G.R. No.

111238 January 25, 1995

ADELFA PROPERTIES, INC., petitioner, 

vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD JIMENEZ, respondents.

REGALADO, J.:

The main issues presented for resolution in this petition for review on certiorari of the judgment of respondent Court of
appeals, dated April 6, 1993, in CA-G.R. CV No. 34767  are (1) whether of not the "Exclusive Option to Purchase"
1

executed between petitioner Adelfa Properties, Inc. and private respondents Rosario Jimenez-Castañeda and Salud
Jimenez is an option contract; and (2) whether or not there was a valid suspension of payment of the purchase price by
said petitioner, and the legal effects thereof on the contractual relations of the parties.

The records disclose the following antecedent facts which culminated in the present appellate review, to wit:

1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a
parcel of land consisting of 17,710 square meters, covered by Transfer Certificate of Title (TCT) No. 309773, situated in
2

Barrio Culasi, Las Piñas, Metro Manila.

2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said parcel of land,
specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa." Subsequently,
3

a "Confirmatory Extrajudicial Partition Agreement"  was executed by the Jimenezes, wherein the eastern portion of the
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subject lot, with an area of 8,855 square meters was adjudicated to Jose and Dominador Jimenez, while the western
portion was allocated to herein private respondents.

3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from private
respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase"  was executed between petitioner
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and private respondents, under the following terms and conditions:

1. The selling price of said 8,655 square meters of the subject property is TWO MILLION EIGHT
HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY (P2,856,150.00)

2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC. as an option money
shall be credited as partial payment upon the consummation of the sale and the balance in the sum of
TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00)
to be paid on or before November 30, 1989;

3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in accordance with
paragraph 2 hereof, this option shall be cancelled and 50% of the option money to be forfeited in our
favor and we will refund the remaining 50% of said money upon the sale of said property to a third
party;

4. All expenses including the corresponding capital gains tax, cost of documentary stamps are for the
account of the VENDORS, and expenses for the registration of the deed of sale in the Registry of
Deeds are for the account of ADELFA PROPERTIES, INC.

Considering, however, that the owner's copy of the certificate of title issued to respondent Salud Jimenez had been
lost, a petition for the re-issuance of a new owner's copy of said certificate of title was filed in court through Atty. Bayani
L. Bernardo, who acted as private respondents' counsel. Eventually, a new owner's copy of the certificate of title was
issued but it remained in the possession of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.

4. Before petitioner could make payment, it received summons  on November 29, 1989, together with a copy of a
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complaint filed by the nephews and nieces of private respondents against the latter, Jose and Dominador Jimenez, and
herein petitioner in the Regional Trial Court of Makati, docketed as Civil Case No. 89-5541, for annulment of the deed
of sale in favor of Household Corporation and recovery of ownership of the property covered by TCT No. 309773. 7

5. As a consequence, in a letter dated November 29, 1989, petitioner informed private respondents that it would hold
payment of the full purchase price and suggested that private respondents settle the case with their nephews and
nieces, adding that ". . . if possible, although November 30, 1989 is a holiday, we will be waiting for you and said
plaintiffs at our office up to 7:00 p.m."  Another letter of the same tenor and of even date was sent by petitioner to Jose
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and Dominador Jimenez.  Respondent Salud Jimenez refused to heed the suggestion of petitioner and attributed the
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suspension of payment of the purchase price to "lack of word of honor."

6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract with private
respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No. 1437-4 and entry No. 1438-4,
respectively.

7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his capacity as
petitioner's counsel, and to inform the latter that they were cancelling the transaction. In turn, Atty. Bernardo offered to
pay the purchase price provided that P500,000.00 be deducted therefrom for the settlement of the civil case. This was
rejected by private respondents. On December 22, 1989, Atty. Bernardo wrote private respondents on the same matter
but this time reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus, on February 28,
1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive option to purchase as Entry No. 4442-
4.

9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional Sale   in favor of Emylene
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Chua over the same parcel of land for P3,029,250, of which P1,500,000.00 was paid to private respondents on said
date, with the balance to be paid upon the transfer of title to the specified one-half portion.

10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of the dismissal of the
case against them, petitioner was willing to pay the purchase price, and he requested that the corresponding deed of
absolute sale be executed.   This was ignored by private respondents.
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11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a check for P25,000.00
representing the refund of fifty percent of the option money paid under the exclusive option to purchase. Private
respondents then requested petitioner to return the owner's duplicate copy of the certificate of title of respondent Salud
Jimenez.   Petitioner failed to surrender the certificate of title, hence private respondents filed Civil Case No. 7532 in
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the Regional Trial Court of Pasay City, Branch 113, for annulment of contract with damages, praying, among others,
that the exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered to return
the owner's duplicate certificate of title; and that the annotation of the option contract on TCT No. 309773 be cancelled.
Emylene Chua, the subsequent purchaser of the lot, filed a complaint in intervention.

12. The trial court rendered judgment   therein on September 5, 1991 holding that the agreement entered into by the
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parties was merely an option contract, and declaring that the suspension of payment by herein petitioner constituted a
counter-offer which, therefore, was tantamount to a rejection of the option. It likewise ruled that herein petitioner could
not validly suspend payment in favor of private respondents on the ground that the vindicatory action filed by the latter's
kin did not involve the western portion of the land covered by the contract between petitioner and private respondents,
but the eastern portion thereof which was the subject of the sale between petitioner and the brothers Jose and
Dominador Jimenez. The trial court then directed the cancellation of the exclusive option to purchase, declared the sale
to intervenor Emylene Chua as valid and binding, and ordered petitioner to pay damages and attorney's fees to private
respondents, with costs.

13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and held that the failure of
petitioner to pay the purchase price within the period agreed upon was tantamount to an election by petitioner not to
buy the property; that the suspension of payment constituted an imposition of a condition which was actually a counter-
offer amounting to a rejection of the option; and that Article 1590 of the Civil Code on suspension of payments applies
only to a contract of sale or a contract to sell, but not to an option contract which it opined was the nature of the
document subject of the case at bar. Said appellate court similarly upheld the validity of the deed of conditional sale
executed by private respondents in favor of intervenor Emylene Chua.

In the present petition, the following assignment of errors are raised:

1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the agreement entered
into by petitioner and private respondents was strictly an option contract;

2. Granting arguendo that the agreement was an option contract, respondent court of Appeals acted with grave abuse
of discretion in grievously failing to consider that while the option period had not lapsed, private respondents could not
unilaterally and prematurely terminate the option period;

3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully the attendant facts
and circumstances when it made the conclusion of law that Article 1590 does not apply; and

4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale in favor of appellee
Ma. Emylene Chua and the award of damages and attorney's fees which are not only excessive, but also without in fact
and in law.  14

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the
conclusion that the agreement between the parties is a contract to sell, and not an option contract or a contract of sale.

1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this juncture to briefly
discourse on the rationale behind our treatment of the alleged option contract as a contract to sell, rather than a
contract of sale. The distinction between the two is important for in contract of sale, the title passes to the vendee upon
the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is
not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership
until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until
the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach
but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is
considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in
the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period. 15

There are two features which convince us that the parties never intended to transfer ownership to petitioner except
upon the full payment of the purchase price. Firstly, the exclusive option to purchase, although it provided for automatic
rescission of the contract and partial forfeiture of the amount already paid in case of default, does not mention that
petitioner is obliged to return possession or ownership of the property as a consequence of non-payment. There is no
stipulation anent reversion or reconveyance of the property to herein private respondents in the event that petitioner
does not comply with its obligation. With the absence of such a stipulation, although there is a provision on the
remedies available to the parties in case of breach, it may legally be inferred that the parties never intended to transfer
ownership to the petitioner to completion of payment of the purchase price.

In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had fully paid the
price. Article 1478 of the civil code does not require that such a stipulation be expressly made. Consequently, an
implied stipulation to that effect is considered valid and, therefore, binding and enforceable between the parties. It
should be noted that under the law and jurisprudence, a contract which contains this kind of stipulation is considered a
contract to sell.

Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is bolstered by the
fact that the deed of absolute sale would have been issued only upon the payment of the balance of the purchase price,
as may be gleaned from petitioner's letter dated April 16, 1990   wherein it informed private respondents that it "is now
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ready and willing to pay you simultaneously with the execution of the corresponding deed of absolute sale."

Secondly, it has not been shown there was delivery of the property, actual or constructive, made to herein petitioner.
The exclusive option to purchase is not contained in a public instrument the execution of which would have been
considered equivalent to delivery.   Neither did petitioner take actual, physical possession of the property at any given
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time. It is true that after the reconstitution of private respondents' certificate of title, it remained in the possession of
petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under
the law, such possession by the vendee is to be understood as a delivery.  However, private respondents explained
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that there was really no intention on their part to deliver the title to herein petitioner with the purpose of transferring
ownership to it. They claim that Atty. Bernardo had possession of the title only because he was their counsel in the
petition for reconstitution. We have no reason not to believe this explanation of private respondents, aside from the fact
that such contention was never refuted or contradicted by petitioner.

2. Irrefragably, the controverted document should legally be considered as a perfected contract to sell. On this
particular point, therefore, we reject the position and ratiocination of respondent Court of Appeals which, while awarding
the correct relief to private respondents, categorized the instrument as "strictly an option contract."

The important task in contract interpretation is always the ascertainment of the intention of the contracting parties and
that task is, of course, 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.   Moreover, judging from the
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subsequent acts of the parties which will hereinafter be discussed, it is undeniable that the intention of the parties was
to enter into a contract to sell.   In addition, the title of a contract does not necessarily determine its true
20

nature.   Hence, the fact that the document under discussion is entitled "Exclusive Option to Purchase" is not
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controlling where the text thereof shows that it is a contract to sell.

An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another that
the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with,
certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also
sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to
buy.   It is not a sale of property but a sale of property but a sale of the right to purchase.   It is simply a contract by
22 23

which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price
within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, that it is,
the right or privilege to buy at the election or option of the other party.   Its distinguishing characteristic is that it imposes
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no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is
not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in
the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of
accepting the offer and buying the property on certain terms.  25

On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons whereby one binds
himself, with respect to the other, to give something or to render some service.   Contracts, in general, are perfected by
26

mere consent,   which is manifested by the meeting of the offer and the acceptance upon the thing and the cause
27

which are to constitute the contract. The offer must be certain and the acceptance absolute.  28

The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It states the terms
and conditions on which the owner is willing to sell the land, if the holder elects to accept them within the time limited. If
the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and
binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the
option is at an end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both
parties at the time of its execution. The offer and the acceptance are concurrent, since the minds of the contracting
parties meet in the terms of the agreement.  29

A perusal of the contract in this case, as well as the oral and documentary evidence presented by the parties, readily
shows that there is indeed a concurrence of petitioner's offer to buy and private respondents' acceptance thereof. The
rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly
made and must be evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal
or an informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a
present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts,
conduct, or words of a party recognizing the existence of the contract of sale.  30

The records also show that private respondents accepted the offer of petitioner to buy their property under the terms of
their contract. At the time petitioner made its offer, private respondents suggested that their transfer certificate of title be
first reconstituted, to which petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo,
who assisted private respondents in filing a petition for reconstitution. After the title was reconstituted, the parties
agreed that petitioner would pay either in cash or manager's check the amount of P2,856,150.00 for the lot. Petitioner
was supposed to pay the same on November 25, 1989, but it later offered to make a down payment of P50,000.00, with
the balance of P2,806,150.00 to be paid on or before November 30, 1989. Private respondents agreed to the counter-
offer made by petitioner.   As a result, the so-called exclusive option to purchase was prepared by petitioner and was
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subsequently signed by private respondents, thereby creating a perfected contract to sell between them.

It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the acceptance thereof
was absolute and without any condition or qualification. The agreement as to the object, the price of the property, and
the terms of payment was clear and well-defined. No other significance could be given to such acts that than they were
meant to finalize and perfect the transaction. The parties even went beyond the basic requirements of the law by
stipulating that "all expenses including the corresponding capital gains tax, cost of documentary stamps are for the
account of the vendors, and expenses for the registration of the deed of sale in the Registry of Deeds are for the
account of Adelfa properties, Inc." Hence, there was nothing left to be done except the performance of the respective
obligations of the parties.

We do not subscribe to private respondents' submission, which was upheld by both the trial court and respondent court
of appeals, that the offer of petitioner to deduct P500,000.00, (later reduced to P300,000.00) from the purchase price
for the settlement of the civil case was tantamount to a counter-offer. It must be stressed that there already existed a
perfected contract between the parties at the time the alleged counter-offer was made. Thus, any new offer by a party
becomes binding only when it is accepted by the other. In the case of private respondents, they actually refused to
concur in said offer of petitioner, by reason of which the original terms of the contract continued to be enforceable.

At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's sole purpose was to
settle the civil case in order that it could already comply with its obligation. In fact, it was even indicative of a desire by
petitioner to immediately comply therewith, except that it was being prevented from doing so because of the filing of the
civil case which, it believed in good faith, rendered compliance improbable at that time. In addition, no inference can be
drawn from that suggestion given by petitioner that it was totally abandoning the original contract.

More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase price within the agreed
period was attributed by private respondents to "lack of word of honor" on the part of the former. The reason of "lack of
word of honor" is to us a clear indication that private respondents considered petitioner already bound by its obligation
to pay the balance of the consideration. In effect, private respondents were demanding or exacting fulfillment of the
obligation from herein petitioner. with the arrival of the period agreed upon by the parties, petitioner was supposed to
comply with the obligation incumbent upon it to perform, not merely to exercise an option or a right to buy the property.

The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that is, the payment of
the purchase price. The contract did not simply give petitioner the discretion to pay for the property.   It will be noted
32

that there is nothing in the said contract to show that petitioner was merely given a certain period within which to
exercise its privilege to buy. The agreed period was intended to give time to herein petitioner within which to fulfill and
comply with its obligation, that is, to pay the balance of the purchase price. No evidence was presented by private
respondents to prove otherwise.

The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not the
agreement could be specifically enforced.   There is no doubt that the obligation of petitioner to pay the purchase price
33

is specific, definite and certain, and consequently binding and enforceable. Had private respondents chosen to enforce
the contract, they could have specifically compelled petitioner to pay the balance of P2,806,150.00. This is distinctly
made manifest in the contract itself as an integral stipulation, compliance with which could legally and definitely be
demanded from petitioner as a consequence.

This is not a case where no right is as yet created nor an obligation declared, as where something further remains to be
done before the buyer and seller obligate themselves.   An agreement is only an "option" when no obligation rests on
34

the party to make any payment except such as may be agreed on between the parties as consideration to support the
option until he has made up his mind within the time specified.   An option, and not a contract to purchase, is effected
35

by an agreement to sell real estate for payments to be made within specified time and providing forfeiture of money
paid upon failure to make payment, where the purchaser does not agree to purchase, to make payment, or to bind
himself in any way other than the forfeiture of the payments made.   As hereinbefore discussed, this is not the situation
36

obtaining in the case at bar.

While there is jurisprudence to the effect that a contract which provides that the initial payment shall be totally forfeited
in case of default in payment is to be considered as an option contract,   still we are not inclined to conform with the
37

findings of respondent court and the court a quo that the contract executed between the parties is an option contract,
for the reason that the parties were already contemplating the payment of the balance of the purchase price, and were
not merely quoting an agreed value for the property. The term "balance," connotes a remainder or something remaining
from the original total sum already agreed upon.

In other words, the alleged option money of P50,000.00 was actually earnest money which was intended to form part of
the purchase price. The amount of P50,000.00 was not distinct from the cause or consideration for the sale of the
property, but was itself a part thereof. It is a statutory rule that whenever earnest money is given in a contract of sale, it
shall be considered as part of the price and as proof of the perfection of the contract.   It constitutes an advance
38

payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller
to bind the bargain.

