrom said acceptance" (31 Record on
Appeal). If that were so, then the consummation of Bormaheco's purchase of
the Nassco property would be made within forty-five days from March 4,
1964.
What makes Bormaheco's stand more confusing and untenable is that in its
three answers it invariably articulated the incoherent and vague affirmative
defense that its acceptance of Villonco's revised counter-offer was
conditioned on the circumstance "that final acceptance or not shall be
made after 45 days" whatever that means. That affirmative defense is
inconsistent with the other aforequoted incoherent statement in its third

answer that "the final negotiations (acceptance) will have to be made by
defendant within 45 days from said acceptance" (31 Record on
Appeal).1äwphï1.ñët
Thus, Bormaheco's three answers and paragraph 5 of his offer of February
12, 1964 do not sustain at all its theory that the Nassco property should be
acquired on or before March 28, 1964. Its rescission or revocation of its
acceptance cannot be anchored on that theory which, as articulated in its
pleadings, is quite equivocal and unclear.
It should be underscored that the condition that Bormaheco, Inc. should
acquire the Nassco property was fulfilled. As admitted by the appellants, the
Nassco property was conveyed to Bormaheco, Inc. on June 26, 1964. As
early as January 17, 1964 the property was awarded to Bormaheco, Inc. as
the highest bidder. On February 18, 1964 the Nassco Board authorized its
General Manager to sell the property to Bormaheco, Inc. (Exh. H). The
Economic Coordinator approved the award on March 24, 1964. It is
reasonable to assume that had Cervantes been more assiduous in following
up the transaction, the Nassco property could have been transferred to
Bormaheco, Inc. on or before March 28, 1964, the supposed last day of the
forty-five-day period.
The appellants, in their fifth assignment of error, argue that Bormaheco, Inc.
cannot be required to sell the three lots in question because they are
conjugal properties of the Cervantes spouses. They aver that Cervantes in
dealing with the Villonco brothers acted as president of Bormaheco, Inc. and
not in his individual capacity and, therefore, he did not bind the conjugal
partnership nor Mrs. Cervantes who was allegedly opposed to the sale.
Those arguments are not sustainable. It should be remembered that
Cervantes, in rescinding the contract of sale and in returning the earnest
money, cited as an excuse the circumstance that there was no certainty in
Bormaheco's acquisition of the Nassco property (Exh. F and Annex 1). He did
not say that Mrs. Cervantes was opposed to the sale of the three lots. He did
not tell Villonco Realty Company that he could not bind the conjugal
partnership. In truth, he concealed the fact that the three lots were
registered "in the name of FRANCISCO CERVANTES, Filipino, of legal age,
married to Rosario P. Navarro, as owner thereof in fee simple". He certainly
led the Villonco brothers to believe that as president of Bormaheco, Inc. he
could dispose of the said lots. He inveigled the Villoncos into believing that
he had untrammelled control of Bormaheco, Inc., that Bormaheco, Inc.
S a l e s P a r t V P a g e | 121
owned the lots and that he was invested with adequate authority to sell the
same.
Thus, in Bormaheco's offer of February 12, 1964, Cervantes first identified
the three lots as "our property" which "we are offering to sell ..." (Opening
paragraph and par. 1 of Exh. B). Whether the prounoun "we" refers to
himself and his wife or to Bormaheco, Inc. is not clear. Then, in paragraphs
3 and 4 of the offer, he used the first person and said: "I shall have
consummated my purchase" of the Nassco property; "... my negotiations
with said property" and "I will return to you your deposit". Those expressions
conveyed the impression and generated the belief that the Villoncos did not
have to deal with Mrs. Cervantes nor with any other official of Bormaheco,
Inc.
The pleadings disclose that Bormaheco, Inc. and Cervantes deliberately and
studiously avoided making the allegation that Cervantes was not authorized
by his wife to sell the three lots or that he acted merely as president of
Bormaheco, Inc. That defense was not interposed so as not to place
Cervantes in the ridiculous position of having acted under false pretenses
when he negotiated with the Villoncos for the sale of the three lots.
Villonco Realty Company, in paragraph 2 of its original complaint, alleged
that "on February 12, 1964, after some prior negotiations, the defendant
(Bormaheco, Inc.) made a formal offer to sell to the plaintiff the property of
the said defendant situated at the abovenamed address along Buendia
Avenue, Makati, Rizal, under the terms of the letter-offer, a copy of which is
hereto attached as Annex A hereof", now Exhibit B (2 Record on Appeal).
That paragraph 2 was not, repeat, was not denied by Bormaheco, Inc. in its
answer dated May 5, 1964. It did not traverse that paragraph 2. Hence, it
was deemed admitted. However, it filed an amended answer dated May 25,
1964 wherein it denied that it was the owner of the three lots. It revealed
that the three lots "belong and are registered in the names of the spouses
Francisco N. Cervantes and Rosario N. Cervantes."
The three answers of Bormaheco, Inc. contain the following affirmative
defense:
13. That defendant's insistence to finally decide on the
proposed sale of the land in question after 45 days had not
only for its purpose the determination of its acquisition of

the said Sta. Ana (Nassco) property during the said period,
but also to negotiate with the actual and registered owner of
the parcels of land covered by T.C.T. Nos. 43530, 43531 and
43532 in question which plaintiff was fully aware that the
same were not in the name of the defendant (sic; Par. 18 of
Answer to Amended Complaint, 10, 18 and 34, Record on
Appeal).
In that affirmative defense, Bormaheco, Inc. pretended that it needed forty-
five days within which to acquire the Nassco property and "to negotiate" with
the registered owner of the three lots. The absurdity of that pretension
stands out in bold relief when it is borne in mind that the answers of
Bormaheco, Inc. were verified by Cervantes and that the registered owner of
the three lots is Cervantes himself. That affirmative defense means that
Cervantes as president of Bormaheco, Inc. needed forty-five days in order to
"negotiate" with himself (Cervantes).
The incongruous stance of the Cervantes spouses is also patent in their
answer to the amended complaint. In that answer they disclaimed
knowledge or information of certain allegations which were well-known to
Cervantes as president of Bormaheco, Inc. and which were admitted in
Bormaheco's three answers that were verified by Cervantes.
It is significant to note that Bormaheco, Inc. in its three answers, which were
verified by Cervantes, never pleaded as an affirmative defense that Mrs.
Cervantes opposed the sale of the three lots or that she did not authorize
her husband to sell those lots. Likewise, it should be noted that in their
separate answer the Cervantes spouses never pleaded as a defense that
Mrs. Cervantes was opposed to the sale of three lots or that Cervantes could
not bind the conjugal partnership. The appellants were at first hesitant to
make it appear that Cervantes had committed the skullduggery of trying to
sell property which he had no authority to alienate.
It was only during the trial on May 17, 1965 that Cervantes declared on the
witness stand that his wife was opposed to the sale of the three lots, a
defense which, as already stated, was never interposed in the three answers
of Bormaheco, Inc. and in the separate answer of the Cervantes spouses.
That same viewpoint was adopted in defendants' motion for reconsideration
dated November 20, 1965.
S a l e s P a r t V P a g e | 122
But that defense must have been an afterthought or was evolved post litem
motam since it was never disclosed in Cervantes' letter of rescission and in
his letter to Miss Tagle (Exh. F and Annex 1). Moreover, Mrs. Cervantes did
not testify at the trial to fortify that defense which had already been waived
for not having been pleaded (See sec. 2, Rule 9, Rules of Court).
Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and
his wife and the fact that the three lots were entirely occupied by
Bormaheco's building, machinery and equipment and were mortgaged to the
DBP as security for its obligation, and considering that appellants' vague
affirmative defenses do not include Mrs. Cervantes' alleged opposition to the
sale, the plea that Cervantes had no authority to sell the lots strains the
rivets of credibility (Cf. Papa and Delgado vs. Montenegro, 54 Phil. 331;
Riobo vs. Hontiveros, 21 Phil. 31).
"Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith" (Art. 1159,
Civil Code). Inasmuch as the sale was perfected and even partly executed,
Bormaheco, Inc., and the Cervantes spouses, as a matter of justice and good
faith, are bound to comply with their contractual commitments.
Parenthetically, it may be observed that much misunderstanding could have
been avoided had the broker and the buyer taken the trouble of making
some research in the Registry of Deeds and availing themselves of the
services of a competent lawyer in drafting the contract to sell.
Bormaheco, Inc. and the Cervantes spouses in their sixth assignment of
error assail the trial court's award to Villonco Realty Company of
consequential damage amounting to ten thousand pesos monthly from
March 24, 1964 (when the Economic Coordinator approved the award of the
Nassco property to Bormaheco, Inc.) up to the consummation of the sale.
The award was based on paragraph 18 of the stipulation of facts wherein
Villonco Realty Company "submits that the delay in the consummation of the
sale" has caused it to suffer the aforementioned damages.
The appellants contend that statement in the stipulation of facts simply
means that Villonco Realty Company speculates that it has suffered damages
but it does not mean that the parties have agreed that Villonco Realty
Company is entitled to those damages.
 S a l e s P a r t V P a g e | 123

Appellants' contention is correct. As rightly observed by their counsel, the
damages in question were not specifically pleaded and proven and were
"clearly conjectural and speculative".
However, appellants' view in their seventh assignment of error that the trial
court erred in ordering Bormaheco, Inc. to pay Villonco Realty Company the
sum of twenty thousand pesos as attorney's fees is not tenable. Under the
facts of the case, it is evident that Bormaheco, Inc. acted in gross and
evident bad faith in refusing to satisfy the valid and just demand of Villonco
Realty Company for specific performance. It compelled Villonco Realty
Company to incure expenses to protect its interest. Moreover, this is a case
where it is just and equitable that the plaintiff should recover attorney's fees
(Art. 2208, Civil Code).
the said three lots and all the improvements thereon, free from all lien and
encumbrances, at the price of four hundred pesos per square meter,
deducting from the total purchase price the sum of P100,000 previously paid
by Villonco Realty Company to Bormaheco, Inc.
3. Upon the execution of such deed of sale, Villonco Realty Company is
obligated to pay Bormaheco, Inc. the balance of the price in the sum of one
million three hundred thousand pesos (P1,300,000).
4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty Company twenty
thousand pesos (P20,000) as attorney's fees and (b) to pay Edith Perez de
Tagle the sum of forty-two thousand pesos (P42,000) as commission. Costs
against the defendants-appellants.

The appellants in their eighth assignment of error impugn the trial court's SO ORDERED.
adjudication of forty-two thousand pesos as three percent broker's
commission to Miss Tagle. They allege that there is no evidence that Makalintal, C.J, Castro. Fernando, Makasiar, Antonio, Esguerra, Muñoz
Bormaheco, Inc. engaged her services as a broker in the projected sale of Palma, Concepcion Jr. and Martin, JJ., concur.
the three lots and the improvements thereon. That allegation is refuted by
paragraph 3 of the stipulation of facts and by the documentary evidence. It
Teehankee, J., is on leave.
was stipulated that Miss Tagle intervened in the negotiations for the sale of
the three lots. Cervantes in his original offer of February 12, 1964 apprised
Villonco Realty Company that the earnest money should be delivered to Miss
Tagle, the bearer of the letter-offer. See also Exhibit G and Annex I of the
stipulation of facts.

We hold that the trial court did not err in adjudging that Bormaheco, Inc.
should pay Miss Tagle her three percent commission.

WHEREFORE, the trial court's decision is modified as follows:

1. Within ten (10) days from the date the defendants-appellants receive
notice from the clerk of the lower court that the records of this case have
been received from this Court, the spouses Francisco N. Cervantes and
Rosario P. Navarra-Cervantes should execute a deed conveying to
Bormaheco, Inc. their three lots covered by Transfer Certificate of Title Nos.
43530, 43531 and 43532 of the Registry of Deeds of Rizal.

2. Within five (5) days from the execution of such deed of conveyance,
Bormaheco, Inc. should execute in favor of Villonco Realty Company, V. R. C.
Building, 219 Buendia Avenue, Makati, Rizal a registerable deed of sale for

G.R. No. 157493. February 5, 2007.*
RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and
FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO and
ENRIQUETA, all surnamed OESMER, petitioners, vs. PARAISO
DEVELOPMENT CORPORATION, respondent.
Contracts; Sales; Co-Ownership; Agency; Where the co-owners affixed their
signatures on the Contract to Sell, they were no longer selling their shares
through an agent but, rather, they were selling the same directly and in their
own right—a written authority is no longer necessary to empower an
agent.—The law itself explicitly requires a written authority before an agent
can sell an immovable. The conferment of such an authority should be in
writing, in as clear and precise terms as possible. It is worth noting that
petitioners’ signatures are found in the Contract to Sell. The Contract is
absolutely silent on the establishment of any principal-agent relationship
between the five petitioners and their brother and co-petitioner Ernesto as to
the sale of the subject parcels of land. Thus, the Contract to Sell, although
signed on the margin by the five petitioners, is not sufficient to confer
authority on petitioner Ernesto to act as their agent in selling their shares in
the properties in question. However, despite petitioner Ernesto’s lack of
written authority from the five petitioners to sell their shares in the subject
parcels of land, the supposed Contract to Sell remains valid and binding
upon the latter. As can be clearly gleaned from the contract itself, it is not
only petitioner Ernesto who signed the said Contract to Sell; the other five
petitioners also personally affixed their signatures thereon. Therefore, a
written authority is no longer necessary in order to sell their shares in the
subject parcels of land because, by affixing their signatures on the Contract
to Sell, they were not selling their shares through an agent but, rather, they
were selling the same directly and in their own right.
Same; Same; Same; Contracts are perfected by mere consent, upon the
acceptance by the offeree of the offer made by the offeror, which
acceptance may be express or implied.—It is well-settled that contracts are
perfected by mere consent, upon the acceptance by the offeree of the offer
made by the offeror. From that moment, the parties are bound not only to
the fulfillment of what has been expressly stipulated but also to all the
S a l e s P a r t V P a g e | 124
consequences which, according to their nature, may be in keeping with good
faith, usage and law. To produce a contract, the acceptance must not qualify
the terms of the offer. However, the acceptance may be express or implied.
For a contract to arise, the acceptance must be made known to the offeror.
Accordingly, the acceptance can be withdrawn or revoked before it is made
known to the offeror. In the case at bar, the Contract to Sell was perfected
when the petitioners consented to the sale to the respondent of their shares
in the subject parcels of land by affixing their signatures on the said
contract. Such signatures show their acceptance of what has been stipulated
in the Contract to Sell and such acceptance was made known to respondent
corporation when the duplicate copy of the Contract to Sell was returned to
the latter bearing petitioners’ signatures.
Same; Same; Same; Interpretation of Contracts; It is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of
its stipulation shall control.—We also cannot sustain the allegation of the
petitioners that assuming the signatures indicate consent, such consent was
merely conditional, and that, the effectivity of the alleged Contract to Sell
was subject to the suspensive condition that the sale be approved by all the
coowners. The Contract to Sell is clear enough. It is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of
its stipulation shall control. The terms of the Contract to Sell made no
mention of the condition that before it can become valid and binding, a
unanimous consent of all the heirs is necessary. Thus, when the language of
the contract is explicit, as in the present case, leaving no doubt as to the
intention of the parties thereto, the literal meaning of its stipulation is
controlling.
Same; Same; Same; The co-owners, being owners of their respective
undivided shares in the subject properties, can dispose of their shares even
without the consent of all the co-heirs.—The petitioners, being owners of
their respective undivided shares in the subject properties, can dispose of
their shares even without the consent of all the co-heirs. Article 493 of the
Civil Code expressly provides: Article 493. Each co-owner shall have the full
ownership of his part and of the fruits and benefits pertaining thereto, and

he may therefore alienate, assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are involved.
But the effect of the alienation or the mortgage, with respect to the co-
owners, shall be limited to the portion which may be allotted to him in the
division upon the termination of the coownership. [Emphases supplied.]
Consequently, even without the consent of the two co-heirs, Adolfo and
Jesus, the Contract to Sell is still valid and binding with respect to the 6/8
proportionate shares of the petitioners, as properly held by the appellate
court.
Same; Same; Same; A contract to sell is not void merely because it does not
bear the signature of the vendee.—The Contract to Sell is not void merely
because it does not bear the signature of the respondent corporation.
Respondent corporation’s consent to be bound by the terms of the contract
is shown in the uncontroverted facts which established that there was partial
performance by respondent of its obligation in the said Contract to Sell when
it tendered the amount of P100,000.00 to form part of the purchase price,
which was accepted and acknowledged expressly by petitioners. Therefore,
by force of law, respondent is required to complete the payment to enforce
the terms of the contract. Accordingly, despite the absence of respondent’s
signature in the Contract to Sell, the former cannot evade its obligation to
pay the balance of the purchase price.
Interpretation of Contracts; Words and Phrases; “Earnest Money” and
“Option Money,” Distinguished; In the interpretation of contracts, the
ascertainment of the intention of the contracting parties is to be discharged
by looking to the words they used to project that intention in their contract,
all the words, not just a particular word or two, and words in context, not
words standing alone.—As a final point, the Contract to Sell entered into by
the parties is not a unilateral promise to sell merely because it used the word
option money when it referred to the amount of P100,000.00, which also
form part of the purchase price. Settled is the rule that in the interpretation
of contracts, the ascertainment of the intention of the contracting parties is
to be discharged by looking to the words they used to project that intention
in their contract, all the words, not just a particular word or two, and words
in context, not words standing alone. In the instant case, the consideration
of P100,000.00 paid by respondent to petitioners was referred to as “option
S a l e s P a r t V P a g e | 125
money.” However, a careful examination of the words used in the contract
indicates that the money is not option money but earnest money. “Earnest
money” and “option money” are not the same but distinguished thus: (a)
earnest money is part of the purchase price, while option money is the
money given as a distinct consideration for an option contract; (b) earnest
money is given only where there is already a sale, while option money
applies to a sale not yet perfected; and, (c) when earnest money is given,
the buyer is bound to pay the balance, while when the would-be buyer gives
option money, he is not required to buy, but may even forfeit it depending
on the terms of the option.
PETITION for review on certiorari of the decision and resolution of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Dick B. Perez for petitioners.
Simeon C. Sato for respondent. Oesmer vs. Paraiso Development
Corporation, 514 SCRA 228, G.R. No. 157493 February 5, 2007
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the
1997 Revised Rules of Civil Procedure seeking to reverse and set aside the
Court of Appeals Decision1 dated 26 April 2002 in CA-G.R. CV No. 53130
entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta, Adolfo,
and Jesus, all surnamed Oesmer vs. Paraiso Development Corporation, as
modified by its Resolution2 dated 4 March 2003, declaring the Contract to
Sell valid and binding with respect to the undivided proportionate shares of
the six signatories of the said document, herein petitioners, namely: Ernesto,
Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed
Oesmer); and ordering them to execute the Deed of Absolute Sale
concerning their 6/8 share over the subject parcels of land in favor of herein
respondent Paraiso Development Corporation, and to pay the latter the
attorney’s fees plus costs of the suit. The assailed Decision, as modified,
likewise ordered the respondent to tender payment to the petitioners in the

amount of ₱3,216,560.00 representing the balance of the purchase price of
the subject parcels of land.
The facts of the case are as follows:
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta,
all surnamed Oesmer, together with Adolfo Oesmer (Adolfo) and Jesus
Oesmer (Jesus), are brothers and sisters, and the co-owners of undivided
shares of two parcels of agricultural and tenanted land situated in Barangay
Ulong Tubig, Carmona, Cavite, identified as Lot 720 with an area of 40,507
square meters (sq. m.) and Lot 834 containing an area of 14,769 sq. m., or a
total land area of 55,276 sq. m. Both lots are unregistered and originally
owned by their parents, Bibiano Oesmer and Encarnacion Durumpili, who
declared the lots for taxation purposes under Tax Declaration No.
34383(cancelled by I.D. No. 6064-A) for Lot 720 and Tax Declaration No.
34374 (cancelled by I.D. No. 5629) for Lot 834. When the spouses Oesmer
died, petitioners, together with Adolfo and Jesus, acquired the lots as heirs
of the former by right of succession.
Respondent Paraiso Development Corporation is known to be engaged in the
real estate business.
Sometime in March 1989, Rogelio Paular, a resident and former Municipal
Secretary of Carmona, Cavite, brought along petitioner Ernesto to meet with
a certain Sotero Lee, President of respondent Paraiso Development
Corporation, at Otani Hotel in Manila. The said meeting was for the purpose
of brokering the sale of petitioners’ properties to respondent corporation.
Pursuant to the said meeting, a Contract to Sell 5 was drafted by the
Executive Assistant of Sotero Lee, Inocencia Almo. On 1 April 1989,
petitioners Ernesto and Enriqueta signed the aforesaid Contract to Sell. A
check in the amount of ₱100,000.00, payable to Ernesto, was given as
option money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and
Librado also signed the said Contract to Sell. However, two of the brothers,
Adolfo and Jesus, did not sign the document.
On 5 April 1989, a duplicate copy of the instrument was returned to
respondent corporation. On 21 April 1989, respondent brought the same to a
notary public for notarization.
S a l e s P a r t V P a g e | 126
In a letter6 dated 1 November 1989, addressed to respondent corporation,
petitioners informed the former of their intention to rescind the Contract to
Sell and to return the amount of ₱100,000.00 given by respondent as option
money.
Respondent did not respond to the aforesaid letter. On 30 May 1991, herein
petitioners, together with Adolfo and Jesus, filed a Complaint 7 for Declaration
of Nullity or for Annulment of Option Agreement or Contract to Sell with
Damages before the Regional Trial Court (RTC) of Bacoor, Cavite. The said
case was docketed as Civil Case No. BCV-91-49.
During trial, petitioner Rizalino died. Upon motion of petitioners, the trial
court issued an Order,8 dated 16 September 1992, to the effect that the
deceased petitioner be substituted by his surviving spouse, Josefina O.
Oesmer, and his children, Rolando O. Oesmer and Fernando O. Oesmer.
However, the name of Rizalino was retained in the title of the case both in
the RTC and the Court of Appeals.
After trial on the merits, the lower court rendered a Decision 9 dated 27
March 1996 in favor of the respondent, the dispositive portion of which
reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
herein [respondent] Paraiso Development Corporation. The assailed Contract
to Sell is valid and binding only to the undivided proportionate share of the
signatory of this document and recipient of the check, [herein petitioner] co-
owner Ernesto Durumpili Oesmer. The latter is hereby ordered to execute
the Contract of Absolute Sale concerning his 1/8 share over the subject two
parcels of land in favor of herein [respondent] corporation, and to pay the
latter the attorney’s fees in the sum of Ten Thousand (₱10,000.00) Pesos
plus costs of suit.
The counterclaim of [respondent] corporation is hereby Dismissed for lack of
merit.10
Unsatisfied, respondent appealed the said Decision before the Court of
Appeals. On 26 April 2002, the appellate court rendered a Decision modifying
the Decision of the court a quo by declaring that the Contract to Sell is valid
and binding with respect to the undivided proportionate shares of the six
signatories of the said document, herein petitioners, namely: Ernesto,

Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed
Oesmer). The decretal portion of the said Decision states that:
WHEREFORE, premises considered, the Decision of the court a quo is hereby
MODIFIED. Judgment is hereby rendered in favor of herein [respondent]
Paraiso Development Corporation. The assailed Contract to Sell is valid and
binding with respect to the undivided proportionate share of the six (6)
signatories of this document, [herein petitioners], namely, Ernesto,
Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed
Oesmer). The said [petitioners] are hereby ordered to execute the Deed of
Absolute Sale concerning their 6/8 share over the subject two parcels of land
and in favor of herein [respondent] corporation, and to pay the latter the
attorney’s fees in the sum of Ten Thousand Pesos (₱10,000.00) plus costs of
suit.11
Aggrieved by the above-mentioned Decision, petitioners filed a Motion for
Reconsideration of the same on 2 July 2002. Acting on petitioners’ Motion for
Reconsideration, the Court of Appeals issued a Resolution dated 4 March
2003, maintaining its Decision dated 26 April 2002, with the modification that
respondent tender payment to petitioners in the amount of ₱3,216,560.00,
representing the balance of the purchase price of the subject parcels of land.
The dispositive portion of the said Resolution reads:
WHEREFORE, premises considered, the assailed Decision is hereby
modified.1awphi1.net Judgment is hereby rendered in favor of herein
[respondent] Paraiso Development Corporation. The assailed Contract to Sell
is valid and binding with respect to the undivided proportionate shares of the
six (6) signatories of this document, [herein petitioners], namely, Ernesto,
Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed
Oesmer). The said [petitioners] are hereby ordered to execute the Deed of
Absolute Sale concerning their 6/8 share over the subject two parcels of land
in favor of herein [respondent] corporation, and to pay the latter attorney’s
fees in the sum of Ten Thousand Pesos (₱10,000.00) plus costs of suit.
Respondent is likewise ordered to tender payment to the above-named
[petitioners] in the amount of Three Million Two Hundred Sixteen Thousand
Five Hundred Sixty Pesos (₱3,216,560.00) representing the balance of the
purchase price of the subject two parcels of land. 12
Hence, this Petition for Review on Certiorari.
Petitioners come before this Court arguing that the Court of Appeals erred:
S a l e s P a r t V P a g e | 127
I. On a question of law in not holding that, the supposed Contract to
Sell (Exhibit D) is not binding upon petitioner Ernesto Oesmer’s co-
owners (herein petitioners Enriqueta, Librado, Rizalino, Bibiano, Jr.,
and Leonora).
II. On a question of law in not holding that, the supposed Contract
to Sell (Exhibit D) is void altogether considering that respondent
itself did not sign it as to indicate its consent to be bound by its
terms. Moreover, Exhibit D is really a unilateral promise to sell
without consideration distinct from the price, and hence, void.
Petitioners assert that the signatures of five of them namely: Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora, on the margins of the supposed
Contract to Sell did not confer authority on petitioner Ernesto as agent to sell
their respective shares in the questioned properties, and hence, for lack of
written authority from the above-named petitioners to sell their respective
shares in the subject parcels of land, the supposed Contract to Sell is void as
to them. Neither do their signatures signify their consent to directly sell their
shares in the questioned properties. Assuming that the signatures indicate
consent, such consent was merely conditional. The effectivity of the alleged
Contract to Sell was subject to a suspensive condition, which is the approval
of the sale by all the co-owners.
Petitioners also assert that the supposed Contract to Sell (Exhibit D),
contrary to the findings of the Court of Appeals, is not couched in simple
language.
They further claim that the supposed Contract to Sell does not bind the
respondent because the latter did not sign the said contract as to indicate its
consent to be bound by its terms. Furthermore, they maintain that the
supposed Contract to Sell is really a unilateral promise to sell and the option
money does not bind petitioners for lack of cause or consideration distinct
from the purchase price.
The Petition is bereft of merit.
It is true that the signatures of the five petitioners, namely: Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora, on the Contract to Sell did not
confer authority on petitioner Ernesto as agent authorized to sell their
respective shares in the questioned properties because of Article 1874 of the
Civil Code, which expressly provides that:

Art. 1874. When a sale of a piece of land or any interest therein is through
an agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void.
The law itself explicitly requires a written authority before an agent can sell
an immovable. The conferment of such an authority should be in writing, in
as clear and precise terms as possible. It is worth noting that petitioners’
signatures are found in the Contract to Sell. The Contract is absolutely silent
on the establishment of any principal-agent relationship between the five
petitioners and their brother and co-petitioner Ernesto as to the sale of the
subject parcels of land. Thus, the Contract to Sell, although signed on the
margin by the five petitioners, is not sufficient to confer authority on
petitioner Ernesto to act as their agent in selling their shares in the
properties in question.
However, despite petitioner Ernesto’s lack of written authority from the five
petitioners to sell their shares in the subject parcels of land, the supposed
Contract to Sell remains valid and binding upon the latter.
As can be clearly gleaned from the contract itself, it is not only petitioner
Ernesto who signed the said Contract to Sell; the other five petitioners also
personally affixed their signatures thereon. Therefore, a written authority is
no longer necessary in order to sell their shares in the subject parcels of land
because, by affixing their signatures on the Contract to Sell, they were not
selling their shares through an agent but, rather, they were selling the same
directly and in their own right.
The Court also finds untenable the following arguments raised by petitioners
to the effect that the Contract to Sell is not binding upon them, except to
Ernesto, because: (1) the signatures of five of the petitioners do not signify
their consent to sell their shares in the questioned properties since petitioner
Enriqueta merely signed as a witness to the said Contract to Sell, and that
the other petitioners, namely: Librado, Rizalino, Leonora, and Bibiano, Jr.,
did not understand the importance and consequences of their action because
of their low degree of education and the contents of the aforesaid contract
were not read nor explained to them; and (2) assuming that the signatures
indicate consent, such consent was merely conditional, thus, the effectivity
of the alleged Contract to Sell was subject to a suspensive condition, which
is the approval by all the co-owners of the sale.
S a l e s P a r t V P a g e | 128
It is well-settled that contracts are perfected by mere consent, upon the
acceptance by the offeree of the offer made by the offeror. From that
moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law. To produce
a contract, the acceptance must not qualify the terms of the offer. However,
the acceptance may be express or implied. For a contract to arise, the
acceptance must be made known to the offeror. Accordingly, the acceptance
can be withdrawn or revoked before it is made known to the offeror. 13
In the case at bar, the Contract to Sell was perfected when the petitioners
consented to the sale to the respondent of their shares in the subject parcels
of land by affixing their signatures on the said contract. Such signatures
show their acceptance of what has been stipulated in the Contract to Sell
and such acceptance was made known to respondent corporation when the
duplicate copy of the Contract to Sell was returned to the latter bearing
petitioners’ signatures.
As to petitioner Enriqueta’s claim that she merely signed as a witness to the
said contract, the contract itself does not say so. There was no single
indication in the said contract that she signed the same merely as a witness.
The fact that her signature appears on the right-hand margin of the Contract
to Sell is insignificant. The contract indisputably referred to the "Heirs of
Bibiano and Encarnacion Oesmer," and since there is no showing that
Enriqueta signed the document in some other capacity, it can be safely
assumed that she did so as one of the parties to the sale.
Emphasis should also be given to the fact that petitioners Ernesto and
Enriqueta concurrently signed the Contract to Sell. As the Court of Appeals
mentioned in its Decision,14 the records of the case speak of the fact that
petitioner Ernesto, together with petitioner Enriqueta, met with the
representatives of the respondent in order to finalize the terms and
conditions of the Contract to Sell. Enriqueta affixed her signature on the said
contract when the same was drafted. She even admitted that she
understood the undertaking that she and petitioner Ernesto made in
connection with the contract. She likewise disclosed that pursuant to the
terms embodied in the Contract to Sell, she updated the payment of the real
property taxes and transferred the Tax Declarations of the questioned
properties in her name.15 Hence, it cannot be gainsaid that she merely
signed the Contract to Sell as a witness because she did not only actively
participate in the negotiation and execution of the same, but her subsequent

actions also reveal an attempt to comply with the conditions in the said
contract.
With respect to the other petitioners’ assertion that they did not understand
the importance and consequences of their action because of their low degree
of education and because the contents of the aforesaid contract were not
read nor explained to them, the same cannot be sustained.
We only have to quote the pertinent portions of the Court of Appeals
Decision, clear and concise, to dispose of this issue. Thus,
First, the Contract to Sell is couched in such a simple language which is
undoubtedly easy to read and understand. The terms of the Contract,
specifically the amount of ₱100,000.00 representing the option money paid
by [respondent] corporation, the purchase price of ₱60.00 per square meter
or the total amount of ₱3,316,560.00 and a brief description of the subject
properties are well-indicated thereon that any prudent and mature man
would have known the nature and extent of the transaction encapsulated in
the document that he was signing.
Second, the following circumstances, as testified by the witnesses and as can
be gleaned from the records of the case clearly indicate the [petitioners’]
intention to be bound by the stipulations chronicled in the said Contract to
Sell.
As to [petitioner] Ernesto, there is no dispute as to his intention to effect the
alienation of the subject property as he in fact was the one who initiated the
negotiation process and culminated the same by affixing his signature on the
Contract to Sell and by taking receipt of the amount of ₱100,000.00 which
formed part of the purchase price.
xxxx
As to [petitioner] Librado, the [appellate court] finds it preposterous that he
willingly affixed his signature on a document written in a language (English)
that he purportedly does not understand. He testified that the document was
just brought to him by an 18 year old niece named Baby and he was told
that the document was for a check to be paid to him. He readily signed the
Contract to Sell without consulting his other siblings. Thereafter, he exerted
no effort in communicating with his brothers and sisters regarding the
document which he had signed, did not inquire what the check was for and
S a l e s P a r t V P a g e | 129
did not thereafter ask for the check which is purportedly due to him as a
result of his signing the said Contract to Sell. (TSN, 28 September 1993, pp.
22-23)
The [appellate court] notes that Librado is a 43 year old family man (TSN, 28
September 1993, p. 19). As such, he is expected to act with that ordinary
degree of care and prudence expected of a good father of a family. His
unwitting testimony is just divinely disbelieving.
The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise bound
by the said Contract to Sell. The theory adopted by the [petitioners] that
because of their low degree of education, they did not understand the
contents of the said Contract to Sell is devoid of merit. The [appellate court]
also notes that Adolfo (one of the co-heirs who did not sign) also possess the
same degree of education as that of the signing co-heirs (TSN, 15 October
1991, p. 19). He, however, is employed at the Provincial Treasury Office at
Trece Martirez, Cavite and has even accompanied Rogelio Paular to the
Assessor’s Office to locate certain missing documents which were needed to
transfer the titles of the subject properties. (TSN, 28 January 1994, pp. 26 &
35) Similarly, the other co-heirs [petitioners], like Adolfo, are far from
ignorant, more so, illiterate that they can be extricated from their obligations
under the Contract to Sell which they voluntarily and knowingly entered into
with the [respondent] corporation.
The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207
SCRA 753 [1992]), citing the case of Tan Sua Sia v. Yu Baio Sontua (56 Phil.
711), instructively ruled as follows:
"The Court does not accept the petitioner’s claim that she did not understand
the terms and conditions of the transactions because she only reached Grade
Three and was already 63 years of age when she signed the documents. She
was literate, to begin with, and her age did not make her senile or
incompetent. x x x.
At any rate, Metrobank had no obligation to explain the documents to the
petitioner as nowhere has it been proven that she is unable to read or that
the contracts were written in a language not known to her. It was her
responsibility to inform herself of the meaning and consequence of the
contracts she was signing and, if she found them difficult to comprehend, to
consult other persons, preferably lawyers, to explain them to her. After all,

the transactions involved not only a few hundred or thousand pesos but,
indeed, hundreds of thousands of pesos.
As the Court has held:
x x x The rule that one who signs a contract is presumed to know its
contents has been applied even to contracts of illiterate persons on the
ground that if such persons are unable to read, they are negligent if they fail
to have the contract read to them. If a person cannot read the instrument, it
is as much his duty to procure some reliable persons to read and explain it to
him, before he signs it, as it would be to read it before he signed it if he
were able to do and his failure to obtain a reading and explanation of it is
such gross negligence as will estop from avoiding it on the ground that he
was ignorant of its contents."16
That the petitioners really had the intention to dispose of their shares in the
subject parcels of land, irrespective of whether or not all of the heirs
consented to the said Contract to Sell, was unveiled by Adolfo’s testimony as
follows:
ATTY. GAMO: This alleged agreement between you and your other brothers
and sisters that unless everybody will agree, the properties would not be
sold, was that agreement in writing?
WITNESS: No sir.
ATTY. GAMO: What you are saying is that when your brothers and sisters
except Jesus and you did not sign that agreement which had been marked
as [Exhibit] "D", your brothers and sisters were grossly violating your
agreement.
WITNESS: Yes, sir, they violated what we have agreed upon.17
We also cannot sustain the allegation of the petitioners that assuming the
signatures indicate consent, such consent was merely conditional, and that,
the effectivity of the alleged Contract to Sell was subject to the suspensive
condition that the sale be approved by all the co-owners. The Contract to
Sell is clear enough. It is a cardinal rule in the interpretation of contracts that
if the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulation shall
control.18 The terms of the Contract to Sell made no mention of the condition
S a l e s P a r t V P a g e | 130
that before it can become valid and binding, a unanimous consent of all the
heirs is necessary. Thus, when the language of the contract is explicit, as in
the present case, leaving no doubt as to the intention of the parties thereto,
the literal meaning of its stipulation is controlling.
In addition, the petitioners, being owners of their respective undivided
shares in the subject properties, can dispose of their shares even without the
consent of all the co-heirs. Article 493 of the Civil Code expressly provides:
Article 493. Each co-owner shall have the full ownership of his part and of
the fruits and benefits pertaining thereto, and he may therefore alienate,
assign or mortgage it, and even substitute another person in its
enjoyment, except when personal rights are involved. But the effect of the
alienation or the mortgage, with respect to the co-owners, shall
be limited to the portion which may be allotted to him in the division upon
the termination of the co-ownership. [Emphases supplied.]
Consequently, even without the consent of the two co-heirs, Adolfo and
Jesus, the Contract to Sell is still valid and binding with respect to the 6/8
proportionate shares of the petitioners, as properly held by the appellate
court.
Therefore, this Court finds no error in the findings of the Court of Appeals
that all the petitioners who were signatories in the Contract to Sell are bound
thereby.
The final arguments of petitioners state that the Contract to Sell is void
altogether considering that respondent itself did not sign it as to indicate its
consent to be bound by its terms; and moreover, the Contract to Sell is really
a unilateral promise to sell without consideration distinct from the price, and
hence, again, void. Said arguments must necessarily fail.
The Contract to Sell is not void merely because it does not bear the
signature of the respondent corporation. Respondent corporation’s consent
to be bound by the terms of the contract is shown in the uncontroverted
facts which established that there was partial performance by respondent of
its obligation in the said Contract to Sell when it tendered the amount of
₱100,000.00 to form part of the purchase price, which was accepted and
acknowledged expressly by petitioners. Therefore, by force of law,
respondent is required to complete the payment to enforce the terms of the
contract. Accordingly, despite the absence of respondent’s signature in the
 S a l e s P a r t V P a g e | 131

