Module 2

1) G.R. No. 135929       April 20, 2001

LOURDES ONG LIMSON, petitioner,

vs.
COURT OF APPEALS, SPOUSES LORENZO DE VERA and ASUNCION SANTOS-DE VERA, TOMAS
CUENCA, JR. and SUNVAR REALTY DEVELOPMENT CORPORATION, respondents.

BELLOSILLO, J.:

Filed under Rule 45 of the Rules of Court this Petition for Review on Certiorari seeks to review, reverse and
set aside the Decision1 of the Court of Appeals dated 18 May 1998 reversing that of the Regional Trial Court
dated 30 June 1993. The petitioner likewise assails the Resolution2 of the appellate court of 19 October 1998
denying petitioner’s Motion for Reconsideration.

Petitioner Lourdes Ong Limson, in her 14 may 1979 Complaint filed before the trial court,3 alleged that in July
1978 respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera, through their agent Marcosa
Sanchez, offered to sell to petitioner a parcel of land consisting of 48, 260 square meters, more or less,
situated in Barrio San Dionisio, Parañaque, Metro Manila; that respondent spouses informed her that they
were the owners of the subject property; that on 31 July 1978 she agreed to buy the property at the price of
P34.00 per square meter and gave the sum of P20,000.00 to respondent spouses as "earnest money;" that
respondent spouses signed a receipt therefor and gave her a 10-day option period to purchase the property;
that respondent Lorenzo de Vera then informed her that the subject property was mortgaged to Emilio Ramos
and Isidro Ramos; that respondent Lorenzo de Vera asked her to pay the balance of the purchase price to
enable him and his wife to settle their obligation with the Ramoses.1âwphi1.nêt

Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5 August 1978 at
the Office of the Registry of deeds of Makati, Metro Manila, to consummate the transaction but due to the
failure of respondent Asuncion Santos-de Vera and the Ramoses to appear, no transaction was formalized. In
a second meeting scheduled on 11 August 1978 she claimed that she was willing and ready to pay the balance
of the purchase price but the transaction again did not materialize as respondent spouses failed to pay the
back taxes of subject property. Subsequently, on 23 August 1978 petitioner allegedly gave respondent Lorenzo
de Vera three (3) checks in the total amount of P36, 170.00 for the settlement of the back taxes of the property
and for the payment of the quitclaims of the three (3) tenants of subject land. The amount was purportedly
considered part of purchase price and respondent Lorenzo de Vera signed the receipts therefor.

Petitioner alleged that on 5 September 1978 she was surprised to learn from the agent of respondent spouses
that the property was the subject of a negotiation for the sale to respondent Sunvar Realty Development
Corporation (SUNVAR) represented by respondent Tomas Cuenca, Jr. On 15 September 1978 petitioner
discovered that although respondent spouses purchased the property from the Ramoses on 20 March 1970 it
was only on 15 September 1978 that TCT No. S-72946 covering the property was issued to respondent
spouses. As a consequence, she file on the same day an affidavit of Adverse Claim with the Office of the
Registry of Deeds of Makati, Metro, which was annotated on TCT No. S-72946. She also claimed that on the
same day she informed respondent Cuenca of her "contract" to purchase the property.

The Deed of Sale between respondent spouses and respondent SUNVAR was executed on 15 September
1978 and TCT N0. S-72377 was issued in favor of the latter on 26 September 1978 with the adverse Claim of
petitioner annotated thereon. Petitioner claimed that when respondent spouses sold the property in dispute to
SUNVAR, her valid and legal right to purchase it was ignored if not violated. Moreover, she maintained that
SUNVAR was in bad faith, as it knew of her "contract" to purchase the subject property fro respondent spouse.

Finally, for the alleged unlawful and unjust acts of respondent spouses, which caused her damage, prejudice
and injury, petitioner claimed that the Deed of Sale, should be annuled and TCT No. S-72377 in the name of
respondent SUNVAR canceled and TCT No. S-72946 restored. She also insisted that a Deed of Sale between
her an respondent spouses be now executed upon her payment of the balance of the purchase price agreed
upon, plus damages and attorney’s fees.

In their Answer4 respondent spouses maintained that petitioner had no sufficient cause of action against them;
that she was not the real party in interest; that the option to buy the property had long expired; that there was
no perfected contract to sell between them; and, that petitioner had no legal capacity to sue. Additionally,
respondent spouses claimed actual, moral and exemplary damages, and attorney’s fees against petitioner.

On the other hand, respondents SUNVAR and Cuenca, in their Answer5 alleged that petitioner was not the
proper party in interest and/or had no cause of action against them. But, even assuming that petitioner was the
proper party in interest, they claimed that she could only be entitled to the return of any amount received by
respondent spouses. In the alternative, they argued that petitioner had lost her option to buy the property for
failure to comply with the terms and conditions of the agreement as embodied in the receipt issued therefor.
Moreover, they contended that at the time of the execution of the Deed of Sale and the payment of
consideration to respondent spouses, they "did not know nor was informed" of petitioner’s interest or claim
over the subject property. They claimed furthermore that it was only after the signing of the Deed of Sale and
the payment of the corresponding amounts to respondent spouses that they came to know of the claim of
petitioner as it was only then that they were furnished copy to the title to the properly where the Adverse
Claim of petitioner was annotated. Consequently, they also instituted a Cross-Claim against respondent
spouses for bad faith in encouraging the negotiations between them without telling them of the claim of
petitioner. The same respondents maintained that had they known of the claim of petitioner, they would not
have initiated negotiations with respondent spouses for the purchase of the property. Thus, they prayed for
reimbursement of all amounts and monies received from them by respondent spouses, attorney’s fees and
expenses for litigation in the event that the trial court should annul the Deed of Sale and deprive them of their
ownership and possessio of the subject land.

In their Answer to the Cross-Claim6 of respondents SUNVAR and Cuenca, respondent spouses insisted that
they negotiated with the former only after expiration of the option period given to petitioner and her failure with
her commitments thereunder. Respondent spouses contended that they acted legally and validly, in all honesty
and good faith. According to them, respondent SUNVAR made a verification of the title with the office of the
register of Deeds of Metro Manila District IV before the execution of the Deed of Absolute Sale. Also, they
claimed that the Cross-Claim was written executed by respondent SUNVAR in their favor. Thus, respondent
spouses prayed for actual damages for the unjustified filling of the Cross-Claim, moral damages for the mental
anguish and similar injuries they suffered by reason thereof, exemplary damages "to prevent others from
emulation the bad example" of respondents SUNVAR and Cuenca, plus attorney’s fees.

After a protracted trial and reconstitution of the court records due to the fire that razed the Pasay City Hall on
18 January 1992, the Regional Trial Court rendered its 30 June 1993 Decision7 in favor of petitioner. It ordered
(a) the annulment and rescission of the Deed of Absolute Sale executed on 15 September 1978 by respondent
spouses in favor of respondent SUNVAR; (b) the cancellation and revocation of TCT No. S-75377 of the
Registry of Deeds, Makati, Metro Manila, issued in the name of respondent Sunvar Realty Development
Corporation, and the restoration or reinstatement of TCT No. S-72946 of the same Registry issued in the name
of respondent spouses; (c) respondent spouses to execute a deed of sale conveying ownership of the property
covered by TCT No. S-72946 in favor of petitioner upon her payment of the balance of the purchase price
agreed upon; and, (d) respondent spouses to pay petitioner P50,000.00 as and for attorney’s fees, and to pay
the costs.

On appeal, the Court of Appeals completely reversed the decision of the trial court. It ordered (a) the Register
of Deeds of Makati City to lift the Adverse Claim and such other encumbrances petitioner might have filed or
caused to be annotated on TCT No. S-75377; and, (b) petitioner to pay (1) respondent SUNVAR P50,000.00
as nominal damages, P30,000.00 as exemplary damages and P20,000 as attorney’s fees; (2) respondent
spouses, P15,000.00 as nominal damages, P10,000.00 as exemplary damages and P10,000.00 as attorney’s
fees; and, (3) the costs.

Petitioner timely filed a Motion for Reconsideration which was denied by the Court of Appeals on 19 October
1998. Hence, this petition.

At issue for resolution by the Court is the nature of the contract entered into between petitioner Lourdes Ong
Limson on one hand, and respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera on the other.

The main argument of petitioner is that there was a perfected contract to sell between her and respondent
spouses. On the other hand, respondent spouses and respondents SUNVAR and Cuenca argue that what was
perfected between petitioner and respondent spouses was a mere option.

A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to the conclusion that the
agreement between the parties was a contract of option and not a contract to sell.

An option, as used in the law of sales, is a continuing offer or contract by which the owner sitpulates with
another that the latter shall have the right to buy the property at a fixed price within a time certain, 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 itself a purchase, but merely
secures the privilege to buy.8 It is not a sale of property but a sale of right to purchase.9 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 not sell
something, i.e., the right or privilege to buy at the election or option of the other party.10 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 the property gives the optionee the right or privilege of accepting the offer and buying the property
on certain terms.11

On the other hand, a contract, like a contract to sell, involves the meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some service.12 Contracts,
in general, are perfected by mere consent,13 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.14

The Receipt15 that contains the contract between petitioner and respondent spouses provides –
 Received from Lourdes Limson the sum of Twenty Thousand Peso (P20,000.00) under Check No.
22391 dated July 31, 1978 as earnest money with option to purchase a parcel of land owned by
Lorenzo de Vera located at Barrio San Dionisio, Municipality of Parañaque, Province of Rizal with an
area of forty eight thousand two hundred sixty square meters more or less at the price of Thirty Four
Pesos (34.00)16 cash subject to the condition and stipulation that have been agreed upon by the buyer
and me which will form part of the receipt. Should the transaction of the property not materialize not on
the fault of the buyer, I obligate myself to return the full amount of P20,000.00 earnest money with
option to buy or forfeit on the fault of the buyer. I guarantee to notify the buyer Lourdes Limson or her
representative and get her conformity should I sell or encumber this property to a third person. This
option to buy is good within ten (10) days until the absolute deed of sale is finally signed by the parties
or the failure of the buyer to comply with the terms of the option to buy as herein attached.

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 contracts, all the words standing
alone.17 The above Receipt readily shows that respondent spouses and petitioner only entered into a contract
of option; a contract by which respondent spouses agreed with petitioner that the latter shall have the right to
buy the former's property at a fixed price of P34.00 per square meter within ten (10) days from 31 July 1978.
Respondent spouses did not sell their property; they did not also agree to sell it; but they sold something, i.e.,
the privilege to buy at the election or option of petitioner. The agreement imposed no binding obligation on
petitioner, aside from the consideration for the offer.

The consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as "earnest money."
However, a careful examination of the words used indicated that the money is not earnest money but option
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 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,18 but may even forfeit it depending on the terms
of the option.

There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase price. Moreover,
it was not shown that there was a perfected sale between the parties where earnest money was given. Finally,
when petitioner gave the "earnest money" the Receipt did not reveal that she was bound to pay the balance of
the purchase price. In fact, she could even forfeit the money given if the terms of the option were not met.
Thus, the P20,000.00 could only be money given as consideration for the option contract. That the contract
between the parties is one of option is buttressed by the provision therein that should the transaction of the
provision therein that should the transaction of the property not materialize without fault of petitioner as buyer,
respondent Lorenzo de Vera obligates himself to return the full amount of P20,000.00 "earnest money" with
option to buy or forfeit the same on the fault of petitioner. It is further bolstered by the provision therein that
guarantees petitioner that she or her representative would be notified in case the subject property was sold or
encumbered to a third person. Finally, the Receipt provided for a period within which the option to buy was to
be exercised, i.e., "within ten (10) days" from 31 July 1978.

Doubtless, the agreement between respondent spouses and petitioner was an "option contract" or what is
sometimes called an "unaccepted offer." During the option period the agreement was not converted into a
bilateral promise to sell and to buy where both respondent spouses and petitioner were then reciprocally bound
to comply with their respective undertakings as petitioner did not timely, affirmatively and clearly accept the
offer of respondent spouses.

The rule is that except where a formal acceptance is not required, although the acceptance must be
affirmatively and clearly made and 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 by the accepting
party that clearly manifest a present intention or determination to accept the offer to buy the property of
respondent spouses within the 10-day option period. The only occasion within the option period when
petitioner could have demonstrated her acceptance was on 5 August 1978 when, according to her, she agreed
to meet respondent spouses and the Ramoses at the Office of the Registrar of Deeds of Makati. Petitioner’s
agreement to meet with respondent spouses presupposes an invitation from the latter, which only emphasizes
their persistence in offering the property to the former. But whether that showed acceptance by petitioner of the
offer is hazy and dubious.

On or before 10 August 1978, the last day of the option period, no affirmative or clear manifestation was made
by petitioner to accept the offer. Certainly, there was no concurrence of private respondent spouses’ offer and
petitioner’s acceptance thereof within the option period. Consequently, there was no perfected contract to sell
between the parties.

On 11 August 1978 the option period expired and the exclusive right of petitioner to buy the property of
respondent spouses ceased. The subsequent meetings and negotiations, specifically on 11 and 23 August
1978, between the parties only showed the desire of respondent spouses to sell their property to petitioner.
Also, on 14 September 1978 when respondent spouses sent a telegram to petitioner demanding full payment
of the purchase price on even date simply demonstrated an inclination to give her preference to buy subject
property. Collectively, these instances did not indicate that petitioner still had the exclusive right to purchase
subject property. Verily, the commencement of negotiations between respondent spouses and respondent
SUNVAR clearly manifested that their offer to sell subject property to petitioner was no longer exclusive to her.
We cannot subscribe to the argument of petitioner that respondent spouses extended the option period when
they extended the authority of their until 31 August 1978. The extension of the contract of agency could not
operate to extend the option period between the parties in the instant case. The extension must not be implied
but categorical and must show the clear intention of the parties.1âwphi1.nêt

As to whether respondent spouses were at fault for the non-consummation of their contract with petitioner, we
agree with the appellate court that they were not to be blammed. First, within the option period, or on 4 August
1978, it was respondent spouses and not petitioner who initiated the meeting at the Office of The Register of
Deeds of Makati. Second, that the Ramoses filed to appear on 4 August 1978 was beyond the control of
respondent spouses. Third, the succeeding meetings that transpired to consummate the contract were all
beyond the option period and, as declared by the Court of Appeals, the question of who was at fault was
already immaterial. Fourth, even assuming that the meetings were within the option period, the presence of
petitioner was not enough as she was not even prepared to pay the purchase price in cash as agreed
upon. Finally, even without the presence of the Ramoses, petitioner could have easily made the necessary
payment in cash as the price of the property was already set at P34.00 per square meter and payment of the
mortgage could every well be left to respondent spouses.

Petitioner further claims that when respondent spouses sent her a telegram demanding full payment of the
purchase price on 14 September 1978 it was an acknowledgment of their contract to sell, thus denying them
the right to claim otherwise.

We do not agree. As explained above, there was no contract to sell between petitioner and respondent
spouses to speak of. Verily, the telegram could not operate to estop them from claiming that there was such
contract between them and petitioner. Neither could it mean that respondent spouses extended the option
period. The telegram only showed that respondent spouses were willing to give petitioner a chance to buy
subject property even if it no longer exclusive.

The option period having expired and acceptance was not effectively made by petitioner, the purchase of
subject property by respondent SUNVAR was perfectly valid and entered into in good faith. Petitioner claims
that in August 1978 Hermigildo Sanchez, the son of respondent spouses’ agent, Marcosa Snachez, informed
Marixi Prieto, a member of the Board of Directors of respondent SUNVAR, that the property was already sold
to petitioner. Also, petitioner maintains that on 5 September 1978 respondent Cuenca met with her and offered
to buy the property from her at P45.00 per square meter. Petitioner contends that these incidents, including the
annotation of her Adverse Claim on the title of subject property on 15 September 1978 show that respondent
SUNVAR was aware of the perfected sale between her and respondent spouses, thus making respondent
SUNVAR a buyer in bad faith.

Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978, are immaterial as they were
beyond the option period given to petitioner. On the other hand, the referral to sometime in August 1978 in the
testimony of Hermigildo Sanchez as emphasized by petitioner in her petition is very vague. It could be within or
beyond the option period. Clearly then, even assuming that the meeting with Marixi Prieto actually transpired, it
could not necessarily mean that she knew of the agreement between petitioner and respondent spouses for
the purchase of subject property as the meeting could have occurred beyond the option period. In which case,
no bad faith could be attributed to respondent SUNVAR. If, on the other hand, the meeting was within the
option period, petitioner was remiss in her duty to prove so. Necessarily, we are left with the conclusion that
respondent SUNVAR bought subject property from respondent spouses in good faith, for value and without
knowledge of any flaw or defect in its title.

The appellate court awarded nominal and exemplary damages plus attorney’s fees to respondent spouses and
respondent SUNVAR. But nominal damages are adjudicated to vindicate or recognize the right of the plaintiff
that has been violated or invaded by the defendant.19 In the instant case, the Court recognizes the rights of all
the parties and finds no violation or invasion of the rights of respondents by petitioner. Petitioner, in filing her
complaint, only seeks relief, in good faith, for what she believes she was entitled to and should not be awarded
to respondents as they are imposed only by way of example or correction for the public good and only in
addition to the moral, temperate, liquidated or compensatory damages.20 No such kinds of damages were
awarded by the Court of Appeals, only nominal, which was not justified in this case. Finally, attorney’s fees
could not also be recovered as the Court does not deem it just and equitable under the circumtances.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals ordering the Register of Deeds of
Makati City to lift the adverse claim and such other encumbrances petitioners Lourdes Ong Limson may have
filed or caused to be annotated on TCT No. S-75377 is AFFIRMED, with the MODIFICATION that the award of
nominal and exemplary damages as well as attorney’s fees is DELETED.

SO ORDERED.

1. a) G.R. No. 137290               July 31, 2000

SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner,

vs.
SPOUSES ALFREDO HUANG and GRACE HUANG, respondents.

DECISION
MENDOZA, J.:

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.

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 ₱52,140,000.00 in cash. The offer was made to
Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a letter2 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 ₱500,000.00 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 letter3 proposing 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 ₱1,000,000.00 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
₱1,000,000.00 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 ₱1 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 ₱1 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 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 ₱1 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 ₱1 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 downpayment 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 ₱5,000 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 ₱5,000.00 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 ₱1 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.1âwphi1 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 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 can not, 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.

WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents’ complaint is
DISMISSED.

SO ORDERED.

2) G.R. No. L-9871             January 31, 1958

ATKINS, KROLL and CO., INC., petitioner,

vs.
B. CUA HIAN TEK, respondent.

Ross Selph, Carrascoso and Janda for petitioner.

Ponciano T. Castro for respondent.

BENGZON, J.:

Review of a Court of Appeals' decision. For its failure to deliver one thousand cartons of sardines, which it had
sold to B. Cua Hian Tek, petitioner was sued, and after trial was ordered by the Manila court of first instance to
Pay damages, which on appeal was reduced by the Court of Appeals to P3,240.15 representing unrealized
profits.

There was no such contract of sale, says petitioner, but only an option to buy, which was not enforceable for
lack of consideration because in accordance with Art. 1479 of the New Civil Code "an accepted unilatateral
promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price.

Simple are the facts of this case: Dated September 13, 1951, petitioner sent to respondent a letter of the
following tenor:

Sir (s) /Madam:

We are pleased to make you herewith the following firm offer, subject to reply by September 23, 1951:

Quantity and Commodity:

 400 Ctns. Luneta brand Sardines in Tomato Sauce 48/15-oz. Ovals at $8.25 Ctn.

300 Ctns. Luntea brand Sardines Natural 48/15 oz. talls at $6.25 Ct.

300 Ctns. Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at $7.48 Ct.

Price(s):

All prices C ad F Manila Cosular Fees of $6.00 to be added.

Shipmet:

Durig September/October from US Ports.

Supplier:

Atkins, Kroll & Co., Sa Frasisco, Cal. U.S.A.

We are looking forward to receive your valued order and remain .

Very truly yours,

The Court of first instance and the Court of Appeals1 found that B. Cua Hian Tek accepted the offer
unconditionally and delivered his letter of acceptance Exh. B on September 21, 1951. However, due to
shortage of catch of sardines by the packers in California, Atkins Kroll & Co., failed to deliver the commodities
it had offered for sale. There are other details to which reference shall not be made, as they touch the question
whether the acceptance had been handed on time; and on that issue of Court of Appeals definitely found for
plaintiff.

Ayway, in presenting its case before this Court petitioner does not dispute such timely acceptance. It merely
raises the point that the acceptance only created an option, which, lacking consideration, had no obligatory
force.

The offer Exh. A, petitioner argues, "was a promise to sell a determinate thing for a price certain. Upon its
acceptance by respondent, the offer became an accepted unilateral promise to sell a determinate thing for
price certain. Inasmuch as there was no consideration to support the promise to sell distinct from the price, it
follows that under Art. 1479 aforequoted, the promise is not binding on the petitioner even if it was accepted by
respondent." (p. 12 brief of petitioner.).

The argument, maifestly assumes that only a unilateral promise arose when the offeree accepted. Such
assumption is a mistake, because a bilateral cotract to sell and to buy was created upon acceptance. So much
so that B. Cua Hian Tek could be sued, he had backed out after accepting, by refusing to get the sardines
and/or to pay for their price. Indeed, the word "option" is found neither in the offer nor in the acceptance. On
the copntrary Exh. B accepted "the firm offer for the sale" and adds, "the undersigned buyer has immediately
filed an application for import license . . ." (Emphasis Ours.).

Petitioner, however, insists the offer was a mere offer of option, because the "firm offer" Exh. A. was a
continuing offer to sell until September 23, "an option is nothing more than a continuing offer" for a specified
time. In our opinion implies more than that: it implies the legal obligation to keep open for the time
specified.2 Yet the letter Exh. A did not by itself produce the legal obligation of keeping the offer open up ot
Septmber 23. It could be withdrawn before acceptance, because it is admitted, there was no consideration for
it.

ART. 1324. When the offerer has showed 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 somnething paid or promissed. (n) (New Civil Code.).

Ordinarily an offer to buy or sell may be withdrawn or countermanded before accepatnce, even though
the offer provides that it will not be withdrawn or countermanded, or allows the offeree a certain time
within which to accept it, unless such provision or agreement is supported by an independent
consideration. . . (77 Corpus Juris Secundum p. 636.).

Furthermore, an option is unilateral: a promise to sell3 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 later. In this case, however, upon
accepeting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto
assumed the obligations 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 bilalteral 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 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
(atrs. 1254 and 1262 of the Civil Code). (Zayco vs. Serra, 44 Phil. 331.).

One additional observation should be made before the closing this opinion. The defense in the court of first
instance rested on the proposition or propositions that the offer had not been precedent had not been fulfilled.
This option-without-consideration idea was never mentioned in the answer. A Change of theory in the appellate
courts is not permitted.

In order that a question may be raised on appeal, it is essential that it be within the issues made by the
parties in their pleadings. Consequently, when a party deliberately adopts a certain theory, and the
case is tried and decided upon that theory in the court below, he will not be permitted to change his
theory on appeal because, to permit him to do so, would be unfair to the adverse party. (Rules of Court
by Moran—1957 Ed. Vol. I p.715 citing Agoncillo vs. Javier, 38 Phil. 424; American Express Company
vs. Natividad, 46 Phil. 207; San Agustin vs. Barrios, 68 Phil. 465, 480; Toribio vs. Dacasa, 55 Phil.
461.) .

We must therefore hold, as the lower courts have held that there was a contract of sale between the parties.
And as no legal excuse has been proven, the seller's failure to comply therewith gave around to an award for
damages, which has been fixed by the Court of Appeals at P3,240.15-amount which petitioner does not
dispute in this final instance.

Consequently, the decision under review should be, and it is hereby affirmed, with cost against petitioner.

3) G.R. No. L-25494 June 14, 1972

NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.

Santiago F. Bautista for plaintiff-appellee.

Jesus G. Villamar for defendant-appellant.

CONCEPCION, C.J.:p

Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the
case to Us, upon the ground that it involves a question purely of law.

The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an
instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to
Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San
Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of
said province, within two (2) years from said date with the understanding that said option shall be deemed
"terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated
period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period,
were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First
Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and
damages.

After the filing of defendant's answer — admitting some allegations of the complaint, denying other allegations
thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell,
and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and
void" — on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment
on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering
Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of
conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence,
this appeal by Mrs. Rigos.

This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:
 ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.

In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and
committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of
which was annexed to said pleading as Annex A thereof and is quoted on the margin.1 Hence, plaintiff
maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first
paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell
the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself " to buy said
property. Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has
been made "an integral part" of his complaint, the provisions of said instrument form part "and parcel"2 of said
pleading.

The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a
"contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as
indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof,
the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for
P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and
undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and
this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted,
however, that:

(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales"
in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article
1479 is controlling in the case at bar.

(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the
concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price."
Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former
establishes the existence of said distinct consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint.

(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the
absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the
pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as
March 14, 1908, it had been held, in Bauermann v. Casas,3 that:

One who prays for judgment on the pleadings without offering proof as to the truth of his own
allegations, and without giving the opposing party an opportunity to introduce evidence, must be
understood to admit the truth of all the material and relevant allegations of the opposing party,
and to rest his motion for judgment on those allegations taken together with such of his own as
are admitted in the pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis
supplied.)

This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v. Herminia Verde.5

Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,6 from which We quote:

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10
for the sum of P30,000 under the terms stated above has no legal effect because it is not
supported by any consideration and in support thereof it invokes article 1479 of the new Civil
Code. The article provides:

"ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.

An accepted unilateral promise to buy or sell a determinate thing for a price

certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price."

On the other hand, Appellee contends that, even granting that the "offer of option" is not
supported by any consideration, that option became binding on appellant when the appellee
gave notice to it of its acceptance, and that having accepted it within the period of option, the
offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support this
contention, appellee invokes article 1324 of the Civil Code which provides:
 "ART. 1324. When the offerer has allowed the offeree a certain period to accept,
the offer may be withdrawn any time before acceptance by communicating such
withdrawal, except when the option is founded upon consideration as something
paid or promised."

There is no question that under article 1479 of the new Civil Code "an option to sell," or "a
promise to buy or to sell," as used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred from the context of said article that
a unilateral promise to buy or to sell, even if accepted, is only binding if supported by
consideration. In other words, "an accepted unilateral promise can only have a binding effect if
supported by a consideration which means that the option can still be withdrawn, even if
accepted, if the same is not supported by any consideration. It is not disputed that the option is
without consideration. It can therefore be withdrawn notwithstanding the acceptance of it by
appellee.

It is true that under article 1324 of the new Civil Code, the general rule regarding offer and
acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer
may be withdrawn at any time before acceptance" except when the option is founded upon
consideration, but this general rule must be interpreted as modified by the provision of article
1479 above referred to, which applies to "a promise to buy and sell" specifically. As already
stated, this rule requires that a promise to sell to be valid must be supported by a consideration
distinct from the price.

We are not oblivious of the existence of American authorities which hold that an offer, once
accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration
(12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code. But we are prevented from applying them in
view of the specific provision embodied in article 1479. While under the "offer of option" in
question appellant has assumed a clear obligation to sell its barge to appellee and the option
has been exercised in accordance with its terms, and there appears to be no valid or justifiable
reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because
the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress.

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek,8 decided later
that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,9 saw no distinction between Articles
1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one
sued upon here was involved, treating such promise as an option which, although not binding as a contract in
itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale
upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:

Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree
should decide to exercise his option within the specified time. After accepting the promise
and before he exercises his option, the holder of the option is not bound to buy. He is free either
to buy or not to buy later. In this case, however, upon accepting herein petitioner's offer a
bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the
obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was
not a mere option then; it was a bilateral contract of sale.

Lastly, even supposing that Exh. A granted an option which is not binding for lack of
consideration, the authorities hold that:

"If the option is given without a consideration, it is a mere offer of a contract of

sale, which is not binding until accepted. If, however, acceptance is made before
a withdrawal, it constitutes a binding contract of sale, even though the option was
not supported by a sufficient consideration. ... . (77 Corpus Juris Secundum, p.
652. See also 27 Ruling Case Law 339 and cases cited.)

"It can be taken for granted, as contended by the defendant, that the option
contract was not valid for lack of consideration. But it was, at least, an offer to
sell, which was accepted by letter, and of the acceptance the offerer had
knowledge before said offer was withdrawn. The concurrence of both acts — the
offer and the acceptance — could at all events have generated a contract, if
none there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra,
44 Phil. 331.)

In other words, since there may be no valid contract without a cause or consideration, the promisor is not
bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise
partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.

This view has the advantage of avoiding a conflict between Articles 1324 — on the general principles on
contracts — and 1479 — on sales — of the Civil Code, in line with the cardinal rule of statutory construction
that, in construing different provisions of one and the same law or code, such interpretation should be favored
as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption
is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position.
Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art.
1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and
exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2)
articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324,
to an option or promise supported by or founded upon a consideration, strongly suggests that the two (2)
provisions intended to enforce or implement the same principle.

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

WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant Severina
Rigos. It is so ordered.

4) 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.

Antonio M. Albano for petitioners.

Umali, Soriano & Associates for private respondent.

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-
G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the trial
court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate court thusly:

On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu
Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan
before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among
others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by
defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied
said spaces since 1935 and have been religiously paying the rental and complying with all the
conditions of the lease contract; that on several occasions before October 9, 1986, defendants
informed plaintiffs that they are offering to sell the premises and are giving them priority to
acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million
while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants
to put their offer in writing to which request defendants acceded; that in reply to defendant's
letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and
conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another
letter dated January 28, 1987 with the same request; that since defendants failed to specify the
terms and conditions of the offer to sell and because of information received that defendants
were about to sell the property, plaintiffs were compelled to file the complaint to compel
defendants to sell the property to them.

Defendants filed their answer denying the material allegations of the complaint and interposing
a special defense of lack of cause of action.

After the issues were joined, defendants filed a motion for summary judgment which was
granted by the lower court. The trial court found that defendants' offer to sell was never
accepted by the plaintiffs for the reason that the parties did not agree upon the terms and
conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the
lower court ruled that should the defendants subsequently offer their property for sale at a price
of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive portion of
the decision states:

WHEREFORE, judgment is hereby rendered in favor of the defendants and

against the plaintiffs summarily dismissing the complaint subject to the
aforementioned condition that if the defendants subsequently decide to offer their
property for sale for a purchase price of Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the property or of first refusal, otherwise,
defendants need not offer the property to the plaintiffs if the purchase price is
higher than Eleven Million Pesos.
 SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in

CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice
Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A.
Santiago), this Court affirmed with modification the lower court's judgment, holding:

In resume, there was no meeting of the minds between the parties concerning
the sale of the property. Absent such requirement, the claim for specific
performance will not lie. Appellants' demand for actual, moral and exemplary
damages will likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as to any material fact and
the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of
Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a
quo is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is

hereby AFFIRMED, but subject to the following modification: The court a quo in
the aforestated decision gave the plaintiffs-appellants the right of first refusal only
if the property is sold for a purchase price of Eleven Million pesos or lower;
however, considering the mercurial and uncertain forces in our market economy
today. We find no reason not to grant the same right of first refusal to herein
appellants in the event that the subject property is sold for a price in excess of
Eleven Million pesos. No pronouncement as to costs.

SO ORDERED.

The decision of this Court was brought to the Supreme Court by petition for review on certiorari.
The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form and
substances" (Annex H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court,
the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in
question to herein petitioner Buen Realty and Development Corporation, subject to the following
terms and conditions:

1. That for and in consideration of the sum of FIFTEEN MILLION PESOS

(P15,000,000.00), receipt of which in full is hereby acknowledged, the
VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE,
his heirs, executors, administrators or assigns, the above-described property with
all the improvements found therein including all the rights and interest in the said
property free from all liens and encumbrances of whatever nature, except the
pending ejectment proceeding;

2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for
the transfer of title in his favor and other expenses incidental to the sale of
above-described property including capital gains tax and accrued real estate
taxes.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses
was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on
December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees
demanding that the latter vacate the premises.

On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the
property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on
TCT No. 105254/T-881 in the name of the Cu Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case
No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.

On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:

Presented before the Court is a Motion for Execution filed by plaintiff represented
by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu
Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno
respectively were duly notified in today's consideration of the motion as
evidenced by the rubber stamp and signatures upon the copy of the Motion for
Execution.
 The gist of the motion is that the Decision of the Court dated September 21, 1990
as modified by the Court of Appeals in its decision in CA G.R. CV-21123, and
elevated to the Supreme Court upon the petition for review and that the same
was denied by the highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there was an
Entry of Judgment by the Supreme Court as of June 6, 1991, stating that the
aforesaid modified decision had already become final and executory.

It is the observation of the Court that this property in dispute was the subject of
the Notice of Lis Pendens and that the modified decision of this Court
promulgated by the Court of Appeals which had become final to the effect that
should the defendants decide to offer the property for sale for a price of P11
Million or lower, and considering the mercurial and uncertain forces in our market
economy today, the same right of first refusal to herein plaintiffs/appellants in the
event that the subject property is sold for a price in excess of Eleven Million
pesos or more.

WHEREFORE, defendants are hereby ordered to execute the necessary Deed of

Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong
and Arthur Go for the consideration of P15 Million pesos in recognition of
plaintiffs' right of first refusal and that a new Transfer Certificate of Title be issued
in favor of the buyer.

All previous transactions involving the same property notwithstanding the

issuance of another title to Buen Realty Corporation, is hereby set aside as
having been executed in bad faith.

SO ORDERED.

On September 22, 1991 respondent Judge issued another order, the dispositive portion of
which reads:

WHEREFORE, let there be Writ of Execution issue in the above-entitled case

directing the Deputy Sheriff Ramon Enriquez of this Court to implement said Writ
of Execution ordering the defendants among others to comply with the aforesaid
Order of this Court within a period of one (1) week from receipt of this Order and
for defendants to execute the necessary Deed of Sale of the property in litigation
in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15,000,000.00 and ordering the Register of Deeds of the City
of Manila, to cancel and set aside the title already issued in favor of Buen Realty
Corporation which was previously executed between the latter and defendants
and to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion,
Keh Tiong and Arthur Go.

SO ORDERED.

On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition)
was issued.1

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared
without force and effect the above questioned orders of the court a quo.

In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of
execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen
Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements as the right of
first refusal, a purchase option and a contract to sell. For ready reference, we might point out some
fundamental precepts that may find some relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is
constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical
tie which is the efficient cause established by the various sources of obligations (law, contracts, quasi-
contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed
(to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation,
are the active (obligee) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or to render some service
(Art. 1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is concluded (perfected).
The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract
which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of
offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the
above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as
a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a
donation of real property, is essential in order to make the act valid, the prescribed form being thereby an
essential element thereof. The stage of consummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical
relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is
perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer
ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil
Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of
the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the
purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an
obligatory force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a
"Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will
then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the
failure of the condition would prevent such perfection.3 If the condition is imposed on the obligation of a party
which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art.
1545, Civil Code).4

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is
fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted.5

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled

with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected
contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of
Article 1479 of the Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
(1451a)6

Observe, however, that the option is not the contract of sale itself.7 The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option,
a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their
respective undertakings.8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is

merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations
to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding
commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs.
Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules
generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the
right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's
coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see
also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell
under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see
also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos,
45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it
could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in
the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a
breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent
contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option)
which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on
the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care
should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of
the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract
could be deemed perfected; a similar instance would be an "earnest money" in a contract of sale that can
evidence its perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out,
it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of
first refusal, understood in its normal concept, per se be brought within the purview of an option under the
second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 13199 of the same Code.
An option or an offer would require, among other things,10 a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate,
the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into
a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later
firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical
relations governed not by contracts (since the essential elements to establish the vinculum juris would still be
indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions
of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its
breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely
recognizes its existence, nor would it sanction an action for specific performance without thereby negating the
indispensable element of consensuality in the perfection of contracts.11 It is not to say, however, that the right
of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof,
given, for instance, the circumstances expressed in Article 1912 of the Civil Code, can warrant a recovery for
damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first
refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of
private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment,
since there is none to execute, but an action for damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently
addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058,
cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the
ownership and possession of the property, without first being duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of
execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123.
The Court of Appeals, in this regard, has observed:

Finally, the questioned writ of execution is in variance with the decision of the trial court as
modified by this Court. As already stated, there was nothing in said decision 13 that decreed the
execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the fixing of
the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147
SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA,
137 SCRA 730; Pastor vs. CA, 122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the
time the execution of any deed of sale between the Cu Unjiengs and petitioners.

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.