There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the purchase
price, while option money ids 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. 39
The aforequoted characteristics of earnest money are apparent in the so-called option contract under review, even
though it was called "option money" by the parties. In addition, private respondents failed to show that the payment of
the balance of the purchase price was only a condition precedent to the acceptance of the offer or to the exercise of the
right to buy. On the contrary, it has been sufficiently established that such payment was but an element of the
performance of petitioner's obligation under the contract to sell.  40

II

1. This brings us to the second issue as to whether or not there was valid suspension of payment of the purchase price
by petitioner and the legal consequences thereof. To justify its failure to pay the purchase price within the agreed
period, petitioner invokes Article 1590 of the civil Code which provides:

Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or
should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of
mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or
danger to cease, unless the latter gives security for the return of the price in a proper case, or it has
been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the
payment. A mere act of trespass shall not authorize the suspension of the payment of the price.

Respondent court refused to apply the aforequoted provision of law on the erroneous assumption that the true
agreement between the parties was a contract of option. As we have hereinbefore discussed, it was not an option
contract but a perfected contract to sell. Verily, therefore, Article 1590 would properly apply.

Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties herein involved
only the eastern half of the land subject of the deed of sale between petitioner and the Jimenez brothers, it did not,
therefore, have any adverse effect on private respondents' title and ownership over the western half of the land which is
covered by the contract subject of the present case. We have gone over the complaint for recovery of ownership filed in
said case   and we are not persuaded by the factual findings made by said courts. At a glance, it is easily discernible
41

that, although the complaint prayed for the annulment only of the contract of sale executed between petitioner and the
Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs' share in that parcel of land specifically
covered by TCT No. 309773. In other words, the plaintiffs therein were claiming to be co-owners of the entire parcel of
land described in TCT No. 309773, and not only of a portion thereof nor, as incorrectly interpreted by the lower courts,
did their claim pertain exclusively to the eastern half adjudicated to the Jimenez brothers.

Such being the case, petitioner was justified in suspending payment of the balance of the purchase price by reason of
the aforesaid vindicatory action filed against it. The assurance made by private respondents that petitioner did not have
to worry about the case because it was pure and simple harassment   is not the kind of guaranty contemplated under
42

the exceptive clause in Article 1590 wherein the vendor is bound to make payment even with the existence of a
vindicatory action if the vendee should give a security for the return of the price.

2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and hold that private
respondents may no longer be compelled to sell and deliver the subject property to petitioner for two reasons, that is,
petitioner's failure to duly effect the consignation of the purchase price after the disturbance had ceased; and,
secondarily, the fact that the contract to sell had been validly rescinded by private respondents.

The records of this case reveal that as early as February 28, 1990 when petitioner caused its exclusive option to be
annotated anew on the certificate of title, it already knew of the dismissal of civil Case No. 89-5541. However, it was
only on April 16, 1990 that petitioner, through its counsel, wrote private respondents expressing its willingness to pay
the balance of the purchase price upon the execution of the corresponding deed of absolute sale. At most, that was
merely a notice to pay. There was no proper tender of payment nor consignation in this case as required by law.

The mere sending of a letter by the vendee expressing the intention to 
pay, without the accompanying payment, is not considered a valid tender of payment.   Besides, a mere tender of
43

payment is not sufficient to compel private respondents to deliver the property and execute the deed of absolute sale. It
is consignation which is essential in order to extinguish petitioner's obligation to pay the balance of the purchase
price.   The rule is different in case of an option contract   or in legal redemption or in a sale with right to
44 45

repurchase,   wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to
46

buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to
preserve the right or privilege. This is because the provisions on consignation are not applicable when there is no
obligation to pay.   A contract to sell, as in the case before us, involves the performance of an obligation, not merely the
47

exercise of a privilege of a right. consequently, performance or payment may be effected not by tender of payment
alone but by both tender and consignation.

Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased with the dismissal of
the civil case filed against it. Necessarily, therefore, its obligation to pay the balance again arose and resumed after it
received notice of such dismissal. Unfortunately, petitioner failed to seasonably make payment, as in fact it has deposit
the money with the trial court when this case was originally filed therein.

By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to and did announce
the rescission of the contract through its letter to petitioner dated July 27, 1990. That written notice of rescission is
deemed sufficient under the circumstances. Article 1592 of the Civil Code which requires rescission either by judicial
action or notarial act is not applicable to a contract to sell.   Furthermore, judicial action for rescission of a contract is
48

not necessary where the contract provides for automatic rescission in case of breach,  as in the contract involved in the
49

present controversy.
We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc.   that the right to rescind is not
50

absolute, being ever subject to scrutiny and review by the proper court. It is our considered view, however, that this rule
applies to a situation where the extrajudicial rescission is contested by the defaulting party. In other words, resolution of
reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the debtor impugns the
declaration, it shall be subject to judicial determination  otherwise, if said party does not oppose it, the extrajudicial
51

rescission shall have legal effect. 

52

In the case at bar, it has been shown that although petitioner was duly furnished and did receive a written notice of
rescission which specified the grounds therefore, it failed to reply thereto or protest against it. Its silence thereon
suggests an admission of the veracity and validity of private respondents' claim.   Furthermore, the initiative of
53

instituting suit was transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in the
contract.   But then, the records bear out the fact that aside from the lackadaisical manner with which petitioner treated
54

private respondents' latter of cancellation, it utterly failed to seriously seek redress from the court for the enforcement of
its alleged rights under the contract. If private respondents had not taken the initiative of filing Civil Case No. 7532,
evidently petitioner had no intention to take any legal action to compel specific performance from the former. By such
cavalier disregard, it has been effectively estopped from seeking the affirmative relief it now desires but which it had
theretofore disdained.

WHEREFORE, on the foregoing modificatory premises, and considering that the same result has been reached by
respondent Court of Appeals with respect to the relief awarded to private respondents by the court a quo which we find
to be correct, its assailed judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED.

SO ORDERED.

GOLDENROD, INC., petitioner, 
vs.
COURT OF APPEALS, PIO BARRETO & SONS, INC., PIO BARRETO REALTY DEVELOPMENT, INC. and
ANTHONY QUE, respondents.

G.R. No. 126812 November 24, 1998

BELLOSILLO, J.:

In the absence of a specific stipulation, may the seller of real estate keep the earnest money to answer for damages in
the event the sale fails due to the fault of the prospective buyer?

Pio Barreto and Sons, Inc. (BARRETO & SONS) owned forty-three (43) parcels of registered land with a total area of
18,500 square meters located at Carlos Palanca St., Quiapo, Manila, which were mortgaged with United Coconut
Planters Bank (UCPB). In 1988, the obligation of the corporation with UCPB remained unpaid making foreclosure of the
mortgage imminent.

Goldenrod, Inc. (GOLDENROD), offered to buy the property from BARRETO & SONS. On 25 May 1988, through its
president Sonya G. Mathay, petitioner wrote respondent Anthony Que, President of respondent BARRETO & SONS, as
follows:

Thank you for your reply to our letter offering to buy your property in Echague (C. Palanca) Quiapo.

We are happy that you accepted our offer except the two amendments concerning the payment of
interest which should be monthly instead of semi-annually and the period to remove the trusses, steel
frames etc. which shall be 180 days instead of 90 days only. Please be advised that we agree to your
amendments.

As to your other query, we prefer that the lots be reconsolidated back to its (sic) mother titles.

Enclosed is the earnest money of P1 million which shall form part of the purchase price.

Payment of the agreed total consideration shall be effected in accordance with our offer as you have
accepted and upon execution of the necessary documents of sale to be implemented after the said
reconsolidation of the lots.

Kindly acknowlege receipt of the earnest money.

When the term of existence of BARRETO & SONS expired, all its assets and liabilities including the property located in
Quiapo were transferred to respondent Pio Barreto Realty Development, Inc. (BARRETO REALTY). Petitioner's offer to
buy the property resulted in its agreement with respondent BARRETO REALTY that petitioner would pay the following
amounts: (a) P24.5 million representing the outstanding obligations of BARRETO REALTY with UCPB on 30 June
1988, the deadline set by the bank for payment; and, (b) P20 million which was the balance of the purchase price of the
property to be paid in installments within a 3-year period with interes at 18% per annum.
Petitioner did not pay UCPB the P24.5 million loan obligation of BARRETO REALTY on the deadline set for payment;
instead, it asked for an extension of one (1) month or up to 31 July 1988 to settle the obligation, which the bank
granted. On 31 July 1988, petitioner requested another extension of sixty (60) days to pay the loan. This time bank
demurred.