Contract to Sell, the former cannot evade its obligation to pay the balance of tender payment to petitioners in the amount of ₱3,216,560.00 representing
the purchase price. the balance of the purchase price for the latter’s shares in the subject parcels
of land; and (c) petitioners are further ORDERED to execute in favor of
As a final point, the Contract to Sell entered into by the parties is not a respondent the Deed of Absolute Sale covering their shares in the subject
unilateral promise to sell merely because it used the word option money parcels of land after receipt of the balance of the purchase price, and to pay
when it referred to the amount of ₱100,000.00, which also form part of the respondent attorney’s fees plus costs of the suit. Costs against petitioners.
purchase price.
SO ORDERED.
Settled is the rule that in the interpretation of contracts, the ascertainment of
the intention of the contracting parties is to be discharged by looking to the
words they used to project that intention in their contract, all the words, not
just a particular word or two, and words in context, not words standing
alone.19

In the instant case, the consideration of ₱100,000.00 paid by respondent to

petitioners was referred to as "option money." However, a careful
examination of the words used in the contract indicates that the money is
not option money but earnest money. "Earnest money" and "option
money" are not the same but distinguished thus: (a) earnest money is part
of the purchase price, while option money is the money given as a distinct
consideration for an option contract; (b) earnest money is given only where
there is already a sale, while option money applies to a sale not yet
perfected; and, (c) when earnest money is given, the buyer is bound to pay
the balance, while when the would-be buyer gives option money, he is not
required to buy, but may even forfeit it depending on the terms of the
option.20

The sum of ₱100,000.00 was part of the purchase price. Although the same
was denominated as "option money," it is actually in the nature of earnest
money or down payment when considered with the other terms of the
contract. Doubtless, the agreement is not a mere unilateral promise to sell,
but, indeed, it is a Contract to Sell as both the trial court and the appellate
court declared in their Decisions.

WHEREFORE, premises considered, the Petition is DENIED, and the Decision

and Resolution of the Court of Appeals dated 26 April 2002 and 4 March
2003, respectively, are AFFIRMED, thus, (a) the Contract to Sell
is DECLARED valid and binding with respect to the undivided proportionate
shares in the subject parcels of land of the six signatories of the said
document, herein petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano,
Jr., and Leonora (all surnamed Oesmer); (b) respondent is ORDERED to

G.R. No. 112212. March 2, 1998.*
GREGORIO FULE, petitioner, vs. COURT OF APPEALS, NINEVETCH
CRUZ and JUAN BELARMINO, respondents.
Remedial Law; Appeals; Court accords, as a general rule, conclusiveness to a
lower court’s findings of fact, exception.—As to the first allegation, the Court
observes that petitioner is essentially raising a factual issue as it invites us to
examine and weigh anew the facts regarding the genuineness of the earrings
bartered in exchange for the Tanay property. This, of course, we cannot do
without unduly transcending the limits of our review power in petitions of
this nature which are confined merely to pure questions of law. We accord,
as a general rule, conclusiveness to a lower court’s findings of fact unless it
is shown, inter alia, that: (1) the conclusion is a finding grounded on
speculations, surmises or conjectures; (2) the inference is manifestly
mistaken, absurd and impossible; (3) when there is a grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of fact are conflicting; and (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admission of both parties. We find nothing, however,
that warrants the application of any of these exceptions.
Same; Same; The Court’s jurisdiction is only limited to reviewing errors of
law in the absence of any showing that the findings complained of are totally
devoid of support in the record or that they are glaringly erroneous as to
constitute serious abuse of discretion.—Consequently, this Court upholds the
appellate court’s findings of fact especially because these concur with those
of the trial court which, upon a thorough scrutiny of the records, are firmly
grounded on evidence presented at the trial. To reiterate, this Court’s
jurisdiction is only limited to reviewing errors of law in the absence of any
showing that the findings complained of are totally devoid of support in the
record or that they are glaringly erroneous as to constitute serious abuse of
discretion.
Same; Judgments; The acts of a judge which pertain to his judicial functions
are not subject to disciplinary power unless they are committed with fraud,
dishonesty, corruption or bad faith.—In fact, this Court does not see
anything wrong in the practice of writing a decision days before the
S a l e s P a r t V P a g e | 132
scheduled promulgation of judgment and leaving the dispositive portion for
typing at a time close to the date of promulgation, provided that no malice
or any wrongful conduct attends its adoption. The practice serves the dual
purposes of safeguarding the confidentiality of draft decisions and rendering
decisions with promptness. Neither can Judge Jaramillo be made
administratively answerable for the immediate rendition of the decision. The
acts of a judge which pertain to his judicial functions are not subject to
disciplinary power unless they are committed with fraud, dishonesty,
corruption or bad faith. Hence, in the absence of sufficient proof to the
contrary, Judge Jaramillo is presumed to have performed his job in
accordance with law and should instead be commended for his close
attention to duty.
Civil Law; Contracts; Sale; A contract of sale is perfected at the moment
there is a meeting of the minds upon the thing which is the object of the
contract and upon the price.—The Civil Code provides that contracts are
perfected by mere consent. From this moment, the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in keeping with
good faith, usage and law. A contract of sale is perfected at the moment
there is a meeting of the minds upon the thing which is the object of the
contract and upon the price. Being consensual, a contract of sale has the
force of law between the contracting parties and they are expected to abide
in good faith by their respective contractual commitments. Article 1358 of
the Civil Code which requires the embodiment of certain contracts in a public
instrument, is only for convenience, and registration of the instrument only
adversely affects third parties. Formal requirements are, therefore, for the
benefit of third parties. Non-compliance therewith does not adversely affect
the validity of the contract nor the contractual rights and obligations of the
parties thereunder.
Same; Same; Same; Voidable or Annullable Contracts.—Contracts that are
voidable or annullable, even though there may have been no damage to the
contracting parties are: (1) those where one of the parties is incapable of
giving consent to a contract; and (2) those where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud.
 S a l e s P a r t V P a g e | 133

Same; Same; Same; Same; There is fraud when, through the insidious words must be shown that the person to whom these are awarded has sustained
or machinations of one of the contracting parties, the other is induced to injury. He must likewise establish sufficient data upon which the court can
enter into a contract which, without them, he would not have agreed to.— properly base its estimate of the amount of damages. Statements of facts
There is fraud when, through the insidious words or machinations of one of should establish such data rather than mere conclusions or opinions of
the contracting parties, the other is induced to enter into a contract which, witnesses.
without them, he would not have agreed to. The records, however, are bare
of any evidence manifesting that private respondents employed such PETITION for review on certiorari of a decision of the Court of Appeals.
insidious words or machinations to entice petitioner into entering the
The facts are stated in the opinion of the Court.
contract of barter. Neither is there any evidence showing that Dr. Cruz
induced petitioner to sell his Tanay property or that she cajoled him to take F.M. Poonin & Associates for petitioner.
the earrings in exchange for said property. On the contrary, Dr. Cruz did not
initially accede to petitioner’s proposal to buy the said jewelry. Rather, it Byron V. Belarmino for respondent J. Belarmino.
appears that it was petitioner, through his agents, who led Dr. Cruz to
Victorino F. Javier, Jr. for respondent N. Cruz. Fule vs. Court of Appeals, 286
believe that the Tanay property was worth exchanging for her jewelry as he
SCRA 698, G.R. No. 112212 March 2, 1998
represented that its value was P400,000.00 or more than double that of the
jewelry which was valued only at P160,000.00. If indeed petitioner’s property
ROMERO, J.:
was truly worth that much, it was certainly contrary to the nature of a
businessman-banker like him to have parted with his real estate for half its
This petition for review on certiorari questions the affirmance by the Court of
price. In short, it was in fact petitioner who resorted to machinations to
Appeals of the decision 1 of the Regional Trial Court of San Pablo City,
convince Dr. Cruz to exchange her jewelry for the Tanay property. Branch 30, dismissing the complaint that prayed for the nullification of a
contract of sale of a 10-hectare property in Tanay, Rizal in consideration of
Same; Same; Same; Same; To invalidate a contract, mistake must “refer to the amount of P40,000.00 and a 2.5 carat emerald-cut diamond (Civil Case
the substance of the thing that is the object of the contract, or to those No. SP-2455). The lower court's decision disposed of the case as follows:
conditions which have principally moved one or both parties to enter into the
contract.”—Moreover, petitioner did not clearly allege mistake as a ground WHEREFORE, premises considered, the Court hereby
for nullification of the contract of sale. Even assuming that he did, petitioner renders judgment dismissing the complaint for lack of merit
cannot successfully invoke the same. To invalidate a contract, mistake must and ordering plaintiff to pay:
“refer to the substance of the thing that is the object of the contract, or to
1. Defendant Dra. Ninevetch M. Cruz the sum of
those conditions which have principally moved one or both parties to enter
P300,000.00 as and for moral damages and the sum of
into the contract.” An example of mistake as to the object of the contract is P100,000.00 as and for exemplary damages;
the substitution of a specific thing contemplated by the parties with another.
2. Defendant Atty. Juan Belarmino the sum of P250,000.00
Same; Damages; Moral and exemplary damages may be awarded without
as and for moral damages and the sum of P150,000.00 as
proof of pecuniary loss.—Moral and exemplary damages may be awarded and for exemplary damages;
without proof of pecuniary loss. In awarding such damages, the court shall
take into account the circumstances obtaining in the case and assess
damages according to its discretion. To warrant the award of damages, it

3. Defendant Dra. Cruz and Atty. Belarmino the sum of
P25,000.00 each as and for attorney's fees and litigation
expenses; and
4. The costs of suit.
SO ORDERED.
As found by the Court of Appeals and the lower court, the antecedent facts
of this case are as follows:
Petitioner Gregorio Fule, a banker by profession and a jeweler at the same
time, acquired a 10-hectare property in Tanay, Rizal (hereinafter "Tanay
property"), covered by Transfer Certificate of Title No. 320725 which used to
be under the name of Fr. Antonio Jacobe. The latter had mortgaged it earlier
to the Rural Bank of Alaminos (the Bank), Laguna, Inc. to secure a loan in
the amount of P10,000.00, but the mortgage was later foreclosed and the
property offered for public auction upon his default.
In July 1984, petitioner, as corporate secretary of the bank, asked Remelia
Dichoso and Oliva Mendoza to look for a buyer who might be interested in
the Tanay property. The two found one in the person of herein private
respondent Dr. Ninevetch Cruz. It so happened that at the time, petitioner
had shown interest in buying a pair of emerald-cut diamond earrings owned
by Dr. Cruz which he had seen in January of the same year when his mother
examined and appraised them as genuine. Dr. Cruz, however, declined
petitioner's offer to buy the jewelry for P100,000.00. Petitioner then made
another bid to buy them for US$6,000.00 at the exchange rate of $1.00 to
P25.00. At this point, petitioner inspected said jewelry at the lobby of the
Prudential Bank branch in San Pablo City and then made a sketch thereof.
Having sketched the jewelry for twenty to thirty minutes, petitioner gave
them back to Dr. Cruz who again refused to sell them since the exchange
rate of the peso at the time appreciated to P19.00 to a dollar.
Subsequently, however, negotiations for the barter of the jewelry and the
Tanay property ensued. Dr. Cruz requested herein private respondent Atty.
Juan Belarmino to check the property who, in turn, found out that no sale or
barter was feasible because the one-year period for redemption of the said
property had not yet expired at the time.
S a l e s P a r t V P a g e | 134
In an effort to cut through any legal impediment, petitioner executed on
October 19, 1984, a deed of redemption on behalf of Fr. Jacobe purportedly
in the amount of P15,987.78, and on even date, Fr. Jacobe sold the property
to petitioner for P75,000.00. The haste with which the two deeds were
executed is shown by the fact that the deed of sale was notarized ahead of
the deed of redemption. As Dr. Cruz had already agreed to the proposed
barter, petitioner went to Prudential Bank once again to take a look at the
jewelry.
In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the
latter's residence to prepare the documents of sale. 2 Dr. Cruz herself was not
around but Atty. Belarmino was aware that she and petitioner had previously
agreed to exchange a pair of emerald-cut diamond earrings for the Tanay
property. Atty. Belarmino accordingly caused the preparation of a deed of
absolute sale while petitioner and Dr. Cruz attended to the safekeeping of
the jewelry.
The following day, petitioner, together with Dichoso and Mendoza, arrived at
the residence of Atty. Belarmino to finally execute a deed of absolute sale.
Petitioner signed the deed and gave Atty. Belarmino the amount of
P13,700.00 for necessary expenses in the transfer of title over the Tanay
property. Petitioner also issued a certification to the effect that the actual
consideration of the sale was P200,000.00 and not P80,000.00 as indicated
in the deed of absolute sale. The disparity between the actual contract price
and the one indicated on the deed of absolute sale was purportedly aimed at
minimizing the amount of the capital gains tax that petitioner would have to
shoulder. Since the jewelry was appraised only at P160,000.00, the parties
agreed that the balance of P40,000.00 would just be paid later in cash.
As pre-arranged, petitioner left Atty. Belarmino's residence with Dichoso and
Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr. Cruz
also arrived shortly thereafter, but the cashier who kept the other key to the
deposit box had already left the bank. Dr. Cruz and Dichoso, therefore,
looked for said cashier and found him having a haircut. As soon as his
haircut was finished, the cashier returned to the bank and arrived there at
5:48 p.m., ahead of Dr. Cruz and Dichoso who arrived at 5:55 p.m. Dr. Cruz
and the cashier then opened the safety deposit box, the former retrieving a
transparent plastic or cellophane bag with the jewelry inside and handing
over the same to petitioner. The latter took the jewelry from the bag, went
near the electric light at the bank's lobby, held the jewelry against the light

and examined it for ten to fifteen minutes. After a while, Dr. Cruz asked,
"Okay na ba iyan?" Petitioner expressed his satisfaction by nodding his head.
For services rendered, petitioner paid the agents, Dichoso and Mendoza, the
amount of US$300.00 and some pieces of jewelry. He did not, however, give
them half of the pair of earrings in question which he had earlier promised.
Later, at about 8:00 o'clock in the evening of the same day, petitioner
arrived at the residence of Atty. Belarmino complaining that the jewelry
given to him was fake. He then used a tester to prove the alleged fakery.
Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence of Dr.
Cruz to borrow her car so that, with Atty. Belarmino, they could register the
Tanay property. After Dr. Cruz had agreed to lend her car, Dichoso called up
Atty. Belarmino. The latter, however, instructed Dichoso to proceed
immediately to his residence because petitioner was there. Believing that
petitioner had finally agreed to give them half of the pair of earrings,
Dichoso went posthaste to the residence of Atty. Belarmino only to find
petitioner already demonstrating with a tester that the earrings were fake.
Petitioner then accused Dichoso and Mendoza of deceiving him which they,
however, denied. They countered that petitioner could not have been fooled
because he had vast experience regarding jewelry. Petitioner nonetheless
took back the US$300.00 and jewelry he had given them.
Thereafter, the group decided to go to the house of a certain Macario
Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking
one look at the earrings, immediately declared them counterfeit. At around
9:30 p.m., petitioner went to one Atty. Reynaldo Alcantara residing at
Lakeside Subdivision in San Pablo City, complaining about the fake jewelry.
Upon being advised by the latter, petitioner reported the matter to the police
station where Dichoso and Mendoza likewise executed sworn statements.
On October 26, 1984, petitioner filed a complaint before the Regional Trial
Court of San Pablo City against private respondents praying, among other
things, that the contract of sale over the Tanay property be declared null and
void on the ground of fraud and deceit.
On October 30, 1984, the lower court issued a temporary restraining order
directing the Register of Deeds of Rizal to refrain from acting on the
pertinent documents involved in the transaction. On November 20, 1984,
however, the same court lifted its previous order and denied the prayer for a
writ of preliminary injunction.
S a l e s P a r t V P a g e | 135
After trial, the lower court rendered its decision on March 7, 1989.
Confronting the issue of whether or not the genuine pair of earrings used as
consideration for the sale was delivered by Dr. Cruz to petitioner, the lower
court said:
The Court finds that the answer is definitely in the
affirmative. Indeed, Dra. Cruz delivered (the) subject
jewelries (sic) into the hands of plaintiff who even raised the
same nearer to the lights of the lobby of the bank near the
door. When asked by Dra. Cruz if everything was in order,
plaintiff even nodded his satisfaction (Hearing of Feb. 24,
1988). At that instance, plaintiff did not protest, complain or
beg for additional time to examine further the jewelries (sic).
Being a professional banker and engaged in the jewelry
business plaintiff is conversant and competent to detect a
fake diamond from the real thing. Plaintiff was accorded the
reasonable time and opportunity to ascertain and inspect the
jewelries (sic) in accordance with Article 1584 of the Civil
Code. Plaintiff took delivery of the subject jewelries ( sic)
before 6:00 p.m. of October 24, 1984. When he went at
8:00 p.m. that same day to the residence of Atty. Belarmino
already with a tester complaining about some fake jewelries
(sic), there was already undue delay because of the lapse of
a considerable length of time since he got hold of subject
jewelries (sic). The lapse of two (2) hours more or less
before plaintiff complained is considered by the Court as
unreasonable delay.3
The lower court further ruled that all the elements of a valid contract under
Article 1458 of the Civil Code were present, namely: (a) consent or meeting
of the minds; (b) determinate subject matter, and (c) price certain in money
or its equivalent. The same elements, according to the lower court, were
present despite the fact that the agreement between petitioner and Dr. Cruz
was principally a barter contract. The lower court explained thus:
. . . . Plaintiff's ownership over the Tanay property passed
unto Dra. Cruz upon the constructive delivery thereof by
virtue of the Deed of Absolute Sale (Exh. D). On the other
hand, the ownership of Dra. Cruz over the subject jewelries
(sic) transferred to the plaintiff upon her actual personal
delivery to him at the lobby of the Prudential Bank. It is

expressly provided by law that the thing sold shall be
understood as delivered, when it is placed in the control and
possession of the vendee (Art. 1497, Civil Code; Kuenzle &
Straff vs. Watson & Co. 13 Phil. 26). The ownership and/or
title over the jewelries (sic) was transmitted immediately
before 6:00 p.m. of October 24, 1984. Plaintiff signified his
approval by nodding his head. Delivery or tradition, is one of
the modes of acquiring ownership (Art. 712, Civil Code).
Similarly, when Exhibit D was executed, it was equivalent to
the delivery of the Tanay property in favor of Dra. Cruz. The
execution of the public instrument (Exh. D) operates as a
formal or symbolic delivery of the Tanay property and
authorizes the buyer, Dra. Cruz to use the document as
proof of ownership (Florendo v. Foz, 20 Phil. 399). More so,
since Exhibit D does not contain any proviso or stipulation to
the effect that title to the property is reserved with the
vendor until full payment of the purchase price, nor is there
a stipulation giving the vendor the right to unilaterally
rescind the contract the moment the vendee fails to pay
within a fixed period (Taguba v. Vda. De Leon, 132 SCRA
722; Luzon Brokerage Co. Inc. vs. Maritime Building Co. Inc.
86 SCRA 305; Froilan v. Pan Oriental Shipping Co. et al. 12
SCRA 276). 4
Aside from concluding that the contract of barter or sale had in fact been
consummated when petitioner and Dr. Cruz parted ways at the bank, the
trial court likewise dwelt on the unexplained delay with which petitioner
complained about the alleged fakery. Thus:
. . . . Verily, plaintiff is already estopped to come back after
the lapse of considerable length of time to claim that what
he got was fake. He is a Business Management graduate of
La Salle University, Class 1978-79, a professional banker as
well as a jeweler in his own right. Two hours is more than
enough time to make a switch of a Russian diamond with
the real diamond. It must be remembered that in July 1984
plaintiff made a sketch of the subject jewelries (sic) at the
Prudential Bank. Plaintiff had a tester at 8:00 p.m. at the
residence of Atty. Belarmino. Why then did he not bring it
out when he was examining the subject jewelries ( sic) at
S a l e s P a r t V P a g e | 136
about 6:00 p.m. in the bank's lobby? Obviously, he had no
need for it after being satisfied of the genuineness of the
subject jewelries (sic). When Dra. Cruz and plaintiff left the
bank both of them had fully performed their respective
prestations. Once a contract is shown to have been
consummated or fully performed by the parties thereto, its
existence and binding effect can no longer be disputed. It is
irrelevant and immaterial to dispute the due execution of a
contract if both of them have in fact performed their
obligations thereunder and their respective signatures and
those of their witnesses appear upon the face of the
document (Weldon Construction v. CA G.R. No. L-35721,
Oct. 12, 1987).5
Finally, in awarding damages to the defendants, the lower court remarked:
The Court finds that plaintiff acted in wanton bad faith.
Exhibit 2-Belarmino purports to show that the Tanay
property is worth P25,000.00. However, also on that same
day it was executed, the property's worth was magnified at
P75,000.00 (Exh. 3-Belarmino). How could in less than a day
(Oct. 19, 1984) the value would (sic) triple under normal
circumstances? Plaintiff, with the assistance of his agents,
was able to exchange the Tanay property which his bank
valued only at P25,000.00 in exchange for a genuine pair of
emerald cut diamond worth P200,000.00 belonging to Dra.
Cruz. He also retrieved the US$300.00 and jewelries (sic)
from his agents. But he was not satisfied in being able to get
subject jewelries for a song. He had to file a malicious and
unfounded case against Dra. Cruz and Atty. Belarmino who
are well known, respected and held in high esteem in San
Pablo City where everybody practically knows everybody.
Plaintiff came to Court with unclean hands dragging the
defendants and soiling their clean and good name in the
process. Both of them are near the twilight of their lives
after maintaining and nurturing their good reputation in the
community only to be stunned with a court case. Since the
filing of this case on October 26, 1984 up to the present
they were living under a pall of doubt. Surely, this affected
not only their earning capacity in their practice of their
respective professions, but also they suffered besmirched
reputations. Dra. Cruz runs her own hospital and defendant

Belarmino is a well respected legal practitioner. The length
of time this case dragged on during which period their
reputation were (sic) tarnished and their names maligned by
the pendency of the case, the Court is of the belief that
some of the damages they prayed for in their answers to the
complaint are reasonably proportionate to the sufferings
they underwent (Art. 2219, New Civil Code). Moreover,
because of the falsity, malice and baseless nature of the
complaint defendants were compelled to litigate. Hence, the
award of attorney's fees is warranted under the
circumstances (Art. 2208, New Civil Code).6
From the trial court's adverse decision, petitioner elevated the matter to the
Court of Appeals. On October 20, 1992, the Court of Appeals, however,
rendered a decision 7 affirming in toto the lower court's decision. His motion
for reconsideration having been denied on October 19, 1993, petitioner now
files the instant petition alleging that:
I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFF'S
COMPLAINT AND IN HOLDING THAT THE PLAINTIFF
ACTUALLY RECEIVED A GENUINE PAIR OF EMERALD CUT
DIAMOND EARRING(S) FROM DEFENDANT CRUZ . . . ;
II. THE TRIAL COURT ERRED IN AWARDING MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S FEES IN FAVOR
OF DEFENDANTS AND AGAINST THE PLAINTIFF IN THIS
CASE; and
III. THE TRIAL, COURT ERRED IN NOT DECLARING THE
DEED OF SALE OF THE TANAY PROPERTY (EXH. "D") AS
NULL AND VOID OR IN NOT ANNULLING THE SAME, AND IN
FAILING TO GRANT REASONABLE DAMAGES IN FAVOR OF
THE PLAINTIFF.8
As to the first allegation, the Court observes that petitioner is essentially
raising a factual issue as it invites us to examine and weigh anew the facts
regarding the genuineness of the earrings bartered in exchange for the
Tanay property. This, of course, we cannot do without unduly transcending
the limits of our review power in petitions of this nature which are confined
merely to pure questions of law. We accord, as a general rule,
conclusiveness to a lower court's findings of fact unless it is shown, inter alia,
S a l e s P a r t V P a g e | 137
that: (1) the conclusion is a finding grounded on speculations, surmises or
conjectures; (2) the inference is manifestly mistaken, absurd and impossible;
(3) when there is a grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are
conflicting; and (6) when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to the admission of
both parties. 9 We find nothing, however, that warrants the application of
any of these exceptions.
Consequently, this Court upholds the appellate court's findings of fact
especially because these concur with those of the trial court which, upon a
thorough scrutiny of the records, are firmly grounded on evidence presented
at the trial. 10 To reiterate, this Court's jurisdiction is only limited to reviewing
errors of law in the absence of any showing that the findings complained of
are totally devoid of support in the record or that they are glaringly
erroneous as to constitute serious abuse of discretion. 11
Nonetheless, this Court has to closely delve into petitioner's allegation that
the lower court's decision of March 7, 1989 is a "ready-made" one because it
was handed down a day after the last date of the trial of the
case. 12 Petitioner, in this regard, finds it incredible that Judge J. Ausberto
Jaramillo was able to write a 12-page single-spaced decision, type it and
release it on March 7, 1989, less than a day after the last hearing on March
6, 1989. He stressed that Judge Jaramillo replaced Judge Salvador de
Guzman and heard only his rebuttal testimony.
This allegation is obviously no more than a desperate effort on the part of
petitioner to disparage the lower court's findings of fact in order to convince
this Court to review the same. It is noteworthy that Atty. Belarmino clarified
that Judge Jaramillo had issued the first order in the case as early as March
9, 1987 or two years before the rendition of the decision. In fact, Atty.
Belarmino terminated presentation of evidence on October 13, 1987, while
Dr. Cruz finished hers on February 4, 1989, or more than a month prior to
the rendition of the judgment. The March 6, 1989 hearing was conducted
solely for the presentation of petitioner's rebuttal testimony. 13 In other
words, Judge Jaramillo had ample time to study the case and write the
decision because the rebuttal evidence would only serve to confirm or verify
the facts already presented by the parties.
The Court finds nothing anomalous in the said situation. No proof has been
adduced that Judge Jaramillo was motivated by a malicious or sinister intent

in disposing of the case with dispatch. Neither is there proof that someone
else wrote the decision for him. The immediate rendition of the decision was
no more than Judge Jaramillo's compliance with his duty as a judge to
"dispose of the court's business promptly and decide cases within the
required periods." 14 The two-year period within which Judge Jaramillo
handled the case provided him with all the time to study it and even write
down its facts as soon as these were presented to court. In fact, this Court
does not see anything wrong in the practice of writing a decision days before
the scheduled promulgation of judgment and leaving the dispositive portion
for typing at a time close to the date of promulgation, provided that no
malice or any wrongful conduct attends its adoption. 15The practice serves
the dual purposes of safeguarding the confidentiality of draft decisions and
rendering decisions with promptness. Neither can Judge Jaramillo be made
administratively answerable for the immediate rendition of the decision. The
acts of a judge which pertain to his judicial functions are not subject to
disciplinary power unless they are committed with fraud, dishonesty,
corruption or bad faith. 16Hence, in the absence of sufficient proof to the
contrary, Judge Jaramillo is presumed to have performed his job in
accordance with law and should instead be commended for his close
attention to duty.
Having disposed of petitioner's first contention, we now come to the core
issue of this petition which is whether the Court of Appeals erred in
upholding the validity of the contract of barter or sale under the
circumstances of this case.
The Civil Code provides that contracts are perfected by mere consent. From
this moment, the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which, according
to their nature, may be in keeping with good faith, usage and law. 17 A
contract of sale is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the
price. 18 Being consensual, a contract of sale has the force of law between
the contracting parties and they are expected to abide in good faith by their
respective contractual commitments. Article 1358 of the Civil Code which
requires the embodiment of certain contracts in a public instrument, is only
for convenience, 19 and registration of the instrument only adversely affects
third parties. 20 Formal requirements are, therefore, for the benefit of third
parties. Non-compliance therewith does not adversely affect the validity of
the contract nor the contractual rights and obligations of the parties
thereunder.
S a l e s P a r t V P a g e | 138
It is evident from the facts of the case that there was a meeting of the minds
between petitioner and Dr. Cruz. As such, they are bound by the contract
unless there are reasons or circumstances that warrant its nullification.
Hence, the problem that should be addressed in this case is whether or not
under the facts duly established herein, the contract can be voided in
accordance with law so as to compel the parties to restore to each other the
things that have been the subject of the contract with their fruits, and the
price with interest.21
Contracts that are voidable or annullable, even though there may have been
no damage to the contracting parties are: (1) those where one of the parties
is incapable of giving consent to a contract; and (2) those where the consent
is vitiated by mistake, violence, intimidation, undue influence or
fraud. 22 Accordingly, petitioner now stresses before this Court that he
entered into the contract in the belief that the pair of emerald-cut diamond
earrings was genuine. On the pretext that those pieces of jewelry turned out
to be counterfeit, however, petitioner subsequently sought the nullification of
said contract on the ground that it was, in fact, "tainted with fraud" 23 such
that his consent was vitiated.
There is fraud when, through the insidious words or machinations of one of
the contracting parties, the other is induced to enter into a contract which,
without them, he would not have agreed to. 24 The records, however, are
bare of any evidence manifesting that private respondents employed such
insidious words or machinations to entice petitioner into entering the
contract of barter. Neither is there any evidence showing that Dr. Cruz
induced petitioner to sell his Tanay property or that she cajoled him to take
the earrings in exchange for said property. On the contrary, Dr. Cruz did not
initially accede to petitioner's proposal to buy the said jewelry. Rather, it
appears that it was petitioner, through his agents, who led Dr. Cruz to
believe that the Tanay property was worth exchanging for her jewelry as he
represented that its value was P400,000.00 or more than double that of the
jewelry which was valued only at P160,000.00. If indeed petitioner's property
was truly worth that much, it was certainly contrary to the nature of a
businessman-banker like him to have parted with his real estate for half its
price. In short, it was in fact petitioner who resorted to machinations to
convince Dr. Cruz to exchange her jewelry for the Tanay property.
Moreover, petitioner did not clearly allege mistake as a ground for
nullification of the contract of sale. Even assuming that he did, petitioner
cannot successfully invoke the same. To invalidate a contract, mistake must