5) G.R. No. 126454             November 26, 2004

BIBLE BAPTIST CHURCH and PASTOR REUBEN BELMONTE, petitioners,

vs.
COURT OF APPEALS and MR. & MRS. ELMER TITO MEDINA VILLANUEVA, respondents.

AZCUNA, J.:

This petition for review on certiorari seeks to annul the Decision1 dated August 7, 1996, of the Court of Appeals
in CA-G.R. CV No. 45956, and its Resolution2 dated September 12, 1996, denying reconsideration of the
decision. In the questioned issuances, the Court of Appeals affirmed the Decision3 dated June 8, 1993, of the
Regional Trial Court of Manila, Branch 3, in Civil Case No. 90-55437.

The antecedents are:

On June 7, 1985, the Bible Baptist Church (petitioner Baptist Church) entered into a contract of lease4 with Mr.
& Mrs. Elmer Tito Medina Villanueva (respondent spouses Villanueva). The latter are the registered owners of
a property located at No. 2436 (formerly 2424) Leon Guinto St., Malate, Manila. The pertinent stipulations in
the lease contract were:

1. That the LESSOR lets and leases to the LESSEE a store space known as 2424 Leon Guinto Sr. St.,
Malate, Manila, of which property the LESSOR is the registered owner in accordance with the Land
Registration Act.

2. That the lease shall take effect on June 7, 1985 and shall be for the period of Fifteen (15) years.

3. That LESSEE shall pay the LESSOR within five (5) days of each calendar month, beginning Twelve
(12) months from the date of this agreement, a monthly rental of Ten Thousand Pesos (P10,000.00)
Philippine Currency, plus 10% escalation clause per year starting on June 7, 1988.

4. That upon signing of the LEASE AGREEMENT, the LESSEE shall pay the sum of Eighty Four
Thousand Pesos (P84,000.00) Philippine Currency. Said sum is to be paid directly to the Rural Bank,
Valenzuela, Bulacan for the purpose of redemption of said property which is mortgaged by the
LESSOR.

5. That the title will remain in the safe keeping of the Bible Baptist Church, Malate, Metro Manila until
the expiration of the lease agreement or the leased premises be purchased by the LESSEE, whichever
comes first. In the event that the said title will be lost or destroyed while in the possession of the
LESSEE, the LESSEE agrees to pay all costs involved for the re-issuance of the title.

6. That the leased premises may be renovated by the LESSEE, to the satisfaction of the LESSEE to be
fit and usable as a Church.

7. That the LESSOR will remove all other tenants from the leased premises no later than March 15,
1986. It is further agreed that if those tenants are not vacated by June 1, 1986, the rental will be
lowered by the sum of Three Thousand Pesos (P3,000.00) per month until said tenants have left the
leased premises.

8. That the LESSEE has the option to buy the leased premises during the Fifteen (15) years of the
lease. If the LESSEE decides to purchase the premises the terms will be: A) A selling Price of One
Million Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency. B) A down payment agreed
upon by both parties. C) The balance of the selling price may be paid at the rate of One Hundred
Twenty Thousand Pesos (P120,000.00), Philippine Currency, per year.

x x x.5

The foregoing stipulations of the lease contract are the subject of the present controversy.

Although the same lease contract resulted in several cases6 filed between the same parties herein, petitioner
submits, for this Court's review, only the following errors allegedly committed by the Court of Appeals:

a) Respondent Court of Appeals erred in finding that the option to buy granted the petitioner Baptist
Church under its contract of lease with the Villanuevas did not have a consideration and, therefore, did
not bind the latter;

b) [R]espondent court again also erred in finding that the option to buy did not have a fixed price agreed
upon by the parties for the purchase of the property; and

c) [F]inally, respondent court erred in not awarding petitioners Baptist Church and its pastor attorney's
fees.7

In sum, this Court has three issues to resolve: 1) Whether or not the option to buy given to the Baptist Church
is founded upon a consideration; 2) Whether or not by the terms of the lease agreement, a price certain for the
purchase of the land had been fixed; and 3) Whether or not the Baptist Church is entitled to an award for
attorney's fees.

The stipulation in the lease contract which purportedly gives the lessee an option to buy the leased premises at
any time within the duration of the lease, is found in paragraph 8 of the lease contract, viz:

8. That the LESSEE has the option to buy the leased premises during the Fifteen (15) years of the
lease. If the LESSEE decides to purchase the premises the terms will be: A) A selling Price of One
Million Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency. B) A down payment agreed
upon by both parties. C) The balance of the selling price may be paid at the rate of One Hundred
Twenty Thousand Pesos (P120,000.00), Philippine Currency, per year.

Under Article 1479 of the Civil Code, it is provided:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon
the promissor if the promise is supported by a consideration distinct from the price.

The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under
an option contract. For an option contract to be valid and enforceable against the promissor, there must be a
separate and distinct consideration that supports it.

In this case, petitioner Baptist Church seeks to buy the leased premises from the spouses Villanueva, under
the option given to them. Petitioners claim that the Baptist Church "agreed to advance the large amount
needed for the rescue of the property but, in exchange, it asked the Villanuevas to grant it a long term lease
and an option to buy the property for P1.8 million."8 They argue that the consideration supporting the option
was their agreement to pay off the Villanueva's P84,000 loan with the bank, thereby freeing the subject
property from the mortgage encumbrance. They state further that the Baptist Church would not have agreed to
advance such a large amount as it did to rescue the property from bank foreclosure had it not been given an
enforceable option to buy that went with the lease agreement.

In the petition, the Baptist Church states that "[t]rue, the Baptist Church did not pay a separate and specific
sum of money to cover the option alone. But the P84,000 it paid the Villanuevas in advance should be deemed
consideration for the one contract they entered into – the lease with option to buy."9 They rely on the case
of Teodoro v. Court of Appeals10 to support their stand.

This Court finds no merit in these contentions.

First, petitioners cannot insist that the P84,000 they paid in order to release the Villanuevas' property from the
mortgage should be deemed the separate consideration to support the contract of option. It must be pointed
out that said amount was in fact apportioned into monthly rentals spread over a period of one year, at P7,000
per month. Thus, for the entire period of June 1985 to May 1986, petitioner Baptist Church's monthly rent had
already been paid for, such that it only again commenced paying the rentals in June 1986. This is shown by
the testimony of petitioner Pastor Belmonte where he states that the P84,000 was advance rental equivalent to
monthly rent of P7,000 for one year, such that for the entire year from 1985 to 1986 the Baptist Church did not
pay monthly rent.11

This Court agrees with respondents that the amount of P84,000 has been fully exhausted and utilized by their
occupation of the premises and there is no separate consideration to speak of which could support the
option.12

Second, petitioners' reliance on the case of Teodoro v. Court of Appeals13 is misplaced. The facts of the
Teodoro case reveal that therein respondent Ariola was the registered lessee of a property owned by the
Manila Railroad Co. She entered into an agreement whereby she allowed Teodoro to occupy a portion of the
rented property and gave Teodoro an option to buy the same, should Manila Railroad Co. decide to sell the
property to Ariola. In addition, Teodoro, who was occupying only a portion of the subject rented property, also
undertook to pay the Manila Railroad Co., the full amount of the rent supposed to be paid by the registered
lessor Ariola. Consequently, unlike this case, Teodoro paid over and above the amount due for her own
occupation of a portion of the property. That amount, which should have been paid by Ariola as lessor, and for
her own occupation of the property, was deemed by the Court as sufficient consideration for the option to buy
which Ariola gave to Teodoro upon Ariola's acquiring the property.

Hence, in Teodoro, this Court was able to find that a separate consideration supported the option contract and
thus, its enforcement may be demanded. Petitioners, therefore, cannot rely on Teodoro, for the case even
supports the respondents' stand that a consideration that is separate and distinct from the purchase price is
required to support an option contract.

Petitioners further insist that a consideration need not be a separate sum of money. They posit that their act of
advancing the money to "rescue" the property from mortgage and impending foreclosure, should be enough
consideration to support the option.
In Villamor v. Court of Appeals,14 this Court defined consideration as "the why of the contracts, the essential
reason which moves the contracting parties to enter into the contract."15 This definition illustrates that the
consideration contemplated to support an option contract need not be monetary. Actual cash need not be
exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the
same is an onerous contract for which the consideration must be something of value, although its kind may
vary.

Specifically, in Villamor v. Court of Appeals,16 half of a parcel of land was sold to the spouses Villamor for P70
per square meter, an amount much higher than the reasonable prevailing price. Thereafter, a deed of option
was executed whereby the sellers undertook to sell the other half to the same spouses. It was stated in the
deed that the only reason the spouses bought the first half of the parcel of land at a much higher price, was the
undertaking of the sellers to sell the second half of the land, also at the same price. This Court held that the
cause or consideration for the option, on the part of the spouses-buyers, was the undertaking of the sellers to
sell the other half of the property. On the part of the sellers, the consideration supporting the option was the
much higher amount at which the buyers agreed to buy the property. It was explicit from the deed therein that
for the parties, this was the consideration for their entering into the contract.

It can be seen that the Court found that the buyer/optionee had parted with something of value, which was the
amount he paid over and above the actual prevailing price of the land. Such amount, different from the price of
the land subject of the option, was deemed sufficient and distinct consideration supporting the option contract.
Moreover, the parties stated the same in their contract.

Villamor is distinct from the present case because, First, this Court cannot find that petitioner Baptist Church
parted with anything of value, aside from the amount of P84,000 which was in fact eventually utilized as rental
payments. Second, there is no document that contains an agreement between the parties that petitioner
Baptist Church's supposed rescue of the mortgaged property was the consideration which the parties
contemplated in support of the option clause in the contract. As previously stated, the amount advanced had
been fully utilized as rental payments over a period of one year. While the Villanuevas may have them to thank
for extending the payment at a time of need, this is not the separate consideration contemplated by law.

Noting that the option clause was part of a lease contract, this Court looked into its previous ruling in the early
case of Vda. De Quirino v. Palarca,17 where the Court did say that "in reciprocal contracts, like the one in
question,18 the obligation or promise of each party is the consideration for that of the other."19 However, it must
be noted that in that case, it was also expressly stated in the deed that should there be failure to exercise the
option to buy the property, the optionee undertakes to sell the building and/or improvements he has made on
the premises. In addition, the optionee had also been paying an amount of rent that was quite high and in fact
turned out to be too burdensome that there was a subsequent agreement to reduce said rentals. The Court
found that "the amount of rentals agreed upon x x x – which amount turned out to be so burdensome upon the
lessee, that the lessor agreed, five years later, to reduce it – as well as the building and/or improvements
contemplated to be constructed and/or introduced by the lessee, were, undoubtedly, part of the consideration
for his option to purchase the leased premises."20

Again, this Court notes that the parties therein clearly stipulated in their contract that there was an undertaking
on the part of the optionee to sell the improvements made on the property if the option was not exercised.
Such is a valuable consideration that could support the option contract. Moreover, there was the excessive
rental payments that the optionee paid for five years, which the Court also took into account in deciding that
there was a separate consideration supporting the option.

To summarize the rules, an option contract needs to be supported by a separate consideration. The
consideration need not be monetary but could consist of other things or undertakings. However, if the
consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of
the contract of option. Furthermore, when a consideration for an option contract is not monetary, said
consideration must be clearly specified as such in the option contract or clause.

This Court also notes that in the present case both the Regional Trial Court and the Court of Appeals agree
that the option was not founded upon a separate and distinct consideration and that, hence, respondents
Villanuevas cannot be compelled to sell their property to petitioner Baptist Church.

The Regional Trial Court found that "[a]ll payments made under the contract of lease were for rentals. No
money [was] ever exchanged for and in consideration of the option." Hence, the Regional Trial Court found the
action of the Baptist Church to be "premature and without basis to compel the defendant to sell the leased
premises." The Regional Trial Court consequently ruled:

WHEREFORE, judgment is rendered:

1) Denying plaintiffs' application for writ of injunction;

2) That defendant cannot be compelled to sell to plaintiffs the leased premises in accordance
with par. 8 of the contract of lease;

3) Defendant is hereby ordered to reimburse plaintiffs the sum of P15, 919.75 plus 12% interest
representing real estate taxes, plaintiffs paid the City Treasurer's Office of Manila;
 4) Declaring that plaintiff made a valid and legal consignation to the Court of the initial amount of
P18,634.00 for the month of November and December 1990 and every month thereafter.

All other claims of the plaintiffs are hereby dismissed for lack of merit.

No pronouncement as to costs.

SO ORDERED. 21

On appeal, the Court of Appeals agreed with the Regional Trial Court and found that the option to buy the
leased premises was not binding upon the Villanuevas for non-compliance with Article 1479. It found that said
option was not supported by a consideration as "no money was ever really exchanged for and in consideration
of the option." In addition, the appellate court determined that in the instant case, "the price for the object is not
yet certain." Thus, the Court of Appeals affirmed the Regional Trial Court decision and dismissed the appeal
for lack of merit.22

Having found that the option to buy granted to the petitioner Baptist Church was not founded upon a separate
consideration, and hence, not enforceable against respondents, this Court finds no need to discuss whether a
price certain had been fixed as the purchase price.

Anent the claim for attorney's fees, it is stipulated in paragraph 13 of the lease agreement that in the event of
failure of either of the parties to comply with any of the conditions of the agreement, the aggrieved party can
collect reasonable attorney's fees.23

In view of this Court's finding that the option contract is not enforceable for being without consideration, the
respondents Villanueva spouses' refusal to comply with it cannot be the basis of a claim for attorney's fees.

Hence, this Court agrees with as the Court of Appeals, which affirmed the findings of the Regional Trial Court,
that such claim is to be dismissed for lack of factual and legal basis.

WHEREFORE, the Decision and Resolution of the Court of Appeals subject of the petition are hereby
AFFIRMED.

No costs. SO ORDERED.

6) G.R. No. 212686, September 28, 2015

SERGIO R. OSMENA III, Petitioner, v. POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT

CORPORATION, EMMANUEL R. LEDESMA, JR., SPC POWER CORPORATION AND THERMA POWER
VISAYAS, INC., Respondents.

DECISION

VILLARAMA, JR., J.:

In a direct recourse to this Court, Senator Sergio R. Osmeña III (petitioner) seeks to enjoin the sale of the
Naga Power Plant Complex (NPPC) to respondent SPC Power Corporation (SPC) resulting from the latter's
exercise of the right to top the winning bid of respondent Therma Power Visayas, Inc. (TPVI), and to declare
such stipulation in the Lease Agreement as void for being contrary to public policy.

Antecedents

Respondent Power Sector Assets and Liabilities Management Corporation (PSALM) is a government-owned
and controlled corporation created by virtue of Republic Act (R.A.) No. 9136, otherwise known as the Electric
Power Industry Reform Act (EPIRA) of 2001. Its principal purpose is to manage the orderly sale, disposition,
and privatization of the National Power Corporation's (NPC's) generation assets, real estate and other
disposable assets, and Independent Power Producer (IPP) contracts, with the objective of liquidating all NPC
financial obligations and stranded contract costs in an optimal manner.1 Respondent Emmanuel R. Ledesma,
Jr. (Ledesma) is the incumbent President and Chief Executive Officer of PSALM.

SPC is a joint venture corporation between Salcon Power Corporation and Korea Power Corporation
(Kepco).2 TPVI is a subsidiary of AboitizPower, the power generation company of the Aboitiz Group.

PSALM provided the following brief description of the two (2) facilities subject of the present controversy:

Facility Name Naga Power Plant Complex Land-Based Gas

(NPPCx) Turbine (LBGT)
Location Brgy. Colon, Naga,Cebu Brgy. Colon, Naga, Cebu
Power Plants a. 52.5 MW Cebu 1 coal-fired thermal power plant; 55-MW Naga LBGT Power Plant
Installed
 b. 56.8 MW Cebu 2 coal-fired thermal power plants; and

c. 43.8 MW Cebu Diesel Power Plant 1 composed of six

(6)7.3 MW bunker-C fed power units
Total Rated 153.10 MW 55.00 MW
Capacity
Land Area 209,000.00 [sq. m.] 5,504.02 [sq. m.]3

The Naga Land-Based Gas Turbine (LBGT) is located inside the same compound as the NPPC.4

On October 16, 2009, PSALM privatized the 55-MW Naga Power Plant (LBGT) by way of negotiated sale after
a failed bidding in accordance with the LBGT Bidding Procedures.5 The land underlying the LBGT was also
leased out for a period of 10 years. This bidding resulted in SPC's acquisition of the LBGT through an Asset
Purchase Agreement (LBGT-APA) and lease of the land under a Land Lease Agreement (LBGT-LLA). The
LBGT-LLA would expire on January 29, 2020. The LBGT-LLA contained a provision for SPC's right to top in
the event of lease or sale of property which is not part of the leased premises.

On December 27, 2013, the Board of Directors of PSALM approved the commencement of the 3rd Round of
Bidding for the sale of the 153.1-MW NPPC. Only SPC and TPVI submitted bids. On March 31, 2014, TPVI
was declared as the highest bidder. Consequently, a Notice of Award6 was issued to TPVI on April 30, 2014,
subject to SPC's right under Section 3.02 of the LBGT-LLA, as previously stated in Section 1B-20 of the
Bidding Procedures.

The results of the NPPC bidding are as follows:

TPVI SPC
a. Purchase Price 441,191,500.00 211,391,388.88
b. Rentals 588,735,000.00 588,735,000.00
c. Option Price 58,873,500.00 58,873,500.00
Financial Bid, PHP 1,088,800,000.00 858,999,888.887

In a letter dated April 29, 2014, PSALM notified SPC of TPVI's winning bid which covers the purchase of the
NPPC and lease of the land. It also advised SPC that under the terms of LBGT-LLA (Sections 2.01 and 3.02),
the lease of the land (as governed by the LBGT-LLA) will likewise expire on January 29, 2020.8 In a letter-reply
dated May 7, 2014, SPC confirmed that it is exercising the right to top the winning bid of TPVI and will pay the
amount of Php1,143,240,000.00 on the understanding that the term of the lease is 25 years from Closing Date.
SPC argued that -

As SPC also participated in the bidding, the bid for the lease component clearly computed on the basis of, and
was for twenty-five (25) years. However, by now stating in your letter that the "lease has a Term often (10)
years and will expire on 29 January 2020," SPC would effectively have less than six (6) years from today to
use the property, which is extremely short for the lease component computed and based on the twenty-five
(25) year term that was offered during the bidding. While we are aware that the second paragraph of Section
3.02 of the LLA-LBGT provides that the property covered by the right to top will be "governed" by the LLA-
LBGT, we are of the reasonable belief that this does not include "Term" under Section 2.01 thereof considering
that the "Draft Land Lease Agreement for the 153.1-MW Naga Power Plant," which formed part of the bid
documents, specifically provided for a "Term" of twenty-five (25) years.9

PSALM then wrote the Office of the Government Corporate Counsel (OGCC) requesting for legal opinion or
confirmation of its position that the term of the lease of the NPPC upon SPC's exercise of its right to top would
be for the remaining period of the lease of the land of the Naga LBGT Power Plant, which will expire in 2020.10

On May 21, 2014, the OGCC rendered Opinion No. 098, Series of 2014 which upheld PSALM's position that
SPC may exercise the right to top under the LBGT-LLA provisions, the source of such right. It explained that
the NPPC-LLA is a separate and distinct transaction which is inapplicable with respect to SPC's right to top.11

However, upon re-evaluation of the arguments in the position papers submitted by SPC and PSALM, the
OGCC submitted its study and recommendation to Secretary of Justice Leila M. De Lima. The study concluded
that the right to top exercised by SPC in the NPPC bidding is a right to top on a sale, which must then be
separately governed by the NPPC-APA, and implemented in accordance with the NPPC-APA and LLA
provisions.12

On June 16, 2014, the present petition was filed in this Court praying that (1) a temporary restraining order
(TRO) be issued ex parte, and after hearing the parties, a writ of preliminary injunction be issued enjoining
PSALM from implementing SPC's exercise of its right to top in connection with the NPPC bidding; (2) SPC's
right to top as provided in Section 3.02 of the LBGT-LLA be declared void; and (3) a permanent injunction be
issued enjoining respondents Ledesma and PSALM from committing any act in furtherance of SPC's exercise
of the right to top.13

SPC, TPVI and PSALM filed their respective Comments on the petition, while SPC filed a Reply to TPVI's
Comment and petitioner his Reply to PSALM's Comment.

On August 7, 2014, SPC filed a Manifestation with Motion informing this Court that on July 28, 2014, PSALM
advised that PSALM's Board of Directors has already declared SPC as the winning bidder for the privatization
of NPPC. It thus contended that with this development, the present petition had become moot.14

On August 11, 2014, petitioner filed a Supplemental Petition with Motion for Early Resolution of the Application
for Temporary Restraining Order and/or Writ of Preliminary Injunction.15 According to petitioner, the transfer
and possession to SPC of the NPPC and of the land on which it is built should be deferred until after this Court
has ruled on his petition due to the following reasons: (1) there seems to be no urgency for PSALM to rush the
award of the NPPC; (2) by the execution of the subject NPPC-APA and LLA in favor of SPC, PSALM has
invalidly awarded a government property without the requisite public bidding; and (3) there are practical
difficulties and expense that will be incurred in order to reverse acts that are committed before any provisional
or preventive relief is issued, such as transfer of ownership and/or possession of the properties in SPC's name
or to third parties, and potential liability of the Government under suit for damages to be filed by any interested
party.

On November 11, 2014, PSALM filed a Manifestation in Lieu of Comment to the Supplemental
Petition,16 stating that: (1) PSALM's Board of Directors, in a meeting held on July 25, 2014, taking into
consideration the OGCC's letter dated June 13, 2014 and the DOJ's opinion-letter dated June 23, 2014,
declared SPC as the winning bidder for the sale of 153.1-MW NPPC; (2) PSALM issued on July 28, 2014 the
Notice of Award and Certificate of Effectivity in favor of SPC; (3) the NPPC-APA and LLA were already signed
and delivered to SPC; and (4) PSALM turned over the properties to SPC last September 25, 2014.

Petitioner's Arguments

Petitioner asserts that the right to top provision in the LBGT-LLA is an option contract which must be supported
by a consideration separate from the lease contract and may be withdrawn at any time by PSALM in the
absence of such consideration. He submits that SPC's preferential right to buy or lease "any property in the
vicinity of the Leased Premises which is not part of the Leased Premises" was a gratuitous concession to SPC,
and most likely was part of a scheme to bar any competition to SPC and to restrict the production of energy.
Citing Power Sector Assets and Liabilities Management Corporation v. Pozzolanic Philippines
Incorporated,17 petitioner argues that the right of first refusal is upheld only in cases where the holder of such
right holds an existing, or at least, a vested interest in the object for which the right is to be exercised. Thus,
even if SPC has a legal interest in the vicinity lots, its right to top can no longer be exercised because it is not
operating the Naga LBGT itself.

Another legal ground for the nullity of the option raised by petitioner pertains to the policy requiring competitive
public bidding in all government contracts. Petitioner contends that by granting SPC the right to top, PSALM
violated the express provisions of R.A. No. 9136 (EPIRA Law) and R.A. No. 9184 (Procurement Law) on public
bidding by failing to maintain bidders on equal footing in order to give the government the best possible and
available offer for public assets being sold or leased. He posits that SPC's exercise of its right to top is
disadvantageous to the Government and that the provision enables SPC to skirt around eligibility requirements
for a qualified bidder.

Alleging an anomalous track record for SPC since 1994 when as then Salcon Power Corporation it entered into
a 15-year contract to "Rehabilitate, Operate, Maintain and Manage" a coal plant, petitioner argues that the
2009 Naga LBGT contract should have been terminated for SPC's failure to comply with its obligations. Under
the 2009 Naga LBGT, not only does SPC enjoy an invalid option or preferential right unsupported by any
consideration, such right to top is also without a determinate object and founded on illegal cause considering
that it was merely intended to maintain SPC's dominance and to assist SPC in restricting competition.

Respondents' Arguments

At the outset, SPC questions petitioner's legal standing to file the present petition, having failed to establish
any personal benefit in the event relief is granted, and there being no expenditure of public funds involved that
would impress upon the petition the character of a taxpayer's suit. Neither could petitioner invoke his office as
a Senator because legislators may only be accorded standing to sue if there is a claim that official action
complained of infringes upon their prerogative as legislators. Petitioner could also not have anchored his
standing upon his status as a citizen as he failed to demonstrate how he would suffer personal injury as a
result of respondents' acts and erroneously invoked this Court's jurisdiction to rule on a policy issue relating to
the manner PSALM carries out its mandate, even as he failed to cite specific provision in the law and in EPIRA
which was supposedly violated by the petitioner.

On procedural grounds, SPC seeks the dismissal of the petition as there is no basis for annulling PSALM's
acts by way of a petition for certiorari or prohibition, and said petition was not filed within the 60-day
reglementary period from the time the Naga LBGT contract incorporating the right to top was awarded to SPC
in 2009 and the issuance of DOJ opinion dated January 9, 2013 wherein SPC's right to top was held to be
valid and not disallowed by law.
SPC asserts that even on substantive grounds, the petition should still be dismissed as the right to top is
clearly not an option contract and the Naga LBGT was validly awarded to SPC through a public bidding.
Citing JG Summit Holdings, Inc. v. Court of Appeals.,18 SPC maintains that the right to top granted under the
LBGT-LLA and exercised by it did not violate the rules of competitive bidding. The implementation of such right
to top, moreover, does not place the Government in a disadvantaged position but rather assures the
Government of an additional 5% of the highest reasonable bid. SPC thus argues that the right to top provision
in the LBGT-LLA is consistent with public policy and there is no law that invalidates such provision, such that
SPC's vested right should not be disregarded.

On its part, PSALM notes that similar right to top provisions are found in several other land lease agreements
in its privatization undertakings. In the 2013 Bidding Procedures for the 3rd Round of Bidding for the NPPC,
PSALM duly disclosed to the potential bidders the right to top provision under the LBGT-LLA (Sections 1B-05
and 1B-20 and Form of Certificate Closing for Seller). PSALM avers that it simply complied with the opinions
rendered by the DOJ and the second opinion of the OGCC, which have been held persuasive and hence it
acted in good faith in subsequently allowing SPC to exercise its right to top the winning bid for the purchase of
NPPC and lease of the land.

TPVI concurs with the allegations in the petition which it said are sufficient to vest standing upon petitioner as
citizen, taxpayer, Senator and Chairman of the Joint Congressional Power Committee (Committee). It likewise
finds the petition for certiorari as the proper remedy in view of the grave abuse of discretion committed by
PSALM in determining the terms of reference of the public bidding to be conducted, as well as in determining
the qualifications of the bidders. As to the timeliness of the petition, TPVI points out that SPC exercised its right
to top only on May 29, 2014 and therefore the 60-day period within which to file a petition for certiorari under
Rule 65 started only from that date.

Citing LTFRB v. Stronghold Insurance Company, Inc.,19 TPVI argues that the right of first refusal and right to
top provisions contravene the public policy on competitive public bidding and are valid only in specific cases. In
this case, SPC owns a power generation asset (LBGT) and has interest only over the land on which the LBGT
is located. TPVI underscores that the right to top in the LBGT does not stand in the same footing as the right to
top granted under the other Land Lease Agreements entered into by PSALM, considering the nature of the gas
turbine facility it owns. TPVI further contends that aside from SPC's continuous breach of its obligation to
operate the Naga LBGT, the right to top provision in the LBGT-LLA provides SPC with the ability to prevent
any entity from successfully bidding for and ultimately owning the LBGT and leasing the land. Hence, the
Government does not stand to benefit from the right to top provision in the LBGT-LLA.

Assuming the right to top is valid, still TPVI maintains that SPC failed to timely exercise the same within the
period provided therefor, or until May 30, 2014. Moreover, SPC's letter dated May 7, 2014 and subsequent
deposit in PSALM's account of the amount to cover the right to top is not the exercise sanctioned under the
LBGT-LLA, and SPC's insistence on a 25-year term instead of the remaining term of the LBGT-LLA is an
erroneous and invalid exercise of such right to top.

Replying to TPVI's arguments, SPC contends that the right to top is valid and its validity was upheld by the
DOJ in its Opinion dated January 9, 2013. Contrary to the averment that the right to top was a gratuitous
concession, SPC clarified that it participated and won in the bidding conducted for the sale of LBGT and lease
of the land which included the right to top provision, of which TPVI was well aware. During the bidding for the
NPPC, all bidders were given an equal chance of winning and none of them challenged SPC's right to top
which was duly disclosed to them. SPC further asserts that the right to top is more advantageous to the
Government considering that the bidders tend to offer only competitive bids knowing that their bids can be
"topped out" by SPC, and hence the Government is assured of receiving an offer even better than the best bid
tendered during the bidding proper.

As to the alleged lack of interest over the object of the right to top, SPC points out that it was the bidders'
concern that the buyer of the power plant obtain reasonable access to properties or lands in close proximity to
the power plant for purposes of security, right of way or other operational requirements. SPC further avers that
it has timely exercised the right to top as can be gleaned from its May 20, 2014 letter informing PSALM that
SPC already wired to PSALM the winning bid of Php 1,143,240,000.00, which is equivalent to the amount
tendered by the winning bidder plus 5%.

Issues

From the foregoing, the issues may be summarized as follows: (1) Is certiorari the proper remedy and was it
timely filed?; (2) Does petitioner possess legal standing to institute the present action questioning the validity of
SPC's right to top?; (3) Do right to top provisions in the land lease agreements entered into by PSALM
contravene public policy on competitive bidding?; and (4) Did PSALM gravely abuse its discretion in allowing
SPC's exercise of the right to top under the LBGT-LLA?

Our Ruling

The petition is meritorious.

Propriety of Certiorari

The Constitution under Section 1, Article VIII expressly directs the Judiciary, as a matter of power and duty, not
only to settle actual controversies involving rights which are legally demandable and enforceable but, to
determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. We thus have the duty to take
cognizance of allegations of grave abuse of discretion in this case,20 involving the sale by PSALM of a power
plant, which supposedly contravenes the policy on competitive public bidding.

R.A. No. 9136 created PSALM for the principal purpose of undertaking the mandated privatization of all
disposable assets of the NPC as well as IPP contracts in an optimal manner.21 Such disposition is made
subject to all existing laws, rules and regulations. Thus, the implementing rules of R.A. No.  9136 provided
guidelines in the privatization to be conducted by PSALM, among which are:

(a) The Privatization value to the National Government of the NPC generation assets, real estate, other
disposable assets as well as IPP contracts shall be optimized;cralawlawlibrary

xxxx

(d) All assets of NPC shall be sold in an open and transparent manner through public bidding, and the
same shall apply to the disposition of IPP contracts;cralawlawlibrary

x x x x22  (Emphasis supplied)ChanRoblesVirtualawlibrary

Specifically Section 51 (m) of the EPIRA empowered PSALM "[t]o restructure the sale, privatization or
disposition of NPC assets and IPP contracts and/or their energy output based on such terms and conditions
which shall optimize the value and sale prices of said assets." Any act of PSALM that violates these provisions
and other applicable laws may constitute grave abuse of discretion. There is grave abuse of discretion (1)
when an act is done contrary to the Constitution, the law or jurisprudence; or (2) when it is executed
whimsically, capriciously or arbitrarily out of malice, ill will or personal bias.23

However, the implementation of EPIRA may not be restrained or enjoined except by order issued by this
Court.24 Petitioner's resort to this Court to obtain an order enjoining PSALM's privatization of the NPPC through
SPC's invalid exercise of its right to option, was therefore proper and justified.

Legal Standing

We have held that legislators have the standing to maintain inviolate the prerogatives, powers and privileges
vested by the Constitution in their office and are allowed to sue to question the validity of any official action
which they claim infringes their prerogatives as legislators.25 In this case, there was no allegation of usurpation
of legislative function as petitioner is suing in his capacity as Chairperson of the Committee created pursuant to
Section 62 of R.A. No. 9136. Such position by itself is not sufficient to vest petitioner with standing to institute
the present suit. Notably, the enumerated functions of the Committee under the aforesaid provision are
basically "in aid of legislation."

Notwithstanding, the Court leans on the doctrine that "the rule on standing is a matter of procedure, hence, can
be relaxed for nontraditional plaintiffs like ordinary citizens, taxpayers, and legislators when the public interest
so requires, such as when the matter is of transcendental importance, of overreaching significance to society,
or of paramount public interest."26 When the proceeding involves the assertion of a public right, the mere fact
that the petitioner is a citizen satisfies the requirement of personal interest.27

The privatization of power plants in a manner that ensures the reliability and affordability of electricity in our
country pursuant to the EPIRA is an issue of paramount public interest. Petitioner has underscored the effect
of the right to top provision in preventing a competitive public bidding for the NPPC. While the alleged
detrimental result referred to the severe power shortage that occurred in only one region, PSALM had admitted
that the right to top provisions are also found in several other land lease agreements.

In the light of the foregoing considerations, we hold that petitioner possesses the requisite legal standing to file
this case.

Validity  of Right  to
Top provision in LBGT-LLA

The provision in the LBGT-LLA which is assailed in the present petition reads:

3.02 Exclusive Right of LESSOR

Nothing in this Agreement shall limit the right of the LESSOR to sell, lease, alienate or encumber any property
in the vicinity of the Leased Premises which is not part of the Leased Premises to any Person; provided, the
LESSEE shall have the right to top the price of the winning bidder for the sale or lease of such property. In
exercising the right to top, the LESSEE must exceed the bid of the winning bidder by five percent (5%). The
right to top granted to the LESSEE must be exercised and paid within a period of thirty (30) days from the
receipt of written notice from the LESSOR notifying the LESSEE of the result of the bidding or negotiation and
the price of the winning bid.

In the event of a lease, upon the exercise by the LESSEE of the right to top granted herein, the property
covered by it shall form part of the Leased Premises and shall be governed by this Agreement. In the event of
a sale, upon the exercise by the LESSEE of the right to top granted herein, the property covered by the sale
shall not form part of the Leased Premises.28

A right to top is a variation of the right of first refusal often incorporated in lease contracts. When a lease
contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at
any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to
accept it. The lessee has a right that the lessor's first offer shall be in his favor.29 While sometimes referred to
as a "first option to buy" or "option of first refusal," a right of first refusal is not an option contract. We explained
the distinction between a right of first refusal and option to purchase in Spouses Vasquez v. Ayala
Corporation,30 to wit:

The Court has clearly distinguished between an option contract and a right of first refusal. An option is a
preparatory contract in which one party grants to another, for a fixed period and at a determined price, the
privilege to buy or sell, or to decide whether or not to enter into a principal contract. It binds the party who has
given the option not to enter into the principal contract with any other person during the period designated, and
within that period, to enter into such contract with the one to whom the option was granted, if the latter should
decide to use the option. It is a separate and distinct contract from that which the parties may enter into upon
the consummation of the option. It must be supported by consideration.

In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the
right would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that are yet to be firmed up.31

We disagree with petitioner's theory that SPC's right of first refusal should be declared void as it was not
supported by a separate consideration. As we held in Polytechnic University of the Philippines v. Golden
Horizon Realty Corporation32:

Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a right of first refusal that stands
upon valuable consideration. We have categorically ruled that it is not correct to say that there is no
consideration for the grant of the right of first refusal if such grant is embodied in the same contract of
lease. Since the stipulation forms part of the entire lease contract, the consideration for the lease
includes the consideration for the grant of the right of first refusal. In entering into the contract, the lessee
is in effect stating that it consents to lease the premises and to pay the price agreed upon provided the lessor
also consents that, should it sell the leased property, then, the lessee shall be given the right to match the
offered purchase price and to buy the property at that price.33 (Emphasis supplied)

Stipulations on right of first refusal over the leased premises have been held to be valid as they are commonly
inserted in contracts of lease for the benefit of lessees who wanted to be assured that they shall be given the
first crack or the first option to buy the property at the price which the owner is willing to accept. Where such
right of first refusal is incorporated in lease contracts involving public assets, however, courts go beyond
ascertaining and giving effect to the intent of the contracting parties. For in this jurisdiction, public bidding is the
established procedure in the grant of government contracts. The award of public contracts, through public
bidding, is a matter of public policy.34

In the award of government contracts, the law requires a competitive public bidding, which aims to protect the
public interest by giving the public the best possible advantages thru open competition. It is a mechanism that
enables the government agency to avoid or preclude anomalies in the execution of public contracts.35

In JG Summit Holdings, Inc. v. Court of Appeals,36 this Court was presented with the issue of validity of right of
first refusal granted to both parties under a joint venture agreement between a government corporation
(National Investment and Development Corporation) and private firm (Kawasaki Heavy Industries, Ltd. of
Kobe, Japan) should either of them decide to sell, assign or transfer its interest in the joint venture. In the
subsequent negotiations for the sale of the government's interest, it was agreed that Kawasaki's right of first
refusal be exchanged for the right to top by five percent (5%) the highest bid for the subject shares. We initially
granted the petition for review on certiorari and reversed the Court of Appeals' dismissal of the petition for
mandamus questioning the aforesaid right to top which was held illegal not only because it violates the rules on
competitive bidding but more so because it allows foreign corporations to own more than 40% equity in the
shipyard.

