WHEN OPTION IS WITHOUT SEPARATE
CONSIDERATION
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.
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.
APPEAL from a decision of the Court of
Appeal from a decision of the Court of case to Us, upon the
ground that it involves a question purely of law.
CONCEPCION, C.J.:
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 x x x to sell” to Sanchez, for
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
P1,510.00. 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 the 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 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 plaintiffs 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.
MIDTERM SALES CASES Page 1 of 96
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 plaintiffs 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 cannot 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 allegedthe 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 Bauermann v. Casas,3that:
“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 revelant 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).”
(Italics supplied.)
This view was reiterated in Evangelista v. De la
Rosa4and Mercy’s Incorporated v. Herminia Verde.5
Squarely in point is Southwestern Sugar & Molasses Co. v.
Atlantic Gulf & Pacific Co.,« 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 can no longer be withdrawn and
in any event such withdrawal is ineffective. In support of 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 at 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 con.
sideration distinct from the price.’ This is clearly inferred from
the context of said article that a unilateral promise to buy or to
sell, even if accepted, is only binding if supported by a
consideration. In other words, ‘an accepted unilateral promise’
can only have a binding effect if supported by a consideration,
which means that the option can still be withdrawn, even if
accepted, if the same is not supported by any consideration.
Here it is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding
the acceptance made of it by appellee.
“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 ruleapplicable to offer and acceptance as
contained in our new Civil Code. But we are prevented from
MIDTERM SALES CASES Page 2 of 96
applying them in view of the specific provision embodied in
article 1479.
While under the ‘offer of option’ in question appellant has
assumed a cleai’ 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 at.
tiude became the law on the master is clear. Our imperative
duty is to apply it unless modified by Congress.”‘7
However, this Court itself, in the case of Atkins, Kroll and
Co., Inc. v, Cua Hian Tek,8decided later than 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 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.’)
‘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 wa« 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 (acts. 1254 and 1202 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 1824—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.,10holding 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 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.
FALLO WHEREFORE, the decision appealed from is hereby
affirmed, with costs against defendant-appellant Severina
Rigos. It is so ordered.
Notes.—The negotiations as thus related in the complaint
merely amounted to an undertaking: by defendant that if
plaintiffs had the amount of P4,500.00 on or before May 6,
1961, she would sell the lot to them for that sum upon the
execution of the contract; , and that plaintiffs, accepted or
agreed to such promise. ‘The new Civil Code provides that
such promise is binding upon the promisor if the promise is
supported by a consideration distinct from the price (Art.
1479). Now, as there was no such distinct
consideration (no allegation as to it), the defendant was not
bound to stand by her promise even if accepted, before
withdrawal. The lower court applied and followed our
decisions in Southwestern Sugar & Molasses Co. vs. Atlantic,
Gulf & Pacific Co., 51 Off. Gaz. 3447 and Navarro vs. Sugar
Producers Association, 60 Off. Gaz. 511. We are satisfied that
on the facts and the law, both said cases enunciated principles
conclusive on this litigation. Mendoza vs. Comple, L-19311,
October 29, 1965, 15 SCRA 162, 163.
No. L-47968. May 9, 1988.*
LINA MONTILLA, petitioner, vs. COURT OF APPEALS
and EMILIO ARAGON, JR, respondents.
Res Adjudicata; An interlocutory order cannot become final
and executory, and cannot bring the doctrine of res adjudicata
into play at all.—What the Court is saying is that its
MIDTERM SALES CASES Page 3 of 96
interlocutory order of December 5, 1972 had become
conclusive, i.e., conclusive on Montilla “with respect to the
matter directly adjudged or as to any other matter that could
have been raised in relation thereto.” Obviously, it escaped
His Honor’s attention, or, what would be more regrettable, it
was not with-in his knowledge, that the doctrine of res
judicataor bar by prior judgment (or, for that matter,
conclusiveness of judgment or estoppel by judgment) has
relevance to, and will become operative only on the basis of a
final judgment or final order, the qualifying term “final” being
used in the sense of “final and executory,” i.e., not only final
—because finally disposing of the case and leaving nothing
more to be done by the adjudging court relative to its merits,
but also executory—because the period for appeal has expired
without an appeal having been taken, or an appeal having been
perfected, the judgment or order has otherwise attained
finality. Quite elementary is that an order such as that rendered
on December 5, 1972, being interlocutory, cannot become
final and executory in the sense just described, and cannot
bring the doctrine of res adjudicatainto play at all. Indeed, the
correctness of such an interlocutory order may subsequently
be impugned on appeal by any party adversely affected
thereby, regardless of whether or not he had presented a
motion for the reconsideration thereof, if he has otherwise
made of record his position thereon.
Same; Same; Statute of Frauds; The action should have
been dismissed pursuant to the Statute of Fraud, in relation
to Rule 16 of the Rules of Court; Reasons.—There being
therefore no admission whatever on Montilla’s part of the
existence or ratification of the claimed contract to sell, and
taking account of her disavowal in her pleadings and in her
evidence of that contract, and necessarily of any fulfillment of
the terms thereof, it is clear that the action for its enforcement
should have been dismissed pursuant to the Statute of Frauds,
in relation to Rule 16 of the Rules of Court.
Same; Same; Same; Sales; Montilla’s promise to sell was
not binding upon her in view of the absence of any
consideration therefor distinct from the stipulated price.—
The action is also dismissible upon another legal ground.
Assuming arguendo veritability of the oral promise to sell by
Montilla, the promise was nevertheless not binding upon her
in view of the absence of any consideration therefor distinct
from the stipulated price. This is the principle laid down by the
second paragraph of Article 1479: “An accepted unilateral
promise to x x 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.”
APPEAL by certiorari to review the decision of the Court
of Appeals.
Errors in the application of elementary legal principles—as
regards admissions in the pleadings, the Statute of Frauds,
promises to sell, and interlocutory orders in relation to res
adjudicata—as well as palpable mistakes in factual
conclusions—because contrary to or in unaccountable
disregard of facts of record, impel reversal of the judgment of
the Court of Appeals1 which affirmed that of the Trial Court.2
NARVASA, J.:
The proceeding at bar traces its origin to an action initiated in
the Court of First Instance of Iloilo on April 27, 1972 by
Emilio Aragon, Jr., to compel Lina Montilla to comply with a
verbal contract to sell to him a piece of land situated at
Poblacion, Iloilo City, known as Lot No. 4 of the Consolidated
Subdivision plan (LRC) Psc-11605. In his complaint, Aragon
claimed that in the last week of June, 1969, Montilla had
orally offered to sell the Iot to him at a price of P57,650.00 (at
the rate of P50.00 per square meter), the price being payable at
any time within a three-year period from June, 1969 provided
that Aragon constructed on the lot a house of strong materials
and paid a nominal monthly rental in the meantime; but
despite Aragon’s acceptance of the offer, fulfilment by him of
the specified conditions, and his seasonable tender of the
purchase price, Montilla had refused to comply with her
obligation.
In her answer Montilla categorically denied ever having
entered into such an agreement, and set up the affirmative
defenses of (1) unenforceability of the alleged agreement
under the Statute of Frauds; and (2) failure of the complaint to
state a cause of action, no allegation having been made therein
of any consideration for the promise to sell distinct and
separate from the price, as required by Article 1479 of the
Civil Code.
At Montilla’s instance, a preliminary hearing was had on her
affirmative defenses in accordance with Section 5, Rule 16 of
the Rules of Court,3 “as if a motion to dismiss had been filed.”
Thereafter, by Order dated December 5, 1972, the Court
denied the implicit motion to dismiss, opining that since
Montilla’s answer “shows that x x (she had) admitted the offer
to sell, and plaintiffs desire to buy the land in question,” that
admission amounted to a ratification of the oral contract to sell
and operated to place the case beyond the scope of the Statute
of Frauds.
After trial, the Court rendered judgment under date of August
22, 1974 sentencing Montilla "(a) to execute the requisite deed
of conveyance of Lot No. 4, covered by Transfer Certificate of
Title No. T-29976 in favor of the plaintiff upon full payment
by plaintiff to defendant of the total consideration thereof in
the aggregate sum of Fifty Seven Thousand Six Hundred Fifty
Pesos (P57,650.00); (b) to pay to plaintiff P2,000.00 as
attorney’s fees, and (c) to pay the costs.” This decision, as
aforestated, was affirmed by the Court of Appeals. The latter’s
adjudgment has, in turn, been duly brought up to this Court by
Montilla, on appeal by certiorari under Rule 45 of the Rules
of Court. And to the Appellate Court, Montilla ascribes the
following errors:
1)“x x holding as correct the trial court’s finding that
petitioner’s answer admitted the existence of the alleged
verbal contract to sell the land to respondent Aragon;
2)“x x holding as correct the x x conclusion that for
petitioner’s failure to file demurrer to or motion for
MIDTERM SALES CASES Page 4 of 96
reconsideration of its order of December 5, 1972, the alleged
verbal contract became an established fact;” and
3)failing “to consider and appreciate significant evidences
which were deliberately overlooked, misapplied, or
misunderstood by the trial court.”
The record discloses that the imputed errors have indeed been
committed, and they are of sufficient gravity to warrant
reversal of the judgments in question.
It is, in the first place, difficult to see by what process of
ratiocination the Trial Court arrived at the conclusion that
Montilla’s answer had “admitted the offer to sell.” Any such
admission is absolutely precluded by the specific and
unequivocal denial by Montilla of the claimed verbal contract
to sell. She in fact branded the allegations to that effect in the
complaint as “outrageously false, fantastically rediculous and
despicable fabrications of plaintiff.” Nor may any admission
be inferred from the circumstance that Montilla, apart from
unqualifiedly denying the contract to sell, had also asserted in
her responsive pleading that the contract was unenforceable
because violative of the Statute of Frauds and because not
supported by any consideration distinct from the price. For
while those defenses imply an acceptance by the pleader of the
truth of the agreement at which the defenses are directed, the
acceptance is at best hypothetical, assumed only for purposes
of determining the validity of the defenses, but cannot in any
sense be taken as an unconditional and irretrievably binding
factual admission. The import of the answer, couched in
language that could not be made any plainer, is that there was
no verbal contract to sell ever agreed to by Montilla, but that,
even assuming hypothetically, or for the sake of argument that
there was, the agreement was unenforceable because in breach
of the Statute of Frauds. It was therefore reversible error for
the Trial Court to have burdened Montilla with an admission
of the verbal contract to sell sued upon.
Also tainted by serious error is the ruling that after rendition of
the Order of December 5, 1972, denying the motion to dismiss
because of Montilla’s “admission” of the verbal contract,
“the inaction by the defendant in not taking any exception or
demurrer thereto by filing a motion for reconsideration or
amending her answer for the purpose had the legal effect of
making such order binding and conclusive upon her, in
contemplation of Rule 131, Section 3 (c), in relation to Rule
39, Section 49 (b) of the Rules of Court.”
What the Court is saying is that its interlocutory order of
December 5, 1972 had become conclusive,4 i.e., conclusive on
Montilla “with respect to the matter directly adjudged or as to
any other matter that could have been raised in relation
thereto."5Obviously, it escaped His Honor’s attention, or, what
would be more regrettable, it was not within his knowledge,
that the doctrine of res judicata or bar by prior judgment6 (or,
for that matter, conclusiveness of judgment or estoppel by
judgment7) has relevance to, and will become operative only
on the basis of a finaljudgment or final order, the qualifying
term “final” being used in the sense of “final and executory,”
i.e,, not only final—because finally disposing of the case and
leaving nothing more to be done by the adjudging court
relative to its merits, but also executory—because the period
for appeal has expired without an appeal having been taken, or
an appeal having been perfected, the judgment or order has
otherwise attained finality.8Quite elementary is that an order
such as that rendered on December 5, 1972,
being interlocutory, cannot become final and executory in the
sense just described,9and cannot bring the doctrine of res
adjudicatainto play at all. Indeed, the correctness of such
an interlocutory order may subsequently be impugned on
appeal by any party adversely affected thereby, regardless of
whether or not he had presented a motion for the
reconsideration thereof, if he has otherwise made of record his
position thereon.10
Also quite inexplicable is the Trial Court’s glossing over the
failure of Aragon to identify Montilla during the trial.
Aragon’s recorded testimony contains the claim that he had
“personally met x x Montilla x x sometime in the last week of
June, 1969," and that he could identify her. He had thereupon
been asked to make the identification, and he had pointed to “a
woman x x (in a) brown dress” in the courtroom, stoutly
declaring thereafter that he was “quite sure” of his
identification, that he was very certain that he was “not
mistaken.” As it turned out, the person pointed to by him was
not Montilla at all, but a lady named Rosario Mendoza
Valdez.11 The Trial Judge however dismissed this
embarrassing inability of Aragon to identify Montilla as
“innocuous.” According to him, “the fact of her being the very
person who offered to sell Lot No. 4 to the plaintiff is
corroborated not only by the testimonies of Asst. City Fiscal
Jose Jacela, Jr. and Enrique Castelo but by the very testimony
in court of defendant herself who, when asked by her counsel,
admitted she is the defendant in this case.” The lack of logic in
the Court’s reasoning is evident. Montilla’s acknowledgment
of being the defendant in the case can not in any manner
whatsoever be considered an admission that she had gone to
see Aragon to offer her property for sale. Non
sequitur. Aragon’s disconcerting failure to identify Montilla is
cogent confutation of his allegation that he personally knew
Montilla and had negotiated with her for his purchase of the
property in question, and strongly indicative of the inaccuracy
of the testimony of the witnesses who corroborated his
dubious tale.
There being therefore no admission whatever on Montilla’s
part of the existence or ratification of the claimed contract to
sell, and taking account of her disavowal in her pleadings and
in her evidence of that contract, and necessarily of any fulof
the terms thereof, it is clear that the for its enforcement should
have been dismissed pursuant to the Statute of Frauds,12 in
relation to Rule 16 of the Rules of Court.13
The action is also dismissible upon another legal ground.
Assuming arguendo veritability of the oral promise to sell by
Montilla, the promise was nevertheless not binding upon her
in view of the absence of any consideration therefor distinct
from the stipulated price. This is the principle laid down by the
second paragraph of Article 1479: “An accepted unilateral
promise to x x sell a determinate thing for a price certain is
MIDTERM SALES CASES Page 5 of 96
binding upon the promissor if the promise is supported by a
consideration distinct from the price.”
There is another item of proof which the Trial Court
completely failed to consider. This is a document marked
Exhibit 1, executed by Aragon on July 9, 1969—some 9 or 10
days after Montilla had supposedly promised to sell the lot in
question to him. It reads as follows:
TO WHOM IT MAY CONCERN:
This is to certify that I promise to abide by the decision of the
owners of the Montilla Estate upon which my house is being
constructed, in any eventuality.
This is in connection with the kind permission granted me by
their authorized representative, Leodegario Manaloto, which I
am exceedingly grateful inasmuch as my children could live
near their school, the Colegio Sagrado Corazon de Jesus, I am
therefore imploring the consideration of the owners and Mr.
Manaloto to give my children ample time to finish their
schooling there. For the duration, I am willing to meet the
prescribed rental obligations of said lot.”
The document reveals several things. For one, the lot on which
Aragon’s house was being built was obviously part of the
“Montilla estate,” and did not as yet belong to any particular
heir or person entitled thereto. For another, Aragon had been
given permission by the representative of the estate, Mr.
Manaloto, to stay on the lot in consideration of a prescribed
rental, and he was imploring said Mr. Manaloto and the
owners for leave to stay in the premises until his children
could finish their schooling, promising to “meet the prescribed
rental obligations.” Again, and this is quite significant as
regards his claim of a promise to sell by one of the Montillas,
since that promise is not referred to or even hinted at in any
manner whatsoever, the genuineness of the claim is strongly
suspect; for surely, Aragon would never have “implored” for
“consideration of the owners and Mr. Manaloto” to stay in the
premises until his children could finish their schooling,
as lessee, if it be true that he had accepted a promise for the
sale thereof to him. The document cannot therefore be
interpreted otherwise than as denoting the concession to him
of the privilege to build a house on a lot belonging to the
Montillas, and a solicitation by him of the owners’ permission
to lease the lot to him for a longer, and more or less
determinable term, and as an implied, though nonetheless
clear, negation of any right on his part to purchase the
property.
Another document, marked Exhibit 5, further underscores the
improbability of Aragon’s story. It is a Court Order issued on
June 17, 1971 in the judicial proceedings for the settlement of
the Montilla Estate, obviously the same “Montilla estate”
referred to by Aragon in his certification of July 9, 1969 just
described. That Order approved the project of partition of said
estate, presented on May 5, 1971; and it states that Lot 4,
subject of the case at bar, was adjudicated to Lina Montilla on
June 17, 1971, more than two (2) years after she had
supposedly offered to sell the property to Aragon.Thus, as
already intimated, at the time of the alleged promise to sell,
avowedly made in June, 1969, Lot 4 still formed part of the
amorphous mass of property constituting the “Montilla
estate;” at any rate, that particular lot had not been allotted to
Lina Montilla yet.
The uncertainty of the eventual ownership of said Lot 4,
considered conjointly with the ostensible status of Aragon as a
mere supplicant of favors from “the owners of the Montilla
estate,” make it very improbable indeed that Montilla would
personally go to him and promise to sell the lot to him,
Incredibly, however, the Trial Court interpreted the document,
Exhibit 5, as proof that Lina Montilla, had not only offered to
sell to Aragon that particular Lot 4 at a time when it could not
yet be known to which heir it would ultimately be allotted, but
also made an additional promise that she would make certain
that the property would at all events eventually “pertain to her
as her share and the corresponding certificate of title issued in
her name.” A more extreme case of leaning over backwards in
stubborn advocacy of a pre-conceived theory can scarcely be
found.
On the whole, the evidence adequately demonstrates the
falsity of Aragon’s claim of an oral promise to sell said Lot
No. 4 in his favor, and consequently the unfounded character
of his action against Montilla.
FALLO WHEREFORE, the Decision of the Court of Appeals
dated January 18, 1978 and that of the Court of First Instance
dated August 22, 1974 thereby affirmed, are REVERSED
AND SET ASIDE, and a new one entered DISMISSING
Aragon’s complaint, with costs against him.
Note.—A judgment to be a bar to a subsequent case, the
following requisites must concur: (1) it must be final
judgment; (2) the court which rendered it had jurisdiction over
the subject matter and the parties; (3) it must be a judgment on
the merits; (4) there must be identity between the two cases, as
to parties, subject matter and cause of action. (Cuano vs.
Court of Appeals,143 SCRA 417.)
G.R, No. 53820. June 15, 1992.*
YAO KA SIN TRADING, owned and operated by YAO KA
SIN, petitioner, vs.HONORABLE COURT OF APPEALS
and PRIME WHITE CEMENT CORPORATION,
represented by its President-Chairman, CONSTANCIO B.
MAGLANA, respondents.
Actions; A sole proprietorship does not have legal capacity to
sue. Its owner shall be deemed the plaintiff.—The complaint
then should have been amended to implead Yao Ka Sin as
plaintiff in substitution of Yao Ka Sin Trading. However, it is
now too late in the history of this case to dismiss this petition
and, in effect, nullify all proceedings had before the trial court
and the respondent Court on the sole ground of petitioner's
lack of capacity to sue, Considering that private respondent
did not pursue this issue before the respondent Court and this
Court; that, as We held in Juasing, the defect is merely formal
and not substantial, and an amendment to cure such defect is
expressly authorized by Section 4, Rule 10 of the Rules of
MIDTERM SALES CASES Page 6 of 96
Court which provides that "[a] defect in the designation of the
parties may be summarily corrected at any stage of the action
provided no prejudice is caused thereby to the adverse party;"
and that "[a] sole proprietorship does not, of course, possess
any juridical personality separate and apart from the
personality of the owner of the enterprise and the personality
of the persons acting in the name of such proprietorship," We
hold and declare that Yao Ka Sin should be deemed as the
plaintiff in Civil Case No. 5064 and the petitioner in the
instant case.
Corporations; Contracts; A contract signed by the President
and Board Chairman without authority from the Board of
Directors is void; Exceptions.—While there can be no
question that Mr, Maglana was an officer—the President and
Chairman—of private respondent corporation at the time he
signed Exhibit "A", the above provisions of said private
respondent's By-Laws do not in any way confer upon the
President the authority to enter into contracts for the
corporation independently of the Board of Directors. That
power is exclusively lodged in the latter. Nevertheless, to
expedite or facilitate the execution of the contract, only the
President—and not all the members of the Board, or so much
thereof as are required for the act—shall sign it for the
corporation. This is the import of the words through the
president in Exhibit "8-A" and the clear intent of the power of
the chairman "to execute and sign for and in behalf of the
corporation all contracts and agreements which the
corporation may enter into" in Exhibit "1-1". Both powers
presuppose a prior act of the corporation exercised through
the Board of Directors. No greater power can be implied from
such express, but limited, delegated authority. Neither can it
be logically claimed that any power greater than that expressly
conferred is inherent in Mr. Maglana's position as president
and chairman of the corporation.
Same; Same; Same.—Petitioner's last refuge then is his
alternative proposition, namely, that private respondent had
clothed Mr. Maglana with the apparent power to act for it and
had caused persons dealing with it to believe that he was
conferred with such power. The rule is of course settled that
"[a]lthough an officer or agent acts without, or in excess of,
his actual authority if he acts within the scope of an apparent
authority with which the corporation has clothed him by
holding him out or permitting him to appear as having such
authority, the corporation is bound thereby in favor of a person
who deals with him in good faith in reliance on such apparent
authority, as where an officer is allowed to exercise a
particular authority with respect to the business, or a particular
branch of it, continuously and publicly, for a considerable
time." Also, "if a private corporation intentionally or
negligently clothes its officers or agents with apparent power
to perform acts for it, the corporation will be estopped to deny
that such apparant authority is real, as to innocent third
persons dealing in good faith with such officers or agents."
This "apparent authority may result from (1) the general
manner by which the corporation holds out an officer or agent
as having power to act or, in other words, the apparent
authority with which it clothes him to act in general, or (2) the
acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or without the
scope of his ordinary powers."
Same; Same; Petitioner failed to prove President of herein
corporation clothe with apparent authority to contract with it.
—lt was incumbent upon the petitioner to prove that indeed the
private respondent had clothed Mr. Maglana with the apparent
power to execute Exhibit "A" or any similar contract. This
could have been easily done by evidence of similar acts
executed either in its favor or in favor of other parties.
Petitioner miserably failed to do that. Upon the other hand,
private respondent's evidence overwhelmingly shows that no
contract can be signed by the president without first being
approved by the Board of Directors; such approval may only
be given after the contract passes through, at least, the
comptroller, who is the NIDC representative, and the legal
counsel.
Same; Same; Acceptance of goods and receipt therefor
without protest, resulted in a new transaction.—The second
ground is based on a wrong premise. It assumes, contrary to
Our conclusion above, that Exhibit "A" is a valid contract
binding upon the private respondent. It was effectively
disapproved and rejected by the Board of Directors which, at
the same time, considered the amount of P243,000.00 received
by Maglana as payment for 10,000 bags of white cement,
treated as an entirely different contract, and forthwith notified
petitioner of its decision that "If within ten (10) days from date
hereof we will not hear from you but you will withdraw
cement at P24.30 per bag from our plant, then we will deposit
your check of P243,000.00 dated June 7, 1973 issued by the
Producers Bank of the Philippines, per instruction of the
Board." Petitioner received a copy of this notification and
thereafter accepted without any protest the Delivery Receipt
covering the 10,000 bags and the Official Receipt for the
P243,000.00. The respondent Court thus correctly ruled that
petitioner had in fact agreed to a new transaction involving
only 10,000 bags of white cement.
Same; Same; Option given without consideration is void.—
The third ground must likewise fail. Exhibit "A" being
unenforceable, the option to renew it would have no leg to
stand on. The river cannot rise higher than its source. In any
event, the option granted in this case is without any
consideration. Article 1324 of the Civil Code expressly
provides that: "When the offerer 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."
Actions; Sec. 8, Rule 8 of the Rules of Court on how to contest
genuineness of a document does not apply to a person not
privy thereto.—lt is clear that the petitioner is not a party to
any of the documents attached to the private respondent's
Answer. Thus, the above quoted rule is not applicable. While
the respondent Court erred in holding otherwise, the
challenged decision must, nevertheless, stand in view of the
above disquisitions on the first to the third grounds of the
petition.
MIDTERM SALES CASES Page 7 of 96
PETITION for review from the decision of the Court of
Appeals.
Assailed in this petition for review is the decision of the
respondent Court of Appeals in C.A.-G.R. No. 61072-
R,1promul-gated on 21 December 1979, reversing the
decision2 of the then Court of First Instance (now Regional
Trial Court) of Leyte dated 20 November 1975 in Civil Case
No. 5064 entitled "Yao Ka Sin Trading versus Prime White
Cement Corporation."
DAVIDE, JR., J.:
The root of this controversy is the undated letter-offer of
Constancio B. Maglana, President and Chairman of the Board
of private respondent Prime White Cement Corporation,
hereinafter referred to as PWCC, to Yao Ka Sin Trading,
hereinafter referred to as YKS, which describes itself as "a
business concern of single proprietorship," 3and is represented
by its manager, Mr. Henry Yao; the letter reads as follows:
'PRIME WHITE CEMENT CORPORATION  (P243,000.00) in the form of Producers' Bank of the
602 Cardinal Life Building  Philippines Check No. C-153576 dated June 7, 1973.
Herran Street, Manila
Yao Ka Sin  (SGD) CONSTANCIO B. MAGLANA
Tacloban City
Gentlemen:
We have the pleasure to submit hereby our firm offer to you
under the following quotations, terms, and conditions, to wit:
1)Commodity—Prime White Cement
2)Price—At your option: a) P24.30 per 94 Ibs. bag net, FOB
Cebu City; and b) P23.30 per 94 Ibs. bag net, FOB Asturias
Cebu.
3)Quality—As fully specified in certificate No. 224-73 by
Bureau of Public Works, Republic of the Philippines.
4)Quantity—Forty-five Thousand (45,000) bags at 94 Ibs. net
per bag withdrawable in guaranteed monthly quantity of
Fifteen Thousand (15,000) bags minimum effective from June,
1973 to August 1973.
5)Delivery Schedule—Shipment be made within four (4) days
upon receipt of your shipping instruction.
6)Bag/Container—a) All be made of Standard Kraft (water
resistant paper, 4 ply, with bursting strength of 220 pounds,
and b) Breakage allowance—additional four percent (4%)
over the quantity of each shipment.
7)Terms of Payment—Down payment of PESOS: TWO
HUNDRED FORTY-THREE THOUSAND (P243,000.00)
payable on the signing of this contract and the balance to be
paid upon presentation of corresponding shipping documents.
It is understood that in the event of a delay in our shipment,
you hold the option to discount any price differential resulting
from a lower market price vis-a-vis the contract price. In
addition, grant (sic) you the option to extend this contract until
the complete delivery of Forty-Five Thousand (45,000) bags
of 94 Ibs. each is made by us. You are also hereby granted the
option to renew this contract under the same price, terms and
conditions.
Please countersign on the space provided for below as your
acknowledgement and confirmation of the above transaction.
Thank You.
Very truly yours,                         
PRIME WHlTE CEMENT CORPORATION 
BY: (SGD) CONSTANCIO B. MAGLANA 
President & Chairman                    
CONFORME:
YAO KA SIN TRADING
BY: (SGD) HENRY YAO
WITNESSES:
(SGD) T. CATINDIG           
(SGD) ERNESTO LIM
RECEIVED from Mr. Henry Yao of Yao Ka Sin Trading, in
pursuance of the above offer, the sum of Pesos: TWO
HUNDRED FORTY THREE THOUSAND ONLY
PRIME WHITE CEMENT CORPORATION 
BY:                              
 