"refer to the substance of the thing that is the object of the contract, or to
those conditions which have principally moved one or both parties to enter
into the contract." 25 An example of mistake as to the object of the contract
is the substitution of a specific thing contemplated by the parties with
another. 26 In his allegations in the complaint, petitioner insinuated that an
inferior one or one that had only Russian diamonds was substituted for the
jewelry he wanted to exchange with his 10-hectare land. He, however, failed
to prove the fact that prior to the delivery of the jewelry to him, private
respondents endeavored to make such substitution.
Likewise, the facts as proven do not support the allegation that petitioner
himself could be excused for the "mistake." On account of his work as a
banker-jeweler, it can be rightfully assumed that he was an expert on
matters regarding gems. He had the intellectual capacity and the business
acumen as a banker to take precautionary measures to avert such a mistake,
considering the value of both the jewelry and his land. The fact that he had
seen the jewelry before October 24, 1984 should not have precluded him
from having its genuineness tested in the presence of Dr. Cruz. Had he done
so, he could have avoided the present situation that he himself brought
about. Indeed, the finger of suspicion of switching the genuine jewelry for a
fake inevitably points to him. Such a mistake caused by manifest negligence
cannot invalidate a juridical act. 27 As the Civil Code provides, "(t)here is no
mistake if the party alleging it knew the doubt, contingency or risk affecting
the object of the contract."28
Furthermore, petitioner was afforded the reasonable opportunity required in
Article 1584 of the Civil Code within which to examine the jewelry as he in
fact accepted them when asked by Dr. Cruz if he was satisfied with the
same. 29 By taking the jewelry outside the bank, petitioner executed an act
which was more consistent with his exercise of ownership over it. This gains
credence when it is borne in mind that he himself had earlier delivered the
Tanay property to Dr. Cruz by affixing his signature to the contract of sale.
That after two hours he later claimed that the jewelry was not the one he
intended in exchange for his Tanay property, could not sever the juridical tie
that now bound him and Dr. Cruz. The nature and value of the thing he had
taken preclude its return after that supervening period within which anything
could have happened, not excluding the alteration of the jewelry or its being
switched with an inferior kind.
Both the trial and appellate courts, therefore, correctly ruled that there were
no legal bases for the nullification of the contract of sale. Ownership over the
S a l e s P a r t V P a g e | 139
parcel of land and the pair of emerald-cut diamond earrings had been
transferred to Dr. Cruz and petitioner, respectively, upon the actual and
constructive delivery thereof. 30 Said contract of sale being absolute in
nature, title passed to the vendee upon delivery of the thing sold since there
was no stipulation in the contract that title to the property sold has been
reserved in the seller until full payment of the price or that the vendor has
the right to unilaterally resolve the contract the moment the buyer fails to
pay within a fixed period. 31 Such stipulations are not manifest in the
contract of sale.
While it is true that the amount of P40,000.00 forming part of the
consideration was still payable to petitioner, its nonpayment by Dr. Cruz is
not a sufficient cause to invalidate the contract or bar the transfer of
ownership and possession of the things exchanged considering the fact that
their contract is silent as to when it becomes due and demandable. 32
Neither may such failure to pay the balance of the purchase price result in
the payment of interest thereon. Article 1589 of the Civil Code prescribes the
payment of interest by the vendee "for the period between the delivery of
the thing and the payment of the price" in the following cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or
income;
(3) Should he be in default, from the time of judicial or
extrajudicial demand for the payment of the price.
Not one of these cases obtains here. This case should, of course, be
distinguished from De la Cruz v. Legaspi, 33 where the court held
that failure to pay the consideration after the notarization of the
contract as previously promised resulted in the vendee's liability for
payment of interest. In the case at bar, there is no stipulation for the
payment of interest in the contract of sale nor proof that the Tanay
property produced fruits or income. Neither did petitioner demand
payment of the price as in fact he filed an action to nullify the
contract of sale.
All told, petitioner appears to have elevated this case to this Court for the
principal reason of mitigating the amount of damages awarded to both

private respondents which petitioner considers as "exorbitant." He contends
that private respondents do not deserve at all the award of damages. In fact,
he pleads for the total deletion of the award as regards private respondent
Belarmino whom he considers a mere "nominal party" because "no specific
claim for damages against him" was alleged in the complaint. When he filed
the case, all that petitioner wanted was that Atty. Belarmino should return to
him the owner's duplicate copy of TCT No. 320725, the deed of sale
executed by Fr. Antonio Jacobe, the deed of redemption and the check
alloted for expenses. Petitioner alleges further that Atty. Belarmino should
not have delivered all those documents to Dr. Cruz because as the "lawyer
for both the seller and the buyer in the sale contract, he should have
protected the rights of both parties." Moreover, petitioner asserts that there
was no firm basis for damages except for Atty. Belarmino's uncorroborated
testimony.34
Moral and exemplary damages may be awarded without proof of pecuniary
loss. In awarding such damages, the court shall take into account the
circumstances obtaining in the case said assess damages according to its
discretion.35 To warrant the award of damages, it must be shown that the
person to whom these are awarded has sustained injury. He must likewise
establish sufficient data upon which the court can properly base its estimate
of the amount of damages.36 Statements of facts should establish such data
rather than mere conclusions or opinions of witnesses. 37 Thus:
. . . . For moral damages to be awarded, it is essential that
the claimant must have satisfactorily proved during the trial
the existence of the factual basis of the damages and its
causal connection with the adverse party's acts. If the court
has no proof or evidence upon which the claim for moral
damages could be based, such indemnity could not be
outrightly awarded. The same holds true with respect to the
award of exemplary damages where it must be shown that
the party acted in a wanton, oppressive or malevolent
manner. 38
In this regard, the lower court appeared to have awarded damages on a
ground analogous to malicious prosecution under Article 2219 (8) of the Civil
Code 39 as shown by (1) petitioner's "wanton bad faith" in bloating the value
of the Tanay property which he exchanged for "a genuine pair of emerald-
cut diamond worth P200,00.00;" and (2) his filing of a "malicious and
unfounded case" against private respondents who were "well known,
S a l e s P a r t V P a g e | 140
respected and held in high esteem in San Pablo City where everybody
practically knows everybody" and whose good names in the "twilight of their
lives" were soiled by petitioner's coming to court with "unclean hands,"
thereby affecting their earning capacity in the exercise of their respective
professions and besmirching their reputation.
For its part, the Court of Appeals affirmed the award of damages to private
respondents for these reasons:
The malice with which Fule filed this case is apparent.
Having taken possession of the genuine jewelry of Dra. Cruz,
Fule now wishes to return a fake jewelry to Dra. Cruz and,
more than that, get back the real property, which his bank
owns. Fule has obtained a genuine jewelry which he could
sell anytime, anywhere and to anybody, without the same
being traced to the original owner for practically nothing.
This is plain and simple, unjust enrichment.40
While, as a rule, moral damages cannot be recovered from a person who has
filed a complaint against another in good faith because it is not sound policy
to place a penalty on the right to litigate, 41 the same, however, cannot apply
in the case at bar. The factual findings of the courts a quo to the effect that
petitioner filed this case because he was the victim of fraud; that he could
not have been such a victim because he should have examined the jewelry in
question before accepting delivery thereof, considering his exposure to the
banking and jewelry businesses; and that he filed the action for the
nullification of the contract of sale with unclean hands, all deserve full faith
and credit to support the conclusion that petitioner was motivated more by ill
will than a sincere attempt to protect his rights in commencing suit against
respondents.
As pointed out earlier, a closer scrutiny of the chain of events immediately
prior to and on October 24, 1984 itself would amply demonstrate that
petitioner was not simply negligent in failing to exercise due diligence to
assure himself that what he was taking in exchange for his property were
genuine diamonds. He had rather placed himself in a situation from which it
preponderantly appears that his seeming ignorance was actually just a ruse.
Indeed, he had unnecessarily dragged respondents to face the travails of
litigation in speculating at the possible favorable outcome of his complaint
when he should have realized that his supposed predicament was his own
making. We, therefore, see here no semblance of an honest and sincere
 S a l e s P a r t V P a g e | 141

belief on his part that he was swindled by respondents which would entitle find no cogent reason to disturb the findings of the courts below that
him to redress in court. It must be noted that before petitioner was able to respondents in this case suffered considerable damages due to petitioner's
convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner unwarranted action.
took pains to thoroughly examine said jewelry, even going to the extent of
sketching their appearance. Why at the precise moment when he was about WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is
to take physical possession thereof he failed to exert extra efforts to check hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay petitioner the
their genuineness despite the large consideration involved has never been balance of the purchase price of P40,000.00 within ten (10) days from the
explained at all by petitioner. His acts thus failed to accord with what an finality of this decision. Costs against petitioner.
ordinary prudent man would have done in the same situation. Being an
experienced banker and a businessman himself who deliberately skirted a SO ORDERED.
legal impediment in the sale of the Tanay property and to minimize the
capital gains tax for its exchange, it was actually gross recklessness for him
Narvasa, C.J., Kapunan and Purisima, JJ., concur.
to have merely conducted a cursory examination of the jewelry when every
opportunity for doing so was not denied him. Apparently, he carried on his
person a tester which he later used to prove the alleged fakery but which he
did not use at the time when it was most needed. Furthermore, it took him
two more hours of unexplained delay before he complained that the jewelry
he received were counterfeit. Hence, we stated earlier that anything could
have happened during all the time that petitioner was in complete
possession and control of the jewelry, including the possibility of substituting
them with fake ones, against which respondents would have a great deal of
difficulty defending themselves. The truth is that petitioner even failed to
successfully prove during trial that the jewelry he received from Dr. Cruz
were not genuine. Add to that the fact that he had been shrewd enough to
bloat the Tanay property's price only a few days after he purchased it at a
much lower value. Thus, it is our considered view that if this slew of
circumstances were connected, like pieces of fabric sewn into a quilt, they
would sufficiently demonstrate that his acts were not merely negligent but
rather studied and deliberate.

We do not have here, therefore, a situation where petitioner's complaint was

simply found later to be based on an erroneous ground which, under settled
jurisprudence, would not have been a reason for awarding moral and
exemplary damages. 42 Instead, the cause of action of the instant case
appears to have been contrived by petitioner himself. In other words, he was
placed in a situation where he could not honestly evaluate whether his cause
of action has a semblance of merit, such that it would require the expertise
of the courts to put it to a test. His insistent pursuit of such case then
coupled with circumstances showing that he himself was guilty in bringing
about the supposed wrongdoing on which he anchored his cause of action
would render him answerable for all damages the defendant may suffer
because of it. This is precisely what took place in the petition at bar and we

G.R. No. 78903. February 28, 1990.*
SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION,
petitioners, vs. THE HONORABLE COURT OF AP-PEALS AND
RUPERTO SABESAJE, JR., respondents.
Contracts; Sale of Real Property; The necessity of a public instrument
provided for in Art. 1358 is only for convenience, not for validity or
enforceability.—Assuming authenticity of his signature and the genuineness
of the document, Dalion nonetheless still impugns the validity of the sale on
the ground that the same is embodied in a private document, and did not
thus convey title or right to the lot in question since “acts and contracts
which have for their object the creation, transmission, modification or
extinction of real rights over immovable property must appear in a public
instrument” (Art. 1358, par 1, NCC). This argument is misplaced. The
provision of Art. 1358 on the necessity of a public document is only for
convenience, not for validity or enforceability. It is not a requirement for the
validity of a contract of sale of a parcel of land that this be embodied in a
public instrument.
Same; Same; Contract of sale, perfected by mere consent.—A contract of
sale is a consensual contract, which means that the sale is perfected by mere
consent. No particular form is required for its validity. Upon perfection of the
contract, the parties may reciprocally demand performance (Art. 1475, NCC),
i.e., the vendee may compel transfer of ownership of the object of the sale,
and the vendor may require the vendee to pay the thing sold (Art. 1458,
NCC). The trial court thus rightly and legally ordered Dalion to deliver to
Sabesaje the parcel of land and to execute the corresponding formal deed of
conveyance in a public document. Under Art. 1498, NCC, when the sale is
made through a public instrument, the execution thereof is equivalent to the
delivery of the thing. Delivery may either be actual (real) or constructive.
Thus, delivery of a parcel of land may be done by placing the vendee in
control and possession of the land (real) or by embodying the sale in a public
instrument (constructive).
Same; Same; Parties to a perfected contract of sale have the right to
reciprocally demand performance, and to observe a particular form if
warranted.—As regards petitioners’ contention that the proper action should
S a l e s P a r t V P a g e | 142
have been one for specific performance, We believe that the suit for
recovery of ownership is proper. As earlier stated, Art. 1475 of the Civil Code
gives the parties to a perfected contract of sale the right to reciprocally
demand performance, and to observe a particular form, if warranted, (Art.
1357). The trial court, aptly observed that Sa-besaje’s complaint sufficiently
alleged a cause of action to compel Dalion to execute a formal deed of sale,
and the suit for recovery of ownership, which is premised on the binding
effect and validity inter partes of the contract of sale, merely seeks
consummation of said contract. “x x x. A sale of a real property may be in a
private instrument, but that contract is valid and binding between the parties
upon its perfection. And a party may compel the other party to execute a
public instrument embodying their contract affecting real rights once the
contract appearing in a private instrument has been perfected (See Art.
1357).
PETITION to review the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Francisco A. Puray, Sr. for petitioners.
Gabriel N. Duazo for private respondent. Dalion vs. Court of Appeals, 182
SCRA 872, G.R. No. 78903 February 28, 1990
MEDIALDEA, J.:
This is a petition to annul and set aside the decision of the Court of Appeals
rendered on May 26, 1987, upholding the validity of the sale of a parcel of
land by petitioner Segundo Dalion (hereafter, "Dalion") in favor of private
respondent Ruperto Sabesaje, Jr. (hereafter, "Sabesaje"), described thus:
A parcel of land located at Panyawan, Sogod, Southern
Leyte, declared in the name of Segundo Dalion, under Tax
Declaration No. 11148, with an area of 8947 hectares,
assessed at P 180.00, and bounded on the North, by Sergio
Destriza and Titon Veloso, East, by Feliciano Destriza, by
Barbara Bonesa (sic); and West, by Catalino Espina. (pp. 36-
37, Rollo)

The decision affirms in toto the ruling of the trial court 1 issued on January
17, 1984, the dispositive portion of which provides as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, the Court
hereby renders judgment.
(a) Ordering the defendants to deliver to the plaintiff the
parcel of land subject of this case, declared in the name of
Segundo Dalion previously under Tax Declaration No. 11148
and lately under Tax Declaration No. 2297 (1974) and to
execute the corresponding formal deed of conveyance in a
public document in favor of the plaintiff of the said property
subject of this case, otherwise, should defendants for any
reason fail to do so, the deed shall be executed in their
behalf by the Provincial Sheriff or his Deputy;
(b) Ordering the defendants to pay plaintiff the amount of
P2,000.00 as attorney's fees and P 500.00 as litigation
expenses, and to pay the costs; and
(c) Dismissing the counter-claim. (p. 38, Rollo)
The facts of the case are as follows:
On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land,
based on a private document of absolute sale, dated July 1, 1965 (Exhibit
"A"), allegedly executed by Dalion, who, however denied the fact of sale,
contending that the document sued upon is fictitious, his signature thereon,
a forgery, and that subject land is conjugal property, which he and his wife
acquired in 1960 from Saturnina Sabesaje as evidenced by the "Escritura de
Venta Absoluta" (Exhibit "B"). The spouses denied claims of Sabesaje that
after executing a deed of sale over the parcel of land, they had pleaded with
Sabesaje, their relative, to be allowed to administer the land because Dalion
did not have any means of livelihood. They admitted, however, administering
since 1958, five (5) parcels of land in Sogod, Southern Leyte, which
belonged to Leonardo Sabesaje, grandfather of Sabesaje, who died in 1956.
They never received their agreed 10% and 15% commission on the sales of
copra and abaca, respectively. Sabesaje's suit, they countered, was intended
merely to harass, preempt and forestall Dalion's threat to sue for these
unpaid commissions.
S a l e s P a r t V P a g e | 143
From the adverse decision of the trial court, Dalion appealed, assigning
errors some of which, however, were disregarded by the appellate court, not
having been raised in the court below. While the Court of Appeals duly
recognizes Our authority to review matters even if not assigned as errors in
the appeal, We are not inclined to do so since a review of the case at bar
reveals that the lower court has judicially decided the case on its merits.
As to the controversy regarding the identity of the land, We have no reason
to dispute the Court of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit "A" is the
same property deeded out in Exhibit "B". The boundaries
delineating it from adjacent lots are identical. Both
documents detail out the following boundaries, to wit:
On the North-property of Sergio Destriza and Titon Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.
(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the validity of the contract
of sale of a parcel of land and b) the necessity of a public document for
transfer of ownership thereto.
The appellate court upheld the validity of the sale on the basis of Secs. 21
and 23 of Rule 132 of the Revised Rules of Court.
SEC. 21. Private writing, its execution and authenticity, how
proved.-Before any private writing may be received in
evidence, its due execution and authenticity must be proved
either:
(a) By anyone who saw the writing executed;

(b) By evidence of the genuineness of the handwriting of the
maker; or
(c) By a subscribing witness
xxx xxx xxx
SEC. 23. Handwriting, how proved. — The handwriting of a
person may be proved by any witness who believes it to be
the handwriting of such person, and has seen the person
write, or has seen writing purporting to be his upon which
the witness has acted or been charged, and has thus
acquired knowledge of the handwriting of such person.
Evidence respecting the handwriting may also be given by a
comparison, made by the witness or the court, with writings
admitted or treated as genuine by the party against whom
the evidence is offered, or proved to be genuine to the
satisfaction of the judge. (Rule 132, Revised Rules of Court)
And on the basis of the findings of fact of the trial court as follows:
Here, people who witnessed the execution of subject deed
positively testified on the authenticity thereof. They
categorically stated that it had been executed and signed by
the signatories thereto. In fact, one of such witnesses,
Gerardo M. Ogsoc, declared on the witness stand that he
was the one who prepared said deed of sale and had copied
parts thereof from the "Escritura De Venta Absoluta" (Exhibit
B) by which one Saturnina Sabesaje sold the same parcel of
land to appellant Segundo Dalion. Ogsoc copied the
bounderies thereof and the name of appellant Segundo
Dalion's wife, erroneously written as "Esmenia" in Exhibit "A"
and "Esmenia" in Exhibit "B". (p. 41, Rollo)
xxx xxx xxx
Against defendant's mere denial that he signed the
document, the positive testimonies of the instrumental
We see no reason for deviating from the appellate court's ruling (p. 44,
Witnesses Ogsoc and Espina, aside from the testimony of
Rollo) as we reiterate that
the plaintiff, must prevail. Defendant has affirmatively
alleged forgery, but he never presented any witness or
S a l e s P a r t V P a g e | 144
evidence to prove his claim of forgery. Each party must
prove his own affirmative allegations (Section 1, Rule 131,
Rules of Court). Furthermore, it is presumed that a person is
innocent of a crime or wrong (Section 5 (a),Idem), and
defense should have come forward with clear and convincing
evidence to show that plaintiff committed forgery or caused
said forgery to be committed, to overcome the presumption
of innocence. Mere denial of having signed, does not suffice
to show forgery.
In addition, a comparison of the questioned signatories or
specimens (Exhs. A-2 and A-3) with the admitted signatures
or specimens (Exhs. X and Y or 3-C) convinces the court that
Exhs. A-2 or Z and A-3 were written by defendant Segundo
Dalion who admitted that Exhs. X and Y or 3-C are his
signatures. The questioned signatures and the specimens
are very similar to each other and appear to be written by
one person.
Further comparison of the questioned signatures and the
specimens with the signatures Segundo D. Dalion appeared
at the back of the summons (p. 9, Record); on the return
card (p. 25, Ibid.); back of the Court Orders dated
December 17, 1973 and July 30, 1974 and for October 7,
1974 (p. 54 & p. 56, respectively, Ibid.), and on the open
court notice of April 13, 1983 (p. 235, Ibid.) readily reveal
that the questioned signatures are the signatures of
defendant Segundo Dalion.
It may be noted that two signatures of Segundo D. Dalion
appear on the face of the questioned document (Exh. A),
one at the right corner bottom of the document (Exh. A-2)
and the other at the left hand margin thereof (Exh. A-3).
The second signature is already a surplusage. A forger
would not attempt to forge another signature, an
unnecessary one, for fear he may commit a revealing error
or an erroneous stroke. (Decision, p. 10) (pp. 42-43, Rollo)
 S a l e s P a r t V P a g e | 145

Appellate courts have consistently subscribed to the principle
that conclusions and findings of fact by the trial courts are
entitled to great weight on appeal and should not be
disturbed unless for strong and cogent reasons, since it is
undeniable that the trial court is in a more advantageous
position to examine real evidence, as well as to observe the
demeanor of the witnesses while testifying in the case
(Chase v. Buencamino, Sr., G.R. No. L-20395, May 13, 1985,
136 SCRA 365; Pring v. Court of Appeals, G.R. No. L-41605,
August 19, 1985, 138 SCRA 185)
As regards petitioners' contention that the proper action should have been
one for specific performance, We believe that the suit for recovery of
ownership is proper. As earlier stated, Art. 1475 of the Civil Code gives the
parties to a perfected contract of sale the right to reciprocally demand
performance, and to observe a particular form, if warranted, (Art. 1357). The
trial court, aptly observed that Sabesaje's complaint sufficiently alleged a
cause of action to compel Dalion to execute a formal deed of sale, and the
suit for recovery of ownership, which is premised on the binding effect and
validity inter partes of the contract of sale, merely seeks consummation of
said contract.

Assuming authenticity of his signature and the genuineness of the document, ... . A sale of a real property may be in a private instrument
Dalion nonetheless still impugns the validity of the sale on the ground that but that contract is valid and binding between the parties
the same is embodied in a private document, and did not thus convey title or upon its perfection. And a party may compel the other party
right to the lot in question since "acts and contracts which have for their to execute a public instrument embodying their contract
object the creation, transmission, modification or extinction of real rights affecting real rights once the contract appearing in a private
over immovable property must appear in a public instrument" (Art. 1358, par instrument hag been perfected (See Art. 1357).
1, NCC).
... . (p. 12, Decision, p. 272, Records)
This argument is misplaced. The provision of Art. 1358 on the necessity of a
public document is only for convenience, not for validity or enforceability. It ACCORDINGLY, the petition is DENIED and the decision of the Court of
is not a requirement for the validity of a contract of sale of a parcel of land Appeals upholding the ruling of the trial court is hereby AFFIRMED. No costs.
that this be embodied in a public instrument.
SO ORDERED.
A contract of sale is a consensual contract, which means that the sale is
perfected by mere consent. No particular form is required for its validity. Narvasa, Cruz, Gancayco and Grino-Aquino, JJ., concur.
Upon perfection of the contract, the parties may reciprocally demand
performance (Art. 1475, NCC), i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may require the vendee
to pay the thing sold (Art. 1458, NCC).

The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje
the parcel of land and to execute corresponding formal deed of conveyance
in a public document. Under Art. 1498, NCC, when the sale is made through
a public instrument, the execution thereof is equivalent to the delivery of the
thing. Delivery may either be actual (real) or constructive. Thus delivery of a
parcel of land may be done by placing the vendee in control and possession
of the land (real) or by embodying the sale in a public instrument
(constructive).

G.R. No. 136021. February 22, 2000.*
BENIGNA SECUYA, MIGUEL SECUYA, MARCELINO SECUYA,
CORAZON SECUYA, RUFINA SECUYA, BERNARDINO SECUYA,
NATIVIDAD SECUYA, GLICERIA SECUYA and PURITA SECUYA,
petitioners, vs. GERARDA M. VDA. DE SELMA, respondent.
Property; Actions; Quieting of Title; In an action to quiet title, the plaintiffs
or complainants must show a legal or an equitable title to, or an interest in,
the subject real property, and that the deed, claim, encumbrance or
proceeding that purportedly casts a cloud on their title is in fact invalid or
inoperative despite its prima facie appearance of validity or legal efficacy.—–
In an action to quiet title, the plaintiffs or complainants must demonstrate a
legal or an equitable title to, or an interest in, the subject real property.
Likewise, they must show that the deed, claim, encumbrance or proceeding
that purportedly casts a cloud on their title is in fact invalid or inoperative
despite its prima facie appearance of validity or legal efficacy.
Trusts; Words and Phrases; Trust is a fiduciary relationship that obliges the
trustee to deal with the property for the benefit of the beneficiary.—–Trust is
the right to the beneficial enjoyment of property, the legal title to which is
vested in another. It is a fiduciary relationship that obliges the trustee to
deal with the property for the benefit of the beneficiary. Trust relations
between parties may either be express or implied. An express trust is created
by the intention of the trustor or of the parties. An implied trust comes into
being by operation of law.
Same; Prescription; Prescription may bar recovery by the beneficiary if a
repudiation of the trust is proven by clear and convincing evidence and made
known to the beneficiary; Failure of the trustee to deliver or transfer the
property to the beneficiary and selling the same to a third person not privy
to the trust is a repudiation of the trust.—– While no time limit is imposed for
the enforcement of rights under express trusts, prescription may, however,
bar a beneficiary’s action for recovery, if a repudiation of the trust is proven
by clear and convincing evidence and made known to the beneficiary. There
was a repudiation of the express trust when the heirs of Maxima Caballero
failed to deliver or transfer the property to Paciencia Sabelloan, and instead
sold the same to a third person not privy to the Agreement. In the
S a l e s P a r t V P a g e | 146
memorandum of incumbrances of TCT No. 3087 issued in the name of
Maxima, there was no notation of the Agreement between her and Paciencia.
Equally important, the Agreement was not registered; thus, it could not bind
third persons. Neither was there any allegation that Silvestre Aro, who
purchased the property from Maxima’s heirs, knew of it. Consequently, the
subsequent sales transactions involving the land in dispute and the titles
covering it must be upheld, in the absence of proof that the said transactions
were fraudulent and irregular.
Land Titles; Sales; While a sale of a piece of land appearing in a private deed
is binding between the parties, it cannot be considered binding on third
persons, if it is not embodied in a public instrument and recorded in the
Registry of Property.—–Petitioners insist that Paciencia sold the disputed
property to Dalmacio Secuya on October 20, 1953, and that the sale was
embodied in a private document. However, such document, which would
have been the best evidence of the transaction, was never presented in
court, allegedly because it had been lost. While a sale of a piece of land
appearing in a private deed is binding between the parties, it cannot be
considered binding on third persons, if it is not embodied in a public
instrument and recorded in the Registry of Property.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Alejandro V. Peregrino for petitioners.
Roberto R. Palmares for respondent. Secuya vs. Vda. de Selma, 326
SCRA 244, G.R. No. 136021 February 22, 2000
THIRD DIVISION
PANGANIBAN, J.:
In action for quieting of title, the plaintiff must show not only that there is a
cloud or contrary interest over the subject real property, but that the have a
valid title to it. In the present case, the action must fail, because petitioners
failed to show the requisite title.

The Case
Before us is a Petition for Review seeking to set aside the July 30, 1998
Decision of the Court of Appeals (CA) in CA-G.R. CV No. 38580,1 which
affirmed the judgment2 of the Regional Trial Court (RTC) of Cebu City. The
CA ruled:
WHEREFORE, [there being] no error in the appealed decision, the
same is hereby AFFIRMED in toto.3
The decretal portion of the trial court Decision reads as follows:
WHEREFORE, in view of all the foregoing [evidence] and
considerations, this court hereby finds the preponderance of
evidence to be in favor of the defendant Gerarda Selma as judgment
is rendered:
1. Dismissing this Complaint for Quieting of title, Cancellation of
Certificate of Title of Gerarda vda. de Selma and damages,
2. Ordering the plaintiffs to vacate the premises in question and turn
over the possession of the same to the defendant Gerarda Selma;
3. Requiring the plaintiffs to pay defendant the sum of P20,000 as
moral damages, according to Art. 2217, attorney's fees of
P15,000.00, litigation expenses of P5,000.00 pursuant to Art. 2208
No. 11 and to pay the costs of this suit.1âwphi1.nêt
SO ORDERED.4
Likewise challenged is the October 14, 1998 CA Resolution which denied
petitioners' Motion for Reconsideration.5
The Facts
The present Petition is rooted in an action for quieting of title filed before the
RTC by Benigna, Miguel, Marcelino, Corazon, Rufina, Bernardino, Natividad,
Gliceria and Purita — all surnamed Secuya — against Gerarda M. vda. de
Selma. Petitioners asserted ownership over the disputed parcel of land,
alleging the following facts:
S a l e s P a r t V P a g e | 147
xxx xxx xxx
8. The parcel of land subject of this case is a PORTION of Lot 5679
of the Talisay-Minglanilla Friar Lands Estate, referred to and covered
[o]n Page 279, Friar Lands Sale Certificate Register of the Bureau of
Lands (Exh. "K"). The property was originally sold, and the covering
patent issued, to Maxima Caballero Vda. de Cariño (Exhs. "K-1"; "K-
2). Lot 5679 has an area of 12,750 square meters, more or less;
9. During the lifetime of Maxima Caballero, vendee and patentee of
Lot 5679, she entered into that AGREEMENT OF PARTITION dated
January 5, 1938 with Paciencia Sabellona, whereby the former
bound herself and parted [with] one-third (1/3) portion of Lot 5679
in favor of the latter (Exh. "D"). Among others it was stipulated in
said agreement of partition that the said portion of one-third so
ceded will be located adjoining the municipal road (par. 5. Exh "D");
10. Paciencia Sabellona took possession and occupation of that one-
third portion of Lot 5679 adjudicated to her. Later, she sold the
three thousand square meter portion thereof to Dalmacio Secuya on
October 20, 1953, for a consideration of ONE THOUSAND EIGHT
HUNDRED FIFTY PESOS (P1,850.00), by means of a private
document which was lost (p. 8, tsn., 8/8/89-Calzada). Such sale was
admitted and confirmed by Ramon Sabellona, only heir of Paciencia
Sabellona, per that instrument denominated CONFIRMATION OF
SALE OF UNDIVIDED SHARES, dated September 28, 1976(Exh. "B");
11. Ramon Sabellona was the only [or] sole voluntary heir of
Paciencia Sabellona, per that KATAPUSAN NGA KABUT-ON UG
PANUGON NI PACIENCIA SABELLONA (Last Will and Testament of
Paciencia Sabellona), dated July 9, 1954, executed and
acknowledged before Notary Public Teodoro P. Villarmina (Exh. "C").
Pursuant to such will, Ramon Sabellona inherited all the properties
left by Paciencia Sabellona;
12. After the purchase [by] Dalmacio Secuya, predecessor-in interest
of plaintiffs of the property in litigation on October 20, 1953,
Dalmacio, together with his brothers and sisters — he being single —
took physical possession of the land and cultivated the same. In
1967, Edilberto Superales married Rufina Secuya, niece of Dalmacio
Secuya. With the permission and tolerance of the Secuyas, Edilberto