On motions for reconsideration filed by the parties, we ruled that the right to top granted to and exercised by
Kawasaki did not violate the rules on competitive bidding, viz:

We also hold that the right to top granted to KAWASAKI and exercised by private respondent did not violate
the rules of competitive bidding.

The word "bidding" in its comprehensive sense means making an offer or an invitation to prospective
contractors whereby the government manifests its intention to make proposals for the purpose of supplies,
materials and equipment for official business or public use, or for public works or repair. The three principles
of public bidding are: (1) the offer to the public; (2) an opportunity for competition; and (3) a basis for
comparison of bids. As long as these three principles are complied with, the public bidding can be
considered valid and legal, x x x

xxxx
In the instant case, the sale of the Government shares in PHILSECO was publicly known. All interested
bidders were welcomed. The basis for comparing the bids were laid down. All bids were accepted sealed and
were opened and read in the presence of the COA's official representative and before all interested bidders.
The only question that remains is whether or not the existence of KAWASAKI's right to top destroys the
essence of competitive bidding so as to say that the bidders did not have an opportunity for competition. We
hold that it does not.

The essence of competition in public bidding is that the bidders are placed on equal footing. This
means that all qualified bidders have an equal chance of winning the auction through their bids. In the
case at bar, all of the bidders were exposed to the same risk and were subjected to the same
condition, i.e., the existence of KAWASAKI's right to top. Under the ASBR, the Government expressly reserved
the right to reject any or all bids, and manifested its intention not to accept the highest bid should KAWASAKI
decide to exercise its right to top under the ABSR. This reservation or qualification was made known to the
bidders in a pre-bidding conference held on September 28, 1993. They all expressly accepted this condition in
writing without any qualification. Furthermore, when the Committee on Privatization notified petitioner of the
approval of the sale of the National Government shares of stock in PHILSECO, it specifically stated that such
approval was subject to the right of KAWASAKI Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMI's
bid by 5% as specified in the bidding rules. Clearly, the approval of the sale was a conditional one. Since
Philyards eventually exercised its right to top petitioner's bid by 5%, the sale was not
consummated. Parenthetically, it cannot be argued that the existence of the right to top "set for naught
the entire public bidding." Had Philyards Holdings, Inc. failed or refused to exercise its right to top, the sale
between the petitioner and the National Government would have been consummated. In like manner, the
existence of the right to top cannot be likened to a second bidding, which is countenanced, except when there
is failure to bid as when there is only one bidder or none at all. A prohibited second bidding presupposes that
based on the terms and conditions of the sale, there is already a highest bidder with the right to demand that
the seller accept its bid. In the instant case, the highest bidder was well aware that the acceptance of its
bid was conditioned upon the non-exercise of the right to top.

To be sure, respondents did not circumvent the requirements for bidding by granting KAWASAKI, a non-
bidder, the right to top the highest bidder. The fact that KAWASAKI's nominee to exercise the right to top has
among its stockholders some losing bidders cannot also be deemed "unfair."

It must be emphasized that none of the parties questions the existence of KAWASAKI's right of first
refusal, which is concededly the basis for the grant of the right to top. Under KAWASAKI's right of first
refusal, the National Government is under the obligation to give preferential right to KAWASAKI in the event it
decides to sell its shares in PHILSECO. It has to offer to KAWASAKI the shares and give it the option to buy or
refuse under the same terms for which it is willing to sell the said shares to third parties. KAWASAKI is not a
mere non-bidder. It is a partner in the joint venture; the incidents of which are governed by the law on contracts
and on partnership.

It is true that properties of the National Government, as a rule, may be sold only after a public bidding is held.
Public bidding is the accepted method in arriving at a fair and reasonable price and ensures that overpricing,
favoritism and other anomalous practices are eliminated or minimized. But the requirement for public
bidding does not negate the exercise of the right of first refusal. In fact, public bidding is an essential
first step in the exercise of the right of first refusal because it is only after the public bidding that the
terms upon which the Government may be said to be willing to sell its shares to third parties may be
known. It is only after the public bidding that the Government will have a basis with which to offer
KAWASAKI the option to buy or forego the shares.37 (Emphasis supplied)ChanRoblesVirtualawlibrary

The above-cited case involved a right of first refusal in favor of a contracting party which did not participate in
the bidding conducted for the sale of the subject shares. In Power Sector Assets and Liabilities Management
Corporation v. Pozzolanic Philippines Incorporated,38 the right of first refusal was held invalid for being contrary
to public policy, as it dispensed with public bidding for future sale of waste products by the NPC. Respondent
therein had earlier won the public bidding for the purchase of the fly ash generated by NPC's power plant in
Batangas. Subsequently, after negotiations, NPC entered into a long-term contract with respondent for the
purchase of fly ash to be produced by NPC's future coal-fired plants. The provision granting the right of first
refusal to respondent reads:

PURCHASER has first option to purchase Fly Ash under similar terms and conditions as herein contained from
the second unit of Batangas Coal-Fired Thermal Plant that the CORPORATION may construct. PURCHASER
may also exercise the right of first refusal to purchase fly ash from any new coal-fired plants which will be
put up by CORPORATION.39

We held that the grant of first refusal to respondent constitutes an unauthorized provision in the contract that
was entered into pursuant to the bidding, having been contractually bargained for by respondent after it won
the public bidding for the purchase of fly ash from NPC's Batangas Power Plant. We noted that not only did the
provision substantially amended the terms of the contract bidded upon — so that resultantly, the other bidders
were deprived of the terms and opportunities granted to respondent after it won the public auction -- it so
altered the bid terms by effectively barring any and a true biddings in the future. The right of first refusal being
contrary to public policy that government contracts must be awarded through public bidding, it was therefore
invalid and have no binding effect nor does it confer a preferential right upon respondent to the fly ash of
NPC's power plants.
Relevantly, we also held that the grant of right of first refusal to respondent has no basis whatsoever
considering that the bidding subject was still inexistent. Thus:

Two: The right to buy fly ash precedes and is the basis of the right of first refusal, and the consequent right
cannot be acquired together with and at the same time as the precedent right.

The right of first refusal has long been recognized, both legally and jurisprudentially, as valid in our jurisdiction.
It is significant to note, however, that in those cases where the right of refusal is upheld by both law and
jurisprudence, the party in whose favor the right is granted has an interest on the object over which
the right of first refusal is to be exercised. In those instances, the grant of the right of first refusal is a
means to protect such interest.

Thus, Presidential Decree (P.D.) No. 1517, as amended by P.D. No. 2016, grants to qualified tenants of land in
areas declared as urban land reform zones, the right of first refusal to purchase the same within a reasonable
time and at a reasonable price. The same right is accorded by Republic Act No. 7279 (Urban Development and
Housing Act of 1992) to qualified beneficiaries of socialized housing, with respect to the land they are
occupying. Accordingly, in Valderama v. Macalde, Paranaque Kings Enterprises, Inc. v. Court of
Appeals, and Conculada v. Court of Appeals, the Supreme Court sustained the tenant's right of first refusal
pursuant to P.D. 1517.

In Polytechnic University of the Philippines v. Court of Appeals and Polytechnic University of the Philippines v.
Golden Horizon Realty Corporation, this Court upheld the right of refusal of therein respondent private
corporations concerning lots they are leasing from the government.

In the case of Republic v. Sandiganbayan, the Presidential Commission on Good Government (PCGG) sought
to exercise its right of first refusal as a stockholder of Eastern Telecommunications Philippines, Inc. (ETPI), a
corporation sequestered by the PCGG, to purchase ETPI shares being sold by another stockholder to a
non-stockholder. While the Court recognized that PCGG had a right of first refusal with respect to ETPI's
shares, it nevertheless did not sustain such right on the ground that the same was not seasonably exercised.

Finally, in Litonjua v. L & R Corporation, the Supreme Court recognized the validity and enforceability of a
stipulation in a mortgage contract granting the mortgagee the right of first refusal should the mortgagor
decide to sell the property subject of the mortgage.

In all the foregoing cases, the party seeking to exercise the right has a vested interest in, if not a right
to, the subject of the right of first refusal. Thus, on account of such interest, a tenant (with respect to the
land occupied), a lessee (vis-a-vis the property leased), a stockholder (as regards shares of stock), and a
mortgagor (in relation to the subject of the mortgage), are all granted first priority to buy the property over
which they have an interest in the event of its sale. Even in the JG Summit Case, which case was heavily
relied upon by the lower court in its decision and by respondent in support of its arguments, the right of first
refusal to the corporation's shares of stock - later exchanged for the right to top - granted to KAWASAKI was
based on the fact that it was a shareholder in the joint venture for the construction, operation, and
management of the Philippine Shipyard and Engineering Corporation (PHILSECO).

In the case at bar, however, there is no basis whatsoever for the grant to respondent of the right of first
refusal with respect to the fly ash of NPC power plants since the right to purchase at the time of
bidding is that which is precisely the bidding subject, not yet existent much more vested in
respondent.40 (Emphasis and underscoring supplied; citations omitted)

In this case, all potential bidders were aware of the existence of SPC's right to top as duly disclosed in the
Bidding Procedures for the 3rd Round of Bidding for the NPPC.41 TPVI did not question the said right to top
and participated in the bidding where SPC was also a bidder. Emerging as the winning bidder, TPVI
nevertheless knew that the acceptance of its bid was subject to SPC's exercise of the right to top by confirming
its exercise of the right of first refusal and paying the amount of the winning bid plus five percent (5%).

Notwithstanding compliance with the conduct of bidding and procedures, we hold that SPC's right to top under
the LBGT-LLA is void for lack of a valid interest or right to the object over which the right of first refusal is to be
exercised. First, the property subject of the right of first refusal is outside the leased premises covered by the
LBGT-LLA. Second, the right of first refusal refers not only to land but to any property within the vicinity of the
leased premises, as in this case, an entire power plant complex (NPPC) and the land on which it is built. And
third, while SPC cited concerns regarding security, right of way or other operational requirements, these are
clearly not analogous to a lessee's legitimate interest on the property being leased. Indeed, acquisition of a
three coal-fired thermal plants with far greater generating capacity than the gas turbine plant currently owned
by SPC will not be merely for purposes of the latter's reasonable access, security or present operational
needs. Besides, no such right or interest may be invoked by SPC because, as confirmed by PSALM itself, SPC
never operated the Naga LBGT.

More recently, in LTFRB v. Stronghold Insurance Company,42 we declared as void the right to match clause in
a memorandum of agreement which was being invoked by respondent after it failed to meet capitalization
requirements and was consequently excluded by the petitioner from the pool of qualified bidders for the third
round of bidding to accredit providers of accident insurance to operators of passenger public utility vehicles.
The CA granted respondent's petition for prohibition and nullified the said bidding proceedings. On appeal, we
reversed the CA and found no grave abuse of discretion committed by the LTFRB, viz:
The Matching Clause in the First MOA, which Stronghold invokes as basis for its right to participate in the third
round of bidding, provides:chanRoblesvirtualLawlibrary
[T]he two management groups herein shall be given the right to match the best bid/proposal in event another
management group qualifies at the end of the term of this agreement[.]ChanRoblesVirtualawlibrary
The Court of Appeals sustained Stronghold's claim, effectively reading the Matching Clause to vest in
Stronghold not only "the right to match the best bid/proposal in event another management group qualifies at
the end of the term of this agreement," but also the prerogative not to comply with the terms of the succeeding
bidding. We find it unnecessary to pass upon the correctness of the Court of Appeals' construction of the
Matching Clause. It is, in the first place, void.

The Matching Clause contains what is referred to in contract law as the right of first refusal or the "right to
match." Such stipulations grant to a party the right to offer the same amount as the highest bid to beat the
highest bidder. "Right to match" stipulations are different from agreements granting to a party the so-called
"right to top." Under the latter arrangement, a party is accorded the right to offer a higher amount, usually a
fixed sum or percentage, to beat the highest bid.

In the field of public contracts, these stipulations are weighed with the taint of invalidity for
contravening the policy requiring government contracts to be awarded through public bidding. Unless
clearly falling under statutory exceptions, government contracts for the procurement of goods or services
are required to undergo public bidding "to protect the public interest by giving the public the best possible
advantages thru open competition." The inclusion of a right of first refusal in a government contract executed
post-bidding, as here, negates the essence of public bidding because the stipulation "gives the winning bidder
an x x x advantage over the other bidders who participated in the bidding x x x." Moreover, a "right of first
refusal", " or "right to top," whether granted to a bidder or non-bidder, discourages other parties from
submitting bids, narrowing the number of possible bidders and thus preventing the government from
securing the best bid.

These clauses escape the taint of invalidity only in the narrow instance where the right of first refusal
(or "right to top") is founded on the beneficiary's "interest on the object over which the right of first
refusal is to be exercised" (such as a "tenant with respect to the land occupied, a lessee vis-a-vis the
property leased, a stockholder as regards shares of stock, and a mortgagor in relation to the subject of the
mortgage") and the government stands to benefit from the stipulation. Thus, we upheld the validity of a
"right to top" clause allowing a private stockholder in a corporation to top by 5% the highest bid for the shares
disposed by the government in that corporation. Under the joint venture agreement creating the corporation, a
party had the right of first refusal in case the other party disposed its shares. The government, the disposing
party in the joint venture agreement, benefitted from the 5% increase in price under the "right to top," on
outcome better than the right of first refusal.

The Matching Clause in this case does not fall under this narrow exception. The First MOA (and for that
matter the Second MOA) was a contract for the procurement of services; hence, there is no "object" over which
Stronghold can claim an interest which the Matching Clause protects. Nor did the government benefit from the
inclusion of the Matching Clause in the First MOA. The Matching Clause was added in the First MOA "in
consideration, x x x of the initial investment and the assumption of initial risk" of the two accredited
management groups. These "initial investment" and "initial risk," however, are inherent in the business of
providing accident insurance to public utility vehicle operators, which the bidders for the First MOA, including
Stronghold's group UNITRANS, logically took into account when they submitted their bids to LTFRB. The
government was under no obligation to reward the accredited insurers' investment and risk-taking with a right
of first refusal stipulation at the expense of denying the public the benefits public bidding brings, and did bring,
to select the insurance providers in the Second MOA.43 (Emphasis supplied)

In the light of the foregoing, we hold that the grant of right to top to SPC under the LBGT-LLA is void as it is not
founded on the said lessee's legitimate interest over the leased premises. SPC's argument that the
privatization of NPPC was even more advantageous to the Government, simply because it resulted in a higher
price (Php54 million more) than TPVI's winning bid, is likewise untenable. Whatever initial gain from the higher
price obtained for the NPPC compared to the original bid price of TPVI is negated by the fact that SPC's right
to top had discouraged more potential buyers from submitting their bids, knowing that even their most
reasonable bid can be defeated by SPC's exercise of its right to top. In fact, only SPC and TPVI participated in
the 3rd Round of Bidding. Attracting as many bidders to participate in the bidding for public assets is still the
better means to secure the best bid for the Government, and achieve the objective under the EPIRA to private
NPC's assets in the most optimal manner.

WHEREFORE, the petition is hereby GIVEN DUE COURSE and the writ prayed for accordingly GRANTED.
The right of first refusal (right to top) granted to Salcon Power Corporation under the 2009 Naga LBGT-LLA is
hereby declared NULL and VOID. Consequently, the Asset Purchase Agreement (NPPC-APA) and Land
Lease Agreement (NPPC-LLA) executed by the Power Sector Assets and Liabilities Management Corporation
and SPC are ANNULLED and SET ASIDE.

No costs.

SO ORDERED.cha

7) G.R. No. 219638, December 07, 2016

 MARCELINO REPUELA AND CIPRIANO REPUELA, SUBSTITUTED BY CARMELA REPUELA,
MERLINDA R. VILLARUEL, WILLIAM REPUELA, ROSITA P. REPUELA, CRISTINA R. RAMOS,
ORLANDO REPUELA, JUNNE REPUELA, AND OSCAR REPUELA, Petitioners, v. ESTATE OF THE
SPOUSES OTILLO LARAWAN AND JULIANA BACUS, REPRESENTED BY NANCY LARAWAN
MANCAO, GALILEO LARAWAN AND SOCRATES LARAWAN, Respondents.

DECISION

MENDOZA, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the May 29, 2014
Decision1 and the June 10, 2015 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 03976, which
reversed and set aside the February 23, 2011 Decision3 of the Regional Trial Court (RTC), Seventh Judicial
Region, Branch 7, Cebu City, in Civil Case No. CEB-28524, a case for Annulment of Documents, Quieting of
Title, Redemption, Damages, and Attorney's Fees.

The Antecedents

Spouses Lorenzo and Magdalena Repuela owned Lot No. 3357 (subject property), situated in Lawaan III,
Talisay City, Cebu, and covered by Transfer Certificate of Title (TCT) No. 5154. After they had passed away,
their children Marcelino Repuela (Marcelino) and Cipriano Repuela (Cipriano) succeeded them as owners of
the subject property.4

Cipriano and Marcelino (Repuela brothers) claimed that sometime in July 1963, after the death of their parents,
they went to the house of Otillo Larawan (Otillo) to borrow P200.00 for Marcelino's fare to Iligan City; that to
secure the loan, the spouses Otillo and Juliana Larawan (Spouses Larawan) required them to turn over the
certificate of title for Lot No. 3357; that they were made to sign a purported mortgage contract but they were
not given a copy of the said document; that Cipriano affixed his signature while Marcelino, being illiterate, just
placed his thumb mark on the document; that they remained in possession of the land despite the mortgage
and had been planting bamboos, corn, bananas, and papayas thereon and sharing the produce between them;
and that they also paid the taxes due on the property.5

In October 2002, as recalled by Cipriano's daughter, Cristina Repuela Ramos (Cristina), she went to the City
Treasurer's Office of Talisay City, upon the request of her father, to verify whether Spouses Larawan were
paying the realty taxes on the mortgaged property. She learned that Spouses Larawan did not pay the taxes
and the tax declaration on the subject property was already in their names as early as 1964; that in the
Registry of Deeds of Cebu, TCT No. 5154 was already cancelled and a new certificate of title, TCT No. 10506,
had been issued to Otillo; that Spouses Larawan were able to transfer the certificate of title to their names by
virtue of the Extajudicial Declaration of Heirs and Sale bearing the signature of her father Cipriano and the
thumb mark of her uncle Marcelino; and that her father and uncle remembered that they were made to sign a
blank document.

On January 17, 2003, Cipriano and Marcelino, on account of this predicament, were compelled to file a
complaint before the RTC for the annulment of the Extrajudicial Declaration of Heirs and Sale and the
cancellation of TCT No. 10506. During the trial, Catalina Burlas (Burlas), who lived next to the subject property,
and Alma Abellanosa (Abellanosa), City Assessor of Talisay City, were also presented as witnesses for the
Repuela brothers.6

Burlas testified that the Repuela brothers confided in her about Marcelino's desire to go to Iligan City but they
had no money for his fare; that another neighbor referred the Repuela brothers to Otillo, who could lend them
P200.00 but only upon the signing of a deed of mortgage and the surrender of the certificate of title as
collateral; that Marcelino was able to leave for Iligan but he came back after three months to help Cipriano in
cultivating the land; that she did not see any other person till the land except the Repuela brothers; and that
she could not recall a time when Otillo, whom she personally knew, ever visited or cultivated the subject
property.7

Abellanosa, as City Assessor, stated that based on the records of her office, Lot No. 3357 was declared for
taxation purposes for the first time in 1961 when Tax Declaration No. 12543 was issued in the name of
Lorenzo Repuela; that in 1964, Tax Declaration No. 24112 was issued in the name of Spouses Larawan on the
basis of a deed of sale; and that the subsequent tax declarations had Spouses Larawan as the owners.8

For the Estate of Spouses Larawan, on the other hand, the transaction between the Repuela brothers and
Otillo was a sale and not a mortgage of a parcel of land. The Estate also invoked laches on the part of the
Repuela brothers for failing to file a complaint during the lifetime of Spouses Larawan. Galileo Larawan
(Galileo), son of Spouses Larawan and the sole witness for the Estate, testified that he knew of the transaction
between his father and the Repuela brothers because his father brought him along to the office of Atty.
Celestino Bacalso (Atty. Bacalso), where the document entitled Extrajudicial Declaration of Heirs and Sale was
prepared; that the said document was signed by Cipriano and thumbmarked by Marcelino which was
witnessed by Hilario Bacalso and Fernando Abellanosa; that he witnessed the Repuela brothers affix their
signature and thumbmark after Atty. Bacalso read and explained to them the contents of the document in the
Cebuano dialect; that after the document was notarized, his father handed P2,000.00 to the Repuela brothers
as consideration for the sale; and that he was only six (6) years old when these all happened.9
Galileo also pointed out that the new certificate of title, TCT No. 10506, in the name of Spouses Larawan, was
issued by the Register of Deeds on August 20, 1963; that his mother paid the real estate taxes during her
lifetime and, after her death, he himself made the payments; that he secured the tax declaration for the subject
property from the office of the Talisay City Assessor; that their family had been in possession of the subject
property and they had harvested and enjoyed the produce of the land such as bamboos, jackfruit and 100
coconut trees; and that there were no other persons claiming ownership over the land, as the Repuela brothers
never offered to redeem the subject property from their family.10

The Ruling of the RTC

After the trial, the RTC decided in favor of the Repuela brothers. It held that the transaction between the parties
was not a sale but an equitable mortgage. The testimony of Galileo for the respondent, who was admittedly
just six (6) years old then, was "likely colored by the lens of adult perspective and self-interest." It believed the
claim of Cipriano, who only had the benefit of a Grade One education, and the illiterate Marcelino, that they
merely signed a document without knowing its nature. The trial court gave more credence to the claim of
possession of the Repuela brothers because the same was affirmed by a disinterested person, Burlas, who
had been living in the area since she was small and whose lot adjoined the subject property. According to her,
only Cipriano and Marcelino cultivated the land and she never saw anyone, not even Otillo, work on the land.11

Moreover, it was the trial court's opinion that the evidence of possession weighed more on the side of the
Repuela brothers than that of the Estate of Spouses Larawan. Their assertion of possession was bolstered by
the fact that they too paid taxes on the property, an indication that they were still in possession of the subject
property. Considering that they still possessed the subject property even after the execution of the sale, in the
concept of an owner and continued paying the land taxes thereon, the RTC was of the view that the contract,
entered into by the Repuela brothers and Otillo, was an equitable mortgage under Article 1602 of the Civil
Code.12 Thus, the RTC disposed: chanRoblesvirtualLawlibrary

Hence, the Court: ChanRoblesVirtualawlibrary

1. Declares the sale in the document, "Extrajudicial Declaration of Heirs and Sale," signed by Cipriano and
Marcelino Repuela in favor of Otillo Larawan and spouse on July 1, 1963, as in effect an equitable mortgage;

2. Gives Cipriano and Marcelino Repuela thirty (30) days from the finality of this decision to redeem the
property in the amount of Two Thousand Pesos (P2,000.00), with interest at the legal rate computed from the
date of the filing of the Complaint; and

3. Directs defendants to pay plaintiffs: ChanRoblesVirtualawlibrary

a. P20,000.00, as attorney's fees, and

b. P20,000.00, as litigation expenses.chanroblesvirtuallawlibrary

Costs are assessed against the defendants.

SO ORDERED.13

Not in conformity, the Estate of Spouses Larawan appealed the case to the CA.

The Ruling of the CA

On May 29, 2014, the CA reversed and set aside the February 23, 2011 Decision of the RTC for the following
reasons: ChanRoblesVirtualawlibrary

1. The Repuela brothers failed to present any direct and positive proof to rebut the presumption of the
document's due execution. They failed to prove any factual circumstance to point that the transaction covered
therein was one of mortgage, or at the least, that such was their intention;

2. The Repuela brothers had not proven continued possession of the subject property which would have given
the impression that it was not sold but merely mortgaged;

3. None of the enumerated circumstances in Article 1602 of the Civil Code was present in order for the
presumption of equitable mortgage to apply. Contrary to the factual finding of the trial court, the evidence did
not show that they were still in possession of the property even after the execution of the document and that
they continued paying the taxes on the property immediately after the execution of the deed; and,

4. Granting arguendo that the transaction was a mortgage, their cause of action was already barred by laches
as 39 years had already elapsed before they asserted their rights over the subject property.14

The decretal portion of the CA decision reads: ChanRoblesVirtualawlibrary

WHEREFORE, premises considered, the instant appeal is GRANTED. The February 23, 2011 Decision of the
RTC Branch 7 of Cebu City in Civil Case No. CEB-28524 is REVERSED and SET ASIDE and the complaint
for Annulment of Documents, Quieting of Title, Redemption, Damages and Attorney's Fees is DISMISSED.

SO ORDERED. cralawlawlibrary15

After their motion for reconsideration was denied by the CA in its Resolution, dated June 10, 2015, the heirs of
the Repuela brothers (petitioners) filed the subject petition.

Issue

Whether the Extrajudicial Declaration of Heirs

and Sale amounted to an equitable mortgage.

Petitioners explain that the Repuela brothers only filed the case in 2003 because they found no urgency to file
it as there were no indications that their title and possession over the subject property were threatened. They
claim that their predecessors-in-interest were in peaceful, open, continuous, and public possession as owners
of the subject property from the time of the transaction in 1963 until the time when they decided to partition
their property and learned, in the process, that the tax declaration and title of their lot were already transferred
in the name of Spouses Larawan. They argue that considering that they, who were claiming to be the owners
thereof, were in actual possession of the property, their right to seek reconveyance, which in effect sought to
quiet the title to the property, never prescribed.16

Petitioners further argue that the existence of the Extrajudicial Declaration of Heirs and Sale was not enough
proof that the Repuela brothers really intended to sell the property, and that the stipulations in the contract
should be construed together with the parties' contemporaneous and subsequent acts as regards the
execution of the contract. The same was true with the issuance of a new owner's TCT in favor of Spouses
Larawan. It neither imports conclusive evidence of ownership nor proves that the agreement between the
parties was one of sale. A conveyance by registration in the name of the transferee and the issuance of a new
certificate is not secured from the operation of the equitable doctrine, to the effect that any conveyance
intended as security for a debt would be held in effect to be a mortgage, than most informal conveyance that
could be devised.17

The CA, according to petitioners, should have given more credence to the testimonies of the Repuela brothers,
as corroborated and affirmed by the disinterested witness, Burlas, over that of Galileo, the lone witness for the
respondent. As correctly observed by the trial court, Galileo was just six (6) years old when he supposedly
witnessed the alleged transaction in the office of Atty. Bacalso, and so he could not have possibly known the
nature of the executed contract. Echoing the RTC, they pointed out that a six-year old boy's curiosity and
concerns could not have extended to things of this nature and that his recollection of events was likely colored
by the lens of adult perspective and self-interest, as Galileo himself admitted that he did not read the
document.18

Finally, they stress that the Repuela brothers remained in possession of the subject property even after the
transaction and they also paid the taxes thereon for the years 1985 to 2002 on December 18, 2002. These
circumstances surrounding the transaction entered into by and between the Repuela brothers and Otillo would
naturally lead anyone to infer that this instance was espoused in Article 1602 of the Civil Code. This is in line
with jurisprudence consistently holding that the presence of one, and not the confluence of several
circumstances, is sufficient to prove that a contract of sale is one of an equitable mortgage.19

The Position of Respondent

In its Comment,20 dated December 28, 2015, respondent Estate of Spouses Larawan (respondent) averred
that the extrajudicial settlement and sale executed by the parties could not be presumed as an equitable
mortgage. First, the said contract was "not a sale with right to repurchase" and the price of the sale was not
unusually inadequate. Second, there is no documentary evidence that would support the claim of possession
by the Repuela brothers, as lessee or otherwise, continuously from the execution of the document of sale until
the filing of the case. Third, the third situation (when upon or after the expiration of the right to repurchase,
another instrument extending the period of redemption or granting a new period was executed) wherein a
contract shall be presumed to be an equitable mortgage is not applicable in the instant case. The Extrajudicial
Declaration of Heirs and Sale did not provide for a right to repurchase. As such, there was no period of
redemption to be extended or a new period to be executed. Fourth, there was no showing that Otillo, as
purchaser, retained for himself a part of the purchase price. He paid the amount of P2,000.00 as sale
consideration to the Repuela brothers.21 Fifth, there was no agreement in the contract of sale that the Repuela
brothers, as vendors, bound themselves to pay the taxes on the thing sold. And finally, the Extrajudicial
Declaration of Heirs and Sale was quite clear and specific that what was involved was a sale of the subject
property. From the terms of the contract, no inference could be made that the real intention of the parties was
to secure the payment of a debt or the performance of any other obligation.

The Court's Ruling

The Court finds merit in the petition.

An equitable mortgage is one which, although lacking in some formality, or form, or words, or other requisites
demanded by a statute, reveals the intention of the parties to charge real property as security for a debt, and
contains nothing impossible or contrary to law.22

For a presumption of an equitable mortgage to arise, two requisites must first be satisfied, namely: that the
parties entered into a contract denominated as a contract of sale and that their intention was to secure an
existing debt by way of mortgage.23 There is no single conclusive test to determine whether a deed of sale,
absolute on its face, is really a simple loan accommodation secured by a mortgage. Article 1602, in relation to
Article 1604 of the Civil Code, however, enumerates several instances when a contract, purporting to be, and
in fact styled as, an absolute sale, is presumed to be an equitable mortgage.
Thus: ChanRoblesVirtualawlibrary

ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases: chanRoblesvirtualLawlibrary

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing case, any money, fruits, or other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall be subject to the usury laws.

xxx

ART. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute
sale. [Emphases and underscoring supplied]

Evident from Article 1602, the presence of any of the circumstances set forth therein suffices for a contract to
be deemed an equitable mortgage. No concurrence or an overwhelming number is needed.24 In other words,
the fact that some or most of the circumstances mentioned are absent in a case will not negate the existence
of an equitable mortgage.

In this case, it appears that two (2) instances enumerated in Article 1602 — possession of the subject property
and inference that the transaction was in fact a mortgage attended the assailed transaction.

Possession as Lessee or
otherwise

Article 1602 (2) of the Civil Code provides that when the supposed vendor remains in possession of the
property even after the conclusion of the transaction, the purported contract of sale is presumed to be an
equitable mortgage. In general terms, possession is the holding of a thing or the enjoyment of a right, whether
by material occupation or by the fact that the right is subjected to the will of the claimant. The gathering of the
products of and the act of planting on the land constitute occupation, possession and cultivation.25cralawred

In this case, petitioners insist that the Repuela brothers remained in possession of the subject property after
the transaction, as was corroborated by a disinterested person, Burlas, who lived in the adjoining lot from the
time she was a child. According to her, it was only the Repuela brothers who tilled the land and planted corn,
bananas and camote. She never saw Otillo, whom she also knew, till or work on the land.

The respondent's claim of possession, as supported by a transfer certificate of title and tax declaration of the
subject property, both in the name of Spouses Larawan is, to the Court's mind, not persuasive. These
documents do not prove actual possession. They do not rebut the overwhelming evidence of the Repuela
brothers that they were in actual possession. The fact of registration in the name of Spouses Larawan does not
change the picture. A conveyance of land, accompanied by registration in the name of the transferee and the
issuance of a new certificate, is no more secured from the operation of this equitable doctrine than the most
informal conveyance that could be devised. In an equitable mortgage, title to the property in issue, which has
been transferred to the respondents actually remains or is transferred back to the petitioner as owner-
mortgagor, conformably to the well-established doctrine that the mortgagee does not become the owner of the
mortgaged property because the ownership remains with the mortgagor pursuant to Article 2088, of the Civil
Code.26
Inference can be made
that the transaction was
an equitable mortgage

From the attending circumstances of the case, it can be inferred that the real intention of the Repuela brothers
was to secure their indebtedness from Spouses Larawan. They needed money for Marcelino's fare so they
went to the house of Otillo to borrow P200.00. Considering that Spouses Larawan would only agree to extend
the loan if they would surrender their certificate of title over the subject property, they obliged in the belief that
its purpose was only to secure their loan. In other words, they surrendered the title to Spouses Larawan as
security to obtain the much needed loan. It was never their intention to sell the subject property.

As held in Banga v. Sps. Bello,27 in determining whether a deed, absolute in form, is a mortgage, the court is
not limited to the written memorials of the transaction. "The decisive factor in evaluating such agreement is the
intention of the parties, as shown not necessarily by the terminology used in the contract but by all the
surrounding circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct,
declarations of the parties, the negotiations between them leading to the deed, and generally, all pertinent facts
having a tendency to fix and determine the real nature of their design and understanding."28

There is a presumption of
mistake

Granting that indeed Cipriano and Marcelino, signed and thumbmarked, respectively, the Extrajudicial
Declaration of Heirs and Sale, there is still reason to believe that they did so without understanding the real
nature, effects and consequences of what they did as they were never explained to them. Cipriano, who only
finished Grade One, and Marcelino, an illiterate, were in dire need of money. As such, the possibility that they
affixed their conformity to the onerous contract to their detriment just to get the loan was not remote. In dire
need as they were, they signed a document despite knowing that it did not express their real intention.
"Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to any
terms that the crafty may impose upon them." 29 For this reason, the Repuela brothers should be given the
protection afforded by the Civil Code provisions on equitable mortgage.

As aptly explained in Cruz v. Court of Appeals,30 the Court held: ChanRoblesVirtualawlibrary

Vendors covered by Art. 1602 usually find themselves in an unequal position when bargaining with the
vendees, and will readily sign onerous contracts to get the money they need. Necessitous men are not really
free men in the sense that to answer a pressing emergency they will submit to any terms that the crafty may
impose on them. This is precisely the evil that Art. 1602 seeks to guard against. The evident intent of the
provision is to give the supposed vendor maximum safeguards for the protection of his legal rights under the
true agreement of the parties.31

Besides, where a party is unable to read or when the contract is in a language not understood by a party and
mistake or fraud is alleged, the obligation to show that the terms of the contract had been fully explained to the
said party who is unable to read or understand the language of the contract devolves on the party seeking to
enforce it. Indeed, that burden to show that the other party fully understood the contents of the document rests
upon the party who seeks to enforce the contract. If he fails to discharge this burden, the presumption of
mistake, if not, fraud, stands unrebutted and controlling.32 Respondent failed to overcome this burden.

In the case at bench, Galileo's testimony that he had witnessed the Repuela brothers affix their conformity after
Atty. Bacalso read and explained to them the contents of the document in the Cebuano dialect, fails to
convince this Court. As keenly observed by the RTC, Galileo was just six (6) years old when he witnessed the
transaction in the office of Atty. Bacalso. To the Court's mind, Galileo could not have possibly known the nature
of the purported contract, much less, perceived with certainty if the Repuela brothers were indeed apprised of
the true nature of the said contract before they were made to sign and thumbmark it. For this reason, the
presumption of mistake, if not fraud, shall remain.

Furthermore, it must be pointed out that the law accords the equitable mortgage presumption in situations
when doubt exists as to the true intent of the parties to the contract,33 as in this case. Courts are generally
inclined to construe one purporting to be a sale as an equitable mortgage, which involves a lesser transmission
of rights and interests over the property in controversy.34

There was no prescription

or laches

Contrary to the findings of the CA that petitioners' cause of action was already barred by laches because of the
39 years that had already lapsed before they asserted their rights over the property, the Court holds otherwise.
In Inamarga v. Alano,35 the Court considered the deed of sale as equitable mortgage and
wrote: ChanRoblesVirtualawlibrary

xxx Where there is no consent given by one party in a purported contract, such contract was not perfected;
therefore, there is no contract to speak of. The deed of sale relied upon by petitioner is deemed a void
contract. This being so, the action based on said deed of sale shall not prescribe in accordance with Article
1410 of the Civil Code.36 [Emphasis supplied]
Legal Interest

In the case of Muñoz v. Ramirez,37 the Court stated that where it was established that the reciprocal obligations
of the parties were under an equitable mortgage, reconveyance of the property should be ordered to the
rightful owner therein upon the payment of the loan within 90 days from the finality of that decision.38

In the case at bench, the RTC ordered the Repuela brothers to pay their loan amounting to P2,000.00 with
interest at the legal rate computed from the date of the filing of the complaint in order for them to repair the
property.