President & Chairman"     4
This letter-offer, hereinafter referred to as Exhibit "A", was
prepared, typed and signed on 7 June 1973 in the office of Mr.
Teodoro Catindig, Senior Vice-President of the Consolidated
Bank and Trust Corporation (Solid Bank).5
The principal issue raised in this case is whether or not the
aforesaid letter-offer, as accepted by YKS, is a contract
that binds the PWCC. The trial court ruled in favor of the
petitioner, but the respondent Court held otherwise.
The records disclose the following material operative facts:
In its meeting in Cebu City on 30 June 1973, or twenty-three
(23) days after the signing of Exhibit "A", the Board of
Directors of PWCC disapproved the same; the rejection is
evidenced by the following Minutes (Exhibit "10"):
"the 10,000 bags of white cement sold to Yao Ka Sin Trading
is sold not because of the alleged letter -contract adhered to by
them, but must be understood as a new separate contract, and
has in no way to do with the letter-offer which they (sic)
distinct consideration, as the letter-contract which they now
hang on (sic) as consummated is by this resolution totally
disapproved and is unacceptable to the corporation."
On 5 July 1973, PWCC wrote a letter (Exhibit "1") to YKS
informing it of the disapproval of Exhibit "A". Pursuant,
however, to its decision with respect to the 10,000 bags of
cement, it issued the corresponding Delivery Order (Exhibit
"4") and Official Receipt No. 0394 (Exhibit "5") for the
payment of the same in the amount of P243,000.00. This is the
same amount received and acknowledged by Maglana in
Exhibit "A".
MIDTERM SALES CASES Page 8 of 96
YKS accepted without protest both the Delivery and Official
Receipts.
While YKS denied having received a copy of Exhibit "1", it
was established that the original thereof was shown to Mr.
Henry Yao; since no one would sign a receipt for it, the
original was left at the latter's office and this fact was duly
noted in Exhibit "1" (Exhibit "1-A").
On 4 August 1973, PWCC wrote a letter (Exhibit "2") to YKS
in answer to the latter's 4 August 1973 letter stating that it is
"withdrawing or taking delivery of not less than 10,000 bags
of white cement on August 6-7,1973 at Asturias, Cebu, thru
M/V Taurus." In said reply, PWCC reminded YKS of its
(PWCC's) 5 July 1973 letter (Exhibit "1") and told the latter
that PWCC "only committed to you and which you
correspondingly paid 10,000 bags of white cement of which
4,150 bags were already delivered to you as of August 1,
1973."6Unfortunately, no copy of the said 4 August 1973 letter
of YKS was presented in evidence.
On 21 August 1973, PWCC wrote another letter (Exhibit
"3")7 to YKS in reply to the latter's letter of 15 August 1973.
Enclosed in the reply was a copy of Exhibit "2". While the
records reveal that YKS received this reply also on 21 August
1973 (Exhibit "3-A"),8 it still denied having received it.
Likewise, no copy of the so-called 15 August 1973 letter was
presented in evidence.
On 10 September 1973, YKS, through Henry Yao, wrote a
letter9 to PWCC as a follow-up to the letter of 15 August
1973; YKS insisted on the delivery of 45,000 bags of white
cement.10
On 12 September 1973, Henry Yao sent a letter (Exhibit "G")
to PWCC calling the latter's attention to the statement of
delivery dated 24 August 1973, particularly the price change
from P23.30 to P24.30 per 94 Ibs. bag net FOB Asturias,
Cebu.11
On 2 November 1973, YKS sent a telegram (Exhibit "C") 12 to
PWCC insisting on the full compliance with the terms of
Exhibit "A" and informing the latter that it is exercising the
option therein stipulated.
On 3 November 1973, YKS sent to PWCC a letter (Exhibit
"D") as a follow-up to the 2 November 1973 telegram, but this
was returned to sender as unclaimed.13
As of 7 December 1973, PWCC had delivered only 9,775 bags
of white cement.
On 9 February 1974, YKS wrote PWCC a letter (Exhibit "H")
requesting, for the last time, compliance by the latter with its
obligation under Exhibit "A".14
On 27 February 1974, PWCC sent an answer (Exhibit "7") to
the aforementioned letter of 9 February 1974; PWCC
reiterated the unenforceability of Exhibit "A".15
On 4 March 1974, YKS filed with the then Court of First
Instance of Leyte a complaint for Specific Performance with
Damages against PWCC. The complaint16 was based on
Exhibit "A" and was docketed as Civil Case No. 5064.
In its Answer with Counterclaim17 filed on 1 July 1974,
PWCC denied under oath the material averments in the
complaint and alleged that: (a) YKS "has no legal personality
to sue having no legal personality even by fiction to represent
itself;" (b) Mr. Maglana, its President and Chairman, was
lured into signing Exhibit "A"; (c) such signing was subject to
the condition that Exhibit "A" be approved by the Board of
Directors of PWCC, as corporate commitments are made
through it; (d) the latter disapproved it, hence Exhibit "A" was
never consummated and is not enforceable against PWCC; (e)
it agreed to sell 10,000 bags of white cement, not under
Exhibit "A", but under a separate contract prepared by the
Board; (f) the rejection by the Board of Exhibit "A" was made
known to YKS through various letters sent to it, copies of
which were attached to the Answer as Annexes 1, 2 and
3;18 (g) YKS knew, per Delivery Order 19 and Official
Receipt20 issued by PWCC, that only 10,000 bags were sold to
it, without any terms or conditions, at P24.30 per bag FOB
Asturias, Cebu; (h) YKS is solely to blame for the failure to
take complete delivery of 10,000 bags for it did not send its
boat or truck to PWCC's plant; and (i) YKS has, therefore, no
cause of action.
In its Counterclaim, PWCC asks for moral damages in the
amount of not less than P10,000.00, exemplary damages in the
sum of P500,000.00 and attorney's fees in the sum of
P10,000.00,
On 24 July 1974, YKS filed its Answer to the Counterclaim.21
Issues having been joined, the trial court conducted a
pretrial.22 On that occasion, the parties admitted that according
to the By-Laws of PWCC, the Chairman of the Board, who is
also the President of the corporation, "has the power to
execute and sign, for and in behalf of the corporation, all
contracts or agreements which the corporation enters into,"
subject to the qualification that "all the president's actuations,
prior to and after he had signed and executed said contracts,
shall be given to the board of directors of defendant
Corporation." Furthermore, it was likewise stated for the
record "that the corporation is a semi-subsidiary of the
government because of the NIDC participation in the same,
and that all contracts of the corporation should meet the
approval of the NIDC and/or the PNB Board because of an
exposure and financial involvement of around P10 million
therein."23
During the trial, PWCC presented evidence to prove that
Exhibit "A" is not binding upon it because Mr. Maglana was
not authorized to make the offer and sign the contract in behalf
of the corporation. Per its By-Laws (Exhibit "8"), only the
Board of Directors has the power "x x x (7) To enter into (sic)
agreement or contract of any kind with any person in the name
and for and in behalf of the corporation through its President,
subject only to the declared objects and purpose of the
MIDTERM SALES CASES Page 9 of 96
corporation and the existing provisions of law." 24 Among the
powers of the President is "to operate and conduct the business
of the corporation according to his own judgment and
discretion, whenever the same is not expressly limited by such
orders, directives or resolutions."25 Per standard practice of the
corporation, contracts should first pass through the marketing
and intelligence unit before they are finalized. Because of its
interest in the PWCC, the NIDC, through its comptroller, goes
over contracts involving funds of and white cement produced
by the PWCC. Finally, among the duties of its legal counsel is
to review proposed contracts before they are submitted to the
Board. While the president may be tasked with the preparation
of a contract, it must first pass through the legal counsel and
the comptroller of the corporation.26
On 20 November 1975, after trial on the merits, the court
handed down its decision in favor of herein petitioner, the
dispositive portion of which reads:
"WHEREFORE, in view of the foregoing, judgment is hereby
rendered:
(1) Ordering defendant to complete the delivery of
45,000 bags of prime white cement at 94 Ibs. net per
bag at the price agreed, with a breakage allowance of
empty bags at 4% over the quantity agreed;
(2) Ordering defendant to pay P50,000.00 as moral
damages; P5,000.00 as exemplary damages;
P3,000.00 as attorney's fees; and the costs of these
proceedings.
SO ORDERED."27
In disregarding PWCC's theory, the trial court interpreted the
provision of the By-Laws—granting its Board of Directors the
power to enter into an agreement or contract of any kind with
any person through the President—to mean that the latter may
enter into such contract or agreement at any time and that the
same is not subject to the ratification of the board of directors
but "subject only to the declared objects and purpose of the
corporation and existing laws." It then concluded:
"It is obvious therefore, that it is not the whole membership of
the board of directors who actually enters into any contract
with any person in the name and for and in behalf of the
corporation, but only its president. It is likewise crystal clear
that this automatic representation of the board by the president
is limited only by the 'declared objects and purpose of the
corporation and existing provisions of law.'"28
It likewise interpreted the provision on the power of the
president to "operate and conduct the business of the
corporation according to the orders, directives or resolutions
of the board of directors and according to his own judgment
and discretion whenever the same is not expressly limited by
such orders, directives and resolutions," to mean that the
president can operate and conduct the business of the
corporation according to his own judgment and discretion as
long as it is not expressly limited by the orders, directives or
resolutions of the board of directors. 29 The trial court found no
evidence that the board had set a prior limitation upon the
exercise of such judgment and discretion; it further ruled that
the By-Laws does not require that Exhibit "A" be approved by
the Board of Directors. Finally, in the light of the Chairman's
power to "execute and sign for and in behalf of the corporation
all contracts or agreements which the corporation may enter
into" (Exhibit "1-1"), it concluded that Mr. Maglana merely
followed the By-Laws "presumably both as president and
chairman of the board thereof." 30 Hence, Exhibit "A" was
validly entered into by Maglana and thus binds the
corporation.
The trial court, however, ruled that the option to sell is not
valid because it is not supported by any consideration distinct
from the price; it was exercised before compliance with the
original contract by PWCC; and the repudiation of the original
contract by PWCC was deemed a withdrawal of the option
before acceptance by the petitioner.
Both parties appealed from the said decision to the respondent
Court of Appeals before which petitioner presented the
following Assignment of Errors:
"I THE TRIAL COURT ERRED IN HOLDING THAT THE
OPTION TO RENEW THE CONTRACT OF SALE IS NOT
ENFORCEABLE BECAUSE THE OPTION WAS MADE
EVEN BEFORE THE COMPLIANCE OF (sic) THE
ORIGINAL CONTRACT BY DEFENDANT AND THAT
DEFENDANT'S PROMISE TO SELL IS NOT SUPPORTED
BY ANY CONSIDERATION DISTINCT FROM THE
PRICE.
II THE TRIAL COURT ERRED IN NOT AWARDING TO
THE PLAINTIFF ACTUAL DAMAGES, SUFFICIENT
EXEMPLARY DAMAGES AND ATTORNEY'S FEES AS
ALLEGED IN THE COMPLAINT AND PROVEN DURING
THE TRIAL."31
while the private respondent cited the following errors:
"I THE TRIAL COURT ERRED IN HOLDING THAT
EXHIBIT "A" IS A VALID CONTRACT OR PLAINTIFF
CAN CLAIM THAT THE PROPOSED LETTER-
CONTRACT, EXHIBIT "A" IS LEGALLY
ENFORCEABLE, AS THE SAME IS A MERE
UNACCEPTED PROPOSAL, NOT HAVING BEEN
PREVIOUSLY AUTHORIZED TO BE ENTERED INTO OR
LATER ON RATIFIED BY THE DEFENDANTS BOARD
OF DIRECTORS; IN FACT EXHIBIT "A" WAS TOTALLY
REJECTED AND DISAPPROVED IN TOTO BY THE
DEFENDANTS BOARD OF DIRECTORS IN CLEAR,
PLAIN LANGUAGE AND DULY INFORMED AND
TRANSMITTED TO PLAINTIFF.
II THE TRIAL COURT ERRED IN HOLDING THAT
PLAINTIFF CAN LEGALLY UTILIZE THE COURTS AS
THE FORUM TO GIVE LIFE AND VALIDITY TO A
TOTALLY UNENFORCEABLE OR NONEXISTING
CONTRACT.
III THE TRIAL COURT ERRED IN ALLOWING YAO KA
SIN TO IMPUGN AND CONTRADICT HIS VERY OWN
ACTUATIONS AND REPUDIATE HIS ACCEPTANCE
MIDTERM SALES CASES Page 10 of 96
AND RECEIPTS OF BENEFITS FROM THE COUNTER-
OFFER OF DEFENDANT FOR 10,000 BAGS OF CEMENT
ONLY, UNDER THE PRICE, TERMS AND CONDITIONS
TOTALLY FOREIGN TO AND WHOLLY DIFFERENT
FROM THOSE WHICH APPEAR IN EXHIBIT "A".
IV THE TRIAL COURT ERRED IN DISMISSING
DEFENDANTS COUNTER-CLAIMS AS THE SAME ARE
DULY SUPPORTED BY CLEAR AND INDUBITABLE
EVIDENCE."32
In its decision33 promulgated on 21 December 1979, the
respondent Court reversed the decision of the trial court, thus:
"WHEREFORE, the judgment appealed from is REVERSED
and set aside, Plaintiff s complaint is dismissed with costs.
Plaintiff is ordered to pay defendant corporation P25,000.00
exemplary damages, and P10,000.00 attorney's fees.
SO ORDERED."
Such conclusion is based on its findings, to wit:
"Before resolving the issue, it is helpful to bring out some
preliminary facts. First, the defendant corporation is
supervised and principally financed by the National
Investment and Development Corporation (NIDC), a
subsidiary investment of the Philippine National Bank (PNB),
with cash financial exposure of some P10,000,000.00. PNB is
a government financial institution whose Board is chairmaned
(sic) by the Minister of National Defense. This fact is very
material to the issue of whether defendant corporation's
president can bind the corporation with his own act.
Second, for failure to deny under oath the following actionable
documents in support of defendant's counterclaim:
1. The resolution contained in defendant's letter to plaintiff
dated July 5, 1973, on the 10,000 bags of white cement
delivered to plaintiff was not by reason of the letter contract,
Exhibit "A", which was totally disapproved by defendant
corporation's board of directors, clearly stating that 'If within
ten (10) days from date hereof, we will not hear from you but
you will withdraw cement at P24.30 per bag from our plant,
then we will deposit your check of P243,000.00 dated June 7,
1973 issued by the Producers Bank of the Philippines, per
instruction of the Board.' (Annex "1" to defendant's Answer).
2.Letter of defendant to plaintiff dated August 4, 1973 that
defendant 'only committed to you and which you accordingly
paid 10,000 bags of white cement of which 4,150 bags were
already delivered to you as of August 1, 1973' (Annex "2" of
defendant's Answer).
3.Letter dated August 21, 1973 to plaintiff reiterating
defendant's letter of August 4, 1973 (Annex "3" to defendant's
Answer).
4.Letter to stores dated August 21, 1973,
5.Receipt from plaintiff (sic) P243,000.00 in payment of
10,000 bags of white cement at 24.30 per bag (Annex "5" to
defendant's Answer).
plaintiff is deemed to have admitted, not only the due
execution and genuineness (sic) of said documents, (Rule 8,
Sec. 8, Rules of Court) but also the allegations therein (Rule 9,
Sec. 1, Rules of Court). All of the foregoing documents tend to
prove that the letter-offer, Exhibit "A", was rejected by
defendant corporation's Board of Directors and plaintiff was
duly notified thereof and that the P243,000.00 check was
considered by both parties as payment of the 10,000 bags of
cement under a separate transaction. As proof of which
plaintiff did not complain nor protest until February 9, 1974,
when he threatened legal action.
Third. Maglana's signing the letter-offer prepared for him in
the Solidbank was made clearly upon the condition that it was
subject to the approval of the board of directors of defendant
corporation. We find consistency herein because according to
the Corporation Law, and the By-Laws of defendant
corporation, all corporate commitments and business are
conducted by, and contracts entered into through, the express
authority of the Board of Directors (Sec. 28, Corp. Law, Exh.
"I" or "8").
Fourth. What Henry Yao and Maglana agreed upon as
embodied in Exhibit "A", insofar as defendant corporation is
concerned, was an unauthorized contract (Arts. 1317 and 1403
(1), Civil Code). And because Maglana was not authorized by
the Board of Directors of defendant corporation nor was his
actuation ratified by the Board, the agreement is unenforceable
(Art. 1403 (1), Civil Code; Raquiza et al. vs, Lilles et al,, 13
CA Rep. 343; Gana vs. Archbishop of Manila, 43 O.G. 3224).
While it may be true that Maglana is President of defendant
corporation nowhere in the Articles of Incorporation nor in the
ByLaws of said corporation was he empowered to enter into
any contract all by himself and bind the corporation without
first securing the authority and consent of the Board of
Directors. Whatever authority Maglana may have must be
derived from the Board of Directors of defendant corporation.
A corporate officer's power as an agent must be sought from
the law, the articles of incorporation and the By-Laws or from
a resolution of the Board (Vicente vs. Geraldez, 52 SCRA
227, Board of Liquidators vs. Kalaw, 20 SCRA 987).
It clearly results from the foregoing that the judgment
appealed from is untenable. Having no cause of action against
defendant corporation, plaintiff is not entitled to any relief. We
see no justification, therefore, for the court a quo'sawards in
its favor. x x x"34
Its motion for reconsideration having been denied by the
respondent Court in its resolution35dated 15 April 1980,
petitioner filed the instant petition based on the following
grounds:
"1. That the contract (Exh. "A") entered into by the President
and Chairman of the Board of Directors Constancio B.
MIDTERM SALES CASES Page 11 of 96
Maglana in behalf of the respondent corporation binds the said
corporation.
2.That the contract (Exh. "A") was never novated nor
superceded (sic) by a subsequent contract.
3.That the option to renew the contract as contained in Exhibit
"A" is enforceable.
4.That Sec. 8, Rule 8 of the Rules of Court only applies when
the adverse party appear (sic) to be a party to the instrument
but not to one who is not a party to the instrument and Sec. 1,
Rule 9 of the said Rules with regards (sic) to denying under
oath refers only to allegations of usury."36
We gave due course37 to the petition after private respondent
filed its Comment38 and required the parties to submit
simultaneously their Memoranda, which the parties
subsequently complied with.39
Before going any further, this Court must first resolve an issue
which, although raised in the Answer of private respondent,
was neither pursued in its appeal before the respondent Court
nor in its Comment and Memorandum in this case. It also
eluded the attention of the trial court and the respondent Court.
The issue, which is of paramount importance, concerns the
lack of capacity of plaintiff/petitioner to sue. In the caption of
both the complaint and the instant petition, the plaintiff and
the petitioner, respectively, is:
YAO KA SIN TRADING,  the same interests, the same witnesses, and the same evidence.
owned and operated by  The name of the plaintiff would constitute the only difference
YAO KA SIN.40
and is described in the body thereof as "a business concern of
single proprietorship owned and operated by Yao Ka Sin." 41 In
the body of the petition, it is described as "a single
proprietorship business concern."42 It also appears that, as
gathered from the decision of the trial court, no Yao Ka
Sin testified. Instead, one Henry Yao took the witness stand
and testified that he is the "manager of Yao Ka Sin Trading"
and "it was in representation of the plaintiff" that he signed
Exhibit "A".43 Under Section 1, Rule 3 of the Rules of Court,
only natural or juridical persons or entities authorized by law
may be parties in a civil action. In Juasing Hardware vs.
Mendoza,44 this Court held that a single proprietorship is
neither a natural person nor a juridical person under Article 44
of the Civil Code; it is not an entity authorized by law to bring
suit in court:
"The law merely recognizes the existence of a sole
proprietorship as a form of business organization conducted
for profit by a single individual, and requires the proprietor or
owner thereof to secure licenses and permits, register the
business name, and pay taxes to the national government. It
does not vest juridical or legal personality upon the sole
proprietorship nor empower it to file or defend an action in
court."45
Accordingly, the proper party plaintiff/petitioner should be
YAO KA SIN.46
The complaint then should have been amended to implead
Yao Ka Sin as plaintiff in substitution of Yao Ka Sin Trading.
However, it is now too late in the history of this case to
dismiss this petition and, in effect, nullify all proceedings had
before the trial court and the respondent Court on the sole
ground of petitioner's lack of capacity to sue. Considering that
private respondent did not pursue this issue before the
respondent Court and this Court; that, as We held
in Juasing, the defect is merely formal and not substantial, and
an amendment to cure such defect is expressly authorized by
Section 4, Rule 10 of the Rules of Court which provides that
"[a] defect in the designation of the parties may be summarily
corrected at any stage of the action provided no prejudice is
caused thereby to the adverse party;" and that "[a] sole
proprietorship does not, of course, possess any juridical
personality separate and apart from the personality of the
owner of the enterprise and the personality of the persons
acting in the name of such proprietorship," 47 We hold and
declare that Yao Ka Sin should be deemed as the plaintiff in
Civil Case No. 5064 and the petitioner in the instant case. As
this Court stated nearly eighty (80) years ago in Alonso vs.
Villamor:48
"No one has been misled by the error in the name of the party
plaintiff. If we should by reason of this error send this case
back for amendment and new trial, there would be on the
retrial the same complaint, the same answer, the same defense,
between the old trial and the new. In our judgment there is not
enough in a name to justify such action."
And now to the merits of the petition.
The respondent Court correctly ruled that Exhibit "A" is
not binding upon the private respondent. Mr. Maglana, aglana,
its President and Chairman, was not empowered to execute it.
Petitioner, on the other hand, maintains that it is a valid
contract because Mr. Maglana has the power to enter into
contracts for the corporation as implied from the following
provisions of the By-Laws of private respondent:
a)The power of the Board of Directors to ". . . enter into (sic)
agreement or contract of any kind with any person in the name
and for and in behalf of the corporation through its President,
subject only to the declared objects and purpose of the
corporation and the existing provisions of law" (Exhibit "8-
A"); and
b)The power of the Chairman of the Board of Directors to
"execute and sign, for and in behalf of the corporation, all
contracts or agreements which the corporation may enter into"
(Exhibit "1-1").
And even admitting, for the sake of argument, that Mr.
Maglana was not so authorized under the By-Laws, the private
respondent, pursuant to the doctrine laid down by this Court
in Francisco vs. Government Service Insurance
MIDTERM SALES CASES Page 12 of 96
System49 and Board of Liquidators vs. Kalaw,50 is still bound
by his act for clothing him with apparent authority.
We are not persuaded.
Since a corporation, such as the private respondent, can act
only through its officers and agents, "all acts within the
powers of said corporation may be performed by agents of its
selection; and, except so far as limitations or restrictions may
be imposed by special charter, by-law, or statutory provisions,
the same general principles of law which govern the relation
of agency for a natural person govern the officer or agent of a
corporation, of whatever status or rank, in respect to his power
to act for the corporation; and agents when once appointed, or
members acting in their stead, are subject to the same rules,
liabilities and incapacities as are agents of individuals and
private persons."51 Moreover, "x x x a corporate officer or
agent may represent and bind the corporation in transactions
with third persons to the extent that authority to do so has been
conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual
course of the particular business, are incidental to, or may be
implied from, the powers intentionally conferred, powers
added by custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or
agent to believe that it has conferred."52
While there can be no question that Mr. Maglana was an
officer—the President and Chairman—of private respondent
corporation at the time he signed Exhibit "A", the above
provisions of said private respondent's By-Laws do not in any
way confer upon the President the authority to enter into
contracts for the corporation independently of the Board of
Directors. That power is exclusively lodged in the latter.
Nevertheless, to expedite or facilitate the execution of the
contract, only the President—and not all the members of the
Board, or so much thereof as are required for the act—shall
sign it for the corporation. This is the import of the
words through the president in Exhibit "8-A" and the clear
intent of the power of the chairman "to execute and sign for
and in behalf of the corporation all contracts and agreements
which the corporation may enter into" in Exhibit "1-1". Both
powers presuppose a prior act of the corporation exercised
through the Board of Directors. No greater power can be
implied from such express, but limited, delegated authority.
Neither can it be logically claimed that any power greater than
that expressly conferred is inherent in Mr. Maglana's position
as president and chairman of the corporation.
Although there is authority "that if the president is given
general control and supervision over the affairs of the
corporation, it will be presumed that he has authority to make
contracts and do acts within the course of its ordinary
business,"53 We find such inapplicable in this case. We note
that the private corporation has a general manager who, under
its By-Laws has, inter alia, the following powers: "(a) to have
the active and direct management of the business and
operation of the corporation, conducting the same according to
the order, directives or resolutions of the Board of Directors or
of the president." It goes without saying then that Mr. Maglana
did not have a direct and active hand in the management of the
business and operations of the corporation. Besides, no
evidence was adduced to show that Mr. Maglana had, in the
past, entered into contracts similar to that of Exhibit "A" either
with the petitioner or with other parties.
Petitioner's last refuge then is his alternative proposition,
namely, that private respondent had clothed Mr. Maglana with
the apparent power to act for it and had caused persons dealing
with it to believe that he was conferred with such power. The
rule is of course settled that "[a]lthough an officer or agent
acts without, or in excess of, his actual authority if he acts
within the scope of an apparent authority with which the
corporation has clothed him by holding him out or permitting
him to appear as having such authority, the corporation is
bound thereby in favor of a person who deals with him in good
faith in reliance on such apparent authority, as where an
officer is allowed to exercise a particular authority with
respect to the business, or a particular branch of it,
continuously and publicly, for a considerable time." 54 Also, "if
a private corporation intentionally or negligently clothes its
officers or agents with apparent power to perform acts for it,
the corporation will be estopped to deny that such apparent
authority is real, as to innocent third persons dealing in good
faith with such officers or agents."55This "apparent authority
may result from (1) the general manner by which the
corporation holds out an officer or agent as having power to
act or, in other words, the apparent authority with which it
clothes him to act in general, or (2) the acquiescence in his
acts of a particular nature, with actual or constructive
knowledge thereof, whether within or without the scope of his
ordinary powers."56
It was incumbent upon the petitioner to prove that indeed the
private respondent had clothed Mr. Maglana with the apparent
power to execute Exhibit "A" or any similar contract. This
could have been easily done by evidence of similar acts
executed either in its favor or in favor of other parties.
Petitioner miserably failed to do that. Upon the other hand,
private respondent's evidence overwhelmingly shows that no
contract can be signed by the president without first being
approved by the Board of Directors; such approval may only
be given after the contract passes through, at least, the
comptroller, who is the NIDC representative, and the legal
counsel.
The cases then of Francisco vs. GSIS and Board of
Liquidators vs. Kalaw are hopelessly unavailing to the
petitioner. In said cases, this Court found sufficient evidence,
based on the conduct and actuations of the corporations
concerned, of apparent authority conferred upon the officer
involved which bound the corporations on the basis of
ratification. In the first case, it was established that the offer of
compromise made by plaintiff in the letter, Exhibit "A", was
validly accepted by the GSIS. The terms of the offer were
clear, and over the signature of defendant's general manager,
Rodolfo Andal, plaintiff was informed telegraphically that her
proposal had been accepted. It was sent by the GSIS' Board
Secretary and defendant did not disown the same. Moreover,
in a letter remitting the payment of P30,000 advanced by her
MIDTERM SALES CASES Page 13 of 96
father, plaintiff quoted verbatim the telegram of acceptence.
This was in itself notice to the corporation of the terms of the
allegedly unauthorized telegram. Notwithstanding this notice,
GSIS pocketed the amount and kept silent about the telegram.
This Court then ruled that:
"This silence, taken together with the unconditional
acceptance of three other subsequent remittances from
plaintiff, constitutes in itself a binding ratification of the
original agreement (Civil Code, Art 1393).
'ART. 1393. Ratification may be effected expressly or tacitly.
It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable
and such reason having ceased, the person who has a right to
invoke it should execute an act which necessarily implies an
intention to waive his right.' "
In the second case, this Court found:
"In the case at bar, the practice of the corporation has been to
allow its general manager to negotiate and execute contracts in
its copra trading activities for and in NACOCO's
behalf without prior board approval. If the by-laws were to be
literally followed, the board should give its stamp of prior
approval on all corporate contracts. But that board itself, by its
acts and through acquiescence, practically laid aside the by-
law requirement of prior approval.
Under the given circumstances, the Kalaw contracts are valid
corporate acts."
The inevitable conclusion then is that Exhibit "A" is an
unenforceable contract under Article 1317 of the Civil Code
which provides as follows:
"ARTICLE 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has by law
a right to represent him.
A contract entered into in the name of another by one who has
no authority or legal representation, or who has acted beyond
his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting
party."
The second ground is based on a wrong premise. It assumes,
contrary to Our conclusion above, that Exhibit "A" is a valid
contract binding upon the private respondent. It was
effectively disapproved and rejected by the Board of Directors
which, at the same time, considered the amount of
P243,000.00 received by Maglana as payment for 10,000 bags
of white cement, treated as an entirely different contract, and
forthwith notified petitioner of its decision that "If within ten
(10) days from date hereof we will not hear from you but you
will withdraw cement at P24.30 per bag from our plant, then
we will deposit your check of P243,000.00 dated June 7, 1973
issued by the Producers Bank of the Philippines, per
instruction of the Board."57 Petitioner received a copy of this
notification and thereafter accepted without any protest the
Delivery Receipt covering the 10,000 bags and the Official
Receipt for the P243,000.00. The respondent Court thus
correctly ruled that petitioner had in fact agreed to a new
transaction involving only 10,000 bags of white cement.
The third ground must likewise fail. Exhibit "A" being
unenforceable, the option to renew it would have no leg to
stand on. The river cannot rise higher than its source. In any
event, the option granted in this case is without any
consideration. Article 1324 of the Civil Code expressly
provides that:
"When the offerer 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."
while Article 1749 of the same Code provides:
"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."
Accordingly, even if it were accepted, it can not validly bind
the private respondent.58
The fourth ground is, however, meritorious.
Section 8, Rule 8 of the Rules of Court provides:
"SECTION 8. How to contest genuineness of such documents.
—When an action or defense is founded upon a written
instrument, copied in or attached to the corresponding
pleading as provided in the preceding section, the genuineness
and due execution of the instrument shall be deemed admitted
unless the adverse party, under oath, specifically denies them,
and sets forth what he claims to be the facts; but this provision
does not apply when the adverse party does not appear to be a
party to the instrument or when compliance with an order for
an inspection of the original instrument is refused."
It is clear that the petitioner is not a party to any of the
documents attached to the private respondent's Answer. Thus,
the above quoted rule is not applicable.59 While the respondent
Court erred in holding otherwise, the challenged decision
must, nevertheless, stand in view of the above disquisitions on
the first to the third grounds of the petition.
FALLO WHEREFORE, judgment is hereby rendered
AFFIRMING the decision of respondent Court of Appeals in
C.A.-G.R. No. 61072-R promulgated on 21 December
1979. Costs against petitioner. SO ORDERED.
Note.—If a private corporation intentionally or negligently
clothes its officers or agents with apparent power to perform
acts for it, the corporation will be estopped to deny that such
apparent authority is real, as to innocent third persons dealing
in good faith with such officers or agents (Francisco vs.
MIDTERM SALES CASES Page 14 of 96
Government Service Insurance System, L-18287 and L-18155,
March 30, 1963, 7 SCRA 577).
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 tiewhich 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 realcontract. 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 consummationbegins when the
parties perform their respective undertakings under the
contract culminating in the extinguishment thereof.
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
MIDTERM SALES CASES Page 15 of 96
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).
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 juriswould 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.
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.
VITUG, J.:
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 Ann Yu Asuncion and Keh Tiong,
et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose
Tan before the Regional Trial Court, Branch 31, Manila in
Civil Case No. 87-41058, alleging, among others, that
plaintiffs are tenants or lessees of residential and commercial
spaces owned by defendants described as Nos. 630-638
Ongpin Street, Binondo, Manila; that they have occupied said
spaces since 1935 and have been religiously paying the rental
and complying with all the conditions of the lease contract;
that on several occasions before October 9, 1986, defendants
informed plaintiffs that they are offering to sell the premises
and are giving them priority to acquire the same; that during
the negotiations, Bobby Cu Unjieng offered a price of P6-
million while plaintiffs made a counter offer of P5-million;
that plaintiffs thereafter asked the defendants to put their offer
in writing to which request defendants acceded; that in reply to
defendants’ 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
MIDTERM SALES CASES Page 16 of 96
defendants were about to sell the property, plaintiffs were
compelled to file the complaint to compel defendants to sell
the property to them.
“Defendants filed their answer denying the material
allegations of the complaint and interposing a special defense
of lack of cause of action.
“After the issues were joined, defendants filed a motion for
summary judgment which was granted by the lower court. The
trial court found that defendants’ offer to sell was never
accepted by the plaintiffs for the reason that the parties did not
agree upon the terms and conditions of the proposed sale,
hence, there was no contract of sale at all. Nonetheless, the
lower court ruled that should the defendants subsequently
offer their property for sale at a price of P11-million or below,
plaintiffs will have the right of first refusal. Thus the
dispositive portion of the decision states:
“‘WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale
for a purchase price of Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the property or of first
refusal, otherwise, defendants need not offer the property to
the plaintiffs if the purchase price is higher than Eleven
Million Pesos.
“‘SO ORDERED.’
“Aggrieved by the decision, plaintiffs appealed to this Court
in CA-G.R. CV No. 21123. In a decision promulgated on
September 21, 1990 (penned by Justice Segundino G. Chua
and concurred in by Justices Vicente V. Mendoza and
Fernando A. Santiago), this Court affirmed with modification
the lower court’s judgment, holding:
“‘In resume, there was no meeting of the minds between the
parties concerning the sale of the property. Absent such
requirement, the claim for specific performance will not lie.
Appellants’ demand for actual, moral and exemplary damages
will likewise fail as there exists no justifiable ground for its
award. Summary judgment for defendants was properly
granted. Courts may render summary judgment when there is
no genuine issue as to any material fact and the moving party
is entitled to a judgment as a matter of law (Garcia vs. Court
of Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable.
‘WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but subject to
the following modification: The court a quo in the aforestated
decision gave the plaintiffs-appellants the right of first refusal
only if the property is sold for a purchase price of Eleven
Million pesos or lower; however, considering the mercurial
and uncertain forces in our market economy today. We find no
reason not to grant the same right of first refusal to herein
appellants in the event that the subject property is sold for a
price in excess of Eleven Million pesos. No pronouncement as
to costs.
‘SO ORDERED.’
“The decision of this Court was brought to the Supreme Court
by petition for review on certiorari. The Supreme Court denied
the appeal on May 6, 1991 ‘for insufficiency in form and
substance’ (Annex H, Petition).
“On November 15, 1990, while CA-G.R. CV No. 21123was
pending consideration by this Court, the Cu Unjieng spouses
executed a Deed of Sale (Annex D, Petition) transferring the
property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and
conditions:
“‘1. That for and in consideration of the sum of FIFTEEN
MILLION PESOS (P15,000,000.00), receipt of which in full
is hereby acknowledged, the VENDORS hereby sells,
transfers and conveys for and in favor of the VENDEE, his
heirs, executors, administrators or assigns, the above-
described property with all the improvements found therein
including all the rights and interest in the said property free
from all liens and encumbrances of whatever nature, except
the pending ejectment proceeding;
‘2. That the VENDEE shall pay the Documentary Stamp Tax,
registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.’
“As a consequence of the sale, TCT No. 105254/T-881 in the
name of the Cu Unjieng spouses was cancelled and, in lieu
thereof, TCT No. 195816 was issued in the name of petitioner
on December 3, 1990.
“On July 1, 1991, petitioner as the new owner of the subject
property wrote a letter to the lessees demanding that the latter
vacate the premises.
“On July 16, 1991, the lessees wrote a reply to petitioner
stating that petitioner brought the property subject to the
notice of lis pendens regarding Civil Case No. 87-
41058 annotated on TCT No. 105254/T-881 in the name of the
Cu Unjiengs.
“The lessees filed a Motion for Execution dated August 27,
1991 of the decision in Civil Case No. 87-41058 as modified
by the Court of Appeals in CA-G.R. CV No. 21123.
“On August 30, 1991, respondent Judge issued an order
(Annex A, Petition) quoted as follows:
“‘Presented before the Court is a Motion for Execution filed
by plaintiff represented by Atty. Antonio Albano. Both
defendants Bobby Cu Unjieng and Rose Cu Unjieng
represented by Atty. Vicente Sison and Atty. Anacleto Magno
respectively were duly notified in today’s consideration of the
motion as evidenced by the rubber stamp and signatures upon
the copy of the Motion for Execution.
‘The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
MIDTERM SALES CASES Page 17 of 96
decision in CA G.R. CV-21123, and elevated to the Supreme
Court upon the petition for review and that the same was
denied by the highest tribunal in its resolution dated May 6,
1991 in G.R. No. L-97276, had now become final and
executory. As a consequence, there was an Entry of Judgment
by the Supreme Court as of June 6, 1991, stating that the
aforesaid modified decision had already become final and
executory.
‘It is the observation of the Court that this property in dispute
was the subject of the Notice of Lis Pendens and that the
modified decision of this Court promulgated by the Court of
Appeals which had become final to the effect that should the
defendants decide to offer the property for sale for a price of
P11 Million or lower, and considering the mercurial and
uncertain forces in our market economy today, the same right
of first refusal to herein plaintiffs/appellants in the event that
the subject property is sold for a price in excess of Eleven
Million pesos or more.
‘WHEREFORE, defendants are hereby ordered to execute the
necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs’
right of first refusal and that a new Transfer Certificate of Title
be issued in favor of the buyer.
‘All previous transactions involving the same property
notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in
bad faith.
‘SO ORDERED.’
“On September 22, 1991 respondent Judge issued another
order, the dispositive portion of which reads:
“‘WHEREFORE, let there be Writ of Execution issue in the
above-entitled case directing the Deputy Sheriff Ramon
Enriquez of this Court to implement said Writ of Execution
ordering the defendants among others to comply with the
aforesaid Order of this Court within a period of one (1) week
from receipt of this Order and for defendants to execute the
necessary Deed of Sale of the property in litigation in favor of
the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for
the consideration of P15,000,000.00 and ordering the Register
of Deeds of the City of Manila, to cancel and set aside the title
already issued in favor of Buen Realty Corporation which was
previously executed between the latter and defendants and to
register the new title in favor of the aforesaid plaintiffs Ang
Yu Asuncion, Keh Tiong and Arthur Go.
‘SO ORDERED.’
“On the same day, September 27, 1991 the corresponding writ
of execution (Annex C, Petition) was issued.”1
On 04 December 1991, the appellate court, on appeal to it by
private respondent, set aside and declared without force and
effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend
that Buen Realty can be held bound by the writ of execution
by virtue of the notice of lis pendens, carried over on TCT No.
195816 issued in the name of Buen Realty, at the time of the
latter’s purchase of the property on 15 November 1991 from
the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the
adoption of such arrangements as the right of first refusal, a
purchase option and a contract to sell. For ready reference, we
might point out some fundamental precepts that may find
some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do
(Art. 1156, Civil Code). The obligation is constituted upon the
concurrence of the essential elements thereof, viz: (a)
The vinculum juris or juridical tie which is the efficient cause
established by the various sources of obligations (law,
contracts, quasicontracts, delicts and quasi-delicts); (b)
the objectwhich 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. Negotiationcovers the period from the time the
prospective contracting parties indicate interest in the
contract tothe 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
MIDTERM SALES CASES Page 18 of 96
deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
“A contract of sale may be absolute or conditional.”
When the sale is not absolute but conditional, such as in a
“Contract to Sell” where invariably the ownership of the thing
sold is retained until the fulfillment of a positive suspensive
condition (normally, the full payment of the purchase price),
the breach of the condition will prevent the obligation to
convey title from acquiring an obligatory force. 2 In Dignos vs.
Court of Appeals (158 SCRA 375), we have said that,
although denominated a “Deed of Conditional Sale,” a sale is
still absolute where the contract is devoid of any proviso that
title is reserved or the right to unilaterally rescind is stipulated,
e.g., until or unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive delivery
(e.g., by the execution of a public document) of the property
sold. Where the condition is imposed upon the perfection of
the contract itself, the failure of the condition would prevent
such perfection.3 If the condition is imposed on the obligation
of a party which is not fulfilled, the other party may either
waive the condition or refuse to proceed with the sale (Art.
1545, Civil Code).4
An unconditional mutual promise to buy and sell, as long as
the object is made determinate and the price is fixed, can
be obligatory on the parties, and compliance therewith
may accordingly be exacted.5
An accepted unilateral promise which specifies the thing to
be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the price,
is what may properly be termed a perfected contract
of option. This contract is legally binding, and in sales, it
conforms with the second paragraph of Article 1479 of the
Civil Code, viz:
“ART. 1479. x x x.
“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
13199of 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
MIDTERM SALES CASES Page 19 of 96
class of preparatory juridical relations governed not by
contracts (since the essential elements to establish
the vinculum juris would still be indefinite and inconclusive)
but by, among other laws of general application, the pertinent
scattered provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been
decreed under a final judgment, like here, its breach cannot
justify correspondingly an issuance of a writ of execution
under a judgment that merely recognizes its existence, nor
would it sanction an action for specific performance without
thereby negating the indispensable element of consensuality in
the perfection of contracts.11 It is not to say, however, that the
right of first refusal would be inconsequential for, such as
already intimated above, an unjustified disregard thereof,
given, for instance, the circumstances expressed in Article
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 decision13 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.
FALLO 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.
     