In the meantime BARRETO REALTY was able to cause the reconsolidation of the forty-three (43) titles covering the
property subject of the purchase into two (2) titles covering Lots 1 and 2, which were issued on 4 August 1988. The
reconsolidation of the titles was made pursuant to the request of petitioner in its letter to private respondents on 25 May
1988. Respondent BARRETO REALTY allegedly incurred expenses for the reconsolidation amounting to P250,000.00.

On 25 August 1988 petitioner sought reconsideration of the denial by the bank of its request for extension of sixty (60)
days by asking for a shorter period of thirty (30) days. This was again denied by UCPB.

On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and Development Corporation (LOGARTA REALTY),
which acted as agent and broker of petitioner, wrote private respondent Anthony Que informing him on behalf of
petitioner that it could not go through with the purchase of the property due to circumstances beyond its fault, i.e., the
denial by UCPB of its request for extension of time to pay the obligation. In the same letter, Logarta also demanded the
refund of the earnest money of P1 million which petitioner gave to respondent BARRETO REALTY.

On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld Trade Center Phils., Inc. (ASIAWORLD), Lot 2,
one of the two (2) consolidated lots, for the price of P23 million. On 13 October 1988 respondent BARRETTO REALTY
executed a deed transferring by way of "dacion" the property reconsolidated as Lot 1 in favor of UCPB, which in turn
sold the property to ASIAWORLD for P24 million.

On 12 December 1988 Logarta again wrote respondent Que demanding the return of the earnest money to
GOLDENROD. On 7 February 1989 petitioner through its lawyer reiterated its demand, but the same remained
unheeded by private respondents. This prompted petitioner to file a complaint with the Regional Trial Court of Manila
against private respondents for the return of the amount of P1 million and the payment of damages including lost
interests or profits. In their answer, private respondents contended that it was the agreement of the parties that the
earnest money of P1 million would be forfeited to answer for losses and damages that might be suffered by private
respondents in case of failure by petitioner to comply with the terms of their purchase agreement.

On 15 March 1991 the trial court rendered a decision   ordering private respondents jointly and severally to pay
1

petitioner P1,000.000.00 with legal interest from 9 February 1989 until fully paid, P50,000.00 representing
unrealized profits and P10,000.00 as attorney's fees. The trial court found that there was no written agreement
between the parties concerning forfeiture of the earnest money if the sale did not push through. It further
declared that the earnest money given by petitioner to respondent BARRETO REALTY was intended to form
part of the purchase price; thus, the refusal of the latter to return the money when the sale was not
consummated violated Arts. 22 and 23 of the Civil Code against unjust enrichment.

Obviously dissatisfied with the decision of the trial court, private respondents appealed to the Court of
Appeals which reversed the trial court and ordered the dismissal of the complaint; hence, this petition.

Petitioner alleges that the Court of Appeals erred in disregarding the finding of the trial court that the earnest
money given by petitioner to respondent BARRETTO REALTY should be returned to the former. The absence
of an express stipulation that the same shall be forfeited in favor of the seller in case the buyer fails to comply
with his obligation is compelling. It argues that the forfeiture of the money in favor of respondent BARRETTO
REALTY would amount to unjust enrichment at the expense of petitioner.

We sustain petitioner. Under Art. 1482 of the Civil Code, whenever earnest money is given in a contract of sale,
it shall be considered as part of the purchase price and as proof of the perfection of the contract. Petitioner
clearly stated without any objection from private respondents that the earnest money was intended to form
part of the purchase price. It was an advance payment which must be deducted from the total price. Hence, the
parties could not have intended that the earnest money or advance payment would be forfeited when the buyer
should fail to pay the balance of the price, especially in the absence of a clear and express agreement thereon.
By reason oi its failure to make payment petitioner, through its agent, informed private respondents that it
would no longer push through with the sale. In other words, petitioner resorted to extrajudicial rescission of its
agreement with private respondents.

In University of the Philippines v. de los Angeles,   the right to rescind contracts is not absolute and is subject
2

to scrutiny and review by the proper court. We held further, in the more recent case of Adelfa Properties, Inc.
v. Court of Appeals,   that rescission of reciprocal contracts may be extrajudicially rescinded unless
3

successfully impugned in court. If the party does not oppose the declaration of rescission of the other party,
specifying the grounds therefor, and it fails to reply or protest against it, its silence thereon suggests an
admission of the veracity and validity of the rescinding party's claim.

Private respondents did not interpose any objection to the rescission by petitioner of the agreement. As found
by the Court of Appeals, private respondent BARRETTO REALTY even sold Lot 2 of the subject consolidated
lots to another buyer, ASIAWORLD, one day after its President Anthony Que received the broker's letter
rescinding tne sale. Subsequently, on 13 October 1988 respondent BARRETO REALTY also conveyed
ownership over Lot 1 to UCPB which, in turn, sold the same to ASIAWORLD.

Art. 1385 of the Civil Code provides that rescission creates the obligation to return the things which were the
object of the contract together with their fruits and interest. The vendor is therefore obliged to return the
purchase price paid to him by the buyer if the latter rescinds the sale,   or when the transaction was called off
4

and the subject property had already been sold to a third person, as what obtained in this case.  Therefore, by
5
virtue of the extrajudicial rescission of the contract to sell by petitioner without opposition from private
respondents who, in turn, sold the property to other persons, private respondent BARRETTO REALTY, as the
vendor, had the obligation to return the earnest money of P1000,000.00 plus legal interest from the date it
received notice of rescission from petitioner, i.e., 30 August 1988, up to the date of the return or payment. It
would be most inequitable if resondent BARRETTO REALTY would be allowed to retain petitioner's payment of
P1,000,000.00 and at the same time appropriate the proceeds of the second sale made to another.  6

WHEREFORE, the Petition is GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE.
Private respondent Pio Barretto Realty Development, Inc. (BARRETTO REALTY), its successors and assigns
are ordered to return to petitioner Goldenrod, Inc. (GOLDENROD), the amount of P1,000,000.00 with legal
interest thereon from 30 August 1988, the date of notice of extrajudicial rescission, until the amount is fully
paid, with costs against private respondents.

SO ORDERED.

TERESITA B. MENDOZA, petitioner, vs. BETH DAVID, respondent.

DECISION
CARPIO, J.:

The Case

This is a petition for review[1] of the Decision[2] dated 10 October 2000 and the Resolution
dated 20 March 2001 of the Court of Appeals in CA-G.R. SP No. 58087. The Court of
Appeals dismissed Teresita B. Mendozas (Mendoza) petition for review for being insufficient
in form and substance and denied her motion to reconsider the Decision.