In determining the legal rate applicable in this case, Circular No. 799, series of 2013, issued by the Office of
the Governor of the Bangko Sentral ng Pilipinas on June 21, 2013, which was the basis of the Court in Nacar
v. Gallery Frames,39 provides that effective July 1, 2013, the rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such
rate of interest, shall be six percent (6%) per annum. Applying the foregoing, the rate of interest of 12% per
annum on the obligation of the Repuela brothers shall apply from the date of the filing of the complaint on
January 17, 2003 until June 30, 2013 only. From July 1, 2013 until fully paid, the legal rate of 6% per annum
shall be applied to their unpaid obligation.

WHEREFORE, the petition is GRANTED. The assailed May 29, 2014 Decision and the June 10, 2015
Resolution of the Court of Appeals in CA-G.R. CV No. 03976 are SET ASIDE. The February 23, 2011 Decision
of the Regional Trial Court, Cebu City, Seventh Judicial Region, Branch 7 in Civil Case No. CEB-28524
is REINSTATED with MODIFACATION in that the 12% interest per annum shall only apply from January 17,
2003 until June 30, 2013 only, after which date and until fully paid, the mortgage indebtedness of Cipriano
Repuela and Marcelino Repuela shall earn interest at 6% per annum.

SO ORDERED. cralawlawlibr

8) February 15, 2017

G.R. No. 196444

DASMARIÑAS T. ARCAINA and MAGNANI T. BANTA, Petitioners

vs.
NOEMI L. INGRAM, represented by MA. NENETTE L. ARCHINUE, Respondent

DECISION

JARDELEZA, J.:

This is a Petition for Review on Certiorari1 assailing the October 26, 2010 Decision2 and March 1 7, 2011
Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 107997, which affirmed with modification the
March 11, 2009 Decision4 of the Regional Trial Court-Branch 7 of Legazpi City (RTC). The RTC reversed the
July 31, 2008 Order5 of the 3rd Municipal Circuit Trial Court of Sto. Domingo-Manito in Albay (MCTC). The
MCTC dismissed for insufficiency of evidence Civil Case No. S-241-a case for recovery of ownership and title
to real property, possession and damages with preliminary injunction (recovery case)-filed by respondent
Noemi L. Ingram (Ingram) against petitioners Dasmariñas T. Arcaina (Arcaina) and Magnani T. Banta (Banta)
[collectively, petitioners].

Arcaina is the owner of Lot No. 3230 (property) located at Salvacion, Sto. Domingo, Albay. Sometime in 2004,
her attorney-in-fact, Banta, entered into a contract with Ingram for the sale of the property. Banta showed
Ingram and the latter’s attorney-in-fact, respondent Ma. Nenette L. Archinue (Archinue), the metes and bounds
of the property and represented that Lot No. 3230 has an area of more or less 6,200 aquare meters (sq.m.) per
the tax declaration covering it. The contract price was ₱1,860,000.00, with Ingram making installment
payments for the property from May 5, 2004 to February 10, 2005 totaling ₱1,715,000.00.6 Banta and Ingram
thereafter executed a Memorandum of Agreement acknowledging the previous payments and that Ingram still
had an obligation to pay the remaining balance in the amount of ₱145,000.00.7 They also separately executed
deeds of absolute sale over the property in Ingram’s favor. Both deeds described the property to wit:

DESCRIPTION

A parcel of land Lot No. 3230, situated at Salvacion, Sto. Domingo, Albay, Bounded on the NE-by Lot 3184 on
the SE-by Seashore on the SW-Lot No. 3914 and on the NW-by Road with an area of SIX THOUSAND TWO
HUNDRED (6,200) sq. meters more or less.8

Subsequently, Ingram caused the property to be surveyed and discovered that Lot No. 3230 has an area of
12,000 sq. m. Upon learning of the actual area of the property, Banta allegedly insisted that the difference of
5,800 sq. m. remains unsold. This was opposed by Ingram who claims that she owns the whole lot by virtue of
the sale.9 Thus, Archinue, on behalf of Ingram, instituted the recovery case, docketed as Civil Case No. S-241,
against petitioners before the MCTC.
In her Complaint, Ingram alleged that upon discovery of the actual area of the property, Banta insisted on
fencing the portion which she claimed to be unsold. Ingram further maintained that she is ready to pay the
balance of ₱145,000.00 as soon as petitioners recognize her ownership of the whole property. After all, the
sale contemplated the entire property as in fact the boundaries of the lot were clearly stated in the deeds of
sale.10 Accordingly, Ingram prayed that the MCTC declare her owner of the whole property and order
petitioners to pay moral damages, attorney's fees and litigation expenses. She also asked the court to issue a
writ of preliminary injunction to enjoin the petitioners from undertaking acts of ownership over the alleged
unsold portion.11

In their Answer with Counterclaim, petitioners denied that the sale contemplates the entire property and
contended that the parties agreed that only 6,200 sq. m. shall be sold at the rate of ₱300.00 per sq. m.12 This,
according to petitioners, is consistent with the contemporaneous acts of the parties: Ingram declared only
6,200 sq. m. of the property for tax purposes, while Arcaina declared the remaining portion under her name
with no objection from Ingram. Petitioners averred that since Ingram failed to show that that she has a right
over the unsold portion of the property, the complaint for recovery of possession should be dismissed.13 By
way of counterclaim, petitioners asked for the payment of the balance of ₱145,000.00, as well as attorney's
fees, litigation expenses, and costs of suit.14

Trial ensued. After Ingram presented her evidence, petitioners filed a demurrer on the grounds that (1) Ingram
failed to sufficiently establish her claim and (2) her claim lacks basis in fact and in law.15

In its Order dated July 31, 2008, the MCTC granted petitioners' demurrer and counterclaim against Ingram,
thus:

WHEREFORE, in view of the foregoing this instant case is hereby ordered DISMISSED for insufficiency of
evidence.

Plaintiffs are further ordered to pay to the Defendants the remaining amount of ONE HUNDRED FORTY FIVE
THOUSAND (PhP 145,000.00) PESOS as counterclaim for the remaining balance of the contract as admitted
by the Plaintiffs during the Pre-Trial.

SO ORDERED.16

The MCTC held that the testimonies of Ingram and her witnesses suffer from several inconsistencies and
improbabilities. For instance, while Archinue claimed that what was sold was the entire property, she also
admitted in her cross-examination that she was not present when the sale was consummated between Banta,
Ingram and Ingram's husband Jeffrey. Further, Archinue stated that she was made aware before their ocular
visit to the property that the lot being sold is only 6,200 sq. m. based on the tax declaration covering
it.17 Ingram also had knowledge of the area of the property as confirmed by her husband Jeffrey's testimony.
Jeffrey also testified that Banta gave them a copy of the tax declaration of the property.18

The MCTC declared that the survey showed that the property was 12,000 sq. m. or more than what was stated
in the deeds of sale.19 For Ingram to be awarded the excess 5,800 sq. m. portion of the property, she should
have presented evidence that she paid for the surplus area consistent with Article 1540 of the Civil Code which
reads:

Art. 1540. If, in the case of the preceding article, there is a greater area or number in the immovable than that
stated in the contract, the vendee may accept the area included in the contract and reject the rest. If he
accepts the whole area, he must pay for the same at the contract rate.

Accordingly, since Ingram failed to show that she paid for the value of the excess land area, the MCTC held
that she cannot claim ownership and possession of the whole property.

On appeal, the RTC reversed and set aside the Order of the MCTC, to wit:

WHEREFORE, premises considered, the assailed Decision dated July 31, 2008 by the Municipal [Circuit] Trial
Court of Sto. Domingo, Al bay is hereby REVERSED and SET ASIDE and a new judgment is hereby rendered
as follows:

1. Ordering plaintiff-appellant [referring to Ingram] to pay the defendant-appellee [referring to Arcaina] the
amount of ₱145,000.00 representing the remaining balance of the purchase price of Lot 3230;

2. Declaring Noemi L. Ingram the owner of the whole Lot 3230;

3. Ordering defendants-appellees Dasmariñas T. Arcaina and Magnani Banta or their agents to remove the
fence constructed by them on the said lot and to respect the peaceful possession of Noemi Ingram over the
same;

4. Ordering defendants-appellees Dasmariñas Arcaina and Magnani Banta to pay jointly and severally the
plaintiff-appellent Noemi Ingram the amount of ₱5,000.00 as reasonable attorney's fees; and

5. To pay the cost of suit.

SO ORDERED.20

The RTC found that neither of the parties presented competent evidence to prove the property's actual area.
Except for a photocopy of the cadastral map purportedly showing the graphical presentation of the property, no
plan duly prepared and approved by the proper government agency showing the area of the lot was presented.
Hence, the RTC concluded that the area of Lot No. 3230 as shown by the boundaries indicated in the deeds of
sale is only 6,200 sq. m. more or less. Having sold Lot No. 3230 to Ingram, Arcaina must vacate it.21

In addition, the RTC held that Article 1542, which covers sale of real estate in lump sum, applies in this case.

Having apparently sold the entire Lot No. 3230 for a lump sum, Arcaina, as the vendor, is obligated to deliver
all the land included in the boundaries of the property, regardless of whether the real area should be greater or
smaller than what is recited in the deeds of sale.22

In its Decision dated October 26, 2010, the CA affirmed the RTC's ruling with modification. It deleted
paragraphs 4 and 5 of the dispositive portion of the RTC's Decision, which ordered petitioners to pay
₱5,000.00 as attorney's fees and costs of suit, respectively.23

The CA agreed with the RTC that other than the uniform statements of the parties, no evidence was presented
to show that the property was found to have an actual area of more or less 12,000 sq. m. It held that the
parties' statements cannot be simply admitted as true and correct because the area of the land is a matter of
public record and presumed to have been recorded in the Registry of Deeds. The CA noted that the best
evidence should have been a certified true copy of the survey plan duly approved by the proper government
agency.24

The CA also agreed with the RTC that the sale was made for a lump sum and not on a per-square-meter
basis. The parties merely agreed on the purchase price of ₱l,860,000.00 for the 6,200 sq. m. lot, with the deed
of sale providing for the specific boundaries of the property.25 Citing Rudolf Lietz, Inc. v. Court of Appeals,26 the
CA explained that in case of conflict between the area and the boundaries of a land subject of the sale, the
vendor is obliged to deliver to the vendee everything within the boundaries. This is in consonance with Article
1542 of the Civil Code. Further, the CA found the area in excess "substantial" which, to its mind, "should have
not escaped the discerning eye of an ordinary vendor of a piece of land."27 Thus, it held that the RTC correctly
ordered petitioners to deliver the entire property to Ingram.

The CA, however, deleted the award of attorney's fees and the costs of suit, stating that there was no basis in
awarding them. First, the RTC did not discuss the grounds for granting attorney's fees in the body of its
decision. Second, Arcaina cannot be faulted for claiming and then fencing the excess area of the land after the
survey on her honest belief that the ownership remained with her.28

Petitioners moved for reconsideration, raising for the first time the issue of prescription. They pleaded that
under Article 154329 of the Civil Code, Ingram should have filed the action within six months from the delivery
of the property. Counting from Arcaina's execution of the notarized deed of absolute sale on April 13, 2005,
petitioners concluded that the filing of the case only on January 25, 2006 is already time-barred.30 The CA
denied petitioners' motion for reconsideration and ruled that Article 1543 does not apply because Ingram had
no intention of rescinding the sale. In fact, she instituted the action to recover the excess portion of the land
that petitioners claimed to be unsold. Thus, insofar as Ingram is concerned, that portion remained
undelivered.31

Petitioners now assail the CA' s declaration that the sale of the property was made for a lump sum. They insist
that they sold the property on a per-square-meter basis, at the rate of ₱300.00 per sq. m. They further claim
that they were aware that the property contains more than 6,200 sq. m. According to petitioners, this is the
reason why the area sold is specifically stated in the deeds of sale. Unfortunately, in the drafting of the deeds,
the word "portion" was omitted. They allege that contemporaneously with the execution of the formal contract
of sale, they delivered the area sold and constructed a fence delineating the unsold portion of the
property.32 Ingram allegedly recognized the demarcation because she introduced improvements confined to
the area delivered.33 Since the sale was on a per-square-meter basis, petitioners argue that it is Article
1539,34 and not Article 1542 of the Civil Code, which governs.35

In her Comment, Ingram accuses petitioners of raising new and irrelevant issues based on factual allegations
which they cannot in any case prove, as a consequence of their filing a demurrer to evidence.36 She maintains
that the only issue for resolution is whether the sale was made on a lump sum or per-square-meter basis. On
this score, Ingram asserts that the parties intended the sale of the entire lot, the boundaries of which were
stated in the deeds of sale. These deeds of sale, as observed by the CA, did not contain any qualification.37

II

At the outset, we find that contrary to the findings of the RTC and the CA, the result of the survey conducted on
the property is not a disputed fact. In their Answer to the Complaint, petitioners admitted that when the
property was surveyed, it yielded an area of more or less 12,000 sq. m.38 Nevertheless, petitioners now proffer
that they agree with the CA that the final survey of the property is not yet approved; hence, there can be no
valid verdict for the final adjudication of the parties' rights under the contract of sale.39
We reject petitioners' contention on this point.

Judicial admissions made by the parties in the pleadings, or in the course of the trial or other proceedings in
the same case, are conclusive and do not require further evidence to prove them. These admissions cannot be
contradicted unless previously shown to have been made through palpable mistake or that no such admission
was made.40 Petitioners do not deny their previous admission, much less allege that they had made a palpable
mistake. Thus, they are bound by it.

We now resolve the main issue in this case and hold that Lot No. 3230 was sold for a lump sum. In sales
involving real estate, the parties may choose between two types of pricing agreement: a unit price
contract wherein the purchase price is determined by way of reference to a stated rate per unit
area (e.g, ₱1,000.00 per sq. m.) or a lump sum contract which states a full purchase price for an immovable
the area of which may be declared based on an estimate or where both the area and boundaries are
stated (e.g., ₱1 million for 1,000 sq. m., etc.).41 Here, the Deed of Sale executed by Banta on March 21,
200542 and the Deed of Sale executed by Arcaina on April 13, 200543 both show that the property was
conveyed to Ingram at the predetermined price of ₱1,860,000.00. There was no indication that it was bought
on a per-square-meter basis. Thus, Article 1542 of the Civil Code governs the sale, viz.:

Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of
measure or number, there shall be no increase or decrease of the price, although there be a greater or less
area or number than that stated in the contract.

The same rule shall be applied when two or more immovables are sold for a single price; but if, besides
mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number
should be designated in the contract, the vendor shall be bound to deliver all that is included within said
boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to
do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the
contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated.

The provision teaches that where both the area and the boundaries of the immovable are declared in a sale of
real estate for a lump sum, the area covered within the boundaries of the immovable prevails over the stated
area.44 The vendor is obliged to deliver all that is included within the boundaries regardless of whether the
actual area is more than what was specified in the contract of sale; and he/she shall do so without a
corresponding increase in the contract price. This is particularly true when the stated area is qualified to be
approximate only, such as when the words "more or less" were used.45

The deeds of sale in this case provide both the boundaries and the estimated area of the property. The land is
bounded on the North East by Lot No. 3184, on the South East by seashore, on the South West by Lot No.
3914 and on the North West by a road.46 It has an area of more or less 6,200 sq. m. The uniform allegations of
petitioners and Ingram, however, reveal that the actual area within the boundaries of the property amounts to
more or less 12,000 sq. m., with a difference of 5,800 sq. m. from what was stated in the deeds of sale. With
Article 1542 in mind, the RTC and the CA ordered petitioners to deliver the excess area to Ingram.

They are mistaken.

In Del Prado v. Spouses Caballero,47 we were confronted with facts analogous to the present petition. Pending
the issuance of the Original Certificate of Title (OCT) in their name, Spouses Caballero sold a parcel of land to
Del Prado. The contract of sale stated both the property's boundaries and estimated area of more or less 4,000
sq. m. Later, when the OCT was issued, the technical description of the property appeared to be 14,457 sq.
m., more or less. Del Prado alleged that Spouses Caballero were bound to deliver all that was included in the
boundaries of the land since the sale was made for a lump sum. Although, we agreed with Del Prado that the
sale partakes of the nature of a lump sum contract, we did not apply Article 1542. In holding that Del Prado is
entitled only to the area stated in the contract of sale, we explained:

The Court, however, clarified that the rule laid down in Article 1542 is not hard and fast and admits of
an exception. It held:

"A caveat is in order, however. The use of "more or less" or similar words in designating quantity covers
only a reasonable excess or deficiency. A vendee of land sold in gross or with the description "more or less"
with reference to its area does not thereby ipso facto take all risk of quantity in the land.

xxx

In the instant case, the deed of sale is not one of a unit price contract. The parties agreed on the purchase
price of ₱40,000.00 for a predetermined area of 4,000 sq m, more or less, bounded on the North by Lot No.
11903, on the East by Lot No. 11908, on the South by Lot Nos. 11858 & 11912, and on the West by Lot No.
11910. In a contract of sale of land in a mass, the specific boundaries stated in the contract must control over
any other statement, with respect to the area contained within its boundaries.

Black's Law Dictionary defines the phrase "more or less" to mean:

"About; substantially; or approximately; implying that both parties assume the risk of any ordinary
discrepancy. The words are intended to cover slight or unimportant inaccuracies in quantity, Carter v.
Finch, 186 Ark. 954, 57 S.W.2d 408; and are ordinarily to be interpreted as taking care of unsubstantial
differences or differences of small importance compared to the whole number of items transferred."

Clearly, the discrepancy of 10,475 sq m cannot be considered a slight difference in quantity. The
difference in the area is obviously sizeable and too substantial to be overlooked. It is not a reasonable
excess or deficiency that should be deemed included in the deed of sale.48 (Emphasis supplied; citations
omitted.)

In a lump sum contract, a vendor is generally obligated to deliver all the land covered within the boundaries,
regardless of whether the real area should be greater or smaller than that recited in the deed.49 However, in
case there is conflict between the area actually covered by the boundaries and the estimated area stated in the
contract of sale, he/she shall do so only when the excess or deficiency between the former and the latter
is reasonable.50

Applying Del Prado to the case before us, we find that the difference of 5,800 sq. m. is too substantial to be
considered reasonable. We note that only 6,200 sq. m. was agreed upon between petitioners and Ingram.
Declaring Ingram as the owner of the whole 12,000 sq. m. on the premise that this is the actual area included
in the boundaries would be ordering the delivery of almost twice the area stated in the deeds of sale. Surely,
Article 1542 does not contemplate such an unfair situation to befall a vendor-that he/she would be compelled
to deliver double the amount that he/she originally sold without a corresponding increase in price. In Asiain v.
Jalandoni,51 we explained that "[a] vendee of a land when it is sold in gross or with the description 'more or
less' does not thereby ipso facto take all risk of quantity in the land. The use of 'more or less' or similar words
in designating quantity covers only a reasonable excess or deficiency."52 Therefore, we rule that Ingram is
entitled only to 6,200 sq. m. of the property. An area of 5,800 sq. m. more than the area intended to be sold is
not a reasonable excess that can be deemed included in the sale.53

Further, at the time of the sale, Ingram and petitioners did not have knowledge of the actual area of the land
within the boundaries of the property. It is undisputed that before the survey, the parties relied on the tax
declaration covering the lot, which merely stated that it measures more or less 6,200 sq. m. Thus, when
petitioners offered the property for sale and when Ingram accepted the offer, the object of their consent or
meeting of the minds is only a 6,200 sq. m. property. The deeds of sale merely put into writing what was
agreed upon by the parties. In this regard, we quote with approval the ruling of the MCTC:

In this case, the Deed of Absolute Sale (Exhibit "M") dated April 13, 2005 is clear and unequivocal as to the
area sold being up to only 6,200 square meters.1âwphi1 The agreement of the parties were clear and
unambiguous, hence, the inconsistent and impossible testimonies of N[e]nette [Archinue] and the Spouses
Ingram. No amount of extrinsic aids are required and no further extraneous sources are necessary in order to
ascertain the parties' intent, determinable as it is, from the document itself. The court is thus convinced that the
deed expresses truly the parties' intent as against the oral testimonies of Nenette, and the Spouses Ingram.54

The contract of sale is the law between Ingram and petitioners; it must be complied with in good faith.
Petitioners have already performed their obligation by delivering the 6,200 sq. m. property. Since Ingram has
yet to fulfill her end of the bargain,55 she must pay petitioners the remaining balance of the contract price
amounting to ₱145,000.00.

WHEREFORE, premises considered, the petition is GRANTED. The October 26, 2010 Decision and March 1
7, 2011 Resolution of the Court of Appeals in CA-G.R. SP No. 107997 are hereby REVERSED and SET
ASIDE. The July 31, 2008 Order of the 3rd Municipal Circuit Trial Court of Sto. Domingo-Manito, dismissing
Civil Case No. S-241 for insufficiency of evidence, and ordering Ingram to pay ₱145,000.00 to petitioners, is
hereby REINSTATED with MODIFICATION.

Ingram is ordered to pay petitioners the amount of ₱145,000.00 to earn interest at the rate of six percent
(6%) per annum from July 31, 200856 until the finality of this Decision. Thereafter, the total amount due shall
earn legal interest at the rate of 6% per annum57 until fully paid.

SO ORDERED.

9) April 10, 2019

G.R. No. 199766

GENEROSO SEPE, Petitioner
vs.
HEIRS OF ANASTACIA* KILANG, rep. by her children MARIA, DONATA, FELICIANA, DOMINGA and
SEVERO all surnamed SOLIJON, Respondents

DECISION

CAGUIOA, J.:

Before the Court is a Petition for Review on Certiorari1 (Petition) under Rule 45 of the Rules of Court (Rules)
assailing the Decision2 dated August 4, 2010 (Decision) of the Court of Appeals3 in C.A.-G.R. C.V. No. 01786,
granting respondents' appeal, and the CA4 Resolution5 dated October 27, 2011, denying petitioner's motion for
reconsideration. The CA Decision reversed and set aside the Order6 dated August 7, 2006, dismissing the
case, and the Order7 dated September 14, 2006, denying respondents' motion for reconsideration, of the
Regional Trial Court, Branch 3, City of Tagbilaran (RTC) in Civil Case No. 6703.

The Facts and Antecedent Proceedings

In a complaint instituted on May 16, 2002, respondents Heirs of Anastacia Kilang, represented by her children
Maria, Donata, Feliciana, Dominga and Severo Solijon (respondents), sought the nullification of: (1) Deed of
Sale of a Registered Land8 dated November 18, 1992 (DOS) executed by Anastacia Kilang (Anastacia) with
marital consent of Fabian Solijon (Fabian) in favor of spouses Generoso Sepe (Generoso or petitioner) and
Gaudencia D. Sepe (spouses Sepe); (2) Confirmation of Sale9 dated December 17, 1992 (COS) executed by
respondents, except Dominga; and (3) Transfer Certificate of Title No. (TCT) T-3536710 registered in the
names of spouses Sepe; and for recovery of title, possession with damages.11

The complaint alleged that the late Anastacia, who was then an 84-year old, illiterate, rheumatic and bedridden
mother, agreed to the offer of petitioner to undertake the subdivision of her land in Cabawan12 District,
Tagbilaran City under TCT T-1006913 in consideration for one lot in the subdivision and a first preference to
buy any portion that might be for sale; but taking advantage of the ignorance of respondents' family, petitioner
managed to have the DOS executed and misled Feliciana and Donata into believing that the document was
the instrument of subdivision.14

By the DOS, which was executed and notarized on November 18, 1992, Anastacia, with her husband's
consent, purportedly sold her paraphernal property — a lot located at Barrio Gaboc, Tagbilaran City with an
area of 18,163 square meters (subject lot) and covered by TCT T-10069 — to spouses Sepe for ₱15,000.00.15

On December 14, 1992, Anastacia executed a notarized Notice of Adverse Claim, wherein she claimed that
"the second duplicate copy of [TCT T-10069] was lost sometimes (sic) on the first week of December 1992,
and [was] found in the possession of one Generoso Sepe x x x without the knowledge and consent of the
owner"16 and the "parcel of land was never sold nor encumbered to anybody else."17

On December 17, 1992, respondents, save Dominga, executed the COS for a consideration of P40,000.00,
wherein they confirmed absolutely and irrevocably the sale of the subject lot situated at Barrio Gaboc (now
Cabawan District) made and executed by their parents, Anastacia and Fabian, in favor of spouses Sepe, and
warranted to defend their rights and peaceful possession of the subject lot.18

On January 14, 1993, Anastacia executed a notarized Notice of Withdrawal of Adverse Claim, wherein she
alleged that she was made to sign an Adverse Claim by Dominga and Donata; she did not understand its
contents; and she remembered that she had "already sold the same land to [spouses Sepe] on November 18,
1992 before Atty. Gaspar S. Rulona x x x;" the Adverse Claim was an error; and she wanted "the same
withdrawn, so that the DEED OF SALE OF THE LAND COVERING TCT NO. T-10069, [would push] through,
and the title so issued in favor of the [vendees spouses Sepe]."19

On the same day, January 14, 1993, TCT T-10069 in the name of Anastacia was cancelled and TCT T-35367
was issued in the names of spouses Sepe.20

On October 20, 1993, Anastacia died.21

On November 17, 1998, Maria wrote the Regional Director of the National Bureau of Investigation (NBI)
seeking assistance relative to this case in a letter of even date. Her statements were taken by the NBI
Investigator on August 30, 2000.22

On December 21, 1998, respondents, represented by Maria, filed a case (Civil Case No. 6703) for nullification
of the sale and the TCT issued to petitioner.23 Respondents failed to prosecute the case for some time
resulting in its dismissal without prejudice on February 26, 2002.24

On May 16, 2002, respondents refiled the case by filing the Complaint25 dated March 25, 2002.
Respondents presented their evidence, which included the testimonies of Feliciana, who was then 65 years
old; Maria, who was then 63 years old; Julieta Solijon, the wife of Severo; Eufronio Tanupan Bayot, the supply
officer of the Tagbilaran City Treasurer's Office; Remedios Lamoste, Records Officer I, Office of the Tagbilaran
City Register of Deeds, who brought to the RTC the records relative to TCT T-10069, which included the said
TCT, the DOS, Notice of Adverse Claim, Notice of Withdrawal of Adverse Claim and TCT T-35367; and Rhoda
B. Flores, NBI Document Examiner IV and Assistant Chief, Questioned Documents Section, NBI, Manila, who
confirmed that the signature of Generoso Sepe appearing on the Notice of Withdrawal of Adverse Claim and
Community Tax Certificate No. 986376726 were written by the same Generoso Sepe whose signature
appeared on the standard documents.27

After the RTC admitted respondents' offer of documentary evidence, counsel for petitioner manifested that he
was opting to file a demurrer to evidence.28

On July 13, 2006, petitioner filed a Demurrer to Evidence, interposing the grounds of ratification and
prescription of action.29 Petitioner argued that if Feliciana's testimony would be given consideration that
Anastacia and her family were mistaken into executing the DOS as they were made to believe that it pertained
to the subject lot's subdivision, then the action to nullify a voidable contract had prescribed, the four-year
prescriptive period being reckoned from January 14, 1993 when the TCT was issued in petitioner's name.30 He
also argued that with the execution of the COS, the voidable DOS was ratified.31

The RTC Ruling

On August 7, 2006, the RTC issued an Order granting the demurrer to evidence and dismissing the case. The
RTC found the claim of respondents to be "inadequate and unworthy of belief [because] not only that their
claim was only oral[,] which is insufficient as against the documentary evidence in favor of petitioner [that] are
duly notarized, thus, considered as public instruments and having the presumption of regularity under the
Rules rendering their claim incredible, not to say, that it is contrary to the usual course of things."32

The RTC further stated that if there was fraud in the sale of the subject lot, the action to annul the sale on the
ground of fraud had prescribed. According to the RTC, the four-year period was to be reckoned from the
discovery of the fraud on December 14, 1992 when Anastacia executed the Notice of Adverse Claim, and it
had lapsed when respondents filed Civil Case No. 6703 on December 21, 1998 or six years after.33

The dispositive portion of the RTC Decision states:

WHEREFORE, the instant case is dismissed with costs against plaintiffs [herein respondents] and reasonable
attorney's fee in the amount of P10,000.00 which shall earn legal interest until the same shall have been fully
paid.

SO ORDERED.34

Respondents filed a motion for reconsideration, but the RTC, in its Order dated September 14, 2006, denied
the same.35

Aggrieved, respondents interposed an appeal before the CA.36

The CA Ruling

The CA granted respondents' appeal. The CA ruled that testimonies of Anastacia's daughters had established
that no consideration whatsoever was paid to their mother.37 Also, according to the CA, respondents were able
to establish that the withdrawal of the adverse claim was not done by Anastacia but through the illegal
machinations of petitioner. The CA further theorized that petitioner would not exert effort to cause the
execution of the COS if he had validly purchased the subject lot.38 Since there was actually no consideration of
the sale to petitioner and following the principle that a deed of sale in which the stated consideration has not in
fact been paid is a false contract, the CA concluded that the DOS is void.39

The CA awarded moral and exemplary damages in favor of respondents based on its finding that there was no
good faith in the manner that petitioner acquired the property of Anastacia because he took advantage of the
ignorance of Anastacia and her children by making them believe that the DOS referred to a partition or
subdivision of the subject lot.40 The CA observed that the method employed by petitioner smacked of bad faith
which ran counter to Articles 1941 and 2142 of the Civil Code.43

The CA likewise awarded attorney's fees because respondents were compelled to litigate or to incur expenses
to protect their interest as a result of the unjustified act of petitioner.44

The dispositive portion of the CA Decision reads as follows:

IN LIGHT OF ALL THE FOREGOING, this appeal is GRANTED. The 7 August 2006 Order dismissing the
case and the 14 September 2006 Order denying the Motion for Reconsideration both issued by the Regional
Trial Court, Branch 3, City of Tagbilaran in Civil Case No. 6703 are REVERSED and SET ASIDE. In lieu
thereof, a new judgment is hereby rendered as follows:
1. The Deed of Sale of a Registered Land dated November 18, 1992 executed by Anastacia Kilang is
declared NULL and VOID and of no effect.

2. TCT No. T-35367 registered in the name of Generoso Sepe pursuant to the aforementioned nullified Deed
of Sale is NULLIFIED and accordingly CANCELLED while TCT No. T-10069 in the name of Anastacia Kilang
is REINSTATED and the subject property thereof RESTORED to herein plaintiffs-appellants [herein
respondents]; and

3. Defendant-appellee [herein petitioner] is ordered to pay plaintiffs-appellants [herein respondents]

[₱]100,000.00 moral damages, [₱]50,000.00 exemplary damages and [₱]100,000.00 attorney's fees.

Costs against defendant-appellee [herein petitioner].

SO ORDERED.45

Petitioner filed a motion for reconsideration, which was denied by the CA in its Resolution dated October 27,
2011.46

Hence, the present Petition. Respondents filed a Comment47 dated June 15, 2012. Petitioner filed a
Reply48 dated November 14, 2012.

Issues

The Petition raises the following issues:

Whether the CA erred in its ruling that there was no consideration for the sale;

Whether the CA erred in its finding that the haste by which Anastacia executed the adverse claim on
December 14, 1992 meant that she did not sell her property to anybody;

Whether the CA erred in its finding that the withdrawal of the adverse claim was not done by Anastacia but
through the illegal machinations of petitioner;

Whether the CA erred in its finding that petitioner took advantage of the ignorance of Anastacia and her
children by making them believe that the DOS in favor of petitioner referred to a partition or subdivision of the
subject lot; and

Whether the CA erred in its finding that if petitioner had validly purchased the subject lot, he would not exert
effort to cause the execution of the COS.49

The Court's Ruling

The Petition is impressed with merit.

The general rule is that only questions of law may be raised in a Rule 45 petition to review. 50 While the issues
propounded by petitioner are seemingly factual, the ultimate issue — whether the 1992 DOS is valid — is both
factual and legal. Petitioner is thus asking the Court to re-examine the evidence presented by the parties,
which re-examination is warranted since the findings of the CA are contrary to those of the trial court, a
recognized exception to the rule that the findings of fact of the CA are conclusive and binding upon the Court.51

The CA observed that "[w]hat is glaring in the evidence and the records of this case is the fact that there was
no discussion or assertion whether or not money or cause or consideration exchange[d] hands between
Anastacia Kilang and Generoso Sepe."52 To sustain its finding of lack of consideration, the CA relied on the
testimonies of Anastacia's daughters that no consideration was paid to their mother by petitioner, without,
however, indicating the pertinent pages of the relevant transcript of stenographic notes of their
testimonies.53 Also, the CA interpreted the execution of the Notice of Adverse Claim by Anastacia and the COS
as additional proofs that there was no sale by Anastacia of the subject lot to spouses Sepe.54

The RTC, on the other hand, found that:

After a careful perusal of the documentary evidence of plaintiffs, the Court finds their claim to be inadequate
and unworthy of belief. For, not only that their claim was only oral which is insufficient as against the
documentary evidence in favor of defendant, they are duly notarized, thus, considered as public instruments
and having the presumption of regularity under the Rules rendering their claim incredible, not to say, that it is
contrary to the usual course of things. For instance, if the Deed of Sale (Exh. "B") dated November 18, 1992
was really spurious and was discovered on December 14, 1992 by Anastacia Kilang to be so that she
executed an Adverse Claim, why is it that on December 17, 1992 or just three days after, four of the five
children of Anastacia Kilang executed a Confirmation of the Deed of Sale (Exh. "L") wherein they
acknowledged the receipt of P40,000.00 from defendant Sepe of which its due execution was not refuted by
plaintiffs in the witness stand but simply offered by counsel as an evidence of defendant's alleged master plan
in victimizing innocent people. On August 31, 2000 or eight years thereafter, the same Maria Solijon upon
being investigated by the NBI (Exh. "M") admitted that the four of the children of Anastacia Kilang except
Dominga, received P5,000.00 each from defendant Generoso Sepe allegedly as Christmas gifts which, in the
mind of the Court, is not only a flimsy excuse but an implied admission of their confirmation of the sale. Then,
on January 14, 1993, Anastacia Kilang executed a Withdrawal of the Adverse Claim leading to the issuance of
a new transfer certificate of title to the defendant. Plaintiffs assailed the fingerprints as not belonging to their
mother Anastacia more so that the witness thereof was defendant Sepe himself. They even went to the extent
of having the fingerprints and signature of Sepe examined by the NBI. Yet, the NBI did not give a clear-cut
finding on the fingerprints for being allegedly blurred. In the mind of the Court, the question of the genuineness
of the withdrawal of the adverse claim has become moot and insignificant by reason of the confirmation of the
sale by the plaintiffs in favor of herein defendant Generoso Sepe (Exh. "L") for they are then estopped to
disclaim what they had earlier affirmed to be valid and genuine. Besides, why did they not question the
document during the lifetime of their mother Anastacia Kilang when she was the only person who could confirm
or refute its genuineness? And, why did it take them only on December 21, 1998, or six years after, to move for
its nullification when they filed the first case in court (Civil Case No. 6703) x x x[?]55

Petitioner relied and continues to rely on the DOS, which was duly notarized, wherein it is stated:

I, ANASTACIA KILANG, x x x for and in consideration of the sum of FIFTEEN THOUSAND PESOS
(₱15,000.00) Philippine currency, to me in hand paid by SPS. GENEROSO SEPE and GAUDENCIA D. SEPE
x x x, receipt of the said amount is hereby acknowledged x x x56

as proof of the receipt of the consideration. In the words of petitioner: "What evidence is more eloquent insofar
as proving consideration and parting of the money as consideration of the sale than the document of sale itself,
in this case, the "Deed of Sale of a Registered Land' executed by Anastacia Kilang duly notarized."57

Petitioner also points out that the CA's observation that Anastacia had executed the Notice of Adverse Claim
with haste showed that she did not sell her property to anybody is speculative because she could no longer
testify as to why she executed the same.58 Besides, petitioner adds that the execution of the COS is proof that
indeed there was a sale by Anastacia of the subject lot.59

Petitioner's reliance on the DOS as proof that the sale contemplated therein was supported by sufficient
consideration is not without legal basis.1âшphi1 The disputable presumption of existence and legality of the
cause or consideration60 inherent in every contract supports his stance.