Superales constructed his house on the lot in question in January
1974 and lived thereon continuously up to the present (p. 8., tsn
7/25/88 — Daclan). Said house is inside Lot 5679-C-12-B, along lines
18-19-20 of said lot, per Certification dated August 10, 1985, by
Geodetic Engineer Celestino R. Orozco (Exh. "F");
13. Dalmacio Secuya died on November 20, 1961. Thus his heirs —
brothers, sisters, nephews and nieces — are the plaintiffs in Civil
Case No. CEB-4247 and now the petitioners;
14. In 1972, defendant-respondent Gerarda Selma bought a 1,000
square-meter portion of Lot 5679, evidenced by Exhibit "P". Then on
February 19, 1975, she bought the bigger bulk of Lot 5679,
consisting of 9,302 square meters, evidenced by that deed of
absolute sale, marked as Exhibit "5". The land in question, a 3,000-
square meter portion of Lot 5679, is embraced and included within
the boundary of the later acquisition by respondent Selma;
15. Defendant-respondent Gerarda Selma lodged a complaint, and
had the plaintiffs-petitioners summoned, before the Barangay
Captain of the place, and in the confrontation and conciliation
proceedings at the Lupong Tagapayapa, defendant-respondent
Selma was asserting ownership over the land inherited by plaintiffs-
petitioners from Dalmacio Secuya of which they had long been in
possession . . . in concept of owner. Such claim of defendant-
respondent Selma is a cloud on the title of plaintiffs-petitioners,
hence, their complaint (Annex "C").6
Respondent Selma's version of the facts, on the other hand, was summarized
by the appellate court as follows:
She is the registered owner of Lot 5679-C-120 consisting of 9,302
square meters as evidenced by TCT No. T-35678 (Exhibit "6",
Record, p. 324), having bought the same sometime in February
1975 from Cesaria Caballero as evidenced by a notarized Deed of
Sale (Exhibit "5", Record, p. 323) and ha[ve] been in possession of
the same since then. Cesaria Caballero was the widow of Silvestre
Aro, registered owner of the mother lot, Lot. No. 5679 with an area
of 12,750 square meters of the Talisay-Minglanilla Friar Lands
Estate, as shown by Transfer Certificate of Title No. 4752 (Exhibit
"10", Record, p. 340). Upon Silvestre Aro's demise, his heirs
S a l e s P a r t V P a g e | 148
executed an "Extrajudicial Partition and Deed of Absolute Sale"
(Exhibit "11", Record, p. 341) wherein one-half plus one-fifth of Lot
No. 5679 was adjudicated to the widow, Cesaria Caballero, from
whom defendant-appellee derives her title.7
The CA Ruling
In affirming the trial court's ruling, the appellate court debunked petitioners'
claim of ownership of the land and upheld Respondent Selma's title thereto.
It held that respondent's title can be traced to a valid TCT. On the other
hand, it ruled that petitioners anchor their claim on an "Agreement of
Partition" which is void for being violative of the Public Land Act. The CA
noted that the said law prohibited the alienation or encumbrance of land
acquired under a free patent or homestead patent, for a period of five years
from the issuance of the said patent.
Hence, this Petition.8
The Issues
In their Memorandum, petitioners urge the Court to resolve the following
questions:
1. Whether or not there was a valid transfer or conveyance of one-
third (1/3) portion of Lot 5679 by Maxima Caballero in favor of
Paciencia Sabellona, by virtue of [the] Agreement of Partition dated
January 5, 1938[;] and
2. Whether or not the trial court, as well as the court, committed
grave abuse of discretion amounting to lack of jurisdiction in not
making a finding that respondent Gerarda M. vda. de Selma [was] a
buyer in bad faith with respect to the land, which is a portion of Lot
5679.9
For a clearer understanding of the above matters, we will divide the issues
into three: first, the implications of the Agreement of Partition; second, the
validity of the Deed of Confirmation of Sale executed in favor of the
petitioners; and third, the validity of private respondent's title.
The Court's Ruling

The Petition fails to show any reversible error in the assailed Decision.
Preliminary Matter:
The Action for Quieting of Title
In an action to quiet title, the plaintiffs or complainants must demonstrate a
legal or an equitable title to, or an interest in, the subject real
property.10 Likewise, they must show that the deed, claim, encumbrance or
proceeding that purportedly casts a cloud on their title is in fact invalid or
inoperative despite its prima facie appearance of validity or legal
efficacy.11 This point is clear from Article 476 of the Civil Code, which reads:
Whenever there is cloud on title to real property or any interest
therein, by reason of any instrument, record, claim, encumbrance or
proceeding which is apparently valid or effective but is in truth and
in fact invalid, ineffective, voidable or unenforceable, and may be
prejudicial to said title, an action may be brought to remove such
cloud or to quiet title.
An action may also be brought to prevent a cloud from being cast
upon title to real property or any interest therein.
In the case at bar, petitioners allege that TCT No. 5679-C-120, issued in the
name of Private Respondent Selma, is a cloud on their title as owners and
possessors of the subject property, which is a 3,000 —square-meter portion
of Lot No. 5679-C-120 covered by the TCT. But the underlying question is,
do petitioners have the requisite title that would enable them to avail
themselves of the remedy of quieting of title?
Petitioners anchor their claim of ownership on two documents: the
Agreement of Partition executed by Maxima Caballero and Paciencia
Sabellona and the Deed of Confirmation of Sale executed by Ramon
Sabellona. We will now examine these two documents.
First Issue:
The Real Nature of the "Agreement of Partition"
The duly notarized Agreement of Partition dated January 5, 1938; is worded
as follows:
S a l e s P a r t V P a g e | 149
AGREEMENT OF PARTITION
I, MAXIMA CABALLERO, Filipina, of legal age, married to Rafael
Cariño, now residing and with postal address in the Municipality of
Dumaguete, Oriental Negros, depose the following and say:
1. That I am the applicant of vacant lot No. 5679 of the Talisay-
Minglanilla Estate and the said application has already been indorsed
by the District Land Officer, Talisay, Cebu, for private sale in my
favor;
2. That the said Lot 5679 was formerly registered in the name of
Felix Abad y Caballero and the sale certificate of which has already
been cancelled by the Hon. Secretary of Agriculture and Commerce;
3. That for and in representation of my brother, Luis Caballero, who
is now the actual occupant of said lot I deem it wise to have the said
lot paid by me, as Luis Caballero has no means o[r] any way to pay
the government;
4. That as soon as the application is approved by the Director of
Lands, Manila, in my favor, I hereby bind myself to transfer the one-
third (l/3) portion of the above mentioned lot in favor of my aunt,
Paciencia Sabellana y Caballero, of legal age, single, residing and
with postal address in Tungkop, Minglanilla, Cebu. Said portion of
one-third (1/3) will be subdivided after the approval of said
application and the same will be paid by her to the government [for]
the corresponding portion.
5. That the said portion of one-third (1/3) will be located adjoining
the municipal road;
6. I, Paciencia Sabellana y Caballero, hereby accept and take the
portion herein adjudicated to me by Mrs. Maxima Caballero of Lot
No. 5679 Talisay-Minglanilla Estate and will pay the corresponding
portion to the government after the subdivision of the same;
IN WITNESS WHEREOF, we have hereunto set our hands this 5th
day of January, 1988, at Talisay, Cebu."12

The Agreement: An Express Trust, Not a Partition
Notwithstanding its purported nomenclature, this Agreement is not one of
partition, because there was no property to partition and the parties were
not co-owners. Rather, it is in the nature of a trust agreement.
Trust is the right to the beneficial enjoyment of property, the legal title to
which is vested in another. It is a fiduciary relationship that obliges the
trustee to deal with the property for the benefit of the beneficiary. 13 Trust
relations between parties may either be express or implied. An express trust
is created by the intention of the trustor or of the parties. An implied trust
comes into being by operation of law.14
The present Agreement of Partition involves an express trust. Under Article
1444 of the Civil Code, "[n]o particular words are required for the creation of
an express trust, it being sufficient that a trust is clearly intended." That
Maxima Caballero bound herself to give one third of Lot No. 5629 to
Paciencia Sabellona upon the approval of the former's application is clear
from the terms of the Agreement. Likewise, it is evident that Paciencia
acquiesced to the covenant and is thus bound to fulfill her obligation therein.
As a result of the Agreement, Maxima Caballero held the portion specified
therein as belonging to Paciencia Sabellona when the application was
eventually approved and a sale certificate was issued in her name. 15 Thus,
she should have transferred the same to the latter, but she never did so
during her lifetime. Instead, her heirs sold the entire Lot No. 5679 to
Silvestre Aro in 1955.
From 1954 when the sale certificate was issued until 1985 when petitioners
filed their Complaint, Paciencia and her successors-in-interest did not do
anything to enforce their proprietary rights over the disputed property or to
consolidate their ownership over the same. In fact, they did not even
register the said Agreement with the Registry of Property or pay the requisite
land taxes. While petitioners had been doing nothing, the disputed property,
as part of Lot No. 5679, had been the subject of several sales
transactions16 and covered by several transfer certificates of title.
The Repudiation of the Express Trust
While no time limit is imposed for the enforcement of rights under express
trusts,17 prescription may, however, bar a beneficiary's action for recovery, if
S a l e s P a r t V P a g e | 150
a repudiation of the trust is proven by clear and convincing evidence and
made known to the beneficiary.18
There was a repudiation of the express trust when the heirs of Maxima
Caballero failed to deliver or transfer the property to Paciencia Sabellona,
and instead sold the same to a third person not privy to the Agreement. In
the memorandum of incumbrances of TCT No. 308719 issued in the name of
Maxima, there was no notation of the Agreement between her and Paciencia.
Equally important, the Agreement was not registered; thus, it could not bind
third persons. Neither was there any allegation that Silvestre Aro, who
purchased the property from Maxima's heirs, knew of it. Consequently, the
subsequent sales transactions involving the land in dispute and the titles
covering it must be upheld, in the absence of proof that the said transactions
were fraudulent and irregular.
Second Issue:
The Purported Sale to Dalmacio Secuya
Even granting that the express trust subsists, petitioners have not proven
that they are the rightful successors-in-interest of Paciencia Sabellona.
The Absence of the Purported Deed of Sale
Petitioners insist that Paciencia sold the disputed property to Dalmacio
Secuya on October 20, 1953, and that the sale was embodied in a private
document. However, such document, which would have been the best
evidence of the transaction, was never presented in court, allegedly because
it had been lost. While a sale of a piece of land appearing in a private deed is
binding between the parties, it cannot be considered binding on third
persons, if it is not embodied in a public instrument and recorded in the
Registry of Property.20
Moreover, while petitioners could not present the purported deed evidencing
the transaction between Paciencia Sabellona and Dalmacio Secuya,
petitioners' immediate predecessor-in-interest, private respondent in contrast
has the necessary documents to support her claim to the disputed property.
The Questionable Value of the Deed
Executed by Ramon Sabellona

To prove the alleged sale of the disputed property to Dalmacio, petitioners
instead presented the testimony of Miguel Secuya, one of the petitioners;
and a Deed21 confirming the sale executed by Ramon Sabellona, Paciencia's
alleged heir. The testimony of Miguel was a bare assertion that the sale had
indeed taken place and that the document evidencing it had been destroyed.
While the Deed executed by Ramon ratified the transaction, its probative
value is doubtful. His status as heir of Paciencia was not affirmatively
established. Moreover, he was not presented in court and was thus not
quizzed on his knowledge — or lack thereof — of the 1953 transaction.
Petitioners' Failure to Exercise Owners'
Rights to the Property
Petitioners insist that they had been occupying the disputed property for
forty-seven years before they filed their Complaint for quieting of title.
However, there is no proof that they had exercised their rights and duties as
owners of the same. They argue that they had been gathering the fruits of
such property; yet, it would seem that they had been remiss in their duty to
pay the land taxes. If petitioners really believed that they owned the
property, they have should have been more vigilant in protecting their rights
thereto. As noted earlier, they did nothing to enforce whatever proprietary
rights they had over the disputed parcel of land.
Third Issue:
The Validity of Private Respondent's Title
Petitioners debunk Private Respondent Selma's title to the disputed property,
alleging that she was aware of their possession of the disputed properties.
Thus, they insist that she could not be regarded as a purchaser in good faith
who is entitled to the protection of the Torrens system.
Indeed, a party who has actual knowledge of facts and circumstances that
would move a reasonably cautious man to make an inquiry will not be
protected by the Torrens system. In Sandoval v. Court of Appeals,22 we held:
It is settled doctrine that one who deals with property registered
under the Torrens system need not go beyond the same, but only
has to rely on the title. He is charged with notice only of such
burdens and claims as are annotated on the title.
S a l e s P a r t V P a g e | 151
The aforesaid principle admits of an unchallenged exception: that a
person dealing with registered land has a right to rely on the Torrens
certificate of title and to dispense without the need of inquiring
further except when the party has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make
such inquiry, or when the purchaser has knowledge of a defect or
the lack of title in his vendor or of sufficient facts to induce a
reasonably prudent man to inquire into the status of title of the
property in litigation. The presence of anything which excites or
arouses suspicion should then prompt the vendee to look beyond the
certificate and investigate the title of the vendor appearing on the
face of the certificate. One who falls within the exception can neither
be denominated an innocent purchaser for value purchaser in good
faith; and hence does not merit the protection of the law.
Granting arguendo that private respondent knew that petitioners, through
Superales and his family, were actually occupying the disputed lot, we must
stress that the vendor, Cesaria Caballero, assured her that petitioners were
just tenants on the said lot. Private respondent cannot be faulted for
believing this representation, considering that petitioners' claim was not
noted in the certificate of the title covering Lot No. 5679.
Moreover, the lot, including the disputed portion, had been the subject of
several sales transactions. The title thereto had been transferred several
times, without any protestation or complaint from the petitioners. In any
case, private respondent's title is amply supported by clear evidence, while
petitioners' claim is barren of proof.
Clearly, petitioners do not have the requisite title to pursue an action for
quieting of title.1âwphi1.nêt
WHEREFORE, the Petition is hereby DENIED and the assailed Decision
AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.

No. L-55048. May 27, 1981.*
SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and MARCELINO
SOTTO, petitioners, vs. HON. AUXENCIO C. DACUYCUY, Judge of the
CFI of Leyte, DELY RODRIGUEZ, FELIPE ANG CRUZ, CONSTANCIA
NOGAR, MANUEL GO, INOCENTES DIME, WILLY JULIO, JAIME YU,
OSCAR DY, DY CHIU SENG, BENITO YOUNG, FERNANDO YU,
SEBASTIAN YU, CARLOS UY, HOC CHUAN and MANUEL DY,
respondents.
Remedial Law; Civil Procedure; Pleadings; Rule that a motion to dismiss
based on lack of cause of action the movant is deemed to admit the factual
allegations of the complaint, not applicable where no absolute acceptance of
prospective buyer to buy the property.—Respondents maintain that under
existing jurisprudence relative to a motion to dismiss on the ground of failure
of the complaint to state a cause of action, the movant-defendant is deemed
to admit the factual allegations of the complaint, hence, petitioners cannot
deny, for purposes of their motion, that such terms of payment had indeed
been agreed upon. While such is the rule, those allegations do not detract
from the fact that under Article 1319 of the Civil Code above-quoted, and
judged in the light of the telegram-reply of Yao to Atty. Gamboa’s letter of
July 12, 1978, there was not an absolute acceptance, hence from that point
of view, petitioners’ contention that the complaint of respondents state no
cause of action is correct.
Civil Law; Sales; Although there was no perfected contract of sale, the
complaint has a cause of action when there was an agreement of sale of the
property and a down payment of the sale was made.—Our conclusion,
therefore, is that although there was no perfected contract of sale in the
light of the letter of Atty. Gamboa of July 12, 1978 and the letter-reply
thereto of Yao; it being doubtful whether or not, under Article 1319 of the
Civil Code, the said letter may be deemed as an offer to sell that is “certain”,
and more, the Yao telegram is far from being an “absolute” acceptance
under said article, still there appears to be a cause of action alleged in
Paragraphs 8 to 12 of the respondents’ complaint, considering it is alleged
therein that subsequent to the telegram of Yao, it was agreed that the
petitioners would sell the property to respondents for P6.5 M, by paying P2
S a l e s P a r t V P a g e | 152
M down and the balance in 90 days and which agreement was allegedly
violated when in the deeds prepared by Atty. Gamboa and taken to
Tacloban, only 30 days were given to the respondents.
Same; Same; Statute of Frauds; Mere claim that petitioners have
unjustifiably refused to proceed with the sale of the property is
unenforceable under the Statute of Frauds in the absence of any note or
memorandum and signed agreement of sale.—We hold that either way We
view the situation, the conclusion is inescapable that the claim of
respondents that petitioners have unjustifiably refused to proceed with the
sale to them of the property in question is unenforceable under the Statute
of Frauds. It is nowhere alleged in said paragraphs 8 to 12 of the complaint
that there is any writing or memorandum, much less a duly signed
agreement to the effect that the price of P6,500,000 fixed by petitioners for
the real property herein involved was agreed to be paid not in cash but in
installments as alleged by respondents.
Same; Same; Same; In any sale of real property on installments, the Statute
of Frauds read together with the perfection requirements of Article 1475 of
the Civil Code must be applied such that payment on installments of the sale
must be in the requisite note or memorandum.—We hold that in any sale of
real property on installments, the Statute of Frauds read together with the
perfection requirements of Article 1475 of the Civil Code must be understood
and applied in the sense that the idea of payment on installments must be in
the requisite of a note or memorandum therein contemplated.
Same; Same; Same; Under the Statute of Frauds, the contents of a note or
memorandum is considered as the contract itself, except as to the form.—To
put it the other way, under the Statute of Frauds, the contents of the note or
memorandum, whether in one writing or in separate ones merely indicative
for an adequate understanding of all the essential elements of the entire
agreement, may be said to be the contract itself, except as to the form.
Same; Same; Same; Duty of plaintiff when a motion to dismiss based on the
Statute of Frauds is filed.—We are of the considered opinion that under the
rules on proper pleading, the ruling of the trial court that, even if the
allegation of the existence of a sale of real property in a complaint is
challenged as barred from enforceability by the Statute of Frauds, the

plaintiff may simply say there are documents, notes or memoranda without
either quoting them in or annexing them to the complaint, as if holding an
ace in the sleeves is not correct. To go directly to the point, for Us to
sanction such a procedure is to tolerate and even encourage undue delay in
litigation, for the simple reason that to await the stage of trial for the
showing or presentation of the requisite documentary proof when it already
exists and is asked to be produced by the adverse party would amount to
unnecessarily postponing, with the concomitant waste of time and the
prolongation of the proceedings, something that can immediately be
evidenced and thereby determinable with decisiveness and precision by the
court without further delay.
Aquino, J., concurring.
Sales; Statute of Frauds; I concur in the result private respondents cannot
prove any perfected sale which they can enforce.—I concur in the result.
Private respondents cannot prove any perfected sale which they can enforce.
PETITION for certiorari and prohibition from the order of the Court of First
Instance of Leyte.
The facts are stated in the opinion of the Court. Yuvienco vs. Dacuycuy, 104
SCRA 668, No. L-55048 May 27, 1981
BARREDO, J.:1äwphï1.ñët
Petition for certiorari and prohibition to declare void for being in grave abuse
of discretion the orders of respondent judge dated November 2, 1978 and
August 29, 1980, in Civil Case No. 5759 of the Court of First Instance of
Leyte, which denied the motion filed by petitioners to dismiss the complaint
of private respondents for specific performance of an alleged agreement of
sale of real property, the said motion being based on the grounds that the
respondents' complaint states no cause of action and/or that the claim
alleged therein is unenforceable under the Statute of Frauds.
Finding initially prima facie merit in the petition, We required respondents to
answer and We issued a temporary restraining order on October 7, 1980
enjoining the execution of the questioned orders.
S a l e s P a r t V P a g e | 153
In essence, the theory of petitioners is that while it is true that they did
express willingness to sell to private respondents the subject property for
P6,500,000 provided the latter made known their own decision to buy it not
later than July 31, 1978, the respondents' reply that they were agreeable
was not absolute, so much so that when ultimately petitioners'
representative went to Cebu City with a prepared and duly signed contract
for the purpose of perfecting and consummating the transaction,
respondents and said representative found variance between the terms of
payment stipulated in the prepared document and what respondents had in
mind, hence the bankdraft which respondents were delivering to petit loners'
representative was returned and the document remained unsigned by
respondents. Hence the action below for specific performance.
To be more specific, the parties do not dispute that on July 12, 1978,
petitioners, thru a certain Pedro C. Gamboa, sent to respondents the
following letter:
Mr. Yao King Ong
Life Bakery
Tacloban City
Dear Mr. Yao: 1äwphï1.ñët
This refers to the Sotto property (land and building) situated at Tacloban
City. My clients are willing to sell them at a total price of P6,500,000.00.
While there are other parties who are interested to buy the property, I am
giving you and the other occupants the preference, but such priority has to
be exercised within a given number of days as I do not want to lose the
opportunity if you are not interested. I am therefore gluing you and the rest
of the occupants until July 31, 1978 within it which to decide whether you
want to buy the property. If I do not hear from you by July 31, I will offer or
close the deal with the other interested buyer.
Thank you so much for the hospitality extended to me during my last trip to
Tacloban, and I hope to hear from you very soon. 1äwphï1.ñët
Very truly yours,
Pedro C. Gamboa 1
 S a l e s P a r t V P a g e | 154

(Page 9, Record.) hereof, however, to the complete surprise of plaintiffs, the

defendant (except def. Tacloban City Ice Plant, Inc.) without
Reacting to the foregoing letter, the following telegram was sent by "Yao giving notice to plaintiffs, changed the mode of payment
King Ong & tenants" to Atty. Pedro Gamboa in Cebu City: with respect to the balance of P4,500,000.00 by imposing
upon plaintiffs to pay same amount within thirty (30) days
Atty. Pedro Gamboa from execution of the contract instead of the former term of
ninety (90) days as stated in paragraph 8 hereof. (Pp. 10-
Room 314, Maria Cristina Bldg.
11, Record.)
Osmeña Boulevard, Cebu City
Additionally and to reenforce their position, respondents alleged further in
Reurlet dated July 12 inform Dra. Yuvienco we agree to buy property their complaint: 1äwphï1.ñët
proceed Tacloban to negotiate details 1äwphï1.ñët
8. That on July 12, 1978, defendants (except defendant
Yao King Ong & tenants Tacloban City Ice Plant, Inc.) finally sent a telegram letter to
plaintiffs- tenants, through same Mr. Yao King Ong, notifying
(Page 10, Record.)
them that defendants are willing to sell the properties (lands
Likewise uncontroverted is the fact that under date of July 27, 1978, Atty. and building) at a total price of P6,500,000.00, which herein
Gamboa wired Yao King Ong in Tacloban City as follows: plaintiffs-tenants have agreed to buy the said properties for
said price; a copy of which letter is hereto attached as
NLT integral part hereof and marked as Annex 'C', and plaintiffs
accepted the offer through a telegram dated July 25, 1978,
YAO KING ONG sent to defendants (through defendant Pedro C. Gamboa), a
copy of which telegram is hereto attached as integral part
LIFE BAKERY hereof and marked as Annex C-1 and as a consequence
hereof. plaintiffs except plaintiff Tacloban - merchants'
TACLOBAN CITY Realty Development Corporation) and defendants (except
defendant Tacloban City Ice Plant. Inc.) agreed to the
PROPOSAL ACCEPTED ARRIVING TUESDAY MORNING WITH CONTRACT
following terms and conditions respecting the payment of
PREPARE PAYMENT BANK DRAFT 1äwphï1.ñët
said purchase price, to wit: 1äwphï1.ñët
ATTY. GAMBOA
P2,000,000.00 to be paid in full on the date
(Page 10, Id.) of the execution of the contract; and the
balance of P4,500,000.00 shall be fully paid
Now, Paragraph 10 of the complaint below of respondents within ninety (90) days thereafter;
alleges: 1äwphï1.ñët
9. That on July 27, 1978, defendants sent a telegram to
10. That on August 1, 1978, defendant Pedro Gamboa plaintiff- tenants, through the latter's representative Mr. Yao
arrived Tacloban City bringing with him the prepared King Ong, reiterating their acceptance to the agreement
contract to purchase and to sell referred to in his telegram referred to in the next preceding paragraph hereof and
dated July 27, 1978 (Annex 'D' hereof) for the purpose of notifying plaintiffs-tenants to prepare payment by bank
closing the transactions referred to in paragraphs 8 and 9 drafts; which the latter readily complied with; a copy of

which telegram is hereto attached as integral part hereof
and marked as Annex "D"; (Pp 49-50, Record.)
It was on the basis of the foregoing facts and allegations that herein
petitioners filed their motion to dismiss alleging as main
grounds: 1äwphï1.ñët
I. That plaintiff, TACLOBAN MERCHANTS' REALTY
DEVELOPMENT CORPORATION, amended complaint, does
not state a cause of action and the claim on which the action
is founded is likewise unenforceable under the provisions of
the Statute of Frauds.
II. That as to the rest of the plaintiffs, their amended
complaint does not state a cause of action and the claim on
which the action is founded is likewise unenforceable under
the provisions of the Statute of Frauds. (Page 81, Record.)
With commendable knowledgeability and industry, respondent judge ruled
negatively on the motion to dismiss, discoursing at length on the personality
as real party-in-interest of respondent corporation, while passing lightly,
however, on what to Us are the more substantial and decisive issues of
whether or not the complaint sufficiently states a cause of action and
whether or not the claim alleged therein is unenforceable under the Statute
of Frauds, by holding thus: 1äwphï1.ñët
The second ground of the motion to dismiss is that plaintiffs'
claim is unenforceable under the Statute of Frauds. The
defendants argued against this motion and asked the court
to reject the objection for the simple reason that the
contract of sale sued upon in this case is supported by
letters and telegrams annexed to the complaint and other
papers which will be presented during the trial. This
contention of the defendants is not well taken. The plaintiffs
having alleged that the contract is backed up by letters and
telegrams, and the same being a sufficient memorandum,
the complaint states a cause of action and they should be
given a day in court and allowed to substantiate their
allegations (Paredes vs. Espino, 22 SCRA 1000).
S a l e s P a r t V P a g e | 155
To take a contract for the sale of land out of the Statute of
Frauds a mere note or memorandum in writing subscribed
by the vendor or his agent containing the name of the
parties and a summary statement of the terms of the sale
either expressly or by reference to something else is all that
is required. The statute does not require a formal contract
drawn up with technical exactness for the language of Par. 2
of Art. 1403 of the Philippine Civil Code is' ... an agreement
... or some note or memorandum thereof,' thus recognizing
a difference between the contract itself and the written
evidence which the statute requires (Berg vs. Magdalena
Estate, Inc., 92 Phil. 110; Ill Moran, Comments on the Rules
of Court, 1952 ed. p. 187). See also Bautista's Monograph
on the Statute of Frauds in 21 SCRA p. 250. (Pp. 110-111,
Record)
Our first task then is to dwell on the issue of whether or not in the light of
the foregoing circumstances, the complaint in controversy states sufficiently
a cause of action. This issue necessarily entails the determination of whether
or not the plaintiffs have alleged facts adequately showing the existence of a
perfected contract of sale between herein petitioners and the occupant
represented by respondent Yao King Ong.
In this respect, the governing legal provision is, of course, Article 1319 of the
Civil Code which provides:1äwphï1.ñët
ART. 1319. Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause
which are constitute the contract. The offer must be certain
the acceptance absolute. A qualified acceptance constitute a
counter-offer.
Acceptance made by letter or telegram does not bind offerer
except from the time it came to his knowledge. The
contract, in a case, is presumed to have been entered into in
the place where the offer was made.
In the instant case, We can lay aside, for the moment, petitioners'
contention that the letter of July 12, 1978 of Atty. Pedro C. Gamboa to
respondents Yao King Ong and his companions constitute an offer that is
"certain", although the petitioners claim that it was a mere expression of

willingness to sell the subject property and not a direct offer of sale to said
respondents. What We consider as more important and truly decisive is what
is the correct juridical significance of the telegram of respondents instructing
Atty. Gamboa to "proceed to Tacloban to negotiate details." We underline
the word "negotiate" advisedly because to Our mind it is the key word that
negates and makes it legally impossible for Us to hold that respondents'
acceptance of petitioners' offer, assuming that it was a "certain" offer
indeed, was the "absolute" one that Article 1319 above-quoted requires.
Dictionally, the implication of "to negotiate" is practically the opposite of the
Idea that an agreement has been reached. Webster's Third International
Dictionary, Vol. II (G. & C. Merriam Co., 1971 Philippine copyright) gives the
meaning of negotiate as "to communicate or confer with another so as to
arrive at the settlement of some matter; meet with another so as to arrive
through discussion at some kind of agreement or compromise about
something; — to arrange for or bring about through conference or
discussion; work at or arrive at or settle upon by meetings and agreements
or compromises — ". Importantly, it must be borne in mind that Yao King
Ong's telegram simply says "we agree to buy property". It does not
necessarily connote acceptance of the price but instead suggests that the
details were to be subject of negotiation.
Respondents now maintain that what the telegram refers to as "details" to
be "negotiated" are mere "accidental elements", not the essential elements
of the contract. They even invite attention to the fact that they have alleged
in their complaint (Par. 6) that it was as early as "in the month of October,
1977 (that) negotiations between plaintiffs and defendants for the purchase
and sale (in question) — were made, thus resulting to offers of same
defendants and counter-offer of plaintiffs". But to Our mind such alleged
facts precisely indicate the failure of any meeting of the minds of the parties,
and it is only from the letter and telegrams above-quoted that one can
determine whether or not such meeting of the minds did materialize. As We
see it, what such allegations bring out in bold relief is that it was precisely
because of their past failure to arrive at an agreement that petitioners had to
put an end to the uncertainty by writing the letter of July 12, 1978. On the
other hand, that respondents were all the time agreeable to buy the property
may be conceded, but what impresses Us is that instead of "absolutely"
accepting the "certain" offer — if there was one — of the petitioners, they
still insisted on further negotiation of details. For anyone to read in the
telegram of Yao that they accepted the price of P6,500,000.00 would be an
inference not necessarily warranted by the words "we agree to buy" and
"proceed Tacloban to negotiate details". If indeed the details being left by
S a l e s P a r t V P a g e | 156
them for further negotiations were merely accidental or formal ones, what
need was there to say in the telegram that they had still "to negotiate (such)
details", when, being unessential per their contention, they could have been
just easily clarified and agreed upon when Atty. Gamboa would reach
Tacloban?
Anent the telegram of Atty. Gamboa of July 27, 1978, also quoted earlier
above, We gather that it was in answer to the telegram of Yao. Considering
that Yao was in Tacloban then while Atty. Gamboa was in Cebu, it is difficult
to surmise that there was any communication of any kind between them
during the intervening period, and none such is alleged anyway by
respondents. Accordingly, the claim of respondents in paragraph 8 of their
complaint below that there was an agreement of a down payment of P2 M,
with the balance of P4.5M to be paid within 90 days afterwards is rather
improbable to imagine to have actually happened.
Respondents maintain that under existing jurisprudence relative to a motion
to dismiss on the ground of failure of the complaint to state a cause of
action, the movant-defendant is deemed to admit the factual allegations of
the complaint, hence, petitioners cannot deny, for purposes of their motion,
that such terms of payment had indeed been agreed upon.
While such is the rule, those allegations do not detract from the fact that
under Article 1319 of the Civil Code above-quoted, and judged in the light of
the telegram-reply of Yao to Atty. Gamboa's letter of July 12, 1978, there
was not an absolute acceptance, hence from that point of view, petitioners'
contention that the complaint of respondents state no cause of action is
correct.
Nonetheless, the alleged subsequent agreement about the P2 M down and
P4.5 M in 90 days may at best be deemed as a distinct cause of action. And
placed against the insistence of petitioners, as demonstrated in the two
deeds of sale taken by Atty. Gamboa to Tacloban, Annexes 9 and 10 of the
answer of herein respondents, that there was no agreement about 90 days,
an issue of fact arose, which could warrant a trial in order for the trial court
to determine whether or not there was such an agreement about the
balance being payable in 90 days instead of the 30 days stipulated in
Annexes 9 and 10 above-referred to. Our conclusion, therefore, is that
although there was no perfected contract of sale in the light of the letter of
Atty. Gamboa of July 12, 1978 and the letter-reply thereto of Yao; it being
doubtful whether or not, under Article 1319 of the Civil Code, the said letter

may be deemed as an offer to sell that is "certain", and more, the Yao
telegram is far from being an "absolute" acceptance under said article, still
there appears to be a cause of action alleged in Paragraphs 8 to 12 of the
respondents' complaint, considering it is alleged therein that subsequent to
the telegram of Yao, it was agreed that the petitioners would sell the
property to respondents for P6.5 M, by paving P2 M down and the balance in
90 days and which agreement was allegedly violated when in the deeds
prepared by Atty. Gamboa and taken to Tacloban, only 30 days were given
to respondents.
But the foregoing conclusion is not enough to carry the day for respondents.
It only brings Us to the question of whether or not the claim for specific
performance of respondents is enforceable under the Statute of Frauds. In
this respect, We man, view the situation at hand from two angles, namely,
(1) that the allegations contained in paragraphs 8 to 12 of respondents'
complaint should be taken together with the documents already
aforementioned and (2) that the said allegations constitute a separate and
distinct cause of action. We hold that either way We view the situation, the
conclusion is inescapable e that the claim of respondents that petitioners
have unjustifiably refused to proceed with the sale to them of the property v
in question is unenforceable under the Statute of Frauds.
It is nowhere alleged in said paragraphs 8 to 12 of the complaint that there
is any writing or memorandum, much less a duly signed agreement to the
effect that the price of P6,500,000 fixed by petitioners for the real property
herein involved was agreed to be paid not in cash but in installments as
alleged by respondents. The only documented indication of the non-wholly-
cash payment extant in the record is that stipulated in Annexes 9 and 10
above-referred to, the deeds already signed by the petitioners and taken to
Tacloban by Atty. Gamboa for the signatures of the respondents. In other
words, the 90-day term for the balance of P4.5 M insisted upon by
respondents choices not appear in any note, writing or memorandum signed
by either the petitioners or any of them, not even by Atty. Gamboa. Hence,
looking at the pose of respondents that there was a perfected agreement of
purchase and sale between them and petitioners under which they would
pay in installments of P2 M down and P4.5 M within ninety 90) days
afterwards it is evident that such oral contract involving the "sale of real
property" comes squarely under the Statute of Frauds (Article 1403, No.
2(e), Civil Code.)
S a l e s P a r t V P a g e | 157
On the other score of considering the supposed agreement of paying
installments as partly supported by the letter and t telegram earlier quoted
herein, His Honor declared with well studied ratiocination, albeit legally
inaccurate, that: 1äwphï1.ñët
The next issue relate to the State of Frauds. It is contended
that plaintiffs' action for specific performance to compel the
defendants to execute a good and sufficient conveyance of
the property in question (Sotto land and building) is
unenforceable because there is no other note memorandum
or writing except annexes "C", "C-l" and "D", which by
themselves did not give birth to a contract to sell. The
argument is not well founded. The rules of pleading limit the
statement of the cause of action only to such operative facts
as give rise to the right of action of the plaintiff to obtain
relief against the wrongdoer. The details of probative matter
or particulars of evidence, statements of law, inferences and
arguments need not be stated. Thus, Sec. 1 of Rule 8
provides that 'every pleading shall contain in a methodical
and logical form, a plain concise and direct statement of
the ultimate facts on which the party pleading relies for his
claim or defense, as the case may be, omitting the
statement of mere evidentiary facts.' Exhibits need not be
attached. The contract of sale sued upon in this case is
supported by letters and telegrams annexed to the
complaint and plaintiffs have announced that they will
present additional evidences during the trial to prove their
cause of action. The plaintiffs having alleged that the
contract is backed up by letters and telegrams, and the
same being sufficient memorandum, the complaint states a
cause of action and they should be given their day in court
and allowed to substantiate their allegations (Parades vs.
Espino, 22 SCRA 1000). (Pp 165-166, Record.)
The foregoing disquisition of respondent judge misses at least two (2)
juridical substantive aspects of the Statute of Frauds insofar as sale of real
property is concerned. First, His Honor assumed that the requirement of
perfection of such kind of contract under Article 1475 of the Civil Code which
provides that "(t)he contract of sale is perfected at the moment there is a
meeting of the minds upon the thing which is the object of the contract and
upon the price", the Statute would no longer apply as long as the total price