The Facts

This case[3] arose from an action for collection of money with damages that Mendoza filed
against Beth David (David) before the Metropolitan Trial Court of Quezon City (MTC), Branch
35.
In her complaint, Mendoza alleged that on 17 February 1997, she ordered three sets of
furniture from David worth P185,650 and paid an initial deposit of P40,650. Mendoza and
David agreed on the specifications of the dining set, sofa set and tea set including the
material and quality. On 18 February 1997, Mendoza cancelled some of the furniture she
ordered and David agreed to the cancellation. On 12 April 1997, Mendoza paid an additional
deposit of P40,000.
When David delivered the dining set to Mendoza on 17 April 1997, Mendoza rejected the
set because of inferior material and poor quality. Mendoza likewise rejected the sala set and
the tea set for the same reason. When Mendoza requested a refund of her total deposit
of P80,650, David refused. Mendoza then sent David a letter dated 27 May 1997 demanding
the refund of her deposit but David ignored the demand letter. [4] The parties failed to arrive at
an amicable settlement. Thus, Mendoza filed a complaint for collection of money with
damages.[5]
In her Answer, David admitted that she and Mendoza agreed on the material and quality
of the furniture Mendoza ordered since that was the normal practice for made to order
furniture. David stated that on 17 April 1997, she delivered some of the furniture which was
received by Mendozas father. However, Mendoza could not pay the balance of the price and
requested payment on installment which David rejected. As a result of Mendozas non-
payment, David reclaimed the furniture already delivered and informed Mendoza she could
get the furniture upon payment of the balance of P105,000. In the meantime, David stored
the furniture in her warehouse. When David received Mendozas demand letter, she refused
to comply with Mendozas request for a refund of the deposit since all the three sets of
furniture Mendoza ordered were already finished and delivered on the agreed date. David
only retrieved the furniture due to non-payment of the balance.[6]
On 2 August 1999, the MTC dismissed Mendozas complaint for lack of merit. The MTC
held that David is not liable to return the deposit Mendoza paid. The MTC found there was
already a perfected contract of sale which imposes reciprocal obligations on the parties.
Mendoza is obligated to pay the balance of the purchase price while David is obligated to
deliver the three sets of furniture to Mendoza upon payment of the purchase price.
The MTC found no proof of breach of contract on Davids part. Mendoza failed to present
any evidence that the furniture David delivered to her on 17 April 1997 was not in
accordance with the agreed specifications. Besides, the order receipt for the sofa set, tea set
and dining set contained no specifications on the required material or the quality of
workmanship.
Mendoza appealed to the Regional Trial Court of Quezon City (RTC), Branch 105, which
modified the decision of the MTC. The dispositive portion of the RTCs decision reads:

WHEREFORE, in the light of the foregoing, the decision appealed from is affirmed with
MODIFICATION in that the plaintiff-appellant is ordered to pay to the defendant within sixty (60)
days from receipt of this decision the amount of P55,850.00, with legal interest from 17 April 1997
until fully paid; otherwise, the deposit of P80,650.00 will be deemed forfeited and the defendant-
appellee shall, thereafter, be authorized to dispose of the subject furniture. Upon timely payment of
said obligation by the plaintiff-appellant to the defendant-appellee, the latter is ordered to deliver the
subject furniture to the former.[7]

The RTC agreed with the MTC that there was a perfected contract of sale. The RTC
found that Mendoza failed to present any proof to show that the furniture delivered was not in
accordance with the agreed specifications. Applying the doctrine of caveat emptor, the RTC
held that Mendoza should have specified in writing the details of her order. However, the
RTC held that the remaining balance for the furniture ordered was only P55,850 since the
total purchase price was reduced to P136,500[8] because of the cancelled orders.
Mendoza filed a petition for review with the Court of Appeals. On 10 October 2000, the
Court of Appeals dismissed the petition for being insufficient in form and substance. The
Court of Appeals held that failure to append the complaint, answer, position papers,
memoranda and other evidence is sufficient ground to dismiss the petition, citing Sections 2
and 3, Rule 42 of the 1997 Rules of Civil Procedure. Nevertheless, despite the absence of
pleadings and other pertinent documents, the Court of Appeals ruled that there is no basis
for Mendozas claim that the furniture sets did not meet the agreed specifications. Relying
merely on the decisions of the MTC and the RTC, the Court of Appeals held that factual
findings of the lower courts are entitled to great weight and should not be disturbed except
for cogent reasons.[9]
On 6 November 2000, Mendoza filed a motion for reconsideration which the Court of
Appeals denied. Hence, the instant petition.

The Issues

Mendoza raises the following issues:

1. Whether the Court of Appeals erred in dismissing the petition for review on the ground that
Mendoza failed to attach the required documents to the petition despite subsequent compliance by
Mendoza in her motion for reconsideration.

2. Whether the Court of Appeals erred in dismissing the petition despite the fact that the transaction
between the parties was one of sale by description or sample.

The Ruling of the Court

We find the petition partly meritorious. Mendoza substantially complied with the formal
requirements when she filed her motion for reconsideration with the Court of Appeals.
However, to avoid further delay, the Court will resolve the petition on the merits instead of
remanding the case to the Court of Appeals.
 Compliance with the Formal Requirements

The Court of Appeals dismissed the case based on Sections 2 and 3, Rule 42 of the
1997 Rules of Civil Procedure which read:

SEC. 2. Form and contents. The petition shall be filed in seven (7) legible copies, with the original
copy intended for the court being indicated as such by the petitioner, and shall (a) state the full names
of the parties to the case, without impleading the lower courts or judges thereof either as petitioners or
respondents; (b) indicate the specific material dates showing that it was filed on time; (c) set forth
concisely a statement of the matters involved, the issues raised, the specification of errors of fact or
law, or both, allegedly committed by the Regional Trial Court, and the reasons or arguments relied
upon for the allowance of the appeal; (d) be accompanied by clearly legible duplicate originals or true
copies of the judgments or final orders of both lower courts, certified correct by the clerk of court of
the Regional Trial Court, the requisite number of plain copies thereof and of the pleadings and other
material portions of the record as would support the allegations of the petition.

xxx

SEC. 3. Effect of failure to comply with requirements. The failure of the petitioner to comply with
any of the foregoing requirements regarding the payment of the docket and other lawful fees, the
deposit for costs, proof of service of the petition, and the contents of and the documents which
should accompany the petition shall be sufficient ground for the dismissal thereof. (Emphasis
supplied)

However, Section 6, Rule 1 of the 1997 Rules of Civil Procedure also provides that rules
shall be liberally construed in order to promote their objective of securing a just, speedy and
inexpensive disposition of every action and proceeding. Indeed, rules of procedure should be
used to promote, not frustrate justice.[10] This Court has ruled against the dismissal of appeals
based solely on technicalities in several cases, especially when the appellant had
substantially complied with the formal requirements.[11]
In Donato v. Court of Appeals,[12] the Court of Appeals dismissed the petition on two
grounds: (a) the certificate of non-forum shopping was signed by petitioners counsel and not
by petitioner himself;[13] and (b) only a certified copy of the questioned decision was annexed
to the petition leaving out copies of the pleadings and other material portions of the record to
support the allegations of the petition. This Court reversed the Court of Appeals dismissal of
the case since in petitioners motion for reconsideration, he submitted a certificate of non-
forum shopping signed by him and attached copies of the pleadings and material portions of
the records. This Court considered the subsequent filing of the certification of non-forum
shopping duly signed by petitioner himself as substantial compliance which justifies
relaxation of the rule. As regards the failure to attach the necessary pleadings and material
portions of the records, this Court held:

In like manner, the failure of the petitioner to comply with Section 3, paragraph b, Rule 6 of the
RIRCA, that is, to append to his petition copies of the pleadings and other material portions of the
records as would support the petition, does not justify the outright dismissal of the petition. It must be
emphasized that the RIRCA gives the appellate court a certain leeway to require parties to submit
additional documents as may be necessary in the interest of substantial justice. Under Section 3,
paragraph d of Rule 3 of the RIRCA, the CA may require the parties to complete the annexes as the
court deems necessary, and if the petition is given due course, the CA may require the elevation of a
complete record of the case as provided for under Section 3(d)(5) of Rule 6 of the RIRCA. At any
rate, petitioner attached copies of the pleadings and other material portions of the records below
with his motion for reconsideration. In Jaro vs. Court of Appeals, the Court reiterated the
doctrine laid down in Cusi-Hernandez vs. Diaz and Piglas-Kamao vs. National Labor Relations
Commission that subsequent submission of the missing documents with the motion for
reconsideration amounts to substantial compliance which calls for the relaxation of the rules of
procedure. xxx (Emphasis supplied)

Similarly, in this case, although Mendoza failed to append the pleadings and pertinent
documents in her petition to the Court of Appeals, Mendoza rectified her error by filing a
motion for reconsideration and appending the pleadings and documents required by the
Court of Appeals. Mendoza appended copies of the following pleadings and documents in
her motion for reconsideration:
1. Complaint filed in the MTC (Annex A)
2. Davids Answer (Annex B)
3. Pre-Trial Order of the MTC (Annex C)
4. Mendozas Memorandum filed in the MTC (Annex D)
5. Davids Memorandum filed in the MTC (Annex E)
6. Mendozas Memorandum filed in the RTC (Annex F)
7. Davids Comment to the Motion for Reconsideration of Mendoza (Annex G)