Article 1354 of the Civil Code provides: "Although the cause is not stated in the contract, it is presumed that it
exists and is lawful, unless the debtor proves the contrary." Otherwise stated, the law presumes that even if the
contract does not state a cause, one exists and is lawful; and it is incumbent on the party impugning the
contract to prove the contrary.61 If the cause is stated in the contract and it is shown to be false, then it is
incumbent upon the party enforcing the contract to prove the legality of the cause.62

This disputable presumption is also provided in Section 3, Rule 131 of the Rules, which provides:

SEC. 3. Disputable presumptions. - The following presumptions are satisfactory if uncontradicted, but may be
contradicted and overcome by other evidence:

xxxx

(r) That there was a sufficient consideration for a contract;

xxxx

In Mangahas v. Brobio,63 the Court stated that the presumption of sufficient consideration can be overcome by
preponderance of evidence and that mere assertion that the contract has no consideration is not enough, viz.:

A contract is presumed to be supported by cause or consideration.64 The presumption that a contract has

sufficient consideration cannot be overthrown by a mere assertion that it has no consideration. To overcome
the presumption, the alleged lack of consideration must be shown by preponderance of evidence.65 The burden
to prove lack of consideration rests upon whoever alleges it, which, in the present case, is respondent.66

Aside from the presumption of sufficient consideration working in favor of petitioner, the acknowledgment of the
DOS before a notary public makes it a public document.1âшphi1

According to Section 19, Rule 132 of the Rules, documents acknowledged before a notary public, except last
wills and testaments, and public records, kept in the Philippines, of private documents required by law to be
entered therein, are public documents. The certificate of acknowledgment in a notarial document is prima
facie evidence of the execution of the instrument or document involved.67 On the other hand, documents
consisting of entries in public records made in the performance of a duty by a public officer are prima
facie evidence of the facts stated therein; and all other public documents are evidence, even against a third
person, of the fact which gave rise to their execution and of the date of the latter.68
Being a public document, the evidence to be presented to contradict the facts stated in the DOS, which include
the payment of the consideration, must be more than merely preponderant as noted by the Court in Alcantara-
Daus v. Sps. De Leon:69

As a general rule, the due execution and authenticity of a document must be reasonably established before it
may be admitted in evidence.70 Notarial documents, however, may be presented in evidence without further
proof of their authenticity, since the certificate of acknowledgment is prima facie evidence of the execution of
the instrument or document involved.71 To contradict facts in a notarial document and the presumption of
regularity in its favor, the evidence must be clear, convincing and more than merely
preponderant.72 (Emphasis supplied)

That clear and convincing evidence is required to dispute a notarial document is reiterated by the Court
in Spouses Santos v. Spouses Lumbao,73 viz.:

Furthermore, both "Bilihan ng Lupa" documents dated 17 August 1979 and 9 January 1981 were duly
notarized before a notary public. It is well-settled that a document acknowledged before a notary public is a
public document74 that enjoys the presumption of regularity. It is a prima facie evidence of the truth of the facts
stated therein and a conclusive presumption of its existence and due execution.75 To overcome this
presumption, there must be presented evidence that is clear and convincing. Absent such evidence, the
presumption must be upheld.76 x x x Nonetheless, in the present case petitioners' denials without clear and
convincing evidence to support their claim of fraud and falsity were not sufficient to overthrow the above-
mentioned presumption; hence, the authenticity, due execution and the truth of the facts stated in the aforesaid
Bilihan ng Lupa are upheld.77

Given the foregoing, the Court is not persuaded by the CA's postulation that the oral refutation by respondents
Feliciana and Maria of the consideration stated in the DOS has reached the threshold of the required quantum
of proof of clear and convincing evidence. Their mere oral declaration that no consideration was paid to their
mother Anastacia is simply not enough given the presence of the following notarized and public documents in
petitioner's favor:

1. DOS, notarized on November 18, 1992, wherein P15,000.00 was stated as the consideration of the sale "to
[Anastacia] in hand paid by SPS. GENEROSO SEPE and GAUDENCIA D SEPE x x x receipt of the said
amount is hereby acknowledged x x x;"78

2. Notice of Withdrawal of Adverse Claim, executed by Anastacia and notarized on January 14, 1993, a month
after she executed the Notice of Adverse Claim wherein she averred that "I remember that I have already sold
the same land to SPS. GENEROSO SEPE AND GAUDENCIA D. SEPE on November 18, 1992 before Atty.
Gaspar S. Rulona per Doc. No. 98; Page 20; Book No. XLVIII; Series of 1992 at Tagbilaran City; x x x the
NOTICE OF ADVERSE CLAIM is in error, and I want the same withdrawn, so that the DEED OF SALE OF
THE LAND COVERING TCT NO. T-10069, will be pushed through, and the title so issued in favor of the
Vendee Sps. Generoso Sepe and Gaudencia D. Sepe[;]79

3. TCT T-35367 issued in the names of spouses Sepe on January 14 1993;80 and

4. COS notarized on December 17, 1992 wherein Feliciana, Severo, Maria and Donata "for and in
consideration of FORTY THOUSAND PESOS (₱40,000.00) x x x to us in hand paid to our full satisfaction by
SPOUSES GENEROSO SEPE AND GAUDENCIA SEPE x x x do hereby CONFIRM ABSOLUTELY AND
IRREVOCABLY, the sale of a parcel of land situated in Barrio Gaboc (now Cabawan District), Tagbilaran City,
made and executed by our parents, Anastacia Kilang-Solijon and Fabian Solijon, in favor of herein SPOUSES
GENEROSO SEPE AND GAUDENCIA SEPE, and more particularly described as follows, to wit: [technical
description of TCT T-10069 follows] x x x[; and] we hereby warrant to defend the rights and peaceful
possession of SPOUSES GENEROSO SEPE AND GAUDENCIA SEPE over the above-described real
property against any claim whatsoever and we hereby WAIVE ALL OUR RIGHTS over the aforementioned real
property in favor of SPOUSES GENEROSO SEPE AND GAUDENCIA SEPE[.]"81

The Court moreover agrees with the RTC's observation that respondents should have questioned the DOS
during the lifetime of their mother Anastacia given that she was the only person who could confirm or refute its
genuineness and contents. It must be recalled that Anastacia died on October 20, 1993,82 about nine months
after she executed the Notice of Withdrawal of Adverse Claim and the issuance of TCT T-35367 in the names
of spouses Sepe. Indeed, the most credible person who could attest that no consideration was paid by
spouses Sepe in connection with the DOS was Anastacia.

Where a document, like a deed of sale, duly acknowledged before a notary public is disputed, the parties
thereto are in the best position to refute its execution and contents. Their testimonies are crucial in order to
establish the required proof of clear and convincing evidence to overcome the presumptions in favor of public
documents. Oral declarations by non-parties which contradict the contents of notarial documents should be
evaluated and admitted with extreme caution in order not to erode their status and significance as public
documents.

Furthermore, the COS executed by 4 of the 5 children of Anastacia, which is supported by a valuable
consideration, bolsters petitioner's cause. It is noted that Dominga, who is not a signatory to the COS, did not
testify for respondents. Indeed, respondents have ratified and confirmed the sale of the subject lot by their
parents to spouses Sepe. Again, their claim that the amount they received from spouses Sepe was a
Christmas gift to them, aside from being incredible as held by the RTC, is not clear and convincing evidence to
overcome the facts stated in the COS.

Given the failure of respondents to adduce clear and convincing evidence to support their cause and overcome
the presumptions granted by law in favor of the public documents above-enumerated, the RTC did not err in
granting petitioner's demurrer to evidence.

WHEREFORE, the Petition is hereby GRANTED. The Decision of the Court of Appeals dated August 4, 2010
and its Resolution dated October 27, 2011 in C.A.-G.R. C.V. No. 01786 are REVERSED AND SET
ASIDE. The Order dated August 7, 2006, dismissing the complaint by reason of the granting of petitioner's
demurrer to evidence, and the Order dated September 14, 2006, denying respondents' motion for
reconsideration, of the Regional Trial Court, Branch 3, Tagbilaran City in Civil Case No. 6703,
are REINSTATED and AFFIRMED.

SO ORDERED.
 G.R. No. 212840, August 28, 2019

PAZ MANDIN-TROTIN,* PETITIONER, v. FRANCISCO A. BONGO, SABINA BONGO-BUNTAG AND

ARTEMIA BONGO-LIQUIT, RESPONDENTS.

RESOLUTION

CAGUIOA, J.:

Before the Court is the petition for review on certiorari1 (Petition) under Rule 45 of the Rules of Court (Rules)
filed by petitioner Paz Mandin-Trotin (intervenor Trotin) assailing the Decision2 dated April 10, 2014 (CA
Decision) of the Court of Appeals3 (CA) in CA-G.R. CV No. 04028, which dismissed the appeal filed by
plaintiffs-appellants Heirs of Diosdado Bongo4 and affirmed the Decision5 dated February 28, 2011 (RTC
Decision) of the Regional Trial Court, Branch 49, Tagbilaran City (RTC) in Civil Case No. 6311. The RTC
Decision dismissed the complaint for lack of cause of action. The CA Decision also denied the intervention filed
by intervenor Trotin.

The Facts and Antecedent Proceedings

The CA Decision narrates the following antecedent facts:

The instant controversy involves a parcel of land x x x Lot No. 3982 situated in Danao, Panglao, Bohol,
containing an area of 32,668 square meters, more or less. Lot No. 3982 is covered by Original Certificate of
Title (OCT) No. 64051 registered in the name of Candido Bongo [(Candido)] and issued on November 27,
1990. Candido Bongo is the husband and father of the defendants-appellees [Irene Arbulo vda. de Bongo,
Francisco Bongo, Sabina Bongo-Buntag and Artemia Bongo-Liquit (Heirs of Candido Bongo)]. Candido is also
the only brother of Diosdado Bongo [(Diosdado)], the father of the plaintiff-appellants [Flora Bongo-Arbillera,
Sofronio Bongo, Celiana Bongo-Buntag, Vitaliano Bongo, Sebastian Bongo, Aurora Bongo, Bonifacia
represented by Sabino Bongo, Eleuterio Iman for himself and as guardian-ad-litem of minor Raul Bongo (Heirs
of Diosdado Bongo)].

The [Heirs of Diosdado Bongo's] claim over the subject land is founded on the alleged acquisition of the land
by their father Diosdado from its previous owner, Ancelma Bongcas, by virtue of the Escritura de Venta
executed on March 9, 1929. According to the [Heirs of Diosdado Bongo], after Diosdado purchased the land,
he took possession of the same and cultivated it with the help of Candido. When Candido got married to x x x
Irene Arbulo, Diosdado allowed Candido to construct a house on the land and till the same while giving a share
of the produce to Diosdado. The [Heirs of Candido Bongo] likewise constructed their own houses on the land
when they got married. When Diosdado died and [his heirs] succeeded him, Candido continued to give them a
share of the harvests. However, in 1997, the [Heirs of Diosdado Bongo] learned that Candido caused the Free
Patent Application over Lot No. 3982 and the subsequent registration and issuance of title in his favor
sometime in 1990. Hence on September 5, 1997, the [Heirs of Diosdado Bongo] caused the filing of an
adverse claim.

Subsequently, on March 10, 1999, the [Heirs of Diosdado Bongo] filed an action seeking the annulment of [the
Heirs of Candido Bongo's] title, recovery of ownership and possession of Lot No. 3982, and damages on the
contention that the application of Candido for a free patent was surreptitious and spurious. Hence, the
subsequent registration of the subject land before the Register of Deeds of Bohol is illegal and the issuance of
title is baseless and therefore, null and void ab initio.

[The Heirs of Candido Bongo] traversed the allegations of [the Heirs of Diosdado Bongo] contending that
Candido applied for a Free Patent over Lot No. 3982 in good faith and in the belief that it is his own exclusive
property. According to [them], their father Candido went to the US to work leaving behind his father and brother
Diosdado. While in the US, he sent money back home, including money to purchase lands in Panglao. When
Candido returned in 1956, he occupied the disputed land, built his house thereon, and took possession of the
same in the concept of an owner for a period of more than 30 years until his death. That there is no truth to the
allegation that Candido worked on the disputed land and gave shares of the harvest to Diosdado because long
before the death of Diosdado, he and Candido had agreed that Lot No. 3982 would belong to Candido while
Diosdado would be given other parcels of land.

[The Heirs of Candido Bongo] further contended that with the issuance of the title over Lot No. 3982 in favor of
Candido, there was no longer any question as to the ownership of the property. Moreover, [the Heirs of
Diosdado Bongo's] claim over the disputed land had long prescribed and that they are already estopped by
laches.

Subsequently, on March 14, 2000, intervenor/cross-claimant Paz Mandin-Trotin filed an Urgent Motion for
Intervention. [Intervenor] Trotin alleged that x x x Francisco Bongo, Sabina Bongo-Buntag and Artemia Bongo-
Liquit [(herein respondents)] executed in her favor a Deed of Conditional Sale6 on August 21, 1997 over a
portion of one hectare of Lot No. 3982 and pursuant thereof she had already paid the sum of P100,000.00
[(out of the P1,000,000.00 consideration, with the balance of P900,000.00 "to be paid not later than two (2)
months and on or before October 31, 1997")7]. [Intervenor Trotin alleged in the Answer in Intervention with
Cross-Claim Against Three Original Defendants8 dated March 13, 2000 that herein respondents delivered such
portion to her and she was about to develop the 1-hectare portion, when one Celiana Buntag who asserted to
be a direct heir of Diosdado claimed ownership and possession of the land in dispute.9] However, after learning
that the [H]eirs of Diosdado Bongo x x x filed an Affidavit of Adverse Claim over Lot No. 3982, [intervenor]
Trotin suspended payment of the balance of the stipulated price in the Deed of Conditional Sale to protect her
interests. [Intervenor] Trotin prayed that judgment be rendered in favor of the [Heirs of Candido Bongo] and as
a consequence, the [Heirs of Candido Bongo] be ordered to execute and deliver to her the one-hectare portion
of Lot No. 3982 upon full payment of the purchase price as stipulated. [The Urgent Motion for Intervention was
granted in the RTC's Order10 dated March 21, 2000.]

On February 28, 2011, the [RTC] rendered [a Decision] in favor of [the Heirs of Candido Bongo]. Citing
jurisprudence, the [RTC] held that an Original Certificate of Title issued on the strength of the Free Patent
being in the nature of a certificate issued in a judicial proceeding becomes indefeasible and incontrovertible
upon the expiration of one year from the date of issuance thereof. Verily, the complaint filed by [the Heirs of
Diosdado Bongo] nine years from the issuance of title over Lot No. [3982] in favor of Candido was out of time.
Hence, the [Heirs of Diosdado Bongo's] claim of possession and ownership over Lot No. 3982 has already
been barred by prescription and the Statute of Limitations.

The [RTC] did not give weight to the Escritura de Venta ruling that the ancient document not being recorded
and registered in the Registry of Property, the same is only valid between and among parties to the instrument
and does not bind the [Heirs of Candido Bongo] or third parties who are not privy to the execution of the
document which happened more than seventy years ago. Moreover, the area mentioned in the Escritura de
Venta which is 7,080 square meters does not coincide to the area of Lot No. 3982 which is more or less 32,668
square meters.

Lastly, as to the matter raised by the intervenor and cross-claimant [Trotin], the [RTC] left the settlement of the
same to [intervenor] Trotin and the [Heirs of Candido Bongo], who, according to the [RTC], have appeared to
join their actions together.

Aggrieved, the [Heirs of Diosdado Bongo appealed to the CA].11

The Ruling of the CA

The CA in its Decision12 dated April 10, 2014 dismissed the appeal and affirmed the RTC Decision.

The CA noted that the Heirs of Diosdado Bongo alleged that on March 9, 1929, their predecessor Diosdado
purchased from one Ancelma Bongcas (Bongcas) by virtue of a document denominated as Escritura de
Venta five parcels of land situated in Danao and Tawala, Panglao, Bohol and covered by tax declarations
(TD), which included TD No. 11900.13 According to them, when Candido married Irene Arbulo, he constructed
his house on the land covered by TD No. 11900, with the consent of Diosdado. Thereafter, TD No. 11900 was
cancelled by TD No. 14356, and when the cadastral survey of Panglao, Bohol was conducted, the land
covered by TD No. 14356 was surveyed and identified as Cadastral Lot No. 3982, CAD 705-D, Case No. 5,
which is referred to simply as Lot No. 3982.14

Given such observations, the CA agreed with the RTC that the incompatibility of the areas appearing in
the Escritura de Venta of 7,080 square meters and in Original Certificate of Title (OCT) No. 64051, which
covers Lot No. 3982, of 32,668 square meters, is too great not to raise a serious doubt as to the real identity of
the land claimed by the Heirs of Diosdado Bongo and substantially negates their claim of ownership over Lot
No. 3982 altogether.15

The CA was not persuaded by the contention of the Heirs of Diosdado Bongo that they are merely seeking a
reconveyance of a portion of Lot No. 3982 because the same is inconsistent with their claim that Lot No. 3982
is the same land covered by TD No. 11900, which their predecessor Diosdado purportedly purchased from
Bongcas.16 Also, the CA refused to entertain the said contention on appeal because it was a newly adopted
argument, which was not brought to the attention of the lower court and any issue raised for the first time on
appeal is barred by estoppel.17

Further, the CA found that the Heirs of Diosdado Bongo have not proven their title to Lot No. 3982 on the
ground that the Escritura de Venta appeared to be wanting in evidentiary weight.18 Citing the pertinent
provisions19 of Presidential Decree No. 1529, the said document is not valid, except as between the parties
thereto, unless it is recorded in the office of the

Register of Deeds for the province or city where the land lies since the act of registration is the operative act to
convey or affect the land insofar as third persons are concerned.20 The CA likewise found suspect Diosdado's,
or even his heirs', lack of action to have the conveyance recorded within the period of 61 years from the time of
execution of the Escritura de Venta in 1929 up to the time of the issuance of the OCT in the name of Candido
in 1990.21 The CA concluded that in the face of a Torrens title which carries with it the presumption to have
been regularly issued by the government, the evidence presented by the Heirs of Diosdado Bongo was clearly
insufficient.22

Anent the claim of intervenor Trotin, the CA stated that a prior determination as to whether the Deed of
Conditional Sale (DCS) that she and the Heirs of Candido Bongo executed was a contract of sale or a contract
to sell was necessary.23 After citing the pertinent provisions of the DCS, the CA determined that it was only a
contract to sell because based on the stipulations therein, the vendors reserved title to the subject property
until full payment of the purchase price.24

The CA ruled that intervenor Trotin could not anymore compel the Heirs of Candido Bongo to fulfill their
contracted obligation because her failure to pay the balance of the purchase price amounting to P900,000.00
"not later than two (2) months and on or before October 31, 1997" relieved the vendors of any obligation to
hold the property in reserve for her, there being no more contract to speak of.25

The dispositive portion of the CA Decision states:

WHEREFORE, premises considered, the instant appeal is DISMISSED. The Decision of the Regional Trial
Court, Branch 49, Tagbilaran City, Bohol dated February 28, 2011 is hereby AFFIRMED.

SO ORDERED.26

Without filing a motion for reconsideration, intervenor Trotin filed the instant Rule 45 Petition against Francisco
Bongo, Sabina Bongo-Buntag and Artemia Bongo-Liquit27 (respondents). Respondents filed their Comments to
the Petition for Review on Certiorari28 dated July 10, 2015. Intervenor Trotin filed her Rejoinder29 dated July 21,
2015.

The Issues

The Petition raises the following issues:

1. whether the RTC erred in its Decision when it left the settlement of the matter between intervenor Trotin and
respondents since, in the course of the proceedings, they had appeared to have joined their actions together;
and

2. whether the CA erred when it ruled that intervenor Trotin, having failed to pay the balance of the purchase
price within the period provided in the DCS, relieved respondents of any obligation to hold the property subject
of the DCS in reserve for her because there was no more contract to speak of.30

The Court's Ruling

On the first issue, intervenor Trotin argues that the RTC "should have decided to grant [her,] the claimant[,]
such relief as her cross-claim may warrant, since it did not also require the claimant to submit evidence to the
clerk of court"31 and not left the settlement of the cross-claim to be reached between her and respondents.32

Intervenor Trotin invokes Section 3, Rule 9 of the Rules, which provides:

SEC. 3. Default; declaration of. – If the defending party fails to answer within the time allowed therefor, the
court shall, upon motion of the claiming party with notice to the defending party, and proof of such failure,
declare the defending party in default. Thereupon, the court shall proceed to render judgment granting the
claimant such relief as his pleading may warrant, unless the court in its discretion requires the claimant to
submit evidence. Such reception of evidence may be delegated to the clerk of court, (1a, R18)

xxxx

Since respondents failed to file any pleading relative to the cross-claim of intervenor Trotin, the RTC granted
her motion to declare them in default as to her cross-claim raised in her Answer in Intervention with Cross-
Claim Against Three Original Defendants33 dated March 13, 2000 (Answer in Intervention). Thus, according to
her, the RTC should have granted such relief as her cross-claim might have warranted.34

The first issue is, as evident, already superfluous in view of the fact that the CA has already ruled on the merits
of intervenor Trotin's cross-claim against respondents.

Regarding the second issue, intervenor Trotin states that the CA "failed to consider that [respondents] were
already declared in default, and they designated herein counsel [(Atty. Oscar B. Glovasa, counsel for
intervenor Trotin)], as their additional counsel, while the instant case was [being] tried by [the RTC] wherein
herein counsel had already informed [Intervenor Trotin] that she would no longer testify in [the RTC]."35 She
then proceeds with these allegations:

The Intervenor, if had she been required by [the RTC] to submit evidence to the Clerk of Court, would have
testified on all and every relevant facts as stated in her Affidavit of Merit, herewith quoted and
respectfully prayed for to be incorporated in this Petition x x x:

"x x x x

AFFIDAVIT OF MERIT

I, PAZ MANDIN-TROTIN, x x x, after having been sworn in accordance with law, hereby depose and say that:

xxxx

5. x x x / was duly informed that the Heirs of Diosdado Bongo (brother of Candido Bongo) filed with the
Register of Deeds of Bohol an Adverse Claim over the lot covered by OCT No. 64051 on September 5,
1997 x x x, thus, I immediately called the three (3) Vendors - Francisco, Sabina and Artemia, as well as their
mother, Irene Arbulo vda. de Bongo to an urgent meeting where I informed them of such Adverse Claim;

6. After a thorough discussion of such Adverse Claim and the balance of P900,000.00 still payable within two
(2) months from execution of the Deed [(DCS)], the three (3) Vendors-Heirs of Candido Bongo, with the
conformity of their mother, proposed to go on with the Sale of the one-hectare lot/portion without the two
(2) months limit anymore to pay the balance, but for them to receive any sum as instalment
payments, on account of their family necessities, and the medical and other needs of their mother, Irene, who
was sickly, about 75 years old already, with no visible means of livelihood and living with Francisco A. Bongo,
and they would execute a final Deed of Sale when such adverse claim would be resolved, and I, Paz
Mandin-Trotin would pay the remaining balance, and thereafter, I agreed to those proposals;

7. Thereafter, I gave them various amounts as their needs arose to the three (3) vendors, and after they and
their mother were impleaded as defendants in Civil Case No. 6311 which was filed on March 10, 1999, the
"new" defendants requested and were given by me a bigger sum for attorney's fees and appearance fees for
their legal counsel, even without any receipt, they being close friends and neighbors of mine;

8. I personally informed Irene Arbulo vda. de Bongo and her three (3) children that I filed on March 14,
2000 an Urgent Motion for Intervention with the Answer in Intervention with Cross-Claim against the
three (3) defendants-vendors in Civil Case No. 64051 x x x;
9. With the knowledge of Francisco A. Bongo, Sabina Bongo-Buntag requested me in June 2000 the sum of
P25,000.00, and later, Artemia Bongo-Liquit also requested me on February 2001 the sum of P50,000.00;
respectively, I, Paz Mandin-Trotin, gave them those amounts, and both of them, Sabina and Artemia, signed
with me, the written Agreements with Acknowledgement of Receipt of Additional Payment, the certified
true copies of the only original documents are in my possession, are herewith attached as Annexes "5" and
"6" x x x:
xxxx

10. After diligent search last month, June 2014, I found these two (2) Agreements, each signed by Sabina
Bongo-Buntag and Artemia Bongo-Liquit, which were inserted among the voluminous documents in my own
personal files and the files of the Bohol Divers Resort, and I turned over these Agreements to my legal
counsel;

11. The defendants/cross defendants promised to me that they would not contest my Cross-Claim, since

we have already agreed to go on with the Sale without the two- months limit to pay the balance and to execute
a final Deed of Sale after the civil case is terminated x x x.

 x x x x

15. x x x I am now appealing this matter to the x x x Supreme Court, in view [of] the afore-
stated AGREEMENTS with the three (3) private defendants, to go on with our sale without the two (2)
months limit anymore, and to execute the final Deed of Sale after the civil case is terminated in favor of
the Vendors, as manifested in my approval to their subsequent requests for partial payments on that sale,
and their stand not to contest my Cross-Claim against them, and that [the RTC] declared the three (3)
private defendants/cross-defendants in DEFAULT as to the Cross-Claim.

xxxx

IN WITNESS WHEREOF, I hereunto set my hand this 8th day of July, 2014 at Tagbilaran City, Bohol,
Philippines.

(SGD) PAZ MANDIN-TROTIN
x x x"36

Intervenor Trotin further states that while the Court is not a trier of facts, the relevant facts and documents
stated in her Affidavit of Merit are most determinative on the contractual relations between her and
respondents.37 Thus, she "commends" to the Court the application of Article 1291 of the Civil Code, which
provides that obligations may be modified by changing their principal conditions, and by virtue of the
subsequent Agreements executed by Sabina Bongo-Buntag and Artemia Bongo-Liquit separately with
intervenor Trotin, the parties clearly manifested their novation of the DCS wherein the condition to pay the
balance of P900,000.00 within the two months limitation was later changed to when the Adverse Claim would
be resolved.38

As part of her Prayer, she seeks the remand to the RTC for the consideration and resolution of intervenor
Trotin's cross-claim by allowing her to testify on the contents of her Affidavit of Merit and other witnesses who
might be presented by her.39

In their Comment, respondents seek the dismissal of the Petition for lack of merit on the following grounds:

1. The Petition calls for a review of evidence and it is prayed therein that new evidence, the Affidavit of Merit,
be allowed to be introduced. These are all prohibited in a Rule 45 petition for certiorari, which allows only
questions of law.40

2. In her Answer in Intervention, intervenor Trotin alleged that her claim was anchored on the DCS and such
claim was already decided against her and to consider again the probative value of the DCS is a clear question
of fact prohibited by Rule 45.41

3. Intervenor Trotin attempts to introduce new evidence, which is the Affidavit of Merit, alleging for the first time
the existence of the Agreements that were allegedly executed by Sabina Bongo-Buntag in June, 2000 and
Artemia Bongo-Liquit in February, 2001 wherein respondents allegedly promised to go on with the sale at the
price earlier stipulated. The existence of such documents is very doubtful considering that they were
purportedly executed in 2000 and 2001 while the trial of the case was on going and they are surprisingly being
introduced only for the first time on appeal. Section 15, Rule 44 of the Rules prohibits the raising of new issues
on appeal not raised during the trial.42

4. Evidence not formally offered during the trial is a mere scrap of paper and cannot be considered for the first
time on appeal.43

In her Rejoinder, intervenor Trotin cites the exceptions to the rule that only questions of law may be raised in a
Rule 45 certiorari petition, but she does not identify which exception obtains in respect of her Petition.44 She
also contends that since respondents were declared in default, the RTC should have immediately granted her
relief without need of presenting evidence because the material averments in the Answer in Intervention were
deemed admitted by respondents.45

On the second issue, the CA ruled that the DCS between intervenor Trotin and respondents is a contract to
sell and not a contract of sale based on prevailing jurisprudence. Citing Heirs of Paulino
Atienza v. Espidol,46 the CA stated that in a contract to sell, the ownership is, by agreement, retained by the
seller and is not to pass to the buyer until full payment of the purchase price; the buyer's full payment of the
price is a positive suspensive condition to the coming into effect of the agreement; and the title simply remains
in the seller if the buyer does not comply with the condition precedent of making payment at the time specified
in the contract.47

The CA based its ruling on the provisions of the DCS. Firstly, the DCS dated August 21, 1997 provided that of
the P1,000,000.00 consideration, P100,000.00 was to be paid upon the signing and execution of the contract
and the balance of P900,000.00 "to be paid not later than two (2) months and on or before October 31,
1997".48 Secondly, the DCS provided that a definite or absolute sale would be executed by the vendors only
upon full payment of the purchase price and in case of non-payment of the purchase price or breach of any
term or condition of the DCS, the latter would become automatically null and void, without need of any
formality:

It is hereby agreed, covenanted and stipulated by and between the parties hereto that the VENDORS will
execute and deliver to the VENDEE a definite or absolute deed of sale upon full payment by the VENDEE of
the unpaid balance of the purchase price herein-above stipulated; that should the VENDEE [fail] to pay the
balance when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this
Deed of Conditional [S]ale shall automatically and without any fur[th]er formality, become null and void, and all
sums so paid by the VENDEE by reason thereof, shall be returned by the VENDORS once the property
involved be sold to any other party.49

Lastly, the DCS provided that upon rescission, the vendee would peacefully deliver the property to the
vendors:

It is also hereby agreed, covenanted and stipulated by and between the [pa]rties hereto that should the
VENDORS rescind this Deed of Conditional Sale for [non-]payment of the balance, the VENDEE by these
presents obligates herself to peacefully deliver the property subject of this contract to the VENDORS.50

Rather than questioning the correctness of the CA's ruling on its finding that the DCS is a contract to sell and
not a contract of sale, intervenor Trotin wants the Court to consider the "relevant facts and documents" referred
to and cited in her Affidavit of Merit in support of her argument that the DCS was novated when the condition to
pay the P900,000.00 balance within two months was changed to when the Adverse Claim of the Heirs of
Diosdado Bongo would be resolved and finally to after the civil case against respondents was terminated.

Intervenor Trotin is precluded in a Rule 45 certiorari petition to raise factual issues. Section 1 of Rule 45 is
unmistakable: "The petition x x x shall raise only questions of law, which must be distinctly set forth." For her
novation theory to be sustained, the Court will have to do a factual review. While certain exceptions are
allowed, intervenor Trotin unfortunately fails to cite the relevant exceptions to sustain her plea for the Court to
make a factual review.

Also, her theory of novation cannot be entertained for the first time on appeal.

In her Answer in Intervention, intervenor Trotin only mentioned that: (1) respondents "had earlier executed a
Deed of Conditional Sale on August 21, 1997 in [her] favor x x x, over a one-hectare portion of a parcel of
land covered by Original Certificate of Title No. 64051 x x x, and [she] had already paid the sum of One
Hundred Thousand (P100,000.00) Pesos to [respondents];"51 and (2) she "suspended payment of the balance
of the stipulated price in the Deed of Conditional Sale" when she came to know the Affidavit of Adverse Claim
filed on September 5, 1997 by the Heirs of Diosdado Bongo with the Register of Deeds.52
In the "Brief for Intervenor/Cross-Claimant"53 dated May 20, 2013, intervenor Trotin only mentioned the DCS as
the basis of her prayer to the CA to include in its judgment on appeal, the grant of the relief as prayed for in the
Answer In Intervention that respondents be ordered to execute and deliver to her, a Deed of Absolute Sale
over the one-hectare portion of the land covered by OCT No. 64051 "upon full payment of the purchase price
as stipulated."54 Intervenor Trotin utterly fails to allege her novation theory and the purported facts surrounding
it in her appeal Brief before the CA.

It is only in her present Petition that intervenor Trotin now claims that in June 2000, she and respondent
Sabina Bongo-Buntag allegedly executed an unnotarized "Agreement with Acknowledgement of Receipt of
Additional Payment" wherein intervenor Trotin gave to said respondent P25,000.00 "as additional payment to
the Vendees who by their signature hereunder, hereby acknowledge receipt of such amount."55 Only the name
of respondent Sabina Bongo-Buntag (with a signature above it) appears below together with that of intervenor
Trotin and her signature over her name. She also now claims that in February 2001, she and respondent
Artemia Bongo-Liquit allegedly executed an unnotarized "Agreement with Acknowledgement of Receipt of
Additional Payment" wherein intervenor Trotin gave to said respondent P50,000.00 "as additional payment to
the Vendors who by their signature hereunder, hereby acknowledge receipt of such amount."56 Only the name
of respondent Artemia Bongo-Liquit (with a signature above it) appears below together with that of intervenor
Trotin and her signature over her name. Both Agreements contain the following provision:

That the Vendors and the Vendee hereby agree to go on with such sale at the price earlier stipulated, and they
would execute the corresponding document after the civil case [(Civil Case No. 6311)] is terminated in favor of
the Vendor x x x[.]57

Given the purported execution dates of the Agreements (June 2000 and February 2001), the "Formal Offer of
Exhibits"58 dated March 22, 2006 of the Heirs of Diosdado Bongo in relation to the "Formal Offer of Exhibits for
Private Defendants [(Heirs of Candido Bongo)]"59 dated June 11, 2009, which intervenor Trotin adopted in
toto in her "Urgent Manifestation (Corrected)"60 dated June 30, 2009, the RTC Decision dated February 28,
2011, the Motion for Reconsideration61 dated March 25, 2011 filed by the Heirs of Diosdado Bongo, the RTC
Order62 dated May 16, 2011, denying the said Motion for Reconsideration, and the Notice of Appeal63 dated
June 22, 2011 filed by the Heirs of Diosdado Bongo, intervenor Trotin could have invoked her novation theory
prior to the filing of her instant Petition dated July 8, 2014.

The Court wholly agrees with respondents' observation that the existence of such documents (the two
Agreements) is very doubtful considering that they were purportedly executed in 2000 and 2001 while the trial
of the case was on going, but they are surprisingly being introduced only for the first time on appeal.64

Lastly, the Agreements cannot even qualify as newly discovered evidence.

Newly discovered evidence may be raised as a ground in a motion for new trial or reconsideration pursuant to
Section 1, Rule 37 of the Rules, which provides:

SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. – Within the period for
taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final order and
grant a new trial for one or more of the following causes materially affecting the substantial rights of said party:

xxxx

(b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered and produced
at the trial, and which if presented would probably alter the result.

 x x x x

Section 2 of Rule 37 requires that a motion for the cause mentioned in paragraph (b) of the said Section shall
be supported by affidavits of the witnesses by whom such evidence is expected to be given, or by duly
authenticated documents which are proposed to be introduced in evidence. The affidavit required is an affidavit
of merit which states the facts constituting the movant's good and substantial defense, which he may prove if
the motion is granted.65

The requisites for the introduction of newly discovered evidence are: (1) the evidence was discovered after
trial; (2) such evidence could not have been discovered and produced at the trial even with the exercise of
reasonable diligence; (3) it is material, not merely cumulative, corroborative, or impeaching; and (4) the
evidence is of such weight that it would probably change the judgment if admitted.66 If the alleged evidence
could have very well been presented during the trial with the exercise of reasonable diligence, the same could
not be considered newly discovered evidence.67

The Court finds the explanation of intervenor Trotin: "After diligent search last month, June 2014, I found
these two (2) Agreements, each signed by Sabina Bongo-Buntag and Artemia Bongo-Liquit, which were
inserted among the voluminous documents in my own personal files and the files of the Bohol Divers Resort,
and I turned over these Agreements to my legal counsel"68 highly suspicious. Intervenor Trotin had all the
opportunity to introduce them as evidence during the trial given her assertion that the Agreements were
executed in 2000 and 2001. It is incredulous that she only remembered the Agreements when she prepared
her Petition sometime in 2014, or over a decade when they were executed.
The said evidence, if indeed the Agreements were executed in 2000 and 2001, as claimed by intervenor Trotin,
were available during the trial and could have been presented during that time. Therefore, the requisite that
such evidence could not have been discovered and produced at the trial even with the exercise of reasonable
diligence is wanting. The evidence that intervenor Trotin seeks to introduce at this late stage of the
proceedings is NOT newly discovered evidence.

Inasmuch as intervenor Trotin does not question before the Court the legal conclusion of the CA that the DCS
is a contract to sell and pursuant to its provision that in case she failed to pay the balance of the purchase price
when due or to comply with any of its terms and conditions, the DCS would automatically and without further
formality become null and void, the DCS became ineffective on October 31, 1997 upon the failure of intervenor
Trotin to pay the balance of P900,000.00 to respondents. The CA's ruling on this legal matter, rightly or
wrongly, has already attained finality. Consequently, intervenor Trotin should vacate the subject one-hectare
portion since she no longer has any right to possess the same.

While the DCS also provides that all sums so paid by intervenor Trotin should be returned by respondents in
case the DCS is rescinded for nonpayment of the balance, the Court deems it just and equitable that the
P100,000.00 which she had paid to them upon its execution be considered as the rental of the one-hectare
portion subject of the DCS from October 31, 1997 to the date when she vacates the said portion, which is over
a decade long.