Note.—Unilateral cancellation of a contract to sell is not
warranted if the breach is slight or casual. (Siska Development
Corporation vs. Office of the President of the Philippines, 231
SCRA 674 [1994])
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.
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
MIDTERM SALES CASES Page 20 of 96
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.
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 Resolution3 dated April 25, 1996,
denying both parties’ motion for partial reconsideration or
clarification. The assailed decision affirmed with modification
the judgment4of the Regional Trial Court of Cebu City, Branch
5, in Civil Case No. CEB 4700, and disposed of the
controversy as follows:
“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)
QUISUMBING, J.:
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:
“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:
a. Upon the signing of the Deed of Sale, the LESSEE shall
immediately pay P360,000.00.
b. The balance of P1,440,000.00 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
downpayment 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
MIDTERM SALES CASES Page 21 of 96
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 damages12was 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:
“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’ 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:
“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. 18Further, 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
MIDTERM SALES CASES Page 22 of 96
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 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.
In contractual relations, the law allows the parties reasonable
leeway on the terms of their agreement, which is the law
between them.21 Note that by contract SIHI had given
petitioner 4 periods: (a) the option to purchase the 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 notice at anytime; (c) the “document of sale .
. . to be consummated within the month immediately
following the month” when petitioner exercises the 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 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 inequituous indeed.
In Tuason, Jr., etc. vs. 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.
FALLO 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
MIDTERM SALES CASES Page 23 of 96
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 said property.
The case is hereby remanded to Regional Trial Court of Cebu,
Branch 5, for further proceedings to determine promptly the
fair market value of said real property as of February 1986, in
Bulacao, Cebu City. Costs against private respondent. SO
ORDERED.
Note.—In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be
principally considered. (Matanguihan vs. Court of
Appeals, 275 SCRA 380[1997])
G.R. No. 168325. December 13, 2010.*
ROBERTO D. TUAZON, petitioner, vs. LOURDES Q.
DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE
LEON, WILFREDO DE LEON, MIGUEL LUIS S. DE
LEON, ROMMEL LEE S. DE LEON, and GUILLERMA
L. SANDICO-SILVA, as attorney-in-fact of the defendants,
except Lourdes Q. Del Rosario-Suarez, respondents.
Civil Law; Option Contract; Right of First Refusal; An
option contract is entirely different and distinct from a right
of first refusal in that in the former, the option granted to
the offeree is for a fixed period and at a determined price;
Lacking these two essential requisites, what is involved is
only a right of first refusal.—From the foregoing, it is thus
clear that an option contract is entirely different and distinct
from a right of first refusal in that in the former, the option
granted to the offeree is for a fixed period and at
a determined price. Lacking these two essential requisites,
what is involved is only a right of first refusal.
Same; Same; Same; If the option is without any
consideration, the offeror may withdraw his offer by
communicating such withdrawal to the offeree at any time
before acceptance; if it is founded upon a consideration, the
offeror cannot withdraw his offer before the lapse of the
period agreed upon.—It is clear from the provision of Article
1324 0that there is a great difference between the effect of an
option which is without a consideration from one which is
founded upon a consideration. If the option is without any
consideration, the offeror may withdraw his offer by
communicating such withdrawal to the offeree at anytime
before acceptance; if it is founded upon a consideration, the
offeror cannot withdraw his offer before the lapse of the
period agreed upon.
Same; Same; Same; Roberto’s act of negotiating for a much
lower price was a counter-offer and is therefore not an
acceptance of the offer of Lourdes.—In this case, it is
undisputed that Roberto did not accept the terms stated in the
letter of Lourdes as he negotiated for a much lower price.
Roberto’s act of negotiating for a much lower price was a
counter-offer and is therefore not an acceptance of the offer of
Lourdes. Article 1319 of the Civil Code provides: “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 acceptanceconstitutes a
counter-offer.” (Emphasis supplied.)
PETITION for review on certiorari of a decision of the
Court of Appeals.
In a situation where the lessor makes an offer to sell to the
lessee a certain property at a fixed price within a certain
period, and the lessee fails to accept the offer or to purchase
on time, then the lessee loses his right to buy the property and
the owner can validly offer it to another.
This Petition for Review on Certiorari1 assails the
Decision2 dated May 30, 2005 of the Court of Appeals (CA) in
CA-G.R. CV No. 78870, which affirmed the Decision 3 dated
November 18, 2002 of the Regional Trial Court (RTC),
Branch 101, Quezon City in Civil Case No. Q-00-42338.
DEL CASTILLO, J.:
Factual Antecedents
Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the
owner of a parcel of land, containing more or less an area of
1,211 square meters located along Tandang Sora
Street, Barangay Old Balara, Quezon City and previously
covered by Transfer Certificate of Title (TCT) No. RT-
561184 issued by the Registry of Deeds of Quezon City.
On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and
Lourdes executed a Contract of Lease5 over the
abovementioned parcel of land for a period of three years. The
lease commenced in March 1994 and ended in February 1997.
During the effectivity of the lease, Lourdes sent a letter 6 dated
January 2, 1995 to Roberto where she offered to sell to the
latter subject parcel of land. She pegged the price at
P37,541,000.00 and gave him two years from January 2, 1995
to decide on the said offer.
On June 19, 1997, or more than four months after the
expiration of the Contract of Lease, Lourdes sold subject
parcel of land to her only child, Catalina Suarez-De Leon, her
son-in-law Wilfredo De Leon, and her two grandsons, Miguel
Luis S. De Leon and Rommel S. De Leon (the De Leons), for
a total consideration of only P2,750,000.00 as evidenced by a
Deed of Absolute Sale7 executed by the parties. TCT No.
1779868 was then issued by the Registry of Deeds of Quezon
City in the name of the De Leons.
The new owners through their attorney-in-fact, Guillerma S.
Silva, notified Roberto to vacate the premises. Roberto refused
hence, the De Leons filed a complaint for Unlawful Detainer
before the Metropolitan Trial Court (MeTC) of Quezon City
against him. On August 30, 2000, the MeTC rendered a
MIDTERM SALES CASES Page 24 of 96
Decision9 ordering Roberto to vacate the property for non-
payment of rentals and expiration of the contract.
Ruling of the Regional Trial Court
On November 8, 2000, while the ejectment case was on
appeal, Roberto filed with the RTC of Quezon City a
Complaint10 for Annulment of Deed of Absolute Sale,
Reconveyance, Damages and Application for Preliminary
Injunction against Lourdes and the De Leons. On November
13, 2000, Roberto filed a Notice of Lis Pendens11 with the
Registry of Deeds of Quezon City.
On January 8, 2001, respondents filed An Answer with
Counterclaim12 praying that the Complaint be dismissed for
lack of cause of action. They claimed that the filing of such
case was a mere leverage of Roberto against them because of
the favorable Decision issued by the MeTC in the ejectment
case.
On September 17, 2001, the RTC issued an Order 13declaring
Lourdes and the De Leons in default for their failure to appear
before the court for the second time despite notice. Upon a
Motion for Reconsideration,14 the trial court in an
Order15 dated October 19, 2001 set aside its Order of default.
After trial, the court a quo rendered a Decision declaring the
Deed of Absolute Sale made by Lourdes in favor of the De
Leons as valid and binding. The offer made by Lourdes to
Roberto did not ripen into a contract to sell because the price
offered by the former was not acceptable to the latter. The
offer made by Lourdes is no longer binding and effective at
the time she decided to sell the subject lot to the De Leons
because the same was not accepted by Roberto. Thus, in a
Decision dated November 18, 2002, the trial court dismissed
the complaint. Its dispositive portion reads:
“WHEREFORE, premises considered, judgment is hereby
rendered dismissing the above-entitled Complaint for lack of
merit, and ordering the Plaintiff to pay the Defendants, the
following:
1. the amount of P30,000.00 as moral damages;
2. the amount of P30,000.00 as exemplary damages;
3. the amount of P30,000.00 as attorney’s fees; and
4. cost of the litigation.
SO ORDERED.”16
Ruling of the Court of Appeals
On May 30, 2005, the CA issued its Decision dismissing
Roberto’s appeal and affirming the Decision of the RTC.
Hence, this Petition for Review on Certiorari filed by Roberto
advancing the following arguments:
I. THE TRIAL COURT AND THE COURT OF APPEALS
HAD DECIDED THAT THE “RIGHT OF FIRST
REFUSAL” EXISTS ONLY WITHIN THE PARAMETERS
OF AN “OPTION TO BUY,” AND DID NOT EXIST WHEN
THE PROPERTY WAS SOLD LATER TO A THIRD
PERSON, UNDER
FAVORABLE TERMS AND CONDITIONS WHICH THE
FORMER BUYER CAN MEET.
II. WHAT IS THE STATUS OR SANCTIONS OF AN
APPELLEE IN THE COURT OF APPEALS WHO HAS
NOT FILED OR FAILED TO FILE AN APPELLEE’S
BRIEF?17
Petitioner’s Arguments
Roberto claims that Lourdes violated his right to buy subject
property under the principle of “right of first refusal” by not
giving him “notice” and the opportunity to buy the property
under the same terms and conditions or specifically based on
the much lower price paid by the De Leons.
Roberto further contends that he is enforcing his “right of first
refusal” based on Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc.18 which is the leading case on the “right
of first refusal.”
Respondents’ Arguments
On the other hand, respondents posit that this case is not
covered by the principle of “right of first refusal” but an
unaccepted unilateral promise to sell or, at best, a contract of
option which was not perfected. The letter of Lourdes to
Roberto clearly embodies an option contract as it grants the
latter only two years to exercise the option to buy the subject
property at a price certain of P37,541,000.00. As an option
contract, the said letter would have been binding upon Lourdes
without need of any consideration, had Roberto accepted the
offer. But in this case there was no acceptance made neither
was there a distinct consideration for the option contract.
Our Ruling
The petition is without merit.
This case involves an option contract
and not a contract of a right of first
refusal
In Beaumont v. Prieto,19the nature of an option contract is
explained thus:
“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:
MIDTERM SALES CASES Page 25 of 96
‘An agreement in writing to give a person the ‘option’ to
purchase lands within a given time at a named price is neither
a sale nor an agreement to sell. It is simply a contract by
which the owner of property agrees with another person
that he shall have the right to buy his property at a fixed
price within a certain time. He does not sell his land; he does
not then agree to sell it; but he does sell something; that is, the
right or privilege to buy at the election or option of the other
party. The second party gets in praesenti, not lands, nor an
agreement that he shall have lands, but he does get something
of value; that is, the right to call for and receive lands if he
elects. The owner parts with his right to sell his lands, except
to the second party, for a limited period. The second party
receives this right, or rather, from his point of view, he
receives the right to elect to buy.
But the two definitions above cited refer to the contract of
option, or, what amounts to the same thing, to the case where
there was cause or consideration for the obligation x x x.”
(Emphasis supplied.)
On the other hand, in Ang Yu Asuncion v. Court of
Appeals,20 an elucidation on the “right of first refusal” was
made thus:
“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.
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.”
(Emphasis supplied.)
From the foregoing, it is thus clear that an option contract is
entirely different and distinct from a right of first refusal in
that in the former, the option granted to the offeree is for
a fixed period and at a determined price. Lacking these two
essential requisites, what is involved is only a right of first
refusal.
In this case, the controversy is whether the letter of Lourdes to
Roberto dated January 2, 1995 involved an option contract or
a contract of a right of first refusal. In its entirety, the said
letter-offer reads:
206 Valdes Street
 Josefa Subd. Balibago
 Angeles City 2009
January 2, 1995
Tuazon Const. Co.
986 Tandang Sora Quezon City
Dear Mr. Tuazon,
I received with great joy and happiness the big box of sweet
grapes and ham, fit for a king’s party. Thanks very much.
I am getting very old (79 going 80 yrs. old) and wish to live in
the U.S.A. with my only family. I need money to buy a house
and lot and a farm with a little cash to start.
I am offering you to buy my 1211 square
meter at P37,541,000.00 you can pay me in dollars in the
name of my daughter. I never offered it to anyone. Please
shoulder the expenses for the transfer. I wish the Lord God
will help you buy my lot easily and you will be very lucky
forever in this place. You have all the time to decide when
you can, but not for 2 years or more.
I wish you long life, happiness, health, wealth and great
fortune always!
I hope the Lord God will help you be the recipient of multi-
billion projects aid from other countries.
Thank you,
Lourdes Q. del Rosario vda de Suarez
It is clear that the above letter embodies an option contract
as it grants Roberto a fixed period of only two years to buy
the subject property at a price certain of P37,541,000.00. It
being an option contract, the rules applicable are found in
Articles 1324 and 1479 of the Civil Code which provide:
“Art. 1324. When the offerer 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.
MIDTERM SALES CASES Page 26 of 96
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.”
It is clear from the provision of Article 1324 that there is a
great difference between the effect of an option which is
without a consideration from one which is founded upon a
consideration. If the option is without any consideration, the
offeror may withdraw his offer by communicating such
withdrawal to the offeree at anytime before acceptance; if it is
founded upon a consideration, the offeror cannot withdraw his
offer before the lapse of the period agreed upon.
The second paragraph of Article 1479 declares that “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.” Sanchez v. Rigos21 provided an interpretation of the
said second paragraph of Article 1479 in relation to Article
1324. Thus:
“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.
Hence, it is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding
the acceptance made 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.”
In Diamante v. Court of Appeals,22 this Court further declared
that:
“A unilateral promise to buy or sell is a mere offer, which
is not converted into a contract except at the moment it is
accepted. Acceptance is the act that gives life to a juridical
obligation, because, before the promise is accepted, the
promissor may withdraw it at any time. Upon acceptance,
however, a bilateral contract to sell and to buy is created, and
the offeree ipso facto assumes the obligations of a purchaser;
the offeror, on the other hand, would be liable for damages if
he fails to deliver the thing he had offered for sale.
x x x x
Even if the promise was accepted, private respondent was
not bound thereby in the absence of a distinct
consideration.” (Emphasis ours.)
In this case, it is undisputed that Roberto did not accept the
terms stated in the letter of Lourdes as he negotiated for a
much lower price. Roberto’s act of negotiating for a much
lower price was a counter-offer and is therefore not an
acceptance of the offer of Lourdes. Article 1319 of the Civil
Code provides:
“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 acceptanceconstitutes a
counter-offer.” (Emphasis supplied.)
The counter-offer of Roberto for a much lower price was not
accepted by Lourdes. There is therefore no contract that was
perfected between them with regard to the sale of subject
property. Roberto, thus, does not have any right to demand
that the property be sold to him at the price for which it was
sold to the De Leons neither does he have the right to demand
that said sale to the De Leons be annulled.
Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc. is not applicable
here
It is the position of Roberto that the facts of this case and that
of Equatorial are similar in nearly all aspects. Roberto is a
lessee of the property like Mayfair Theater in Equatorial.
There was an offer made to Roberto by Lourdes during the
effectivity of the contract of lease which was also the case
in Equatorial. There were negotiations as to the price which
did not bear fruit because Lourdes sold the property to the De
Leons which was also the case in Equatorial wherein Carmelo
and Bauermann sold the property to Equatorial. The existence
of the lease of the property is known to the De Leons as they
are related to Lourdes while in Equatorial, the lawyers of
Equatorial studied the lease contract of Mayfair over the
property. The property in this case was sold by Lourdes to the
De Leons at a much lower price which is also the case
in Equatorial where Carmelo and Bauerman sold to
Equatorial at a lesser price. It is Roberto’s conclusion that as
in the case of Equatorial, there was a violation of his right of
first refusal and hence annulment or rescission of the Deed of
Absolute Sale is the proper remedy.
Roberto’s reliance in Equatorial is misplaced. Despite his
claims, the facts in Equatorial radically differ from the facts
of this case. Roberto overlooked the fact that in Equatorial,
there was an express provision in the Contract of Lease that—
“(i)f the LESSOR should desire to sell the leased properties,
the LESSEE shall be given 30-days exclusive option to
purchase the same.”
MIDTERM SALES CASES Page 27 of 96
There is no such similar provision in the Contract of Lease
between Roberto and Lourdes. What is involved here is a
separate and distinct offer made by Lourdes through a letter
dated January 2, 1995 wherein she is selling the leased
property to Roberto for a definite price and which gave the
latter a definite period for acceptance. Roberto was not given a
right of first refusal. The letter-offer of Lourdes did not form
part of the Lease Contract because it was made more than six
months after the commencement of the lease.
It is also very clear that in Equatorial, the property was sold
within the lease period. In this case, the subject property was
sold not only after the expiration of the period provided in the
letter-offer of Lourdes but also after the effectivity of the
Contract of Lease.
Moreover, even if the offer of Lourdes was accepted by
Roberto, still the former is not bound thereby because of the
absence of a consideration distinct and separate from the price.
The argument of Roberto that the separate consideration was
the liberality on the part of Lourdes cannot stand. A perusal of
the letter-offer of Lourdes would show that what drove her to
offer the property to Roberto was her immediate need for
funds as she was already very old. Offering the property to
Roberto was not an act of liberality on the part of Lourdes but
was a simple matter of convenience and practicality as he was
the one most likely to buy the property at that time as he was
then leasing the same.
All told, the facts of the case, as found by the RTC and the
CA, do not support Roberto’s claims that the letter of Lourdes
gave him a right of first refusal which is similar to the one
given to Mayfair Theater in the case of Equatorial. Therefore,
there is no justification to annul the deed of sale validly
entered into by Lourdes with the De Leons.
What is the effect of the failure of Lourdes to file  SPOUSES JULIO D. VILLAMOR AND MARINA
her appellee’s brief at the CA?
Lastly, Roberto argues that Lourdes should be sanctioned for
her failure to file her appellee’s brief before the CA.
Certainly, the appellee’s failure to file her brief would not
mean that the case would be automatically decided against her.
Under the circumstances, the prudent action on the part of the
CA would be to deem Lourdes to have waived her right to file
her appellee’s brief. De Leon v. Court of Appeals,23 is
instructive when this Court decreed:
“On the second issue, we hold that the Court of Appeals did
not commit grave abuse of discretion in considering the appeal
submitted for decision. The proper remedy in case of denial of
the motion to dismiss is to file the appellee’s brief and proceed
with the appeal. Instead, petitioner opted to file a motion for
reconsideration which, unfortunately, was pro forma. All the
grounds raised therein have been discussed in the first
resolution of the respondent Court of Appeals. There is no
new ground raised that might warrant reversal of the
resolution. A cursory perusal of the motion would readily
show that it was a near verbatim repetition of the grounds
stated in the motion to dismiss; hence, the filing of the motion
for reconsideration did not suspend the period for filing the
appellee’s brief. Petitioner was therefore properly deemed
to have waived his right to file appellee’s brief.”(Emphasis
supplied.)
In the above cited case, De Leon was the plaintiff in a
Complaint for a sum of money in the RTC. He obtained a
favorable judgment and so defendant went to the CA. The
appeal of defendant-appellant was taken cognizance of by the
CA but De Leon filed a Motion to Dismiss the Appeal with
Motion to Suspend Period to file Appellee’s Brief. The CA
denied the Motion to Dismiss. De Leon filed a Motion for
Reconsideration which actually did not suspend the period to
file the appellee’s brief. De Leon therefore failed to file his
brief within the period specified by the rules and hence he was
deemed by the CA to have waived his right to file appellee’s
brief.
The failure of the appellee to file his brief would not result to
the rendition of a decision favorable to the appellant. The
former is considered only to have waived his right to file the
Appellee’s Brief. The CA has the jurisdiction to resolve the
case based on the Appellant’s Brief and the records of the case
forwarded by the RTC. The appeal is therefore considered
submitted for decision and the CA properly acted on it.
FALLO WHEREFORE, the instant petition for review
on certiorari is DENIED. The assailed Decision of the Court
of Appeals in CA-G.R. CV No. 78870, which affirmed the
Decision dated November 18, 2002 of the Regional Trial
Court, Branch 101, Quezon City in Civil Case No. Q-00-
42338 is AFFIRMED.
MUTUAL PROMISES TO BUY AND SELL
G.R. No. 97332. October 10, 1991.*
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
MIDTERM SALES CASES Page 28 of 96
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, 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.
This is a petition for review on certiorari of the decision of the
Court of Appeals in CA-G.R. CV. No. 24176entitled,
"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.
MEDIALDEA, J.:
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 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 residing 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.
"W I T N E S S E T H
"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 my 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 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 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
MIDTERM SALES CASES Page 29 of 96
"That we, Julio Villamor and Marina V. Villamor, hereby Book No. 38;
agree to, and accept, the above provisions of this Deed of
Series of 1971."  
Option.
"IN WITNESS WHEREOF, this Deed of Option is signed in (pp. 25-29, Rollo)
the City of Manila, Philippines, by all the persons concerned,
this 11th day of November, 1971. According to Macaria, when her husband, Roberto Reyes,
retired in 1984, they offered to repurchase the lot sold by them
"JULIO "MACARIA
to the Villamor spouses but Marina Villamor refused and
VILLAMOR LABINGISA reminded them instead that the Deed of Option in fact gave
  With My them the option to purchase the remaining portion of the lot
  Conformity: The Villamors, on the other hand, claimed that they had
expressed their desire to purchase the remaining 300 square
"MARINA "ROBERTO
meter portion of the lot but the Reyeses had been ignoring
VILLAMOR REYES them. Thus, on July 13, 1987, after conciliation proceedings in
the barangay level failed, they filed a complaint for specific
"Signed in the Presence Of: performance against the Reyeses.

On July 26, 1989, judgment was rendered by the trial court in

          "MARIANO Z. SUNIGA favor of the Villamor spouses, the dispositive portion of which
          "ROSALINDA S. EUGENIO states:

"WHEREFORE, and (sic) in view of the foregoing, judgment

"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 acknowledgment 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-1 266104, 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;
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
MIDTERM SALES CASES Page 30 of 96
"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)
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 writtenagreement between the parties and made the
following conclusions:
"x x x      x x x      x x x
"It is interesting to state that the agreement between the
parties are evidenced 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 the terms of the
agreement, other than the contents of the writing. x x x
(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 parol 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) (Italic 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 distinct 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
MIDTERM SALES CASES Page 31 of 96
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 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." 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 x x x." (p. 26, Rollo)
The respondent appellate court failed to give due consideration
to petitioners' evidence which shows that in 1969 the Villamor
spouses bought 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. Petitioners' 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 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. 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 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."
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, 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
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 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. 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) year period prescribed by the Civil Code,
MIDTERM SALES CASES Page 32 of 96
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:
"x x x. 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 one-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.
FALLO ACCORDINGLY, the petition is DENIED. The
decision of respondent appellate court is AFFIRMED for
reasons cited in this decision, Judgment is rendered dismissing
the complaint in Civil Case No. C-12942 on the ground of
prescription and laches. SO ORDERED.
Note.—From the moment the contract of sale is perfected, it is
incumbent upon the parties to comply with their mutual
obligations or the parties may reciprocally demand
performance thereof. (National Grains Authority vs.
Intermediate AppellateCourt, 171 SCRA 131.)
CONSENT THAT PERFECTS A SALE
G.R. No. 120747. September 21, 2000.*
VICENTE GOMEZ, as successor-in-interest of awardee
LUISA GOMEZ, petitioner, vs. COURT OF APPEALS,
City of MANILA acting thru the City Tenants Security
Committee now the Urban Settlement Office, Register of
Deeds of Manila, respondents.
Civil Law; Contracts; Sales; A contract of sale may either
be absolute or conditional.—To be sure, a contract of sale
may either be absolute or conditional. One form of conditional
sales is what is now popularly termed as a “Contract to Sell,”
where ownership or title is retained until the fulfillment of a
positive suspensive condition normallythe payment of the
purchase price in the manner agreed upon.
Same; Same; Same; Contracting parties are accorded the
liberality and freedom to establish such stipulations, clauses,
terms and conditions deem convenient and not contrary to
law, morals, good custom, public order or public policy.—
From the above disquisition in Galang and applying Article
1306 of the Civil Code, the contracting parties are accorded
the liberality and freedom to establish such stipulations,
clauses, terms and conditions as they may deem convenient,
provided the same are not contrary to law, morals, good
custom, public order or public policy. In the law on contracts,
such fundamental principle is known as the autonomy of
contracts.
Same; Same; Same; Although unsigned, the Contract to Sell,
in addition to the provisions of the Resolution 16-A,
constitutes the law between the contracting parties.—In the
instant case, we uphold the Contract to Sell, duly annexed and
attached to Resolution 16-A, which explicitly provides for
additional terms and conditions upon which the lot awardees
are bound. Although unsigned, the Contract to Sell, in addition
to the provisions of Resolution 16-A, constitutes the law
between the contracting parties. After all, under the law there
exists a binding contract between the parties whose minds
have met on a certain matter notwithstanding that they did not
affix their signatures to its written form.
Same; Same; Same; Contracts, in general, 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.—For a contract, like a contract to
sell, involves a meeting of minds between 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 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. The offer must be certain
and the acceptance absolute.
Same; Same; Same; A stipulation that breach would result
to the automatic cancellation of the vendee’s rights upheld
in Adelfa case.—The contract provides in no uncertain terms,
that the abovementioned terms and conditions shall bind the
heirs, executors and administrators of the vendee. The contract
further states that breach thereof would result to the automatic
cancellation of the vendee’s rights thereunder, x x x Such kind
of stipulation was upheld by this Court in the Adelfa case
where we categorically declared that Article 1592 of the Civil
Code, which requires rescission either by judicial action, or
notarial act, does not apply to a contract to sell.
Same; Same; Same; Judicial action for rescission of a
contract not necessary where the contract provides for
automatic rescission in case of breach.—Moreover, judicial
action for rescission of a contract is not necessary where the
contract provides for automatic rescission in case of breach, as
in the contract involved in the present controversy.
PETITION for review on certiorari of a decision of the
Court of Appeals.
Sought to be reversed in this petition for review on certiorari
under Rule 45 of the Rules of Court is the decision 1 of the
Court of Appeals in CA. G.R. Sp. No. 32101 promulgated on
22 February 1995 which annulled and set aside the decision of
MIDTERM SALES CASES Page 33 of 96
the Regional Trial Court of Manila, Branch 12 in Civil Case
No. 51930.
Impugned similarly is the resolution2 of the Court of Appeals
dated 29 June 1995 denying petitioner’s motion for
reconsideration.
BUENA,J.:
From the records, we find the following antecedents:
Pursuant to the Land for the Landless Program of the City of
Manila and in accordance with City Ordinance No. 6880, the
Office of City Mayor issued Resolution No. 16-A, 3 Series of
1978, dated 17 May 1978, which effectively set guidelines and
criteria for the award of city home lots to qualified and
deserving applicants. Attached to said resolution and made as
integral part thereof was a Contract to Sell 4 that further laid
down terms and conditions which the lot awardee must
comply with.
On 30 June 1978, the City of Manila, through the City Tenants
Security Committee (CTSC) presently known as the Urban
Settlement Office (URBAN), passed Resolution 17-78 5 which
in effect awarded to 46 applicants, 37 homelots in the former
Ampil-Gorospe estate located in Tondo, Manila. Luisa
Gomez, predeces-sor-in-interest of herein petitioner Vicente
Gomez, was awarded Lot 4, Block 1, subject to the provisions
of Resolution No. 3-78 of the CTSC and building, subdivision
and zoning rules and regulations.
Consequently, a certificate of award 6 dated 02 July 1978 was
granted by the CTSC in favor of Luisa Gomez, who paid the
purchase price of the lot in the amount of P3,556.00 on
installment basis,7 said payments being duly covered by
official receipts.
In 1979, Luisa Gomez traveled to the United States of
America but returned to the Philippines in the same year.
On 18 January 1980, Luisa Gomez finally paid in full the
P3,556.00 purchase price of the lot. Despite the full payment,
Luisa still paid in installment an amount of P8,244.00, in
excess of the purchase price, which the City of Manila,
through the CTSC, accepted. Additionally, the lot was
declared for taxation purposes and the corresponding real
estate taxes thereon paid from 1980-1988. In 1982, Luisa,
together with her spouse Daniel, left again for the United
States of America where she died8 on 09 January 1983. She is
survived by her husband and four children, namely, Ramona
G. Takorda, Edgardo Gomez, Erlinda G. Pena, and Rebecca
G. Dizon.9
Subsequently, in a memorandum dated 07 February 1984, the
Urban Settlements Officer and Member-Executive Secretary
of the CTSC directed the Western Police District, City Hall
Detachment, to conduct an investigation regarding reported
violations of the terms and conditions of the award committed
by the lot awardees.
Thus, on 23 November 1984, a team headed by Pfc. Reynaldo
Cristobal of the Western Police District, proceeded to the
former Ampil-Gorospe estate where the subject lots are
located, and conducted an investigation of alleged violations
thereat.
On 19 December 1984, team leader Pfc. Reynaldo Cristobal
rendered an investigation report10addressed to the City Mayor
of Ma-nila, as Chairman of the CTSC, stating, among others,
the follow-ing findings:
“x x x After the said operation, it was found out that of all the
lot awardees in the said estate, the following were confirmed
to have violated the terms and conditions of their respective
awards as indicated opposite their names, to wit:
“x x Name of awardee: Daniel Gomez x 2.
No. 2557-C Juan Luna St. Tondo, Manila Address:
The place was found actually occupied by Mrs. Er-linda Perez
and her family together with Mr. Mignony Lorghas and
family, who are paying monthly rentals of P210.00 each to
Vicente Gomez, brother of awardee. Daniel Gomez is now
presently residing in the United States of America and only
returns for vacation once in a while as a ‘Balikbayan’ x x x.”
Thus, on 01 July 1986, the CTSC, headed by then City Mayor
Gemiliano Lopez, Jr. as Chairman, issued Resolution No. 015-
86,11adopting the findings of the investigation report submitted
by Pfc. Cristobal, and ordering the cancellation of the lot
awards of Daniel Gomez and other awardees who were found
to have committed violations, and further declaring the
forfeiture of payments made by said awardees as reasonable
compensation for the use of the homelots.
In a letter12 dated 04 August 1986, herein petitioner Vicente
Gomez, acting as attorney-in-fact13 of his brother Daniel
Gomez (spouse of Luisa Gomez) asked for reconsideration of
the CTSC resolution revoking the award of the lot.
On 28 June 1988, Daniel Gomez, spouse of awardee Luisa
Gomez, died in the United States of America. Eventually, on
01 February 1989, the surviving children of the deceased
spouses, who were American citizens and residents of the
United States of America, executed an affidavit of
adjudication with deed of dona-tion14disposing gratuitously
Lot No. 1, Block 4, in favor of their uncle Vicente Gomez.
On 20 February 1989, petitioner Vicente Gomez filed a
memo-randum15before the CTSC praying that Resolution 15-
86 be set aside and that the award of the lot be restored to
Luisa Gomez, or her heirs or successor-in-interest, preferably
Vicente Gomez.
Thereafter, two supplemental memoranda, dated 26 July
198916 and 10 January 1990,17 were submitted by petitioner
before the CTSC reiterating the prayer in the initial
memorandum.
On 05 February 1990, herein petitioner filed before the
Regional Trial Court (RTC) of Manila, Branch 12, a petition
for certiorari, prohibition and mandamus docketed as Civil
MIDTERM SALES CASES Page 34 of 96
Case No. 90-51930, entitled “Vicente Gomez, as successor-in-
interest of Awardee, Luisa Gomez, petitioner, versus City
Tenant’s Security Committee (now Urban Settlement Office)
and Register of Deeds of Manila, respon-dents.”
In an order18 dated 24 April 1990, the lower court directed the
petitioner to amend its petition so as to implead the proper
government agency.
Hence, petitioner filed an amended petition19impleading the
City of Manila as respondent, to which the latter submitted an
answer.20
Accordingly, after the presentation of evidence, the lower
court promulgated its decision21 dated 20 January 1993, the
decretal portion of which reads:
‘Wherefore, the petition is hereby granted:
Ordering the City of Manila through its agency the City Ten-
“1. ants Security Committee (now Urban Settlement Office) to
set aside the order of cancellation of the award for Lot No. 4,
Block 1 (formerly of the Ampil-Gorospe estate) in favor of
Luisa Gomez, her heirs and successor-in-interest, the herein
petitioner;
Prohibiting the City of Manila through its agency including
the “2. Register of Deeds of Manila from awarding the same
lot and issuing the corresponding certificate of title therefor to
any other person; Ordering the City of Manila through its
agency the City Ten- “3. ant’s Security Committee (now
Urban Settlement Office) to execute a Deed of Absolute Sale
over the aforementioned lot in favor of the petitioner as
successor-in-interest of the awardee and further ordering them
to stop and/or refrain from disturbing the peaceful physical
possession thereof of (sic) the petitioner; and
“4. Ordering the City of Manila through its agency the City
Ten-ant’s Security Committee (now Urban Settlement Office)
to refund to the petitioner his overpayments amounting to
P8,244.00 and to pay the costs of suit.”
On appeal, the Court of Appeals reversed the lower court’s
decision prompting petitioner to file a motion for
reconsideration which the appellate court denied via its
assailed resolution dated 29 June 1995.
Hence, the instant appeal where the core of controversy
revolves around the propriety of CTSC’s act of canceling the
lot award, through Resolution No. 015-86, and further
declaring the forfeiture of amounts paid by the awardee, as
reasonable compensation for the use of the home lot.
The petition is unmeritorious.
A thorough scrutiny of the records and an even more
exhaustive perusal of the evidence, both documentary and
testimonial, would lead to the inevitable conclusion that the
fact of cancellation of the award covering Lot 4, Block 1, by
the City of Manila, acting through the CTSC, was properly
exercised within the bounds of law and contractual stipulation
between the parties.
Viewed broadly, petitioner anchors his case on the premise,
albeit erroneous, that upon full payment of the purchase price
of the lot in January 1980, Luisa Gomez, actual awardee,
already acquired a vested right over the real property subject
of the present controversy. Thus, according to petitioner, upon
the death of Luisa Gomez on 09 January 1983, the alleged
vested right was transmitted by operation of law to her lawful
heirs, pursuant to Article 777 of the Civil Code. Additionally,
petitioner submits that by virtue of the affidavit of
adjudication with Deed of Donation executed on 01 February
1989 in his favor by the surviving children of Luisa, he, in
effect, became the successor-in-interest of Luisa and thus
entitled to whatever rights enjoyed by the latter over the
property.
In the light of existing law and jurisprudence and based on the
evidence adduced, this Court finds difficulty giving credence
and weight to petitioner’s submissions. We therefore rule that
the cancellation of the award of Lot 4, Block 1, through the
expediency of Resolution No. 015-86, was proper.
Primarily, it must be stressed that the contract entered into
between the City of Manila and awardee Luisa Gomez was not
one of sale but a contract to sell, which, under both statutory
and case law, has its own attributes, peculiarities and effects.
Speaking through Mr. Justice Florenz Regalado, this Court
in Adelfa Properties, Inc. vs. Court of Appeals,22 mapped out
the bold distinctions between these species of contracts, to wit:
“In a 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 purchase 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 being 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.”
To our mind, however, this pronouncement should not curtail
the right of the parties in a contract to sell to provide
additional stipulations, nor bar them from imposing conditions
relative to the transfer of ownership.
To be sure, a contract of sale may either be absolute or
conditional. One form of conditional sales is what is now
popularly termed as a “Contract to Sell,” where ownership or
title is retained until the fulfillment of a positive suspensive
condition normally the payment of the purchase price in the
manner agreed upon.23(Emphasis ours)
MIDTERM SALES CASES Page 35 of 96

From the above disquisition in Galang and applying Article
1306 of the Civil Code, the contracting parties are accorded
the liberality and freedom to establish such stipulations,
clauses, terms and conditions as they may deem convenient,
provided the same are not contrary to law, morals, good
custom, public order or public policy. In the law on contracts,
such fundamental principle is known as the autonomy of
contracts.
Under the present circumstances, we see no hindrance that
prohibits the parties from stipulating other lawful conditions,
aside from full payment of the purchase price, which they
pledge to bind themselves and upon which transfer of
ownership depends.
In the instant case, we uphold the Contract to Sell, duly
annexed and attached to Resolution 16-A, which explicitly
provides for additional terms and conditions upon which the
lot awardees are bound. Although unsigned, the Contract to
Sell, in addition to the provisions of Resolution 16-A,
constitutes the law between the contracting parties. After all,
under the law there exists a binding contract between the
parties whose minds have met on a certain matter
notwithstanding that they did not affix their signatures to its
written form.24
For a contract, like a contract to sell, involves a meeting of
minds between 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 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. The offer must be certain and the
acceptance absolute.25
As to the matter of acceptance, the same may be evidenced by
some acts, or conduct, communicated to the offeror, either in a
formal or an informal manner, that clearly manifest the
intention or determination to accept the offer to buy or sell.26
In the case at bar, acceptance on the part of the vendee was
manifested through a plethora of acts, such as payment of the
purchase price, declaration of the property for taxation
purposes, and payment of real estate taxes thereon, and similar
acts showing vendee’s assent to the contract.
Verily, Resolution 16-A and the Contract to Sell which was
annexed, attached and made to form part of said resolution,
clearly laid down the terms and conditions which the awardee-
vendee must comply with. Accordingly, as an awardee, Luisa
Gomez, her heirs and successors-in-interest alike, are duty-
bound to perform the correlative obligations embodied in
Resolution 16-A and the Contract to Sell.
Resolution 16-A, Series of 1978, explicitly provides that aside
from the requirement of Filipino citizenship and legal age, the
basic criteria for award of the lot pursuant to the Land for the
Landless Program of the City of Manila shall be the following:
“a)Occupancy—The applicant must be the legal and actual or
physical occupant of the lot in question at the time of its
acquisition by the City. He must be the owner of the house and
lot, must be using the same for his residential purposes, and
must have had a lessee-lessor relationship with the previous
owner of the land or landed estate of which the subject lot is a
part.
“b)Non-ownership of land—The applicant and/or his spouse,
if he is married, must not be an owner of any parcel of land in
Manila, Metropolitan Manila or elsewhere in the Philippines.
Neither must he and/or his spouse be a prospective owner or a
buyer on installment basis of any lot other than that which he
is occupying and for which he is applying for award from the
City.
“c)Capacity to pay—The applicant must have such financial
means and/or support as will enable him to make regular
payments of amortiza-tions or installments for the lot if the
same is awarded to him.”
Of equal importance are the essential terms and conditions
embraced in the Contract to Sell, which awardee Luisa
Gomez, her heirs and successors-in-interest, violated, to wit:
“x x x Par. (3). The vendee shall occupy and use the lot
exclusively for his/her residential purpose, x x x
“x x x Par. (5). The vendee hereby warrants and declares
under oath that he/she is a bona fide and actual occupant and
tenant of the lot; x x x and that he/she fully understands that
any false statement or misrepresentation hereof (sic) shall be
sufficient cause for the automatic cancellation of his/her rights
under this agreement as well as ground for criminal
prosecution.
“Par. (6).Until complete payment of the purchase price and
compliance with all the vendee’s obligations herein, title to
the lot remains in the name of the owner. During the
effectivity of this agreement, however, the owner may transfer
its title or assign its rights and interest under this agreement to
any person, corporation, bank or financial institution. “Title
shall pass to the vendee upon execution of a final deed of sale
in his/her favor. x x x
“Par. (8).In order not to defeat the purpose of this social land
reform program of the City of Manila, and to prevent real
estate speculations within twenty years from complete
payment of the purchase price and execution of the final deed
of sale, the lot and residential house or improvement thereon
shall not be sold, transferred, mortgaged, leased or otherwise
alienated or encumbered without the written consent of the
City Mayor.
“Par. (9).During the effectivity of this agreement, the
residential house or improvement thereon shall not be leased,
sold, transferred or otherwise alienated by the vendee without
the written consent of the owner.
xxx
MIDTERM SALES CASES Page 36 of 96
“Par. (14). In the event that the vendee dies before full
payment of the purchase price of the lot, his/her surviving
spouse, children heirs and/or successors-in-interest shall
succeed in all his/her rights and interest, as well as assume
all/his/her obligations under this agreement. “Par. (15). This
agreement shall be binding upon the heirs, executors and
administrators of the vendee.”(emphasis ours)
Petitioner urges that awardee Luisa Gomez did not commit
any violation of the lot award. On the contrary, the records
would indubitably show that Luisa Gomez, including her heirs
and successors-in-interest, have performed acts that constitute
gross, if not bra-zen, violation of the aforementioned terms
and conditions of the award, as evidenced by the investigation
report submitted by Pfc. Cristobal, dated 19 December 1984.
Results of the investigation conducted on 23 November 1984,
reveal that the lot was actually occupied and leased by a
certain Erlinda Perez and Mignony Lorghas, together with
their respective families, who were paying rentals to petitioner
Vicente Gomez for the lease of the subject premises.
Moreover, in a conference held on 13 January 1989 at the
Office of the Acting Urban Settlement Officer, Lorghas
admitted that she has been leasing the property and paying rent
to petitioner Vicente Gomez, thus:27
“Atty. Bernardo: Mrs. Lorghas, how long
have you been renting the property?
Mrs. Lorghas: I was living there since 1960 until today. I was
renting a small room downfloor (sic). When the family of Mr.
Gomez died, kami na ang tumira sa itaas until now.
Atty. Bernardo: Magkano ang upa mo?
Mrs. Lorghas: P300 a month.
Atty. Bernardo: Kanino?
Mrs. Lorghas: Kay Vicente Gomez.
Atty. Bernardo: Meron bang resibo? Mrs. Lorghas: Wala po.
Atty. Bernardo: Noong 1973, kayo na rin ang nakatira sa lugar
ni Gomez.
Mrs. Lorghas: Opo.”
Certainly, said acts constitute a brazen transgression of
Resolution 16-A and clear contravention of the Contract to
Sell, specifically pars. (3), (8) and (9) thereof.
The contract provides in no uncertain terms, that the
abovemen-tioned terms and conditions shall bind the heirs,
executors and administrators of the vendee. The contract
further states that breach thereof would result to the automatic
cancellation of the vendee’s rights thereunder.
Thus, par. (10) (b) (a) of the Contract to Sell, which reads:
“x x x any violation of the terms and conditions of this
agreement shall automatically cause the cancellation of the
vendee’s rights under this agreement without necessity of prior
notice or judicial declaration x x x.”
Such kind of stipulation was upheld by this Court in the
Adelfa case where we categorically declared that Article 1592
of the Civil Code, which requires rescission either by judicial
action, or notarial act, does not apply to a contract to sell.28
Moreover, judicial action for rescission of a contract is not
necessary where the contract provides for automatic rescission
in case of breach,29 as in the contract involved in the present
controversy.
Likewise, this Court sustains the forfeiture of the payments
made by awardee as reasonable compensation for the use of
the lot. At this juncture, par. (1) of the Contract to Sell
furnishes support to this conclusion:
“x x x In case of the cancellation of the vendee’s rights under
this agreement as hereinafter stipulated, all payments made by
him/her shall be forfeited and considered as rentals for the use
of the lot x x x.”
Further, Article 1486 of the Civil Code provides that a
stipulation that the installments or rents paid shall not be
returned to the vendee or lessee shall be valid insofar as the
same may not be un-conscionable under the circumstances.30
Applying the foregoing, we are of the considered view that the
payment of the purchase price of P3,556.00, constitutes fair
and reasonable rental for the period in which said property was
under the control of awardee Luisa Gomez, her heirs and
successors-in-interest. Undeniably, the awardee together with
her heirs and successors-in-interest, have gained benefits,
financial or otherwise, for a period of eight years—from the
time of actual award of the lot to the time of cancellation
thereof (1978-1986).
Nonetheless, we ought to stress that in the present case,
forfeiture of the installments paid as rentals, only applies to
the purchase price of P3,556.00 and not to the overpayment of
the amount of P8,244.00.
Under these circumstances, the vendor should refund the
amount of P8,244.00 representing the overpayment made, plus
interest, to be computed in accordance with the “rule of
thumb” enunciated in the landmark case of Eastern Shipping
Lines, Inc. vs. Court of Appeals31 and reiterated in the case
of Philippine National Bank vs. Court of Appeals.32
For us to uphold the forfeiture of the amount representing the
overpayment would be to revolt against the dictates of justice
and fairness. A contrary ruling would unjustly enrich the
vendor to the prejudice of the vendee.
In the same vein, the provisions of Article 777 of the Civil
Code notwithstanding, we hold that the surviving children of
awardee Luisa Gomez are not qualified transferees of Lot 4,
Block 1 for failure to conform with the prerequisites set by
Resolution 16-A, to wit, Filipino citizenship and actual
occupancy, which in the present case, are basic criteria for the
award of the lot, pursuant to the “Land for the Landless
Program” of the City of Manila.
MIDTERM SALES CASES Page 37 of 96
The records reveal that the children of Luisa Gomez are
Ameri-can citizens and permanent residents of the United
States of America. Notably, Resolution 16-A specifically
enumerates Filipino citizenship and actual occupancy of the
lot for residential purposes, as qualifications for entitlement to
the lot award. For this court to consider said surviving children
as qualified awardee-transferees would render illusory the
purposes for which Resolution 16-A and the “Land for the
Landless Program” of the City of Manila were adopted.
Even assuming arguendo that the surviving children of Luisa
Gomez are entitled to the lot by virtue of Article 777 of the
Civil Code, said heirs nevertheless abandoned their right when
they violated the terms and conditions of the award by
donating the subject property to petitioner Vicente Gomez.
As paragraph (15) of the agreement provides that the heirs of
the vendee shall be bound thereby, it is then incumbent upon
said heirs to render strict compliance with the provisions
thereof.
In particular, paragraph (8) of the Contract proscribes the sale,
transfer, mortgage, lease, alienation or encumbrance of the lot,
residential house, or improvement thereon, without the written
consent of the City Mayor, within a period of twenty (20)
years from complete payment of the purchase price and
execution of the final deed of sale. The execution of the Deed
of Donation by the surviving children of Luisa Gomez on
February 1, 1989, in favor of Vicente Gomez, was clearly
within the prohibited period of 20 years from the full payment
of the purchase price on January 18, 1980.
Without doubt, the prohibition applies to them.
Furthermore, the subject lot and residential house were
occupied by, and leased to, third persons, in crystalline and
evident derogation of the terms of the award.
FALLO WHEREFORE, premises considered, the instant
petition is DISMISSED for lack of merit, and the assailed
decision of the Court of Appeals with respect to the
cancellation of the award of Lot 4, Block 1, is AFFIRMED
SUBJECT TO MODIFICATION as to the forfeiture of
amounts paid by the vendee.
As modified, the City of Manila, is hereby ordered to refund
with dispatch the amount of P8,244.00 representing the
overpayment made by petitioner plus interest. SO ORDERED.
     