or consideration is mentioned in some note or memorandum and there is no
need of any indication of the manner in which such total price is to be paid.
We cannot agree. In the reality of the economic world and the exacting
demands of business interests monetary in character, payment on
installments or staggered payment of the total price is entirely a different
matter from cash payment, considering the unpredictable trends in the
sudden fluctuation of the rate of interest. In other words, it is indisputable
that the value of money - varies from day to day, hence the indispensability
of providing in any sale of the terms of payment when not expressly or
impliedly intended to be in cash.
Thus, We hold that in any sale of real property on installments, the Statute
of Frauds read together with the perfection requirements of Article 1475 of
the Civil Code must be understood and applied in the sense that the idea of
payment on installments must be in the requisite of a note or memorandum
therein contemplated. Stated otherwise, the inessential elements" mentioned
in the case of Parades vs. Espino, 22 SCRA 1000, relied upon by respondent
judge must be deemed to include the requirement just discussed when it
comes to installment sales. There is nothing in the monograph re — the
Statute of Frauds appearing in 21 SCRA 250 also cited by His Honor
indicative of any contrary view to this ruling of Ours, for the essence and
thrust of the said monograph refers only to the form of the note or
memorandum which would comply with the Statute, and no doubt, while
such note or memorandum need not be in one single document or writing
and it can be in just sufficiently implicit tenor, imperatively the separate
notes must, when put together', contain all the requisites of a perfected
contract of sale. To put it the other way, under the Statute of Frauds, the
contents of the note or memorandum, whether in one writing or in separate
ones merely indicative for an adequate understanding of all the essential
elements of the entire agreement, may be said to be the contract itself,
except as to the form.
Secondly, We are of the considered opinion that under the rules on proper
pleading, the ruling of the trial court that, even if the allegation of the
existence of a sale of real property in a complaint is challenged as barred
from enforceability by the Statute of Frauds, the plaintiff may simply say
there are documents, notes or memoranda without either quoting them in or
annexing them to the complaint, as if holding an ace in the sleeves is not
correct. To go directly to the point, for Us to sanction such a procedure is to
tolerate and even encourage undue delay in litigation, for the simple reason
S a l e s P a r t V P a g e | 158
that to await the stage of trial for the showing or presentation of the
requisite documentary proof when it already exists and is asked to be
produced by the adverse party would amount to unnecessarily postponing,
with the concomitant waste of time and the prolongation of the proceedings,
something that can immediately be evidenced and thereby determinable with
decisiveness and precision by the court without further delay.
In this connection, Moran observes that unlike when the ground of dismissal
alleged is failure of the complaint to state a cause of action, a motion to
dismiss invoking the Statute of Frauds may be filed even if the absence of
compliance does not appear an the face of the complaint. Such absence may
be the subject of proof in the motion stage of the proceedings. (Moran,
Comment on the Rules of Court, Vol. 1, p. 494, 1979 ed.) It follows then that
when such a motion is filed and all the documents available to movant are
before the court, and they are insufficient to comply with the Statute, it
becomes incumbent upon the plaintiff, for the reasons of policy We have
just' indicated regarding speedy administration of justice, to bring out what
note or memorandum still exists in his possession in order to enable the
court to expeditiously determine then and there the need for further
proceedings. In other words, it would be inimical to the public interests in
speedy justice for plaintiff to play hide and seek at his own convenience,
particularly, when, as is quite apparent as in the instant case that chances
are that there are no more writings, notes or memoranda of the installment
agreement alleged by respondents. We cannot divine any reason why any
such document would be withheld if they existed, except the unpermissible
desire of the respondents to force the petitioners to undergo the ordeals,
time, effort and expenses of a futile trial.
In the foregoing premises, We find no alternative than to render judgment in
favor of petitioners in this certiorari and prohibition case. If at all, appeal
could be available if the petitioners subjected themselves to the trial ruled to
be held by the trial court. We foresee even at this point, on the basis of what
is both extant and implicit in the records, that no different result can be
probable. We consider it as sufficiently a grave abuse of discretion
warranting the special civil actions herein the failure of respondent judge to
properly apply the laws on perfection of contracts in relation to the Statute
of Frauds and the pertinent rules of pleading and practice, as We have
discussed above.
ACCORDINGLY, the impugned orders of respondent judge of November 2,
1978 and August 29, 1980 are hereby set aside and private respondents'
 S a l e s P a r t V P a g e | 159

amended complaint, Annex A of the petition, is hereby ordered dismissed

and the restraining order heretofore issued by this Court on October 7, 1980
is declared permanent. Costs against respondents.

Guerrero,* Abad Santos and De Castro, JJ., concur.1äwphï1.ñët

Mr. Justice Hermogenes Concepcion, Jr. is on leave.


G.R. No. 118509. December 1, 1995.*
LIMKETKAI SONS MILLING, INC., petitioner, vs. COURT OF
APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK
STORE, respondents.
Sales; Agency; Brokers; Banks and Banking; If a bank could give the
authority to sell to a licensed broker, the Court sees no reason to doubt the
authority to sell of two of the bank’s vice-presidents whose precise job
therein was to manage and administer real estate property.—At the start of
the transactions, broker Revilla by himself already had full authority to sell
the disputed lot. Exhibit B dated June 23, 1988 states, “this will serve as
your authority to sell on an as is, where is basis, the property located at
Pasig Blvd., Bagong Ilog x x x.” We agree with Revilla’s testimony that the
authority given to him was to sell and not merely to look for a buyer, as
contended by respondents. Revilla testified that at the time he perfected the
agreement to sell the litigated property, he was acting for and in behalf of
the BPI as if he were the Bank itself. This notwithstanding and to firm up the
sale of the land, Revilla saw it fit to bring BPI officials into the transaction. If
BPI could give the authority to sell to a licensed broker, we see no reason to
doubt the authority to sell of the two BPI Vice-Presidents whose precise job
in the Bank was to manage and administer real estate property.
Same; Contracts; The Phases in Contract-Making.—The phases that a
contract goes through may be summarized as follows: a. preparation,
conception or generation, which is the period of negotiation and bargaining,
ending at the moment of agreement of the parties; b. perfection or birth of
the contract, which is the moment when the parties come to agree on the
terms of the contract; and c. consummation or death, which is the fulfillment
or performance of the terms agreed upon in the contract (Toyota Shaw, Inc.
vs. Court of Appeals, G.R. No. 116650, May 23, 1995).
Same; Same; Statute of Frauds; The fact that the deed of sale still has to be
signed and notarized does not mean that no contract has already been
perfected—the requisite form under Article 1458 of the Civil Code is merely
for greater efficacy or convenience and the failure to comply therewith does
not affect the validity and binding effect of the act between the parties.—In
the case at bench, the allegation of NBS that there was no concurrence of
S a l e s P a r t V P a g e | 160
the offer and acceptance upon the cause of the contract is belied by the
testimony of the very BPI official with whom the contract was perfected.
Aromin and Albano concluded the sale for BPI. The fact that the deed of sale
still had to be signed and notarized does not mean that no contract had
already been perfected. A sale of land is valid regardless of the form it may
have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119
[1991]). The requisite form under Article 1458 of the Civil Code is merely for
greater efficacy or convenience and the failure to comply therewith does not
affect the validity and binding effect of the act between the parties (Vitug,
Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p. 552).
If the law requires a document or other special form, as in the sale of real
property, the contracting parties may compel each other to observe that
form, once the contract has been perfected. Their right may be exercised
simultaneously with action upon the contract (Article 1359, Civil Code).
Same; Same; Same; Cross-examination on the contract is deemed a waiver
of the defense of the Statute of Fraud.—In any event, petitioner cites
Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held that contracts
infringing the Statute of Frauds are ratified when the defense fails to object,
or asks questions on cross-examination. In the instant case, counsel for
respondents cross-examined petitioner’s witnesses at length on the contract
itself, the purchase price, the tender of cash payment, the authority of
Aromin and Revilla, and other details of the litigated contract. Under the
Abrenica rule (reiterated in a number of cases, among them Talosig vs. Vda.
De Nieba, 43 SCRA 472 [1972]), even assuming that parol evidence was
initially inadmissible, the same became competent and admissible because of
the cross-examination, which elicited evidence proving the evidence of a
perfected contract. The cross-examination on the contract is deemed a
waiver of the defense of the Statute of Frauds (Vitug, Compendium of Civil
Law and Jurisprudence, 1993 Revised Edition, supra, p. 563).
Same; Same; Same; An exception to the unenforceability of contracts
pursuant to the Statute of Frauds is the existence of a written note or
memorandum evidencing the contract, which memorandum may be found in
several writings, not necessarily in one document.—Moreover, under Article
1403 of the Civil Code, an exception to the unenforceability of contracts
pursuant to the Statute of Frauds is the existence of a written note or

memorandum evidencing the contract. The memorandum may be found in
several writings, not necessarily in one document. The memorandum or
memoranda is/are written evidence that such a contract was entered into.
Same; Evidence; Witnesses; It is a settled principle of civil procedure that
the conclusions of the trial court regarding the credibility of witnesses are
entitled to great respect from the appellate courts.—On the matter of
credibility of witnesses where the findings or conclusions of the Court of
Appeals and the trial court are contrary to each other, the pronouncement of
the Court in Serrano vs. Court of Appeals (196 SCRA 107 [1991]) bears
stressing: It is a settled principle of civil procedure that the conclusions of
the trial court regarding the credibility of witnesses are entitled to great
respect from the appellate courts because the trial court had an opportunity
to observe the demeanor of witnesses while giving testimony which may
indicate their candor or lack thereof. While the Supreme Court ordinarily
does not rule on the issue of credibility of witnesses, that being a question of
fact not properly raised in a petition under Rule 45, the Court has
undertaken to do so in exceptional situations where, for instance, as here,
the trial court and the Court of Appeals arrived at divergent conclusions on
questions of fact and the credibility of witnesses.
Same; Badges of Fraud; A buyer could not be considered an innocent
purchaser for value where it ignored the notice of lis pendens on the title
when it bought the lot.—On the fourth question of whether or not NBS is an
innocent purchaser for value, the record shows that it is not. It acted in bad
faith. Respondent NBS ignored the notice of lis pendens annotated on the
title when it bought the lot. It was the willingness and design of NBS to buy
property already sold to another party which led BPI to dishonor the contract
with Limketkai.
Same; Same; The circumstance that in the deed of absolute sale, instead of
the vendee insisting that the vendor guarantee its title to the land and
recognize the right of the vendee to proceed against the vendor if the title to
the land turns out to be defective, the reverse is found, clearly negates any
allegation of good faith on the part of the buyer.—It is the very nature of the
deed of absolute sale between BPI and NBS which, however, clearly negates
any allegation of good faith on the part of the buyer. Instead of the vendee
S a l e s P a r t V P a g e | 161
insisting that the vendor guarantee its title to the land and recognize the
right of the vendee to proceed against the vendor if the title to the land
turns out to be defective as when the land belongs to another person, the
reverse is found in the deed of sale between BPI and NBS. Any losses which
NBS may incur in the event the title turns out to be vested in another person
are to be borne by NBS alone. BPI is expressly freed under the contract from
any recourse of NBS against it should BPFs title be found defective.
Same; Same; There are innumerable situations where fraud is manifested—
one enumeration in a 1912 decision cannot possibly cover all indications of
fraud from that time up to the present and into the future.—NBS, in its reply
memorandum, does not refute or explain the above circumstance squarely.
It simply cites the badges of fraud mentioned in Oria v. McMicking (21 Phil.
243 [1912]) and argues that the enumeration there is exclusive. The
decision in said case plainly states “the following are some of the
circumstances attending sales which have been denominated by courts (as)
badges of fraud.” There are innumerable situations where fraud is
manifested. One enumeration in a 1912 decision cannot possibly cover all
indications of fraud from that time up to the present and into the future.
Same; Damages; The profits and the use of the land which were denied to
vendee because of the non-compliance or interference with a solemn
obligation by the vendor and a third party is somehow made up by the
appreciation of the land values in the meantime.—The Court of Appeals did
not discuss the issue of damages. Petitioner cites the fee for filing the
amended complaint to implead NBS, sheriff’s fees, registration fees, place
fare and hotel expenses of Cebu-based counsel. Petitioner also claimed, and
the trial court awarded, damages for the profits and opportunity losses
caused to petitioner’s business in the amount of P10,000,000.00. We rule
that the profits and the use of the land which were denied to petitioner
because of the non-compliance or interference with a solemn obligation by
respondents is somehow made up by the appreciation in land values in the
meantime.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.

Amadeo D. Seno for petitioner.
Manahan, Cornago, De Vera, Aquino & Associates for National Book
Store, Inc.
Alfonso B. Versoza for Bank of P.I. Limketkai Sons Milling, Inc. vs. Court
of Appeals, 250 SCRA 523, G.R. No. 118509 December 1, 1995
MELO, J.:
The issue in the petition before us is whether or not there was a perfected
contract between petitioner Limketkai Sons Milling, Inc. and respondent Bank
of the Philippine Islands (BPI) covering the sale of a parcel of land,
approximately 3.3 hectares in area, and located in Barrio Bagong Ilog, Pasig
City, Metro Manila.
Branch 151 of the Regional Trial Court of the National Capital Judicial Region
stationed in Pasig ruled that there was a perfected contract of sale between
petitioner and BPI. It stated that there was mutual consent between the
parties; the subject matter is definite; and the consideration was determined.
It concluded that all the elements of a consensual contract are attendant. It
ordered the cancellation of a sale effected by BPI to respondent National
Book Store (NBS) while the case was pending and the nullification of a title
issued in favor of said respondent NBS.
Upon elevation of the case to the Court of Appeals, it was held that no
contract of sale was perfected because there was no concurrence of the
three requisites enumerated in Article 1318 of the Civil Code. The decision of
the trial court was reversed and the complaint dismissed.
Hence, the instant petition.
Shorn of the interpretations given to the acts of those who participated in
the disputed sale, the findings of facts of the trial court and the Court of
Appeals narrate basically the same events and occurrences. The records
show that on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI as
its trustee to manage, administer, and sell its real estate property. One such
piece of property placed under trust was the disputed lot, a 33,056-square
meter lot at Barrio Bagong Ilog, Pasig, Metro Manila covered by Transfer
Certificate of Title No. 493122.
S a l e s P a r t V P a g e | 162
On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given
formal authority by BPI to sell the lot for P1,000.00 per square meter. This
arrangement was concurred in by the owners of the Philippine Remnants.
Broker Revilla contacted Alfonso Lim of petitioner company who agreed to
buy the land. On July 8, 1988, petitioner's officials and Revilla were given
permission by Rolando V. Aromin, BPI Assistant Vice-President, to enter and
view the property they were buying.
On July 9, 1988, Revilla formally informed BPI that he had procured a buyer,
herein petitioner. On July 11, 1988, petitioner's officials, Alfonso Lim and
Albino Limketkai, went to BPI to confirm the sale. They were entertained by
Vice-President Merlin Albano and Asst. Vice-President Aromin. Petitioner
asked that the price of P1,000.00 per square meter be reduced to P900.00
while Albano stated the price to be P1,100.00. The parties finally agreed that
the lot would be sold at P1,000.00 per square meter to be paid in cash. Since
the authority to sell was on a first come, first served and non-exclusive basis,
it may be mentioned at this juncture that there is no dispute over petitioner's
being the first comer and the buyer to be first served.
Notwithstanding the final agreement to pay P1,000.00 per square meter on a
cash basis, Alfonso Lim asked if it was possible to pay on terms. The bank
officials stated that there was no harm in trying to ask for payment on terms
because in previous transactions, the same had been allowed. It was the
understanding, however, that should the term payment be disapproved, then
the price shall be paid in cash.
It was Albano who dictated the terms under which the installment payment
may be approved, and acting thereon, Alfonso Lim, on the same date, July
11, 1988, wrote BPI through Merlin Albano embodying the payment initially
of 10% and the remaining 90% within a period of 90 days.
Two or three days later, petitioner learned that its offer to pay on terms had
been frozen. Alfonso Lim went to BPI on July 18, 1988 and tendered the full
payment of P33,056,000.00 to Albano. The payment was refused because
Albano stated that the authority to sell that particular piece of property in
Pasig had been withdrawn from his unit. The same check was tendered to
BPI Vice-President Nelson Bona who also refused to receive payment.
An action for specific performance with damages was thereupon filed on
August 25, 1988 by petitioner against BPI. In the course of the trial, BPI

informed the trial court that it had sold the property under litigation to NBS
on July 14, 1989. The complaint was thus amended to include NBS.
On June 10, 1991, the trial court rendered judgment in the case as follows:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff and against defendants Bank of the Philippine
Islands and National Book Store, Inc.: —
1. Declaring the Deed of Sale of the property covered by
T.C.T. No. 493122 in the name of the Bank of the Philippine
Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila,
in favor of National Book Store, Inc., null and void;
2. Ordering the Register of Deeds of the Province of Rizal to
cancel the Transfer Certificate of Title which may have been
issued in favor of National Book Store, Inc. by virtue of the
aforementioned Deed of Sale dated July 14, 1989;
3. Ordering defendant BPI, upon receipt by it from plaintiff
of the sum of P33,056,000.00, to execute a Deed of Sale in
favor of plaintiff of the aforementioned property at the price
of P1,000.00 per square meter; in default thereof, the Clerk
of this Court is directed to execute the said deed;
4. Ordering the Register of Deeds of Pasig, upon registration
of the said deed, whether executed by defendant BPI or the
Clerk of Court and payment of the corresponding fees and
charges, to cancel said T.C.T. No. 493122 and to issue, in
lieu thereof, another transfer certificate of title in the name
of plaintiff;
5. Ordering defendants BPI and National Book Store, Inc. to
pay, jointly and severally, to the plaintiff the sums of
P10,000,000.00 as actual and consequential damages and
P150,000.00 as attorney's fees and litigation expenses, both
with interest at 12% per annum from date hereof;
6. On the cross-claim of defendant bank against National
Book Store, ordering the latter to indemnify the former of
S a l e s P a r t V P a g e | 163
whatever amounts BPI shall have paid to the plaintiff by
reason hereof; and
7. Dismissing the counterclaims of the defendants against
the plaintiff and National Book Store's cross-claim against
defendant bank.
Costs against defendants.
(pp. 44-45, Rollo.)
As earlier intimated, upon the decision being appealed, the Court of Appeals
(Buena [P], Rasul, and Mabutas, JJ.), on August 12, 1994, reversed the trial
court's decision and dismissed petitioner's complaint for specific performance
and damages.
The issues raised by the parties revolve around the following four questions:
(1) Was there a meeting of the minds between petitioner Limketkai and
respondent BPI as to the subject matter of the contract and the cause of the
obligation?
(2) Were the bank officials involved in the transaction authorized by BPI to
enter into the questioned contract?
(3) Is there competent and admissible evidence to support the alleged
meeting of the minds?
(4) Was the sale of the disputed land to the NBS during the pendency of trial
effected in good faith?
There is no dispute in regard to the following: (a) that BPI as trustee of the
property of Philippine Remnant Co. authorized a licensed broker, Pedro
Revilla, to sell the lot for P1,000.00 per square meter; (b) that Philippine
Remnants confirmed the authority to sell of Revilla and the price at which he
may sell the lot; (c) that petitioner and Revilla agreed on the former buying
the property; (d) that BPI Assistant Vice-President Rolando V. Aromin
allowed the broker and the buyer to inspect the property; and (e) that BPI
was formally informed about the broker having procured a buyer.

The controversy revolves around the interpretation or the significance of the
happenings or events at this point.
Petitioner states that the contract to sell and to buy was perfected on July
11, 1988 when its top officials and broker Revilla finalized the details with
BPI Vice-Presidents Merlin Albano and Rolando V. Aromin at the BPI offices.
Respondents, however, contend that what transpired on this date were part
of continuing negotiations to buy the land and not the perfection of the sale.
The arguments of respondents center on two propositions — (1) Vice-
Presidents Aromin and Albano had no authority to bind BPI on this particular
transaction and (2) the subsequent attempts of petitioner to pay under terms
instead of full payment in cash constitutes a counter-offer which negates the
existence of a perfected contract.
The alleged lack of authority of the bank officials acting in behalf of BPI is
not sustained by the record.
At the start of the transactions, broker Revilla by himself already had full
authority to sell the disputed lot. Exhibit B dated June 23, 1988 states, "this
will serve as your authority to sell on an as is, where is basis the property
located at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's testimony
that the authority given to him was to sell and not merely to look for a
buyer, as contended by respondents.
Revilla testified that at the time he perfected the agreement to sell the
litigated property, he was acting for and in behalf of the BPI as if he were
the Bank itself. This notwithstanding and to firm up the sale of the land,
Revilla saw it fit to bring BPI officials into the transaction. If BPI could give
the authority to sell to a licensed broker, we see no reason to doubt the
authority to sell of the two BPI Vice-Presidents whose precise job in the Bank
was to manage and administer real estate property.
Respondent BPI alleges that sales of trust property need the approval of a
Trust Committee made up of top bank officials. It appears from the record
that this trust committee meets rather infrequently and it does not have to
pass on regular transactions.
Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He
directly supervised the BPI Real Property Management Unit. He had been in
the Real Estate Division since 1985 and was the head supervising officer of
S a l e s P a r t V P a g e | 164
real estate matters. Aromin had been with the BPI Trust Department since
1968 and had been involved in the handling of properties of beneficial
owners since 1975 (tsn., December 3, 1990, p. 5).
Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President
Edmundo Barcelon, while purporting to inform Aromin of his poor
performance, is an admission of BPI that Aromin was in charge of Torrens
titles, lease contracts, problems of tenants, insurance policies, installment
receivables, management fees, quitclaims, and other matters involving real
estate transactions. His immediate superior, Vice-President Merlin Albano
had been with the Real Estate Division for only one week but he was present
and joined in the discussions with petitioner.
There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin
before the incident. Revilla brought the brothers directly to Aromin upon
entering the BPI premises. Aromin acted in a perfectly natural manner on the
transaction before him with not the slightest indication that he was
acting ultra vires. This shows that BPI held Aromin out to the public as the
officer routinely handling real estate transactions and, as Trust Officer,
entering into contracts to sell trust properties.
Respondents state and the record shows that the authority to buy and sell
this particular trust property was later withdrawn from Trust Officer Aromin
and his entire unit. If Aromin did not have any authority to act as alleged,
there was no need to withdraw authority which he never possessed.
Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which
cited Prudential Bank vs. Court of Appeals (22 SCRA 350 [1993]), which in
turn relied upon McIntosh vs. Dakota Trust Co. (52 ND 752, 204 NW 818, 40
ALR 1021), to wit:
Accordingly a banking corporation is liable to innocent third
persons where the representation is made in the course of
its business by an agent acting within the general scope of
his authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate a
fraud upon his principal or some other person for his own
ultimate benefit.
(at pp. 652-653.)

In the present case, the position and title of Aromin alone, not to mention
the testimony and documentary evidence about his work, leave no doubt
that he had full authority to act for BPI in the questioned transaction. There
is no allegation of fraud, nor is there the least indication that Aromin was
acting for his own ultimate benefit. BPI later dismissed Aromin because it
appeared that a top official of the bank was personally interested in the sale
of the Pasig property and did not like Aromin's testimony. Aromin was
charged with poor performance but his dismissal was only sometime after he
testified in court. More than two long years after the disputed transaction, he
was still Assistant Vice-President of BPI.
The records show that the letter of instruction dated June 14, 1988 from the
owner of Philippine Remnants Co. regarding the sale of the firm's property
was addressed to Aromin. The P1,000.00 figure on the first page of broker
Revilla's authority to sell was changed to P1,100.00 by Aromin. The price
was later brought down again to P1,000.00, also by Aromin. The permission
given to petitioner to view the lot was signed by Aromin and honored by the
BPI guards. The letter dated July 9, 1988 from broker Revilla informing BPI
that he had a buyer was addressed to Aromin. The conference on July 11,
1988 when the contract was perfected was with Aromin and Vice-President
Albano. Albano and Aromin were the ones who assured petitioner Limketkai's
officers that term payment was possible. It was Aromin who called up Miguel
Bicharra of Philippine Remnants to state that the BPI rejected payment on
terms and it was to Aromin that Philippine Remnants gave the go signal to
proceed with the cash sale. Everything in the record points to the full
authority of Aromin to bind the bank, except for the self-serving memoranda
or letters later produced by BPI that Aromin was an inefficient and
undesirable officer and who, in fact, was dismissed after he testified in this
case. But, of course, Aromin's alleged inefficiency is not proof that he was
not fully clothed with authority to bind BPI.
Respondents' second contention is that there was no perfected contract
because petitioner's request to pay on terms constituted a counter-offer and
that negotiations were still in progress at that point.
Asst. Vice-President Aromin was subpoenaed as a hostile witness for
petitioner during trial. Among his statements is one to the effect that —
. . . Mr. Lim offered to buy the property at P900.00 per
square meter while Mr. Albano counter-offered to sell the
property at P1,100.00 per square meter but after the usual
S a l e s P a r t V P a g e | 165
haggling, we finally agreed to sell the property at the price
of P1,000.00 per square meter . . .
(tsn, 12-3-90, p. 17; Emphasis supplied.)
Asked if there was a meeting of the minds between the buyer and the bank
in respect to the price of P1,000.00 per square meter, Aromin answered:
Yes, sir, as far as my evaluation there was a meeting of the
minds as far as the price is concerned, sir.
(ibid, p. 17.)
The requirements in the payment of the purchase price on terms instead of
cash were suggested by BPI Vice-President Albano. Since the authority given
to broker Revilla specified cash payment, the possibility of paying on terms
was referred to the Trust Committee but with the mutual agreement that "if
the proposed payment on terms will not be approved by our Trust
Committee, Limketkai should pay in cash . . . the amount was no longer
subject to the approval or disapproval of the Committee, it is only on the
terms." (ibid, p. 19). This is incontrovertibly established in the following
testimony of Aromin:
A. After you were able to agree on the price
of P1,000.00/sq. m., since the letter or
authority says the payment must be in cash
basis, what transpired later on?
B. After we have agreed on the price, the
Lim brothers inquired on how to go about
submitting the covering proposal if they will
be allowed to pay on terms. They requested
us to give them a guide on how to prepare
the corresponding letter of proposal. I recall
that, upon the request of Mr. Albino
Limketkai, we dictated a guide on how to
word a written firm offer that was to be
submitted by Mr. Lim to the bank setting out
the terms of payment but with the mutual
agreement that if his proposed payment on
terms will not be approved by our trust

committee, Limketkai should pay the price in
cash.
Q And did buyer Limketkai agree to pay in
cash in case the offer of terms will be cash
(disapproved).
A Yes, sir.
Q At the start, did they show their
willingness to pay in cash?
A Yes, sir.
Q You said that the agreement on terms
was to be submitted to the trust committee
for approval, are you telling the Court that
what was to be approved by the trust
committee was the provision on the
payment on terms?
A Yes, sir.
Q So the amount was no longer subject to
the approval or disapproval of the
committee, it is only on the terms?
A Yes, sir.
(tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.)
The record shows that if payment was in cash, either broker Revilla or
Aromin had full authority. But because petitioner took advantage of the
suggestion of Vice-President Albano, the matter was sent to higher officials.
Immediately upon learning that payment on terms was frozen and/or denied,
Limketkai exercised his right within the period given to him and tendered
payment in full. The BPI rejected the payment.
In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion
vs. Court of Appeals (238 SCRA 602 [1994]) to bolster its case.
S a l e s P a r t V P a g e | 166
Contrarywise, it would seem that the legal principles found in said case
strengthen and support petitioner's submission that the contract was
perfected upon the meeting of the minds of the parties.
The negotiation or preparation stage started with the authority given by
Philippine Remnants to BPI to sell the lot, followed by (a) the authority given
by BPI and confirmed by Philippine Remnants to broker Revilla to sell the
property, (b) the offer to sell to Limketkai, (c) the inspection of the property
and finally (d) the negotiations with Aromin and Albano at the BPI offices.
The perfection of the contract took place when Aromin and Albano, acting
for BPI, agreed to sell and Alfonso Lim with Albino Limketkai, acting for
petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per square
meter. Aside from this there was the earlier agreement between petitioner
and the authorized broker. There was a concurrence of offer and
acceptance, on the object, and on the cause thereof.
The phases that a contract goes through may be summarized as follows:
a. preparation, conception or generation, which is the period
of negotiation and bargaining, ending at the moment of
agreement of the parties;
b. perfection or birth of the contract, which is the moment
when the parties come to agree on the terms of the
contract; and
c. consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract
(Toyota Shaw, Inc. vs. Court of Appeals, G.R. No. 116650,
May 23, 1995).
But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:
. . . A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time
the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected).
The perfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract

which is consensual as to perfection is so established upon a
mere meeting of minds, i.e., the concurrence of offer and
acceptance, on the object and on the cause thereof. A
contract which requires, in addition to the above, the
delivery of the object of the agreement, as in a pledge
or commodatum, is commonly referred to as a real contract.
In a solemn contract, compliance with certain formalities
prescribed by law, such as in a donation of real property, is
essential in order to make the act valid, the prescribed form
being thereby an essential element thereof. The stage of
consummation begins when the parties perform their
respective undertakings under the contract culminating in
the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation. In
sales, particularly, to which the topic for discussion about
the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price
certain, to deliver and to transfer ownership of a thing or
right to another, called the buyer, over which the latter
agrees.
(238 SCRA 602; 611 [1994].)
In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing
factual antecendents similar to this case, the Court, through Justice Aquino
(later to be Chief Justice), quoting authorities, upheld the perfection of the
contract of sale thusly:
The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties
may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts. (Art.
1475, Ibid.)
xxx xxx xxx
Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to
S a l e s P a r t V P a g e | 167
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer (Art. 1319, Civil Code). "An acceptance may be
express or implied." (Art. 1320, Civil Code).
xxx xxx xxx
It is true that an acceptance may contain a request for
certain changes in the terms of the offer and yet be a
binding acceptance. "So long as it is clear that the meaning
of the acceptance is positively and unequivocally to accept
the offer, whether such request is granted or not, a contract
is formed." (Stuart vs. Franklin Life Ins. Co., 105 Fed. 2nd
965, citing Sec. 79, Williston on Contracts).
xxx xxx xxx
. . . the vendor's change in a phrase of the offer to
purchase, which change does not essentially change the
terms of the offer, does not amount to a rejection of the
offer and the tender or a counter-offer. (Stuart vs. Franklin
Life Ins. Co., supra.)
(at pp. 362-363; 365-366.)
In the case at bench, the allegation of NBS that there was no concurrence of
the offer and acceptance upon the cause of the contract is belied by the
testimony of the very BPI official with whom the contract was perfected.
Aromin and Albano concluded the sale for BPI. The fact that the deed of sale
still had to be signed and notarized does not mean that no contract had
already been perfected. A sale of land is valid regardless of the form it may
have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119
[1991]). The requisite form under Article 1458 of the Civil Code is merely for
greater efficacy or convenience and the failure to comply therewith does not
affect the validity and binding effect of the act between the parties ( Vitug,
Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p. 552).
If the law requires a document or other special form, as in the sale of real
property, the contracting parties may compel each other to observe that
form, once the contract has been perfected. Their right may be exercised
simultaneously with action upon the contract (Article 1359, Civil Code).
 S a l e s P a r t V P a g e | 168

Regarding the admissibility and competence of the evidence adduced by answered by them, they could only be taken into account by connecting
petitioner, respondent Court of Appeals ruled that because the sale involved them with the answers given by those witnesses on direct examination " (pp.
real property, the statute of frauds is applicable. 747-748).