WHEREFORE, the Petition is hereby DENIED. The Decision dated April 10, 2014 of the Court of Appeals in
CA-G.R. CV No. 04028 and the Decision dated February 28, 2011 of the Regional Trial Court, Branch 49,
Tagbilaran City, Bohol in Civil Case No. 6311 are AFFIRMED with MODIFICATION. The cross-claim of
petitioner Paz Mandin-Trotin against respondents Francisco A. Bongo, Sabina Bongo-Buntag and Artemia
Bongo-Liquit is DISMISSED and the former is ORDERED to immediately VACATE the one-hectare portion of
Lot No. 3982, subject matter of the Deed of Conditional Sale dated August 21, 1997, and TURN OVER its
possession to the latter.

SO ORDERED.
 11) July 29, 2019

G.R. No. 226065

HEIRS OF SOLEDAD ALIDO, Petitioners

vs.
FLORA CAMPANO, or her representatives and THE REGISTER OF DEEDS, PROVINCE OF ILOILO,
Respondents

DECISION

REYES, J, JR., J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to reverse
and set aside the January 20, 2016 Decision 1 and the May 31, 2016 Resolution2of the Court of Appeals-Cebu
City (CA) in CA-G.R. CV No. 04983, which reversed the September 24, 2012 Decision3 of the Regional Trial
Court, Branch 33, Iloilo City (RTC).

The present controversy revolves around a parcel of land in Barangay Abang-Abang,* Alimondian, Iloilo
covered by Original Certificate of Title (OCT) No. F-16558 and registered under the name of Soledad Alido
(Alido).

Factual background

On March 17, 1975, Alido was able to register the said parcel of land under her name. In 1978, Flora Campano
(respondent) was able to take possession of the land and the owner's duplicate of OCT No. F-16558, and paid
its realty taxes. Allegedly, Alido had sold the property to her.4

On September 18, 1996, Alido died leaving behind her children, namely Reynaldo Almendral, Maggie
Almendral-Sencil and Rodrigo Almendral. On September 8, 2009, the heirs of Alido (petitioners) executed a
Deed of Adjudication of the above-mentioned property and sought to register the property in their names. As
such, they needed to retrieve OCT No. F-16558, but respondent refused to do so. Thus, they were constrained
to file a verified petition before the RTC for respondent to surrender the owner's duplicate of the title.5

RTC Decision

In its September 24, 2012 Decision, the RTC granted petitioners' petition and ordered respondent to surrender
the owner's duplicate of OCT No. F-16558. The trial court ruled that since Alido is the registered owner of the
property, respondent cannot asse1i any right over the same and that the payment of realty taxes does not
prove ownership over the property. It explained that as registered owner of the land, Alido's right cannot be
defeated by prescription. The RTC also expounded that the purported sale between Alido and respondent was
not valid because it was an oral sale. The trial court posited that the law requires that the sale of real property
must appear in a public instrument. It expounded that the delivery of the certificate of title did not create a valid
sale. Thus, it disposed:

IN VIEW THEREOF, judgment is hereby rendered in favor of the petitioners and against the respondent,
whereby respondent Flora Campano is ordered to surrender the owner's duplicate ce1iificate of Original
Certificate of Title No. F-16558 with the Register of Deeds for the Province of Iloilo. In the event that the said
respondent is not amenable to the process of this Court, the Register of Deeds is directed to annul the owner's
duplicate certificate of Original Certificate of Title No. F-16558 in the possession of the latter and to issue new
owner's duplicate certificate of Original Certificate of Title No. F-16558 in lieu thereof which shall contain a
memorandum of the annulment of the outstanding duplicate copy and to carry whatever entries or annotations
made thereat before its annulment but shall, in all respects, be entitled to like faith and credence as the original
owner's duplicate certificate of title, upon payment of the required fees thereof.

SO ORDERED.6

Aggrieved, respondent moved for reconsideration, but it was denied by the RTC in its January 23, 2013
Resolution.7

Undeterred, respondent appealed to the CA.

CA Decision

In its January 20, 2016 Decision, the CA granted respondent's appeal and dismissed the verified petition of
petitioners. The appellate court explained that an oral sale of real property is not void, but only unenforceable
under the Statute of Frauds. Nevertheless, it elucidated that it was only applicable to executory contracts and
not to partially or completely executed contracts. The CA highlighted that the oral sale of the subject parcel of
land between respondent and Alido had been executed. The appellate court noted that respondent possessed
the owner's duplicate of title, she had paid the realty taxes, and was in peaceful possession of the land since
1978.
However, the CA observed that the sale between Alido and respondent was void because it violated the terms
of the former's free patent application. The appellate court noted that the free patent was issued on March 17,
1975 while the sale took place in 1978 - violating the five-year restriction of alienating lands subject of a free
patent.

Nonetheless, the CA postulated that petitioners cannot seek redress because their action had been barred by
laches. The appellate court pointed out that respondent had possessed the property and had custody of OCT
No. F-16558 since 1978 without Alido ever questioning her occupation over the property. In addition, it noted
that petitioners waited for 14 more years before they filed their verified petition against respondents. Thus, it
disposed:

IN LIGHT OF THE FOREGOING, the instant appeal is GRANTED. The Decision dated September 24, 2012 of
the RTC, Branch 33, Iloilo City in Cad. Case No. Free Patent, is REVERSED and SET ASIDE. The complaint
filed by the heirs of Soledad Alido is DISMISSED.

SO ORDERED.8

Unsatisfied, petitioners moved for reconsideration, but it was denied by the CA in its May 31, 2016 Resolution.

Hence, this present petition, raising:

The Issues

WHETHER THERE WAS A VALID SALE OF REAL PROPERTY BETWEEN ALIDO AND RESPONDENT;
and

II

WHETHER PETITIONERS' ACTION HAD BEEN BARRED BY LACHES.

Petitioners argue that a Torrens Title is indefeasible, incontrovertible and imprescriptible. As such, they believe
that Alido's title cannot be defeated by respondent's adverse possession. In addition, petitioners lament that
respondent had no document to prove that Alido really sold the parcel of land to her. They insist that as legal
owners of the parcel of land, they are entitled to recover the owner's duplicate of OCT No. F-16558 from
respondent.

Further, petitioners aver that in the interest of higher justice, laches should not be applied as injustice would be
perpetrated should the owner's duplicate of the title be not returned to them. They reiterate that a certificate of
title is proof of ownership that cannot be defeated even by adverse possession or acquisitive prescription.

In its Comment9 dated March 9, 2017, respondent countered that laches barred petitioners from instituting their
verified petition before the RTC because for more than three decades, she had possessed the land in the
concept of an owner with the explicit knowledge of Alido and her heirs. She manifested that it took 32 years
before petitioners had acted on their rights.

Likewise, respondent pointed out that petitioners failed to show proof to dispute the sale between her and
Alido. She highlighted that Alido and her heirs had stopped paying the realty taxes over the property after it
was sold to her. Also, respondent explained that the fact the sale was not reflected in a public document did
not render it void. She expounded that petitioners' argument that a Torrens Title cannot be defeated by
prescription is misplaced because Alido had already sold the property to her.

In their Reply10 dated September 14, 2017, petitioners reiterated the arguments they had raised in their Petition
for Review on Certiorari.

The Court's Ruling

The petition is meritorious.

A Torrens Title is indefeasible in that it could not be assailed collaterally and it cannot be altered, modified or
cancelled except in a direct proceeding in accordance with law. 11 In addition, ownership supported by a
certificate of title can neither be defeated by adverse, open and notorious possession nor prescription. 12 As
such, prescription and laches do not apply to registered land covered by the Torrens System. 13

Acting on this premise, petitioners believe that respondent cannot defeat their claim of ownership because it is
supported by a certificate of title issued in the name of their predecessor. A circumspect analysis of
respondent's position, however, shows that the validity of OCT No. F-16558 was never assailed in any way.
Respondent never challenged the certificate of title based on an independent and adverse possession. Rather,
she claims ownership over the property by virtue of an oral sale between her and Alido. Thus, it can be readily
seen that respondent never contested petitioners' rights based on acquisitive prescription. She simply asserts
that petitioners no longer derived any right over the property upon Alido's death because it was already sold to
her prior to the demise of their mother.

Thus, petitioners err in harping on the indefeasibility of title in asserting their right to possess OCT No. F-
16558. The validity of OCT No. F-16558 was never questioned. Respondent anchors her claim on a
transmission of rights by virtue of an oral sale between her and Alido.

Oral Sale of real property

The RTC granted petitioners' verified petition as it ruled that they were the legal owners of the land covered by
OCT No. F-16558. The trial court postulated that there was no valid sale between Alido and respondent
because Article 1358 of the Civil Code expressly requires that the sale of real property must appear in a public
document and that the delivery of OCT No. F-16558 did not validate the transaction. On the other hand, the CA
explained that an executed oral sale of real prope1iy is valid and binding among the parties.

Contracts which have all essential requisites for their validity are obligatory regardless of the form they are
entered into, except when the law requires that a contract be in some form to be valid or enforceable. 14 Article
1358 of the Civil Code provides that the following must appear in a public instrument:

(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real property or of an interest therein are governed by
articles 1403, No. 2, and 1405;

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

(3) The power to administer property, or any other power which has for its object an act appearing or which
should appear in a public document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document. (Emphasis
supplied)

Article 1403(2) of the Civil Code, or otherwise known as the Statute of Frauds, requires that covered
transactions must be reduced in writing, otherwise the same would be unenforceable by action. In other words,
sale of real property must be evidenced by a written document as an oral sale of immovable property is
unenforceable.

Nevertheless, it is erroneous to conclude that contracts of sale of real property without its term being reduced
in writing are void or invalid. In The Estate of Pedro C. Gonzales v. The Heirs of Marcos Perez, 15 the Court
explained that failure to observe the prescribed form of contracts do not invalidate the transaction, to wit:

Nonetheless, it is a settled rule that the failure to observe the proper form prescribed by Article 1358 does not
render the acts or contracts enumerated therein invalid. It has been uniformly held that the form required under
the said Article is not essential to the validity or enforceability of the transaction, but merely for convenience.
The Court agrees with the CA in holding that a sale of real property, though not consigned in a public
instrument or formal writing, is, nevertheless, valid and binding among the parties, for the time-honored rule is
that even a verbal contract of sale of real estate produces legal effects between the parties. Stated differently,
although a conveyance of land is not made in a public document, it does not affect the validity of such
conveyance. Article 1358 does not require the accomplishment of the acts or contracts in a public instrument in
order to validate the act or contract but only to insure its efficacy.

Further, the Statute of Frauds applies only to executory contracts and not to those which have been executed
either fully or partially. 16 In Swedish Match, AB v. Court of Appeals, 17 the Court expounded on the purpose
behind the requirement that certain contracts be reduced in writing, viz.:

The Statute Frauds embodied in Article 1403, paragraph (2), of the Civil Code requires certain contracts
enumerated therein to be evidenced by some note or memorandum in order to be enforceable. The term
"Statute of Frauds" is descriptive of statutes which require certain classes of contracts to be in writing. The
Statute does not deprive the parties of the right to contract with respect to the matters therein
involved, but merely regulates the formalities of the contract necessary to render it
enforceable. Evidence of the agreement cannot be received without the writing or a secondary evidence of its
contents.

The Statute, however, simply provides the method by which the contracts enumerated therein may be
proved but does not declare them invalid because they are not reduced to writing. By law, contracts are
obligatory in whatever form they may have been entered into, provided all the essential requisites for their
validity are present. However, when the law requires that a contract be in some form in order that it may be
valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and
indispensable. Consequently, the effect of non-compliance with the requirement of the Statute is simply
that no action can be enforced unless the requirement is complied with. Clearly, the form required is for
evidentiary purposes only. Hence, if the parties permit a contract to be proved, without any objection, it is then
just as binding as if the Statute has been complied with.
The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending
for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts
and transactions to be evidenced by a writing signed by the party to be charged. (Emphases supplied)

While the Statute of Frauds aim to safeguard the parties to a contract from fraud or perjury, its non-observance
does not adversely affect the intrinsic validity of their agreement. The form prescribed by law is for evidentiary
purposes, non-compliance of which does not make the contract void or voidable, but only renders the contract
unenforceable by any action. In fact, contracts which do not comply with the Statute of Frauds are ratified by
the failure of the parties to object to the presentation of oral evidence to

prove the same, or by an acceptance of benefits under them. 18

Further, the Statute of Frauds is limited to executory contracts where there is a wide field for fraud as there is
no palpable evidence of the intention of the contracting parties. 19 It has no application to executed contracts
because the exclusion of parol evidence would promote fraud or bad faith as it would allow parties to keep the
benefits derived from the transaction and at the same time evade the obligations imposed therefrom.20

The RTC errs in summarily dismissing respondent's claim of ownership simply because the sale between her
and Alido was not supported by a written deed. As above-mentioned, an oral sale of real property is not void
and even enforceable and binding between the parties if it had been totally or partially executed.

The Court agrees with the observations of the CA that the Statute of Frauds is inapplicable in the present case
as the verbal sale between respondent and Alido had been executed. From the time of the purported sale in
1978, respondent peacefully possessed the property and had in her custody OCT No. F-16558. Further, she
had been the one paying the real prope11y taxes and not Alido. Possession of the property, making
improvements therein and paying its real property taxes may serve as indicators that an oral sale of a piece of
land had been performed or executed. 21

In addition, while tax declarations are not conclusive proof of ownership, they may serve as indicia that the
person paying the realty taxes possesses the property in concept of an owner. In Heirs of Simplicio Santiago v.
Heirs of Mariano E. Santiago22 the Court, thus, explained:

In the instant case, it was established that Lot 2344 is a private property of the Santiago clan since time
immemorial, and that they have declared the same for taxation. Although tax declarations or realty tax payment
of property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in
the concept of owner, for no one in his right mind would be paying taxes for a property that is not in
his actual or constructive possession. They constitute at least proof that the holder has a claim of title over
the property. The voluntary declaration of a piece of property for taxation purposes manifests not only
one's sincere and honest desire to obtain title to the property and announces his adverse claim against
the State and all other interested parties, but also the intention to contribute needed revenues to the
Government. Such an act strengthens one's bona fide claim of acquisition of ownership. (Emphases supplied)

From 1978 until her death, Alido never questioned respondent's continued possession of the property, as well
as of OCT No. F-16558. Neither did she stop respondent from paying realty taxes under the latter's name.
Alido allowed respondent to exercise all the rights and responsibilities of an owner over the subject parcel of
land. Even after her death, neither her heirs disturbed respondent's possession of the property nor started
paying for the real property taxes on the said lot. Further, it is noteworthy that petitioners do not assail that
respondent had acquired the property fraudulently or illegally as they merely rely on the fact that there was no
deed of sale to support the said transaction. However, as manifested by the actions or inactions of Alido and
respondent, it can be reasonably concluded that Alido had sold the property to respondent and that the said
transaction had been consummated.

Having settled that a sale had indeed occurred between respondent and Alido, a determination of its validity
and whether petitioners can still assail the same is necessary.

By virtue of a free patent application, Alido secured OCT No. F-16558 on March 17, 1975. Thereafter, she sold
the property covered by OCT No. F-16558 to respondent in 1978. It is settled that lands acquired through free
patent cannot be alienated or encumbered within five years from the date of issuance of the patent.23 This is so
considering that the grant of free patent is done out of the benevolence of the State to provide lots for land-
destitute citizens for their home and cultivation. 24 As such, any sale in violation of the five-year prohibition on
alienation is void and produces no effect whatsoever. 25 As a result, the law still regards the original owner as
the rightful owner subject to escheat proceedings by the State.26

In the present case, Alido had already sold the property to respondent within three years from the time she had
acquired title thereto pursuant to her free patent application. Clearly, the said transaction is void because it
transgresses the five-year prohibition on alienation of lands acquired through free patent.

Under Article 1412(1) of the Civil Code,27 parties in a void contract who are of equal fault cannot demand
recovery, enforcement or performance from the other. The said provision embodies the doctrine of in pari
delicto which "is a universal doctrine that holds that no action arises, in equity or at law, from an illegal
contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or
delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari
delicto, no affirmative relief of any kind will be given to one against the other."28

Nevertheless, Article 1416 of the Civil Code provides that when the agreement is not illegal per se, but is
merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public
policy is thereby enhanced, recover what he has paid or delivered. In other words, the doctrine of in pari
delicto cannot apply when it contravenes well-established public policy as whenever public policy is advanced
by either party, they may be allowed to sue for relief against the transaction.29

The doctrine of in pari delicto does not apply in the sale of a homestead which has been illegally sold, in
violation of the homestead law.30 In Spouses Maltos v. Heirs of Eusebio Borromeo,31 the Court explained that
the doctrine of in pari delicto cannot preclude a grantee from recovering a parcel of land sold in violation of the
five-year prohibition on alienation of land acquired through free patent, to wit:

Santos involved the sale of a parcel of land within the five-year prohibitory period. The Roman Catholic Church
raised the defense of in pari delicto. It was also argued by the Roman Catholic Church that the effect of the
sale would be the reversion of the property to the state. This court held that:

Section 124 of the Public Land Act indeed provides that any acquisition, conveyance or transfer executed in
violation of any of its provisions shall be null and void and shall produce the effect of annulling and cancelling
the grant or patent and cause the reversion of the property to the State, and the principle of pari delicto has
been applied by this Court in a number of cases wherein the parties to a transaction have proven to be guilty of
effected the transaction with knowledge of the cause of its invalidity. But we doubt if these principles can
now be invoked considering the philosophy and the policy behind the approval of the Public Land Act.
The principle underlying pari delicto as known here and in the United States is not absolute in its
application. It recognizes certain exceptions one of them being when its enforcement or application
runs counter to an avowed fundamental policy or to public interest. As stated by us in the [Rellosa] case,
"This doctrine is subject to one important limitation, namely, [']whenever public policy is considered advanced
by allowing either party to sue for relief against the transaction. [']"

The case under consideration comes within the exception above adverted to. Here appellee desires to
nullify a transaction which was done in violation of the law. Ordinarily the principle of pari delicto would apply to
her because her predecessor-in-interest has carried out the sale with the presumed knowledge of its illegality,
but because the subject of the transaction is a piece of public land, public policy requires that she, as
heir, be not prevented from re-acquiring it because it was given by law to her family for her home and
cultivation. This is the policy on which our homestead law is predicated. This right cannot be waived. "It
is not within the competence of any citizen to barter away what public policy by law seeks to preserve." We
are, therefore, constrained to hold that appellee can maintain the present action it being in furtherance of this
fundamental aim of our homestead law.

xxxx

As the in pari delicto rule is not applicable, the question now arises as to who between the parties have a
better right to possess the subject parcel of land. x x x

xxxx

In Binayug v. Ugaddan, which involved the sale of two properties covered by a homestead patent, this court
cited jurisprudence showing that in cases involving the sale of a property covered by the five-year
prohibitory period, the property should be returned to the grantee.

Applying the ruling in Santos and Binayug, this court makes it clear that petitioners have no better right to
remain in possession of the property against respondents.

Hence, the Court of Appeals did not err in ruling that while there is yet no action for reversion filed by
the Office of the Solicitor General, the property should be conveyed by petitioners to
respondents. (Emphases supplied, citation in the original omitted)

The doctrine of in pari delicto is inapplicable in the present case because to do so would contravene public
policy of preserving the grantee's right to the land under the homestead law. As explained above, in sales of
land in violation of the five-year prohibition, the land should revert to the grantee in the absence of any
reversion proceedings instituted by the State. Thus, respondent has no better right to remain in possession of
the property against petitioners.

The CA, however, found that petitioners can no longer assail the sale between Alido and respondent on
account of laches. The appellate court highlighted that respondent had possessed the property since 1978 and
was never disturbed either by Alido or petitioners until the latter had filed the present complaint only in 2010.

Laches is the failure or neglect for an unreasonable and unexplained length of time to do that which, by
exercising due diligence, could or should have been done earlier - it is negligence or omission to assert a right
within a reasonable time warranting a presumption that the party entitled to assert it either has abandoned it or
declined to assert it.32 It is a creation of equity which seeks to avoid the assertion or enforcement of a right
which has become inequitable or unfair to permit by virtue of one's negligence, folly or inattention.33

Laches, however, do not apply if the assailed contract is void ab initio.34 In Heirs of lngjug-Tiro v. Spouses
Casals,35 the Court expounded that laches cannot prevail over the law that actions to assail a void contract are
imprescriptible it being based on equity, to wit:

In actions for reconveyance of property predicated on the fact that the conveyance complained of was null and
void ab initio, a claim of prescription of action would be unavailing. "The action or defense for the declaration of
the inexistence of a contract does not prescribe." Neither could laches be invoked in the case at bar. Laches is
a doctrine in equity and our courts are basically courts of law and not courts of equity. Equity, which has been
aptly described as "justice outside legality," should be applied only in the absence of, and never
against, statutory law. Aequetas [nunquam/ contravenit legis. The positive mandate of Art. 1410 of the
New Civil Code conferring imprescriptibility to actions for declaration of the inexistence of a contract
should preempt and prevail over all abstract arguments based only on equity. Certainly, laches cannot
be set up to resist the enforcement of an imprescriptible legal right, and petitioners can validly vindicate their
inheritance despite the lapse of time. (Emphasis and underscoring supplied)

As above-mentioned, a sale of a parcel of land in violation of the five-year prohibition on the alienation of land
acquired via a free patent application is void and produces no legal effect. As successors-in-interest of Alido,
petitioners' right to challenge the sale between Alido and respondent cannot be barred by laches as it was in
violation of the restriction on the sale of land acquired through free patent.1avvphi1

Consequently, petitioners may recover the parcel of land Alido had sold to respondent. However, as a result of
the annulment of the sale between Alido and respondent, the latter may claim the purchase price and interest.
In Tingalan v. Spouses Melliza, 36 the Court explained that while property sold in violation of the five-year
prohibition on alienation may be recovered, the purchaser is entitled to recover the purchase price and interest,
to wit:

Following the declaration that the contract of sale over the subject property is void for being in violation of
Section 118 of the Public Land Act, as amended, jurisprudence dictates that the subject land be returned to the
heirs of petitioner Anastacio.x x x

xxxx

The Court made the same ruling on the issue of ownership in the earlier cited case of Manzano in 1961,
including a disposition that the buyer therein is entitled to a reimbursement of the purchase price plus
interest, viz. :

x x x Being void from its inception, the approval thereof by the Undersecretary of Agriculture and Natural
Resources after the lapse of five years from Manzano's patent did not legalize the sale x x x The result is that
the homestead in question must be returned to Manzano's heirs, petitioners herein, who are, in turn, bound to
restore to appellee Ocampo the sum of P3,000.00 received by Manzano as the price thereof x x x The fruits of
the land should equitably compensate the interest on the price.

Prior to Manzano, we made a similar ruling in the case of De los Santos v. Roman Catholic Church of
Midsayap that "[u]pon annulment of the sale, the purchaser's claim is reduced to the purchase price and its
interest."

We shall apply the same rule in the case at bar. However, since the trial court ruled that petitioners were
barred by laches in asserting any claim to the subject property, it did not make a factual determination of the
total purchase price paid by respondent-spouses to petitioner Anastacio which must be returned to the heirs of
respondents, including interest on such amount. The trial court also did not make a ruling on the amount of
interest to be paid by petitioners to respondent-spouses, and if the fruits realized by respondent-spouses from
their long possession of the subject land since 1977 would "equitably compensate the interest on the price."
This Court is not a trier of facts and we remand the instant case for the trial court to make a factual
determination of the aforesaid amounts.

In the present case, the RTC simply invalidated the sale between Alido and respondent due to it being an oral
sale of land. The trial court deemed the case submitted for decision after the parties were required to file their
respective position papers without proceeding to trial on the merits. On appeal, the CA then brushed aside
petitioners' complaint on the ground of laches. Similar to Tingalan, no factual determination was made with
regard to the purchase price respondent had paid to Ali do in exchange of the subject land. Thus, the case
should be remanded to determine the amount of purchase price respondent may recover and whether the
fruits she had enjoyed from the long possession of the subject land would equitably compensate the interest on
the price.

WHEREFORE, the January 20, 2016 Decision and the May 31, 2016 Resolution of the Court of Appeals-Cebu
City in CA-G.R. CV No. 04983 are REVERSED and SET ASIDE. The present case is REMANDED to the
Regional Trial Court, Branch 33, Iloilo City to determine the purchase price and interest respondent Flora
Campano may recover.
12) January 29, 2018

G.R. No. 189609

VICTORIA N. RACELIS, in her capacity as administrator, Petitioner

vs.
SPOUSES GERMIL JAVIER and REBECCA JAVIER, Respondents

DECISION

LEONEN, J.:

Lessees are entitled to suspend the payment of rent under Article 1658 of the Civil Code if their legal
possession is disturbed. Acts of physical disturbance that do not affect legal possession is beyond the scope of
this rule.

In a contract to sell, the payment of earnest money represents the seller's opportunity cost of holding in
abeyance the search for other buyers or better deals. Absent proof of a clear agreement to the contrary, it
should be forfeited if the sale does not happen without the seller's fault. The potential buyer bears the burden
of proving that the earnest money was intended other than as part of the purchase price and to be forfeited if
the sale does not occur without the seller's fault.

Through this Petition for Review, 1 petitioner Victoria N. Racelis (Racelis) challenges the Court of Appeals
January 13, 2009 Decision2 and September 17, 2009 Resolution,3 which ordered her to reimburse the sum of
₱24,000.00 to respondents Spouses Germil Javier and Rebecca Javier (the Spouses Javier).

Before his death, the late Pedro Nacu, Sr. (Nacu) appointed his daughter, Racelis, 4 to administer his
properties, 5 among which was a residential house and lot located in Marikina City. 6 Nacu requested his heirs
to sell this property first. 7 Acting on this request, Racelis immediately advertised it for sale. 8

In August 2001, the Spouses Javier offered to purchase the Marikina property. However, they could not afford
to pay the price of ₱3,500,000.00.9 They offered instead to lease the property while they raise enough money.
Racelis hesitated at first but she eventually agreed. 10 The parties agreed on a month-to-month lease and rent
of ₱10,000.00 per month. 11 This was later increased to ₱11,000.00.12 The Spouses Javier used the property
as their residence and as the site of their tutorial school, the Niño Good Shepherd Tutorial Center. 13

Sometime in July 2002, Racelis inquired whether the Spouses Javier were still interested to purchase the
property. The Spouses Javier reassured her of their commitment and even promised to pay ₱100,000.00 to
buy them more time within which to pay the purchase price. 14

On July 26, 2002, the Spouses Javier tendered the sum of ₱65,000.00 representing "initial payment or
goodwill money." 15 On several occasions, they tendered small sums of money to complete the promised
₱100,000.00, 16 but by the end of 2003, they only delivered a total of ₱78,000.00. 17 Meanwhile, they continued
to lease the property. They consistently paid rent but started to fall behind by February 2004. 18

Realizing that the Spouses Javier had no genuine intention of purchasing the property, Racelis wrote to inform
them that her family had decided to terminate the lease agreement and to offer the property to other interested
buyers. 19 In the same letter, Racelis demanded that they vacate the property by May 30, 2004.20 Racelis also
stated that:

It is a common practice that earnest money will be forfeited in favor of the seller if the buyer fails to
consummate [the] sale after the lapse of a specified period for any reason so that we have the legal right to
forfeit your ₱78,000 on account of your failure to pursue the purchase of the property you are leasing.
However, as a consideration to you, we undertake to return to you the said amount after we have sold the
property and received the purchase price from [the] prospective buyer.21

The Spouses Javier refused to vacate due to the ongoing operation of their tutorial business. They wrote
Racelis on March 16, 2004, informing her of their inability to purchase the property at ₱3,500,000.00 because
"Mrs. Rebecca Javier's plan for overseas employment did not materialize."22 They also informed her that they
had "purchased a more affordable lot."23 They insisted that the sum of ₱78,000.00 was advanced rent and
proposed that this amount be applied to their outstanding liability until they vacate the premises.24

Disagreeing on the application of the ₱78,000.00, Racelis and the Spouses Javier brought the matter to the
barangay for conciliation. Unfortunately, the parties failed to reach a settlement.25 During the proceedings,
Racelis demanded the Spouses Javier to vacate the premises by the end of April 30, 2004.26 However, the
Spouses Javier refused to give up possession of the property and even refused to pay rent for the succeeding
months.27

On May 12, 2004, Racelis caused the disconnection of the electrical service over the property forcing the
Spouses Javier to purchase a generator.28 This matter became the subject of a complaint for damages filed by
the Spouses Javier against Racelis.29 Racelis was absolved from liability.30 The Spouses Javier no longer
interposed an appeal.31
Meanwhile, Racelis filed a complaint for ejectment against the Spouses Javier before the Metropolitan Trial
Court in Marikina City. The case was docketed as Civil Case No. 04-7710.32

In her Complaint,33 Racelis alleged that she agreed to lease the property to the Spouses Javier based on the
understanding that they would eventually purchase it. 34 Racelis also claimed that they failed to pay rent from
March 2004 to September 200435 and the balance of ₱7,000.00 for the month of February, or a total of
₱84,000.00.36 Racelis prayed that the Spouses Javier be ordered to: (1) vacate the leased premises; (2) pay
accrued rent; and (3) pay moral and exemplary damages, and attorney's fees.37

In their Answer,38 the Spouses Javier averred that they never agreed to purchase the property from Racelis
because they found a more affordable property at Greenheights Subdivision in Marikina City. They claimed
that the amount of ₱78,000.00 was actually advanced rent.39

During trial, the Spouses Javier vacated the property and moved to their new residence at Greenheights
Subdivision40 on September 26, 2004.41 The Metropolitan Trial Court then determined that the only issue left to
be resolved was the amount of damages in the form of unpaid rentals to which Racelis was entitled.42

On August 19, 2005, the Metropolitan Trial Court rendered a Decision43 dismissing the complaint. It ruled that
the Spouses Javier were entitled to suspend the payment of rent under Article 1658 of the Civil Code due to
Racelis' act of disconnecting electric service over the property. 44 The Metropolitan Trial Court declared that the
Spouses Javier's obligation had been extinguished. Their advanced rent and deposit were sufficient to cover
their unpaid rent. 45

The Metropolitan Trial Court, however, did not characterize the ₱78,000.00 as advanced rent but as earnest
money.1âwphi1 Accordingly, Racelis was ordered to return the ₱78,000.00 due to her waiver in the Letter
dated March 4, 2004.46

On appeal, the Regional Trial Court rendered a Decision47 reversing the Metropolitan Trial Court August 19,
2005 Decision. The Regional Trial Court held that the Spouses Javier were not justified in suspending rental
payments.48 However, their liability could not be offset by the ₱78,000.00. The Regional Trial Court explained
that the parties entered into two (2) separate and distinct contracts-a lease contract and a contract of sale.
Based on the evidence presented, the ₱78,000.00 was not intended as advanced rent, but as part of the
purchase price of the property. 49 The Regional Trial Court ordered the Spouses Javier to pay accrued rent and
declared that they may recover the ₱78,000.00 in a separate proceeding.50

The Spouses Javier moved for reconsideration. In its April 24, 2007 Order,51 the Regional Trial Court reduced
the Spouses Javier's unpaid rentals by their advanced rental deposit. They were ordered to pay ₱54,000.00 m.
stead.52

The Spouses Javier appealed the Regional Trial Court January 15, 2007 Decision and April 24, 2007 Order.

On January 13, 2009, the Court of Appeals rendered a Decision53 declaring the Spouses Javier justified in
withholding rental payments due to the disconnection of electrical service over the property.54 Nevertheless,
the Court of Appeals stated that they were not exonerated from their obligation to pay accrued rent. On the
other hand, Racelis was bound to return the sum of ₱78,000.00 in view of her waiver. The Court of Appeals, by
way of compensation, reduced the liability of the Spouses Javier by their advanced rent and the sum of
₱78,000.00. Accordingly, Racelis was ordered to reimburse the amount of ₱24,000.00 to the Spouses
Javier.55 The dispositive portion of this Decision stated:

WHEREFORE, in view of the foregoing, the petition is GRANTED. The assailed decision is REVERSED and
SET ASIDE. Herein respondent RACELIS is ordered to reimburse herein petitioners in the amount of
₱24,000.00 on the counterclaim.

SO ORDERED.56

Racelis moved for reconsideration but her motion was denied in the Court of Appeals September 17, 2009
Resolution. 57

On November 25, 2009, Racelis filed a Petition for Review58 before this Court to which the Spouses Javier filed
a Comment.59 On July 1, 2010, Racelis filed a Reply. 60

Petitioner asserts that the Court of Appeals erred in applying Article 1658 of the Civil Code in favor of
respondents. Respondents cannot invoke the right given to lessees under Article 1658 of the Civil Code.
Petitioner claims that she was justified in causing the temporary disconnection of electrical service over the
property because respondents were remiss in paying rent. However, assuming that respondents were entitled
to suspend the payment of rent pursuant to Article 1658 of the Civil Code, petitioner argues that the
suspension should only be temporary or for an intervening period.61

Petitioner likewise claims that she did not expressly waive her right over the initial payment of ₱78,000.00 but
merely extended an offer to reimburse this amount, which respondents rejected. Hence, she is entitled to retain
it and it cannot be used to offset respondents' accrued rent.62
Respondents do not dispute their liability to pay accrued rent. However, they insist that their liability should be
offset by the initial payment of ₱78,000.00. Respondents argue that petitioner waived her right over this1
amount. Hence, it can be applied to pay their obligation. 63

The issues for this Court's resolution are:

First, whether or not respondents Spouses Germil and Rebecca Javier can invoke their right to suspend the
payment of rent under Article 1658 of the Civil Code; and

Second, whether or not the ₱78,000.00 initial payment can be used to offset Spouses Germil and Rebecca
Javier's accrued rent.

A contract of lease is a "consensual, bilateral, onerous and commutative contract by which the owner
temporarily grants the use of his property 1to another who undertakes to pay rent therefor."64

Article 1658 of the Civil Code allows a lessee to postpone the payment I of rent if the lessor fails to either (1)
"make the necessary repairs" on the property or (2) "maintain the lessee in peaceful and adequate enjoyment
of the property leased." This provision implements the obligation imposed on lessors under Article 1654(3) of
the Civil Code.65

The failure to maintain the lessee in the peaceful and adequate enjoyment of the property leased does not
contemplate all acts of disturbance.66 Lessees may suspend the payment of rent under Article 1658 of the Civil
Code only if their legal possession is disrupted.67 In Goldstein v. Roces:68

Nobody has in any manner disputed, objected to, or placed any difficulties in the way of plaintiff's peaceful
enjoyment, or his quiet and pe4ceable possession of the floor he occupies. The lessors, therefore, have not
failed to maintain him in the peaceful enjoyment of the floor leased to him and he continues to enjoy this status
without the slightest change, without the least opposition on the part of any one. That there was a disturbance
of the peace or order in which he maintained his things in the leased story does not mean that he lost the
peaceful enjoyment of the thing rented The peace would likewise have been disturbed or lost had some tenant
of the Hotel de Francia, living above the floor leased by plaintiff, continually poured water on the latter's bar
and sprinkled his bar-tender and his customers and tarnished his furniture; or had some gay patrons of the
hotel gone down into his saloon and broken his crockery or glassware, or stunned him with deafening
noises. Numerous examples could be given to show how the lessee might fail peacefully to enjoy the floor
leased by him, in all of which cases he wo[u]ld, of course, have a right of action for the recovery of damages
from those who disturbed his peace, but he would have no action against the lessor to compel the latter to
maintain him in his peaceful enjoyment of the thing rented The lessor can do nothing, nor is it incumbent upon
him to do anything, in the examples or cases mentioned, to restore his lessees peace.

....