Note.—There is nothing in Article 1191 of the New Civil
Code which prohibits the parties from entering into an
agreement that a violation of the terms of the contract would
cause its cancellation even without intervention. (Pangilinan
vs. Court of Appeals, 279 SCRA 590 [1997])
ACCEPTANCE MUST BE “ABSOLUTE”
[No. 18335. January 10, 1923]
LORENZO ZAYCO, DIONISIO INZA, and SEVERINO
LIZARRAGA, plaintiffs and appellants, vs.SALVADOR
SERRA, VENANCIO CONCEPCION, and PHIL. C.
WHITAKER, defendants and appellees.
1.CONTRACTS; CONSIDERATION.—Although in an
option contract for the purchase of a sugar central which is the
subject-matter of the litigation, no consideration is expressly
mentioned, it is presumed that consideration exists in all
contracts (art. 1277, Civ. Code). The consideration of a
contract may be proved, and, once proven, the contract is
binding.
2.ID.; ACCEPTANCE.—In order for an acceptance to
have the effect of converting an offer to sell into a perfect
contract, it must be plain and unconditional, and it will not
be so, if it involves any new proposition, for in that case, it
will not be the acceptant’s conformity with the offer which
is what gives rise to the birth of a contract. In this case the
acceptance of the offer was not sufficient to give life to the
contract and is no ground for compelling the offerer to
execute the sale offered.
APPEAL from a judgment of the Court of First Instanceof
Occidental Negros.
AVANCEÑA, J.:
On November 7, 1918, the plaintiff, Lorenzo Zayco, and the
defendant, Salvador Serra, entered into a contract, the
pertinent clauses of which are the following:
"1. That the party of the first part shall give the party of the
second part an option to buy the Palma Central for the sum of
one million pesos (P1,000,000).
*      *      *      *      *      *      *
"4. That in case the purchase of the Palma Central is made
and the party of the second part cannot pay the whole price in
cash, then he will be given a period not exceeding three years
within which to make the full payment, computed from the
day of the execution of the contract of sale, provided that the
party of the second part gives a security or bond to the
satisfaction of the party of the first part to guarantee the
payment of the balance of the purchase price, with interest
thereon at a reasonable rate.
*      *      *      *      *      *      *
"6. That this option of the party of the second part to purchase
the Palma Central, or to become a partner of, or join, the party
of the first part, expires on the 30th of June, 1919.
"7. That hereafter, in case of the sale of the Palma Central,or
the formation of a partnership to operate the same, the party of
the second part shall have preference to make such sale, or
become a partner, over any other persons desiring to purchase
the central or enter into partnership."
Under date of June 28, 1919, the plaintiff, Lorenzo Zayco,
through his attorney, wrote a letter (Exhibit A) to the
defendant, Salvador Serra, accepting the foregoing contract
and placing at his disposal a cash order of the Bank of the
Philippine Islands of Iloilo in the amount of P100,000, in part
MIDTERM SALES CASES Page 38 of 96
payment of the price of the Palma Central and Estate. In this
letter, notice was also given to Serra that the Philippine
National Bank agreed to transfer his long term loan of
P600,000, to the account of Zayco and to hold the latter
responsible for all the amounts had and received on account of
this loan, Serra to be completely relieved from all
responsibility arising therefrom. Offer was further made in this
letter to give the bond required by the contract of November 7,
1918, to secure the payment of the balance of the price of
the Palma Central and Estate. The letter ended with a demand
by Zayco on Serra to execute the deed of sale. Serra had
knowledge of this letter, on June 30, 1919, as may be inferred
from his answer bearing that date (Exhibit C). On the
following 15th of July, Serra wrote to Zayco's attorney, stating
that the option contract of November 7, 1918, was cancelled
and annulled.
On the Same day, June 30, 1919, Zayco brought suit against
Serra to compel him to execute the deed of sale and
conveyance of the Palma Central and Estate and to pay, in
addition, P500,000 as damages.
It might be well to make a brief statement of the proceedings
had thereafter until the holding of the trial.
To this complaint the defendant demurred on the ground,
among others, that the contract of November 7, 1918, does not
specify the part of the price that was to be paid in cash and the
part that was to be paid within a period not exceeding three
years.
Before the court could pass upon this demurrer, Zayco filed an
amended complaint on September 9, 1919, which was later
withdrawn, and substituted by another one dated October 21,
1919.
To this amended complaint of October 21, 1919, another
demurrer was filed, one of its grounds being the same as that
alleged in the first demurrer, to wit, that the contract of
November 7, 1918, does not stipulate what part of the price
was to be paid in cash and what part within a period not
exceeding three years. The court sustained this demurrer and
granted the plaintiff a period within which to amend his
complaint.
On January 23, 1920, the last amended complaint was filed in
which, for the first time, an allegation is made that subsequent
to the contract of November 7, 1918, and prior to June 28,
1919, a stipulation was made by the plaintiff, Zayco, and the
defendant, Serra, that the sum to be paid in cash on account of
the total price of the sale was P100,000.
A demurrer was also interposed to this last amended
complaint, which was overruled.
The defendant filed his answer on February 27, 1920,
containing a general and specific denial of all and each of the
allegations of the complaint and a special defense consisting in
that the contract of November 7, 1918, did not specify a
sufficient consideration on the part of the plaintiff Zayco.
On March 19, 1920, the plaintiff filed a supplemental
complaint in which Philip Whitaker, Venancio Concepcion,
and Eusebio R. de Luzuriaga were included as defendants, and
it was alleged that, without the knowledge of the plaintiff
Zayco, the defendant Serra sold the Palma Central and Estate
to said Messrs. Philip Whitaker, Venancio Concepcion, and
Eusebio R. de Luzuriaga on January 29, 1920, for the sum of
P1,500,000 on the terms and conditions specified in said
contract. It is prayed in this complaint that, at all events, the
plaintiff Zayco be declared entitled to purchase from the
defendant, Serra, the Palma Central and Estate on the same
terms and conditions as those of the sale to Messrs. Whitaker,
Concepcion, and Luzuriaga.
Later Mr. Eusebio R. de Luzuriaga was excluded from this
complaint. The plaintiff Zayco having assigned his rights to
Dionisio Inza and Severino Lizarraga, these parties were
admitted to intervene as plaintiffs. The cause having been
tried, the court below rendered judgment absolving the
defendants from the complaint.
By the terms of the contract of November 7, 1918, Zayco was
granted the right: (a) To purchase the Palma Centraland Estate
until June 30, 1919, and (b) to have preference, after that date,
over any other purchaser making the same terms.
The court below holds that this contract of November 7, 1918,
has no consideration and is, f or this reason, null and void.
This conclusion, however, is not supported by the evidence.
It is true that the contract does not state any consideration on
the part of Serra, but it is presumed that there is a
consideration in all contracts (art. 1277, Civ. Code). Besides, a
consideration can be proved and, in this case, there is evidence
showing its existence.
The Palma Central was in competition with the Bearin
Central of Lizarraga Hermanos and both were doing their best
to gain the greatest number of supporters, which, as is well-
known, constitutes the basis and measure of their
development. Zayco owned an estate containing 350 hectares
used for cultivating cane, situated between both centrals in
such a way as to constitute an opening to them from the
adjacent estates. Owing to this circumstance, Zayco has been
the subject of solicitations of both centrals, each making the
most favorable offers to win him. Lizarraga Hermanos went so
far as to offer to remit his debt, amounting to P40,000, if he
became a supporter of their central. Serra, in turn, offered to
give him 60 per cent of the sugar of his cane milled in
the Palma Centralinstead of 55 per cent, as allowed by the
other centrals, and besides, they promised to assist him in
acquiring this central. Zayco, at last, decided to become, as he
in fact became, a supporter of the Palma Central.
All this, which preceded and led to the execution of the
contract of November 7, 1918, is evidently a sufficient
consideration to give life to the contract. It meant, on the part
of Zayco, the waiver of positive benefits which he would have
obtained f rom Lizarraga Hermanos. It meant at the same time,
MIDTERM SALES CASES Page 39 of 96
on the part of Serra, an expansion of his central and the
consequent increase in his production and profit. Under such
circumstances Zayco's support to the Palma, Central was a
prestation of thing or service which positively benefited Serra.
As has been stated, Zayco prays in this action that Serra be
compelled to sell to him the Palma, Central in accordance
with the contract of November 7, 1918. It having been
determined that there exists a consideration for this contract,
the same is binding upon the parties.
However, it is not necessary to view the question from this
standpoint. It can be taken for granted, as contended by the
defendants, 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 this 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).
However, Zayco's acceptance, as his letter of June 28, 1919,
indicates, could not, in itself, convert the offer of sale made by
Serra in the document of November 7, 1918, into a perfect
contract. In order for the acceptance to have this effect, it must
be plain and unconditional, and it will not be so if it involves
any new proposal, for in that case it would not mean
conformity with the offer, which is what gives rise to the
generation of the contract. The letter of acceptance of Zayco
lacks these requisites.
It should be noted that, according to the terms of the offer, in
case the total of the agreed price of P1,000,000 could not be
paid in cash, the balance was to be paid within a period not
exceeding three years. This means that a part of this price was
to be paid in cash. But the amount of this first payment was
not determined. Consequently, when Zayco accepted the offer,
tendering the sum of P100,000 as first payment, his
acceptance involved a proposal, not contained in the offer, that
this precisely, and not any other, should be the amount of the
first payment. This proposal, in turn, required acceptance on
the part of Serra. For this reason, Zayco's acceptance did not
imply conformity with the offer of Serra, but only when the
latter shall, in turn, have accepted his proposal that the amount
to be paid in cash was P100,000. Not only was this not
accepted by Serra, but Serra cancelled his offer on July 15,
1919.
An attempt was made to prove the allegation contained in the
last amended complaint to the effect that subsequent to the
execution of the contract of November 7, 1918, Zayco and
Serra agreed, as a suppletory stipulation, that the amount of
the first payment to be made in cash should be P100,000. It is
said that this stipulation is contained in a letter sent by Serra to
Zayco. This letter, however, was not introduced in evidence,
but was alleged to have been lost, and secondary evidence of
its contents was presented which consisted in the testimonies
of Zayco, his son, Rafael, and Antonio Velez. Upon
examination of the testimony of these witnesses, the same is
found so uncertain and contradictory on many points affecting
their veracity as not to be considered sufficient to prove either
the loss of the alleged letter, or its existence and contents.
Moreover, it is strange, if that stipulation ever existed, that
Zayco, in accepting the offer, not only agreed to pay P100,000
in cash, but agreed also, as part of his acceptance, to assume
Serra's obligations in connection with the credit of P600,000
given him by the National Bank. It is stranger still that this
stipulation, being so important a part of the contract, was not
alleged in the original complaint, and notwithstanding that in
the demurrer to this complaint attention was called to the fact
that this stipulation was lacking, this allegation was not made
in the two successive amended complaints but only in the
fourth, after the court had sustained the demurrer filed on this
ground.
Our conclusion is that the acceptance made by Zayco of
Serra's offer was not sufficient to give life to a contract and is
no ground for compelling Serra to execute the sale offered.
As to plaintiffs' claim that they have preference over the
defendants, Messrs. Venancio Concepcion and Phil. C.
Whitaker in the purchase of the Palma Central, two members
of this court and the writer of this opinion believe that the
plaintiffs are entitled to this preference, but the majority of the
court hold otherwise, for the reason that the plaintiffs have not
formally offered to repay the defendants Concepcion and
Whitaker the price paid by them, and to assume their
obligations incurred under the contract.
FALLO For the foregoing reasons, the judgment appealed
from is affirmed with the costs against the appellants. So
ordered.
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.
MIDTERM SALES CASES Page 40 of 96

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 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 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
MIDTERM SALES CASES Page 41 of 96
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.
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 Hog, 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 33,056square meter lot at Barrio Bagong Hog, Pasig,
Metro Manila covered by Transfer Certificate of Title No.
493122.
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
MIDTERM SALES CASES Page 42 of 96
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 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.  sell on an as is, where is basis, the property located at Pasig
Costs against defendants.  Blvd., Bagong Ilog x x x.” We agree with Revilla’s testimony
(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
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.
MIDTERM SALES CASES Page 43 of 96
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 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 Mclntosh 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 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
MIDTERM SALES CASES Page 44 of 96
of the Committee, it is only on the terms.” (ibid, p. 19). This is Emphasis supplied.)
incontrovertibly established in the following testimony of
Aromin: The record shows that if payment was in cash, either broker
Revilla or Aromin had full authority. But because petitioner
A. After you were able to agree on took advantage of the suggestion of Vice-President Albano,
the price of P1,000.00/sq m., since the matter was sent to higher officials. Immediately upon
learning that payment on terms was frozen and/or denied,
the letter or authority says the
Limketkai exercised his right within the period given to him
payment must be in cash basis, and tendered payment in full. The BPI rejected the payment.
what transpired later on?
B. After we have agreed on the In its Comment and Memorandum, respondent NBS cites Ang
Yu Asuncion vs. Court of Appeals (238 SCRA 602 [1994]) to
price, the Lim brothers inquired
bolster its case. Contrarywise, it would seem that the legal
on how to go about submitting the principles found in said case strengthen and support
covering proposal if they will be petitioner’s submission that the contract was perfected upon
allowed to pay on terms.They the meeting of the minds of the parties.
requested us to give them a guide
The negotiation or preparation stage started with the authority
on how to prepare the given by Philippine Remnants to BPI to sell the lot, followed
corresponding letter of proposal. I by (a) the authority given by BPI and confirmed by Philippine
recall that, upon the request of Mr. Remnants to broker Revilla to sell the property, (b) the offer to
sell to Limketkai, (c) the inspection of the property and finally
Albino Limketkai, we dictated a
(d) the negotiations with Aromin and Albano at the BPI
guide on how to word a written offices.
firm offer that was to be submitted
by Mr. Lim to the bank setting out The perfection of the contract took place when Aromin and
Albano, acting for BPI, agreed to sell and Alfonso Lim with
the terms of payment but with the
Albino Limketkai, acting for petitioner Limketkai, agreed to
mutual agreement that if his buy the disputed lot at P1,000.00 per square meter. Aside from
proposed payment on terms will this there was the earlier agreement between petitioner and the
not be approved by our trust authorized broker. There was a concurrence of offer and
committee, Limketkai should pay acceptance, on the object, and on the cause thereof.
the price in cash. The phases that a contract goes through may be summarized as
Q And did buyer Limketkai agree to follows:
pay in cash in case the offer of
terms will be cash (disapproved). a. preparation, conception or generation, which is the period of
negotiation and bargaining, ending at the moment of
A Yes, sir. agreement of the parties;
Q At the start, did they show their b. perfection or birth of the contract, which is the moment
willingness to pay in cash? when the parties come to agree on the terms of the contract;
A Yes, sir. and
c. consummation or death, which is the fulfillment or
Q You said that the agreement on performance of the terms agreed upon in the contract (Toyota
terms was to be submitted to the Shaw, Inc. vs. Court of Appeals, G.R. No. 116650, May 23,
trust committee for approval, are 1995).
you telling the Court that what
But in more graphic prose, we turn to Ang Yu Asuncion, per
was to be approved by the trust Justice Vitug:
committee was the provision on
the payment on terms? . . . A contract undergoes various stages that include its
A Yes, sir. negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time
Q So the amount was no longer the prospective contracting parties indicate interest in the
subject to the approval or contract to the time the contract is concluded (perfected).
disapproval of the committee, it is The perfection of the contract takes place upon the
only on the terms? concurrence of the essential elements thereof. A contract
which is consensual as to perfection is so established upon a
A Yes, sir. mere meeting of minds, i.e., the concurrence of offer and
(tsn, Dec. 3, 1990, pp. 18-19; acceptance, on the object and on the cause thereof. A contract
MIDTERM SALES CASES Page 45 of 96
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 antecedents 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
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 v. 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 v. 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).
Regarding the admissibility and competence of the evidence
adduced by petitioner, respondent Court of Appeals ruled that
because the sale involved real property, the statute of frauds is
applicable.
In any event, petitioner cites Abrenica v. 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. The succinct words of
Justice Araullo still ring in judicial cadence:
As no timely objection or protest was made to the admission
of the testimony of the plaintiff with respect to the contract;
and as the motion to strike out said evidence came too late;
and, furthermore, as the defendants themselves, by the cross-
questions put by their counsel to the witnesses in respect to
said contract, tacitly waived their right to have it stricken out,
that evidence, therefore, cannot be considered either
inadmissible or illegal, and court, far from having erred in
taking it into consideration and basing his judgment thereon,
notwithstanding the fact that it was ordered to be stricken out
during the trial, merely corrected the error he committed in
ordering it to be so stricken out and complied with the rules of
procedure hereinbefore cited. (at p. 748.)
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 Abrenicarule (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).
MIDTERM SALES CASES Page 46 of 96
The reason for the rule is that as pointed out in Abrenica “if
the answers of those witnesses were stricken out, the
crossexamination could have no object whatsoever, and if the
questions were put to the witnesses and answered by them,
they could only be taken into account by connecting them with
the answers given by those witnesses on direct examination”
(pp. 747-748).
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/arewritten evidence that such a
contract was entered into.
We cite the findings of the trial court on this matter:
In accordance with the provisions of Art. 1403 of the Civil
Code, the existence of a written contract of the sale is not
necessary so long as the agreement to sell real property is
evidenced by a written note or memorandum, embodying the
essentials of the contract and signed by the party charged or
his agent. Thus, it has been held:
“The Statute of Frauds, embodied in Article 1403 of the Civil
Code of the Philippines, does not require that the contract
itself be written. The plain test of Article 1403, paragraph (2)
is clear that a written note or memorandum, embodying the
essentials of the contract and signed by the party charged, or
his agent suffices to make the verbal agreement enforceable,
taking it out of the operation of the statute.(Italics supplied)
xxx
“In the case at bar the complaint in its paragraph 3 pleads that
the deal had been closed by letter and telegram (Record on
Appeal, p. 2), and the letter referred to was evidently the one
copy of which was appended as Exhibit A to plaintiff’s
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 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
MIDTERM SALES CASES Page 47 of 96
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 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 v. 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:
1.The sale was supposed to be done through an authorized
broker, but top officials of BPI personally and directly took
over this particular sale when a close friend became interested.
2.BPI Senior Vice President Edmundo Barcelon admitted that
NBS’s President, Alfredo Ramos, was his friend; that they had
lunch meetings before this incident and discussed NBS’s
purchase of the lot. Barcelon’s father was a business associate
of Ramos.
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 BPF’s
title be found defective.
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.
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, plane 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.
Prescinding from the above, we rule that there was a perfected
contract between BPI and petitioner Limketkai; that the BPI
MIDTERM SALES CASES Page 48 of 96
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.
FALLO 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.
Notes.—In case of fraud, bad faith, malice or wanton attitude,
the guilty party is liable for all damages which may be
reasonably attributed to the non-performance of the
obligations. (Legaspi Oil Co., Inc. vs. Court of Appeals, 224
SCRA 213 [1993])
It is imperative for a purchaser of land which is possessed by
persons not the vendor to inquire and investigate into the
rights or title of those in possession. (Bautista vs. Court of
Appeals, 230 SCRA 446[1994])
ACCEPTANCE SUBJECT TO SUSPENSIVE
CONDITION
No. L-61623. December 26, 1984.*
PEOPLE’S HOMESITE & HOUSING CORPORATION,
petitioner-appellant, vs.COURT OF APPEALS,
RIZALINO L. MENDOZA and ADELAIDA R.
MENDOZA, respondents-appellees.
Sale; P.H.H.C.; There is no perfected sale of a subdivision
lot where award thereof was expressly made subject to
approval by higher authorities and there was no acceptance
manifested by the supposed awardee.—We hold that there
was no perfected sale of Lot 4. It was conditionally or
contingently awarded to the Mendozas subject to the approval
by the city council of the proposed consolidation subdivision
plan and the approval of the award by the valuation committee
and higher authorities.
Same; Same; Same.—The city council did not approve the
subdivision plan. The Mendozas were advised in 1961 of the
disapproval. In 1964, when the plan with the area of Lot 4
reduced to 2,608.7 square meters was approved, the Mendozas
should have manifested in writing their acceptance of the
award for the purchase of Lot 4 just to show that they were
still interested in its purchase although the area was reduced
and to obviate any doubt on the matter. They did not do so.
The PHHC board of directors acted within its rights in
withdrawing the tentative award.
APPEAL from the decision of the Court of Appeals.
The question in this case is whether the People’s Homesite &
Housing Corporation bound itself to sell to the Mendoza
spouses Lot 4 (Road) Pcs-4564 of the revised consolidation
subdivision plan with an area of 2,608.7 (2,503.7) square
meters located at Diliman, Quezon City.
AQUINO, J.:
The PHHC board of directors on February 18, 1960 passed
Resolution No. 513 wherein it stated “that subject to the
approval of the Quezon City Council of the above-mentioned
Consolidation Subdivision Plan, Lot 4, containing 4,182.2
square meters be, as it is hereby awarded to Spouses Rizalino
Mendoza and Adelaida Mendoza, at a price of twenty-one
pesos (P21.00) per square meter” and “that this award shall
be subject to the approval of the OEC (PHHC) Valuation
Committee and higher authorities”.
The city council disapproved the proposed consolidation
subdivision plan on August 20, 1961 (Exh. 2). The said
spouses were advised by registered mail of the disapproval of
the plan (Exh. 2-PHHC). Another subdivision plan was
prepared and submitted to the city council for approval. The
revised plan, which included Lot 4, with a reduced area of
2,608.7, was approved by the city council on February 25,
1964 (Exh. H).
On April 26, 1965 the PHHC board of directors passed a
resolution recalling all awards of lots to persons who failed to
pay the deposit or down payment for the lots awarded to them
(Exh. 5). The Mendozas never paid the price of the lot nor
made the 20% initial deposit.
On October 18, 1965 the PHHC board of directors passed
Resolution No. 218, withdrawing the tentative award of Lot 4
to the Mendoza spouses under Resolution No. 513 and
reawarding said lot jointly and in equal shares to Miguela Sto.
Domingo, Enrique Esteban, Virgilio Pinzon, Leonardo
Redublo and Jose Fernandez, subject to existing PHHC rules
and regulations. The prices would be the same as those of the
adjoining lots. The awardees were required to deposit an
amount equivalent to 20% of the total selling price (Exh. F).
The five awardees made the initial deposit. The corresponding
deeds of sale were executed in their favor. The subdivision of
Lot 4 into five lots was approved by the city council and the
Bureau of Lands.
On March 16, 1966 the Mendoza spouses asked for
reconsideration of the withdrawal of the previous award to
them of Lot 4 and for the cancellation of the re-award of said
lot to Sto. Domingo and four others. Before the request could
be acted upon, the spouses filed the instant action for specific
performance and damages.
The trial court sustained the withdrawal of the award. The
Mendozas appealed. The Appellate Court reversed that
decision and declared void the re-award of Lot 4 and the deeds
of sale and directed the PHHC to sell to the Mendozas Lot 4
with an area of 2,603.7 square meters at P21 a square meter
and pay to them P4,000 as attorney’s fees and litigation
expenses. The PHHC appealed to this Court.
MIDTERM SALES CASES Page 49 of 96
The issue is whether there was a perfected sale of Lot 4, with Ownership is not transferred by perfection of the contract but
the reduced area, to the Mendozas which they can enforce by delivery, either actual or constructive. (Sampaguita
against the PHHC by an action for specific performance. Pictures, Inc. vs. Jalwindor Manufacturer, Inc., 93 SCRA
We hold that there was no perfected sale of Lot 4. It was 420.)
conditionally or contingently awarded to the Mendozas subject
to the approval by the city council of the proposed
[No. 23630. August 25, 1925]
consolidation subdivision plan and the approval of the award
TIBURCIO LEOQUINCO, plaintiff and
by the valuation committee and higher authorities.
appellant, vs.THE POSTAL SAVINGS BANK ET AL.,
defendants and appellees.
The city council did not approve the subdivision plan. The
Mendozas were advised in 1961 of the disapproval. In 1964,
SALE; PUBLIC AUCTION; RIGHT OF VENDOR, IN A
when the plan with the area of Lot 4 reduced to 2,608.7 square
PUBLIC AUCTION, TO IMPOSE CONDITIONS AS TO
meters was approved, the Mendozas should have manifested
SALE.—The defendant offered for sale at public auction
in writing their acceptance of the award for the purchase of
certain property, reserving the right to reject any and all
Lot 4 just to show that they were still interested in its purchase
bids. Held: That the owner of property which is offered for
although the area was reduced and to obviate any doubt on the
sale, either at public or private auction, has the right to
matter. They did not do so. The PHHC board of directors
prescribe the manner, conditions, and terms of such sale. He
acted within its rights in withdrawing the tentative award.
may provide that all of the purchase price should be paid at the
time of the sale, or any portion thereof, or that time will be
“The contract of sale is perfected at the moment there is a
given for the payment, or that any and all bids may be
meeting of minds upon the thing which is the object of the
rejected. The conditions of a public sale announced by an
contract and upon the price. From that moment, the parties
auctioneer or by the owner of the property at the time and
may reciprocally demand performance, subject to the law
place of the sale, are binding upon all bidders, whether they
governing the form of contracts.” (Art. 1475, Civil Code).
knew of such conditions or not.
“Son, sin embargo, exception a esta regla los casos en que por
virtud de la voluntad de las partes o de la ley, se celebra la
APPEAL from a judgment of the Court of First Instance of
venta bajo una condición suspensiva, y en los cuales no se
Manila. Imperial, J.
perfecciona la venta hasta el cumplimiento de la
condición” (4 Castan Tobeñas, Derecho Civil Español 8th ed.
This action was commenced in the Court of First Instance of
p. 81).
the City of Manila on the 15th day of May, 1924, against the
“In conditional obligations, the acquisition of rights, as well as
Postal Savings Bank (El Banco Postal de Ahorros) and its
the extinguishment or loss of those already acquired, shall
board of directors composed of Cipriano Unson, Miguel
depend upon the happening of the event which constitutes the
Unson, Antonio Villa-Real, Jose Topacio, Ben F. Wright, and
condition”. (Art. 1181, Civil Code). “Se llama suspensive la
Jose Alba.
condición de la que depende la perfeccion, o sea el principio
del contrato”. (9 Giorgi, Teoria de las Obligaciones, p. 57).
JOHNSON, J.:
Under the facts of this case, we cannot say there was a
Plaintiff alleged that he was the highest bidder at a public
meeting of minds on the purchase of Lot 4 with an area of
auction held by the defendants on March 31, 1924, for the sale
2,608.7 square meters at P21 a square meter.
of a piece or parcel of land belonging to the Bank, situated at
Navotas, Province of Rizal, having offered P27,000 for said
The case of Lapinig vs. Court of Appeals, 115 SCRA 213 is
property; that in Resolution No. 31 of the board of directors of
not in point because the awardee in that case applied for the
the Bank, authorizing the sale of said property at public
purchase of the lot, paid the 10% deposit and a conditional
auction, as well as in the public notice announcing said sale,
contract to sell was executed in his favor. The PHHC could
the board of directors have expressly reserved to themselves
not reaward that lot to another person.
the right to reject any and all bids; that as such highest bidder
at said auction, he wrote a letter to the defendants on May 9,
FALLO: WHEREFORE, the decision of the Appellate Court
1924, advising that he was ready to tender payment for the
is reversed and set aside and the judgment of the trial court is
land as soon as the deed of sale of the same in his favor is
affirmed. No costs.SO ORDERED.
executed and delivered by the defendants; that the defendants
Notes.—There is no perfected contract where the alleged
refused to execute the deed in spite of requests made therefor
contract was signed by only one party and the record shows
by him; that said refusal caused him damages in the sum of
that the other party did not execute or sign the said contract
P25,000 more or less. Plaintiff prayed that said defendants be
form. (Guardiano vs. Encarnacion,29 SCRA 326.)
ordered to execute and deliver the deed of sale of said land in
his favor, and to pay him damages amounting to P25,000, and
A contract of sale is perfected the moment there is agreement
the costs.
upon the thing object of the contract and upon the price.
(Philippine Virginia Tobacco Administration vs. De los
The defendants answered, admitting the allegations of the
Angeles, 87 SCRA 197.)
complaint, except the conclusions of law therein set forth and