In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) Moreover, under Article 1403 of the Civil Code, an exception to the
wherein it was held that contracts infringing the Statute of Frauds are unenforceability of contracts pursuant to the Statute of Frauds is the
ratified when the defense fails to object, or asks questions on cross- existence of a written note or memorandum evidencing the contract. The
examination. The succinct words of Justice Araullo still ring in judicial memorandum may be found in several writings, not necessarily in one
cadence: document. The memorandum or memoranda is/are written evidence that
such a contract was entered into.
As no timely objection or protest was made to the admission
of the testimony of the plaintiff with respect to the contract; We cite the findings of the trial court on this matter:
and as the motion to strike out said evidence came too late;
and, furthermore, as the defendants themselves, by the In accordance with the provisions of Art. 1403 of the Civil
cross-questions put by their counsel to the witnesses in Code, the existence of a written contract of the sale is not
respect to said contract, tacitly waived their right to have it necessary so long as the agreement to sell real property is
stricken out, that evidence, therefore, cannot be considered evidenced by a written note or memorandum, embodying
either inadmissible or illegal, and court, far from having the essentials of the contract and signed by the party
erred in taking it into consideration and basing his judgment charged or his agent. Thus, it has been held:
thereon, notwithstanding the fact that it was ordered to be
stricken out during the trial, merely corrected the error he The Statute of Frauds, embodied in Article
committed in ordering it to be so stricken out and complied 1403 of the Civil Code of the
with the rules of procedure hereinbefore cited. Philippines, does not require that the
contract itself be written. The plain test of
(at p. 748.) Article 1403, Paragraph (2) is clear that a
written note or memorandum, embodying
In the instant case, counsel for respondents cross-examined petitioner's the essentials of the contract and signed by
witnesses at length on the contract itself, the purchase price, the tender of the party charged, or his agent suffices to
cash payment, the authority of Aromin and Revilla, and other details of the make the verbal agreement enforceable,
litigated contract. Under the Abrenica rule (reiterated in a number of cases, taking it out of the operation of the statute .
among them Talosig vs. Vda. de Nieba 43 SCRA 472 [1972]), even assuming (Emphasis supplied)
that parol evidence was initially inadmissible, the same became competent
and admissible because of the cross-examination, which elicited evidence xxx xxx xxx
proving the evidence of a perfected contract. The cross-examination on the
contract is deemed a waiver of the defense of the Statute of Frauds ( Vitug, In the case at bar, the complaint in its
Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p. paragraph 3 pleads that the deal had been
563). closed by letter and telegram (Record on
Appeal, p. 2), and the letter referred to was
The reason for the rule is that as pointed out in Abrenica "if the answers of evidently the one copy of which was
those witnesses were stricken out, the cross-examination could have no appended as Exhibit A to plaintiffs
object whatsoever, and if the questions were put to the witnesses and opposition to the motion to dismiss. The

letter, transcribed above in part, together
with the one marked as Appendix B,
constitute an adequate memorandum of the
transaction. They are signed by the
defendant-appellant; refer to the property
sold as a Lot in Puerto Princesa, Palawan,
covered by T.C.T. No. 62, give its area as
1,825 square meters and the purchase price
of four (P4.00) pesos per square meter
payable in cash. We have in them,
therefore, all the essential terms of the
contract and they satisfy the requirements
of the Statute of Frauds.
(Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]).
While there is no written contract of sale of the Pasig
property executed by BPI in favor of plaintiff, there are
abundant notes and memoranda extant in the records of this
case evidencing the elements of a perfected contract. There
is Exhibit P, the letter of Kenneth Richard Awad addressed to
Roland Aromin, authorizing the sale of the subject property
at the price of P1,000.00 per square meter giving 2%
commission to the broker and instructing that the sale be on
cash basis. Concomitantly, on the basis of the instruction of
Mr. Awad, (Exh. P), an authority to sell, (Exh. B) was issued
by BPI to Pedro Revilla, Jr., representing Assetrade Co.,
authorizing the latter to sell the property at the initial quoted
price of P1,000.00 per square meter which was altered on
an unaccepted offer by Technoland. After the letter authority
was issued to Mr. Revilla, a letter authority was signed by
Mr. Aromin allowing the buyer to enter the premises of the
property to inspect the same (Exh. C). On July 9, 1988,
Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to
BPI informing it that he had procured a buyer in the name of
Limketkai Sons Milling, Inc. with offices at Limketkai Bldg.,
Greenhills, San Juan, Metro Manila, represented by its Exec.
Vice-President, Alfonso Lim (Exh. D). On July 11, 1988, the
plaintiff, through Alfonso Lim, wrote a letter to the bank,
through Merlin Albano, confirming their transaction
regarding the purchase of the subject property (Exh. E). On
July 18, 1988, the plaintiff tendered upon the officials of the
S a l e s P a r t V P a g e | 169
bank a check for P33,056,000.00 covered by Check No.
CA510883, dated July 18, 1988. On July 1, 1988, Alfonso
Zamora instructed Mr. Aromin in a letter to resubmit new
offers only if there is no transaction closed with Assetrade
Co. (Exh. S). Combining all these notes and memoranda, the
Court is convinced of the existence of perfected contract of
sale. Aptly, the Supreme Court, citing American cases with
approval, held:
No particular form of language or
instrument is necessary to constitute a
memorandum or note in writing under the
statute of frauds; any document or writing,
formal or informal, written either for the
purpose of furnishing evidence of the
contract or for another purpose, which
satisfies all the requirements of the statute
as to contents and signature, as discussed
respectively infra secs. 178-200,
and infra secs. 201-205, is a sufficient
memorandum or note. A memorandum may
be written as well with lead pencil as with
pen and ink. It may also be filled in on a
printed form. (37 C.J.S., 653-654).
The note or memorandum required by the
statute of frauds need not be contained in a
single document, nor, when contained in
two or more papers, need each paper be
sufficient as to contents and signature to
satisfy the statute. Two or more writings
properly connected may be considered
together, matters missing or uncertain in
one may be supplied or rendered certain by
another, and their sufficiency will depend on
whether, taken together, they meet the
requirements of the statute as to contents
and the requirements of the statutes as to
signature, as considered
respectively infra secs. 179-200 and secs.
201-215.

(pp. 460-463, Original RTC Record).
The credibility of witnesses is also decisive in this case. The trial court
directly observed the demeanor and manner of testifying of the witnesses
while the Court of Appeals relied merely on the transcript of stenographic
notes.
In this regard, the court of origin had this to say:
Apart from weighing the merits of the evidence of the
parties, the Court had occasion to observe the demeanor of
the witnesses they presented. This is one important factor
that inclined the Court to believe in the version given by the
plaintiff because its witnesses, including hostile witness
Roland V. Aromin, an assistant vice-president of the bank,
were straightforward, candid and unhesitating in giving their
respective testimonies. Upon the other hand, the witnesses
of BPI were evasive, less than candid and hesitant in giving
their answers to cross examination questions. Moreover, the
witnesses for BPI and NBS contradicted each other.
Fernando Sison III insisted that the authority to sell issued
to Mr. Revilla was merely an evidence by which a broker
may convince a prospective buyer that he had authority to
offer the property mentioned therein for sale and did not
bind the bank. On the contrary, Alfonso Zamora, a Senior
Vice-President of the bank, admitted that the authority to
sell issued to Mr. Pedro Revilla, Jr. was valid, effective and
binding upon the bank being signed by two class "A"
signatories and that the bank cannot back out from its
commitment in the authority to sell to Mr. Revilla.
While Alfredo Ramos of NBS insisted that he did not know
personally and was not acquainted with Edmundo Barcelon,
the latter categorically admitted that Alfredo Ramos was his
friend and that they have even discussed in one of the
luncheon meetings the matter of the sale of the Pasig
property to NBS. George Feliciano emphatically said that he
was not a consultant of Mr. Ramos nor was he connected
with him in any manner, but his calling card states that he
was a consultant to the chairman of the Pacific Rim Export
and Holdings Corp. whose chairman is Alfredo Ramos. This
S a l e s P a r t V P a g e | 170
deliberate act of Mr. Feliciano of concealing his being a
consultant to Mr. Alfredo Ramos evidently was done by him
to avoid possible implication that he committed some
underhanded maneuvers in manipulating to have the subject
property sold to NBS, instead of being sold to the plaintiff.
(pp. 454-455, Original RTC Record.)
On the matter of credibility of witnesses where the findings or conclusions of
the Court of Appeals and the trial court are contrary to each other, the
pronouncement of the Court in Serrano vs. Court of Appeals (196 SCRA 107
[1991]) bears stressing:
It is a settled principle of civil procedure that the conclusions
of the trial court regarding the credibility of witnesses are
entitled to great respect from the appellate courts because
the trial court had an opportunity to observe the demeanor
of witnesses while giving testimony which may indicate their
candor or lack thereof. While the Supreme Court ordinarily
does not rule on the issue of credibility of witnesses, that
being a question of fact not properly raised in a petition
under Rule 45, the Court has undertaken to do so in
exceptional situations where, for instance, as here, the trial
court and the Court of Appeals arrived at divergent
conclusions on questions of fact and the credibility of
witnesses.
(at p. 110.)
On the fourth question of whether or not NBS is an innocent purchaser for
value, the record shows that it is not. It acted in bad faith.
Respondent NBS ignored the notice of lis pendens annotated on the title
when it bought the lot. It was the willingness and design of NBS to buy
property already sold to another party which led BPI to dishonor the contract
with Limketkai.
Petitioner cites several badges of fraud indicating that BPI and NBS
conspired to prevent petitioner from paying the agreed price and getting
possession of the property:
 S a l e s P a r t V P a g e | 171

1. The sale was supposed to be done through an authorized broker, but top Petitioner also claimed, and the trial court awarded, damages for the profits
officials of BPI personally and directly took over this particular sale when a and opportunity losses caused to petitioner's business in the amount of
close friend became interested. P10,000,000.00.

2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's We rule that the profits and the use of the land which were denied to
President, Alfredo Ramos, was his friend; that they had lunch meetings petitioner because of the non-compliance or interference with a solemn
before this incident and discussed NBS's purchase of the lot. Barcelon's obligation by respondents is somehow made up by the appreciation in land
father was a business associate of Ramos. values in the meantime.

3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million
if petitioner would drop the case and give up the lot. Feliciano went to
petitioner's office and haggled with Alfonso Lim but failed to convince him
inspite of various and increasing offers.
4. In a place where big and permanent buildings abound, NBS had
constructed only a warehouse marked by easy portability. The warehouse is
bolted to its foundations and can easily be dismantled.
It is the very nature of the deed of absolute sale between BPI and NBS
which, however, clearly negates any allegation of good faith on the part of
the buyer. Instead of the vendee insisting that the vendor guarantee its title
to the land and recognize the right of the vendee to proceed against the
vendor if the title to the land turns out to be defective as when the land
belongs to another person, the reverse is found in the deed of sale between
BPI and NBS. Any losses which NBS may incur in the event the title turns out
to be vested in another person are to be borne by NBS alone. BPI is
expressly freed under the contract from any recourse of NBS against it
should BPI's title be found defective.
Prescinding from the above, we rule that there was a perfected contract
between BPI and petitioner Limketkai; that the BPI officials who transacted
with petitioner had full authority to bind the bank; that the evidence
supporting the sale is competent and admissible; and that the sale of the lot
to NBS during the trial of the case was characterized by bad faith.
WHEREFORE, the questioned judgment of the Court of Appeals is hereby
REVERSED and SET ASIDE. The June 10, 1991 judgment of Branch 151 of
the Regional Trial Court of The National Capital Judicial Region stationed in
Pasig, Metro Manila is REINSTATED except for the award of Ten Million
Pesos (P10,000,000.00) damages which is hereby DELETED.
SO ORDERED.
Feliciano, Romero, Vitug and Panganiban, JJ., concur.

NBS, in its reply memorandum, does not refute or explain the above
circumstance squarely. It simply cites the badges of fraud mentioned in Oria
vs. McMicking (21 Phil. 243 [1912]) and argues that the enumeration there is
exclusive. The decision in said case plainly states "the following are some of
the circumstances attending sales which have been denominated by courts
(as) badges of fraud." There are innumerable situations where fraud is
manifested. One enumeration in a 1912 decision cannot possibly cover all
indications of fraud from that time up to the present and into the future.

The Court of Appeals did not discuss the issue of damages. Petitioner cites
the fee for filing the amended complaint to implead NBS, sheriffs fees,
registration fees, plane fare and hotel expenses of Cebu-based counsel.

[No. L-11311. May 28, 1958]
MARTA C. ORTEGA, plaintiff and appellant, vs. DANIEL LEONARDO,
defendant and appellee.
1.SALE; PAROL CONTRACT OF SALE OF REALTY UNENFORCEABLE ; DOC-
TRINE OF PART PERFORMANCE.—While, as a general rule, an oral
agreement to sell a piece of land is not provable, however, where there is
partial performance of the sale contract, the principle excluding evidence of
parol contracts for the sale of realty will not apply.
2.ID.; CIRCUMSTANCES INDICATING PARTIAL, PERFORMANCE.—Some
circumstances indicating partial performance of an oral contract of sale of
realty are: relinquishment of rights, continued possession, building of
improvements, tender of payment rendition of services, payment of taxes,
surveying of the land at the vendee's expense, etc.
APPEAL from an order of the Court of First Instance of Manila. Concepción, J.
The facts are stated in the opinion of the Court.
José Ma. Reyes for appellant.
Tomás A. Leonardo for appellee. Ortega vs. Leonardo, 103 Phil. 870, No. L-
11311 May 28, 1958
BENGZON, J.:
Well known is the general rule in the Statute of Frauds precluding
enforcement of oral contracts for the sale of land. Not so well known is
exception concerning the partially executed contracts 1 — least our
jurisprudence offers few, if any, apposite illustrations. This appeal
exemplifies such exception.
Alleging partial performance, plaintiff sought to compel defendant to comply
with their oral contract of sale of a parcel of land. Upon a motion to dismiss,
the Manila court of first instance ordered dismissal following the above
general rule.
S a l e s P a r t V P a g e | 172
Hence this appeal. It should be sustained if the allegations of the complaint
— which the motion to dismiss admitted — set out an instance of partial
performance.
Stripped of non-essentials, the complaint averred that long before and until
her house had been completely destroyed during the liberation of the City of
Manila, plaintiff occupied a parcel of land, designated as Lot 1, Block 3 etc.
(hereinafter called Lot I) located at San Andres Street, Malate, Manila; that
after liberation she re-occupied it; that when the administration and
disposition of the said Lot I (together with other lots in the Ana Sarmiento
Estate) were assigned by the Government to the Rural Progress
Administration2 plaintiff asserted her right thereto (as occupant) for purposes
of purchase; that defendant also asserted a similar right, alleging occupancy
of a portion of the land subsequent to plaintiff's; that during the investigation
of such conflicting interests, defendant asked plaintiff to desist from pressing
her claim and definitely promised that if and when he succeeded in getting
title to Lot I3 , he would sell to her a portion thereof with an area of 55.60
square meters (particularly described) at the rate of P25.00 per square
meter, provided she paid for the surveying and subdivision of the Lot and
provided further that after he acquired title, she could continue holding the
lot as tenant by paying a monthly rental of P10.00 until said portion shall
have been segregated and the purchase price fully paid; that plaintiff
accepted defendant's offer, and desisted from further claiming Lot I; that
defendant finally acquired title thereto; that relying upon their agreement,
plaintiff caused the survey and segregation of the portion which defendant
had promised to sell incurring expenses therefor, said portion being now
designated as Lot I-B in a duly prepared and approved subdivision plan; that
in remodelling her son's house constructed on a lot adjoining Lot I she
extended it over said Lot I-B; that after defendant had acquired Lot I plaintiff
regularly paid him the monthly rental of P10.00; that in July 1954, after the
plans of subdivision and segregation of the lot had been approved by the
Bureau of Lands, plaintiff tendered to defendant the purchase price which
the latter refused to accept, without cause or reason.
The court below explained in its order of dismissal:
It is admitted by both parties that an oral agreement to sell a piece
of land is not enforceable. (Art. 1403, Civil Code, Section 21, Rule
123, Rules of Court.) Plaintiff, however, argues that the contract in
question, although verbal, was partially performed because plaintiff
desisted from claiming the portion of lot I in question due to the

promise of defendant to transfer said portion to her after the
issuance of title to defendant. The court thinks that even granting
that plaintiff really desisted to claim not on oral promise to sell made
by defendant, the oral promise to sell cannot be enforced. The
desistance to claim is not a part of the contract of sale of the land.
Only in essential part of the executory contract will, if it has already
been performed, make the verbal contract enforceable, payment of
price being an essential part of the contract of sale.
If the above means that partial performance of a sale contract
occurs only when part of the purchase price is paid, it surely constitutes a
defective statement of the law. American Jurisprudence in its title "Statute of
Frauds" lists other acts of partial performance, such as possession, the
making of improvements, rendition of services, payment of taxes,
relinquishment of rights, etc.
Thus, it is stated that "The continuance in possession may, in a proper case,
be sufficiently referable to the parol contract of sale to constitute a part
performance thereof. There may be additional acts or peculiar circumstances
which sufficiently refer the possession to the contract. . . . Continued
possession under an oral contract of sale, by one already in possession as a
tenant, has been held a sufficient part performance, where accompanied by
other acts which characterize the continued possession and refer it to the
contract of purchase. Especially is this true where the circumstances of the
case include the making of substantial, permanent, and valuable
improvements." (49 American Jurisprudence — 44)
It is also stated that "The making of valuable permanent improvements on
the land by the purchaser, in pursuance of the agreement and with the
knowledge of the vendor, has been said to be the strongest and the most
unequivocal act of part performance by which a verbal contract to sell land is
taken out of the statute of frauds, and is ordinarily an important element in
such part performance. . . . Possession by the purchaser under a parol
contract for the purchase of real property, together with his making valuable
and permanent improvements on the property which are referable
exclusively to the contract, in reliance on the contract, in the honest belief
that he has a right to make them, and with the knowledge and consent or
acquiescence of the vendor, is deemed a part performance of the contract.
The entry into possession and the making of the improvements are held on
amount to such an alteration in the purchaser's position as will warrant the
S a l e s P a r t V P a g e | 173
court's entering a degree of specific performance." (49 American
Jurisprudence p.755, 756.)
Again, it is stated that "A tender or offer of payment, declined by the vendor,
has been said to be equivalent to actual payment, for the purposes of
determining whether or not there has been a part performance of the
contract. This is apparently true where the tender is by a purchaser who has
made improvements. But the doctrine now generally accepted, that not even
the payment of the purchase price, without something more, . . . is a
sufficient part performance. (49 American Jurisprudence p. 772.)
And the relinquishment of rights or the compromise thereof has likewise
been held to constitute part performance. ( See same title secs. 473, 474,
475.)
In the light of the above four paragraphs, it would appear that the complaint
in this case described several circumstance indicating partial performance:
relinquishment of rights4 continued possession, building of improvements,
tender of payment plus the surveying of the lot at plaintiff's expense and the
payment of rentals.
We shall not take, time to discuss whether one or the other or any two or
three of them constituted sufficient performance to take the matter away
from the operation of the Statute of Frauds. Enough to hold that the
combination of all of them amounted to partial performance; and we do so
line with the accepted basis of the doctrine, that it would be a fraud upon
the plaintiff if the defendant were permitted to oppose performance of his
part after he has allowed or induced the former to perform in reliance upon
the agreement. (See 49 American Jurisprudence p. 725.)
The paragraph immediately preceding will serve as our comment on the
appellee's quotations from American Jurisprudence itself to the effect that
"relinquishment" is not part performance, and that neither "surveying the
land"5nor tender of payment is sufficient. The precedents hereinabove
transcribed oppose or explain away or qualify the appellee's citations. And at
the risk of being repetitious we say: granting that none of the three
circumstances indicated by him, (relinquishment, survey, tender)
would separately suffice, still the combination of the three with the others
already mentioned, amounts to more than enough.
 S a l e s P a r t V P a g e | 174

Hence, as there was partial performance, the principle excluding parol

contracts for the sale of realty, does not apply.

The judgment will accordingly be reversed and the record remanded for
further proceedings. With costs against appellee.

Paras, C.J., Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion,

Reyes, J.B.L., Endencia and Felix, JJ., concur.

G.R. No. 85240. July 12, 1991.*
HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely,
MODESTA CLAUDEL, LORETA HERRERA, JOSE CLAUDEL, BENJAMIN
CLAUDEL, PACITA CLAUDEL, CARMELITA CLAUDEL, MARIO
CLAUDEL, ROBERTO CLAUDEL, LEONARDO CLAUDEL, ARSENIA
VILLALON, PERPETUA CLAUDEL and FELISA CLAUDEL, petitioners,
vs. HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA,
RAYMUNDA and CELESTINA, all surnamed CLAUDEL, respondents.
Sales; Contracts; Statute of Frauds; The Statute of frauds was devised to
protect the parties in a contract of sale of real property so that no such
contract is enforceable unless certain requisites, for purposes of proof are
met.—The rule of thumb is that a sale of land, once consummated, is valid
regardless of the form it may have been entered into. For nowhere does law
or jurisprudence prescribe that the contract of sale be put in writing before
such contract can validly cede or transmit rights over a certain real property
between the parties themselves. However, in the event that a third party, as
in this case, disputes the ownership of the property, the person against
whom that claim is brought can not present any proof of such sale and
hence has no means to enforce the contract. Thus the Statute of Frauds was
precisely devised to protect the parties in a contract of sale of real property
so that no such contract is enforceable unless certain requisites, for purposes
of proof, are met. x x x The purpose of the Statute of Frauds is to prevent
fraud and perjury in the enforcement of obligations depending for their
evidence upon the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced in writing.
Land Titles; The torrens title in the possession of the heirs of Cecilio carries
more weight as proof of ownership than the survey or subdivision plan of a
parcel of land in the name of the siblings of Cecilio.—But as we had pointed
out, the law recognizes the superiority of the torrens title. Above all, the
torrens title in the possession of the HEIRS OF CECILIO carries more weight
as proof of ownership than the survey or subdivision plan of a parcel of land
in the name of SIBLINGS OF CECILIO. The Court has invariably upheld the
indefeasibility of the torrens title. No possession by any person of any
portion of the land could defeat the title of the registered owners thereof. A
S a l e s P a r t V P a g e | 175
torrens title, once registered, cannot be defeated, even by adverse, open
and notorious possession. A registered title under the torrens system cannot
be defeated by prescription. The title, once registered, is notice to the world.
All persons must take notice. No one can plead ignorance of the registration.
x x x Furthermore, a private individual may not bring an action for reversion
or any action which would have the effect of cancelling a free patent and the
corresponding certificate of title issued on the basis thereof, with the result
that the land covered thereby will again form part of the public domain, as
only the Solicitor General or the officer acting in his stead may do so. It is
true that in some instances, the Court did away with the irrevocability of the
torrens title, but the circumstances in the case at bar varied significantly
from these cases.
Same; Torrens System; The torrens system of land registration, though
indefeasible, should not be used as a means to perpetrate fraud against the
rightful owner of real property.—In Bornales v. IAC, the defense of
indefeasibility of a certificate of title was disregarded when the transferee
who took it had notice of the flaws in the transferor’s title. No right passed to
a transferee from a vendor who did not have any in the first place. The
transferees bought the land registered under the torrens system from
vendors who procured title thereto by means of fraud. With this knowledge,
they can not invoke the indefeasibility of a certificate of title against the
private respondent to the extent of her interest. This is because the torrens
system of land registration, though indefeasible, should not be used as a
means to perpetrate fraud against the rightful owner of real property. Mere
registration of the sale is not good enough, good faith must concur with
registration. Otherwise registration becomes an exercise in futility.
PETITION for certiorari to review the decision of the Court of Appeals.
Herrera, J.
The facts are stated in the opinion of the Court.
Ricardo L. Moldez for petitioners.
Juan T. Aquino for private respondents. Claudel vs. Court of Appeals, 199
SCRA 113, G.R. No. 85240 July 12, 1991

SARMIENTO, J.:
This petition for review on certiorari seeks the reversal of the decision
rendered by the Court of Appeals in CA-G.R. CV No. 044291 and the
reinstatement of the decision of the then Court of First Instance (CFI) of
Rizal, Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of Macario
Claudel, et al. v. Heirs of Cecilio Claudel, et al.," which dismissed the
complaint of the private respondents against the petitioners for cancellation
of titles and reconveyance with damages.2
As early as December 28, 1922, Basilio also known as "Cecilio" Claudel,
acquired from the Bureau of Lands, Lot No. 1230 of the Muntinlupa Estate
Subdivision, located in the poblacion of Muntinlupa, Rizal, with an area of
10,107 square meters; he secured Transfer Certificate of Title (TCT) No.
7471 issued by the Registry of Deeds for the Province of Rizal in 1923; he
also declared the lot in his name, the latest Tax Declaration being No. 5795.
He dutifully paid the real estate taxes thereon until his death in
1937.3 Thereafter, his widow "Basilia" and later, her son Jose, one of the
herein petitioners, paid the taxes.
The same piece of land purchased by Cecilio would, however, become the
subject of protracted litigation thirty-nine years after his death.
Two branches of Cecilio's family contested the ownership over the land-on
one hand the children of Cecilio, namely, Modesto, Loreta, Jose, Benjamin,
Pacita, Carmelita, Roberto, Mario, Leonardo, Nenita, Arsenia Villalon, and
Felisa Claudel, and their children and descendants, now the herein
petitioners (hereinafter referred to as HEIRS OF CECILIO), and on the other,
the brother and sisters of Cecilio, namely, Macario, Esperidiona, Raymunda,
and Celestina and their children and descendants, now the herein private
respondents (hereinafter referred to as SIBLINGS OF CECILIO). In 1972, the
HEIRS OF CECILIO partitioned this lot among themselves and obtained the
corresponding Transfer Certificates of Title on their shares, as follows:
TCT No. 395391 1,997 sq. m. –– Jose Claudel
TCT No. 395392 1,997 sq. m. –– Modesta Claudel and children
TCT No. 395393 1,997 sq. m. –– Armenia C. Villalon
TCT No. 395394 1,997 sq. m. –– Felisa Claudel4
S a l e s P a r t V P a g e | 176
Four years later, on December 7, 1976, private respondents SIBLINGS OF
CECILIO, filed Civil Case No. 5276-P as already adverted to at the outset,
with the then Court of First Instance of Rizal, a "Complaint for Cancellation of
Titles and Reconveyance with Damages," alleging that 46 years earlier, or
sometime in 1930, their parents had purchased from the late Cecilio Claudel
several portions of Lot No. 1230 for the sum of P30.00. They admitted that
the transaction was verbal. However, as proof of the sale, the SIBLINGS OF
CECILIO presented a subdivision plan of the said land, dated March 25,
1930, indicating the portions allegedly sold to the SIBLINGS OF CECILIO.
As already mentioned, the then Court of First Instance of Rizal, Branch CXI,
dismissed the complaint, disregarding the above sole evidence (subdivision
plan) presented by the SIBLINGS OF CECILIO, thus:
Examining the pleadings as well as the evidence presented in this
case by the parties, the Court can not but notice that the present
complaint was filed in the name of the Heirs of Macario, Espiridiona,
Raymunda and Celestina, all surnamed Claudel, without naming the
different heirs particularly involved, and who wish to recover the lots
from the defendants. The Court tried to find this out from the
evidence presented by the plaintiffs but to no avail. On this point
alone, the Court would not be able to apportion the property to the
real party in interest if ever they are entitled to it as the persons
indicated therein is in generic term (Section 2, Rule 3). The Court
has noticed also that with the exception of plaintiff Lampitoc and
(sic) the heirs of Raymunda Claudel are no longer residing in the
property as they have (sic) left the same in 1967. But most
important of all the plaintiffs failed to present any document
evidencing the alleged sale of the property to their predecessors in
interest by the father of the defendants. Considering that the subject
matter of the supposed sale is a real property the absence of any
document evidencing the sale would preclude the admission of oral
testimony (Statute of Frauds). Moreover, considering also that the
alleged sale took place in 1930, the action filed by the plaintiffs
herein for the recovery of the same more than thirty years after the
cause of action has accrued has already prescribed.
WHEREFORE, the Court renders judgment dismissing the complaint,
without pronouncement as to costs.
SO ORDERED.5

On appeal, the following errors6 were assigned by the SIBLINGS OF
CECILIO:
1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS'
COMPLAINT DESPITE CONCLUSIVE EVIDENCE SHOWING THE
PORTION SOLD TO EACH OF PLAINTIFFS' PREDECESSORS.
2. THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFFS FAILED
TO PROVE ANY DOCUMENT EVIDENCING THE ALLEGED SALE.
3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO THE PLAN,
EXHIBIT A, SHOWING THE PORTIONS SOLD TO EACH OF THE
PLAINTIFFS' PREDECESSORS-IN-INTEREST.
4. THE TRIAL COURT ERRED IN NOT DECLARING PLAINTIFFS AS
OWNERS OF THE PORTION COVERED BY THE PLAN, EXHIBIT A.
5. THE TRIAL COURT ERRED IN NOT DECLARING TRANSFER
CERTIFICATES OF TITLE NOS. 395391, 395392, 395393 AND
395394 OF THE REGISTER OF DEEDS OF RIZAL AS NULL AND VOID.
The Court of Appeals reversed the decision of the trial court on the following
grounds:
1. The failure to bring and prosecute the action in the name of the real party
in interest, namely the parties themselves, was not a fatal omission since the
court a quo could have adjudicated the lots to the SIBLINGS OF CECILIO,
the parents of the herein respondents, leaving it to them to adjudicate the
property among themselves.
2. The fact of residence in the disputed properties by the herein respondents
had been made possible by the toleration of the deceased Cecilio.
3. The Statute of Frauds applies only to executory contracts and not to
consummated sales as in the case at bar where oral evidence may be
admitted as cited in Iñigo v. Estate of Magtoto 7 and Diana, et al. v.
Macalibo.8
In addition,
S a l e s P a r t V P a g e | 177
. . . Given the nature of their relationship with one another it is not
unusual that no document to evidence the sale was executed, . . .,
in their blind faith in friends and relatives, in their lack of experience
and foresight, and in their ignorance, men, in spite of laws, will
make and continue to make verbal contracts. . . .9
4. The defense of prescription cannot be set up against the herein petitioners
despite the lapse of over forty years from the time of the alleged sale in
1930 up to the filing of the "Complaint for Cancellation of Titles and
Reconveyance . . ." in 1976.
According to the Court of Appeals, the action was not for the recovery of
possession of real property but for the cancellation of titles issued to the
HEIRS OF CECILIO in 1973. Since the SIBLINGS OF CECILIO commenced
their complaint for cancellation of titles and reconveyance with damages on
December 7, 1976, only four years after the HEIRS OF CECILIO partitioned
this lot among themselves and obtained the corresponding Transfer
Certificates of Titles, then there is no prescription of action yet.
Thus the respondent court ordered the cancellation of the Transfer
Certificates of Title Nos. 395391, 395392, 395393, and 395394 of the
Register of Deeds of Rizal issued in the names of the HEIRS OF CECILIO and
corollarily ordered the execution of the following deeds of reconveyance:
To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.
To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.
To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.
To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.10
The respondent court also enjoined that this disposition is without prejudice
to the private respondents, as heirs of their deceased parents, the SIBLINGS
OF CECILIO, partitioning among themselves in accordance with law the
respective portions sold to and herein adjudicated to their parents.
The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927
square meters, respectively would go to Cecilio or his heirs, the herein

petitioners. Beyond these apportionments, the HEIRS OF CECILIO would not
receive anything else.
The crux of the entire litigation is whether or not the Court of Appeals
committed a reversible error in disposing the question of the true ownership
of the lots.
And the real issues are:
1. Whether or not a contract of sale of land may be proven orally:
2. Whether or not the prescriptive period for filing an action for
cancellation of titles and reconveyance with damages (the action
filed by the SIBLINGS OF CECILIO) should be counted from the
alleged sale upon which they claim their ownership (1930) or from
the date of the issuance of the titles sought to be cancelled in favor
of the HEIRS OF CECILIO (1976).
The rule of thumb is that a sale of land, once consummated, is valid
regardless of the form it may have been entered into.11 For nowhere does
law or jurisprudence prescribe that the contract of sale be put in writing
before such contract can validly cede or transmit rights over a certain real
property between the parties themselves.
However, in the event that a third party, as in this case, disputes the
ownership of the property, the person against whom that claim is brought
can not present any proof of such sale and hence has no means to enforce
the contract. Thus the Statute of Frauds was precisely devised to protect the
parties in a contract of sale of real property so that no such contract is
enforceable unless certain requisites, for purposes of proof, are met.
The provisions of the Statute of Frauds pertinent to the present controversy,
state:
Art. 1403 (Civil Code). The following contracts are unenforceable,
unless they are ratified:
xxx xxx xxx
S a l e s P a r t V P a g e | 178
2) Those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases, an agreement hereafter made
shall be unenforceable by action unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of
its contents:
xxx xxx xxx
e) An agreement for the leasing for a longer period than one year, or
for the sale of real property or of an interest therein;
xxx xxx xxx
(Emphasis supplied.)
The purpose of the Statute of Frauds is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence upon the unassisted
memory of witnesses by requiring certain enumerated contracts and
transactions to be evidenced in Writing.12
The provisions of the Statute of Frauds originally appeared under the old
Rules of Evidence. However when the Civil Code was re-written in 1949 (to
take effect in 1950), the provisions of the Statute of Frauds were taken out
of the Rules of Evidence in order to be included under the title on
Unenforceable Contracts in the Civil Code. The transfer was not only a
matter of style but to show that the Statute of Frauds is also a substantive
law.
Therefore, except under the conditions provided by the Statute of Frauds,
the existence of the contract of sale made by Cecilio with his siblings13 can
not be proved.
On the second issue, the belated claim of the SIBLINGS OF CECILIO who
filed a complaint in court only in 1976 to enforce a light acquired allegedly as
early as 1930, is difficult to comprehend.
The Civil Code states:

Art. 1145. The following actions must be commenced within six
years:
(1) Upon an oral contract . . . (Emphasis supplied).
If the parties SIBLINGS OF CECILIO had allegedly derived their right of
action from the oral purchase made by their parents in 1930, then the action
filed in 1976 would have clearly prescribed. More than six years had lapsed.
We do not agree with the parties SIBLINGS OF CECILIO when they reason
that an implied trust in favor of the SIBLINGS OF CECILIO was established in
1972, when the HEIRS OF CECILIO executed a contract of partition over the
said properties.
But as we had pointed out, the law recognizes the superiority of the torrens
title.
Above all, the torrens title in the possession of the HEIRS OF CECILIO carries
more weight as proof of ownership than the survey or subdivision plan of a
parcel of land in the name of SIBLINGS OF CECILIO.
The Court has invariably upheld the indefeasibility of the torrens title. No
possession by any person of any portion of the land could defeat the title of
the registered owners thereof.14
A torrens title, once registered, cannot be defeated, even by
adverse, open and notorious possession. A registered title under the
torrens system cannot be defeated by prescription. 1âwphi1 The title,
once registered, is notice to the world. All persons must take notice.
No one can plead ignorance of the registration.15
xxx xxx xxx
Furthermore, a private individual may not bring an action for
reversion or any action which would have the effect of cancelling a
free patent and the corresponding certificate of title issued on the
basis thereof, with the result that the land covered thereby will again
form part of the public domain, as only the Solicitor General or the
officer acting in his stead may do so.16
S a l e s P a r t V P a g e | 179
It is true that in some instances, the Court did away with the irrevocability of
the torrens title, but the circumstances in the case at bar varied significantly
from these cases.
In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title was
disregarded when the transferee who took it had notice of the flaws in the
transferor's title. No right passed to a transferee from a vendor who did not
have any in the first place. The transferees bought the land registered under
the torrens system from vendors who procured title thereto by means of
fraud. With this knowledge, they can not invoke the indefeasibility of a
certificate of title against the private respondent to the extent of her interest.
This is because the torrens system of land registration, though indefeasible,
should not be used as a means to perpetrate fraud against the rightful owner
of real property.
Mere registration of the sale is not good enough, good faith must concur
with registration. Otherwise registration becomes an exercise in futility.18
In Amerol v. Bagumbaran,19 we reversed the decision of the trial court. In
this case, the title was wrongfully registered in another person's name. An
implied trust was therefore created. This trustee was compelled by law to
reconvey property fraudulently acquired notwithstanding the irrevocability of
the torrens title.20
In the present case, however, the facts belie the claim of ownership.
For several years, when the SIBLINGS OF CECILIO, namely, Macario,
Esperidiona Raymunda, and Celestina were living on the contested premises,
they regularly paid a sum of money, designated as "taxes" at first, to the
widow of Cecilio, and later, to his heirs. 21 Why their payments were never
directly made to the Municipal Government of Muntinlupa when they were
intended as payments for "taxes" is difficult to square with their claim of
ownership. We are rather inclined to consider this fact as an admission of
non-ownership. And when we consider also that the petitioners HEIRS OF
CECILIO had individually paid to the municipal treasury the taxes
corresponding to the particular portions they were occupying,22 we can
readily see the superiority of the petitioners' position.
Renato Solema and Decimina Calvez, two of the respondents who derive
their right from the SIBLINGS OF CLAUDEL, bought a portion of the lot from
Felisa Claudel, one of the HEIRS OF CLAUDEL. 23 The Calvezes should not be
 S a l e s P a r t V P a g e | 180

paying for a lot that they already owned and if they did not acknowledge
Felisa as its owner.