True it is that, pursuant to paragraph 3, of article 1554, the lessor must maintain the lessee in the peaceful
enjoyment of the lease during all of the time covered by the contract, and that, in consequence thereof, he is
obliged to remove such obstacles as impede said enjoyment; but, as in warranty in a case of eviction (to which
doctrine the one we are now examining is very similar, since it is necessary, as we have explained, that the
cause of eviction be in a certain manner imputable to the vendor, which must be understood as saying that it
must be prior to the sale), the obstacles to enjoyment which the lessor must remove are those that in some
manner or other cast doubt upon the right by virtue of which the lessor himself executed the lease and, strictly
speaking, it is this right that the lessor should guarantee to the lessee. 69 (Citations omitted, emphasis supplied)

The principle in Goldstein was reiterated in Chua Tee Dee v. Court of Appeal s.70

In Chua Tee Dee, the lease contract stated that the lessor was obliged to "maintain the [lessee] in the quiet
peaceful possession and enjoyment of the leased premises during the effectivity of the lease."71 The lessees
were harassed by claimants of the leased property. Hence, the lessee withheld rental payments for the lessor's
failure to comply with his contractual obligation.72

Citing Goldstein, this Court in Chua Tee Dee struck down the lessee's argument and held that "[t]he duty 'to
maintain the lessee in the peaceful and adequate enjoyment of the lease for the duration of the contract'
mentioned in [N]o. 3 of [Article 1654] is merely a warranty that the lessee shall not be disturbed in his legal,
and not physical, possession." Furthermore, this Court found that there was no disturbance in the lessee's
legal possession because her right to possess the property was neither questioned nor raised as an issue in
any legal proceeding. Hence, she was not entitled to suspend the payment of rent. 73

In this case, the disconnection of electrical service over the leased premises on May 14, 2004 74 was not just
an act of physical disturbance but one that is meant to remove respondents from the leased premises and
disturb their legal possession as lessees. Ordinarily, this would have entitled respondents to invoke the right
accorded by Article 1658 of the Civil Code.
However, this rule will not apply in the present case because the lease had already expired when petitioner
requested for the temporary disconnection of electrical service. Petitioner demanded respondents to vacate the
premises by May 30, 2004.75 Instead of surrendering the premises to petitioner, respondents unlawfully
withheld possession of the property. Respondents continued to stay in the premises until they moved to their
new residence on September 26, 2004. 76 At that point, petitioner was no longer obligated to maintain
respondents in the "peaceful and adequate enjoyment of the lease for the entire duration of the
contract."77 Therefore, respondents cannot use the disconnection of electrical service as justification to
suspend the payment of rent.

Assuming that respondents were entitled to invoke their right under Article 1658 of the Civil Code, this does
exonerate them from their obligation under Article 1657 of the Civil Code "to pay the price of the lease
according to the terms stipulated."78 Lessees who exercise their right under Article 1658 of the Civil Code are
not freed from the obligations imposed by law or contract.

Moreover, respondents' obligation to pay rent was not extinguished when they transferred to their new
residence. Respondents are liable for a reasonable amount of rent for the use and continued occupation of the
property upon the expiration of the lease. To hold otherwise would unjustly enrich respondents at petitioner's
expense.

II

Respondents admit their liability to pay accrued rent for the continued use and possession of the property.
However, they take exception to the proper treatment of the ₱78,000.00 initial payment. Throughout the
proceedings, respondents insist that this amount was intended as advanced rent. Hence, it can be used to
offset their obligation.79

Respondents' argument is unmeritorious.

The ₱78,000.00 initial payment cannot be characterized as advanced rent. First, records show that
respondents continued to pay monthly rent until February 2004 despite having delivered the ₱78,000.00 to
petitioner on separate dates in 2003. 80 Second, as observed by the Metropolitan Trial Court, respondents
indicated in the receipt that the ₱78,000.00 was initial payment or goodwill money. They could have easily
stated in the receipt that the ₱78,000.00 was advanced rent instead of denominating it as "initial payment or
goodwill money." Respondents even proposed that the initial payment be used to offset their accrued rent. 81

Both the Metropolitan Trial Court and the Regional Trial Court rejected respondents' assertion that the
₱78,000.00 was advanced rent and characterized it as earnest money. 82

Under Article 1482 of the Civil Code, whenever earnest money is given in a contract of sale, 83 it shall be
considered as "proof of the perfection of the contract."84 However, this is a disputable presumption, which
prevails in the absence of contrary evidence. The delivery of earnest money is not conclusive proof that a
contract of sale exists.85

The existence of a contract of sale depends upon the concurrence of the following elements: (1) consent or
meeting of the minds; (2) a determinate subject matter; and (3) price certain in money or its equivalent. 86 The
defining characteristic of a contract of sale is the seller's obligation to transfer ownership of and deliver the
subject matter of the contract. Without this essential feature, a contract cannot be regarded as a sale although
it may have been denominated as such. 87

In a contract of sale, title to the property passes to the buyer upon delivery of the thing sold. In contrast, in a
contract to sell, ownership does not pass to the prospective buyer until full payment of the purchase price. The
title of the property remains with the prospective seller. 88

In a contract of sale, the non-payment of the purchase price is a resolutory condition that entitles the seller to
rescind the sale.89 In a contract to sell, the payment of the purchase price is a positive suspensive condition
that gives rise to the prospective seller's obligation to convey title.90 However, non-payment is not a breach of
contract but "an event that prevents the obligation of the vendor to convey title from becoming effective."91 The
contract would be deemed terminated or cancelled, and92 the parties stand "as if the conditional obligation had
never existed."93

Based on the evidence on record, petitioner and respondents executed a contract to sell, not a contract of sale.
Petitioner reserved ownership of the property and deferred the execution of a deed of sale until receipt of the
full purchase price. In her Letter dated March 4, 2004, petitioner stated:

It was our understanding that pending your purchase of the property you will rent the same for the sum of
₱10,000.00 monthly. With our expectation that you will be able to purchase the property during 2002, we did
not offer the property for sale to third parties. We even gave you an extension verbally for another twelve
months or the entire year of 2003 within which we could finalize the sale agreement and for you to deliver to us
the amount of ₱3.5 Million, the agreed selling price of the property. However, to this date, we are not certain
whether or not you have the capacity to purchase the property. The earnest money of ₱100,000 that we initially
agreed upon only reached ₱78,000 as of date accumulated through several installments during 2003. It is not
our intention to wait for a long time to dispose the property since you are very much aware of the situation of
my mother.94 (Emphasis supplied)

In this case, since respondents failed to deliver the purchase price at the end of 2003, the contract to sell was
deemed cancelled. The contract's cancellation entitles petitioner to retain the earnest money given by
respondents.

Earnest money, under Article 1482 of the Civil Code, is ordinarily given in a perfected contract of
sale. 95 However, earnest money may also be given in a contract to sell.

In a contract to sell, earnest money is generally intended to compensate the seller for the opportunity cost of
not looking for any other buyers. It is a show of commitment on the part of the party who intimates his or her
willingness to go through with the sale after a specified period or upon compliance with the conditions stated in
the contract to sell.

Opportunity cost is defined as "the cost of the foregone alternative."96 In a potential sale, the seller reserves the
property for a potential buyer and foregoes the alternative of searching for other offers. This Court in Philippine
National Bank v. Court of Appeals97 construed earnest money given in a contract to sell as "consideration for
[seller's] promise to reserve the subject property for [the buyer]."98 The seller, "in excluding all other prospective
buyers from bidding for the subject property ... [has given] up what may have been more lucrative offers or
better deals."99

Earnest money, therefore, is paid for the seller's benefit. It is part of the purchase price while at the same time
proof of commitment by the potential buyer.1âwphi1 Absent proof of a clear agreement to the contrary, it is
intended to be forfeited if the sale does not happen without the seller's fault. The potential buyer bears the
burden of proving that the earnest money was intended other than as part of the purchase price and to be
forfeited if the sale does not occur without the fault of the seller. Respondents were unable to discharge this
burden.

There is no unjust enrichment on the part of the seller should the initial payment be deemed forfeited. After all,
the owner could have found other offers or a better deal. The earnest money given by respondents is the cost
of holding this search in abeyance.

This Court notes that respondents were even unable to meet their own promise to pay the full amount of the
earnest money. Of the ₱100,000.00 that respondents committed to pay, only ₱78,000.00 was received in
irregular tranches. To rule that the partial earnest money should even be returned is both inequitable and
would have dire repercussions as aprecedent.

Although petitioner offered to return the earnest money to respondents, it was conditioned upon the sale of the
property to another buyer.100 Petitioner cannot be said to have expressly waived her right to retain the earnest
money. Petitioner's offer was even rejected by respondents, who proposed that the earnest money be applied
instead to their unpaid rent. 101

Therefore, respondents' unpaid rent amounting to ₱84,000.00102 cannot be offset by the earnest money.
However, it should be reduced by respondents' advanced deposit of ₱30,000.00. As found by the Regional
Trial Court, petitioner failed to establish that respondents' advanced deposit had already been consumed or
deducted from respondents' unpaid rent. 103

WHEREFORE, the Petition for Review is GRANTED. The January 13, 2009 Decision and September 17, 2009
Resolution of the Court of Appeals in CA-G.R. SP No. 98928 are REVERSED and SET ASIDE. Respondents
Spouses Germil and Rebecca Javier are ordered to pay petitioner Vanessa N. Racelis the sum of ₱54,000.00,
representing accrued rentals, with interest at the rate of six percent (6%) per annum from the date of the finality
of this judgment until fully paid.

SO ORDERED.

13) G.R. No. 210043, September 26, 2018

AYALA LAND, INC., Petitioner, v. ASB REALTY CORPORATION AND E.M. RAMOS & SONS,
INC., Respondents.

DECISION

DEL CASTILLO, J.:

[U]nder the doctrine of apparent authority, the question in every case is whether the principal has by his [/her]
voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business
usages and the nature of the particular business, is justified in presuming that such agent has authority to
perform the particular act in question.1

Petitioner Ayala Land, Inc. (ALI) comes to this Court via this Petition2 for review on certiorari to assail the April
30, 2013 Decision3 and the November 7, 2013 Resolution4 of the Court of Appeals (CA) in CA-G.R. CV No.
97198. The assailed CA Decision and Resolution affirmed the June 29, 2010 Decision5 of the Regional Trial
Court (RTC) of Imus, Cavite, Branch 20, which (a) declared null and void and unenforceable the May 18, 1994
Contract to Sell entered into between ALI, on the one hand, and Emerita B. Ramos, Jr. (Ramos, Jr.), Januario
B. Ramos (Januario), Josefa R. de la Rama, Victoria R. Tanjuatco, Horacia de la Rama and Teofilo Tanjuatco
III (collectively, Ramos children); and, (b) declared valid, binding and enforceable the May 21, 1994 Letter-
Agreement entered into between respondent E.M. Ramos & Sons, Inc. (EMRASON) and ASB Realty
Corporation (ASBRC).6

Factual Antecedents

ALI and ASBRC are domestic corporations engaged in real estate development. On the other hand,
EMRASON is a domestic corporation principally organized to manage a 372- hectare property located in
Dasmariñas, Cavite (Dasmariñas Property ).7

The parties' respective versions of the factual antecedents are, as follows:

Version of the Petitioner

ALI claimed that, sometime in August 1992, EMRASON's brokers sent a proposal for a joint venture
agreement (JVA) between ALI and EMRASON for the development of EMRASON's Dasmariñas Property.8 ALI
initially declined but eventually negotiated with Ramos, Jr., Antonio B. Ramos (Antonio), and Januario to
discuss the terms of the JVA.9 According to ALI, EMRASON made it appear that Ramos, Jr., Antonio, and
Januario had full authority to act on EMRASON's behalf in relation to the JVA.10 ALI alleged that Emerita
Ramos, Sr. (Ramos, Sr.), then EMRASON's President and Chairman, wrote to ALI and therein acknowledged
that Ramos, Jr. and Antonio were fully authorized to represent EMRASON in the JVA, as shown in Ramos,
Sr.'s letter11 dated August 3, 1993.

ALI and the Ramos children subsequently entered into a Contract to Sell dated May 18, 1994, under which ALI
agreed to purchase the Dasmariñas Property.

ALI alleged that it came to know that a Letter-Agreement12 dated May 21, 1994 (Letter-Agreement) and a Real
Estate Mortgage13 respecting the Dasmariñas Property14 had been executed by Ramos, Sr. and Antonio for
and in behalf of EMRASON, on one hand, and ASBRC on the other. It also alleged that the Ramos
children15 wrote to Luke C. Roxas, ASBRC's President, informing the latter of the Contract to Sell between ALI
and EMRASON.16

Version of the Respondents

For their part, respondents averred that ALI submitted to EMRASON and Ramos, Sr. its proposal to purchase
the Dasmariñas Property which proposal was however rejected.17 On May 17, 1994, EMRASON, through
Ramos, Sr., informed ALI that it had decided to accept the proposal of ASBRC because the latter's terms were
more beneficial and advantageous to EMRASON.18 As a result, ASBRC and EMRASON entered into a Letter-
Agreement on May 21, 1994.19 The following day, or on May 22, 1994, EMRASON executed a Real Estate
Mortgage in compliance with its obligations under the said Letter-Agreement.20

Prior to the execution of the Letter-Agreement, a special stockholders' meeting was held on May 17, 1994
during which EMRASON's stockholders "authorized, approved, confirmed and ratified"21 the Resolution of
EMRASON's Board of Directors (Board Resolution). The Board Resolution, which approved the Letter-
Agreement and authorized Ramos, Sr. and Antonio to sign the same, was in tum likewise approved by
EMRASON 's stockholders on the same date, May 17, 1994.22

After ASBRC learned about the Contract to Sell executed between ALI and the Ramos children and the
annotation of the Contract to Sell on the transfer certificates of title (TCTs) covering the Dasmariñas
Property,23  ASBRC and EMRASON filed a Complaint24 for the nullification of Contract to sell and the
cancellation of the annotations on the TCTs over the Dasmariñas Property.

Ruling of the Regional Trial Court

In a Decision25 dated June 29, 2010, the RTC declared the Contract to Sell between ALI and the Ramos
children void because of the latter's lack of authority to sign the Contract to Sell on behalf of EMRASON. The
trial court explained in this wise:

In the case at bar, defendant Ramos children failed to adduce a single evidence to show that they have been
validly authorized by the Board of Directors of EMRASON to enter into a Contract to Sell with ALI thereby
rendering the aforesaid contract void and unenforceable. Defendant Ramos children failed to present even a
single witness to identify board resolutions, secretary's certificates or any written document for the purpose of
proving that EMRASON validly conferred authority upon them to sell the subject property. Notably, not a single
signatory to the Contract to Sell was presented by defendant Ramos children to identify the same and to testify
as to the execution thereof.

xxxx

Upon the other hand, defendant ALI claims that it transacted with the Ramos children in good faith. On the
contrary, evidence show that ALI knew and has in fact acknowledged the authority of Emerito Ramos, Sr to
enter into contracts for and in behalf of EMRASON before ALI entered into the contract with defendant Ramos
children. In almost all of defendant ALI's correspondence with EMRASON, defendant ALI specifically
addressed the same to Emerilo Ramos, Sr., referring to him either as Chairman or President. In acknowledging
the position of Emerito Ramos, Sr. in EMRASON, defendant ALI even requested Emerito Ramos, Sr. to meet
its Chairman Jaime Zobel de Ayala, President Francisco H. Licuanan, Vice-President Fernando Zobel and
Assistant Vice-President Victor H. Manarang for a luncheon meeting. More importantly, defendant ALI, though
its representatives/realtors namely Mr. Geronimo J. Manzano and Oscar P. Garcia, wrote Emerito Ramos Sr. a
letter dated 22 April 1994 regarding the draft formal offer of ALI to develop the subject property. In addition,
ALI's letter dated 11 May 1994 clearly shows that it acted in bad faith. A perusal of the said letter which was
described to be its "best and final offer", would readily show that the same [was] solely addressed to Emerito
Ramos, Sr., seeking his acceptance and approval. If defendant ALI honestly believe[d] that Emerito Ramos, Jr.
and Antonio Ramos [were] fully authorized by EMRASON to execute the Contract to Sell surely defendant ALI
would not have bothered to seek the acceptance and approval of Emerito. Ramos. Sr. Notably the alleged
authorized agents of EMRASON, Emerito Ramos. Jr. and Antonio Ramos, were merely furnished a copy of the
said letter proposal and were not even included as signatories for the approval of the same. x x x

xxxx

It is an established rule that persons dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal liable, to ascertain not only the
fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of
proof is upon them to establish it.

In this connection, the Court observes numerous formal defects in the Contract to Sell[,] which would further
support the fact that defendant ALI knew the absence of authority of defendant Ramos children to execute the
same. Oddly, the first page of the contract failed to include the names of the duly authorized representative/s of
EMRASON as the space specifically provided therefor was left in blank. In contrast, the duly appointed
[a]ttorneys-in-fact of ALI are clearly named therein and designated as such. Similarly, page eighteen (18) of the
said contract merely provided blank spaces to be filled up by the signatories of EMRASON vis-a-vis that of
defendant ALI where the names of the [a]ttorneys-in-[f]act of defendant ALI are typewritten. Even in the
acknowledgment page, only the names of the representatives of ALI were included. Interestingly, the
acknowledgment failed to mention the names of signatories of EMRASON and their respective Community Tax
Certificate Numbers. Considering that the subject contract involves a multi-million [peso] transaction, the Court
finds it absolutely incredible that the parties thereto would fail to include the names of the signatories, their
respective positions and/or authorities to enter into the said contract.26 (Citations omitted )

In consequence of the nullification of the Contract to Sell, the RTC ruled that the annotations on the TCTs
covered by the said Contract to Sell must likewise be cancelled.27

In addition, the RTC declared valid the Letter-Agreement deeding the Dasmariñas Property to ASBRC.
Following this Court's ruling in People's Aircargo and Warehousing Company, Inc. v. Court of Appeals,28 the
RTC held that Ramos, Sr., as President of EMRASON, had the authority to enter into the Letter-Agreement
because "the president is presumed to have the authority to act within the domain of the general objectives of
[a company's] business and within the scope of [the president's] usual duties.29

The RTC further explained that, assuming arguendo that the signing of the Letter-Agreement "was outside the
usual powers of Emerito Ramos, Sr., as president," EMRASON's ratification of the Letter-Agreement via a
stockholders' meeting on March 6, 1995, cured the defect caused by Ramos, Sr.'s apparent lack of authority.30

The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered judgment is hereby rendered in favor of plaintiffs ASB Realty Corporation
(ASB) and E.M. Ramos & Sons, Inc. (EMRASON) and against defendant Ayala Land and [sic] Inc. (ALI), and
defendants Emerito B. Ramos, Jr., Januario [sic] B. Ramos, Josefa R. de la Rama, Victoria R. Tanjuatco,
Horacio de la Rama, Teofilo Tanjuatco III, (Ramos children) as follows, viz[.]:

1. DECLARING the Contract to Sell dated 18 May 1994 involving the "Dasmariñas Properties" entered
into by defendant Ayala Land Inc. and defendant[s] Ramos children as null [and] void and
unenforceable;

2. DIRECTING the Register of Deeds for the Province of Cavite to CANCEL the annotation of the
aforesaid " Contract to Sell" on the following Transfer Certificates[s] of Title Nos.–

2.1 T-1985 2.7 T-1991 2.13 T-1997

2.2 T- 1986 2.8 T-1992 2.14 T-1998

2.3 T-1987 2.9 T-1993 2.15 T-1999

2.4  T-1988 2.10 T-1994 2.16 T-20806

2.5  T-1989 2.11 T-1995 2.17 T-45584

 2.6 T-1990 2.12 T-1996 2.18 T-16444

3.
4. DECLARING the  "Letter-Agreement" dated 21 May 1994 entered into by ASB and EMRASON as valid,
binding and enforceable;

5. DENYING the claim of plaintiffs ASB and EMRASON for moral damages for lack of merit;

6. ORDERING defendant Ayala Land Inc. and defendant[s] Ramos children to jointly and severally pay
ASB and EMRASON the sum of Two [Hundred Fifty] Thousand Pesos (Php250,000.00) as and by way
of exemplary damages;

7. ORDERING defendant Ayala Land Inc. and defendant[s] Ramos children to jointly and severally pay
ASB and EMRASON the sum of Two [Hundred Fifty] Thousand Pesos  (Php250.000.00) as and by way
of temperate damages;

8. ORDERING defendant Ayala Land Inc. and defendant[s] Ramos children to jointly and severally pay
ASB and EMRASON the sum of One Hundred Fifty Thousand Pesos (Php150,000.00) as and by way
of nominal damages;

9. ORDERING defendant Ayala Land Inc. and defendant[s] Ramos children to jointly and severally pay
ASB and EMRASON the sum of Two Hundred Thousand Pesos (Php200,000.00) as and by way of
attorney's fees;

10. ORDERING defendant Ayala Land Inc. and defendant[s] Ramos children to jointly and severally pay
ASB and EMRASON the costs of suit;

11. DENYING the respective Counter-claims of defendant Ayala Land Inc. and defendant[s] Ramos
children against plaintiff[s] ASB and EMRASON for lack of factual and legal basis; [and]

12. DENYING the respective Crossclaims of defendant Ayala Land Inc. and defendant[s] Ramos children
against one another for lack of merit.

SO ORDERED.31

Dissatisfied with the RTC's verdict ALI, Ramos, Jr. and Horacia appealed to the CA.32

Ruling of the Court of Appeals

In its April 30, 2013 Decision,33 the CA dismissed the appeal and affirmed the RTC's findings.34 The CA
reiterated the RTC's pronouncement that the Ramos children failed to prove their authority to enter into a
Contract to Sell on behalf of EMRASON.35 Citing ALI's letters addressed to Ramos, Sr. and the latter's
uncontroverted deposition "that he is the corporation's sole and exclusive authorized representative in the sale
of the Dasmariñas Property"36 vis-a-vis the Ramos children's limited authority to negotiate for the best terms of
a sale, the CA then declared that ALI knew or was aware of the Ramos children's lack of authority.

In sustaining the validity of the Letter-Agreement between EMRASON and ASBRC, the appellate court
effectively held that Ramos, Sr. was invested with the presumed authority to enter into the said Letter-
Agreement.37 The May 17, 199438 stockholders meeting ratifying the Letter-Agreement was likewise considered
by the CA as corroborative of the validity of the Letter Agreement.39  Moreover, the CA noted that "the very
filing of the instant case by EMRASON against ALI and the Ramos children not only for the nullification of the
Contract to Sell x x x but also for the confirmation of the Letter-Agreement between EMRASON and [ASBRC]
is [a] pure and simple x x x ratification on the part of EMRASON of [Ramos, Sr.'s] act of entering into the said
Letter-Agreement."40

The dispositive portion of the CA Decision reads:

WHEREFORE, the appeal is DISMISSED. The Decision dated June 29, 2010 of the Regional Trial Court of
Imus, Cavite, Branch 20, in Civil Case No. 931-94, is AFFIRMED.

SO ORDERED.41 (Emphasis in the original )

With the denial of its motion for reconsideration in a Resolution42 dated November 7, 2013, ALI elevated the
case to this Court through this petition for review on certiorari.

Issues

I. THE COURT OF APPEALS GRAVELY ERRED IN ANNULLING THE CONTRACT TO SELL

BETWEEN PETITIONER AND EMRASON NOTWITHSTANDING CLEAR EVIDENCE
 CONSISTENT WITH STATUTE AND CASE LAW SHOWING EMRASON'S OWN
CONFIRMATION THAT THE RAMOS CHILDREN WITH WHOM PETITIONER DEALT, HAD
BOTH AUTHORITY AND CAPACITY TO CLOSE THE SALE BETWEEN THEM.

II. THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE VALIDITY OF THE
LETTER-AGREEMENT BETWEEN ASBRC AND EMRASON DESPITE EVIDENCE AS
ALLOWED BY LAW AND JURISPRUDENCE SHOWING THAT THE CONTRACT TO SELL
THE RAMOS CHILDREN HAD SIGNED ON BEHALF OF EMRASON PRE- DATED THAT
SIGNED BY RAMOS, SR. WITH ASRBC WHICH CARRIED NO BOARD AUTHORITY TO
BEGIN WITH.

III. THE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE RTC'S DISMISSAL OF
PETITIONER'S COMPULSORY COUNTERCLAIM AND CROSS-CLAIM DESPITE
UNCONTROVERTED EVIDENCE ALLOWED BY LAW AND JURISPRUDENCE SHOWING
THE BAD FAITH AND DAMAGE INFLICTED BY EMRASON ON PETITIONER BY ITS
DISAVOWAL OF THE AUTHORITY GIVEN THE RAMOS CHILDREN TO CLOSE THE SALE
TRANSACTION THEY HAD EARLIER SIGNED WITH PETITIONER.43

Ruling

We deny the Petition for raising factual issues and failure to show that the CA committed any reversible error in
its assailed Decision and Resolution as to warrant the exercise of this Court's discretionary appellate
jurisdiction.

All the issues raised by petitioner ALI are factual in nature. ALI contends that there was sufficient evidence
showing that EMRASON confirmed the authority of the Ramos children to enter into contract with ALI; that
there was evidence that the Contract to Sell signed by the Ramos children pre-dated the Letter-Agreement
signed by Ramos, Sr. and which carried no board authority; and, that there was evidence of bad faith on the
part of EMRASON. Suffice it to say that only questions of law are allowed in a petition for review
on certiorari; this Court is not a trier of facts and is not obliged to go over and recalibrate anew evidence that
already passed the scrutiny of the lower courts, all the more in this case where the findings of the RTC were
affirmed by the CA. This Court is not unaware of the exceptions to this rule; none, however, exists in this case.

In any case, ALI failed to show any reversible error on the part of the CA.

"A contract is void if one of the essential requisites of contracts under Article 1318 of the New Civil Code is
lacking."44 Consent, being one of these requisites, is vital to the existence of a contract "and where it is
wanting, the contract is non-existent."45

For juridical entities, consent is given through its board of directors. As this Court held in First Philippine
Holdings Corporation v. Trans Middle East (Phils.) Equities, Inc.,46 a juridical entity, like EMRASON, "cannot
act except through its board of directors as a collective body, which is vested with the power and responsibility
to decide whether the corporation should enter in a contract that will bind the corporation, subject to the articles
incorporation, by-laws, or relevant provisions of law."47 Although the general rule is that "no person, not even
its officers, can validly bind a corporation "48 without the authority of the corporation's board of directors, this
Court has recognized instances where third persons' actions bound a corporation under the doctrine of
apparent authority or ostensible agency.

In Nogales v. Capitol Medical Center,49 this Court explained the doctrine of apparent authority or ostensible
agency, which is actually a species of the doctrine of estoppel, thus –

The doctrine of apparent authority is a species of the doctrine of estoppel. Article 1431 of the Civil Code
provides that '[t]hrough estoppel, an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.' Estoppel rests on this
rule: 'Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another
to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it.'50

Given this jurisprudential teaching, ALI insists that the August 3, 1993 letter51 of Ramos, Sr. to ALI was proof
that EMRASON had acknowledged the authority of the Ramos children to transact with ALI and that such letter
met the requisites for the application of the doctrine, following this Court's ruling in Woodchild Holdings, Inc. v.
Roxas Electric and Construction Company, Inc.52

ALI's argument does not persuade.

The August 3, 1993 letter53 pertinently reads:

August 3, 1993

AYALA LAND INC. (ALI)

Makati Stock Exchange Bldg.
Ayala Avenue, Makati
Metro Manila

Attention: Don Jaime Zobel de Ayala

                Chairman
___________________________________
Thru : Mr. Victor H. Manarang
          Assistant Vice President
          Project Development Group
___________________________________

Gentlemen:

We deeply appreciate the privilege of receiving your letter- proposal dated July 28, 1993 signed by Mr. Victor
H. Manarang regarding your interest in the development of our properties at Barrios Bucal and Langkaan,
Dasmarinas, Cavite on a joint venture basis.

Your said letter-proposal was taken up by the Board of EMRASON during its regular meeting last Saturday,
July 31, 1993 for our usual study and consideration. Messrs. Emerita B. Ramos, Jr. and Antonio B. Ramos,
corporation officials, have been authorized to collaborate and continue negotiating and discussing with you
terms and conditions that are equitable and profitable and mutually beneficial to both ALI and EMRASON.

We are honored to look forward tor the possibility of starting business and friendly relationship with your
goodselves.

Very truly yours,

               (sgd.)
EMERITO M. RAMOS, SR.
Chairman of the Board

A perusal of the August 3, 1993 letter shows that EMRASON, through Ramos, Sr. authorized Ramos, Jr. and
Antonio merely to "collaborate and continue negotiating and discussing with [ALI] terms and conditions that
are mutually beneficial" to the parties therein. Nothing more, nothing less. To construe the letter as a
virtual carte blanche for the Ramos children to enter into a Contract to Sell regarding the Dasmariñas Property
would be unduly stretching one's imagination. "[A]cts done by [the] corporate officers beyond the scope of their
authority cannot bind the corporation unless it has ratified such acts expressly or is estopped from denying
them."54 What is clear from the letter is that EMRASON authorized the Ramos children only to negotiate the
terms of a potential sale over the Dasmariñas Property, and not to sell the property in an absolute way or act
as signatories in the contract.

As correctly held by the RTC and the CA, and stressed in Banate v. Philippine Countryside Rural Bank (Liloan,
Cebu), Inc.:55

It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of the agent's authority, and in
case either is controverted, the burden of proof is upon them to establish it. x x x56 (Emphasis supplied )

Equally misplaced is ALI's reliance on our pronouncement in People's Aircargo Warehousing v. Court of
Appeals,57 where we said that the authority of the apparent agents may be "expressly or impliedly [shown] by
habit, custom or acquiescence in the general course of business."58 For, indeed, ALI never mentioned or
pointed to certain palpable acts by the Ramos children which were indicative of a habit, custom, or
acquiescence in the general course of business that compel the conclusion that EMRASON must be deemed
to have been bound thereby implacably and irretrievably. ALI's bare allegation that "the Ramos children
submitted corporate documents to [ALI] to convince it that it was negotiating with the controlling shareholders
of EMRASON"59 is gratuitous and self-serving, hence, does not merit this Court's consideration. As an
established business entity engaged in real estate, ALI should know that a corporation acts through its Board
of Directors and not through its controlling shareholders.

In People's Aircargo,60  this Court zeroed in on the apparent authority of a corporate president to bind the
corporation, viz.:

Inasmuch as a corporate president is often given general supervision and control over corporate operations,
the strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the
realization that such officer has certain limited powers in the transaction of the usual and ordinary business of
the corporation. In the absence of a charter or bylaw provision to the contrary. the president is presumed to
have the authority to act within the domain of the general objectives of its business and within the scope of his
or her usual duties.

Hence, it has been held in other jurisdictions that the president of a corporation possesses the power to enter
into a contract for the corporation, when the 'conduct on the part of both the president and the corporation
[shows] that he had been in the habit of acting in similar matters on behalf of the company and that the
company had authorized him so to act and had recognized, approved and ratified his former and similar
actions.' Furthermore, a party dealing with the president of a corporation is entitled to assume that he has the
authority to enter, on behalf of the corporation, into contracts that are within the scope of the powers of said
corporation and that do not violate any statute or rule on public policy.61 (Citations omitted)

Here, Ramos, Sr.'s authority to execute and enter into the Letter-Agreement with ASBRC was clearly proven.
We quote with approval the RTC's finding thereon, to wit:

Emerito Ramos, Sr. testified that on 17 May 1994[,] a special Board meeting was called to discuss various
proposals regarding the Dasmariñas Property. In attendance were Emerita Ramos, Sr., Rogerio Escobal and
Arturo de Leon. After some discussion, the Board resolved to accept the proposal of ASB Realty being the
most advantageous and beneficial to EMRASON. In the said meeting, the Board [of] Directors also
agreed, viz[.]: that Emerito Ramos, Sr. shall be authorized to accept the cash advance from ASB in his
personal capacity; and that Emerito Ramos, Sr and Antonio Ramos shall be authorized to execute a Real
Estate Mortgage in favor of ASB. Then, he identified the Minutes of the aforesaid Board Meeting and the
signatures of the members of the board appearing thereon. He further alleged that at 4:00 in the afternoon of
17 May 1994 a Stockholders['] Meeting was subsequently held. He alleged that there was a quorum during the
said meeting considering that he was present and the fact that he owns 2/3 of the subscribed capital of
EMRASON.62

ALI's argument that "respondents failed to establish that [Ramos], Sr. had been in the habit of executing
contracts on behalf of EMRASON"63 is negated by the fact that correspondences between ALI and EMRASON
had always been addressed to Ramos, Sr.64 In fact, ALI must be deemed to have acknowledged the authority
of Ramos, Sr. to act on behalf of EMRASON when ALI relied on the August 3, 1993 letter of Ramos, Sr. In any
case, this Court clarified in People's Aircargo65 that "[i]t is not the quantity of similar acts which establishes
apparent authority, but the vesting of a corporate officer with the power to bind the corporation."66  Together
with this Court's pronouncement that "a party dealing with the president of a corporation is entitled to assume
that he has the authority to enter, on behalf of the corporation, into contracts that are within the scope of the
powers of said corporation and that do not violate any statute or rule on public policy,"67 the inevitable
conclusion is that Ramos, Sr. was properly authorized to, and validly executed with ASBRC, the said Letter-
Agreement.

Petitioner contends, nonetheless, that Ramos, Sr. could not have possibly been at the stockholders' meeting
due to his presence at the time at the Wack -Wack Golf and Country Club.68  This argument undoubtedly raises
a factual issue, and on this score alone, this Court can give it short shrift. Nonetheless, even shunting aside for
a moment this legal infirmity, and allowing a re-evaluation of the evidence on record, petitioner's stance is still
untenable, because the record shows that another stockholders' meeting was in fact subsequently held on
March 6, 1995; and in this March 6, 1995 stockholders' meeting, the stockholders unanimously approved to
confirm and ratify the Letter- Agreement.69

More than these, this Court cannot gloss over the formal defects in the Contract to Sell, which further shows
that ALI did entertain doubts as to the Ramos children's authority to enter into the said contract. Consider the
following pronouncement of the RTC, to wit:

In this connection, the Court observes numerous formal defects in the Contract to Sell which would further
support the fact that defendant ALI knew the absence of authority of defendant Ramos children to execute the
same. Oddly, the first page of the contract failed to include the names of the duly authorized representative/s of
EMRASON as the space specifically provided therefor was left in blank. In contrast, the duly appointed
[a]ttorneys-in-fact of ALI are clearly named therein and designated as such. Similarly, page eighteen (18) of the
said contract merely provided blank spaces to be filled up by the signatories of EMRASON vis-a-vis that of
defendant ALI where the names of the [a]ttorney's-in-[f]act of defendant ALI are typewritten. Even in the
acknowledgment page, only the names of the representatives of ALI were included. Interestingly, the
acknowledgment failed to mention the names of signatories of EMRASON and their respective Community Tax
Certificate Numbers. Considering that the subject contract involves a multi-million transaction, the Court finds it
absolutely incredible that the parties thereto would fail to include the names of the signatories, their respective
positions and/or authorities to enter into the said contract.70  (Emphasis supplied)

Against this backdrop, this Court must uphold, as it hereby upholds, the validity of the Letter-Agreement
entered into by and between EMRASON and ASBRC. Under the same parity of reasoning, this Court must
affirm, as it hereby affirms, the RTC and CA's declaration of the invalidity or nullity of the Contract to Sell
entered into by and between ALI and the Ramos children.

WHEREFORE, the instant Petition is DENIED. The April 30, 2013 Decision and November 7, 2013 Resolution
of the Court of Appeals in CA-G.R. CV No. 97198 are AFFIRMED

SO ORDERED.

II. 1 ) February 29, 2016

G.R. No. 215014

REBECCA FULLIDO, Petitioner,
vs.
GINO GRILLI, Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari seeking to reverse and set aside the May 31, 2013 Decision1 and the
September 24, 20142 Resolution of the Court of Appeals (CA) in CA-G.R. CEB-SP No. 06946, which affirmed
the April 26, 2012 Decision3 of the Regional Trial Court, Branch 47, Tagbilaran City (RTC) in Civil Case No.
7895, reversing the March 31, 2011 Decision4 of the Municipal Circuit Trial Court, Dauis, Bohol (MCTC) in Civil
Case No. 244, a case for unlawful detainer filed by Gino Grilli (Grilli) against Rebecca Fullido (Fullido).

The Facts

Sometime in 1994, Grilli, an Italian national, met Fullido in Bohol and courted her. In 1995, Grilli decided to
build a residential house where he and Fullido would to stay whenever he would be vacationing in the country.
Grilli financially assisted Fullido in procuring a lot located in Biking I, Dauis, Bohol, from her parents which was
registered in her name under Transfer Certificate of Title (TCT) No. 30626.5 On the said property, they
constructed a house, which was funded by Grilli. Upon completion, they maintained a common-law relationship
and lived there whenever Grilli was on vacation in the Philippines twice a year.

In 1998, Grilli and Fullido executed a contract of lease, 6 a memorandum of agreement7 (MOA) and a special
power of attorney8 (SPA), to define their respective rights over the house and lot.