MIDTERM SALES CASES Page 50 of 96

the damages alleged to have been suffered by plaintiff. As a
special defense, the defendants alleged that in Resolution No.
31 of the board of directors of the Postal Savings Bank,
authorizing the sale at public auction of the property in
question, as well as in the notice announcing said sale, the
defendants expressly reserved to themselves "the right to
reject any and all bids," and that they never accepted the bid or
offer of the plaintiff. The defendants prayed for relief from the
complaint, with costs against the plaintiff.
Upon the issue thus presented the cause was brought on for
trial, at the conclusion of which and after a careful
consideration of the evidence adduced pro and con, the
Honorable C. A. -Imperial, judge, rendered a judgment
holding that the plaintiff had not established his case, and
dismissed the complaint without costs. From said judgment
the plaintiff appealed, and now raises several questions of both
fact and law.
There is no dispute as to the facts of this case which are
essential to the decision thereof. They are clearly set forth in
the pleadings and admitted .by both parties. It only remains to
be added that the defendants not only did not accept the
plaintiff's bid, but on May 10, 1924, they wrote him a letter,
advising him that his bid was rejected by the board of directors
at its meeting of May 6, 1924.
There is absolutely no merit in this appeal. It may be
summarily disposed of, without need for a discussion of the
errors assigned by appellant's counsel. Appellant set f orth and
admitted in his pleadings that in the resolution adopted by the
board of directors authorizing the sale at public auction of the
land, as well as in the notice announcing the auction, the
appellees had expressly reserved to themselves the right to
reject any and all bids. By taking part in the auction and
offering his bid, the appellant voluntarily submitted to the
terms and conditions of the auction sale, announced in the
notice, and clearly acknowledged the right so reserved to the
appellees. The appellees, making use of that right, rejected his
offer. Clearly, the appellant has no ground of action to compel
them to execute a deed of sale of the land in his favor, nor to
compel them to accept his bid or offer. "The owner of property
offered for sale at auction has the right to prescribe the
manner, conditions and terms of sale, and where these are
reasonable and are made known to the buyer, they are binding
upon him, and he cannot acquire a title in opposition to them,
and against the consent of the owner. * * *" (Farr vs. John, 23
Iowa, 286; Batemann, on Auctions, p. 2; 6 Corpus Juris, p.
827.)
The owner of property offered for sale either at public or
private auction has the right to prescribe the manner,
conditions and terms of such sale. He may provide that all of
the purchase price shall be paid at the time of the sale or any
portion thereof, or that time will be given for the payment.
(Blossom vs.Milwaukee and Chicago Railroad Co., 3 Wallace
[U. S.], 196.)
The conditions of a public sale, announced by an auctioneer or
the owner of the property at the time and place of the sale, are
binding upon a purchaser, whether he knew them or not.
(Kennell vs. Boyer, 144 Iowa, 303; Vanleer vs. Fain, 6
Humphrey [Tenn.], 104.)
FALLO: Therefore, the sentence appealed from should be and
is hereby affirmed, with costs against the appellant. So
ordered.
FUNCTION OF EARNEST MONEY
G.R. No. 119580. September 26, 1996.*
PHILIPPINE NATIONAL BANK, petitioner, vs. COURT
OF APPEALS and LAPAZ KAW NGO, respondents.
Civil Law; Property; Sales; A contract to sell is akin to a
conditional sale where the efficacy or obligatory force of the
vendor’s obligation to transfer title is subordinated to the
happening of a future and uncertain event.—A contract to
sell is akin to a conditional sale where the efficacy or
obligatory force of the vendor’s obligation to transfer title is
subordinated to the happening of a future and uncertain event
so that if the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never
existed. The suspensive condition is commonly full payment
of the purchase price.
Same; Same; Same; Distinction Between a Contract to Sell
and a Contract of Sale.—The differences between a contract
to sell and a contract of sale are well-settled in jurisprudence.
As early as 1951, we have held that: “x x x [a] distinction must
be made between a contract of sale in which title passes to the
buyer upon delivery of the thing sold and a contract to sell x x
x where by agreement the ownership is reserved in the seller
and is not to pass until the full payment of the purchase price
is made. In the first case, non-payment of the price is a
negative resolutory condition; in the second case, full payment
is a positive suspensive condition. Being contraries, their
effect in law cannot be identical. In the first case, the vendor
has lost and cannot recover the ownership of the land sold
until and unless the contract of sale is itself resolved and set
aside. In the second case, however, the title remains in the
vendor if the vendee does not comply with the condition
precedent of making payment at the time specified in the
contract.” In other words, in a contract to sell, ownership is
retained by the seller and is not to pass to the buyer until full
payment of the price or the fulfillment of some other
conditions either of which is a future and uncertain event the
non-happening of which is not a breach, casual or serious, but
simply an event that prevents the obligation of the vendor to
convey title from acquiring binding force.
Same; Same; Same; It is not enough to say that the contract
of sale, being consensual became automatically and
immediately effective.—We have often stated that it is not
enough to say that the contract of sale, being consensual,
became automatically and immediately effective.
Same; Same; Same; Earnest money given in a sale
transaction is considered part of the purchase price and
MIDTERM SALES CASES Page 51 of 96
proof of the perfection of the sale.—Indeed under Article
1482 of the Civil Code, earnest money given in a sale
transaction is considered part of the purchase price and proof
of the perfection of the sale. This provision, however, gives no
more than a disputable presumption that prevails in the
absence of contrary or rebuttal evidence. In the instant case,
the letter-agreements themselves are the evidence of an
intention on the part of herein private parties to enter into
negotiations leading to a contract of sale that is mutually
acceptable as to absolutely bind them to the performance of
their obligations thereunder. The letter-agreements are replete
with substantial condition precedents, acceptance of which on
the part of private respondent must first be made in order for
petitioner to proceed to the next step in the negotiations. The
initial deposits under the two letter-agreements, therefore,
should rather be construed, not strictly as earnest money, but
as part of the consideration for petitioner’s promise to reserve
the subject property for private respondent.
PETITION for review on certiorari of a decision of the Court
of Appeals.
The question at issue, one of law, is whether or not from the
undisputed facts there was entered between the Philippine
National Bank and Lapaz Kaw Ngo a perfected contract of
sale of prime real property located in the heart of downtown
Manila.
Before us is a petition for review on certiorari seeking the
reversal of the decision1of the respondent Court of Appeals2
in an action for specific performance3 filed in the Regional
Trial Court (RTC)4 by private respondent Lapaz Kaw Ngo
against petitioner Philippine National Bank (hereafter,
“PNB”). Except for the award of P610,000.00 as actual
damages which was deleted, respondent appellate court
affirmed in all other respects the judgment5 rendered by the
RTC in favor of private respondent Ngo.
HERMOSISIMA, JR., J.:
The facts of this case, as narrated by respondent appellate
court, are undisputed:
“The subject matter of the case is a parcel of land containing a
net area of 1,190.72 square meters (1391.70 square meters
minus 200.98 square meters reserved for road widening and
Light Rail Transit) situated at the corner of Carlos Palanca and
Helios Streets, Sta. Cruz, Manila, covered by and embraced in
Transfer Certificate of Title No. 134695 of the Registry of
Deeds of Manila x x x owned and registered in the name of x x
x the Philippine National Bank x x x. x x x
On July 14, 1983 Lapaz made a formal offer to purchase the
parcel of land consisting of 1,250.70 [square meters] located at
the corner of Carlos Palanca and Helios Streets, Sta. Cruz,
Manila, owned by and registered in the name of x x x PNB x x
x PNB advised Lapaz of its approval of the latter’s offer to
purchase the subject property subject to the terms and
conditions stated in its official communication to the plaintiff
[private respondent] dated September 8, 1983, viz: ‘x x x
x x x your offer to purchase the Bank-acquired property x x x
was approved by the Bank, subject to the following terms and
conditions:
1.That the selling price shall be P5,394,300.00 (P100,000.00
already deposited) x x x
2.(a) That upon your failure to pay the additional deposit of
P978,860.00 upon receipt of advice accepting your offer, your
P100,000.00 initial deposit shall be forfeited and for this
purpose the Bank shall be authorized to sell the property to
other interested parties. x x x
3. The 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 waives [sic] your right to
warranty against eviction. x x x
4.That the property shall be cleared of its present
tenants/occupants but all expenses to be incurred in connection
with the ejectment proceedings shall be for your account.
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. x x x’
On December 15, 1983, the plaintiff [private respondent]
signified her conformity to the above letter-agreement by
affixing her signature thereon x x x.
One of the conditions in the agreement was to clear the subject
property of its then occupants; thus, Lapaz undertook the
ejectment of the squatters/tenants at her own expense. In a
letter dated January 23, 1984, Lapaz, citing the then prevailing
credit squeeze, requested for adjustments of payment
proposals x x x.
On February 28, 1984, PNB wrote Lapaz reminding her of her
failure to remit the amount of P978,860.00 as embodied in its
letter dated December 6, 1983 x x x and of her refusal to send
her letter of conformity to the letter-agreement. Lapaz was
likewise advised to remit her cash payment of the full price
amounting to P5,378,902.50; otherwise, the subject property
shall be sold to other interested party/ies and her deposit
forfeited. Lapaz’s request for adjustment of payments was
likewise denied x x x.
In a letter dated March 1, 1984 x x x Lapaz, due to a
significant reduction in the land area being purchased,
requested for the reduction of the selling price from
P5,394,300.00 to P5,135,599.17 on cash basis or a total of
P6,066,706.49 on installment x x x.
On May 15, 1984, PNB favorably acted on Lapaz’s request x
x x.
However, when no further payment was received by PNB
from Lapaz, the former notified the latter by telegram that it
was giving her a last chance to pay the balance of the required
downpayment of P563,341.29; failure of which shall cause the
cancellation of the sale in her favor and the forfeiture of her
P100,000.00 deposit x x x.
MIDTERM SALES CASES Page 52 of 96
The sale in favor of Lapaz never materialized because of her
failure to remit the required amount agreed upon; hence, the
proposed sale was cancelled x x x and the plaintiff’s [private
respondent’s] deposit of P100,000.00 was forfeited by the
defendant [petitioner]. PNB then leased the property to a
certain Morse Rivera x x x.
On October 3, 1984 Lapaz requested for a refund of her
deposit in the total amount of P660,000.00 (P550,000.00) with
a further request that since the Bank was willing to refund her
deposit provided that the P100,000.00 is forfeited in favor of
the Bank, the amount of P100,000.00 be reduced to
P30,000.00 because her deposit of P660,000.00 (P550,000.00)
had, after all, already accumulated to a sizeable amount of
interest and, besides there was a delay in the approval of the
contract or proposal. Lapaz further intimated that her request
for refund shall be subject to the release of the fund within one
(1) week from receipt thereof; otherwise, she would insist on
purchasing the property subject to mutually agreed grace
period x x x.
On October 16, 1984, PNB released in favor of Lapaz the
amount of P550,000.00 representing the refund of deposit
made on the offer to purchase the subject property x x x.
On August 30, 1985, [Lapaz] wrote a letter to the former
President of the Philippines, Ferdinand E. Marcos, requesting
for the lifting of the directive suspending the sale of the
subject property, which letter was transmitted to the then
President of the PNB for comment and/or action.
In its letter dated May 14, 1986, PNB advised Lapaz of the
approval of her request for revival of the previously approved
offer to purchase the subject property subject to the terms and
conditions as follows:
‘1.That the selling price shall be P5,135,599.17 (P200,000.00)
already deposited x x x
2.a.That upon your failure to pay the additional deposit of
P827,119.83 upon receipt of advice of approval, your
P200,000.00 deposit shall be forfeited and for this purpose, the
Bank can sell the property to other interested parties; x x x
3.That your previous deposit of P100,000.00 which was
forfeited by the Bank due to your failure to consummate the
previously-approved sale, shall not be considered as part of the
purchase price;
4.That 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 waives [sic] your right to
warranty against eviction; x x x
6.That the property shall be cleared of its present
tenants/occupants but all expenses to be incurred in connection
with the ejectment proceedings shall be for your account;
7.That the sale shall be subject to all terms and conditions
covering sale of similar acquired real estate properties;
8.That the sale shall also be subject to all terms and conditions
that the Legal Department may impose to protect the interest
of the Bank.’ x x x
A copy of the said letter appears to have been received by the
plaintiff [private respondent] herself on May 20, 1986 x x x.
In a letter dated May 23, 1986 x x x Lapaz informed the PNB
management that the terms and conditions set forth in its letter
of May 14, 1986 were acceptable to her except condition no. 6
which says:
6. That the property shall be cleared of its present
tenants/occupants but all expenses to be incurred in connection
with the ejectment proceedings shall be for your account.’
She therefore requested for the deletion of the above condition
because she had already defrayed the expenses for the
ejectment of the previous occupants of the premises in
compliance with the condition in the original approved offer to
purchase. Besides, the present occupants are not squatters, but
lessees of PNB x x x Lapaz’s request for modification was not
acceptable to the Bank, thus, she was given up to July 10,
1986 to submit, duly signed, the letter-conforme dated May
14, 1986 and to remit the initial amount of P827,119.83 to
comply with the approved terms and conditions; otherwise, the
approved sale will be cancelled and her deposit of
P200,000.00 forfeited x x x.
In a letter dated January 14, 1987, Lapaz through counsel
informed PNB that she was willing to pay and remit the
amount of P827,119.83 representing the balance of the 20%
down payment of the approved purchase price as soon as the
subject property was cleared of its present tenants/occupants.
However, the bank in its letter dated January 30, 1987
informed Lapaz that it could no longer grant her any extension
to pay the above stated amount, and cancelled on January 30,
1987 the approved sale in plaintiff’s [private respondent’s]
favor for being stale and unimplemented and forfeited her
deposit of P200,000.00 x x x.]
To demonstrate her protest over the cancellation, Lapaz
through counsel sent the letter dated February 6, 1987 asking
for a reconsideration of bank’s position on the matter by
honoring the approved sale in plaintiff’s [private respondent’s]
favor as well as her deposit x x x. In reply, the Bank denied
any further extension in favor of the plaintiff [private
respondent] and likewise informed her that it had already
decided to sell the property for not less than P7,082,972.00
through negotiated or sealed bidding x x x.
As a consequence of the cancellation of the approved offer to
purchase in her favor, Lapaz filed [an] action for Specific
Performance and Damages with Prayer for a Writ of
Preliminary Injunction and Temporary Restraining Order.
After trial, the lower court, on November 15, 1990, rendered
judgment in favor of the plaintiff [private respondent] x x x.”6
In the decretal portion of the trial court’s judgment, petitioner
was ordered to comply with the approved sale of the subject
property but without the right to impose the condition that
private respondent shall bear the expenses for ejecting the
occupants of the subject property. Petitioner was also ordered
to pay P610,000.00 as actual expenses, P100,000.00 as
MIDTERM SALES CASES Page 53 of 96
attorney’s fees, plus P1,000.00 per appearance, and the costs
of suit.
The aforecited judgment of the court a quo, totally
unacceptable to petitioner, was appealed to the respondent
court. Petitioner took exception to the following postulations
of the trial court: (1) that there was a perfected contract of sale
between herein private parties notwithstanding the suspensive
condition imposed upon private respondent for her to bear the
expenses for ejecting the occupants of the subject property; (2)
that the deposit of P200,000.00 given by private respondent
was earnest money which is proof of the perfection of the
contract of sale albeit the said condition imposed thereon; and
(3) that the cancellation of the second sale was baseless
notwithstanding proof of private respondent’s refusal to pay
the balance of the 20% down payment of the purchase price of
the subject property.
The respondent court disagreed with and answered each of, the
aforegoing asseverations of petitioner in this wise:
“The plaintiff-appellee’s [private respondent’s] offer to
purchase the subject property was originally approved by the
defendant-appellant [petitioner] on September 8, 1983 subject
however to the terms and conditions enumerated therein. x x x
From the moment the plaintiff-appellee [private respondent]
signed the letter-agreement signifying her conformity thereto,
which simply means that she was accepting the terms and
conditions therein absolutely, there was created between the
parties, a perfected contract of sale. x x x
The failure of the plaintiff [private respondent] to remit the
required downpayment does not negate the perfection of the
first contract of sale between the parties. The failure of the
vendee x x x to pay the price agreed upon in the contract only
gives the vendor x x x the right to exact the fulfillment or to
rescind the contract (Art. 1191, supra; Jacinto vs.
Kaparaz, 209 SCRA 246).
The terms and conditions in the letter-agreement need not be
complied with before it could be said that the contract had
already attained its perfection. A reading of the letter-
agreement would reveal that the perfection of the contract
does not depend on the fulfillment of the terms and conditions
therein. Since there was a meeting of the minds between the
parties upon the object of the contract and upon the price, the
contract of sale had already been perfected. Thus, whether or
not the conditions were fulfilled, the agreement remains to be
valid and each party may reciprocally demand for its
performance x x x.
Admittedly, the x x x [private respondent] failed to remit the
required downpayment for the first contract after several
notices for payment thereof x x x Thus, it was just proper for
the defendant-Bank [petitioner] to cancel the agreement to
protect its interests. Anyway, it was merely exercising its right
under Article 1191 of the New Civil Code which right was
clearly stipulated in the agreement x x x.
The agreement nonetheless was subsequently revived,
pursuant to which, another letter-agreement dated May 14,
1986 was sent by appellant [petitioner] to appellee [private
respondent] x x x. The latter did not sign the letter-agreement
but instead sent a letter to the appellant [petitioner] dated May
23, 1986 expressing her conformity to the terms and
conditions stipulated therein except for the condition which
states that the subject ‘property shall be cleared of its present
tenants/occupants’ at her expense. x x x. On the other hand,
appellant [petitioner] posits the view that since the approval of
the revival of the offer to purchase was made subject to the
terms and conditions stated therein, which conditions were
necessary for the enforceability of the obligation against the
appellant [petitioner], and there being no absolute acceptance
by the plaintiff [private respondent] of such terms and
conditions, then no contract of sale was perfected between the
parties.
Appellant’s [petitioner’s] view is devoid of merit.
We note that the appellant [petitioner] itself admitted that the
second agreement was merely a revival of the first agreement
which was duly approved by the bank, and the terms and
conditions thereof accepted by the appellee [private
respondent] x x x. Although there were some changes in the
second agreement, such changes were not substantial so as to
make it a different contract of sale from that of the first
agreement of the parties. x x x
Considering that there was already an ejectment case filed by
the appellant [petitioner] against its lessees, then there was no
longer any need for the plaintiff-appellee [private respondent]
to initiate another ejectment case at her expense, much less
was there a need to incorporate condition no. 6 in the
agreement. Thus, the forfeiture of the plaintiff’s [private
respondent’s] deposit of P200,000.00 and the subsequent
unilateral cancellation of the agreement have no legal basis at
all. Such cancellation was made without the appellant’s
[petitioner’s] action on the appellee’s [private respondent’s]
request for reconsideration of the PNB’s denial of her request
for deletion of condition No. 6 x x x.
Appellant [petitioner] likewise argues that the deposits given
by the appellate [private respondent] were expressly subject to
conditions agreed upon by the parties; hence, cannot be
deemed as earnest money contemplated in Article 1482 of the
New Civil Code.
A close scrutiny of the two letters-agreement shows that the
deposits of P100,000.00 x x x and P200,000.00 x x x were
made part of the selling/purchase price. x
On the basis of the above, there can be no other conclusion
than that the deposits made x x x were actually earnest money,
such that from the total selling price the arras (earnest money)
must be deducted and the balance is all that has to be paid
The appellant [petitioner] likewise assigns as error the findings
of the lower court on the absence of proof that the appellee
[private respondent] refused to pay the x x x downpayment in
the second agreement x x x.
MIDTERM SALES CASES Page 54 of 96

x x x The only reason which prevented the appellee [private
respondent] from paying the required downpayment was the
stipulation in the agreement requiring her to eject the present
occupants of the premises when in fact she already spent for
the eviction of its previous tenants x x x. However x x x there
is no need for such stipulation because anyway the appellant
[petitioner] had already instituted an action against its tenants
x x x Besides, the protest letter sent by appellee’s [private
respondent’s] lawyer x x x as well as the filing of this case are
eloquent proofs of the appellee’s [private respondent’s] desire,
capacity and willingness to proceed with the sale of the
property. As we noted above, the appellant [petitioner] never
replied to the appellee’s [private respondent’s] request for
reconsideration of its perusal to delete condition no. 6. PNB’s
inaction must have made Lapaz to suspend payment.”7
Likewise rebuffed by the respondent Court of Appeals which,
however, deleted the P610,000.00 award for actual damages
granted by the trial court to private respondent, petitioner
prays that the herein assailed decision be set aside because the
respondent court apparently decided questions of substance
not in accord with statutory and case law:
“THE COURT OF APPEALS ERRED:
I IN HOLDING THAT THERE WAS A PERFECTED
CONTRACT BETWEEN PNB AND MS. NGO DESPITE
THEIR CLEAR DISAGREEMENT ON THE
SUBSTANTIVE CONDITION THAT THE LATTER
SHOULDER THE EXPENSES FOR THE EJECTMENT OF
THE OCCUPANTS OF THE LOT TO BE SOLD
A.PNB’s acceptance of Ms. Ngo’s offer to revive her purchase
of subject lot was subject to certain substantive conditions.
B.PNB’s acceptance of Ms. Ngo’s offer was in fact a counter-
offer which she rejected by her insistence that PNB delete
condition number 6.
C.PNB’s Condition Number 6 is material and should be
agreed upon at inception of contract.
D.The area of agreement in PNB’s counter-offer/acceptance
extends to Condition number 6 together with all other
conditions PNB specified.
II IN HOLDING THAT MS. NGO’S REFUSAL TO PAY
THE P827,199.83 DOWNPAYMENT IS NOT A VALID
BASIS FOR PNB’S CANCELLATION OF THE
‘APPROVED’ SALE.”8
The petition is meritorious.
There are two separate transactions in
instant case; the first having
unconditionally cancelled, effects
cannot be deemed applicable to
second transaction
--------------------------------------------------------
Even private respondent admits in her pleadings that she failed
to remit the required down payment under the first letter-
agreement, dated September 8, 1983. On this basis, respondent
appellate court held that “[t]hus, it was just proper for the
[petitioner] Bank to cancel the agreement to protect its
interests,9” as it did so on October 16, 1984. Notwithstanding
such ruling, however, respondent court theorized that because
private respondent accepted the terms and conditions in that
first letter-agreement, and petitioner approved the revival
thereof in another letter-agreement, dated May 14, 1986,
conformity to this second letter-agreement by private
respondent would be superfluous, the letter-agreement dated
May 14, 1986 being “merely a revival of the first agreement
which was duly approved by the bank and the terms and
conditions thereof accepted by the appellee [private
respondent].”10 Needless to say, this postulation of respondent
court is in complete disregard of the status of the first letter-
agreement as being non-existent and totally inefficacious as a
result of its cancellation.
Respondent court then proceeded to state that petitioner
having already complied with the condition that she shoulder
all expenses for the ejectment of the occupants of the subject
property under the first letter-agreement, “it would have been
too cumbersome and inequitable if the plaintiff-appellee
[private respondent] were again made to shoulder the expenses
for the eviction of the subsequent tenants/occupants of the
subject property.”11Evidently, respondent court perceived the
two letter-agreements to be a single transaction such that it
justified private respondent’s non-compliance with condition
No. 6 in the second letter-agreement by invoking her earlier
compliance with the same condition in the first letter-
agreement.
This is confused sophism. When the first letter-agreement was
cancelled by petitioner, and private respondent agreed to that
cancellation upon receiving P550,000.00 as refund of her
aggregate deposit, all the effects of that agreement were
terminated. Upon mutual assent to that cancellation, the
agreement so cancelled thereafter no longer existed. Thus,
compliance by private respondent with the terms and
conditions of that first agreement served the purposes of that
agreement and cannot be made to serve the purposes of the
second letter-agreement. Respondent court fallaciously tacked
the two agreements with each other and commingled their
effects; it incorrectly considered petitioner’s successful
ejectment of the subject property’s 1983 occupants under the
first letter-agreement to be sufficient compliance with the
condition under the second letter-agreement that the subject
property be cleared of its 1986 occupants.
The records attest to the fact that private respondent refused to
accept condition No. 6 of the second letter-agreement, dated
May 14, 1986. Private respondent offered, for the second time,
the  after the first letter-agreement was cancelled, to buy the
been  subject property from petitioner who accepted such offer but
thereof  subject to specified terms and conditions. Thus, petitioner’s
the  acceptance of private respondent’s offer was a qualified
acceptance, which in effect, is a counter-offer necessitating
private respondent’s acceptance in return. Refusing to bind
herself to bear the expenses for a second ejectment suit
involving the subject property, private respondent in effect
rejected petitioner’s counter offer or at the least, accepted the
MIDTERM SALES CASES Page 55 of 96
same subject to the deletion of condition No. 6. This, it has to
be noted, is another counter-offer necessitating acceptance this
time by petitioner. Petitioner was unwilling to accept the same
and demanded remittance of the remainder of the down
payment, the failure of which payment, petitioner warned
private respondent, would result in the forfeiture of the initial
deposit of P200,000.00 and the ipso facto cancellation of the
second letter-agreement enabling petitioner to sell the subject
property through sealed bidding.
From the foregoing, it is clear that private respondent and
petitioner were negotiating for terms mutually acceptable to
them. Unfortunately, a mutually acceptable set of terms was
not reached between them, and petitioner exercised its right
under the second letter-agreement to cancel the same. This
process of negotiation undertaken in 1986 by herein private
parties is undeniably distinct from and entirely independent of
the events that transpired in 1983 in the context of the first
letter agreement. Precisely another negotiation was necessary
because this 1986 transaction is different and separate from
that undertaken by the said parties in 1983.
Both letter-agreements are in the nature  title before the happening of the suspensive condition. In fact,
of contracts to sell; non-compliance
the suspensive conditions set forth therein  another after unsuccessful demand for said price upon the
prevents the obligation of the vendor
convey title from having obligatory force
----------------------------------------------------------
The fundamental flaw in the reasoning of both the trial court
and the respondent appellate court is their admitted premise
that both letter-agreements are contracts of sale the perfection
of which are proven by the earnest money tendered to and
accepted by petitioner in the form of deposits of P100,000.00
and P200,000.00 under the first and second letter-agreements,
respectively.
A perusal of the letter-agreements shows that they are
contracts to sell and not contracts of sale.
A contract to sell is akin to a conditional sale where the
efficacy or obligatory force of the vendor’s obligation to
transfer title is subordinated to the happening of a future and
uncertain event so that if the suspensive condition does not
take place, the parties would stand as if the conditional
obligation had never existed.12 The suspensive condition is
commonly full payment of the purchase price.13
“Thus it has been held that a deed of sale is absolute in nature
although denominated as a “Deed of Conditional Sale” where
nowhere in the contract in question is a proviso or stipulation
to the effect that title to the property is sold is reserved in 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 x x x.”14
If it were not full payment of the purchase price upon which
depends the passing of title from the vendor to the vendee, it
may be some other condition or conditions that have been
stipulated and must be fulfilled before the contract is
converted from a contract to sell or at the most an executory
sale into an executed one.15
“x x x Where the seller promised to execute a deed of absolute
sale upon completing payment of the price, it is a contract to
sell. In the case at bar, the sale is still in the executory stage,
namely, that if private respondent is able to secure the needed
funds to be used in the purchase of the two 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.
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. x
x x x Petitioners as promisors were never obliged to convey
with  nothing stood in the way of their selling the property to
to  expiration of the time agreed upon.”16
The differences between a contract to sell and a contract of
sale are well-settled in jurisprudence. As early as 1951, we
have held that:
“x x x [a] distinction must be made between a contract of sale
in which title passes to the buyer upon delivery of the thing
sold and a contract to sell x x x where by agreement the
ownership is reserved in the seller and is not to pass until the
full payment of the purchase price is made. In the first case,
non-payment of the price is a negative resolutory condition; in
the second case, full payment is a positive suspensive
condition. Being contraries, their effect in law cannot be
identical. In the first case, the vendor has lost and cannot
recover the ownership of the land sold until and unless the
contract of sale is itself resolved and set aside. In the second
case, however, the title remains in the vendor if the vendee
does not comply with the condition precedent of making
payment at the time specified in the contract.”17
In other words, in a contract to sell, ownership is retained by
the seller and is not to pass to the buyer until full payment of
the price or the fulfillment of some other conditions either of
which is a future and uncertain event the non-happening of
which is not a breach, casual or serious, but simply an event
that prevents the obligation of the vendor to convey title from
acquiring binding force.18 To illustrate the effect of a positive
suspensive condition upon the nature of the transaction, as to
whether it is a contract to sell or a contract of sale, we have
held thus:
“In the agreement in question, entitled PURCHASE AND
SALE OF SCRAP IRON, the seller bound and promised itself
to sell the scrap iron upon the fulfillment by the private
respondent of his obligation to make or indorse an irrevocable
MIDTERM SALES CASES Page 56 of 96
and unconditional letter of credit in payment of the purchase
price. Its principal stipulation reads, to wit: x x x
‘Witnesseth:
That the SELLER agrees to sell, and the BUYER agrees to
buy x x x on the following terms and conditions:
1.x x x
2.To cover payment of the purchase price, BUYER will open,
make or indorse an irrevocable and unconditional letter of
credit not later than May 15, 1983 at the Consolidated Bank
and Trust Company, Dumaguete City Branch, in favor of the
SELLER in the sum of x x x (P250,000.00) x x x
3.x x x
4.x x x.’
The petitioner corporation’s obligation to sell is unequivocally
subject to a positive suspensive condition, i.e., the private
respondent’s opening, making or indorsing of an irrevocable
and unconditional letter of credit. The former agreed to deliver
the scrap iron only upon payment of the purchase price by
means of an irrevocable and unconditional letter of credit.
Otherwise stated, the contract is not one of sale where the
buyer acquired ownership over the property subject to the
resolutory condition that the purchase price would be paid
after delivery. Thus, there was to be no actual sale until the
opening, making or indorsing of the irrevocable and
unconditional letter of credit. Since what obtains in the case at
bar is a mere promise to sell, the failure of the private
respondent to comply with the positive suspensive condition
cannot even be considered a breach—casual or serious—but
simply an event that prevented the obligation of petitioner
corporation to convey title from acquiring binding force. x x x
In the instant case, x x x private respondent fail[ed] to open,
make or indorse an irrevocable and unconditional letter of
credit x x x
Consequently, the obligation of the petitioner corporation to
sell did not arise; it therefore cannot be compelled by specific
performance to comply with its prestation. x x x.”19
In the instant case, private respondent does not dispute the fact
that, under identical provisions in the two letter-agreements,
her obligation was to deposit an initial amount (P100,000.00
under the first letter-agreement and P200,000.00 under the
second letter-agreement) and then subsequently to deposit an
additional amount representing roughly 20% of the purchase
price (P978,860.00 under the first letter agreement and
P827,119.83 under the second letter-agreement). Under both
letter-agreements, the consequences of private respondent’s
failure to remit the additional deposit, are unequivocal and
plainly comprehensible: “x x x deposit shall be forfeited and
for this purpose, the Bank can sell the property to other
interested parties x x x due to your [private respondent’s]
failure to consummate the previously-approved sale x x x.”20
This right reserved in the petitioner to in effect cancel the
agreement to sell upon failure of private respondent to remit
the additional deposit and to consequently open the subject
property anew to purchase offers, is in the nature of a
stipulation reserving title in the vendor until full payment of
the purchase price or giving the vendor the right to unilaterally
rescind the contract the moment the vendee fails to pay within
a fixed period.
We had already made the finding that the letter-agreements in
question indeed bear the provisions reserving title in petitioner
until payment of the additional deposit representing more or
less 20% of the purchase price. We also find, however, that the
intention of the private parties herein to make the sale
dependent on private respondent’s compliance with certain
other conditions, is undeniable and plainly evident in the
letter-agreements. Identical provisions therein relating to
private respondent’s waiver of her right to warranty against
eviction and her accountability for the expenses for the
ejectment proceedings, are not so called “standard” provisions
that are more of a rhetorical device than conditions genuinely
meant by the parties to be suspensive conditions in the legal
sense. In fact we find the inclusion of these provisions to be
part of the consideration of petitioner in considering private
respondent’s offer to purchase the subject property.
Corollarily, we find condition No. 6 under the second letter-
agreement relating to the accountability of private respondent
for the expenses for the ejectment proceedings, to be a positive
suspensive condition, among the other positive suspensive
conditions embodied in the letter-agreement, non-compliance
of which prevents petitioner’s obligation to proceed with the
sale and ultimately transfer title to private respondent, from
having obligatory force.
Moreover, no less revealing is the fact that the letter-
agreements are not deeds of sale, thereunder no title having
been passed from petitioner to private respondent. Herein lies
another important distinction between a contract to sell and a
contract of sale.
“x x x The distinction between the two is important for in a
contract of sale, the title passes to the vendee upon the
delivery of the thing sold, whereas in a contract to sell, by
agreement, 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, failure of which is not a breach but an
event that prevented the obligation of the vendor to convey
title from becoming effective.”21
We have often stated that it is not enough to say that the
contract of sale, being consensual, became automatically and
immediately effective.22
“Manuel v. Rodriguez, 109 Phil. 1, was one such occasion. In
Manuel, ‘only the price and the terms of payment were in
writing,’ but the most important matter in the controversy, the
alleged transfer of title was never ‘reduced to any written
document. It was held that the contract should not be
considered x x x a sale but a promise to sell; and that ‘the
absence of a formal deed of conveyance’ was a strong
MIDTERM SALES CASES Page 57 of 96
indication ‘that the parties did not intend immediate transfer of FALLO: WHEREFORE, the Petition for Review is HEREBY
title, but only a transfer after full payment of the price.’ Under GRANTED. The decision of the Court of Appeals in CA-G.R.
these circumstances, the Court ruled Article 1504 of the Civil CV No. 33490 and the decision of the Regional Trial Court of
Code of 1889 (Art. 1592 of the present Code) to be Manila, Branch XXVI, in Civil Case No. 87-39598, are hereby
inapplicable to the contract in controversy—a contract to sell reversed and set aside. Private respondent’s complaint for
or promise to sell—where title remains with the vendor until specific performance and damages in Civil Case No. 87-39598
fulfillment of a positive suspensive condition x x x.”23 is dismissed. No pronouncement as to costs. SO ORDERED.
Thus, we have applied the above doctrine not in a few cases
and looked into, in determining the true nature of an alleged Note.—A sale is at once perfected when a person obligates
sale transaction, whether or not there was transfer of title. In himself for a price certain to deliver and to transfer ownership
one case, we found that: of a specific thing or right to another over which the latter
agrees. (Romero vs. Court of Appeals, 250 SCRA 223 [1995])
“Applying these distinctions, the Court finds that the
agreement between PBC and the private respondents was only
G.R. No. 137290. July 31, 2000.*
a contract to sell, not a contract of sale. And the reasons are
SAN MIGUEL PROPERTIES PHILIPPINES, INC.,
obvious.
petitioner, vs. SPOUSES ALFREDO HUANG and GRACE
There was no immediate transfer of title to the private
HUANG, respondents.
respondents as would have happened if there had been a sale
at the outset. The supposed sale was never registered and TCT
Civil Law; Property; Sales; Amount given not as a part of
No. 218661 in favor of PBC was not replaced with another
the purchase price and as proof of the perfection of the
certificate of title in favor of the private respondents.
contract of sale but only as a guarantee that respondents
would not back out of the sale.—With regard to the alleged
In the instant case, there was apparently no transfer of title, not
payment and acceptance of earnest money, the Court holds
even mention of such a transfer in the future, considering that
that respondents did not give the P1 million as “earnest
all the parties were aware of the occupancy of the subject
money” as provided by Art. 1482 of the Civil Code. They
property by third persons. This circumstance all the more
presented the amount merely as a deposit of what would
reinforces our finding that the transaction contemplated under
eventually become the earnest money or downpayment should
the letter-agreements was a contract to sell or a conditional
a contract of sale be made by them. The amount was thus
sale which absolutely depends, for its efficacy, upon the
given not as a part of the purchase price and as proof of the
happening of the conditions specified in the said letter-
perfection of the contract of sale but only as a guarantee that
agreements.
respondents would not back out of the sale. Respondents in
fact described the amount as an “earnest-deposit.”
Private respondent also asseverates that the initial deposit of
P200,000.00 under the second letter-agreement is earnest
Same; Same; Same; Option giving respondents the
money, that is, by express provision of the Civil Code,
exclusive right to buy the properties within the period agreed
considered part of the purchase price and proof of the
upon is separate and distinct from the contract of sale which
perfection of the sale.
the parties may enter.—The first condition for an option
period of 30 days sufficiently shows that a sale was never
Indeed, under Article 1482 of the Civil Code, earnest money
perfected. As petitioner correctly points out, acceptance of this
given in a sale transaction is considered part of the purchase
condition did not give rise to a perfected sale but merely to an
price and proof of the perfection of the sale. This provision,
option or an accepted unilateral promise on the part of
however, gives no more than a disputable presumption that
respondents to buy the subject properties within 30 days from
prevails in the absence of contrary or rebuttal evidence. In the
the date of acceptance of the offer. Such option giving
instant case, the letter-agreements themselves are the evidence
respondents the exclusive right to buy the properties within the
of an intention on the part of herein private parties to enter into
period agreed upon is separate and distinct from the contract
negotiations leading to a contract of sale that is mutually
of sale which the parties may enter. All that respondents had
acceptable as to absolutely bind them to the performance of
was just the option to buy the properties which privilege was
their obligations thereunder. The letter-agreements are replete
not, however, exercised by them because there was a failure to
with substantial condition precedents, acceptance of which on
agree on the terms of payment. No contract of sale may thus
the part of private respondent must first be made in order for
be enforced by respondents.
petitioner to proceed to the next step in the negotiations. The
Same; Same; Same; Option secured by respondents from
initial deposits under the two letter-agreements, therefore,
petitioner was fatally defective; Consideration in an option
should rather be construed, not strictly as earnest money, but
contract may be anything of value, unlike in sale where it
as part of the consideration for petitioner’s promise to reserve
must be the price certain in money or its equivalent.—Even
the subject property for private respondent. Certainly in
the option secured by respondents from petitioner was fatally
excluding all other prospective buyers from bidding for the
defective. Under the second paragraph of Art. 1479, an
subject property, petitioner was in effect giving up what may
accepted unilateral promise to buy or sell a determinate thing
have been more lucrative offers or better deals.
for a price certain is binding upon the promisor only if the
promise is supported by a distinct consideration. Consideration

