SALES

(September 26, 2018)

V. PRICE

Meaning of Price

Article 1469. In order that the price may be considered certain, it shall be sufficient that it be so with
reference to another thing certain, or that the determination thereof be left to the judgment of a special
person or persons.

Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless
the parties subsequently agree upon the price.

If the third person or persons acted in bad faith or by mistake, the courts may fix the price.

Where such third person or persons are prevented from fixing the price or terms by fault of the seller or
the buyer, the party not in fault may have such remedies against the party in fault as are allowed the
seller or the buyer, as the case may be. (1447a)

Article 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a
defect in the consent, or that the parties really intended a donation or some other act or contract. (n)

Article 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a
donation, or some other act or contract. (n)

Article 1472. The price of securities, grain, liquids, and other things shall also be considered certain,
when the price fixed is that which the thing sold would have on a definite day, or in a particular exchange
or market, or when an amount is fixed above or below the price on such day, or in such exchange or
market, provided said amount be certain. (1448)

Article 1473. The fixing of the price can never be left to the discretion of one of the contracting parties.
However, if the price fixed by one of the parties is accepted by the other, the sale is perfected. (1449a)

Article 1474. Where the price cannot be determined in accordance with the preceding articles, or in any
other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to
and appropriated by the buyer he must pay a reasonable price therefor. What is a reasonable price is a
question of fact dependent on the circumstances of each particular case. (n)

Requisites for a valid price

1. Must be real (Art. 1471)

a. When price simulated
b. Effects when price simulated
c. False consideration

Article 1353. The statement of a false cause in contracts shall render them void, if it should not be
proved that they were founded upon another cause which is true and lawful. (1276)
Article 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary. (1277)

Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (n)

Mapalo v. Mapalo

FACTS:

Spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered owners of a
residential land in Manaoag, Pangasinan. Said spouses out of love for Maximo Mapalo — Miguel’s brother
who was about to get married — decided to donate the eastern half of the land to him. As a result, in 1936,
they were deceived into signing a deed of absolute sale over the entire land in Maximo’s favor. The
document of sale stated a consideration of P500.00 which Spouses Mapalo did not receive anything.
Following the execution of document, Miguel and Candida built a fence of permanent structure in the middle
of the land segregating the eastern portion from its western portion. 13 years later, Maximo sold for
P2,500.00 the entire land in favor of the Narcicos and they registered the same. Narcisos filed to be
declared owners of the entire land with possession of its western portion. Spouses Mapalo contend that the
deed of sale of 1936 was procured with fraud and the Narcicos were buyers in bad faith. Also, it was invoked
that the deeds of sale be declared null and void as to the western half of said land for being fictitious. In
reversing the ruling of the CFI, the CA averred that having obtained the deed of sale by fraud, the same
was voidable, not void ab initio and the action to annul the same had already prescribed which was within
4 years of notice of fraud. While they are definitely victims, they lost their right by prescription.

ISSUE:

Does the contract involve ‘no consideration’ or ‘false consideration’?

HELD:

The rule under the Civil Code, be it the old or the new, is that contracts without a cause or consideration
produce no effect whatsoever. Nonetheless, under the Old Civil Code, the statement of a false
consideration renders the contract voidable, unless it is proven that it is supported by another real and licit
consideration. And it is further provided by the Old Civil Code that the action for annulment of a contract on
the ground of falsity of consideration shall last 4 years, the term to run from the date of the consummation
of the contract. In the present case, the contract of sale has no consideration and therefore it is void and
inexistent for the said consideration of P500.00 was totally absent. Purchase price which appears thereon
as paid has in fact never been paid by the purchaser to vendor. This is contrary to what is meant by a
contract that states a false consideration is one that has in fact a real consideration but the same is not the
one stated in the document. Needless to add, the inexistence of a contract is permanent and incurable and
cannot be the subject of prescription.