The lease contract stipulated, among others, that Grilli as the lessee, would rent the lot, registered in the name
of Fullido, for a period of fifty (50) years, to be automatically renewed for another fifty (50) years upon its
expiration in the amount of P10,000.00 for the whole term of the lease contract; and that Fullido as the lessor,
was prohibited from selling, donating, or encumbering the said lot without the written consent of Grilli. The
pertinent provisions of the lease contract over the house and lot are as follows:

That for and in consideration of the total amount of rental in the amount of TEN THOUSAND (P10,000.00)
PESOS, Philippine Currency, paid by the LESSEE to the LESSOR, receipt of which is hereby acknowledged,
the latter hereby leases to the LESSEE a house and lot, and all the furnishings found therein, land situated at
Biking I, Dauis, Bohol, Philippines, absolutely owned and belonging to the LESSOR and particularly described
as follows, to wit:

xxxx

That the LESSOR and the LESSEE hereby agree as they have agreed to be bound by the following terms and
conditions, to wit:

1. That the term of the lease shall be FIFTY (50) YEARS from August 16, 1998 to August 15, 2048,
automatically renewed for the same term upon the expiration thereof;

xxx

7. That the LESSOR is strictly prohibited to sell, donate, encumber, or in any manner convey the property
subject of this lease to any third person, without the written consent of the LESSEE.9

The said lease contract was duly registered in the Register of Deeds of Bohol.

The MOA, on the other hand, stated, among others, that Grilli paid for the purchase price of the house and lot;
that ownership of the house and lot was to reside with him; and that should the common-law relationship be
terminated, Fullido could only sell the house and lot to whomever Grilli so desired. Specifically, the pertinent
terms of the MOA read:

NOW WHEREFORE, FOR AND IN CONSIDERATION of the foregoing premises, the parties hereto agree as
they hereby covenant to agree that the FIRST PARTY (Grilli) shall permanently reside on the property as
above-mentioned, subject to the following terms and conditions:

1. That ownership over the above-mentioned properties shall reside absolutely with herein FIRST
PARTY, and the SECOND PARTY (Fullido) hereby acknowledges the same;

2. That the SECOND PARTY is expressly prohibited to sell the above-stated property, except if said
sale is with the conformity of the FIRST PARTY;
 3. That the SECOND PARTY hereby grants the FIRST PARTY, the absolute and irrevocable right, to
reside in the residential building so constructed during his lifetime, or any time said FIRST PARTY may
so desire;

4. That in the event the common-law relationship terminates, or when the SECOND PARTY marries
another, or enters into another common-law relationship with another, said SECOND PARTY shall be
obliged to execute a DEED OF ABSOLUTE SALE over the above-stated parcel of land and residential
building, in favor of whomsoever the FIRST PARTY may so desire, and be further obliged to turn over
the entire consideration of the said sale to the FIRST PARTY , or if the law shall allow, the FIRST
PARTY shall retain ownership of the said land, as provided for in paragraph 7 below;

xxx

7. That if the cases referred to in paragraph 4 shall occur and in the event that a future law shall be
passed allowing foreigners to own real properties in the Philippines, the ownership of the above-
described real properties shall pertain to the FIRST PARTY, and the herein undersigned SECOND
PARTY undertakes to execute all the necessary deeds, documents, and contracts to effect the transfer
of title in favor of the FIRST PARTY;

x x x .10

Lastly, the SPA allowed Grilli to administer, manage, and transfer the house and lot on behalf of Fullido.
Initially, their relationship was harmonious, but it turned sour after 16 years of living together. Both charged
each other with infidelity. They could not agree who should leave the common property, and Grilli sent formal
letters to Fullido demanding that she vacate the property, but these were unheeded. On September 8, 2010,
Grilli filed a complaint for unlawful detainer with prayer for issuance of preliminary injunction against Fullido
before the MCTC, docketed as Civil Case No. 244.

Grilli’s Position

The complaint stated that the common-law relationship between Grilli and Fullido began smoothly, until Grilli
discovered that Fullido was pregnant when he arrived in the Philippines in 2002. At first, she told him that the
child she was carrying was his. After the delivery of the child, however, it became apparent that the child was
not his because of the discrepancy between the child’s date of birth and his physical presence in the
Philippines and the difference between the baby’s physical features and those of Grilli. Later on, she admitted
that the child was indeed sired by another man.

Grilli further claimed that he was so devastated that he decided to end their common-law relationship.
Nevertheless, he allowed Fullido to live in his house out of liberality and generosity, but this time, using another
room. He did not demand any rent from Fullido over the use of his property.

After a year, Fullido became more hostile and difficult to handle. Grilli had to make repairs with his house every
time he arrived in the Philippines because she was not maintaining it in good condition. Fullido also let her two
children, siblings and parents stay in his house, which caused damage to the property. He even lost his
personal belongings inside his house on several occasions. Grilli verbally asked Fullido to move out of his
house because they were not getting along anymore, but she refused. He could no longer tolerate the hostile
attitude shown to him by Fullido and her family, thus, he filed the instant complaint.

Fullido’s Position

Fullido countered that she met Grilli sometime in 1993 when she was still 17 years old working as a cashier in
Alturas Supermarket. Grilli was then a tourist in Bohol who persistently courted her.

At first, Fullido was hesitant to the advances of Grilli because she could not yet enter into a valid marriage.
When he assured her and her parents that they would eventually be married in three years, she eventually
agreed to have a relationship with him and to live as common-law spouses. Sometime in 1995, Grilli offered to
build a house for her on a parcel of land she exclusively owned which would become their conjugal abode.
Fullido claimed that their relationship as common-law spouses lasted for more than 18 years until she
discovered that Grilli had found a new and younger woman in his life. Grilli began to threaten and physically
hurt her by knocking her head and choking her.

When Fullido refused to leave their house even after the unlawful detainer case was filed, Grilli again
harassed, intimidated and threatened to hurt her and her children. Thus, she filed a petition for Temporary
Protection Order (TPO) and Permanent Protection Order (PPO) against Grilli under Republic Act (R.A.) No.
9262 before the Regional Trial Court, Branch 3, Bohol (RTC-Branch 3). In an Order,11 dated February 23,
2011, the RTC-Branch 3 granted the TPO in favor of Fullido and directed that Grilli must be excluded from their
home.

Fullido finally asserted that, although it was Grilli who funded the construction of the house, she exclusively
owned the lot and she contributed to the value of the house by supervising its construction and maintaining
their household.
 The MCTC Ruling

In its decision, dated March 31, 2011, the MCTC dismissed the case after finding that Fullido could not be
ejected from their house and lot. The MCTC opined that she was a co-owner of the house as she contributed
to it by supervising its construction. Moreover, the MCTC respected the TPO issued by RTC-Branch 3 which
directed that Grilli be removed from Fullido’s residence. The dispositive portion of the MCTC decision reads:

WHEREFORE, judgment is hereby rendered:

1. Dismissing the instant case;

2. Ordering the Plaintiff to pay to Defendant the amount of Fifty Thousand Pesos (P50,000.00) as moral
damages, and Twenty Thousand Pesos (P20,000.00) as exemplary damages, and Twenty Thousand
Pesos (P20,000.00) as Attorney’s Fees; and

3. Denying the prayer for the issuance of Preliminary Mandatory Injunction.

SO ORDERED.12

Not in conformity, Grilli elevated the matter before the RTC.

The RTC Ruling

In its decision, dated April 26, 2012, the RTC reversed and set aside the MCTC decision. The RTC was of the
view that Grilli had the exclusive right to use and possess the house and lot by virtue of the contract of lease
executed by the parties. Since the period of lease had not yet expired, Fullido, as lessor, had the obligation to
respect the peaceful and adequate enjoyment of the leased premises by Grilli as lessee. The RTC opined that
absent a judicial declaration of nullity of the contract of lease, its terms and conditions were valid and binding.
As to the TPO, the RTC held that the same had no bearing in the present case which merely involved the
possession of the leased property.

Aggrieved, Fullido instituted an appeal before the CA alleging that her land was unlawfully transferred by Grilli
to a certain Jacqueline Guibone (Guibone), his new girlfriend, by virtue of the SPA earlier executed by Fullido.

The CA Ruling

In its assailed decision, dated May 31, 2013, the CA upheld the decision of the RTC emphasizing that in an
ejectment case, the only issue to be resolved would be the physical possession of the property. The CA was
also of the view that as Fullido executed both the MOA and the contract of lease, which gave Grilli the
possession and use of the house and lot, the same constituted as a judicial admission that it was Grilli who had
the better right of physical possession. The CA stressed that, if Fullido would insist that the said documents
were voidable as her consent was vitiated, then she must institute a separate action for annulment of
contracts. Lastly, the CA stated that the TPO issued by the RTC-Branch 3 under Section 21 of R.A. No. 9262
was without prejudice to any other action that might be filed by the parties.

Fullido filed a motion for reconsideration,13 but she failed to attach the proofs of service of her motion. For said
reason, it was denied by the CA in its assailed resolution, dated September 24, 2014.

Hence, this present petition raising the following:

ISSUES

THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND DEPARTED FROM ESTABLISHED
LAW AND JURISPRUDENCE IN DENYING THE PETITION FOR REVIEW AND IN AFFIRMING THE
DECISION OF RTC BOHOL BRANCH 47 EJECTING PETITIONER FROM THE SUBJECT PROPERTIES,
WHICH EJECTMENT ORDER IS ANCHORED ON PATENTLY NULL AND VOID CONTRACTS.

II

THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND DEPARTED FROM ESTABLISHED
LAW IN AFFIRMING THE DECISION OF THE RTC BOHOL BRANCH 47 EJECTING PETITIONER FROM
THEIR CONJUGAL ABODE WHERE RESPONDENT HAS BEEN EARLIER ORDERED TO VACATE BY
VIRTUE OF A PERMANENT PROTECTION ORDER THUS EFFECTIVELY SETTING ASIDE, NEGATING
AND/OR VIOLATING AN ORDER ISSUED BY A COURT OF CO-EQUAL JURISDICTION.

III

THE HONORABLE COURT OF APPEALS LIKEWISE ERRED AND DEPARTED FROM ESTABLISHED
LAW AND JURISPRUDENCE IN DENYING THE PETITIONER’S MOTION FOR RECONSIDERATION,
AMONG OTHERS, FOR NONCOMPLIANCE WITH SECTION 1 RULE 52 VIS-À-VIS SECTION 13, RULE 13
OF THE 1997 RULES OF CIVIL PROCEDURE.14

Fullido argues that she could not be ejected from her own lot based on the contract of lease and the MOA
because those documents were null and void for being contrary to the Constitution, the law, public policy,
morals and customs; that the MOA prevented her from disposing or selling her own land, while the contract of
lease favoring Grilli, a foreigner, was contrary to the Constitution as it was a for a period of fifty (50) years, and,
upon termination, was automatically renewable for another fifty (50) years; that the TPO, which became a PPO
by virtue of the July 5, 2011 Decision15 of RTC-Branch 3, should not be defeated by the ejectment suit; and
that the CA should have liberally applied its procedural rules and allowed her motion for reconsideration.

In his Comment,16 Grilli countered that he was the rightful owner of the house because a foreigner was not
prohibited from owning residential buildings; that the lot was no longer registered in the name of Fullido as it
was transferred to Guibone, covered by TCT No. 101-2011000335; that if Fullido wanted to assail the lease
contract, she should have first filed a separate action for annulment of the said contract, which she did in Civil
Case No. 8094, pending before the Regional Trial Court of Bohol; and that by signing the contracts, Fullido
fully agreed with their terms and must abide by the same.

In her Reply,17 Fullido insisted that the contract of lease and the MOA were null and void, thus, these could not
be the source of Grilli’s de facto possession.

The Court’s Ruling

The Court finds the petition meritorious.

Unlawful detainer is an action to recover possession of real property from one who unlawfully withholds
possession thereof after the expiration or termination of his right to hold possession under any contract,
express or implied. The possession of the defendant in unlawful detainer is originally legal but became illegal
due to the expiration or termination of the right to possess. The only issue to be resolved in an unlawful
detainer case is the physical or material possession of the property involved, independent of any claim of
ownership by any of the parties.18

In this case, Fullido chiefly asserts that Grilli had no right to institute the action for unlawful detainer because
the lease contract and the MOA, which allegedly gave him the right of possession over the lot, were null and
void for violating the Constitution. Contrary to the findings of the CA, Fullido was not only asserting that the
said contracts were merely voidable, but she was consistently invoking that the same were completely
void.19 Grilli, on the other hand, contends that Fullido could not question the validity of the said contracts in the
present ejectment suit unless she instituted a separate action for annulment of contracts. Thus, the Court is
confronted with the issue of whether a contract could be declared void in a summary action of unlawful
detainer.

Under the circumstances of the case, the Court answers in the affirmative.

A void contract cannot be the

source of any right; it cannot
be utilized in an ejectment suit

A void or inexistent contract may be defined as one which lacks, absolutely either in fact or in law, one or some
of the elements which are essential for its validity.20 It is one which has no force and effect from the very
beginning, as if it had never been entered into; it produces no effect whatsoever either against or in favor of
anyone.21 Quod nullum est nullum producit effectum. Article 1409 of the New Civil Code explicitly states that
void contracts also cannot be ratified; neither can the right to set up the defense of illegality be
waived.22 Accordingly, there is no need for an action to set aside a void or inexistent contract.23

A review of the relevant jurisprudence reveals that the Court did not hesitate to set aside a void contract even
in an action for unlawful detainer. In Spouses Alcantara v. Nido,24 which involves an action for unlawful
detainer, the petitioners therein raised a defense that the subject land was already sold to them by the agent of
the owner. The Court rejected their defense and held that the contract of sale was void because the agent did
not have the written authority of the owner to sell the subject land.

Similarly, in Roberts v. Papio,25 a case of unlawful detainer, the Court declared that the defense of ownership
by the respondent therein was untenable. The contract of sale invoked by the latter was void because the
agent did not have the written authority of the owner. A void contract produces no effect either against or in
favor of anyone.

In Ballesteros v. Abion,26 which also involves an action for unlawful detainer, the Court disallowed the defense
of ownership of the respondent therein because the seller in their contract of sale was not the owner of the
subject property. For lacking an object, the said contract of sale was void ab initio.

Clearly, contracts may be declared void even in a summary action for unlawful detainer because, precisely,
void contracts do not produce legal effect and cannot be the source of any rights. To emphasize, void contracts
may not be invoked as a valid action or defense in any court proceeding, including an ejectment suit. The next
issue that must be resolved by the Court is whether the assailed lease contract and MOA are null and void.

<>The lease contract and the

MOA circumvent the
constitutional restraint against
foreign ownership of lands.

Under Section 1 of Article XIII of the 1935 Constitution, natural resources shall not be alienated, except with
respect to public agricultural lands and in such cases, the alienation is limited to Filipino citizens.
Concomitantly, Section 5 thereof states that, save in cases of hereditary succession, no private agricultural
land shall be transferred or assigned except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain in the Philippines. The prohibition on the transfer of lands to aliens was
adopted in the present 1987 Constitution, under Sections 2, 3 and 7 of Article XII thereof. Agricultural lands,
whether public or private, include residential, commercial and industrial lands. The purpose of prohibiting the
transfer of lands to foreigners is to uphold the conservation of our national patrimony and ensure that
agricultural resources remain in the hands of Filipino citizens.27

The prohibition, however, is not limited to the sale of lands to foreigners. It also covers leases of lands
amounting to the transfer of all or substantially all the rights of dominion. In the landmark case of Philippine
Banking Corporation v. Lui She,28 the Court struck down a lease contract of a parcel of land in favor of a
foreigner for a period of ninety-nine (99) years with an option to buy the land for fifty (50) years. Where a
scheme to circumvent the Constitutional prohibition against the transfer of lands to aliens is readily revealed as
the purpose for the contracts, then the illicit purpose becomes the illegal cause rendering the contracts void.
Thus, if an alien is given not only a lease of, but also an option to buy, a piece of land by virtue of
which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then
it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land but also of the right to dispose of it — rights which
constitute ownership. If this can be done, then the Constitutional ban against alien landholding in the
Philippines, is indeed in grave peril.29

In Llantino v. Co Liong Chong,30 however, the Court clarified that a lease contract in favor of aliens for a
reasonable period was valid as long as it did not have any scheme to circumvent the constitutional prohibition,
such as depriving the lessors of their right to dispose of the land. The Court explained that "[a]liens are not
completely excluded by the Constitution from use of lands for residential purposes. Since their residence in the
Philippines is temporary, they may be granted temporary rights such as a lease contract which is not forbidden
by the Constitution. Should they desire to remain here forever and share our fortune and misfortune, Filipino
citizenship is not impossible to acquire." 31 The lessee-foreigner therein eventually acquired Filipino citizenship.

Consequently, Presidential Decree (P.D.) No. 471 was enacted to regulate the lease of lands to
aliens.1avvphi1 It provides that the maximum period allowable for the duration of leases of private lands to
aliens or alien-owned corporations, associations, or entities not qualified to acquire private lands in the
Philippines shall be twenty-five (25) years, renewable for another period of twenty-five (25) years upon mutual
agreement of both lessor and lessee.32 It also provides that any contract or agreement made or executed in
violation thereof shall be null and void ab initio.33

Based on the above-cited constitutional, legal and jurisprudential limitations, the Court finds that the lease
contract and the MOA in the present case are null and void for virtually transferring the reigns of the land to a
foreigner.

As can be gleaned from the contract, the lease in favor of Grilli was for a period of fifty (50) years,
automatically extended for another fifty (50) years upon the expiration of the original period. Moreover, it strictly
prohibited Fullido from selling, donating, or encumbering her land to anyone without the written consent of
Grilli. For a measly consideration of P10,000.00, Grilli would be able to absolutely occupy the land of Fullido for
100 years, and she is powerless to dispose the same. The terms of lease practically deprived Fullido of her
property rights and effectively transferred the same to Grilli.

Worse, the dominion of Grilli over the land had been firmly cemented by the terms of the MOA as it reinforced
Grilli’s property rights over the land because, first, it brazenly dictated that ownership of the land and the
residential building resided with him. Second, Fullido was expressly prohibited from transferring the same
without Grilli’s conformity. Third, Grilli would permanently reside in the residential building. Fourth, Grilli may
capriciously dispose Fullido’s property once their common-law relationship is terminated. This right was
recently exercised when the land was transferred to Guibone. Lastly, Fullido shall be compelled to transfer the
land to Grilli if a law would be passed allowing foreigners to own real properties in the Philippines.

Evidently, the lease contract and the MOA operated hand-in-hand to strip Fullido of any dignified right over her
own property. The term of lease for 100 years was obviously in excess of the allowable periods under P.D. No.
471. Even Grilli admitted that "this is a case of an otherwise valid contract of lease that went beyond the period
of what is legally permissible."34 Grilli had been empowered to deprive Fullido of her land’s possession,
control, disposition and even its ownership. The jus possidendi, jus utendi, jus fruendi, jus abutendi and, more
importantly, the jus disponendi – the sum of rights which composes ownership – of the property were
effectively transferred to Grilli who would safely enjoy the same for over a century. The title of Fullido over the
land became an empty and useless vessel, visible only in paper, and was only meant as a dummy to fulfill a
foreigner’s desire to own land within our soils. It is disturbing how these documents were methodically
formulated to circumvent the constitutional prohibition against land ownership by foreigners. The said contracts
attempted to guise themselves as a lease, but a closer scrutiny of the same revealed that they were intended
to transfer the dominion of a land to a foreigner in violation of Section 7, Article XII of the 1987 Constitution.
Even if Fullido voluntary executed the same, no amount of consent from the parties could legalize an
unconstitutional agreement. The lease contract and the MOA do not deserve an iota of validity and must be
rightfully struck down as null and void for being repugnant to the fundamental law. These void documents
cannot be the source of rights and must be treated as mere scraps of paper.

Grilli does not have a

cause of action for
unlawful detainer

Ultimately, the complaint filed by Grilli was an action for unlawful detainer. Section 1 of Rule 70 of the Rules of
Court lays down the requirements for filing a complaint for unlawful detainer, to wit:

Who may institute proceedings, and when. – Subject to the provision of the next succeeding section, a person
deprived of the possession of any land or building by force, intimidation, threat, strategy, or stealth, or a lessor,
vendor, vendee, or other person against whom the possession of any land or building is unlawfully
withheld after the expiration or termination of the right to hold possession, by virtue of any contract, express or
implied, or the legal representatives or assigns of any such lessor, vendor, vendee, or other person, may, at
any time within one (1) year after such unlawful deprivation or withholding of possession, bring an action in the
proper Municipal Trial Court against the person or persons unlawfully withholding or depriving of possession,
or any person or persons claiming under them, for the restitution of such possession, together with damages
and costs.

[Emphasis Supplied]

A complaint sufficiently alleges a cause of action for unlawful detainer if it recites the following: (1) initially,
possession of property by the defendant was by contract with or by tolerance of the plaintiff; (2) eventually,
such possession became illegal upon notice by plaintiff to defendant of the termination of the latter’s right of
possession; (3) thereafter, the defendant remained in possession of the property and deprived the plaintiff of
the enjoyment thereof; and (4) within one year from the last demand on defendant to vacate the property, the
plaintiff instituted the complaint for ejectment.35

The Court rules that Grilli has no cause of action for unlawful detainer against Fullido. As can be gleaned from
the discussion above, the complainant must either be a lessor, vendor, vendee, or other person against whom
the possession of any land or building is unlawfully withheld. In other words, the complainant in an unlawful
detainer case must have some right of possession over the property.

In the case at bench, the lease contract and the MOA, from which Grilli purportedly drew his right of
possession, were found to be null and void for being unconstitutional. A contract that violates the Constitution
and the law is null and void ab initio and vests no rights and creates no obligations. It produces no legal effect
at all.36 Hence, as void contracts could not be the source of rights, Grilli had no possessory right over the
subject land. A person who does not have any right over a property from the beginning cannot eject another
person possessing the same. Consequently, Grilli’s complaint for unlawful detainer must be dismissed for
failure to prove his cause of action.

In Pari Delicto Doctrine

is not applicable

On a final note, the Court deems it proper to discuss the doctrine of in pari delicto. Latin for "in equal fault," in
pari delicto connotes that two or more people are at fault or are guilty of a crime. Neither courts of law nor
equity will interpose to grant relief to the parties, when an illegal agreement has been made, and both parties
stand in pari delicto.37

The application of the doctrine of in pari delicto is not always rigid. An accepted exception arises when its
application contravenes well-established public policy. In this jurisdiction, public policy has been defined as that
principle of the law which holds that no subject or citizen can lawfully do that which has a tendency to be
injurious to the public or against the public good.38 Thus, whenever public policy is advanced by either party,
they may be allowed to sue for relief against the transaction.39

In the present case, both Grilli and Fullido were undoubtedly parties to a void contract. Fullido, however, was
not barred from filing the present petition before the Court because the matters at hand involved an issue of
public policy, specifically the Constitutional prohibition against land ownership by aliens. As pronounced
in Philippine Banking Corporation v. Lui She, the said constitutional provision would be defeated and its
continued violation sanctioned if the lands continue to remain in the hands of a foreigner.40 Thus, the doctrine
of in pari delicto shall not be applicable in this case.

WHEREFORE, the petition is GRANTED. The May 31, 2013 Decision of the Court of Appeals and its
September 24, 2014 Resolution in CA-G.R. CEB-SP No. 06946 are hereby REVERSED and SET ASIDE. The
complaint filed by Gino Grilli before the Municipal Circuit Trial Court, Dauis-Panglao, Dauis, Bohol, docketed as
Civil Case No. 244, is DISMISSED for lack of cause of action.

SO ORDERED.

2) April 20, 2016

G.R. No. 200274

MELECIO DOMINGO, Petitioner,
vs.
SPOUSES GENARO MOLINA and ELENA B. MOLINA, substituted by ESTER MOLINA, Respondents.

DECISION

BRION, J.:

We resolve the petition for review on certiorari1 filed by the petitioner Melecio Domingo (Melecio) assailing the
August 9, 2011 decision2 and January 10, 2012 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No.
94160.

THE FACTS

In June 15, 1951, the spouses Anastacio and Flora Domingo bought a property in Camiling, Tarlac, consisting
of a one-half undivided portion over an 18, 164 square meter parcel of land. The sale was annotated on the
Original Certificate of Title (OCT) No. 16354 covering the subject property.

During his lifetime, Anastacio borrowed money from the respondent spouses Genaro and Elena
Molina (spouses Molina). On September 10, 1978 or 10 years after Flora’s death4, Anastacio sold his interest
over the land to the spouses Molina to answer for his debts. The sale to the spouses Molina was annotated at
the OCT of the subject property.5 In 1986, Anastacio died.6

In May 19, 1995, the sale of Anastacio’s interest was registered under Transfer Certificate of Title (TCT) No.
272967[[7 ]]and transferred the entire one-half undivided portion of the land to the spouses Molina.

Melecio, one of the children of Anastacio and Flora, learned of the transfer and filed a Complaint for
Annulment of Title and Recovery of Ownership (Complaint) against the spouses Molina on May 17, 1999.8

Melecio claims that Anastacio gave the subject property to the spouses Molina to serve as collateral for the
money that Anastacio borrowed. Anastacio could not have validly sold the interest over the subject property
without Flora’s consent, as Flora was already dead at the time of the sale.

Melecio also claims that Genaro Molina must have falsified the document transferring Anastacio and Flora’s
one-half undivided interest over the land. Finally, Melecio asserts that he occupied the subject property from
the time of Anastacio’s death up to the time he filed the Complaint.9

Melecio presented the testimonies of the Records Officer of the Register of Deeds of Tarlac, and of Melecio’s
nephew, George Domingo (George).10

The Records Officer testified that he could not locate the instrument that documents the transfer of the subject
property ownership from Anastacio to the spouses Molina. The Records Officer also testified that the alleged
sale was annotated at the time when Genaro Molina’s brother was the Register of Deeds for Camiling,
Tarlac.11

George, on the other hand, testified that he has been living on the subject property owned by Anastacio since
1986. George testified, however, that aside from himself, there were also four other occupants on the subject
property, namely Jaime Garlitos, Linda Sicangco, Serafio Sicangco and Manuel Ramos.12

The spouses Molina asserted that Anastacio surrendered the title to the subject property to answer for his
debts and told the spouses Molina that they already own half of the land. The spouses Molina have been in
possession of the subject property before the title was registered under their names and have religiously paid
the property’s real estate taxes.

The spouses Molina also asserted that Melecio knew of the disputed sale since he accompanied Anastacio
several times to borrow money. The last loan was even used to pay for Melecio’s wedding. Finally, the
spouses Molina asserted that Melecio built his nipa hut on the subject property only in 1999, without their
knowledge and consent.13

The spouses Molina presented Jaime Garlitos (Jaime) as their sole witness and who is one of the occupants of
the subject lot.
Jaime testified that Elena Molina permitted him to build a house on the subject property in 1993. Jaime,
together with the other tenants, planted fruit bearing trees on the subject property and gave portions of their
harvest to Elena Molina without any complaint from Melecio. Jaime further testified that Melecio never lived on
the subject property and that only George Domingo, as the caretaker of the spouses Molina, has a hut on the
property.

Meanwhile, the spouses Molina died during the pendency of the case and were substituted by their adopted
son, Cornelio Molina.14

THE RTC RULING

The Regional Trial Court (RTC) dismissed15 the case because Melecio failed to establish his claim that
Anastacio did not sell the property to the spouses Molina.

The RTC also held that Anastacio could dispose of conjugal property without Flora’s consent since the sale
was necessary to answer for conjugal liabilities.

The RTC denied Melecio’s motion for reconsideration of the RTC ruling. From this ruling, Melecio proceeded
with his appeal to the CA.

THE CA RULING

In a decision dated August 9, 2011, the CA affirmed the RTC ruling in toto.

The CA held that Melecio failed to prove by preponderant evidence that there was fraud in the conveyance of
the property to the spouses Molina. The CA gave credence to the OCT annotation of the disputed property
sale.

The CA also held that Flora’s death is immaterial because Anastacio only sold his rights, excluding Flora’s
interest, over the lot to the spouses Molina.1âwphi1 The CA explained that "[t]here is no prohibition against the
sale by the widower of real property formerly belonging to the conjugal partnership of gains"16.

Finally, the CA held that Melecio’s action has prescribed. According to the CA, Melecio failed to file the action
within one year after entry of the decree of registration.

Melecio filed a motion for reconsideration of the CA Decision. The CA denied Melecio’s motion for
reconsideration for lack of merit.17

THE PETITION

Melecio filed the present petition for review on certiorari to challenge the CA ruling.

Melecio principally argues that the sale of land belonging to the conjugal partnership without the wife’s consent
is invalid.

Melecio also claims that fraud attended the conveyance of the subject property and the absence of any
document evidencing the alleged sale made the transfer null and void. Finally, Melecio claims that the action
has not yet prescribed.

The respondents, on the other hand, submitted and adopted their arguments in their Appeal Brief18.

First, Melecio’s counsel admitted that Anastacio had given the lot title in payment of the debt amounting to
Php30,000.00. The delivery of the title is constructive delivery of the lot itself based on Article 1498, paragraph
2 of

the Civil Code.

Second, the constructive delivery of the title coupled with the spouses Molina’s exercise of attributes of
ownership over the subject property, perfected the sale and completed the transfer of ownership.

THE ISSUES

The core issues of the petition are as follows: (1) whether the sale of a conjugal property to the spouses Molina
without Flora’s consent is valid and legal; and (2) whether fraud attended the transfer of the subject property to
the spouses Molina.

OUR RULING

We deny the petition.
It is well settled that when the trial court’s factual findings have been affirmed by the CA, the findings are
generally conclusive and binding upon the Court and may no longer be reviewed on Rule 45 petitions.19 While
there are exceptions20 to this rule, the Court finds no applicable exception with respect to the lower courts’
finding that the subject property was Anastacio and Flora’s conjugal property. Records before the Court show
that the parties did not dispute the conjugal nature of the property.

Melecio argues that the sale of the disputed property to the spouses Molina is void without Flora’s consent.

We do not find Melecio’s argument meritorious.

Anastacio and Flora’s

conjugal partnership was
dissolved upon Flora’s death.

There is no dispute that Anastacio and Flora Domingo married before the Family Code’s effectivity on
August 3, 1988 and their property relation is a conjugal partnership.21

Conjugal partnership of gains established before and after the effectivity of the Family Code are governed by
the rules found in Chapter 4 (Conjugal Partnership of Gains) of Title IV (Property Relations Between Husband
and Wife) of the Family Code. This is clear from Article 105 of the Family Code which states:

x x x The provisions of this Chapter shall also apply to conjugal partnerships of gains already established
between spouses before the effectivity of this Code, without prejudice to vested rights already acquired in
accordance with the Civil Code or other laws, as provided in Article 256.

The conjugal partnership of Anastacio and Flora was dissolved when Flora died in 1968, pursuant to
Article 175 (1) of the Civil Code22 (now Article 126 (1) of the Family Code).

Article 130 of the Family Code requires the liquidation of the conjugal partnership upon death of a spouse and
prohibits any disposition or encumbrance of the conjugal property prior to the conjugal partnership liquidation,
to quote:

Article 130. Upon the termination of the marriage by death, the conjugal partnership property shall be
liquidated in the same proceeding for the settlement of the estate of the deceased.

If no judicial settlement proceeding is instituted, the surviving spouse shall liquidate the conjugal partnership
property either judicially or extrajudicially within one year from the death of the deceased spouse. If upon the
lapse of the six month period no liquidation is made, any disposition or encumbrance involving the
conjugal partnership property of the terminated marriage shall be void. x x x (emphases supplied)

While Article 130 of the Family Code provides that any disposition involving the conjugal property without prior
liquidation of the partnership shall be void, this rule does not apply since the provisions of the Family Code
shall be "without prejudice to vested rights already acquired in accordance with the Civil Code or other laws."23

An implied co-ownership
among Flora’s heirs governed
the conjugal properties
pending liquidation and
partition.

In the case of Taningco v. Register of Deeds of Laguna,24 we held that the properties of a dissolved conjugal
partnership fall under the regime of co-ownership among the surviving spouse and the heirs of the deceased

spouse until final liquidation and partition. The surviving spouse, however, has an actual and vested one-half
undivided share of the properties, which does not consist of determinate and segregated properties until
liquidation

and partition of the conjugal partnership.

An implied ordinary co-ownership ensued among Flora’s surviving heirs, including Anastacio, with respect to
Flora’s share of the conjugal partnership until final liquidation and partition; Anastacio, on the other hand, owns
one-half of the original conjugal partnership properties as his share, but this is an undivided interest.

Article 493 of the Civil Code on co-ownership provides:

Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining
thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its
enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with
respect to the co-owners, shall be limited to the portion which may be allotted to him in the division
upon the termination of the co-ownership. (399) (emphases supplied)
Thus, Anastacio, as co-owner, cannot claim title to any specific portion of the conjugal properties without an
actual partition being first done either by agreement or by judicial decree. Nonetheless, Anastacio had the right
to freely sell and dispose of his undivided interest in the subject property.

The spouses Molina became

co-owners of the subject
property to the extent of
Anastacio’s interest.

The OCT annotation of the sale to the spouses Molina reads that "[o]nly the rights, interests and
participation of Anastacio Domingo, married to Flora Dela Cruz, is hereby sold, transferred, and conveyed
unto the said vendees for the sum of ONE THOUSAND PESOS (P1,000.00) which pertains to an undivided
one-half (1/2) portion and subject to all other conditions specified in the document x x x"25 (emphases
supplied). At the time of the sale, Anastacio’s undivided interest in the conjugal properties consisted of: (1)
one-half of the entire conjugal properties; and (2) his share as Flora’s heir on the conjugal properties.

Anastacio, as a co-owner, had the right to freely sell and dispose of his undivided interest, but not the interest
of his co-owners. Consequently, Anastactio’s sale to the spouses Molina without the consent of the other co-
owners was not totally void, for Anastacio’s rights or a portion thereof were thereby effectively transferred,
making the spouses Molina a co-owner of the subject property to the extent of Anastacio’s interest. This result
conforms with the well-established principle that the binding force of a contract must be recognized as far as it
is legally possible to do so (quando res non valet ut ago, valeat quantum valere potest).26

The spouses Molina would be a trustee for the benefit of the co-heirs of Anastacio in respect of any portion that
might belong to the co-heirs after liquidation and partition. The observations of Justice Paras cited in the case
of Heirs of Protacio Go, Sr. V. Servacio27 are instructive:

x x x [I]f it turns out that the property alienated or mortgaged really would pertain to the share of the surviving
spouse, then said transaction is valid. If it turns out that there really would be, after liquidation, no more
conjugal assets then the whole transaction is null and void. But if it turns out that half of the property thus
alienated or mortgaged belongs to the husband as his share in the conjugal partnership, and half should go to
the estate of the wife, then that corresponding to the husband is valid, and that corresponding to the other is
not. Since all these can be determined only at the time the liquidation is over, it follows logically that a disposal
made by the surviving spouse is not void ab initio. Thus, it has been held that the sale of conjugal properties
cannot be made by the surviving spouse without the legal requirements. The sale is void as to the share of the
deceased spouse (except of course as to that portion of the husband’s share inherited by her as the surviving
spouse). The buyers of the property that could not be validly sold become trustees of said portion for the
benefit of the husband’s other heirs, the cestui que trust ent. Said heirs shall not be barred by prescription or
by laches.

Melecio’s recourse as a co-owner of the conjugal properties, including the subject property, is an action for
partition under Rule 69 of the Revised Rules of Court. As held in the case of Heirs of Protacio Go, Sr., "it is
now settled that the appropriate recourse of co-owners in cases where their consent were not secured in a sale
of the entire property as well as in a sale merely of the undivided shares of some of the co-owners is an action
for PARTITION under Rule 69 of the Revised Rules of Court."28

The sale of the subject

property to the spouses Molina
was not attended with fraud.

On the issue of fraud, the lower courts found that there was no fraud in the sale of the disputed property to the
spouses Molina.

The issue of fraud would require the Court to inquire into the weight of evidentiary matters to determine the
merits of the petition and is essentially factual in nature. It is basic that factual questions cannot be cannot be
entertained in a Rule 45 petition, unless it falls under any of the recognized exceptions29 found in
jurisprudence. The present petition does not show that it falls under any of the exceptions allowing factual
review.

The CA and RTC conclusion that there is no fraud in the sale is supported by the evidence on record.

Melecio' s argument that no document was executed for the sale is negated by the CA finding that there was a
notarized deed of conveyance executed between Anastacio and the spouses Molina, as annotated on the OCT
of the disputed property.

Furthermore, Melecio's belief that Anastacio could not have sold the property without his knowledge cannot be
considered as proof of fraud to invalidate the spouses Molina's registered title over the subject property.30

Prevailing jurisprudence uniformly holds that findings of facts of the trial court, particularly when affirmed by the
Court of Appeals, are binding upon t his court. 31

Considering these findings, we find no need to discuss the other issues raised by Melecio.
WHEREFORE, we hereby DENY the petition for review on certiorari. The decision dated August 9, 2011 of the
Court of Appeals in CA-G.R. CV No. 94160 is AFFIRMED.

SO ORDERED.