MIDTERM SALES CASES Page 58 of 96

in an option contract may be anything of value, unlike in sale
where it must be the price certain in money or its equivalent.
There is no showing here of any consideration for the option.
Lacking any proof of such consideration, the option is
unenforceable.
Same; Same; Same; The manner of payment of the
purchase price is an essential element before a valid and
binding contract of sale can exist.—The appellate court
opined that the failure to agree on the terms of payment was
no bar to the perfection of the sale because Art. 1475 only
requires agreement by the parties as to the price of the object.
This is error. In Navarro v. Sugar Producers Cooperative
Marketing Association, Inc., we laid down the rule that the
manner of payment of the purchase price is an essential
element before a valid and binding contract of sale can exist.
Although the Civil Code does not expressly state that the
minds of the parties must also meet on the terms or manner of
payment of the price, the same is needed, otherwise there is no
sale. As held in Toyota Shaw, Inc. v. Court of Appeals,
agreement on the manner of payment goes into the price such
that a disagreement on the manner of payment is tantamount to
a failure to agree on the price.
Same; Same; Same; It is not the giving of earnest money,
but the proof of the concurrence of all the essential elements
of the contract of sale which establishes the existence of a
perfected sale.—It is not the giving of earnest money, but the
proof of the concurrence of all the essential elements of the
contract of sale which establishes the existence of a perfected
sale.
PETITION for review on certiorari of a decision of the Court
of Appeals.
This is a petition for review of the decision,1 dated April 8,
1997, of the Court of Appeals which reversed the decision of
the Regional Trial Court, Branch 153, Pasig City dismissing
the complaint brought by respondents against petitioner for
enforcement of a contract of sale.
MENDOZA, J.:
The facts are not in dispute.
Petitioner San Miguel Properties Philippines, Inc. is a
domestic corporation engaged in the purchase and sale of real
properties. Part of its inventory are two parcels of land
totalling 1,738 square meters at the corner of Meralco Avenue
and General Capinpin Street, Barrio Oranbo, Pasig City,
which are covered by TCT Nos. PT-82395 and PT-82396 of
the Register of Deeds of Pasig City.
On February 21, 1994, the properties were offered for sale for
P52,140,000.00 in cash. The offer was made to Atty. Helena
M. Dauz who was acting for respondent spouses as
undisclosed principals. In a letter 2 dated March 24, 1994, Atty.
Dauz signified her clients’ interest in purchasing the properties
for the amount for which they were offered by petitioner,
under the following terms: the sum of P500,000.00 would be
given as earnest money and the balance would be paid in eight
equal monthly installments from May to December, 1994.
However, petitioner refused the counter-offer.
On March 29, 1994, Atty. Dauz wrote another letter 3proposing
the following terms for the purchase of the properties, viz.:
This is to express our interest to buy your above-mentioned
property with an area of 1,738 sq. meters. For this purpose, we
are enclosing herewith the sum of P1,000,000.00 representing
earnest-deposit money, subject to the following conditions.
1.We will be given the exclusive option to purchase the
property within the 30 days from date of your acceptance of
this offer.
2.During said period, we will negotiate on the terms and
conditions of the purchase; SMPPI will secure the necessary
Management and Board approvals; and we initiate the
documentation if there is mutual agreement between us.
3.In the event that we do not come to an agreement on this
transaction, the said amount of P1,000,000.00 shall be
refundable to us in full upon demand....
Isidro A. Sobrecarey, petitioner’s vice-president and
operations manager for corporate real estate, indicated his
conformity to the offer by affixing his signature to the letter
and accepted the “earnest-deposit” of P1 million. Upon
request of respondent spouses, Sobrecarey ordered the
removal of the “FOR SALE” sign from the properties.
Atty. Dauz and Sobrecarey then commenced negotiations.
During their meeting on April 8, 1994, Sobrecarey informed
Atty. Dauz that petitioner was willing to sell the subject
properties on a 90-day term. Atty. Dauz countered with an
offer of six months within which to pay.
On April 14, 1994, the parties again met during which
Sobrecarey informed Atty. Dauz that petitioner had not yet
acted on her counter-offer. This prompted Atty. Dauz to
propose a four-month period of amortization.
On April 25, 1994, Atty. Dauz asked for an extension of 45
days from April 29, 1994 to June 13, 1994 within which to
exercise her option to purchase the property, adding that
within that period, “[we] hope to finalize [our] agreement on
the matter.”4 Her request was granted.
On July 7, 1994, petitioner, through its president and chief
executive officer, Federico Gonzales, wrote Atty. Dauz
informing her that because the parties failed to agree on the
terms and conditions of the sale despite the extension granted
by petitioner, the latter was returning the amount of P1 million
given as “earnest-deposit.”5
On July 20, 1994, respondent spouses, through counsel, wrote
petitioner demanding the execution within five days of a deed
of sale covering the properties. Respondents attempted to
return the “earnest-deposit” but petitioner refused on the
ground that respondents’ option to purchase had already
expired.
On August 16, 1994, respondent spouses filed a complaint for
specific performance against petitioner before the Regional
MIDTERM SALES CASES Page 59 of 96
Trial Court, Branch 133, Pasig City where it was docketed as
Civil Case No. 64660.
Within the period for filing a responsive pleading, petitioner
filed a motion to dismiss the complaint alleging that (1) the
alleged “exclusive option” of respondent spouses lacked a
consideration separate and distinct from the purchase price and
was thus unenforceable and (2) the complaint did not allege a
cause of action because there was no “meeting of the minds”
between the parties and, therefore, no perfected contract of
sale. The motion was opposed by respondents.
On December 12, 1994, the trial court granted petitioner’s
motion and dismissed the action. Respondents filed a motion
for reconsideration, but it was denied by the trial court. They
then appealed to the Court of Appeals which, on April 8, 1997,
rendered a decision6 reversing the judgment of the trial court.
The appellate court held that all the requisites of a perfected
contract of sale had been complied with as the offer made on
March 29, 1994, in connection with which the earnest money
in the amount of P1 million was tendered by respondents, had
already been accepted by petitioner. The court cited Art. 1482
of the Civil Code which provides that “[w]henever 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.”
The fact the parties had not agreed on the mode of payment
did not affect the contract as such is not an essential element
for its validity. In addition, the court found that Sobrecarey
had authority to act in behalf of petitioner for the sale of the
properties.7
Petitioner moved for reconsideration of the trial court’s
decision, but its motion was denied. Hence, this petition.
Petitioner contends that the Court of Appeals erred in finding
that there was a perfected contract of sale between the parties
because the March 29, 1994 letter of respondents, which
petitioner accepted, merely resulted in an option contract,
albeit it was unenforceable for lack of a distinct consideration.
Petitioner argues that the absence of agreement as to the mode
of payment was fatal to the perfection of the contract of sale.
Petitioner also disputes the appellate court’s ruling that Isidro
A. Sobrecarey had authority to sell the subject real properties.8
Respondents were required to comment within ten (10) days
from notice. However, despite 13 extensions totalling 142
days which the Court had given to them, respondents failed to
file their comment. They were thus considered to have waived
the filing of a comment.
The petition is meritorious.
In holding that there is a perfected contract of sale, the Court
of Appeals relied on the following findings: (1) earnest money
was allegedly given by respondents and accepted by petitioner
through its vice-president and operations manager, Isidro A.
Sobrecarey; and (2) the documentary evidence in the records
show that there was a perfected contract of sale.
With regard to the alleged payment and acceptance of earnest
money, the Court holds that respondents did not give the P1
million as “earnest money” as provided by Art. 1482 of the
Civil Code. They presented the amount merely as a deposit of
what would eventually become the earnest money or down-
payment should a contract of sale be made by them. The
amount was thus given not as a part of the purchase price and
as proof of the perfection of the contract of sale but only as a
guarantee that respondents would not back out of the sale.
Respondents in fact described the amount as an “earnest-
deposit.” In Spouses Doromal, Sr. v. Court of Appeals,9 it was
held:
. . . While the P5,000 might have indeed been paid to Carlos in
October, 1967, there is nothing to show that the same was in
the concept of the earnest money contemplated in Art. 1482 of
the Civil Code, invoked by petitioner, as signifying perfection
of the sale. Viewed in the backdrop of the factual milieu
thereof extant in the record, We are more inclined to believe
that the said P5,000.00 were paid in the concept of earnest
money as the term was understood under the Old Civil Code,
that is, as a guarantee that the buyer would not back out,
considering that it is not clear that there was already a
definite agreement as to the price then and that petitioners
were decided to buy 6/7 only of the property should
respondent Javellana refuse to agree to part with her 1/7
share.10
In the present case, the P1 million “earnest-deposit” could not
have been given as earnest money as contemplated in Art.
1482 because, at the time when petitioner accepted the terms
of respondents’ offer of March 29, 1994, their contract had not
yet been perfected. This is evident from the following
conditions attached by respondents to their letter, to wit: (1)
that they be given the exclusive option to purchase the
property within 30 days from acceptance of the offer; (2) that
during the option period, the parties would negotiate the terms
and conditions of the purchase; and (3) petitioner would
secure the necessary approvals while respondents would
handle the documentation.
The first condition for an option period of 30 days sufficiently
shows that a sale was never perfected. As petitioner correctly
points out, acceptance of this condition did not give rise to a
perfected sale but merely to an option or an accepted unilateral
promise on the part of respondents to buy the subject
properties within 30 days from the date of acceptance of the
offer. Such option giving respondents the exclusive right to
buy the properties within the period agreed upon is separate
and distinct from the contract of sale which the parties may
enter.11 All that respondents had was just the option to buy the
properties which privilege was not, however, exercised by
them because there was a failure to agree on the terms of
payment. No contract of sale may thus be enforced by
respondents.
Furthermore, even the option secured by respondents from
petitioner was fatally defective. Under the second paragraph of
Art. 1479, an accepted unilateral promise to buy or sell a
determinate thing for a price certain is binding upon the
MIDTERM SALES CASES Page 60 of 96
promisor only if the promise is supported by a distinct
consideration. Consideration in an option contract may be
anything of value, unlike in sale where it must be the price
certain in money or its equivalent. There is no showing here of
any consideration for the option.Lacking any proof of such
consideration, the option is unenforceable.
Equally compelling as proof of the absence of a perfected sale
is the second condition that, during the option period, the
parties would negotiate the terms and conditions of the
purchase. The stages of a contract of sale are as follows:
(1) negotiation, covering the period from the time the
prospective contracting parties indicate interest in the contract
to the time the contract is perfected; (2) perfection, which
takes place upon the concurrence of the essential elements of
the sale which are the meeting of the minds of the parties as to
the object of the contract and upon the price; and
(3) consummation, which begins when the parties perform
their respective undertakings under the contract of sale,
culminating in the extinguishment thereof. 12 In the present
case, the parties never got past the negotiation stage. The
alleged “indubitable evidence”13 of a perfected sale cited by
the appellate court was nothing more than offers and counter-
offers which did not amount to any final arrangement
containing the essential elements of a contract of sale. While
the parties already agreed on the real properties which were
the objects of the sale and on the purchase price, the fact
remains that they failed to arrive at mutually acceptable terms
of payment, despite the 45-day extension given by petitioner.
The appellate court opined that the failure to agree on the
terms of payment was no bar to the perfection of the sale
because Art. 1475 only requires agreement by the parties as to
the price of the object. This is error. In Navarro v. Sugar
Producers Cooperative Marketing Association, Inc.,14 we laid
down the rule that the manner of payment of the purchase
price is an essential element before a valid and binding
contract of sale can exist. Although the Civil Code does not
expressly state that the minds of the parties must also meet on
the terms or manner of payment of the price, the same is
needed, otherwise there is no sale. As held in Toyota Shaw,
Inc. v. Court of Appeals,15 agreement on the manner of
payment goes into the price such that a disagreement on the
manner of payment is tantamount to a failure to agree on the
price.16 In Velasco v. Court of Appeals, 17 the parties to a
proposed sale had already agreed on the object of sale and on
the purchase price. By the buyer’s own admission, however,
the parties still had to agree on how and when the
downpayment and the installments were to be paid. It was
held:
. . . Such being the situation, it cannot, therefore, be said that
a definite and firm sales agreement between the parties had
been perfected over the lot in question. Indeed, this Court has
already ruled before that a definite agreement on the manner
of payment of the purchase price is an essential element in the
formation of a binding and enforceable contract of sale. The
fact, therefore, that the petitioners delivered to the respondent
the sum of P10,000 as part of the down-payment that they had
to pay cannot be considered as sufficient proof of the
perfection of any purchase and sale agreement between the
parties herein under Art. 1482 of the new Civil Code, as the
petitioners themselves admit that some essential matter—the
terms of the payment—still had to be mutually covenanted.18
Thus, it is not the giving of earnest money, but the proof of the
concurrence of all the essential elements of the contract of sale
which establishes the existence of a perfected sale.
In the absence of a perfected contract of sale, it is immaterial
whether Isidro A. Sobrecarey had the authority to enter into a
contract of sale in behalf of petitioner. This issue, therefore,
needs no further discussion.
FALLO: WHEREFORE, the decision of the Court of Appeals
is REVERSED and respondents’ complaint is DISMISSED.
SO ORDERED.
     