The Complaint that Mendoza appended also contained the following annexes: (a) the
sales invoice dated 17 February 1997 which indicated the total deposit for the furniture
ordered; (b) the letter of Mendoza to David dated 27 May 1997 demanding the return of
the P80,650 deposit; and (c) the certification to file action from the Office of the Barangay
Captain of Barangay Pasong Tamo, Quezon City.
Instead of denying the Motion for Reconsideration, the Court of Appeals should have
ruled on the merits of the case considering that Mendoza already submitted the pleadings
and documents required by the Court of Appeals. The rules of procedure are designed to
ensure a fair, orderly and expeditious disposition of cases.[14] As much as possible, appeals
should not be dismissed on a mere technicality in order to afford the litigants the maximum
opportunity for the adjudication of their cases on the merits.[15]

Reliance on the Factual Findings of the Lower Courts

Likewise, the Court of Appeals should have refrained from hastily dismissing the petition
through the expediency of applying the doctrine that factual findings of the lower courts are
entitled to great weight. The doctrine is applicable where there is substantial evidence to
support the findings of fact by the lower court as borne by the records of the case.[16] In this
case, the Court of Appeals admitted that without the pertinent documents and pleadings, it is
deprived of a full opportunity to know all the facts and issues involved in the case. [17] The
doctrine therefore is not applicable considering the absence of the records of the case to
determine whether substantial evidence supports the factual findings of the lower court.
Instead of relying on the doctrine, the Court of Appeals could have required Mendoza to
submit additional documents in accordance with Section 3 (d), Rule 3 of the Revised Internal
Rules of the Court of Appeals[18] so that it would have a basis for its ruling. Furthermore, the
Court of Appeals could order the Clerk of the RTC to elevate the original records of the case
for a complete adjudication of the case.[19]

Made to Order or Sale by Description or Sample?

David alleges that the three sets of furniture were made to order in accordance with the
usual practice of furniture stores. On the other hand, Mendoza insists that the transaction
was a sale by sample or description which can be rescinded as provided under Article
1481[20] of the Civil Code.
There is a sale by sample when a small quantity is exhibited by the seller as a fair
specimen of the bulk, which is not present and there is no opportunity to inspect or examine
the same.[21] To constitute a sale by sample, it must appear that the parties treated the
sample as the standard of quality and that they contracted with reference to the sample with
the understanding that the product to be delivered would correspond with the sample.[22] In a
contract of sale by sample, there is an implied warranty that the goods shall be free from any
defect which is not apparent on reasonable examination of the sample and which would
render the goods unmerchantable.[23]
There is a sale of goods by description where a seller sells things as being of a particular
kind, the buyer not knowing whether the sellers representations are true or false, but relying
on them as true; or as otherwise stated, where the buyer has not seen the article sold and
relies on the description given to him by the seller, or has seen the goods, but the want of
identity is not apparent on inspection.[24] A sellers description of the goods which is made part
of the basis of the transaction creates a warranty that the goods will conform to that
description.[25] Where the goods are bought by description from a seller who deals in the
goods of that description, there is an implied warranty that the goods are of merchantable
quality.[26]
Whether a transaction is a sale by sample, a sale by description or made to order is a
question of fact for the trial court to decide from the evidence presented. In this case, the
MTC found that there was a consummated made to order agreement between Mendoza and
David.
The Court agrees with the MTC that the transaction in this case was a made to order
agreement. There is nothing in the records which would show that the intent of the parties
was for a sale by sample or description. Whether a sale is by sample or description depends
upon the facts disclosing the intention of the parties. Other than Mendozas bare allegations
that the transaction was a sale by sample or description, Mendoza failed to produce
evidence to substantiate her claim.
The sale of furniture in this case is not a sale by sample. The term sale by sample does
not include an agreement to manufacture goods to correspond with the pattern.[27] In this
case, the three sets of furniture were manufactured according to the specifications provided
by the buyer. Mendoza did not order the exact replica of the furniture displayed in Davids
shop but made her own specifications on the measurement, material and quality of the
furniture she ordered.
Neither is the transaction a sale by description. Mendoza did not rely on any description
made by David when she ordered the furniture. Mendoza inspected the furniture displayed in
Davids furniture shop and made her own specifications on the three sets of furniture she
ordered.

Breach of Contract Not Proven

It is undisputed that there was a perfected contract of sale of furniture between Mendoza
and David. The three sets of furniture were delivered or ready for delivery within the agreed
period. The issue for resolution is whether there was breach of contract on Davids part. The
Court finds none.
Part of the exhibits David submitted to the MTC were pictures of the sets of furniture
Mendoza ordered. The MTC found the furniture to be strictly in accordance with the tenor of
the contract between Mendoza and David. The MTC and the RTC, noting the lack of written
specifications on the material and quality of the furniture ordered, held that Mendoza failed to
present any proof to show that the furniture was not in accordance with the agreed
specifications. The records show that the parties agreed that the furniture should be made of
narra. Mendoza admitted that the furniture delivered was made of narra but was of inferior
quality. She also complained of deep nail marks and rough surface at the back of the table
and chairs. However, Mendoza failed to prove these allegations.
In civil cases, the burden of proof[28] rests on the party who asserts the affirmative of an
issue based on the pleadings or the nature of the case.[29] In this case, the burden lies on
Mendoza who must prove her allegation that there was breach of contract. After reviewing
the records of the case, the Court finds that Mendoza failed to substantiate her claim of
breach of contract. Mendoza failed to present any evidence to overcome the presumption
that the transaction was fair and regular.[30]
WHEREFORE, the Decision of the Court of Appeals dated 10 October 2000 and the
Resolution dated 20 March 2001 are MODIFIED. Petitioner Teresita B. Mendoza is ordered
to pay respondent Beth David the amount of P55,850 with interest at 6% per annum from 17
April 1997 until finality of this Decision and 12% per annum thereafter until full payment. Beth
David is ordered to deliver to Teresita B. Mendoza the three sets of furniture Mendoza
ordered upon her payment of the balance of the purchase price with interest.
SO ORDERED.
 G.R. No. 108169           August 25, 1999

SPOUSES VENANCIO DAVID and PATRICIA MIRANDA DAVID and FLORENCIA VENTURA VDA. DE
BASCO,petitioners, 
vs.
ALEJANDRO and GUADALUPE TIONGSON, respondents.

PARDO, J.:

Before the Court is a petition for review on certiorari of the decision of the Court of Appeals1 modifying that of the trial
court2 in an action for specific performance with damages filed by petitioners against respondents.

The facts are as follows:

On February 23, 1989, three sets of plaintiffs, namely, spouses Feliciano and Macaria Ventura, spouses Venancio and
Patricia David and Florencia Ventura Vda. de Basco, filed with the Regional Trial Court, San Fernando, Pampanga, a
complaint for specific performance with damages, against private respondents spouses Alejandro and Guadalupe
Tiongson, alleging that the latter sold to them lots located in Cabalantian, Bacolor, Pampanga, as follows:

(a) a parcel of residential land with an area of 300 square meters (sq. m.), more or less, for a total purchase
price of P16,500.00, sold to spouses Feliciano and Macaria Ventura;

(b) a parcel of land consisting of 308 sq.m., more or less, which is a portion of Lot No. 1547-G-2-G covered by
TCT No. 187751-R, for a total consideration of P15,000.00, sold to spouses Venancio and Patricia M. David;

(c) two parcels of land with a total area of 169 sq. m., 109 sq. m., which is a portion of Lot No. 1547-G-2-G and
a 60 sq. m., which is part of a lot covered by TCT No. 200835-R, for a total consideration of P10,400.00, sold to
Florencia Ventura Vda. de Basco.

The parties expressly agreed that as soon as the plaintiffs fully paid the purchase price on their respective lots,
respondents would execute an individual deed of absolute sale and cause the issuance of the corresponding certificate
of title in plaintiffs' favor.