In addition, before any of the SIBLINGS OF CECILIO could stay on any of the
portions of the property, they had to ask first the permission of Jose Claudel
again, one of the HEIRS OF CECILIO.24 In fact the only reason why any of
the heirs of SIBLINGS OF CECILIO could stay on the lot was because they
were allowed to do so by the HEIRS OF CECILIO.25

In view of the foregoing, we find that the appellate court committed a

reversible error in denigrating the transfer certificates of title of the
petitioners to the survey or subdivision plan proffered by the private
respondents. The Court generally recognizes the profundity of conclusions
and findings of facts reached by the trial court and hence sustains them on
appeal except for strong and cogent reasons inasmuch as the trial court is in
a better position to examine real evidence and observe the demeanor of
witnesses in a case.

No clear specific contrary evidence was cited by the respondent appellate

court to justify the reversal of the lower court's findings. Thus, in this case,
between the factual findings of the trial court and the appellate court, those
of the trial court must prevail over that of the latter.26

WHEREFORE, the petition is GRANTED We REVERSE and SET ASIDE the

decision rendered in CA-G.R. CV No. 04429, and we hereby REINSTATE the
decision of the then Court of First Instance of Rizal (Branch 28, Pasay City)
in Civil Case No. M-5276-P which ruled for the dismissal of the Complaint for
Cancellation of Titles and Reconveyance with Damages filed by the Heirs of
Macario, Esperidiona Raymunda, and Celestina, all surnamed CLAUDEL.
Costs against the private respondents.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Regalado, JJ., concur.


G.R. No. 144225. June 17, 2003.*
SPOUSES GODOFREDO ALFREDO and CARMEN LIMON ALFREDO,
SPOUSES ARNULFO SAVELLANO and EDITHA B. SAVELLANO,
DANTON D. MATAWARAN, SPOUSES DELFIN F. ESPIRITU, JR. and
ESTELA S. ESPIRITU and ELIZABETH TUAZON, petitioners, vs.
SPOUSES ARMANDO BORRAS and ADELIA LOBATON BORRAS,
respondents.
Civil Procedure; Appeals; Certiorari; In a petition for review on certiorari
under Rule 45, the Supreme Court reviews only errors of law and not errors
of facts.—In a petition for review on certiorari under Rule 45, this Court
reviews only errors of law and not errors of facts. The factual findings of the
appellate court are generally binding on this Court. This applies with greater
force when both the trial court and the Court of Appeals are in complete
agreement on their factual findings.
Civil Law; Contracts; Sales; Perfection; The contract of sale between the
spouses Godofredo and Carmen and the spouses Armando and Adelia was a
perfected contract.—The contract of sale between the spouses Godofredo
and Carmen and the spouses Armando and Adelia was a perfected contract.
A contract is perfected once there is consent of the contracting parties on
the object certain and on the cause of the obligation.
Same; Same; Same; Obligations; The contract of sale of the subject land has
also been consummated because the sellers and buyers have performed
their respective obligations under the contract.—The contract of sale of the
Subject Land has also been consummated because the sellers and buyers
have performed their respective obligations under the contract. In a contract
of sale, the seller obligates himself to transfer the ownership of the
determinate thing sold, and to deliver the same, to the buyer who obligates
himself to pay a price certain to the seller.
Same; Same; Same; Delivery; The physical delivery of the subject land also
constituted a transfer of ownership.—This physical delivery of the Subject
Land also constituted a transfer of ownership of the Subject Land to
Armando and Adelia. Ownership of the thing sold is transferred to the
vendee upon its actual or constructive delivery.
S a l e s P a r t V P a g e | 181
Same; Same; Same; Same; Statute of Frauds; The Statute of Frauds applies
only to executory contracts and not to contracts either partially or totally
performed.—The Statute of Frauds applies only to executory contracts and
not to contracts either partially or totally performed. Thus, where one party
has performed one’s obligation, oral evidence will be admitted to prove the
agreement. In the instant case, the parties have consummated the sale of
the Subject Land, with both sellers and buyers performing their respective
obligations under the contract of sale. In addition, a contract that violates
the Statute of Frauds is ratified by the acceptance of benefits under the
contract. Godofredo and Carmen benefited from the contract because they
paid their DBP loan and secured the cancellation of their mortgage using the
money given by Armando and Adelia. Godofredo and Carmen also accepted
payment of the balance of the purchase price.
Same; Same; Same; Same; Conjugal Property; Any alienation or
encumbrance made by the husband of the conjugal partnership property
without the consent of the wife is void.—The Family Code, which took effect
on 3 August 1988, provides that any alienation or encumbrance made by the
husband of the conjugal partnership property without the consent of the wife
is void. However, when the sale is made before the effectivity of the Family
Code, the applicable law is the Civil Code. Article 173 of the Civil Code
provides that the disposition of conjugal property without the wife’s consent
is not void but merely voidable.
Same; Same; Same; Same; It is not necessary that the seller himself deliver
the title.—It is not necessary that the seller himself deliver the title of the
property to the buyer because the thing sold is understood as delivered
when it is placed in the control and possession of the vendee.
Same; Same; Same; Homestead Property; A grantee or homesteader is
prohibited from alienating to a private individual a land grant within the five
years from the time that the patent or grant is issued.—A grantee or
homesteader is prohibited from alienating to a private individual a land grant
within five years from the time that the patent or grant is issued. A violation
of this prohibition renders a sale void. This prohibition, however, expires on
the fifth year. From then on until the next 20 years the land grant may be
alienated provided the Secretary of Agriculture and Natural Resources

approves the alienation. The Secretary is required to approve the alienation
unless there are “constitutional and legal grounds” to deny the approval. In
this case, there are no apparent constitutional or legal grounds for the
Secretary to disapprove the sale of the Subject Land.
Same; Same; Same; Same; The failure to secure the approval of the
Secretary does not ipso facto make a sale void.—The failure to secure the
approval of the Secretary does not ipso facto make a sale void. The absence
of approval by the Secretary does not nullify a sale made after the expiration
of the 5-year period, for in such event the requirement of Section 118 of the
Public Land Act becomes merely directory or a formality. The approval may
be secured later, producing the effect of ratifying and adopting the
transaction as if the sale had been previously authorized.
Civil Procedure; Actions; Reconveyance; Quieting of Title; An action for
reconveyance is one that seeks to transfer property, wrongfully registered by
another, to its rightful and legal owner.—An action for reconveyance is one
that seeks to transfer property, wrongfully registered by another, to its
rightful and legal owner. The body of the pleading or complaint determines
the nature of an action, not its title or heading. Thus, the present action
should be treated as one for reconveyance.
Same; Same; Same; Prescription; An action for reconveyance based on an
implied trust prescribes in ten years.—To determine when the prescriptive
period commenced in an action for reconveyance, plaintiff’s possession of
the disputed property is material. An action for reconveyance based on an
implied trust prescribes in ten years. The ten-year prescriptive period applies
only if there is an actual need to reconvey the property as when the plaintiff
is not in possession of the property. However, if the plaintiff, as the real
owner of the property also remains in possession of the property, the
prescriptive period to recover title and possession of the property does not
run against him. In such a case, an action for reconveyance, if nonetheless
filed, would be in the nature of a suit for quieting of title, an action that is
imprescriptible.
Same; Same; Same; Same; The prescriptive period is reckoned from the
date of the issuance of the certificate of title.—Correlating Section 53,
paragraph 3 of Presidential Decree No. 1529 and Article 1456 of the Civil
S a l e s P a r t V P a g e | 182
Code with Article 1144(2) of the Civil Code, supra, the prescriptive period for
the reconveyance of fraudulently registered real property is ten (10) years
reckoned from the date of the issuance of the certificate of title x x x.
Same; Same; Same; Same; Prescription does not run against the plaintiff in
actual possession of the disputed land.—Prescription does not run against
the plaintiff in actual possession of the disputed land because such plaintiff
has a right to wait until his possession is disturbed or his title is questioned
before initiating an action to vindicate his right. His undisturbed possession
gives him the continuing right to seek the aid of a court of equity to
determine the nature of the adverse claim of a third party and its effect on
his title.
Same; Same; Same; Laches; Neither is the action barred by laches.—
Neither is the action barred by laches. We have defined laches as the failure
or neglect, for an unreasonable time, to do that which, by the exercise of
due diligence, could or should have been done earlier. It is negligence or
omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or
declined to assert it.
Same; Same; Same; In case a title is issued to the second buyer, the first
buyer may seek reconveyance of the property subject of the sale.—The
settled rule is when ownership or title passes to the buyer, the seller ceases
to have any title to transfer to any third person. If the seller sells the same
land to another, the second buyer who has actual or constructive knowledge
of the prior sale cannot be a registrant in good faith. Such second buyer
cannot defeat the first buyer’s title. In case a title is issued to the second
buyer, the first buyer may seek reconveyance of the property subject of the
sale.
Land Registration; Torrens Title; Indefeasibility; Fraud; The principle of
indefeasibility of title does not apply where fraud attended the issuance of
the titles as in this case.—The defense of indefeasibility of the Torrens Title
does not extend to a transferee who takes the certificate of title with notice
of a flaw in his title. The principle of indefeasibility of title does not apply
where fraud attended the issuance of the titles as in this case.

PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Ortiguera, Zuniga, Pomer, Salaria, Sison Law Offices for petitioners.
David G. Paguio for private respondents.
CARPIO, J.: Alfredo vs. Borras, 404 SCRA 145, G.R. No. 144225 June 17,
2003
CARPIO, J.:
The Case
Before us is a petition for review assailing the Decision 1 of the Court of
Appeals dated 26 November 1999 affirming the decision 2 of the Regional
Trial Court of Bataan, Branch 4, in Civil Case No. DH-256-94. Petitioners also
question the Resolution of the Court of Appeals dated 26 July 2000 denying
petitioners’ motion for reconsideration.
The Antecedent Facts
A parcel of land measuring 81,524 square meters ("Subject Land") in Barrio
Culis, Mabiga, Hermosa, Bataan is the subject of controversy in this case.
The registered owners of the Subject Land were petitioner spouses,
Godofredo Alfredo ("Godofredo") and Carmen Limon Alfredo ("Carmen").
The Subject Land is covered by Original Certificate of Title No. 284 ("OCT
No. 284") issued to Godofredo and Carmen under Homestead Patent No. V-
69196.
On 7 March 1994, the private respondents, spouses Armando Borras
("Armando") and Adelia Lobaton Borras ("Adelia"), filed a complaint for
specific performance against Godofredo and Carmen before the Regional
Trial Court of Bataan, Branch 4. The case was docketed as Civil Case No.
DH-256-94.
Armando and Adelia alleged in their complaint that Godofredo and Carmen
mortgaged the Subject Land for ₱7,000.00 with the Development Bank of
the Philippines ("DBP"). To pay the debt, Carmen and Godofredo sold the
Subject Land to Armando and Adelia for ₱15,000.00, the buyers to pay the
S a l e s P a r t V P a g e | 183
DBP loan and its accumulated interest, and the balance to be paid in cash to
the sellers.
Armando and Adelia gave Godofredo and Carmen the money to pay the loan
to DBP which signed the release of mortgage and returned the owner’s
duplicate copy of OCT No. 284 to Godofredo and Carmen. Armando and
Adelia subsequently paid the balance of the purchase price of the Subject
Land for which Carmen issued a receipt dated 11 March 1970. Godofredo
and Carmen then delivered to Adelia the owner’s duplicate copy of OCT No.
284, with the document of cancellation of mortgage, official receipts of realty
tax payments, and tax declaration in the name of Godofredo. Godofredo and
Carmen introduced Armando and Adelia, as the new owners of the Subject
Land, to the Natanawans, the old tenants of the Subject Land. Armando and
Adelia then took possession of the Subject Land.
In January 1994, Armando and Adelia learned that hired persons had
entered the Subject Land and were cutting trees under instructions of
allegedly new owners of the Subject Land. Subsequently, Armando and
Adelia discovered that Godofredo and Carmen had re-sold portions of the
Subject Land to several persons.
On 8 February 1994, Armando and Adelia filed an adverse claim with the
Register of Deeds of Bataan. Armando and Adelia discovered that Godofredo
and Carmen had secured an owner’s duplicate copy of OCT No. 284 after
filing a petition in court for the issuance of a new copy. Godofredo and
Carmen claimed in their petition that they lost their owner’s duplicate copy.
Armando and Adelia wrote Godofredo and Carmen complaining about their
acts, but the latter did not reply. Thus, Armando and Adelia filed a complaint
for specific performance.
On 28 March 1994, Armando and Adelia amended their complaint to include
the following persons as additional defendants: the spouses Arnulfo
Savellano and Editha B. Savellano, Danton D. Matawaran, the spouses Delfin
F. Espiritu, Jr. and Estela S. Espiritu, and Elizabeth Tuazon ("Subsequent
Buyers"). The Subsequent Buyers, who are also petitioners in this case,
purchased from Godofredo and Carmen the subdivided portions of the
Subject Land. The Register of Deeds of Bataan issued to the Subsequent
Buyers transfer certificates of title to the lots they purchased.
In their answer, Godofredo and Carmen and the Subsequent Buyers
(collectively "petitioners") argued that the action is unenforceable under the

Statute of Frauds. Petitioners pointed out that there is no written instrument
evidencing the alleged contract of sale over the Subject Land in favor of
Armando and Adelia. Petitioners objected to whatever parole evidence
Armando and Adelia introduced or offered on the alleged sale unless the
same was in writing and subscribed by Godofredo. Petitioners asserted that
the Subsequent Buyers were buyers in good faith and for value. As
counterclaim, petitioners sought payment of attorney’s fees and incidental
expenses.
Trial then followed. Armando and Adelia presented the following witnesses:
Adelia, Jesus Lobaton, Roberto Lopez, Apolinario Natanawan, Rolando
Natanawan, Tomas Natanawan, and Mildred Lobaton. Petitioners presented
two witnesses, Godofredo and Constancia Calonso.
On 7 June 1996, the trial court rendered its decision in favor of Armando and
Adelia. The dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
plaintiffs, the spouses Adelia Lobaton Borras and Armando F. Borras, and
against the defendant-spouses Godofredo Alfredo and Carmen Limon
Alfredo, spouses Arnulfo Sabellano and Editha B. Sabellano, spouses Delfin F.
Espiritu, Jr. and Estela S. Espiritu, Danton D. Matawaran and Elizabeth
Tuazon, as follows:
1. Declaring the Deeds of Absolute Sale of the disputed parcel of
land (covered by OCT No. 284) executed by the spouses Godofredo
Alfredo and Camen Limon Alfredo in favor of spouses Arnulfo
Sabellano and Editha B. Sabellano, spouses Delfin F. Espiritu, Danton
D. Matawaran and Elizabeth Tuazon, as null and void;
2. Declaring the Transfer Certificates of Title Nos. T-163266 and T-
163267 in the names of spouses Arnulfo Sabellano and Editha B.
Sabellano; Transfer Certificates of Title Nos. T-163268 and 163272
in the names of spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu;
Transfer Certificates of Title Nos. T-163269 and T-163271 in the
name of Danton D. Matawaran; and Transfer Certificate of Title No.
T-163270 in the name of Elizabeth Tuazon, as null and void and that
the Register of Deeds of Bataan is hereby ordered to cancel said
titles;
S a l e s P a r t V P a g e | 184
3. Ordering the defendant-spouses Godofredo Alfredo and Carmen
Limon Alfredo to execute and deliver a good and valid Deed of
Absolute Sale of the disputed parcel of land (covered by OCT No.
284) in favor of the spouses Adelia Lobaton Borras and Armando F.
Borras within a period of ten (10) days from the finality of this
decision;
4. Ordering defendant-spouses Godofredo Alfredo and Carmen
Limon Alfredo to surrender their owner’s duplicate copy of OCT No.
284 issued to them by virtue of the Order dated May 20, 1992 of the
Regional Trial Court of Bataan, Dinalupihan Branch, to the Registry
of Deeds of Bataan within ten (10) days from the finality of this
decision, who, in turn, is directed to cancel the same as there exists
in the possession of herein plaintiffs of the owner’s duplicate copy of
said OCT No. 284 and, to restore and/or reinstate OCT No. 284 of
the Register of Deeds of Bataan to its full force and effect;
5. Ordering the defendant-spouses Godofredo Alfredo and Carmen
Limon Alfredo to restitute and/or return the amount of the respective
purchase prices and/or consideration of sale of the disputed parcels
of land they sold to their co-defendants within ten (10) days from
the finality of this decision with legal interest thereon from date of
the sale;
6. Ordering the defendants, jointly and severally, to pay plaintiff-
spouses the sum of ₱20,000.00 as and for attorney’s fees and
litigation expenses; and
7. Ordering defendants to pay the costs of suit.
Defendants’ counterclaims are hereby dismissed for lack of merit.
SO ORDERED.3
Petitioners appealed to the Court of Appeals.
On 26 November 1999, the Court of Appeals issued its Decision affirming the
decision of the trial court, thus:

WHEREFORE, premises considered, the appealed decision in Civil Case No.
DH-256-94 is hereby AFFIRMED in its entirety. Treble costs against the
defendants-appellants.
SO ORDERED.4
On 26 July 2000, the Court of Appeals denied petitioners’ motion for
reconsideration.
The Ruling of the Trial Court
The trial court ruled that there was a perfected contract of sale between the
spouses Godofredo and Carmen and the spouses Armando and Adelia. The
trial court found that all the elements of a contract of sale were present in
this case. The object of the sale was specifically identified as the 81,524-
square meter lot in Barrio Culis, Mabigas, Hermosa, Bataan, covered by OCT
No. 284 issued by the Registry of Deeds of Bataan. The purchase price was
fixed at ₱15,000.00, with the buyers assuming to pay the sellers’ ₱7,000.00
DBP mortgage loan including its accumulated interest. The balance of the
purchase price was to be paid in cash to the sellers. The last payment of
₱2,524.00 constituted the full settlement of the purchase price and this was
paid on 11 March 1970 as evidenced by the receipt issued by Carmen.
The trial court found the following facts as proof of a perfected contract of
sale: (1) Godofredo and Carmen delivered to Armando and Adelia the
Subject Land; (2) Armando and Adelia treated as their own tenants the
tenants of Godofredo and Carmen; (3) Godofredo and Carmen turned over
to Armando and Adelia documents such as the owner’s duplicate copy of the
title of the Subject Land, tax declaration, and the receipts of realty tax
payments in the name of Godofredo; and (4) the DBP cancelled the
mortgage on the Subject Property upon payment of the loan of Godofredo
and Carmen. Moreover, the receipt of payment issued by Carmen served as
an acknowledgment, if not a ratification, of the verbal sale between the
sellers and the buyers. The trial court ruled that the Statute of Frauds is not
applicable because in this case the sale was perfected.
The trial court concluded that the Subsequent Buyers were not innocent
purchasers. Not one of the Subsequent Buyers testified in court on how they
purchased their respective lots. The Subsequent Buyers totally depended on
the testimony of Constancia Calonso ("Calonso") to explain the subsequent
sale. Calonso, a broker, negotiated with Godofredo and Carmen the sale of
S a l e s P a r t V P a g e | 185
the Subject Land which Godofredo and Carmen subdivided so they could sell
anew portions to the Subsequent Buyers.
Calonso admitted that the Subject Land was adjacent to her own lot. The
trial court pointed out that Calonso did not inquire on the nature of the
tenancy of the Natanawans and on who owned the Subject Land. Instead,
she bought out the tenants for ₱150,000.00. The buy out was embodied in a
Kasunduan. Apolinario Natanawan ("Apolinario") testified that he and his
wife accepted the money and signed the Kasunduan because Calonso and
the Subsequent Buyers threatened them with forcible ejectment. Calonso
brought Apolinario to the Agrarian Reform Office where he was asked to
produce the documents showing that Adelia is the owner of the Subject
Land. Since Apolinario could not produce the documents, the agrarian officer
told him that he would lose the case. Thus, Apolinario was constrained to
sign the Kasunduan and accept the ₱150,000.00.
Another indication of Calonso’s bad faith was her own admission that she
saw an adverse claim on the title of the Subject Land when she registered
the deeds of sale in the names of the Subsequent Buyers. Calonso ignored
the adverse claim and proceeded with the registration of the deeds of sale.
The trial court awarded ₱20,000.00 as attorney’s fees to Armando and
Adelia. In justifying the award of attorney’s fees, the trial court invoked
Article 2208 (2) of the Civil Code which allows a court to award attorney’s
fees, including litigation expenses, when it is just and equitable to award the
same. The trial court ruled that Armando and Adelia are entitled to attorney’s
fees since they were compelled to file this case due to petitioners’ refusal to
heed their just and valid demand.
The Ruling of the Court of Appeals
The Court of Appeals found the factual findings of the trial court well
supported by the evidence. Based on these findings, the Court of Appeals
also concluded that there was a perfected contract of sale and the
Subsequent Buyers were not innocent purchasers.
The Court of Appeals ruled that the handwritten receipt dated 11 March
1970 is sufficient proof that Godofredo and Carmen sold the Subject Land to
Armando and Adelia upon payment of the balance of the purchase price. The
Court of Appeals found the recitals in the receipt as "sufficient to serve as
the memorandum or note as a writing under the Statute of Frauds." 5 The

Court of Appeals then reiterated the ruling of the trial court that the Statute
of Frauds does not apply in this case.
The Court of Appeals gave credence to the testimony of a witness of
Armando and Adelia, Mildred Lobaton, who explained why the title to the
Subject Land was not in the name of Armando and Adelia. Lobaton testified
that Godofredo was then busy preparing to leave for Davao. Godofredo
promised that he would sign all the papers once they were ready. Since
Armando and Adelia were close to the family of Carmen, they trusted
Godofredo and Carmen to honor their commitment. Armando and Adelia had
no reason to believe that their contract of sale was not perfected or validly
executed considering that they had received the duplicate copy of OCT No.
284 and other relevant documents. Moreover, they had taken physical
possession of the Subject Land.
The Court of Appeals held that the contract of sale is not void even if only
Carmen signed the receipt dated 11 March 1970. Citing Felipe v. Heirs of
Maximo Aldon,6 the appellate court ruled that a contract of sale made by the
wife without the husband’s consent is not void but merely voidable. The
Court of Appeals further declared that the sale in this case binds the conjugal
partnership even if only the wife signed the receipt because the proceeds of
the sale were used for the benefit of the conjugal partnership. The appellate
court based this conclusion on Article 1617of the Civil Code.
The Subsequent Buyers of the Subject Land cannot claim that they are
buyers in good faith because they had constructive notice of the adverse
claim of Armando and Adelia. Calonso, who brokered the subsequent sale,
testified that when she registered the subsequent deeds of sale, the adverse
claim of Armando and Adelia was already annotated on the title of the
Subject Land. The Court of Appeals believed that the act of Calonso and the
Subsequent Buyers in forcibly ejecting the Natanawans from the Subject
Land buttresses the conclusion that the second sale was tainted with bad
faith from the very beginning.
Finally, the Court of Appeals noted that the issue of prescription was not
raised in the Answer. Nonetheless, the appellate court explained that since
this action is actually based on fraud, the prescriptive period is four years,
with the period starting to run only from the date of the discovery of the
fraud. Armando and Adelia discovered the fraudulent sale of the Subject
Land only in January 1994. Armando and Adelia lost no time in writing a
letter to Godofredo and Carmen on 2 February 1994 and filed this case on 7
S a l e s P a r t V P a g e | 186
March 1994. Plainly, Armando and Adelia did not sleep on their rights or lose
their rights by prescription.
The Court of Appeals sustained the award of attorney’s fees and imposed
treble costs on petitioners.
The Issues
Petitioners raise the following issues:
I
Whether the alleged sale of the Subject Land in favor of Armando and Adelia
is valid and enforceable, where (1) it was orally entered into and not in
writing; (2) Carmen did not obtain the consent and authority of her husband,
Godofredo, who was the sole owner of the Subject Land in whose name the
title thereto (OCT No. 284) was issued; and (3) it was entered into during
the 25-year prohibitive period for alienating the Subject Land without the
approval of the Secretary of Agriculture and Natural Resources.
II
Whether the action to enforce the alleged oral contract of sale brought after
24 years from its alleged perfection had been barred by prescription and by
laches.
III
Whether the deeds of absolute sale and the transfer certificates of title over
the portions of the Subject Land issued to the Subsequent Buyers, innocent
purchasers in good faith and for value whose individual titles to their
respective lots are absolute and indefeasible, are valid.
IV
Whether petitioners are liable to pay Armando and Adelia ₱20,0000.00 as
attorney’s fees and litigation expenses and the treble costs, where the claim
of Armando and Adelia is clearly unfounded and baseless.
V

Whether petitioners are entitled to the counterclaim for attorney’s fees and
litigation expenses, where they have sustained such expenses by reason of
institution of a clearly malicious and unfounded action by Armando and
Adelia.8
The Court’s Ruling
The petition is without merit.
In a petition for review on certiorari under Rule 45, this Court reviews only
errors of law and not errors of facts.9 The factual findings of the appellate
court are generally binding on this Court.10 This applies with greater force
when both the trial court and the Court of Appeals are in complete
agreement on their factual findings. 11 In this case, there is no reason to
deviate from the findings of the lower courts. The facts relied upon by the
trial and appellate courts are borne out by the record. We agree with the
conclusions drawn by the lower courts from these facts.
Validity and Enforceability of the Sale
The contract of sale between the spouses Godofredo and Carmen and the
spouses Armando and Adelia was a perfected contract. A contract is
perfected once there is consent of the contracting parties on the object
certain and on the cause of the obligation.12 In the instant case, the object of
the sale is the Subject Land, and the price certain is ₱15,000.00. The trial
and appellate courts found that there was a meeting of the minds on the
sale of the Subject Land and on the purchase price of ₱15,000.00. This is a
finding of fact that is binding on this Court. We find no reason to disturb this
finding since it is supported by substantial evidence.
The contract of sale of the Subject Land has also been consummated
because the sellers and buyers have performed their respective obligations
under the contract. In a contract of sale, the seller obligates himself to
transfer the ownership of the determinate thing sold, and to deliver the
same, to the buyer who obligates himself to pay a price certain to the
seller.13 In the instant case, Godofredo and Carmen delivered the Subject
Land to Armando and Adelia, placing the latter in actual physical possession
of the Subject Land. This physical delivery of the Subject Land also
constituted a transfer of ownership of the Subject Land to Armando and
Adelia.14 Ownership of the thing sold is transferred to the vendee upon its
actual or constructive delivery.15 Godofredo and Carmen also turned over to
S a l e s P a r t V P a g e | 187
Armando and Adelia the documents of ownership to the Subject Land,
namely the owner’s duplicate copy of OCT No. 284, the tax declaration and
the receipts of realty tax payments.
On the other hand, Armando and Adelia paid the full purchase price as
evidenced by the receipt dated 11 March 1970 issued by Carmen. Armando
and Adelia fulfilled their obligation to provide the ₱7,000.00 to pay the Dir
obliagtion rmen. rchase pricend Adelia . fredo and Carmen do not deny the
existence of the cBP loan of Godofredo and Carmen, and to pay the latter
the balance of ₱8,000.00 in cash. The ₱2,524.00 paid under the receipt
dated 11 March 1970 was the last installment to settle fully the purchase
price. Indeed, upon payment to DBP of the ₱7,000.00 and the accumulated
interests, the DBP cancelled the mortgage on the Subject Land and returned
the owner’s duplicate copy of OCT No. 284 to Godofredo and Carmen.
The trial and appellate courts correctly refused to apply the Statute of Frauds
to this case. The Statute of Frauds16provides that a contract for the sale of
real property shall be unenforceable unless the contract or some note or
memorandum of the sale is in writing and subscribed by the party charged or
his agent. The existence of the receipt dated 11 March 1970, which is a
memorandum of the sale, removes the transaction from the provisions of the
Statute of Frauds.
The Statute of Frauds applies only to executory contracts and not to
contracts either partially or totally performed.17Thus, where one party has
performed one’s obligation, oral evidence will be admitted to prove the
agreement.18 In the instant case, the parties have consummated the sale of
the Subject Land, with both sellers and buyers performing their respective
obligations under the contract of sale. In addition, a contract that violates
the Statute of Frauds is ratified by the acceptance of benefits under the
contract.19 Godofredo and Carmen benefited from the contract because they
paid their DBP loan and secured the cancellation of their mortgage using the
money given by Armando and Adelia. Godofredo and Carmen also accepted
payment of the balance of the purchase price.
Godofredo and Carmen cannot invoke the Statute of Frauds to deny the
existence of the verbal contract of sale because they have performed their
obligations, and have accepted benefits, under the verbal
contract. 20 Armando and Adelia have also performed their obligations under
the verbal contract. Clearly, both the sellers and the buyers have
consummated the verbal contract of sale of the Subject Land. The Statute of

Frauds was enacted to prevent fraud.21 This law cannot be used to advance
the very evil the law seeks to prevent.
Godofredo and Carmen also claim that the sale of the Subject Land to
Armando and Adelia is void on two grounds. First, Carmen sold the Subject
Land without the marital consent of Godofredo. Second, the sale was made
during the 25-year period that the law prohibits the alienation of land grants
without the approval of the Secretary of Agriculture and Natural Resources.
These arguments are without basis.
The Family Code, which took effect on 3 August 1988, provides that any
alienation or encumbrance made by the husband of the conjugal partnership
property without the consent of the wife is void. However, when the sale is
made before the effectivity of the Family Code, the applicable law is the Civil
Code.22
Article 173 of the Civil Code provides that the disposition of conjugal
property without the wife’s consent is not void but merely voidable. Article
173 reads:
The wife may, during the marriage, and within ten years from the
transaction questioned, ask the courts for the annulment of any contract of
the husband entered into without her consent, when such consent is
required, or any act or contract of the husband which tends to defraud her
or impair her interest in the conjugal partnership property. Should the wife
fail to exercise this right, she or her heirs, after the dissolution of the
marriage, may demand the value of property fraudulently alienated by the
husband.
In Felipe v. Aldon,23 we applied Article 173 in a case where the wife sold
some parcels of land belonging to the conjugal partnership without the
consent of the husband. We ruled that the contract of sale was voidable
subject to annulment by the husband. Following petitioners’ argument that
Carmen sold the land to Armando and Adelia without the consent of
Carmen’s husband, the sale would only be voidable and not void.
However, Godofredo can no longer question the sale. Voidable contracts are
susceptible of ratification.24 Godofredo ratified the sale when he introduced
Armando and Adelia to his tenants as the new owners of the Subject Land.
The trial court noted that Godofredo failed to deny categorically on the
S a l e s P a r t V P a g e | 188
witness stand the claim of the complainants’ witnesses that Godofredo
introduced Armando and Adelia as the new landlords of the tenants. 25 That
Godofredo and Carmen allowed Armando and Adelia to enjoy possession of
the Subject Land for 24 years is formidable proof of Godofredo’s
acquiescence to the sale. If the sale was truly unauthorized, then Godofredo
should have filed an action to annul the sale. He did not. The prescriptive
period to annul the sale has long lapsed. Godofredo’s conduct belies his
claim that his wife sold the Subject Land without his consent.
Moreover, Godofredo and Carmen used most of the proceeds of the sale to
pay their debt with the DBP. We agree with the Court of Appeals that the
sale redounded to the benefit of the conjugal partnership. Article 161 of the
Civil Code provides that the conjugal partnership shall be liable for debts and
obligations contracted by the wife for the benefit of the conjugal partnership.
Hence, even if Carmen sold the land without the consent of her husband, the
sale still binds the conjugal partnership.
Petitioners contend that Godofredo and Carmen did not deliver the title of
the Subject Land to Armando and Adelia as shown by this portion of Adelia’s
testimony on cross-examination:
Q -- No title was delivered to you by Godofredo Alfredo?
A -- I got the title from Julie Limon because my sister told me.26
Petitioners raise this factual issue for the first time. The Court of Appeals
could have passed upon this issue had petitioners raised this earlier. At any
rate, the cited testimony of Adelia does not convincingly prove that
Godofredo and Carmen did not deliver the Subject Land to Armando and
Adelia. Adelia’s cited testimony must be examined in context not only with
her entire testimony but also with the other circumstances.
Adelia stated during cross-examination that she obtained the title of the
Subject Land from Julie Limon ("Julie"), her classmate in college and the
sister of Carmen. Earlier, Adelia’s own sister had secured the title from the
father of Carmen. However, Adelia’s sister, who was about to leave for the
United States, gave the title to Julie because of the absence of the other
documents. Adelia’s sister told Adelia to secure the title from Julie, and this
was how Adelia obtained the title from Julie.