Note.—In a contract of sale, the non-payment of the price is a
resolutory condition which extinguishes the transaction that,
for a time, existed and discharges the obligations created
thereunder. (Heirs of Pedro Escanlar vs. Court of
Appeals, 281 SCRA 176[1997])
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
MIDTERM SALES CASES Page 61 of 96
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 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.
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 Reso-
lution3 denying the motion for reconsideration filed by
petitioner Manila Metal Container Corporation (MMCC).
CALLEJO, SR., J.:
MIDTERM SALES CASES Page 62 of 96
 remitted P725,000.00 to respondent PNB as “deposit to
repurchase,” and Official Receipt No. 978191 was issued to
The Antecedents
it.15
Petitioner was the owner of a 8,015 square meter parcel of
In the meantime, the SAMD recommended to the management
land located in Mandaluyong (now a City), Metro Manila. The
of respondent PNB that petitioner be allowed to repurchase the
property was covered by Transfer Certificate of Title (TCT)
property for P1,574,560.00. In a letter dated November 14,
No. 332098 of the Registry of Deeds of Rizal. To secure a
1984, the PNB management informed petitioner that it was
P900,000.00 loan it had obtained from respondent Philippine
rejecting the offer and the recommendation of the SAMD. It
National Bank (PNB), petitioner executed a real estate
was suggested that petitioner purchase the property for
mortgage over the lot. Respondent PNB later granted
P2,660,000.00, its minimum market value. Respondent PNB
petitioner a new credit accommodation of P1,000,000.00; and,
gave petitioner until December 15, 1984 to act on the
on November 16, 1973, petitioner executed an Amendment 4 of
proposal; otherwise, its P725,000.00 deposit would be
Real Estate Mortgage over its property. On March 31, 1981,
returned and the property would be sold to other interested
petitioner secured another loan of P653,000.00 from
buyers.16
respondent PNB, payable in quarterly installments of
P32,650.00, plus interests and other charges.5
Petitioner, however, did not agree to respondent PNB’s
proposal. Instead, it wrote another letter dated December 12,
On August 5, 1982, respondent PNB filed a petition for
1984 requesting for a reconsideration. Respondent PNB
extrajudicial foreclosure of the real estate mortgage and sought
replied in a letter dated December 28, 1984, wherein it
to have the property sold at public auction for P911,532.21,
reiterated its proposal that petitioner purchase the property for
petitioner’s outstanding obligation to respondent PNB as of
P2,660,000.00. PNB again informed petitioner that it would
June 30, 1982,6plus interests and attorney’s fees.
return the deposit should petitioner desire to withdraw its offer
to purchase the property.17 On February 25, 1985, petitioner,
After due notice and publication, the property was sold at
through counsel, requested that PNB reconsider its letter dated
public auction on September 28, 1982 where respondent PNB
December 28, 1984. Petitioner declared that it had already
was declared the winning bidder for P1,000,000.00. The
agreed to the SAMD’s offer to purchase the property for
Certificate of Sale7 issued in its favor was registered with the
P1,574,560.47, and that was why it had paid P725,000.00.
Office of the Register of Deeds of Rizal, and was annotated at
Petitioner warned respondent PNB that it would seek judicial
the dorsal portion of the title on February 17, 1983. Thus, the
recourse should PNB insist on the position.18
period to redeem the property was to expire on February 17,
1984.
On June 4, 1985, respondent PNB informed petitioner that the
PNB Board of Directors had accepted petitioner’s offer to
Petitioner sent a letter dated August 25, 1983 to respondent
purchase the property, but for P1,931,389.53 in cash less the
PNB, requesting that it be granted an extension of time to
P725,000.00 already deposited with it.19 On page two of the
redeem/repurchase the property.8 In its reply dated August 30,
letter was a space above the typewritten name of petitioner’s
1983, respondent PNB informed petitioner that the request had
President, Pablo Gabriel, where he was to affix his signature.
been referred to its Pasay City Branch for appropriate action
However, Pablo Gabriel did not conform to the letter but
and recommendation.9
merely indicated therein that he had received it. 20Petitioner did
not respond, so PNB requested petitioner in a letter dated June
In a letter10 dated February 10, 1984, petitioner reiterated its
30, 1988 to submit an amended offer to repurchase. Petitioner
request for a one year extension from February 17, 1984
rejected respondent’s proposal in a letter dated July 14, 1988.
within which to redeem/repurchase the property on installment
It maintained that respondent PNB had agreed to sell the
basis. It reiterated its request to repurchase the property on
property for P1,574,560.47, and that since its P725,000.00
installment.11Meanwhile, some PNB Pasay City Branch
down-payment had been accepted, respondent PNB was
personnel informed petitioner that as a matter of policy, the
proscribed from increasing the purchase price of the
bank does not accept “partial redemption.”12
property.21Petitioner averred that it had a net balance payable
in the amount of P643,452.34. Respondent PNB, however,
Since petitioner failed to redeem the property, the Register of
rejected petitioner’s offer to pay the balance of P643,452.34 in
Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a
a letter dated August 1, 1989.22
new title in favor of respondent PNB.13Petitioner’s offers had
not yet been acted upon by respondent PNB.
On August 28, 1989, petitioner filed a complaint against
respondent PNB for “Annulment of Mortgage and Mortgage
Meanwhile, the Special Assets Management Department
Foreclosure, Delivery of Title, or Specific Performance with
(SAMD) had prepared a statement of account, and as of June
Damages.” To support its cause of action for specific
25, 1984 petitioner’s obligation amounted to P1,574,560.47.
performance, it alleged the following:
This included the bid price of P1,056,924.50, interest,
advances of insurance premiums, advances on realty taxes,
“34. As early as June 25, 1984, PNB had accepted the down
registration expenses, miscellaneous expenses and publication
payment from Manila Metal in the substantial amount of
cost.14 When apprised of the statement of account, petitioner
P725,000.00 for the redemption/repurchase price of
MIDTERM SALES CASES Page 63 of 96
P1,574,560.47 as approved by its SMAD and considering the
reliance made by Manila Metal and the long time that has
elapsed, the approval of the higher management of the Bank to
confirm the agreement of its SMAD is clearly a potestative
condition which cannot legally prejudice Manila Metal which
has acted and relied on the approval of SMAD. The Bank
cannot take advantage of a condition which is entirely
dependent upon its own will after accepting and benefiting
from the substantial payment made by Manila Metal.
35. PNB approved the repurchase price of P1,574,560.47 for
which it accepted P725,000.00 from Manila Metal. PNB
cannot take advantage of its own delay and long inaction in
demanding a higher amount based on unilateral computation
of interest rate without the consent of Manila Metal.”
Petitioner later filed an amended complaint and supported its
claim for damages with the following arguments:
“36. That in order to protect itself against the wrongful and
malicious acts of the defendant Bank, plaintiff is constrained
to engage the services of counsel at an agreed fee of
P50,000.00 and to incur litigation expenses of at least
P30,000.00, which the defendant PNB should be condemned
to pay the plaintiff Manila Metal.
37. That by reason of the wrongful and malicious actuations of
defendant PNB, plaintiff Manila Metal suffered besmirched
reputation for which defendant PNB is liable for moral
damages of at least P50,000.00.
38. That for the wrongful and malicious act of defendant PNB
which are highly reprehensible, exemplary damages should be
awarded in favor of the plaintiff by way of example or
correction for the public good of at least P30,000.00.”23
Petitioner prayed that, after due proceedings, judgment be
rendered in its favor, thus:
“a)Declaring the Amended Real Estate Mortgage (Annex “A”)
null and void and without any legal force and effect.
b)Declaring defendant’s acts of extrajudicially 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. 25The 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
down-payment or earnest money.
On appeal to the CA, petitioner made the following
allegations:
I THE LOWER COURT ERRED IN RULING THAT
DEFENDANT-APPELLEE’S LETTER DATED 4 JUNE
1985 APPROVING/ACCEPTING PLAINTIFF-
APPELLANT’S OFFER TO PURCHASE THE SUBJECT
PROPERTY IS NOT VALID AND ENFORCEABLE.
MIDTERM SALES CASES Page 64 of 96
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 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
MIDTERM SALES CASES Page 65 of 96
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.
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;
MIDTERM SALES CASES Page 66 of 96
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent which is manifested
by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. 42 Once
perfected, they bind other contracting parties and the
obligations arising therefrom have the form of law between
the parties and should be complied with in good faith. The
parties are bound not only to the fulfillment of what has been
expressly stipulated but also to the consequences which,
according to their nature, may be in keeping with good faith,
usage and law.43
By the contract of sale, one of the contracting parties obligates
himself to transfer the ownership of and deliver a determinate
thing, and the other to pay therefor a price certain in money or
its equivalent.44The 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.47When 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,49the
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.50At 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.53Consequently,
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. 54The 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.56Before respondent could act on the
request, petitioner again wrote respondent as follows:
1.Upon approval of our request, we will pay your goodselves
ONE HUNDRED & FIFTY THOUSAND PESOS
(P150,000.00);
2.Within six months from date of approval of our request, we
will pay another FOUR HUNDRED FIFTY THOUSAND
PESOS (P450,000.00); and
3.The remaining balance together with the interest and other
expenses that will be incurred will be paid within the last six
months of the one year grave period requested for.”57
When the petitioner was told that respondent did not allow
“partial redemption,”58 it sent a letter to respondent’s
President reiterating its offer to purchase the property. 59 There
was no response to petitioner’s letters dated February 10 and
15, 1984.
The statement of account prepared by the SAMD stating that
the net claim of respondent as of June 25, 1984 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
MIDTERM SALES CASES Page 67 of 96
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. Dieselman
Freight Services, Inc.:60
“Section 23 of the Corporation Code expressly provides that
the corporate powers of all corporations shall be exercised by
the board of directors. Just as a natural person may authorize
another to do certain acts in his behalf, so may the board of
directors of a corporation validly delegate some of its
functions to individual officers or agents appointed by it.
Thus, contracts or acts of a corporation must be made either by
the board of directors or by a corporate agent duly authorized
by the board. Absent such valid delegation/authorization, the
rule is that the declarations of an individual director relating to
the affairs of the corporation, but not in the course of, or
connected with the performance of authorized duties of such
director, are held not binding on the corporation.”
Thus, a corporation can only execute its powers and transact
its business through its Board of Directors and through its
officers and agents when authorized by a board resolution or
its by-laws.61
It appears that the SAMD had prepared a recommendation for
respondent to accept petitioner’s offer to repurchase the
property even beyond the one-year period; it recommended
that petitioner be allowed to redeem the property and pay
P1,574,560.00 as the purchase price. Respondent later
approved the recommendation that the property be sold to
petitioner. But instead of the P1,574,560.47 recommended by
the SAMD and to which petitioner had previously conformed,
respondent set the purchase price at P2,660,000.00. In fine,
respondent’s acceptance of petitioner’s offer was qualified,
hence can be at most considered as a counter-offer. If
petitioner had accepted this counter-offer, a perfected contract
of sale would have arisen; as it turns out, however, petitioner
merely sought to have the counter-offer reconsidered. This
request for reconsideration would later be rejected by
respondent.
We do not agree with petitioner’s contention that the
P725,000.00 it had remitted to respondent was “earnest
money” which could be considered as proof of the perfection
of a contract of sale under Article 1482 of the New Civil
Code. The provision reads:
“ART. 1482. Whenever earnest money is given in a contract
of sale, it shall be considered as part of the price and as proof
of the perfection of the contract.”
This contention is likewise negated by the stipulation of facts
which the parties entered into in the trial court:
“8. On June 8, 1984, the Special Assets Management
Department (SAMD) of PNB prepared an updated Statement
of Account showing MMCC’s total liability to PNB as of June
25, 1984 to be P1,574,560.47 and recommended this amount
as the repurchase price of the subject property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as
deposit to repurchase the property. The deposit of P725,000
was accepted by PNB on the condition that the purchase
price is still subject to the approval of the PNB Board.”62
Thus, the P725,000.00 was merely a deposit to be applied as
part of the purchase price of the property, in the event that
respondent would approve the recommendation of SAMD for
respondent to accept petitioner’s offer to purchase the property
for P1,574,560.47. Unless and until the respondent accepted
the offer on these terms, no perfected contract of sale would
arise. Absent proof of the concurrence of all the essential
elements of a contract of sale, the giving of earnest money
cannot establish the existence of a perfected contract of sale.63
It appears that, per its letter to petitioner dated June 4, 1985,
the respondent had decided to accept the offer to purchase the
property for P1,931,389.53. However, this amounted to an
amendment of respondent’s qualified acceptance, or an
amended counter-offer, because while the respondent lowered
the purchase price, it still declared that its acceptance was
subject to the following terms and conditions:
“1.That the selling price shall be the total Bank’s claim as of
documentation date (pls. see attached statement of account as
of 5-31-85), payable in cash (P725,000.00 already deposited)
within sixty (60) days from notice of approval;
2.The Bank sells only whatever rights, interests and
participation it may have in the property and you are charged
with full knowledge of the nature and extent of said rights,
interests and participation and waive your right to warranty
against eviction.
3.All taxes and other government imposts due or to become
due on the property, as well as expenses including costs of
documents and science stamps, transfer fees, etc., to be
incurred in connection with the execution and registration of
all covering documents shall be borne by you;
4.That you shall undertake at your own expense and account
the ejectment of the occupants of the property subject of the
sale, if there are any;
5.That upon your failure to pay the balance of the purchase
price within sixty (60) days from receipt of advice accepting
your offer, your deposit shall be forfeited and the Bank is
thenceforth authorized to sell the property to other interested
parties.
6.That the sale shall be subject to such other terms and
conditions that the Legal Department may impose to protect
the interest of the Bank.”64
It appears that although respondent requested petitioner to
conform to its amended counter-offer, petitioner refused and
instead requested respondent to reconsider its amended
counter-offer. Petitioner’s request was ultimately rejected and
respondent offered to refund its P725,000.00 deposit.
In sum, then, there was no perfected contract of sale between
petitioner and respondent over the subject property.
FALLO: IN LIGHT OF ALL THE FOREGOING, the
petition is DENIED. The assailed decision is AFFIRMED.
Costs against petitioner Manila Metal Container Corporation.
SO ORDERED.
MIDTERM SALES CASES Page 68 of 96
Notes.—An option contract is a contract separate from and
preparatory to a contract of sale which if perfected, does not
result in the perfection or consummation of the same—only
when the option is exercised may a sale be perfected. (Cavite
Development Bank vs. Lim, 324 SCRA 346[2000])
Earnest money is something of value to show that the
buyer was really in earnest, and given to the seller to bind
the bargain, and whenever earnest money is given in a
contract of sale, it is considered as part of the purchase
price and proof of the perfection of the contract. (Laforteza
vs. Machuca, 33 SCRA 643[2000])
DISTINGUISHING EARNEST MONEY AND OPTION
MONEY
G.R. No. 111238. January 25, 1995.*
ADELFA PROPERTIES, INC., petitioner, vs. COURT OF
APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD
JIMENEZ, respondents.
Civil Law; Contracts; Contract to Sell; Contract of
Sale; In a 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.—ln 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 a 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
_______________
*
 SECOND DIVISION.
566
566 SUPREME COURT
REPORTS ANNOTATED
Adelfa Properties, Inc. vs. Court
of Appeals
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.
Same; Same; Same; An implied agreement that
ownership shall not pass to the purchaser until he had fully
paid the price is valid and therefore, binding and enforceable
between the parties. A contract which contains this kind of
stipulation is considered a contract to sell.—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.
Same; Same; Same; Irrefragably, the controverted
document should legally be considered as a perfected contract
to sell.—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.”
Same; Same; Same; The important task in contract
interpretation is always the ascertainment of the intention of
the contracting parties.—Theimportant 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 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 nature. Hence, the fact that the document under
discussion is entitled “Exclusive Option to
567
VOL. 240, 567
JANUARY 25, 1995
Adelfa Properties, Inc. vs. Court
of Appeals
Purchase” is not controlling where the text thereof
shows that it is a contract to sell.
Same; Same; Option Contract; Sales; An option is not
a sale of property but a sale of the right to purchase. 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.—Anoption, 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 the
right to purchase. It is simply a contract by which the owner of
MIDTERM SALES CASES Page 69 of 96
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. Its distinguishing
characteristic is that it imposes 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.
Same; Same; Same; Same; An option is an unaccepted
offer. It states the terms and conditions on which the owner is
willing to sell his land, if the holder elects to accept them
within the time limited. 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.—Thedistinction 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 his 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
568
568 SUPREME COURT
REPORTS ANNOTATED
Adelfa Properties, Inc. vs. Court
of Appeals
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.
Same; Same; Same; Same; Except where a formal
acceptance is so required, 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.—
Aperusal 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.
Same; Same; Same; Same; 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.—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 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.
Same; Same; Same; Same; An agreement is only an
“option” when no obligation rests on 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.—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 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
569
VOL. 240, 569
JANUARY 25, 1995
Adelfa Properties, Inc. vs. Court
of Appeals
not a contract to purchase, is effected by an agreement to
sell real estate for payments to be made within a specified time
and providing for 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 obtaining in the
case at bar.
Same; Same; Same; Same; Earnest Money; 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 payment and must, therefore be deducted from the
total price.—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. lt constitutes an advance 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.
Same; Same; Earnest Money; Option
Money; Distinctions Between Earnest Money and Option
Money.—There are clear distinctions between earnest money
and option money, viz.: (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
MIDTERM SALES CASES Page 70 of 96
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.
Same; Same; Same; In a perfected contract to sell,
Article 1590 would properly apply.—Tojustify 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.” Respon-
570
570 SUPREME COURT
REPORTS ANNOTATED
Adelfa Properties, Inc. vs. Court
of Appeals
dent 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,
Same; Same; Sales; In Article 1590, 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.—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
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.
Same; Same; Same; It is consignation which is
essential in order to extinguish petitioner’s obligation to pay
the balance of the purchase price. A contract to sell involves
the performance of an obligation, not merely the exercise of a
privilege or a right. Consequently, performance of payment
may be effected not by tender of payment alone but by both
tender and consignation.—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 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 repurchase, wherein consignation is not necessary
because these cases involve an exercise of a right or privilege
(to 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 exercise of a
privilege or a right. Consequently, performance or payment
may be effected not by tender of payment alone but by both
tender and consignation.
Same; Same; Same; Judicial action for rescission of a
contract is not necessary where the contract provides for
automatic rescission in case of breach.—By reason of
petitioner’s failure to comply with its
571
VOL. 240, 571
JANUARY 25, 1995
Adelfa Properties, Inc. vs. Court
of Appeals
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 not necessary where the contract provides for automatic
rescission in case of breach, as in the contract involved in the
present controversy.
Same; Same; Same; 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 rescission shall have legal effect.—
We are not unaware of the ruling in University of the
Philippines vs. De los Angeles, etc. that the right to rescind is
not 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
rescission shall have legal effect.
PETITION for review on certiorari of a decision of the Court
of Appeals.
The facts are stated in the opinion of the Court. ,
     Bayani L. Bernardo for petitioner.
     Lucas C. Carpio, Jr.for private respondents Jimenezes.
     Danilo B. Banares for Emylene S. Chua.
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. 347671 are
(1)
_______________
1
 Penned by Associate Justice Antonio M. Martinez, with
Associate Justices Artemon D. Luna and Buenaventura J.
Guerrero, concurring; Annex C, Petition; Rollo, 84.
MIDTERM SALES CASES Page 71 of 96
 572
572 SUPREME COURT REPORTS
ANNOTATED
Adelfa Properties, Inc. vs. Court of
Appeals
whether or not the “Exclusive Option to Purchase” 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. 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. 309773,2situated in Barrio Culasi,
Las Piñas, Metro Manila.
2. 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.”3Subsequently, a “Confirmatory
Extrajudicial Partition Agreement” 4 was executed
by the Jimenezes. wherein the eastern portion of the
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. 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”5 was
executed between petitioner and private
respondents, under the following terms and
conditions:
1. “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. 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 HUN
_______________
2
 Exhibit A; Original Record, 8.
3
 Exhibits B and 7; ibid., 9.
4
 Exhibits C and 8; ibid., 12.
5
 Exhibit D; ibid., 17.
573
VOL. 240, JANUARY 25, 573
1995
Adelfa Properties, Inc. vs. Court of
Appeals
1. DRED FIFTY PESOS (P2,806,150.00) to be paid on
or before November 30, 1989;
2. 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 option money upon the sale
of said property to a third party;
3. 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 anew 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.
1. 4.Before petitioner could make payment, it received
summons6on November 29,1989, together with a
copy of a 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
2. 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 "x x x 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."8 Another letter of the same
tenor and of even date was sent by petitioner to Jose
and Dominador Jimenez.9
_______________
6
 Exhibit 2; ibid., 151.
7
 Exhibit 3; ibid., 152.
8
 Exhibit 6; ibid., 37.
9
 Exhibit 4; ibid., 38.
574
574 SUPREME COURT REPORTS
ANNOTATED
Adelfa Properties, Inc. vs. Court of
Appeals
1. Respondent Salud Jimenez refused to heed the
suggestion of petitioner and attributed the
MIDTERM SALES CASES Page 72 of 96
 suspension of payment of the purchase price to
“lack of word of honor.”
2. 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. ;
3. 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.
4. 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.
5. 9.On the same day, February 28,1990, private
respondents executed a Deed of Conditional
Sale10 in favor of Emylene Chua over the same
parcel of land for P3,029,250.00, 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.
6. 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.11 This was ignored by private
respondents.
7. 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
_______________
10
 Exhibit G; ibid., 67.
11
 Exhibit 5; ibid., 39.
575
VOL. 240, JANUARY 25, 575
1995
Adelfa Properties, Inc. vs. Court of
Appeals
1. then requested petitioner to return the owner’s
duplicate copy of the certificate of title of
respondent Salud Jimenez.12Petitioner failed to
surrender the certificate of title, hence private
respondents filed Civil Case No. 7532in 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.
2. 12.The trial court rendered judgment13therein on
September 5, 1991 holding that the agreement
entered into by the parties was merely an option
contract, and declaring that the suspension of
payment by herein petitioner constituted a
counteroffer 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.
3. 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
_______________
12
 Exhibit F; ibid., 125.
13
 Original Record, 179; per Judge Baltazar Relativo
Dizon.
576
576 SUPREME COURT REPORTS
ANNOTATED
Adelfa Properties, Inc. vs. Court of
Appeals
1. 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. 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;
MIDTERM SALES CASES Page 73 of 96
 2. 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. 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. 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 bases 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.
I 102909, September 6, 1993, 226 SCRA 118.
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 a
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
_______________
14
 Rollo, 14.
577
VOL. 240, JANUARY 25, 577
1995
Adelfa Properties, Inc. vs. Court of
Appeals
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
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 nonpayment. 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 prior 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
_______________
15
 Pingol, et al. vs. Court of Appeals, et al., G.R. No.
578
578 SUPREME COURT REPORTS
ANNOTATED
Adelfa Properties, Inc. vs. Court of
Appeals
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 16 wherein
it informed private respondents that it “is now ready and
willing to pay you simultaneously with the execution of the
corresponding deed of absolute sale.” .
Secondly, it has not been shown that 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.17 Neither did petitioner take
actual, physical possession of the property at any given 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.18However, private respondents explained 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.”
MIDTERM SALES CASES Page 74 of 96
 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
_______________
16
 Exhibit 5; ibid., 39.
17
 Article 1498, Civil Code.
18
 Article 1501, id.
579
VOL. 240, JANUARY 25, 579
1995
Adelfa Properties, Inc. vs. Court of
Appeals
standing alone.19 Moreover, judging from the 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.20 In addition, the title of a contract does not
necessarily determine its true nature. 21 Hence, the fact that the
document under discussion is entitled “Exclusive Option to
Purchase” is not 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.22 It is not a
sale of property but a sale of the right to purchase. 23 It is
simply a contract by which the owner of property agrees with
smother 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.24Its distinguishing characteristic is that it
imposes 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
_______________
19
 Fernandez vs. Court of Appeals, et al., G.R. No. 80231,
October 18, 1988,166 SCRA 577.
20
 Heirs of Severo Legaspi, Sr. vs. Vda. de Dayot, et
al. G.R. No. 83904, August 13, 1990, 188 SCRA 508.
21
 Cruz, et al. vs. Court of Appeals, et al. G.R. No. 50350,
May 15, 1984,129 SCRA 222.
22
 77 C.J.S. Sales, Sec. 33, pp. 651–652.
23
 30 Words and Phrases, 15.
24
 Op. cit., 20.
25
 77 C.J.S. Sales, Sec. 33, pp. 651–652.
580
580 SUPREME COURT REPORTS
ANNOTATED
Adelfa Properties, Inc. vs. Court of
Appeals
On the other hand, a contract, like a contract to sell, involves a
meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to
render some service.26 Contracts, in general, are perfected by
mere consent,27 which 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.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 his 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
_______________
26
 Article 1305, Civil Code.
27
 Article 1315, id.
28
 Article 1319, id.
29
 McMillan vs. Philadelphia Co., 28 A. 220,
30
 77 C.J.S. Sales, Sec. 28, p. 641.
581
VOL. 240, JANUARY 25, 581
1995
Adelfa Properties, Inc. vs. Court of
Appeals
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
MIDTERM SALES CASES Page 75 of 96
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.31 As a result, the socalled exclusive option to
purchase was prepared by petitioner and was 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 than that 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 be-
_______________
31
 TSN, March 1, 1991, 5–7.
582
582 SUPREME COURT REPORTS
ANNOTATED
Adelfa Properties, Inc. vs. Court of
Appeals
tween 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. 32 It will
be noted 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.
_______________
32
 Cf. Aspinwall vs. Ryan, 226 P. 2d 814.
583
VOL. 240, JANUARY 25, 583
1995
Adelfa Properties, Inc. vs. Court of
Appeals
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. 33There is no doubt
that the obligation of petitioner to pay the purchase price 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. 34 An
agreement is only an “option” when no obligation rests on 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. 35 An
option, and not a contract to purchase, is effected by an
agreement to sell real estate for payments to be made within a
specified time and prividing for 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. 36 As
hereinbefore discussed, this is not the situation 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,37 still we are not inclined to conform with
the 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
MIDTERM SALES CASES Page 76 of 96
merely quoting an agreed value for the property. The term
“balance,” connotes a remainder or
_______________
33
 30 Words and Phrases, 14.
34
 77 C.J.S. Sales, Sec. 24, p. 630.
35
 30 Words and Phrases, 13.
36
 Ibid., 15.
37
 Hanscom vs. Blanchard, 105 A. 291.
584
584 SUPREME COURT REPORTS
ANNOTATED
Adelfa Properties, Inc. vs. Court of
Appeals
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.38 It constitutes an advance 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 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.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
_______________
38
 Article 1482, Civil Code.
39
 De Leon, Comments and Cases on Sales, 1986 rev. ed.,
67.
40
 See 77 C.J.S. Sales, Sec. 33, 654.
585
VOL. 240, JANUARY 25, 585
1995
Adelfa Properties, Inc. vs. Court of
Appeals
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. 89–5541filed 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 case41and we are not persuaded by the factual findings
made by said courts. At a glance, it is easily discernible 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.
_______________
41
 Exhibit 3; Original Record, 33.
586
586 SUPREME COURT REPORTS
ANNOTATED
Adelfa Properties, Inc. vs. Court of
Appeals
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
harassment42 is not the kind of guaranty contemplated under
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.
MIDTERM SALES CASES Page 77 of 96
 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.43 Besides, a mere tender
of 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.44 The rule is different in case of an option contract 45 or
in legal redemption or
_______________
42
 TSN, February 1,1991,18–20.
43
 Vda. de Zulueta, et al. vs. Octaviano, et al., G.R. No.
55350, March 28, 1983, 121 SCRA 314.
44
 Tolentino, Civil Code of the Philippines, Vol. IV, 1986
ed., 323.
45
 Nietes vs. Court of Appeals, et al. L-32873, August 18,
1972, 46
587
VOL. 240, JANUARY 25, 587
1995
Adelfa Properties, Inc. vs. Court of
Appeals
in a sale with right to repurchase, 46 wherein consignation is not
necessary because these cases involve an exercise of a right or
privilege (to 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.47 A contract to sell, as in the case before us,
involves the performance of an obligation, not merely the
exercise of a privilege or 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 ot
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 failed to
do so up to the present time, or even to 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.48Furthermore, judicial action for rescission of
a contract is not necessary where the contract provides for
automatic rescission in case of breach, 49 as in the contract
involved in the present controversy.
_______________
SCRA 654.
46
 Francisco, et al. vs. Bautista, et al., L-44167, December
19, 1990,192 SCRA 388.
47
 Tolentino, op cit., 323–324; Fn 44.
48
 Albea vs. Inquimboy, et al., 86 Phil.
477 (1950); Alfonso, et al., vs. Court of Appeals, et al., G.R.
No. 63745, June 8, 1990, 186 SCRA 400.
49
 Palay, Inc., et al. vs. Clave, et al., G.R. No. 56076,
September 21, 1983, 124 SCRA 638.
588
588 SUPREME COURT REPORTS
ANNOTATED
Adelfa Properties, Inc. vs. Court of
Appeals
We are not unaware of the ruling in University of the
Philippines vs. De los Angeles, etc. 50 that the right to rescind is
not 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.51 Otherwise, if said party does not oppose it,
the extrajudicial 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 therefor, it failed to
reply thereto or protest against it. Its silence thereon suggests
an admission of the veracity and validity of private
respondents’ claim.53Furthermore, the initiative of instituting
suit was transferred from the rescinder to the defaulter by
virtue of the automatic rescission clause in the contract. 54 But
then, the records bear out the fact that aside from the
lackadaisical manner with which petitioner treated private
respondents’ letter 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
MIDTERM SALES CASES Page 78 of 96
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 AF-
_______________
50
 L-28602, September 29, 1970, 35 SCRA 102.
51
 Palay, Inc., et al. vs. Clave, et al., supra.
52
 Zulueta vs. Mariano, etc., et al.L-29360, January 30,
1982, 111 SCRA 206.
53
 Pellicer vs. Ruiz, L-14300, May 30, 1961, 2 SCRA 160,
54
 University of the Philippines vs. De los Angeles,
etc., supra.
589
VOL. 240, JANUARY 25, 1995 589
Tiongco vs. Aguilar
FIRMED.
SO ORDERED.
     Narvasa (C.J., Chairman), Puno and Mendoza,
JJ., concur.
Judgment affirmed.
Notes.—View that in a contract of sale, after delivery of
the object of the contract has been made, the seller loses
ownership and cannot recover the same unless the contract is
rescinded (Visayan Sawmill Company, Inc. vs. Court of
Appeals, 219 SCRA 378[1993])
View that in the contract to sell, the seller retains
ownership and the buyer’s failure to pay cannot. even be
considered a breach, whether casual or substantial, but an
event that prevented the seller’s duty to transfer title to the
object of the contract. (Id.)
PERFORMANCE SHOULD NOT AFFECT
PERFECTION
G.R. No. 105387. November 11, 1993.*
JOHANNES SCHUBACK & SONS PHILIPPINE TRADING
CORPORATION, petitioner, vs. THE HON. COURT OF
APPEALS, RAMON SAN JOSE, JR., doing business under
the name and style “PHILIPPINE SJ INDUSTRIAL
TRADING, respondents.
Civil Law; Obligations and Contracts; When contract
of sale is perfected; 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.—We reverse the
decision of the Court of Appeals and reinstate the decision of
the trial court. It bears emphasizing that 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 x x
x.”
Same; Same; Same; Letter of Credit; The opening of a
letter of credit in favor of a vendor is only a mode of payment;
It is not among the essential requirements of a contract of sale
enumerated in Arts. 1305 and 1474 of the Civil Code and
therefore does not prevent the perfection of the contract
between the parties.—On the part of the buyer, the situation
reveals that private respondent failed to open an irrevocable
letter of credit without recourse in favor of Johannes Schuback
of Hamburg, Germany. This omission, however, does not
prevent the perfection of the contract between the parties, for
the opening of a letter of credit is not to be deemed a
suspensive condition. The facts herein do not show that
petitioner reserved title to the goods until private respondent
had opened a letter of credit. Petitioner, in the course of its
dealings with private respondent, did not incorporate any
provision declaring their contract of sale without effect until
after the fulfillment of the act of opening a letter of credit. The
opening of a letter of credit in favor of a vendor is only a mode
of payment. It is not among the essential requirements of a
contract of sale enumerated in Articles 1305 and 1474 of the
Civil Code, the absence of any of which will prevent the
perfection of the contract from taking place.
PETITION for review on certiorari of a decision of the Court
of Appeals.
The facts are stated in the opinion of the Court.
_______________
*
 THIRD DIVISION.
718
718 SUPREME COURT REPORTS
ANNOTATED
Johannes Schuback & Sons Philippine
Trading Corp. vs. Court of Appeals
     Hernandez, Velicaria, Vibar & Santiago for petitioner.
     Ernesto M. Tomanengfor private respondent.
ROMERO, J.:
In this petition for review on certiorari, petitioner questions the
reversal by the Court of Appeals1 of the trial court’s ruling that
a contract of sale had been perfected between petitioner and
private respondent over bus spare parts.
The facts as quoted from the decision of the Court of
Appeals are as follows:
“Sometime in 1981, defendant 2established contact with
plaintiff3 through the Philippine Consulate General in
Hamburg, West Germany, because he wanted to purchase
MAN bus spare parts from Germany. Plaintiff communicated
with its trading partner, Johannes Schuback and Sohne
Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg)
regarding the spare parts defendant wanted to order.
On October 16, 1981, defendant submitted to plaintiff a
list of the parts (Exhibit B) he wanted to purchase with
specific part numbers and description. Plaintiff referred the list
to Schuback Hamburg for quotations. Upon receipt of the
quotations, plaintiff sent to defendant a letter dated 25
November, 1981 (Exh. C) enclosing its offer on the items
listed by defendant.
On December 4, 1981, defendant informed plaintiff that he
preferred genuine to replacement parts, and requested that he
be given a 15% discount on all items (Exh. D).
On December 17, 1981, plaintiff submitted its formal offer
(Exh. E) containing the item number, quantity, part number,
description, unit price and total to defendant. On December
24, 1981, defendant informed plaintiff of his desire to avail of
the prices of the parts at that time and enclosed its Purchase
Order No. 0101 dated 14 December 1981 (Exhs. F to F-4).
Said Purchase Order contained the item number, part number
and description. Defendant promised to submit the quantity
per unit he wanted to order on December 28 or 29 (Exh. F).
_______________
1
 Penned by Justice Artemon D. Luna and concurred in by
Justices Serafin E. Camilon and Celso L. Magsino.
MIDTERM SALES CASES Page 79 of 96
 2
 Herein private respondent.
3
 Herein petitioner.
719
VOL. 227, NOVEMBER 11, 719
1993
Johannes Schuback & Sons Philippine
Trading Corp. vs. Court of Appeals
On December 29, 1981, defendant personally, submitted the
quantities he wanted to Mr. Dieter Reichert, General Manager
of plaintiff, at the latter’s residence (t.s.n., 13 December, 1984,
p. 36). The quantities were written in ink by defendant in the
same Purchase Order previously submitted. At the bottom of
said Purchase Order, defendant wrote in ink above his
signature: ‘NOTE: Above P.O. will include a 3% discount.
The above will serve as our initial P.O.’ (Exhs. G to G-3-a).
Plaintiff immediately ordered the items needed by
defendant from Schuback Hamburg to enable defendant to
avail of the old prices. Schuback Hamburg in turn ordered
(Order No. 12204) the items from NDK, a supplier of MAN
spare parts in West Germany. On January 4, 1982, Schuback
Hamburg sent plaintiff a proforma invoice (Exhs. N-1 to N-3)
to be used by defendant in applying for a letter of credit. Said
invoice required that the letter of credit be opened in favor of
Schuback Hamburg. Defendant acknowledged receipt of the
invoice (t.s.n., 19 December 1984, p. 40).
An order confirmation (Exhs. I, I-1) was later sent by
Schuback Hamburg to plaintiff which was forwarded to and
received by defendant on February 3, 1981 (t.s.n., 13 Dec.
1984, p. 42).
On February 16, 1982, plaintiff reminded defendant to
open the letter of credit to avoid delay in shipment and
payment of interest (Exh. J). Defendant replied, mentioning,
among others, the difficulty he was encountering in securing
the required dollar allocations and applying for the letter of
credit, procuring a loan and looking for a partnerfinancier, and
of finding ways ‘to proceed with our orders’ (Exh. K).
In the meantime, Schuback Hamburg received invoices
from NDK for partial deliveries on Order No. 12204 (Direct
Interrogatories, 07 Oct. 1984, p. 3). Schuback Hamburg paid
NDK. The latter confirmed receipt of payments made on
February 16, 1984 (Exh. C-Deposition).
On October 18, 1982, plaintiff again reminded defendant
of his order and advised that the case may be endorsed to its
lawyers (Exh. L). Defendant replied that he did not make any
valid Purchase Order and that there was no definite contract
between him and plaintiff (Exh. M). Plaintiff sent a rejoinder
explaining that there is a valid Purchase Order and suggesting
that defendant either proceed with the order and open a letter
of credit or cancel the order and pay the cancellation fee of
30% F.O.B. value, or plaintiff will endorse the case to its
lawyers (Exh. N).
Schuback Hamburg issued a Statement of Account (Exh.
P) to plaintiff enclosing therewith Debit Note (Exh. 0)
charging plaintiff 30% cancellation fee, storage and interest
charges in the total amount of DM 51,917.81. Said amount
was deducted from plaintiffs account
720
720 SUPREME COURT
REPORTS ANNOTATED
Johannes Schuback & Sons Philippine
Trading Corporation vs. Court of
Appeals
with Schuback Hamburg (Direct Interrogatories, 07 October,
1985). Demand letters sent to defendant by plaintiff’s counsel
dated March 22, 1983 and June 9, 1983 were to no avail
(Exhs. R and S).”
Consequently, petitioner failed a complaint for recovery of
actual or compensatory damages, unearned profits, interest,
attorney’s fees and costs against private respondent.
In its decision dated June 13, 1988, the trial court4ruled in
favor of petitioner by ordering private respondent to pay
petitioner, among others, actual compensatory damages in the
amount of DM 51,917.81, unearned profits in the amount of
DM 14,061.07, or their peso equivalent.
Thereafter, private respondent elevated his case before the
Court of Appeals.On February 18, 1992, the appellate court
reversed the decision of the trial court and dismissed the
complaint of petitioner. It ruled that there was no perfection of
contract since there was no meeting of the minds as to the
price between the last week of December 1981 and the first
week of January 1982.
The issue posed for resolution is whether or not a contract
of sale has been perfected between the parties.
We reverse the decision of the Court of Appeals and
reinstate the decision of the trial court. It bears emphasizing
that 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 x x x.”5
Article 1319 of the Civil Code states: “Consent is
manifested by the meeting of the offer and 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.” The facts
presented to us indicate that consent on both sides has been
manifested.
The offer by petitioner was manifested on December 17,
1981
_______________
4
 Regional Trial Court of Makati, Metro Manila, Branch
146, (Penned by Judge Jose L. Coscolluela, Jr.)
5
 Civil Code, Article 1475, C & C Commercial Corp. v.
PNB G.R. No. 92499, July 5, 1989, 175 SCRA 1; NGA v.
Intermediate Appellate Court, G.R. No. 79970, March 8,
1989, 171 SCRA 131.
721
VOL. 227, NOVEMBER 11, 721
1993
Johannes Schuback & Sons Philippine
Trading Corporation vs. Court of
Appeals
when petitioner submitted its proposal containing the item
number, quantity, part number, description, the unit price and
total to private respondent. On December 24, 1981, private
respondent informed petitioner of his desire to avail of the
prices of the parts at the time and simultaneously enclosed its
MIDTERM SALES CASES Page 80 of 96
Purchase Order No. 0101 dated December 14, 1981. At this
stage, a meeting of the minds between vendor and vendee has
occurred, the object of the contract being the spare parts and
the consideration, the price stated in petitioner’s offer dated
December 17, 1981 and accepted by the respondent on
December 24, 1981.
Although said purchase order did not contain the quantity
he wanted to order, private respondent made good his promise
to communicate the same on December 19, 1981. At this
juncture, it should be pointed out that private respondent was
already in the process of executing the agreement previously
reached between the parties.
Below Exh. G-3, marked as Exhibit G-3-A, there appears
this statement made by private respondent: “Note: above P.O.
will include a 3% discount. The above will serve as our initial
P.O.” This notation on the purchase order was another
indication of acceptance on the part of the vendee, for by
requesting a 3% discount, he implicitly accepted the price as
first offered by the vendor. The immediate acceptance by the
vendee of the offer was impelled by the fact that on January 1,
1982, prices would go up, as in fact, the petitioner informed
him that there would be a 7% increase effective January 1982.
On the other hand, concurrence by the vendor with the said
discount requested by the vendee was manifested when
petitioner immediately ordered the items needed by private
respondent from Schuback Hamburg which in turn ordered
from NDK, a supplier of MAN spare parts in West Germany.
When petitioner forwarded its purchase order to NDK, the
price was still pegged at the old one. Thus, the pronouncement
of the Court of Appeals that there was no confirmed price on
or about the last week of December 1981 and/or the first week
of January 1982 was erroneous.
While we agree with the trial court’s conclusion that
indeed a perfection of the contract was reached between the
parties, we differ as to the exact date when it occurred, for
perfection took
722
722 SUPREME COURT
REPORTS ANNOTATED
Johannes Schuback & Sons Philippine
Trading Corporation vs. Court of
Appeals
place, not on December 29, 1981, but rather on December 24,
1981. Although the quantity to be ordered was made
determinate only on December 29, 1981, quantity is
immaterial in the perfection of a sales contract.What is of
importance is the meeting of the minds as to
the object and cause, which from the facts disclosed, show that
as of December 24, 1981, these essential elements had already
concurred.
On the part of the buyer, the situation reveals that private
respondent failed to open an irrevocable letter of credit
without recourse in favor of Johannes Schuback of Hamburg,
Germany. This omission, however, does not prevent the
perfection of the contract between the parties, for the opening
of a letter of credit is not to be deemed a suspensive condition.
The facts herein do not show that petitioner reserved title to
the goods until private respondent had opened a letter of
credit. Petitioner, in the course of its dealings with private
respondent, did not incorporate any provision declaring their
contract of sale without effect until after the fulfillment of the
act of opening a letter of credit.
The opening of a letter of credit in favor of a vendor is
only a mode of payment. It is not among the essential
requirements of a contract of sale enumerated in Article 1305
and 1474 of the Civil Code, the absence of any of which will
prevent the perfection of the contract from taking place.
To adopt the Court of Appeals’ ruling that the contract of
sale was dependent on the opening of a letter of credit would
be untenable from a pragmatic point of view because private
respondent would not be able to avail of the old prices which
were open to him only for a limited period of time. This
explains why private respondent immediately placed the order
with petitioner which, in turn promptly contacted its trading
partner in Germany. As succinctly stated by petitioner, “it
would have been impossible for respondent to avail of the said
old prices since the perfection of the contract would arise
much later, or after the end of the year 1981, or when he
finally opens the letter of credit.”6
WHEREFORE, the petition is GRANTED and the
decision of the trial court dated June 13, 1988 is
REINSTATED with modifi-
_______________
6
 Rollo, p. 46.
723
VOL. 227, NOVEMBER 11, 723
1993
Lazaro vs. Court of Appeals
cation.
SO ORDERED.
     Feliciano(Chairman), Bidin, Melo and Vitug,
JJ., concur.
Petition granted; trial court’s decision reinstated with
modification.
Note.—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. (Villamor vs. Court of
Appeals, 202 SCRA 607).
G.R. No. 109410. August 28, 1996.*
CLARA M. BALATBAT, petitioner, vs. COURT OF
APPEALS and Spouses JOSE REPUYAN and AURORA
REPUYAN, respondents.
Civil Law; Sales; The failure of the buyer to make good
the price does not, in law, cause the ownership to revest to the
seller unless the bilateral contract of sale is first rescinded or
resolved pursuant to Article 1191 of the New Civil Code.—
Devoid of any stipulation that “ownership in the thing shall
not pass to the purchaser until he has fully paid the price,”
ownership in the thing shall pass from the vendor to the
vendee upon actual or constructive delivery of the thing “sold
even if the purchase price has not yet been fully paid. The
failure of the buyer to make good the price does not, in law,
cause the ownership to revest to the seller unless the bilateral
contract of sale is first rescinded or resolved pursuant to
Article 1191 of the New Civil Code. Non-payment only
creates a right to demand the fulfillment of the obligation or to
rescind the contract.
MIDTERM SALES CASES Page 81 of 96
 Same; Same; When the sale is made through a public
instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if from
the deed the contrary does not appear or cannot be inferred.—
With respect to the nondelivery of the possession of the
subject property to the private respondent, suffice it to say that
ownership of the thing sold is acquired only from the time of
delivery thereof, either actual or con-
_______________
*
 SECOND DIVISION.
129
VOL. 261, 129
AUGUST 28, 1996
Balatbat vs. Court of Appeals
structive. Article 1498 of the Civil Code provides that—
when the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the
thing which is the object of the contract, if from the deed the
contrary does not appear or cannot be inferred. The execution
of the public instrument, without actual delivery of the thing,
transfers the ownership from the vendor to the vendee, who
may thereafter exercise the rights of an owner over the same.
Same; Same; The provision of Article 1358 on the
necessity of a public document is only for convenience, not for
validity or enforceability.—In the instant case, vendor Roque
delivered the owner’s certificate of title to herein private
respondent. It is not necessary that vendee be physically
present at every square inch of the land bought by him,
possession of the public instrument of the land is sufficient to
accord him the rights of ownership. 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). The provision of Article
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; A contract of sale being consensual, it is
perfected by the mere consent of the parties.—A contract of
sale being consensual, it is perfected by the mere consent of
the parties. Delivery of “the thing bought or payment of the
price is not necessary for the perfection of the contract; and
failure of the vendee to pay the price after the execution of the
contract does not make the sale null and void for lack of
consideration but results at most in default on the part of the
vendee, for which the vendor may exercise his legal remedies.
Same; Same; Double Sales; Persons to whom
ownership of an immovable property shall be transferred in
case of double sale.—Article 1544 of the Civil Code provides
that in case of double sale of an immovable property,
ownership shall be transferred (1) to the person acquiring it
who in good faith first recorded it in the Registry of Property;
(2) in default thereof, to the person who in good faith was first
in possession; and (3) in default thereof, to the person who
presents the oldest title, provided there is good faith.
130
130 SUPREME COURT
REPORTS ANNOTATED
Balatbat vs. Court of Appeals
Same; Same; Same; The annotation of the adverse
claim on TCT No. 135671 in the Registry of Property is
sufficient compliance as mandated by law and serves notice to
the whole world.—This is an instance of a double sale of an
immovable property hence, the ownership shall vest in the
person acquiring it who in good faith first recorded it in the
Registry of Property. Evidently, private respondents Repuyans
caused the annotation of an adverse claim on the title of the
subject property denominated as Entry No. 5627/T135671 on
July 21, 1980. The annotation of the adverse claim on TCT
No. 135671 in the Registry of Property is sufficient
compliance as mandated by law and serves notice to the whole
world.
Same; Same; Same; As between two purchasers, the
one who has registered the sale in his favor, has a preferred
right over the other who has not registered his title even if the
latter is in actual possession of the immovable property.—As
between two purchasers, the one who has registered the sale in
his favor, has a preferred right over the other who has not
registered his title even if the latter is in actual possession of
the immovable property. Further, even in default of the first
registrant or first in possession, private respondents have
presented the oldest title. Thus, private respondents who
acquired the subject property in good faith and for valuable
consideration established a superior right as against the
petitioner.
Same; Same; Same; A purchaser of a valued piece of
property cannot just close his eyes to facts which should put a