Spouses Ventura immediately took possession of the lot, erected their house thereon and fenced the perimeters. As of
October 28, 1985, the Venturas had fully paid the price of their lot, evidenced by a certification3 issued by Alejandro
Tiongson. Sometime in November 1985, the Venturas demanded the execution of a deed of sale and the issuance of
the corresponding certificate of title, but the latter refused to issue the same.

Spouses David claimed that, as agreed by the parties, the P15,000.00 purchase price would be paid as follows:
P3,800.00, as downpayment and a monthly amortization of P365.00, starting on March 8, 1983, until fully paid. On
October 31, 1985, the Davids had paid a total of P15,050.00, evidenced by the receipts issued by Alejandro
Tiongson.4 On the first week of November 1985, the Davids demanded the execution of a deed of sale and the
issuance of the corresponding certificate of title, but respondents refused. Unlike the Venturas, they were not able to
take possession of the property.

Plaintiff Florencia Ventura Vda. de Basco averred that she bought two parcels of land, a 109 sq. m. lot and a 60 sq. m.
lot, for P6,425.00 and P6,500.00, respectively. As of February 6, 1984, Florencia had paid P12,945.00 for the two lots,
evidenced by receipts issued by Alejandro Tiongson.5 Sometime in March 1984, she demanded the execution of the
deeds of sale and issuance of the corresponding certificates of title over the lots. However, respondents failed to
comply with their obligation.

After no settlement was reached at the barangay level, on February 23, 1989, plaintiffs filed a complaint with the
Regional Trial Court, San Fernando, Pampanga, for specific performance with damages. On April 18, 1989, upon
motion of the plaintiffs, respondents Tiongsons were declared in default for failure to file their answer, despite the fifteen
(15) days extension granted by the trial court. 1âwphi1.nêt

On June 14, 1989, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the
defendants:

1) Ordering the defendants to execute the deeds of absolute sale covering the lots respectively sold to
plaintiffs and to cause the issuance of the title covering the aforesaid lots at their own expense;
 2) Ordering the defendants to pay unto the plaintiffs P15,000.00 as moral damages.

Defendants are likewise ordered to pay the costs of suit.6

Respondents Tiongsons appealed the decision to the Court of Appeals. They claimed that their failure to file an answer
in due time amounted to excusable negligence.7 They contended that the plaintiffs had not fully paid the agreed price of
P120 per sq. m. They argued that the Venturas were still in arrears for P30,000.00, the Davids for P21,000.00 and
Florencia for P9,880.00. Hence, the deeds of sale and certificates of title were not issued.

On October 19, 1992, the Court of Appeals8 modified the trial court's decision. Although it blamed respondents for their
failure to file an answer in due time, it held that there was no perfected contracts of sale entered into by the Davids and
Florencia Vda. de Basco with respondents. However, the Court of Appeals upheld the sale involving the Venturas and
ordered respondents to execute a deed of sale and cause the issuance of the corresponding certificate of title in
Venturas' favor.

With respect to spouses David, the Court of Appeals said that there was no agreement as to the price, as well as the
manner and time of payment of the installments. It held that Patricia David's testimony regarding the price, P15,000.00,
payable in monthly installments of P365.00, contradicted a receipt stating: ". . . the balance to be paid on installment to
be agreed upon later on."9 The appellate court referred to another receipt10 wherein only P300.00 was paid but with the
following statement — "Subject to further discussion later on." It stated that there was no agreement as to the price,
since it was subject to further discussion by the parties. It held that the P115.00 overpayment11 illustrate the lack of an
agreed price. The receipts failed to state the total purchase price or prove that full payment was made. Thus, there was
no meeting of minds regarding the price. Consequently, there was no perfected contract of sale.

In ruling against the Davids, the Court of Appeals applied the doctrine in Yuvienco v. Dacuycuy12 that in sale of real
property on installments, the statute of frauds read together with the requirements of Article 1475, must be understood
and applied in the sense that the payment on installments must be in the requisite form of a note or memorandum. In
other words, there must be a note or memorandum evidencing the agreement to pay on installment, otherwise, the
contract is unenforceable under the statute of frauds. In the instant case, the agreement to pay in installment was not
reduced in writing.

As regards Florencia Ventura Vda. de Basco, the Court of Appeals ruled that there was no meeting of the minds with
regard to both object and consideration of the contract. It held that the 109 sq. m. lot could not be specifically
determined or identified by the parties.

As to the sixty (60) sq. m. lot, the Court of Appeals held that the object was not determinate nor determinable.
Assuming arguendo that the lot was determinate or determinable, the Court of Appeals held that there was no purchase
price agreed upon. The receipts indicated a price of P70.00 per sq. m., or a total of P4,200.00. However, Florencia paid
P6,500.00 for the lot. The discrepancy between Florencia's claim of full payment and the last receipt13 stating that only a
partial payment was made, bolstered the finding that there was no agreed price.

The Court of Appeals, however, upheld the contract of sale with respect to the spouses Ventura. It held that the
Venturas had fully paid for the lot, evidenced by the certification issued by Alejandro Tiongson. There was also actual
delivery when the Venturas took possession, erected their house thereon and fenced the perimeters.

The Court of Appeals decreed as follows:

PREMISES CONSIDERED, the appealed decision is hereby MODIFIED. The contracts of sale not having been
perfected between plaintiff-appellee spouses Venancio and Patricia M. David, and plaintiff-appellee Florencia
Ventura Vda. de Basco (vendees) and defendant-appellants Alejandro and Guadalupe D. Tiongson (vendors),
hence, inefficacious, the former's action for specific performance must fail, but defendants-appellants must
return to plaintiffs-appellees spouses Venancio and Patricia David the amount of fifteen thousand one hundred
fifteen pesos (P15,115.00) and to plaintiff-appellee Florencia Ventura Vda. de Basco, the amount of twelve
thousand nine hundred twenty five pesos (P12,925.00) with legal interest from the time of the filing of the
complaint until the return of the said amounts.

As to plaintiff-appellee spouses Feliciano and Macaria Ventura, the decision of the court a quo is AFFIRMED.
We hereby order: (a) Plaintiff-appellee spouses Feliciano and Macaria Ventura to have the lot purchased by
them segregated by a licensed surveyor from the rest of the Lot 8 described in TCT No. 200835-R and to have
the corresponding subdivision plan, duly approved by the Land Registration Authority, submitted to the court of
origin for approval; (b) the defendants-appellants Alejandro and Guadalupe D. Tiongson to be divested of their
title to the lot purchased under Rule 39, Section 10, Rules of Court; and (c) the Register of Deeds of Pampanga
to cancel TCT No. 200835-R and issue, in lieu thereof, one title to the names of Feliciano and Macaria Ventura
for the lot they purchased another title in the names of Alejandro and Guadalupe D. Tiongson.

In the light of the above, moral damages in the amount of three thousand pesos (P3,000.00) to be paid to
plaintiffs-appellees Feliciano and Macaria Ventura by defendant-appellant spouses Tiongson is considered fair
and reasonable. Without costs.14

On November 6, 1992, Venancio and Patricia M. David and Florencia Ventura Vda. de Basco filed a motion for
reconsideration of the foregoing decision. On December 11, 1992, the Court of Appeals denied the motion.15

Hence, this petition for review.

We shall discuss the sales transactions between petitioners and respondents in seriatim.
 As to the Spouses Venancio and Patricia David

Petitioners Davids contend that there was an implied agreement on the price and manner of installment payments. The
receipts issued by respondents and Patricia David's testimony clearly indicate the agreement.

We disagree with the finding of the Court of Appeals that there was no agreement as to the price of the lots. The Court
of Appeals relied heavily on the receipts issued by Alejandro Tiongson. However, Patricia David testified that there was
an agreement to purchase the lot for P15,000.00, payable as follows: P3,800.00 as down payment, with P385.00
monthly installments thereafter.16 The respondents failed to rebut such declaration, as the default order rendered them
without personality to adduce evidence in their behalf.

However, in the brief filed with the appellate court, the Tiongsons alleged that the agreed price was P120.00 per
sq. m. Hence, they are now estopped to deny the existence of an agreed price. The question to be determined
should not be whether there was an agreed price, but what that agreed price was, whether for a total of
P15,000.00, as claimed by the Davids or P120.00 per sq. m., as alleged by respondents. The sellers could not
render invalid a perfected contract of sale by merely contradicting the buyers' allegation regarding the price, and
subsequently raising the lack of agreement as to the price.