It is not necessary that the seller himself deliver the title of the property to
the buyer because the thing sold is understood as delivered when it is placed
in the control and possession of the vendee. 27 To repeat, Godofredo and
Carmen themselves introduced the Natanawans, their tenants, to Armando
and Adelia as the new owners of the Subject Land. From then on, Armando
and Adelia acted as the landlords of the Natanawans. Obviously, Godofredo
and Carmen themselves placed control and possession of the Subject Land in
the hands of Armando and Adelia.
Petitioners invoke the absence of approval of the sale by the Secretary of
Agriculture and Natural Resources to nullify the sale. Petitioners never raised
this issue before the trial court or the Court of Appeals. Litigants cannot raise
an issue for the first time on appeal, as this would contravene the basic rules
of fair play, justice and due process. 28 However, we will address this new
issue to finally put an end to this case.
The sale of the Subject Land cannot be annulled on the ground that the
Secretary did not approve the sale, which was made within 25 years from
the issuance of the homestead title. Section 118 of the Public Land Act
(Commonwealth Act No. 141) reads as follows:
SEC. 118. Except in favor of the Government or any of its branches, units, or
institutions or legally constituted banking corporation, lands acquired under
free patent or homestead provisions shall not be subject to encumbrance or
alienation from the date of the approval of the application and for a term of
five years from and after the date of the issuance of the patent or grant.
xxx
No alienation, transfer, or conveyance of any homestead after 5 years and
before twenty-five years after the issuance of title shall be valid without the
approval of the Secretary of Agriculture and Commerce, which approval shall
not be denied except on constitutional and legal grounds.
A grantee or homesteader is prohibited from alienating to a private individual
a land grant within five years from the time that the patent or grant is
issued.29 A violation of this prohibition renders a sale void.30 This prohibition,
however, expires on the fifth year. From then on until the next 20 years 31 the
land grant may be alienated provided the Secretary of Agriculture and
Natural Resources approves the alienation. The Secretary is required to
approve the alienation unless there are "constitutional and legal grounds" to
S a l e s P a r t V P a g e | 189
deny the approval. In this case, there are no apparent constitutional or legal
grounds for the Secretary to disapprove the sale of the Subject Land.
The failure to secure the approval of the Secretary does not ipso facto make
a sale void.32 The absence of approval by the Secretary does not nullify a
sale made after the expiration of the 5-year period, for in such event the
requirement of Section 118 of the Public Land Act becomes merely
directory33 or a formality.34 The approval may be secured later, producing the
effect of ratifying and adopting the transaction as if the sale had been
previously authorized.35 As held in Evangelista v. Montano:36
Section 118 of Commonwealth Act No. 141, as amended, specifically enjoins
that the approval by the Department Secretary "shall not be denied except
on constitutional and legal grounds." There being no allegation that there
were constitutional or legal impediments to the sales, and no pretense that if
the sales had been submitted to the Secretary concerned they would have
been disapproved, approval was a ministerial duty, to be had as a matter of
course and demandable if refused. For this reason, and if necessary,
approval may now be applied for and its effect will be to ratify and adopt the
transactions as if they had been previously authorized. (Emphasis supplied)
Action Not Barred by Prescription and Laches
Petitioners insist that prescription and laches have set in. We disagree.
The Amended Complaint filed by Armando and Adelia with the trial court is
captioned as one for Specific Performance. In reality, the ultimate relief
sought by Armando and Adelia is the reconveyance to them of the Subject
Land. An action for reconveyance is one that seeks to transfer property,
wrongfully registered by another, to its rightful and legal owner. 37 The body
of the pleading or complaint determines the nature of an action, not its title
or heading.38 Thus, the present action should be treated as one for
reconveyance.39
Article 1456 of the Civil Code provides that a person acquiring property
through fraud becomes by operation of law a trustee of an implied trust for
the benefit of the real owner of the property. The presence of fraud in this
case created an implied trust in favor of Armando and Adelia. This gives
Armando and Adelia the right to seek reconveyance of the property from the
Subsequent Buyers.40

To determine when the prescriptive period commenced in an action for
reconveyance, plaintiff’s possession of the disputed property is material. An
action for reconveyance based on an implied trust prescribes in ten
years.41 The ten-year prescriptive period applies only if there is an actual
need to reconvey the property as when the plaintiff is not in possession of
the property.42 However, if the plaintiff, as the real owner of the property
also remains in possession of the property, the prescriptive period to recover
title and possession of the property does not run against him. 43 In such a
case, an action for reconveyance, if nonetheless filed, would be in the nature
of a suit for quieting of title, an action that is imprescriptible.44
In this case, the appellate court resolved the issue of prescription by ruling
that the action should prescribe four years from discovery of the fraud. We
must correct this erroneous application of the four-year prescriptive period.
In Caro v. Court of Appeals,45 we explained why an action for reconveyance
based on an implied trust should prescribe in ten years. In that case, the
appellate court also erroneously applied the four-year prescriptive period. We
declared in Caro:
We disagree. The case of Liwalug Amerol, et al. v. Molok Bagumbaran, G.R.
No. L-33261, September 30, 1987,154 SCRA 396 illuminated what used to be
a gray area on the prescriptive period for an action to reconvey the title to
real property and, corollarily, its point of reference:
xxx It must be remembered that before August 30, 1950, the date of the
effectivity of the new Civil Code, the old Code of Civil Procedure (Act No.
190) governed prescription. It provided:
SEC. 43. Other civil actions; how limited.- Civil actions other than for the
recovery of real property can only be brought within the following periods
after the right of action accrues:
xxx xxx xxx
3. Within four years: xxx An action for relief on the ground of fraud, but the
right of action in such case shall not be deemed to have accrued until the
discovery of the fraud;
xxx xxx xxx
S a l e s P a r t V P a g e | 190
In contrast, under the present Civil Code, we find that just as an implied or
constructive trust is an offspring of the law (Art. 1456, Civil Code), so is the
corresponding obligation to reconvey the property and the title thereto in
favor of the true owner. In this context, and vis-a-vis prescription, Article
1144 of the Civil Code is applicable.
Article 1144. The following actions must be brought within ten years from
the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
xxx xxx xxx
(Emphasis supplied).
An action for reconveyance based on an implied or constructive
trust must perforce prescribe in ten years and not otherwise. A long
line of decisions of this Court, and of very recent vintage at that, illustrates
this rule. Undoubtedly, it is now well-settled that an action for
reconveyance based on an implied or constructive trust prescribes
in ten years from the issuance of the Torrens title over the
property. The only discordant note, it seems, is Balbin vs. Medalla which
states that the prescriptive period for a reconveyance action is four years.
However, this variance can be explained by the erroneous reliance on
Gerona vs. de Guzman. But in Gerona, the fraud was discovered on June
25,1948, hence Section 43(3) of Act No. 190, was applied, the new Civil
Code not coming into effect until August 30, 1950 as mentioned earlier. It
must be stressed, at this juncture, that article 1144 and article 1456, are
new provisions. They have no counterparts in the old Civil Code or in the old
Code of Civil Procedure, the latter being then resorted to as legal basis of the
four-year prescriptive period for an action for reconveyance of title of real
property acquired under false pretenses.
An action for reconveyance has its basis in Section 53, paragraph 3 of
Presidential Decree No. 1529, which provides:

In all cases of registration procured by fraud, the owner may pursue all his
legal and equitable remedies against the parties to such fraud without
prejudice, however, to the rights of any innocent holder of the decree of
registration on the original petition or application, xxx
This provision should be read in conjunction with Article 1456 of the Civil
Code, which provides:
Article 1456. If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust for
the benefit of the person from whom the property comes.
The law thereby creates the obligation of the trustee to reconvey the
property and the title thereto in favor of the true owner. Correlating Section
53, paragraph 3 of Presidential Decree No. 1529 and Article 1456 of the Civil
Code with Article 1144(2) of the Civil Code, supra, the prescriptive period for
the reconveyance of fraudulently registered real property is ten (10) years
reckoned from the date of the issuance of the certificate of title xxx
(Emphasis supplied)46
Following Caro, we have consistently held that an action for reconveyance
based on an implied trust prescribes in ten years.47 We went further by
specifying the reference point of the ten-year prescriptive period as the date
of the registration of the deed or the issuance of the title.48
Had Armando and Adelia remained in possession of the Subject Land, their
action for reconveyance, in effect an action to quiet title to property, would
not be subject to prescription. Prescription does not run against the plaintiff
in actual possession of the disputed land because such plaintiff has a right to
wait until his possession is disturbed or his title is questioned before initiating
an action to vindicate his right.49 His undisturbed possession gives him the
continuing right to seek the aid of a court of equity to determine the nature
of the adverse claim of a third party and its effect on his title. 50
Armando and Adelia lost possession of the Subject Land when the
Subsequent Buyers forcibly drove away from the Subject Land the
Natanawans, the tenants of Armando and Adelia. 51 This created an actual
need for Armando and Adelia to seek reconveyance of the Subject Land. The
statute of limitation becomes relevant in this case. The ten-year prescriptive
period started to run from the date the Subsequent Buyers registered their
deeds of sale with the Register of Deeds.
S a l e s P a r t V P a g e | 191
The Subsequent Buyers bought the subdivided portions of the Subject Land
on 22 February 1994, the date of execution of their deeds of sale. The
Register of Deeds issued the transfer certificates of title to the Subsequent
Buyers on 24 February 1994. Armando and Adelia filed the Complaint on 7
March 1994. Clearly, prescription could not have set in since the case was
filed at the early stage of the ten-year prescriptive period.
Neither is the action barred by laches. We have defined laches as the failure
or neglect, for an unreasonable time, to do that which, by the exercise of
due diligence, could or should have been done earlier.52 It is negligence or
omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or
declined to assert it.53 Armando and Adelia discovered in January 1994 the
subsequent sale of the Subject Land and they filed this case on 7 March
1994. Plainly, Armando and Adelia did not sleep on their rights.
Validity of Subsequent Sale of Portions of the Subject Land
Petitioners maintain that the subsequent sale must be upheld because the
Subsequent Buyers, the co-petitioners of Godofredo and Carmen, purchased
and registered the Subject Land in good faith. Petitioners argue that the
testimony of Calonso, the person who brokered the second sale, should not
prejudice the Subsequent Buyers. There is no evidence that Calonso was the
agent of the Subsequent Buyers and that she communicated to them what
she knew about the adverse claim and the prior sale. Petitioners assert that
the adverse claim registered by Armando and Adelia has no legal basis to
render defective the transfer of title to the Subsequent Buyers.
We are not persuaded. Godofredo and Carmen had already sold the Subject
Land to Armando and Adelia. The settled rule is when ownership or title
passes to the buyer, the seller ceases to have any title to transfer to any
third person.54 If the seller sells the same land to another, the second buyer
who has actual or constructive knowledge of the prior sale cannot be a
registrant in good faith.55 Such second buyer cannot defeat the first buyer’s
title.56 In case a title is issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale. 57
Thus, to merit protection under the second paragraph of Article 154458 of the
Civil Code, the second buyer must act in good faith in registering the
deed.59 In this case, the Subsequent Buyers’ good faith hinges on whether
they had knowledge of the previous sale. Petitioners do not dispute that
 S a l e s P a r t V P a g e | 192

Armando and Adelia registered their adverse claim with the Registry of WHEREFORE, the petition is DENIED and the appealed decision is
Deeds of Bataan on 8 February 1994. The Subsequent Buyers purchased AFFIRMED. Treble costs against petitioners.
their respective lots only on 22 February 1994 as shown by the date of their
deeds of sale. Consequently, the adverse claim registered prior to the second SO ORDERED.
sale charged the Subsequent Buyers with constructive notice of the defect in
the title of the sellers,60 Godofredo and Carmen.

It is immaterial whether Calonso, the broker of the second sale,

communicated to the Subsequent Buyers the existence of the adverse claim.
The registration of the adverse claim on 8 February 1994 constituted, by
operation of law, notice to the whole world.61 From that date onwards, the
Subsequent Buyers were deemed to have constructive notice of the adverse
claim of Armando and Adelia. When the Subsequent Buyers purchased
portions of the Subject Land on 22 February 1994, they already had
constructive notice of the adverse claim registered earlier. 62 Thus, the
Subsequent Buyers were not buyers in good faith when they purchased their
lots on 22 February 1994. They were also not registrants in good faith when
they registered their deeds of sale with the Registry of Deeds on 24 February
1994.

The Subsequent Buyers’ individual titles to their respective lots are not
absolutely indefeasible. The defense of indefeasibility of the Torrens Title
does not extend to a transferee who takes the certificate of title with notice
of a flaw in his title.63 The principle of indefeasibility of title does not apply
where fraud attended the issuance of the titles as in this case. 64

Attorney’s Fees and Costs

We sustain the award of attorney’s fees. The decision of the court must state
the grounds for the award of attorney’s fees. The trial court complied with
this requirement.65 We agree with the trial court that if it were not for
petitioners’ unjustified refusal to heed the just and valid demands of
Armando and Adelia, the latter would not have been compelled to file this
action.

The Court of Appeals echoed the trial court’s condemnation of petitioners’

fraudulent maneuverings in securing the second sale of the Subject Land to
the Subsequent Buyers. We will also not turn a blind eye on petitioners’
brazen tactics. Thus, we uphold the treble costs imposed by the Court of
Appeals on petitioners.

G.R. No. 116650. May 23, 1995.*
TOYOTA SHAW, INC., petitioner, vs. COURT OF APPEALS and LUNA
L. SOSA, respondents.
Civil Law; Contracts; Sales; Exhibit “A” is not a contract of sale.—What is
clear from Exhibit “A” is not what the trial court and the Court of Appeals
appear to see. It is not a contract of sale. No obligation on the part of
Toyota to transfer ownership of a determinate thing to Sosa and no
correlative obligation on the part of the latter to pay therefor a price certain
appears therein. The provision on the downpayment of P100,000.00 made
no specific reference to a sale of a vehicle. If it was intended for a contract
of sale, it could only refer to a sale on installment basis, as the VSP executed
the following day confirmed. But nothing was mentioned about the full
purchase price and the manner the installments were to be paid.
Same; Same; Same; Definiteness as to the price is an essential element of a
binding agreement to sell personal property.—This Court had already ruled
that a definite agreement on the manner of payment of the price is an
essential element in the formation of a binding and enforceable contract of
sale. This is so because the agreement as to the manner of payment goes
into the price such that a disagreement on the manner of payment is
tantamount to a failure to agree on the price. Definiteness as to the price is
an essential element of a binding agreement to sell personal property.
Same; Same; Same; Agency; A person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent.—He
knew that Bernardo was only a sales representative of Toyota and hence a
mere agent of the latter. It was incumbent upon Sosa to act with ordinary
prudence and reasonable diligence to know the extent of Bernardo’s
authority as an agent in respect of contracts to sell Toyota’s vehicles. A
person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent.
Same; Same; Same; Damages; Attorney’s Fees; Award of moral and
exemplary damages and attorney’s fees and costs of suit is without legal
basis.—The award then of moral and exemplary damages and attorney’s fees
and costs of suit is without legal basis. Besides, the only ground upon which
S a l e s P a r t V P a g e | 193
Sosa claimed moral damages is that since it was known to his friends,
townmates, and relatives that he was buying a Toyota Lite Ace which they
expected to see on his birthday, he suffered humiliation, shame, and
sleepless nights when the van was not delivered. The van became the
subject matter of talks during his celebration that he may not have paid for
it, and this created an impression against his business standing and
reputation. At the bottom of this claim is nothing but misplaced pride and
ego. He should not have announced his plan to buy a Toyota Lite Ace
knowing that he might not be able to pay the full purchase price. It was he
who brought embarrassment upon himself by bragging about a thing which
he did not own yet. Since Sosa is not entitled to moral damages and there
being no award for temperate, liquidated, or compensatory damages, he is
likewise not entitled to exemplary damages. Under Article 2229 of the Civil
Code, exemplary or corrective damages are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated, or
compensatory damages. Also, it is settled that for attorney’s fees to be
granted, the court must explicitly state in the body of the decision, and not
only in the dispositive portion thereof, the legal reason for the award of
attorney’s fees. No such explicit determination thereon was made in the
body of the decision of the trial court. No reason thus exists for such an
award.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Bengzon, Zarraga, Narciso, Cudala, Pecson, Bengzon & Jimenez for
petitioner.
Carag, Caballes, Jamora & Somera Law Offices for private respondent.
Toyota Shaw, Inc. vs. Court of Appeals, 244 SCRA 320, G.R. No. 116650 May
23, 1995
DAVIDE, JR., J.:
At the heart of the present controversy is the document marked Exhibit
"A" 1 for the private respondent, which was signed by a sales representative

of Toyota Shaw, Inc. named Popong Bernardo. The document reads as
follows:
4 June 1989
AGREEMENTS BETWEEN MR. SOSA
& POPONG BERNARDO OF TOYOTA
SHAW, INC.
1. all necessary documents will be submitted to TOYOTA SHAW, INC.
(POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the
Province (Marinduque) where the unit will be used on the 19th of June.
2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15,
1989.
3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and
released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.
Very truly yours,
(Sgd.) POPONG BERNARDO.
Was this document, executed and signed by the petitioner's sales
representative, a perfected contract of sale, binding upon the petitioner,
breach of which would entitle the private respondent to damages and
attorney's fees? The trial court and the Court of Appeals took the affirmative
view. The petitioner disagrees. Hence, this petition for review on certiorari.
The antecedents as disclosed in the decisions of both the trial court and the
Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc.
(hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as
follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a
Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding
a dealer with an available unit for sale. But upon contacting Toyota Shaw,
Inc., he was told that there was an available unit. So on 14 June 1989, Sosa
and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig,
Metro Manila. There they met Popong Bernardo, a sales representative of
Toyota.
Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17
June 1989 because he, his family, and a balikbayan guest would use it on 18
June 1989 to go to Marinduque, his home province, where he would
S a l e s P a r t V P a g e | 194
celebrate his birthday on the 19th of June. He added that if he does not
arrive in his hometown with the new car, he would become a "laughing
stock." Bernardo assured Sosa that a unit would be ready for pick up at
10:00 a.m. on 17 June 1989. Bernardo then signed the aforequoted
"Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It
was also agreed upon by the parties that the balance of the purchase price
would be paid by credit financing through B.A. Finance, and for this Gilbert,
on behalf of his father, signed the documents of Toyota and B.A. Finance
pertaining to the application for financing.
The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the
downpayment of P100,000.00. They met Bernardo who then accomplished a
printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under
the subheading CONFORME. This document shows that the customer's name
is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United
Parañaque II; that the model series of the vehicle is a "Lite Ace 1500"
described as "4 Dr minibus"; that payment is by "installment," to be financed
by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as
follows:
a) downpayment — P 53,148.00
b) insurance — P 13,970.00
c) BLT registration fee — P 1,067.00
CHMO fee — P 2,715.00
service fee — P 500.00
accessories — P 29,000.00
and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces
provided for "Delivery Terms" were not filled-up. It also contains the
following pertinent provisions:
CONDITIONS OF SALES
1. This sale is subject to availability of unit.
2. Stated Price is subject to change without prior notice,
Price prevailing and in effect at time of selling will apply. . . .

Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved
the VSP.
On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him
that the vehicle would not be ready for pick up at 10:00 a.m. as previously
agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert
met Bernardo at the latter's office. According to Sosa, Bernardo informed
them that the Lite Ace was being readied for delivery. After waiting for about
an hour, Bernardo told them that the car could not be delivered because
"nasulot ang unit ng ibang malakas."
Toyota contends, however, that the Lite Ace was not delivered to Sosa
because of the disapproval by B.A. Finance of the credit financing application
of Sosa. It further alleged that a particular unit had already been reserved
and earmarked for Sosa but could not be released due to the uncertainty of
payment of the balance of the purchase price. Toyota then gave Sosa the
option to purchase the unit by paying the full purchase price in cash but
Sosa refused.
After it became clear that the Lite Ace would not be delivered to him, Sosa
asked that his downpayment be refunded. Toyota did so on the very same
day by issuing a Far East Bank check for the full amount of
P100,000.00, 4 the receipt of which was shown by a check voucher of
Toyota,5 which Sosa signed with the reservation, "without prejudice to our
future claims for damages."
Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June
1989 and signed by him, he demanded the refund, within five days from
receipt, of the downpayment of P100,000.00 plus interest from the time he
paid it and the payment of damages with a warning that in case of Toyota's
failure to do so he would be constrained to take legal action. 6 The second,
dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel,
demanded one million pesos representing interest and damages, again, with
a warning that legal action would be taken if payment was not made within
three days.7 Toyota's counsel answered through a letter dated 27 November
1989 8 refusing to accede to the demands of Sosa. But even before this
answer was made and received by Sosa, the latter filed on 20 November
1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a
complaint against Toyota for damages under Articles 19 and 21 of the Civil
Code in the total amount of P1,230,000.00. 9 He alleges, inter alia, that:
S a l e s P a r t V P a g e | 195
9. As a result of defendant's failure and/or refusal to deliver
the vehicle to plaintiff, plaintiff suffered embarrassment,
humiliation, ridicule, mental anguish and sleepless nights
because: (i) he and his family were constrained to take the
public transportation from Manila to Lucena City on their
way to Marinduque; (ii) his balikbayan-guest canceled his
scheduled first visit to Marinduque in order to avoid the
inconvenience of taking public transportation; and (iii) his
relatives, friends, neighbors and other provincemates,
continuously irked him about "his Brand-New Toyota Lite
Ace — that never was." Under the circumstances, defendant
should be made liable to the plaintiff for moral damages in
the amount of One Million Pesos (P1,000,000.00). 10
In its answer to the complaint, Toyota alleged that no sale was entered into
between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for
and in its behalf, and that Bernardo signed Exhibit "A" in his personal
capacity. As special and affirmative defenses, it alleged that: the VSP did not
state date of delivery; Sosa had not completed the documents required by
the financing company, and as a matter of policy, the vehicle could not and
would not be released prior to full compliance with financing requirements,
submission of all documents, and execution of the sales agreement/invoice;
the P100,000.00 was returned to and received by Sosa; the venue was
improperly laid; and Sosa did not have a sufficient cause of action against it.
It also interposed compulsory counterclaims.
After trial on the issues agreed upon during the pre-trial session, 11 the trial
court rendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled
that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG
BERNARDO," was a valid perfected contract of sale between Sosa and
Toyota which bound Toyota to deliver the vehicle to Sosa, and further
agreed with Sosa that Toyota acted in bad faith in selling to another the unit
already reserved for him.
As to Toyota's contention that Bernardo had no authority to bind it through
Exhibit "A," the trial court held that the extent of Bernardo's authority "was
not made known to plaintiff," for as testified to by Quirante, "they do not
volunteer any information as to the company's sales policy and guidelines
because they are internal matters." 13 Moreover, "[f]rom the beginning of the
transaction up to its consummation when the downpayment was made by
the plaintiff, the defendants had made known to the plaintiff the impression

that Popong Bernardo is an authorized sales executive as it permitted the
latter to do acts within the scope of an apparent authority holding him out to
the public as possessing power to do these acts." 14 Bernardo then "was an
agent of the defendant Toyota Shaw, Inc. and hence bound the
defendants." 15
The court further declared that "Luna Sosa proved his social standing in the
community and suffered besmirched reputation, wounded feelings and
sleepless nights for which he ought to be compensated." 16 Accordingly, it
disposed as follows:
WHEREFORE, viewed from the above findings, judgment is
hereby rendered in favor of the plaintiff and against the
defendant:
1. ordering the defendant to pay to the
plaintiff the sum of P75,000.00 for moral
damages;
2. ordering the defendant to pay the plaintiff
the sum of P10,000.00 for exemplary
damages;
3. ordering the defendant to pay the sum of
P30,000.00 attorney's fees plus P2,000.00
lawyer's transportation fare per trip in
attending to the hearing of this case;
4. ordering the defendant to pay the plaintiff
the sum of P2,000.00 transportation fare
per trip of the plaintiff in attending the
hearing of this case; and
5. ordering the defendant to pay the cost of
suit.
SO ORDERED.
Dissatisfied with the trial court's judgment, Toyota appealed to the Court of
Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision
S a l e s P a r t V P a g e | 196
promulgated on 29 July 1994,17 the Court of Appeals affirmed in toto the
appealed decision.
Toyota now comes before this Court via this petition and raises the core
issue stated at the beginning of the ponenciaand also the following related
issues: (a) whether or not the standard VSP was the true and documented
understanding of the parties which would have led to the ultimate contract
of sale, (b) whether or not Sosa has any legal and demandable right to the
delivery of the vehicle despite the non-payment of the consideration and the
non-approval of his credit application by B.A. Finance, (c) whether or not
Toyota acted in good faith when it did not release the vehicle to Sosa, and
(d) whether or not Toyota may be held liable for damages.
We find merit in the petition.
Neither logic nor recourse to one's imagination can lead to the conclusion
that Exhibit "A" is a perfected contract of sale.
Article 1458 of the Civil Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
and Article 1475 specifically provides when it is deemed perfected:
Art. 1475. The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the
object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing
the form of contracts.
What is clear from Exhibit "A" is not what the trial court and the Court of
Appeals appear to see. It is not a contract of sale. No obligation on the part
of Toyota to transfer ownership of a determinate thing to Sosa and no

correlative obligation on the part of the latter to pay therefor a price certain
appears therein. The provision on the downpayment of P100,000.00 made
no specific reference to a sale of a vehicle. If it was intended for a contract
of sale, it could only refer to a sale on installment basis, as the VSP executed
the following day confirmed. But nothing was mentioned about the full
purchase price and the manner the installments were to be paid.
This Court had already ruled that a definite agreement on the manner of
payment of the price is an essential element in the formation of a binding
and enforceable contract of sale. 18 This is so because the agreement as to
the manner of payment goes into the price such that a disagreement on the
manner of payment is tantamount to a failure to agree on the price.
Definiteness as to the price is an essential element of a binding agreement to
sell personal property. 19
Moreover, Exhibit "A" shows the absence of a meeting of minds between
Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa
was well aware from its title, written in bold letters, viz.,
AGREEMENTS BETWEEN MR. SOSA &
POPONG BERNARDO OF TOYOTA SHAW,
INC.
that he was not dealing with Toyota but with Popong Bernardo and that the
latter did not misrepresent that he had the authority to sell any Toyota
vehicle. He knew that Bernardo was only a sales representative of Toyota
and hence a mere agent of the latter. It was incumbent upon Sosa to act
with ordinary prudence and reasonable diligence to know the extent of
Bernardo's authority as an
agent20 in respect of contracts to sell Toyota's vehicles. A person dealing
with an agent is put upon inquiry and must discover upon his peril the
authority of the agent.21
At the most, Exhibit "A" may be considered as part of the initial phase of the
generation or negotiation stage of a contract of sale. There are three stages
in the contract of sale, namely:
(a) preparation, conception, or generation, which is the
period of negotiation and bargaining, ending at the moment
of agreement of the parties;
S a l e s P a r t V P a g e | 197
(b) perfection or birth of the contract, which is the moment
when the parties come to agree on the terms of the
contract; and
(c) consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract. 22
The second phase of the generation or negotiation stage in this case was the
execution of the VSP. It must be emphasized that thereunder, the
downpayment of the purchase price was P53,148.00 while the balance to be
paid on installment should be financed by B.A. Finance Corporation. It is, of
course, to be assumed that B.A. Finance Corp. was acceptable to Toyota,
otherwise it should not have mentioned B.A. Finance in the VSP.
Financing companies are defined in Section 3(a) of R.A. No. 5980, as
amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or
partnerships, except those regulated by the Central Bank of the Philippines,
the Insurance Commission and the Cooperatives Administration Office, which
are primarily organized for the purpose of extending credit facilities to
consumers and to industrial, commercial, or agricultural enterprises, either
by discounting or factoring commercial papers or accounts receivables, or by
buying and selling contracts, leases, chattel mortgages, or other evidence of
indebtedness, or by leasing of motor vehicles, heavy equipment and
industrial machinery, business and office machines and equipment,
appliances and other movable property." 23
Accordingly, in a sale on installment basis which is financed by a financing
company, three parties are thus involved: the buyer who executes a note or
notes for the unpaid balance of the price of the thing purchased on
installment, the seller who assigns the notes or discounts them with a
financing company, and the financing company which is subrogated in the
place of the seller, as the creditor of the installment buyer. 24 Since B.A.
Finance did not approve Sosa's application, there was then no meeting of
minds on the sale on installment basis.
We are inclined to believe Toyota's version that B.A. Finance disapproved
Sosa's application for which reason it suggested to Sosa that he pay the full
purchase price. When the latter refused, Toyota cancelled the VSP and
returned to him his P100,000.00. Sosa's version that the VSP was cancelled
because, according to Bernardo, the vehicle was delivered to another who
was "mas malakas" does not inspire belief and was obviously a delayed
 S a l e s P a r t V P a g e | 198

afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang
unit ng ibang malakas," while the Sosas had already been waiting for an
hour for the delivery of the vehicle in the afternoon of 17 June 1989.
However, in paragraph 7 of his complaint, Sosa solemnly states:
On June 17, 1989 at around 9:30 o'clock in the morning,
defendant's sales representative, Mr. Popong Bernardo,
called plaintiff's house and informed the plaintiff's son that
the vehicle will not be ready for pick-up at 10:00 a.m. of
June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff
and his son went to defendant's office on June 17 1989 at
2:00 p.m. in order to pick-up the vehicle but the defendant
for reasons known only to its representatives, refused and/or
failed to release the vehicle to the plaintiff. Plaintiff
demanded for an explanation, but nothing was given; . . .
(Emphasis supplied). 25
Also, it is settled that for attorney's fees to be granted, the court must
explicitly state in the body of the decision, and not only in the dispositive
portion thereof, the legal reason for the award of attorney's fees. 26 No such
explicit determination thereon was made in the body of the decision of the
trial court. No reason thus exists for such an award.
WHEREFORE, the instant petition is GRANTED. The challenged decision of
the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38
of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are
REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is
DISMISSED. The counterclaim therein is likewise DISMISSED.
No pronouncement as to costs.
SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur.

The VSP was a mere proposal which was aborted in lieu of subsequent
events. It follows that the VSP created no demandable right in favor of Sosa
Quiason, J., is on leave.
for the delivery of the vehicle to him, and its non-delivery did not cause any
legally indemnifiable injury.

The award then of moral and exemplary damages and attorney's fees and
costs of suit is without legal basis. Besides, the only ground upon which Sosa
claimed moral damages is that since it was known to his friends, townmates,
and relatives that he was buying a Toyota Lite Ace which they expected to
see on his birthday, he suffered humiliation, shame, and sleepless nights
when the van was not delivered. The van became the subject matter of talks
during his celebration that he may not have paid for it, and this created an
impression against his business standing and reputation. At the bottom of
this claim is nothing but misplaced pride and ego. He should not have
announced his plan to buy a Toyota Lite Ace knowing that he might not be
able to pay the full purchase price. It was he who brought embarrassment
upon himself by bragging about a thing which he did not own yet.

Since Sosa is not entitled to moral damages and there being no award for
temperate, liquidated, or compensatory damages, he is likewise not entitled
to exemplary damages. Under Article 2229 of the Civil Code, exemplary or
corrective damages are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated, or compensatory
damages.