reasonable man upon his guard and then claim that he acted
in good faith and under the belief that there was no defect in
the title of the vendor.—It is incumbent upon the vendee of the
property to ask for the delivery of the owner’s duplicate copy
of the title from the vendor. A purchaser of a valued piece of
property cannot just close his eyes to facts which should put a
reasonable man upon his guard and then claim that he acted in
good faith and under the belief that there were no defect in the
title of the vendor. One who purchases real estate with
knowledge of a defect or lack of title in his vendor cannot
claim that he has acquired title thereto in good faith as against
the true owner of the land or of an interest therein; and the
same rule must be applied to one who has knowledge of facts
which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the
defects in the title of his vendor. Good faith, or the want of it
is not a visible, tangible fact that can be seen or touched, but
rather a state or condition of mind which can only be judged of
by actual or fancied tokens or signs.
131
VOL. 261, AUGUST 28, 1996 131
Balatbat vs. Court of Appeals
PETITION for review on certiorari of a decision of the Court
of Appeals.
The facts are stated in the opinion of the Court.
     Facundo T. Bautistafor petitioner.
     Federico R. Onandiafor private respondents.
TORRES, JR., J.:
Petitioner Clara M. Balatbat instituted this petition for review
pursuant to Rule 45 of the Revised Rules of Court seeking to
MIDTERM SALES CASES Page 82 of 96
set aside the decision dated August 12, 1992 of the respondent
Court of Appeals in CA-G.R. CV No. 29994 entitled
“Alejandro Balatbat and Clara Balatbat, plaintiffs-appellants
versus Jose Repuyan and Aurora Repuyan,
defendantsappellees,” the dispositive portion of which reads: 1
“WHEREFORE, the judgment appealed from is affirmed with
the modification that the awards of P10,000.00 for attorney’s
fees and P5,000.00 as costs of litigation are deleted.
SO ORDERED."
The records show the following factual antecedents:
It appears that on June 15, 1977, Aurelio A. Roque filed a
complaint for partition docketed as Civil Case No. 109032
against Corazon Roque, Alberto. de los Santos, Feliciano
Roque, Severa Roque and Osmundo Roque before the then
Court of First Instance of Manila, Branch IX. 2 Defendants
therein were declared in default and plaintiff presented
evidence ex-parte. On March 29, 1979, the trial court rendered
a decision in favor of plaintiff Aurelio A. Roque, the pertinent
portion of which reads:3
_______________
1
 Decision, Rollo, pp. 47–58; Penned by Justice Minerva
Gonzaga-Reyes, concurred by Justice Nathanael de Pano, Jr.,
Consuelo Ynares-Santiago.
2
 Complaint, Original Records, pp. 14–18.
3
 Decision, Original Records, pp. 19–22.
132
132 SUPREME COURT REPORTS
ANNOTATED
Balatbat vs. Court of Appeals
“From the evidence, it has been clearly established that the lot
in question covered by Transfer Certificate of Title No. 51330
was acquired by plaintiff Aurelio Roque and Maria Mesina
during their conjugal union and the house constructed thereon
was likewise built during their marital union, Out of their
union, plaintiff and Maria Mesina had four children, who are
the defendants in this case. When Maria Mesina died on
August 28, 1966, the only conjugal properties left are the
house and lot above stated of which plaintiff herein, as the
legal spouse, is entitled to one-half share pro-indiviso thereof.
With respect to the one-half share pro-indiviso now forming
the estate of Maria Mesina, plaintiff and the four children, the
defendants here, are each entitled to one-fifth (1/5) share pro-
indiviso. The deceased wife left no debt.
Wherefore, judgment is hereby rendered ordering the
partition of the properties, subject matter of this case
consisting of the house and lot, in the following manner:
1. 1.Of the house and lot forming the conjugal
properties, plaintiff is entitled to one-half share pro-
indivisothereof while the other half forms the estate
of the deceased Maria Mesina;
2. 2.Of the Estate of deceased Maria Mesina, the same
is to be divided into five (5) shares and plaintiff and
his four children are entitled each to one-fifth share
thereof pro-indiviso.
Plaintiff claim for moral, exemplary and actual damages
and attorney’s fees not having been established to the
satisfaction of the Court, the same is hereby denied.
Without pronouncement as to costs.
SO ORDERED."
On June 2, 1979, the decision became final and executory. The
corresponding entry of judgment was made on March 29,
1979.4 On October 5, 1979, the Register of Deeds of Manila
issued a Transfer Certificate of Title No. 135671 in the name
of the following persons in the following proportions:5
Aurelio A. Roque 6/10 share
Severina M. Roque 1/10 share
_______________
4
 Entry of Judgment, Original Records, p. 23.
5
 Transfer Certificate of Title, Original Records, pp. 152–154.
133
VOL. 261, AUGUST 28, 1996 133
Balatbat vs. Court of Appeals
Osmundo M. Roque 1/10 share
Feliciano M. Roque 1/10 share
Corazon M. Roque 1/10 share
On April 1, 1980, Aurelio A. Roque sold his 6/10 share in
T.C.T. No. 135671 to spouses Aurora Tuazon-Repuyan and
Jose Repuyan as evidenced by a “Deed of Absolute Sale."6
On July 21, 1980, Aurora Tuazon Repuyan caused the
annotation of her affidavit of adverse claim 7 on the Transfer
Certificate of Title No. 135671,8 to wit:
“Entry No. 5627/T-135671—NOTICE OF ADVERSE
CLAIM—Filed by Aurora Tuazon Repuyan, married,
claiming among others that she bought 6/10 portion of the
property herein described from Aurelio Roque for the amount
of P50,000.00 with a down payment of P5,000.00 and the
balance of P45,000.00 to be paid after the partition and
subdivision of the property herein described, other claims set
forth in Doc. No. 954, page 18, Book 94 of
___________________ 64 ____________PEDRO DE
CASTRO, Notary Public of Manila.
Date of instrument—July 21, 1980
Date of inscription—July 21, 1980 at 3:35 p.m.
TERESITA H. NOBLEJAS 
Acting Register of Deeds 
By:                
RAMON D. MACARICAN 
Acting Second Deputy”
On August 20, 1980, Aurelio A. Roque filed a complaint for
“Rescission of Contract” docketed as Civil Case No. 134131
against spouses Aurora Tuazon-Repuyan and Jose Repuyan
before Branch IV of the then Court of First Instance of Manila.
The complaint is grounded on spouses Repuyan’s failure to
pay the balance of P45,000.00 of the purchase price.9 On
_______________
6
 Exhibit 1 for the Defendants; Deed of Absolute Sale,
Original Records, pp. 156–159.
7
 Affidavit of Adverse Claim, Original Records, pp, 155.
8
 T.C.T. No. 135671, Original Records, pp. 152–154.
9
 Complaint, Original Records, pp. 129–132.
134
134 SUPREME COURT REPORTS
ANNOTATED
Balatbat vs. Court of Appeals
September 5, 1980, spouses Repuyan filed their answer with
counterclaim.10
MIDTERM SALES CASES Page 83 of 96
 In the meantime, the trial court issued an order in Civil
Case No. 109032 (Partition case) dated February 2, 1982, to
wit:11
“In view of all the foregoing and finding that the amount of P
100,000.00 as purchase price for the sale of the parcel of land
covered by TCT No. 51330 of the Registry of Deeds of Manila
consisting of 84 square meters situated in Callejo Sulu,
District of Santa Cruz, Manila, to be reasonable and fair, and
considering the opportunities given defendants to sign the
deed of absolute sale voluntarily, the Court has no alternative
but to order, as it hereby orders, the Deputy Clerk of this Court
to sign the deed of absolute sale for and in behalf of
defendants pursuant to Sec. 10, Rule 39 of the Rules of Court,
in order to effect the partition of the property involved in this
case.
SO ORDERED."
A deed of absolute sale was executed on February 4, 1982
between Aurelio S. Roque, Corazon Roque, Feliciano Roque,
Severa Roque and Osmundo Roque and Clara Balatbat,
married to Alejandro Balatbat.12 On April 14, 1982, Clara
Balatbat filed a motion for the issuance of a writ of possession
which -was granted by the trial court on September 14, 1982
“subject, however, to valid rights and interest of third persons
over the same portion thereof, other than vendor or any other
person or persons privy to or claiming any rights or interest
under it.” The corresponding writ of possession was issued on
September 20, 1982.13
On May 20, 1982, petitioner Clara Balatbat filed a motion
to intervene in Civil Case No. 13413114which was granted as
_______________
10
 Answer, Original Records, pp. 133–139.
11
 Order, Original Records, pp. 24–27.
12
 Deed of Absolute Sale dated February 4, 1982, Original
Records, pp. 28–31.
13
 Writ of Possession, Original Records, p. 32.
14
 Motion for Intervention, Original Records, p. 160.
135
VOL. 261, AUGUST 28, 1996 135
Balatbat vs. Court of Appeals
per court’s resolution of October 21, 1982.15 However, Clara
Balatbat failed to file her complaint in intervention. 16 On April
15, 1986, the trial court rendered a decision dismissing the
complaint, the pertinent portion of which reads:17
The rescission of contracts are provided for in the laws and
nowhere in the provision of the Civil Code under the title
Rescissible Contracts does the circumstances in the case at bar
appear to have occurred, hence, the prayer for rescission is
outside the ambit for which rescissible [sic] could be granted.
“The Intervenor—Plaintiff, Clara Balatbat, although
allowed to intervene, did not file her complaint in intervention.
“Consequently, the plaintiff having failed to prove with
sufficient preponderance his action, the relief prayed for had to
be denied. The contract of sale denominated as “Deed of
Absolute Sale” (Exh. 7 and sub-markings) being valid and
enforceable, the same pursuant to the provisions of Art, 1159
of the Civil Code which says:
“Obligations arising from contracts have the force of law
between the contracting parties and should be complied with
in good faith.”
has the effect of being the law between the parties and
should be complied with. The obligation of the plaintiff under
the contract being to have the land covered by TCT No.
135671 partitioned and subdivided, and title issued in the
name of the defendant buyer (see page 2 par. C of Exh. 7-A)
plaintiff had to comply thereto to give effect to the contract.
“WHEREFORE, judgment is rendered against the
plaintiff, Aurelio A. Roque, and the plaintiff in intervention,
Clara Balatbat, and in favor of the defendants, dismissing the
complaint for lack of merit, and declaring the Deed of
Absolute Sale dated April 1, 1980 as valid and enforceable
and the plaintiff is, as be is hereby ordered, to partition and
subdivide the land covered by T.C.T. No. 135671, and to
aggregate therefrom a portion equivalent to 6/10 thereof, and
cause the same to be titled in the name of the defendants, and
after which, the defendants to pay the plaintiff the sum of
P45,000.00.
_______________
15
 Order, Original Records, p. 161.
16
 Order, Original Records, p. 162.
17
 Decision in Civil Case No. 134131, Original Records,
pp. 163–166.
136
136 SUPREME COURT REPORTS
ANNOTATED
Balatbat vs. Court of Appeals
Considering further that the defendants suffered damages
since they were forced to litigate unnecessarily, by way of
their counter-claim, plaintiff is hereby ordered to pay
defendants the sum of P15,000.00 as moral damages,
attorney’s fees in the amount of P5,000.00.
Costs against plaintiff.
SO ORDERED."
On March 3, 1987, petitioner Balatbat filed a notice of lis
pendens in Civil Case No. 109032 before the Register of
Deeds of Manila.18
On December 9, 1988, petitioner Clara Balatbat and her
husband, Alejandro Balatbat filed the instant complaint for
delivery of the owners duplicate copy of T.C.T. No. 135671
docketed as Civil Case No. 88–47176 before Branch 24 of the
Regional Trial Court of Manila against private respondents
Jose Repuyan and Aurora Repuyan.19
On January 27, 1989, private respondents filed their
answer with affirmative defenses and compulsory
counterclaim.20
On November 13, 1989, private respondents filed their
memorandum21 while petitioners filed their memorandum on
November 23, 1989.22
On August 2, 1990, the Regional Trial Court of Manila,
Branch 24, rendered a decision dismissing the complaint, the
dispositive portion of which reads:23
“Considering all the foregoing, this Court finds that the
plaintiffs have not been able to establish their cause of action
against the defendants and have no right to the reliefs
demanded in the complaint and the complaint of the plaintiff
against the defendants is
_______________
18
 Notice of Lis Pendens, Original Records, p. 33.
19
 Complaint, Original Records, pp. 3–12.
MIDTERM SALES CASES Page 84 of 96
 20
 Answer, Original Records, pp. 42–47.
21
 Memorandum, Original Records, pp. 144–151.
22
 Memorandum, Original Records, pp. 169–193.
23
 Complaint, Original Records, pp. 208–218.
137
VOL. 261, AUGUST 28, 1996 137
Balatbat vs. Court of Appeals
hereby DISMISSED. On the counterclaim, the plaintiff are
ordered to pay defendants the amount of Ten Thousand Pesos
by way of attorney’s fees, Five Thousand Pesos as costs of
litigation and further to pay the costs of the suit.
SO ORDERED."
Dissatisfied, petitioner Balatbat filed an appeal before the
respondent Court of Appeals which rendered the assailed
decision on August 12, 1992, to wit:24
“WHEREFORE, the judgment appealed from is affirmed with
the modification that the awards of P10,000.00 for attorney’s
fees and P5,000.00 as costs of litigation are deleted.
SO ORDERED."
On March 22, 1993, the respondent Court of Appeals denied
petitioner’s motion for reconsideration.25
Hence, this petition for review.
Petitioner raised the following issues for this Court’s
resolution:
I VOL. 261, AUGUST 28, 1996
WHETHER OR NOT THE ALLEGED SALE TO THE
PRIVATE RESPONDENTS WAS MERELY EXECUTORY
AND NOT A CONSUMMATED TRANSACTION?
II
WHETHER OR NOT THERE WAS A DOUBLE SALE
AS CONTEMPLATED UNDER ART. 1544 OF THE CIVIL
CODE?
III
WHETHER OR NOT PETITIONER WAS A BUYER IN
GOOD FAITH AND FOR VALUE?
_______________
24
 Decision, Rollo, pp. 48–58.
25
 Resolution, Rollo, pp. 60–62.
138
138 SUPREME COURT REPORTS
ANNOTATED
Balatbat vs. Court of Appeals
IV
WHETHER OR NOT THE COURT OF APPEALS ERRED
IN GIVING WEIGHT AND CONSIDERATION TO THE
EVIDENCE OF THE PRIVATE RESPONDENTS WHICH
WERE NOT OFFERED?
Petitioner asseverates that the respondent Court of Appeals
committed grave abuse of discretion tantamount to lack or
excess of jurisdiction in affirming the appealed judgment
considering (1) that the alleged sale in favor of the private
respondents Repuyan was merely executory; (2) that there is
no double sale; (3) that petitioner is a buyer in good faith and
for value; and (4) that private respondents did not offer their
evidence during the trial.
Contrary to petitioner’s contention that the sale dated April
1, 1980 in favor of private respondents Repuyan was merely
executory for the reason that there was no delivery of the
subject property and that consideration/price was not fully
paid, we find the sale as consummated, hence, valid and
enforceable. In a decision dated April 15, 1986 of the Regional
Trial Court of Manila, Branch IV in Civil Case No. 134131,
the Court dismissed vendor Aurelio Roque’s complaint for
rescission of the deed of sale and declared that the sale dated
April 1, 1980, as valid and enforceable. No appeal having
been made, the decision became final and executory. It must
be noted that herein petitioner Balatbat filed a motion for
intervention in that case but did not file her complaint in
intervention. In that case wherein Aurelio Roque sought to
rescind the April 1, 1980 deed of sale in favor of the private
respondents for non-payment of the P45,000.00 balance, the
trial court dismissed the complaint for rescission. Examining
the terms and conditions of the “Deed of Sale” dated April 1,
1980, the P45,000.00 balance is payable only “after the
property covered by T.C.T. No. 135671 has been partitioned
and subdivided, and title issued in the name of the BUYER"
hence, vendor Roque cannot demand payment of the balance
unless and until the property has been subdivided and titled in
the name of the private respondents. Devoid of any stipulation
that “ownership in the thing shall not pass to the purchaser
until
139
139
Balatbat vs. Court of Appeals
he has fully paid the price,"26ownership in the thing shall pass
from the vendor to the vendee upon actual or constructive
delivery of the thing sold even if the purchase price has not yet
been fully paid. The failure of the buyer to make good the
price does not, in la,cause the ownership to revest to the seller
unless the bilateral contract of sale is first rescinded or
resolved pursuant to Article 1191 of the New Civil
Code.27 Non-payment only creates a right to demand the
fulfillment of the obligation or to rescind the contract.
With respect to the non-delivery of the possession of the
subject property to the private respondent, suffice it to say that
ownership of the thing sold is acquired only from the time of
delivery thereof, either actual or constructive. 28 Article 1498 of
the Civil Code provides that—when the sale is made through a
public instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the contract, if
from the deed the contrary does not appear or cannot be
inferred.29 The execution of the public instrument, without
actual delivery of the thing, transfers the ownership
_______________
26
 Article 1478, New Civil Code.
27
 Chua Hai vs. Hon. Kapunan, 104 Phil. 110; No. L-
11108, June 30, 1958.
“Art. 1191 the power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him. The injured party may
choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He
may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
“The Court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
MIDTERM SALES CASES Page 85 of 96
 “This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance with
Articles 1385 and 1388 of the Mortgage Law.
28
 Obaña vs. Court of Appeals, 135 SCRA 557; G.R. No.
L36249, March 29, 1985, Edca Publishing & Distributing
Corps. vs. Santos, 184 SCRA 614, G.R. No. 80298, April 26,
1990.
29
 Dy vs. Court of Appeals, G.R. 92989, July 8, 1991.
140
140 SUPREME COURT REPORTS
ANNOTATED
Balatbat vs. Court of Appeals
from the vendor to the vendee, who may thereafter exercise
the rights of an owner over the same. 30 In the instant case,
vendor Roque delivered the owner’s certificate of title to
herein private respondent. It is not necessary that vendee be
physically present at every square inch of the land bought by
him, possession of the public instrument of the land is
sufficient to accord him the rights of ownership. 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). The provision of
Article 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.31
A contract of sale being consensual, it is perfected by the
mere consent of the parties.32 Delivery of the thing bought or
payment of the price is not necessary for the perfection of the
contract; and failure of the vendee to pay the price after the
execution of the contract does not make the sale null and void
for lack of consideration but results at most in default on the
part of the vendee, for which the vendor may exercise his legal
remedies.33
Article 1544 of the New Civil Code provides:
“If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have
first taken possession thereof in good faith, if it should be
movable property.
“Should it be movable property, the ownership shall
belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
“Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in the
possession and in the
_______________
30
 Puato vs. Mendoza, 64 Phil. 457, No. 44169, July 16,
1937.
31
 Dalion vs. Court of Appeals, G.R. 78903, February
28,1990.
32
 Aspi vs. Court of Appeals, 236 SCRA 94; G.R. No.
83527, September 1, 1994.
33
 Sorongon vs. Parreñas, 54 Official Gazette 1860.
141
VOL. 261, AUGUST 28, 1996 141
Balatbat vs. Court of Appeals
absence thereof, to the person who present the oldest title,
provided there is good faith.”
Article 1544 of the Civil Code provides that in case of double
sale of an immovable property, ownership shall be transferred
(1) to the person acquiring it who in good faith first recorded it
in the Registry of Property; (2) in default thereof, to the person
who in good faith was first in possession; and (3) in default
thereof, to the person who presents the oldest title, provided
there is good faith.34
In the case at bar, vendor Aurelio Roque sold 6/10 portion
of his share in TCT No. 135671 to private respondents
Repuyan on April 1, 1980. Subsequently, the same lot was
sold again by vendor Aurelio Roque (6/10) and his children
(4/10), represented by the Clerk of Court pursuant to Section
10, Rule 39 of the Rules of Court, on February 4, 1982.
Undoubtedly, this is a case of double sale contemplated under
Article 1544 of the New Civil Code.
This is an instance of a double sale of an immovable
property hence, the ownership shall vest in the person
acquiring it who in good faith first recorded it in the Registry
of Property. Evidently, private respondents Repuyans caused
the annotation of an adverse claim on the title of the subject
property denominated as Entry No. 5627/T-135671 on July 21,
1980.35 The annotation of the adverse claim on TCT No.
135671 in the Registry of Property is sufficient compliance as
mandated by law and serves notice to the whole world.
On the other hand, petitioner filed a notice of /is
pendens only on February 2, 1982. Accordingly, private
respondents who first caused the annotation of the adverse
claim in good faith shall have a better right over herein
petitioner. Moreover, the physical possession of herein
petitioners by virtue of a writ of possession issued by the trial
court on September 20,
_______________
34
 Radiowealth Finance Co. vs. Palileo, G.R. No. 83432,
May 20, 1991.
35
 Adverse Claim, Original Records, pp. 152–154; Valdez
vs. Court of Appeals, G.R. No. 85082, February 25, 1991.
142
142 SUPREME COURT REPORTS
ANNOTATED
Balatbat vs. Court of Appeals
1982 is “subject to the valid rights and interest of third persons
over the same portion thereof, other than vendor or any other
person or persons privy to or claiming any rights to interest
under it."36 As between two purchasers, the one who has
registered the sale in his favor, has a preferred right over the
other who has not registered his title even if the latter is in
actual possession of the immovable property. 37Further, even in
default of the first registrant or first in possession, private
respondents have presented the oldest title.38 Thus, private
respondents who acquired the subject property in good faith
and for valuable consideration established a superior right as
against the petitioner.
Evidently, petitioner cannot be considered as a buyer in
good faith. In the complaint for rescission filed by vendor
Aurelio Roque on August 20, 1980, herein petitioner filed a
motion for intervention on May 20, 1982 but did not file her
complaint in intervention, hence, the decision was rendered
adversely against her. If petitioner did investigate before
buying the land on February 4, 1982, she should have known
MIDTERM SALES CASES Page 86 of 96
that there was a pending case and an annotation of adverse
claim was made in the title of the property before the Register
of Deeds and she could have discovered that the subject
property was already sold to the private respondents. It is
incum“bent upon the vendee of the property to ask for the
delivery of the owner’s duplicate copy of the title from the
vendor. A purchaser of a valued piece of property cannot just
close his eyes to facts which should put a reasonable man
upon his guard and then claim that he acted in good faith and
under the belief that there were no defect in the title of the
vendor.39 One who purchases real estate with knowledge of a
defect or lack of title in his vendor cannot claim that he has
acquired title
_______________
36
 Writ of Possession, Original Records, p. 32.
37
 Gonzaga vs. Javellana, 23 Phil. 125; No. 6843,
September 3, 1912.
38
 Deed of Absolute Sale, dated April 1, 1980, Original
Records, pp. 156–159.
39
 De la Cruz vs. Intermediate Appellate Court, G.R. No.
72981, January 29, 1988.
143
VOL. 261, AUGUST 28, 1996 143
Balatbat vs. Court of Appeals
thereto in good faith as against the true owner of the land or of
an interest therein; and the same rule must be applied to one
who has knowledge of facts which should have put him upon
such inquiry and investigation as might be necessary to
acquaint him with the defects in the title of his vendor. Good
faith, or the want of it is not a visible, tangible fact that can be
seen or touched, but rather a state or condition of mind which
can only be judged of by actual or fancied tokens or signs.40
In fine, petitioner had nobody to blame but herself in
dealing with the disputed property for failure to inquire or
discover a flaw in the title to the property, thus, it is axiomatic
that—culpa lata dolo aequiparatur—gross negligence is
equivalent to intentional wrong.
IN VIEW OF THE FOREGOING PREMISES, this
petition for review is hereby DISMISSED for lack of merit.
No pronouncement as to costs.
IT IS SO ORDERED.
     Regalado(Chairman), Romero, Punoand Mendoza,
JJ., concur.
Petition dismissed.
Note.—The rule caveat emptor requires the purchaser to
be aware of the supposed title of the vendor and he who buys
without checking the vendor’s title takes all the risks and
losses consequent to such failure. (Samson us. Court of
Appeals, 238 SCRA 397[1994])
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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
_______________
*
 THIRD DIVISION.
229
VOL. 514, 229
FEBRUARY 5, 2007
Oesmer vs. Paraiso
Development Corporation
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. 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.
MIDTERM SALES CASES Page 87 of 96
 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
230
230 SUPREME COURT
REPORTS ANNOTATED
Oesmer vs. Paraiso
Development Corporation
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 limitedto 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
231
VOL. 514, 231
FEBRUARY 5, 2007
Oesmer vs. Paraiso
Development Corporation
the instant case, the consideration of P100,000.00 paid
by respondent to petitioners was referred to as “option
money.” However, a careful examination of the words used in
the contract indicates that the money is not option money
but earnest money. “Earnest money” and “option money” are
not the same but distinguished thus: (a) earnest money is part
of the purchase price, while option money is the money given
as a distinct consideration for an option contract; (b) earnest
money is given only where there is already a sale, while option
money applies to a sale not yet perfected; and, (c) when
earnest money is given, the buyer is bound to pay the balance,
while when the would-be buyer gives option money, he is not
required to buy, but may even forfeit it depending on the terms
of the option.
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.
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 Decision 1dated
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 Leon-
_______________
1
 Penned by Associate Justice Andres B. Reyes, Jr. with
Associate Justices Conrado M. Vasquez, Jr. and Mario L.
Guariña III, concurring, Rollo, pp. 31-44.
2
 Id., at pp. 46-49.
232
MIDTERM SALES CASES Page 88 of 96
232 SUPREME COURT REPORTS
ANNOTATED
Oesmer vs. Paraiso Development
Corporation
ora (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 P3,216,560.00 representing the
balance of the purchase price of the subject parcels of land.
The facts of the case are as follows:
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr.,
Librado, and Enriqueta, all surnamed Oesmer, together with
Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are
brothers and sisters, and the co-owners of undivided shares of
two parcels of agricultural and tenanted land situated in
Barangay Ulong Tubig, Carmona, Cavite, identified as Lot
720 with an area of 40,507 square meters (sq. m.) and Lot 834
containing an area of 14,769 sq. m., or a total land area of
55,276 sq. m. Both lots are unregistered and originally owned
by their parents, Bibiano Oesmer and Encarnacion Durumpili,
who declared the lots for taxation purposes under Tax
Declaration No. 34383(cancelled by I.D. No. 6064-A) for Lot
720 and Tax Declaration No. 34374(cancelled by I.D. No.
5629) for Lot 834. When the spouses Oesmer died, petitioners,
together with Adolfo and Jesus, acquired the lots as heirs of
the former by right of succession.
Respondent Paraiso Development Corporation is known to
be engaged in the real estate business.
Sometime in March 1989, Rogelio Paular, a resident and
former Municipal Secretary of Carmona, Cavite, brought
along petitioner Ernesto to meet with a certain Sotero Lee,
President of respondent Paraiso Development Corporation, at
Otani Hotel in Manila. The said meeting was for the purpose
_______________
3
 Rollo, p. 58.
4
 Id., at p. 59.
233
VOL. 514, FEBRUARY 5, 233
2007
Oesmer vs. Paraiso Development
Corporation
of brokering the sale of petitioners’ properties to respondent
corporation.
Pursuant to the said meeting, a Contract to Sell 5was
drafted by the Executive Assistant of Sotero Lee, Inocencia
Almo. On 1 April 1989, petitioners Ernesto and Enriqueta
signed the aforesaid Contract to Sell. A check in the amount of
P100,000.00, payable to Ernesto, was given as option money.
Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and
Librado also signed the said Contract to Sell. However, two of
the brothers, Adolfo and Jesus, did not sign the document.
On 5 April 1989, a duplicate copy of the instrument was
returned to respondent corporation. On 21 April 1989,
respondent brought the same to a notary public for
notarization.
In a letter6 dated 1 November 1989, addressed to
respondent corporation, petitioners informed the former of
their intention to rescind the Contract to Sell and to return the
amount of P100,000.00 given by respondent as option money.
Respondent did not respond to the aforesaid letter. On 30
May 1991, herein petitioners, together with Adolfo and Jesus,
filed a Complaint7 for Declaration of Nullity or for Annulment
of Option Agreement or Contract to Sell with Damages before
the Regional Trial Court (RTC) of Bacoor, Cavite. The said
case was docketed as Civil Case No. BCV-91-49.
During trial, petitioner Rizalino died. Upon motion of
petitioners, the trial court issued an Order, 8 dated 16
September 1992, to the effect that the deceased petitioner be
substituted by his surviving spouse, Josefina O. Oesmer, and
his children, Rolando O. Oesmer and Fernando O. Oesmer.
However, the name of Rizalino was retained in the title of the
case both in the RTC and the Court of Appeals.
_______________
5
 Id., at p. 235.
6
 Records, p. 44.
7
 Rollo, pp. 53-57.
8
 Id., at p. 68.
234
234 SUPREME COURT REPORTS
ANNOTATED
Oesmer vs. Paraiso Development
Corporation
After trial on the merits, the lower court rendered a
Decision9 dated 27 March 1996 in favor of the respondent, the
dispositive portion of which reads:
“WHEREFORE, premises considered, judgment is hereby
rendered in favor of herein [respondent] Paraiso Development
Corporation. The assailed Contract to Sell is valid and binding
only to the undivided proportionate share of the signatory of
this document and recipient of the check, [herein petitioner]
co-owner Ernesto Durumpili Oesmer. The latter is hereby
ordered to execute the Contract of Absolute Sale concerning
his 1/8 share over the subject two parcels of land in favor of
herein [respondent] corporation, and to pay the latter the
attorney’s fees in the sum of Ten Thousand (P10,000.00)
Pesos plus costs of suit.
The counterclaim of [respondent] corporation is hereby
Dismissed for lack of merit.”10
Unsatisfied, respondent appealed the said Decision before the
Court of Appeals. On 26 April 2002, the appellate court
rendered a Decision modifying the Decision of the court a
quoby 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
MIDTERM SALES CASES Page 89 of 96
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
_______________
9
 Penned by Judge Edelwina C. Pastoral; Rollo, pp. 69-73.
10
 Id., at p. 73.
235
VOL. 514, FEBRUARY 5, 235
2007
Oesmer vs. Paraiso Development
Corporation
favor of herein [respondent] corporation, and to pay the latter
the attorney’s fees in the sum of Ten Thousand Pesos
(P10,000.00) plus costs of suit.”11
Aggrieved by the above-mentioned Decision, petitioners filed
a Motion for Reconsideration of the same on 2 July 2002.
Acting on petitioners’ Motion for Reconsideration, the Court
of Appeals issued a Resolution dated 4 March 2003,
maintaining its Decision dated 26 April 2002, with the
modification that respondent tender payment to petitioners in
the amount of P3,216,560.00, representing the balance of the
purchase price of the subject parcels of land. The dispositive
portion of the said Resolution reads:
“WHEREFORE, premises considered, the assailed Decision
is hereby modified. Judgment is hereby rendered in favor of
herein [respondent] Paraiso Development Corporation. The
assailed Contract to Sell is valid and binding with respect to
the undivided proportionate shares of the six (6) signatories of
this document, [herein petitioners], namely, Ernesto,
Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer). The said [petitioners] are hereby ordered
to execute the Deed of Absolute Sale concerning their 6/8
share over the subject two parcels of land in favor of herein
[respondent] corporation, and to pay the latter attorney’s fees
in the sum of Ten Thousand Pesos (P10,000.00) 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
(P3,216,560.00) 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:
I. On a question of law in not holding that, the supposed
Contract to Sell (Exhibit “D”) is not binding upon petitioner
Ernesto
_______________
11
 Id., at pp. 43-44.
12
 Id., at pp. 48-49.
236
236 SUPREME COURT REPORTS
ANNOTATED
Oesmer vs. Paraiso Development
Corporation
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
coowners.
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
237
VOL. 514, FEBRUARY 5, 237
2007
Oesmer vs. Paraiso Development
Corporation
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
MIDTERM SALES CASES Page 90 of 96
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
238
238 SUPREME COURT REPORTS
ANNOTATED
Oesmer vs. Paraiso Development
Corporation
petitioner Enriqueta merely signed as a witness to the said
Contract to Sell, and that the other petitioners, namely:
Librado, Rizalino, Leonora, and Bibiano, Jr., did not
understand the importance and consequences of their action
because of their low degree of education and the contents of
the aforesaid contract were not read nor explained to them;
and (2) assuming that the signatures indicate consent, such
consent was merely conditional, thus, the effectivity of the
alleged Contract to Sell was subject to a suspensive condition,
which is the approval by all the co-owners of the sale.
It is well-settled that contracts are perfected by mere
consent, upon the acceptance by the offeree of the offer made
by the offeror. From that moment, the parties are bound not
only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law. To
produce a contract, the acceptance must not qualify the terms
of the offer. However, the acceptance may be express or
implied. For a contract to arise, the acceptance must be made
known to the offeror. Accordingly, the acceptance can be
withdrawn or revoked before it is made known to the offeror. 13
In the case at bar, the Contract to Sell was perfected when
the petitioners consented to the sale to the respondent of their
shares in the subject parcels of land by affixing their
signatures on the said contract. Such signatures show their
acceptance of what has been stipulated in the Contract to Sell
and such acceptance was made known to respondent
corporation when the duplicate copy of the Contract to Sell
was returned to the latter bearing petitioners’ signatures.
As to petitioner 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
_______________
13
 Jardine Davies, Inc. v. Court of Appeals, 389 Phil. 204,
212; 333 SCRA 684, 693 (2000).
239
VOL. 514, FEBRUARY 5, 239
2007
Oesmer vs. Paraiso Development
Corporation
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, 14the
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,
_______________
14
 Rollo, pp. 31-44.
15
 TSN, 15 October 1991, pp. 13-14.
240
240 SUPREME COURT REPORTS
ANNOTATED
Oesmer vs. Paraiso Development
Corporation
“First, the Contract to Sell is couched in such a simple
language which is undoubtedly easy to read and understand.
The terms of the Contract, specifically the amount of
P100,000.00 representing the option money paid by
[respondent] corporation, the purchase price of P60.00 per
square meter or the total amount of P3,316,560.00 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.
MIDTERM SALES CASES Page 91 of 96
 As to [petitioner] Ernesto, there is no dispute as to his
intention to effect the alienation of the subject property as he
in fact was the one who initiated the negotiation process and
culminated the same by affixing his signature on the Contract
to Sell and by taking receipt of the amount of P100,000.00
which formed part of the purchase price.
xxxx
As to [petitioner] Librado, the [appellate court] finds it
preposterous that he willingly affixed his signature on a
document written in a language (English) that he purportedly
does not understand. He testified that the document was just
brought to him by an 18 year old niece named Baby and he
was told that the document was for a check to be paid to him.
He readily signed the Contract to Sell without consulting his
other siblings. Thereafter, he exerted no effort in
communicating with his brothers and sisters regarding the
document which he had signed, did not inquire what the check
was for and did not thereafter ask for the check which is
purportedly due to him as a result of his signing the said
Contract to Sell. (TSN, 28 September 1993, pp. 22-23)
The [appellate court] notes that Librado is a 43 year old
family man (TSN, 28 September 1993, p. 19). As such, he is
expected to act with that ordinary degree of care and prudence
expected of a good father of a family. His unwitting testimony
is just divinely disbelieving.
The other [petitioners] (Rizalino, Leonora and Bibiano Jr.)
are likewise bound by the said Contract to Sell. The theory
adopted by the [petitioners] that because of their low degree of
education, they
241
VOL. 514, FEBRUARY 5, 241
2007
Oesmer vs. Paraiso Development
Corporation
did not understand the contents of the said Contract to Sell is
devoid of merit. The [appellate court] also notes that Adolfo
(one of the coheirs who did not sign) also possess the same
degree of education as that of the signing co-heirs (TSN, 15
October 1991, p. 19). He, however, is employed at the
Provincial Treasury Office at Trece Martirez, Cavite and has
even accompanied Rogelio Paular to the 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
242
242 SUPREME COURT REPORTS
ANNOTATED
Oesmer vs. Paraiso Development
Corporation
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
agree-ment 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 agreem ent.
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
MIDTERM SALES CASES Page 92 of 96
doubt upon the intention of the contracting parties, the literal
meaning of its stipulation shall control. 18 The terms of the
Contract to Sell made no mention of the condition that before
it can become valid and binding, a unanimous consent of all
the heirs is necessary. Thus, when the language of the
_______________
16
 Rollo, pp. 36-40.
17
 TSN, 28 September 1993, pp. 17-18.
18
 German Marine Agencies, Inc. v. National Labor
Relations Commission, 403 Phil. 572, 588-589; 350 SCRA
629, 641 (2001).
243
VOL. 514, FEBRUARY 5, 243
2007
Oesmer vs. Paraiso Development
Corporation
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 limitedto
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.
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
P100,000.00 to form part of the purchase price, which was
244
244 SUPREME COURT REPORTS
ANNOTATED
Oesmer vs. Paraiso Development
Corporation
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.
As a final point, the Contract to Sell entered into by the
parties is not a unilateral promise to sell merely because it
used the word option money when it referred to the amount of
P100,000.00, which also form part of the purchase price.
Settled is the rule that in the interpretation of contracts, the
ascertainment of the intention of the contracting parties is to
be discharged by looking to the words they used to project that
intention in their contract, all the words, not just a particular
word or two, and words in context, not words standing alone.19
In the instant case, the consideration of P100,000.00 paid
by respondent to petitioners was referred to as “option
money.” However, a careful examination of the words used in
the contract indicates that the money is not option money
but earnest money. “Earnest money” and “option money” are
not the same but distinguished thus: (a) earnest money is part
of the purchase price, while option money is the money given
as a distinct consideration for an option contract; (b) earnest
money is given only where there is already a sale, while option
money applies to a sale not yet perfected; and, (c) when
earnest money is given, the buyer is bound to pay the balance,
while when the would-be buyer gives option money, he is not
required to buy, but may even forfeit it depending on the terms
of the option.20
The sum of P100,000.00 was part of the purchase price.
Although the same was denominated as “option money,” it is
_______________
19
 Limson v. Court of Appeals, G.R. No. 135929, 20 April
2001, 357 SCRA 209, 216.
20
 Id., at p. 217.
245
VOL. 514, FEBRUARY 5, 245
2007
Oesmer vs. Paraiso Development
Corporation
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 tender payment to
petitioners in the amount of P3,216,560.00 representing 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 respondent the Deed of
Absolute Sale covering their shares in the subject parcels of
land after receipt of the balance of the purchase price, and to
MIDTERM SALES CASES Page 93 of 96
pay respondent attorney’s fees plus costs of the suit. Costs
against petitioners.
SO ORDERED.
     Ynares-Santiago(Chairperson), Austria-Martinez and  other to substitute a new one in its place—requiring
Callejo, Sr., JJ., concur.
Petition denied, judgment and resolution affirmed.
Notes.—The parties actually entered into a contract of
sale, partially consummated as to the payment of the price,
where the Offer to Purchase provides that, after the payment
of the option money, only the balance of the purchase price
need be paid, implying that the “option money” forms part of
the purchase price. (Cavite Development Bank vs. Lim, 324
SCRA 346 [2000])
246
246 SUPREME COURT REPORTS
ANNOTATED
Sarmiento vs. Zaratan
Earnest money is something of value to show that the buyer is
really in earnest, and given to the seller to bind the bargain,
and whenever earnest money is given in a contract of sale, it is
considered as part of the purchase price and proof of the
perfection of the contract. (Laforteza vs. Machuca, 333 SCRA
643[2000])
G.R. No. 177936. January 18, 2012.*
STARBRIGHT SALES ENTERPRISES, INC.,
petitioner, vs. PHILIPPINE REALTY CORPORATION,
MSGR. DOMINGO A. CIRILOS, TROPICANA
PROPERTIES AND DEVELOPMENT CORPORATION and
STANDARD REALTY CORPORATION, respondents.
Civil Law; Obligations; Contracts; Contract of Sale;
Under the law on sales, a contract of sale 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.—Three elements are needed to create
a perfected contract: 1) the consent of the contracting parties;
(2) an object certain which is the subject matter of the
contract; and (3) the cause of the obligation which is
established. Under the law on sales, a contract of sale 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. From that moment, the
parties may demand reciprocal performance.
Same; Same; Novation; A subjective novation results
through substitution of the person of the debtor or through
subrogation of a third person to the rights of the creditor.—A
subjective novation results through substitution of the person
of the debtor or through subrogation of a third person to the
rights of the creditor. To accom-
_______________
* THIRD DIVISION.
327
VOL. 663, 327
JANUARY 18, 2012
Starbright Sale Enterprises, Inc.
vs. Philippine Realty Corporation
plish a subjective novation through change in the person
of the debtor, the old debtor needs to be expressly released
from the obligation and the third person or new debtor needs
to assume his place in the relation. Novation serves two
functions—one is to extinguish an existing obligation, the
concurrence of four requisites: 1) a previous valid obligation;
2) an agreement of all parties concerned to a new contract; 3)
the extinguishment of the old obligation; and 4) the birth of a
valid new obligation.
Same; Sales; Earnest Money; Earnest money applies to
a perfected sale.—The P100,000.00 that was given to Msgr.
Cirilos as “deposit” cannot be considered as earnest money.
Where the parties merely exchanged offers and counter-offers,
no contract is perfected since they did not yet give their
consent to such offers. Earnest money applies to a perfected
sale.
Same; Contracts; Relativity of Contracts; Under the
principle of relativity of contracts, contracts can only bind the
parties who entered into it.—SSE cannot revert to the original
terms stated in Licup’s letter to Msgr. Cirilos dated April 17,
1988 since it was not privy to such contract. The parties to it
were Licup and Msgr. Cirilos. Under the principle of relativity
of contracts, contracts can only bind the parties who entered
into it. It cannot favor or prejudice a third person. Petitioner
SSE cannot, therefore, impose the terms Licup stated in his
April 17, 1988 letter upon the owners.
PETITION for review on certiorari of a decision of the Court
of Appeals.
   The facts are stated in the opinion of the Court.
  Platon, Martinez, Flores, San Pedro & Leaño for
petitioner.
  Arturo S. Santos for Tropicana Properties &
Development Corp.
  Tabalingcos & Associates Law Offices for respondents
Phil. Realty Corp. and Msgr. Domingo A. Cirilos, Jr.
328
328 SUPREME COURT REPORTS
ANNOTATED
Starbright Sale Enterprises, Inc. vs.
Philippine Realty Corporation
ABAD, J.:
The present case involves a determination of the perfection
of contract of sale.
The Facts and the Case
On April 17, 1988 Ramon Licup wrote Msgr. Domingo A.
Cirilos, offering to buy three contiguous parcels of land in
Parañaque that The Holy See and Philippine Realty
Corporation (PRC) owned for P1,240.00 per square meter.
Licup accepted the responsibility for removing the illegal
settlers on the land and enclosed a check for P100,000.00 to
“close the transaction.”1 He undertook to pay the balance of
the purchase price upon presentation of the title for transfer
and once the property has been cleared of its occupants.
Msgr. Cirilos, representing The Holy See and PRC, signed
his name on the conforme portion of the letter and accepted
the check. But the check could not be encashed due to Licup’s
stop-order payment. Licup wrote Msgr. Cirilos on April 26,
1988, requesting that the titles to the land be instead
transferred to petitioner Starbright Sales Enterprises, Inc.
MIDTERM SALES CASES Page 94 of 96
(SSE). He enclosed a new check for the same amount. SSE’s
representatives, Mr. and Mrs. Cu, did not sign the letter.
On November 29, 1988 Msgr. Cirilos wrote SSE,
requesting it to remove the occupants on the property and,
should it decide not to do this, Msgr. Cirilos would return to it
the P100,000.00 that he received. On January 24, 1989 SSE
replied with an “updated proposal.” 2 It would be willing to
comply with Msgr. Cirilos’ condition provided the purchase
price is lowered to P1,150.00 per square meter.
On January 26, 1989 Msgr. Cirilos wrote back, rejecting
the “updated proposal.” He said that other buyers were will-
_______________
1 Rollo, p. 14.
2 Id., at p. 65.
329
VOL. 663, JANUARY 18, 329
2012
Starbright Sale Enterprises, Inc. vs.
Philippine Realty Corporation
ing to acquire the property on an “as is, where is” basis at
P1,400.00 per square meter. He gave SSE seven days within
which to buy the property at P1,400.00 per square meter,
otherwise, Msgr. Cirilos would take it that SSE has lost
interest in the same. He enclosed a check for P100,000.00 in
his letter as refund of what he earlier received.
On February 4, 1989 SSE wrote Msgr. Cirilos that they
already had a perfected contract of sale in the April 17, 1988
letter which he signed and that, consequently, he could no
longer impose amendments such as the removal of the
informal settlers at the buyer’s expense and the increase in the
purchase price.
SSE claimed that it got no reply from Msgr. Cirilos and
that the next thing they knew, the land had been sold to
Tropicana Properties on March 30, 1989. On May 15, 1989
SSE demanded rescission of that sale. Meanwhile, on August
4, 1989 Tropicana Properties sold the three parcels of land to
Standard Realty.
Its demand for rescission unheeded, SSE filed a complaint
for annulment of sale and reconveyance with damages before
the Regional Trial Court (RTC) of Makati, Branch 61, against
The Holy See, PRC, Msgr. Cirilos, and Tropicana Properties
in Civil Case 90-183. SSE amended its complaint on February
24, 1992, impleading Standard Realty as additional defendant.
The Holy See sought dismissal of the case against it,
claiming that as a foreign government, it cannot be sued
without its consent. The RTC held otherwise but, on
December 1, 1994,3 the Court reversed the ruling of the RTC
and ordered the case against The Holy See dismissed. By
Order of January 26, 1996 the case was transferred to the
Parañaque RTC, Branch 258.
_______________
3 Holy See, The v. Rosario, Jr., G.R. No. 101949,
December 1, 1994, 238 SCRA 524.
330
330 SUPREME COURT REPORTS
ANNOTATED
Starbright Sale Enterprises, Inc. vs.
Philippine Realty Corporation
SSE alleged that Licup’s original letter of April 17, 1988
to Msgr. Cirilos constituted a perfected contract. Licup even
gave an earnest money of P100,000.00 to “close the
transaction.” His offer to rid the land of its occupants was a
“mere gesture of accommodation if only to expedite the
transfer of its title.”4 Further, SSE claimed that, in representing
The Holy See and PRC, Msgr. Cirilos acted in bad faith when
he set the price of the property at P1,400.00 per square meter
when in truth, the property was sold to Tropicana Properties
for only P760.68 per square meter.
Msgr. Cirilos maintained, on the other hand, that based on
their exchange of letters, no contract of sale was perfected
between SSE and the parties he represented. And, only after
the negotiations between them fell through did he sell the land
to Tropicana Properties.
In its Decision of February 14, 2000, the Parañaque RTC
treated the April 17, 1988 letter between Licum and Msgr.
Cirilos as a perfected contract of sale between the parties.
Msgr. Cirilos attempted to change the terms of contract and
return SSE’s initial deposit but the parties reached no
agreement regarding such change. Since such agreement was
wanting, the original terms provided in the April 17, 1988
letter continued to bind the parties.
On appeal to the Court of Appeals (CA), the latter
rendered judgment on November 10, 2006,5reversing the
Parañaque RTC decision. The CA held that no perfected
contract can be gleaned from the April 17, 1988 letter that SSE
had relied on. Indeed, the subsequent exchange of letters
between SSE and Msgr. Cirilos show that the parties were
grappling with the terms of the sale. Msgr. Cirilos made no
unconditional acceptance that would give rise to a perfected
contract.
_______________
4 CA Rollo, p. 100.
5 Penned by Associate Justice Monina Arevalo-Zeñarosa
with the concurrence of Associate Justices Martin S.
Villarama, Jr. and Lucas P. Bersamin (both Members of the
Court), Rollo, pp. 157-184.
331
VOL. 663, JANUARY 18, 331
2012
Starbright Sale Enterprises, Inc. vs.
Philippine Realty Corporation
As to the P100,000.00 given to Msgr. Cirilos, the CA
considered it an option money that secured for SSE only the
privilege to buy the property even if Licup called it a
“deposit.” The CA denied SSE’s motion for reconsideration
on May 2, 2007.
The Issue Presented
The only issue in this case is whether or not the CA erred
in holding that no perfected contract of sale existed between
SSE and the land owners, represented by Msgr. Cirilos.
The Court’s Ruling
Three elements are needed to create a perfected contract:
1) the consent of the contracting parties; (2) an object certain
which is the subject matter of the contract; and (3) the cause of
the obligation which is established. 6 Under the law on sales, a
contract of sale is perfected when the seller, obligates himself,
for a price certain, to deliver and to transfer ownership of a
MIDTERM SALES CASES Page 95 of 96
thing or right to the buyer, over which the latter agrees. 7From
that moment, the parties may demand reciprocal performance.
The Court believes that the April 17, 1988 letter between
Licup and Msgr. Cirilos, the representative of the property’s
owners, constituted a perfected contract. When Msgr. Cirilos
affixed his signature on that letter, he expressed his conformity
to the terms of Licup’s offer appearing on it. There was
meeting of the minds as to the object and consideration of the
contract.
But when Licup ordered a stop-payment on his deposit and
proposed in his April 26, 1988 letter to Msgr. Cirilos that the
_______________
6 CIVIL CODE, Article 1318.
7 Ang Yu Asuncion v. Court of Appeals, G.R. No. 109125,
December 2, 1994, 238 SCRA 602, 611.
332
332 SUPREME COURT REPORTS
ANNOTATED
Starbright Sale Enterprises, Inc. vs.
Philippine Realty Corporation
property be instead transferred to SSE, a subjective novation
took place.
A subjective novation results through substitution of the
person of the debtor or through subrogation of a third person
to the rights of the creditor. To accomplish a subjective
novation through change in the person of the debtor, the old
debtor needs to be expressly released from the obligation and
the third person or new debtor needs to assume his place in the
relation.8
Novation serves two functions—one is to extinguish an
existing obligation, the other to substitute a new one in its
place—requiring concurrence of four requisites: 1) a previous
valid obligation; 2) an agreement of all parties concerned to a
new contract; 3) the extinguishment of the old obligation; and
4) the birth of a valid new obligation.9
Notably, Licup and Msgr. Cirilos affixed their signatures
on the original agreement embodied in Licup’s letter of April
26, 1988. No similar letter agreement can be found between
SSE and Msgr. Cirilos.
The proposed substitution of Licup by SSE opened the
negotiation stage for a new contract of sale as between SSE
and the owners. The succeeding exchange of letters between
Mr. Stephen Cu, SSE’s representative, and Msgr. Cirilos
attests to an unfinished negotiation. Msgr. Cirilos referred to
his discussion with SSE regarding the purchase as a “pending
transaction.”10
Cu, on the other hand, regarded SSE’s first letter to Msgr.
Cirilos as an “updated proposal.” 11 This proposal took up two
issues: which party would undertake to evict the occupants on
_______________
8  Ajax Marketing & Development Corporation v. Court
of Appeals, G.R. No. 118585, September 14, 1995, 248 SCRA
222, 227.
9  Quinto v. People, 365 Phil. 259, 266; 305 SCRA 708,
714 (1999).
10 Rollo, p. 64.
11 See note 2.
333
VOL. 663, JANUARY 18, 333
2012
Starbright Sale Enterprises, Inc. vs.
Philippine Realty Corporation
the property and how much must the consideration be for the
property. These are clear indications that there was no meeting
of the minds between the parties. As it turned out, the parties
reached no consensus regarding these issues, thus producing
no perfected sale between them.
Parenthetically, Msgr. Cirilos did not act in bad faith when
he sold the property to Tropicana even if it was for a lesser
consideration. More than a month had passed since the last
communication between the parties on February 4, 1989. It is
not improbable for prospective buyers to offer to buy the
property during that time.
The P100,000.00 that was given to Msgr. Cirilos as
“deposit” cannot be considered as earnest money. Where the
parties merely exchanged offers and counter-offers, no
contract is perfected since they did not yet give their consent
to such offers.12 Earnest money applies to a perfected sale.
SSE cannot revert to the original terms stated in Licup’s
letter to Msgr. Cirilos dated April 17, 1988 since it was not
privy to such contract. The parties to it were Licup and Msgr.
Cirilos. Under the principle of relativity of contracts, contracts
can only bind the parties who entered into it. It cannot favor or
prejudice a third person.13 Petitioner SSE cannot, therefore,
impose the terms Licup stated in his April 17, 1988 letter upon
the owners.
WHEREFORE, the Court DISMISSES the petition and
AFFIRMS the Court of Appeals Decision dated November 10,
2006 in CA-G.R. CV 67366.
SO ORDERED.
Notes.—The birth or the perfection of the contract refers
to that moment in the life of a contract when there is finally a
concurrence of the wills of the contracting parties with respect
to the object and the cause of the contract. (Sargasso
Construction & Development Corporation/Pick & Shovel,
Inc./
Atlantic Erectors, Inc. [Joint Venture] vs. Philippine Ports
Authority, 623 SCRA 260 [2010])
Since novation implies a waiver of the right which the
creditor had before the novation, such waiver must be express.
(Mindanao Savings and Loan Association, Inc. vs.
Willkom,634 SCRA 291 [2010])
MIDTERM SALES CASES Page 96 of 96