It is a fact that for three consecutive years, the Davids had religiously paid P385.00 as monthly installments, until it
amounted to P15,050.00, including the downpayment. As to the first installment receipt, wherein only P300.00 was paid
and a notation was written, to wit — "Subject to further discussion later on," Patricia David explained that what was
subject to further discussion was not the total purchase price, but only the P65.00 underpayment.

The Court of Appeals held that the P115.00 overpayment confirmed the lack of agreement as to the price. However, the
receipts showed that Davids paid only P15,050.00. It perplexes this Court how the appellate court came up with the
P15,115.00 figure. At any rate, an overpayment of P50.00, as in this case, does not negate the existence of an agreed
purchase price. Instead, this entitles the buyer to claim reimbursement of any overpayment made.

Furthermore, the Court of Appeals erred in applying the statute of frauds. The rule presupposes the existence of a
perfected contract and requires only that a note or memorandum be executed in order to compel judicial enforcement
thereof.17

At any rate, we rule that there was a perfected contract. However, the statute of frauds is inapplicable. The rule is
settled that the statute of frauds applies only to executory and not to completed, executed, or partially executed
contracts.18 In the case of spouses David, the payments made rendered the sales contract beyond the ambit of the
statute of frauds.

The Court of Appeals erred in concluding that there was no perfected contract of sale. However, in view of the
stipulation of the parties that the deed of sale and corresponding certificate of title would be issued after full payment,
then, they had entered into a contract to sell and not a contract of sale.19

As to Florencia Ventura Vda. de Basco

Petitioner Florencia Ventura Vda. de Basco contends that the receipts described the two (2) lots that she bought. The
receipts also indicated the price of each lot, to wit, P6,425.00 for the 109 sq. m. lot, and P6,500.00 for the 60 sq. m. lot.

As regards the 109 sq. m. lot, Florencia presented the following receipts as evidence of full payment:

Received from Mrs. Florencia Ventura-Basco of Cabalantian, Bacolor Pampanga, the sum of FIVE HUNDRED
PESOS (P500.00), Philippine Currency, as additional partial payment on the parcel of land located at
Cabalantian, Bacolor Pampanga, being the portion of Lot 1547-G-2-G of Psd-03-004803.

It is understood that this lot is the portion formerly earmarked for Mrs. Rosita Ventura-Muslan wherein she
already paid the sum of P1,500.00; hence, by agreement of Mrs. Basco and Mrs. Muslan, who are sisters, the
sum of P1,500.00 are applied herein as additional payment for and in behalf of Mrs. Basco, thereby making the
total payments made by Mrs. Basco to said lot in the sum of P2,000.00, as of this date.

San Fernando, Pampanga, June 4, 1983.

(signed)

C O N F O R M E:

ALEJANDRO C. TIONGSON
(signed)

FLORENCIA VENTURA-BASCO
(signed)

ROSITA VENTURA-MUSLAN20

Received from Mrs. Florencia Ventura-Basco of Cabalantian, Bacolor Pampanga, the sum of FOUR THOUSAND
FOUR HUNDRED TWENTY FIVE PESOS (P4,425.00), Philippine Currency, representing the last and full payment on
the purchase price of Lot 1547-G-2-G-2, Plan Psd-03-05957, located at Cabalantian, Bacolor Pampanga, with an area
of 109 square meters, more or less, as regards the sum of P3,625 and the sum of P800.00 applied for the payment of
the segregation survey of said lot.

Title over this lot shall be issued upon the survey and segregation of the additional portion which Mrs. Florencia V.
Basco is also buying to be taken from Lot 1547-G-2-G-I, wherein the said portion of said Lot 1547-G-2-G-2 shall be
consolidated into one lot only at the expense of the buyer.

San Fernando, Pampanga, September 1, 1983.

C O N F O R M E: FOR ALEJANDRO TIONGSON

Seller

(signed) By: (signed)

FLORENCIA VENTURA-BASCO PORFIRIO C. PINEDA
Buyer21

According to the Court of Appeals, the object is neither determinate nor determinable. It held that the receipts described
two different lots, one described as Psd-03-004803, while the other as Psd-03-05957. It stated that the discrepancy
showed there was no meeting of the minds as regards the object of the contract.

We disagree. We find that the 109 sq. m. lot was adequately described in the receipt, or at least, can be easily
determinable. The receipt issued on June 4, 1983 stated that the lot being purchased by Florencia was the one earlier
earmarked for her sister, Rosita Muslan. Thus, the subject lot is determinable. Any mistake in the designation of the lot
does not vitiate the consent of the parties or affect the validity and binding effect of the contract of sale.22The receipt
issued on September 1, 1983 clearly described the lot area as 109 sq. m. It also showed that Florencia had fully paid
the purchase price.

With respect to the sixty (60) sq. m. lot, Florencia presented the following receipts to prove full payment:

Received from Mrs. Florencia Basco of Cabalantian, Bacolor, Pampanga, the sum of THREE THOUSAND
PESOS (P3,000.00), Philippine Currency, as partial and down payment on the purchase price of the additional
portion adjacent to Lot 1547-G-2-G. The price on this portion shall be computed at P70.00 per square meter,
and said portion shall be determined later as to its area, but in no case shall it be extended farther than the gate
opening at Juan Cunanan's lot and the acacia tree on the north.

San Fernando, Pampanga, November 8, 1983.

(signed)

ALEJANDRO TIONGSON
Seller

xxx     xxx     xxx

Received from Mrs. Florencia Basco of Cabalantian, Bacolor, Pampanga, the sum of ONE THOUSAND
PESOS (P1,000.00), Philippine Currency, as partial and down payment on a portion of Lot 1547-G-2-I, which is
a portion of Lot 6 of the provisional plan with marking of Lot 35 on the sketch plan. The price shall be computed
at P70.00 per square meter. The final area shall be determined in the final survey to be conducted.

This portion shall be across the road opposite the portion of same lot purchased by Macaria Ventura.

San Fernando, Pampanga, November 8, 1983.

(signed)

ALEJANDRO TIONGSON
Seller

xxx     xxx     xxx

Received from Mrs. Florencia Basco of Cabalantian, Bacolor, Pampanga, the sum of TWO THOUSAND FIVE
HUNDRED PESOS (P2,500.00), to be applied as partial payment on the purchase price of Lots 8-A (60 square
meters), computed at P70.00 and Lot 6-U (338 square meters), computed at P70.00 per square meter.

San Fernando, Pampanga, February 6, 1984.

(signed)

ALEJANDRO TIONGSON
Seller23

Regarding this lot, we find that there was also a perfected contract of sale. In fact, in the last receipt the parties agreed
on the specific lot area. This suffices to identify the specific lot involved. It was unnecessary for the parties to enter into
another agreement to determine the exact property bought. What remained to be done was the actual segregation of
the 60 square meters.

Furthermore, the parties agreed on the price. The receipts clearly indicate the price as P70.00 per sq. m., hence the
total price should be P4,200.00. However, Florencia paid P6,500.00 for the lot. Hence, there was even an overpayment
of P2,300.00.

WHEREFORE, we REVERSE and SET ASIDE the decision of the Court of Appeals in CA — G.R. CV No. 24667. In
lieu thereof, we render judgment ordering the respondents Tiongsons to execute deeds of absolute sale covering the
following lots respectively sold to petitioners, and cause the issuance of the corresponding certificates of title, to wit:

1. 300 sq. m. lot sold to spouses Venancio and Patricia David;

2. 109 sq. m. lot sold to Florencia Ventura Vda. de Basco.

With respect to the 60 sq. m. lot sold to Florencia Ventura Vda. de Basco, respondent Tiongson is ordered to cause the
segregation of the lot, and thereafter, to execute a deed of absolute sale to Florencia Ventura Vda. de Basco and cause
the issuance of a certificate of title thereto.

We delete the award for moral damages, for lack of basis. 1âwphi1.nêt

No costs.

SO ORDERED.