Ong v. Ong

SUBJECT: When price is false; Artile 1354

FACTS:
 In 1976, Imelda Ong, for and in consideration of 1php and other valuable considerations, executed
in favor of private respondent Sanra Maruzzo, then a minor, a Quitclaim Deed whereby she
transferred, released, assigned and quitclaimed to Sanra, her heirs and assigns, all her rights, title,
interest, and participation in ½ undivided portion of the parcel of land.
 In 1980, Imelda Ong revoked the aforesaid quitclaim and donated the whole property to her son,
Rex Jimenez.
  In 1983, Sandra, through her guardian ad litem Alfredo Ong, filed with the RTC an action against
petitioners, for the recovery of ownership/possession and nullification of the Deed of Donation over
the portion belonging to her.
 The petitioners claimed that the Quitclaim Deed is null and void inasmuch as it is equivalent to a
Deed of Donation, acceptance of which by the done is necessary to give its validity. Since Sandra
is a minor, she had no legal personality and therefore incapable of accepting the donation.

RTC: ruled in favor of respondent and held that the quitclaim deed equivalent to a deed of sale and, hence,
there as a valid conveyance in favor of the latter.
IAC: affirmed the RTC decision and held that the Quitclaim Deed is a conveyance of property with a valid
cause or consideration.

 In 1985, respondent Sanra, through her guardian ad litem, filed an Omnibus Motion informing the
SC that she had already reached the age of minority

ISSUE:

HELD:
Although the cause is not stated in the contract it is presumed that it is existing unless the debtor proves
the contrary (Article 1354, CC). It is a legal presumption of sufficient cause or consideration supporting a
contract even if such cause is not state therein (Article 1354, NCC). This presumption cannot be overcome
by a simple assertion of lack of consideration especially when the contract itself states that consideration
was given, and the same has been reduced into a public instrument with all due formalities and solemnities.
To overcome the presumption of consideration the alleged lack of consideration must be shown by
preponderance of evidence in a proper action.

Under Article 1350 of the Civil Code, bad faith and inadequacy of the monetary consideration do not render
a conveyance inexistent, for the assignor’s liberality may be sufficient cause for a valid contract. Whereas
fraud or bad faith may render either rescissible or voidable contract, although valid until annulled, a contract
concerning an object certain entered into with a cause and with the consent of the contracting parties.

The decision of the IAC is affirmed.

Bagnas v. CA

Facts:

Hilario Mateum died on March 11, 1964, single, without ascendants or descendants, and survived only by
petitioners who are his collateral relatives. He left no will, no debts, and an estate consisting of 29 parcels
of land in Kawit and Imus, 10 of which are involved in this controversy. On April 3, 1964, respondents who
are also collateral relatives of the deceased, but more remote, registered 2 deeds of sale purportedly
executed by Mateum in their favor. The considerations were P1.00 and “services rendered, being rendered,
and to be rendered for my benefit”. On the strength of the deeds, respondents were able to secure title over
the 10 parcels of land. On May 22, 1964, petitioners commenced a suit against respondents, seeking
annulment of the deeds of sale a fictitious, fraudulent or falsified or, alternatively, as donations void for want
of acceptance in public instrument. Respondents contend that the sales were made for valuable
considerations, and attacked the legal standing of the petitioners as being mere collateral heirs.

Issues:

(1) Whether petitioners have the legal standing to sue

(2) Whether the sale is void for want of consideration

Held:

(1) The law as it is now no longer deems contracts with a false cause, or which are absolutely simulated
or fictitious, merely voidable, but declares them void, i.e., inexistent ("nulo") unless it is shown that they are
supported by another true and lawful cause or consideration. A logical consequence of that change is the
juridical status of contracts without, or with a false, cause is that conveyances of property affected with such
a vice cannot operate to divest and transfer ownership, even if unimpugned. If afterwards the transferor
dies the property descends to his heirs, and without regard to the manner in which they are called to the
succession, said heirs may bring an action to recover the property from the purported transferee. As pointed
out, such an action is not founded on fraud, but on the premise that the property never leaves the estate of
the transferor and is transmitted upon his death to heirs, who would labor under no incapacity to maintain
the action from the mere fact that they may be only collateral relatives and bound neither principally or
subsidiarily under the deed or contract of conveyance.

(2) Upon the consideration alone that the apparent gross, not to say enormous, disproportion between
the stipulated price (in each deed) of P l.00 plus unspecified and unquantified services and the undisputably
valuable real estate allegedly sold worth at least P10,500.00 going only by assessments for tax purposes
which, it is well-known, are notoriously low indicators of actual value plainly and unquestionably
demonstrates that they state a false and fictitious consideration, and no other true and lawful cause having
been shown, the Court finds both said deeds, insofar as they purport to be sales, not merely voidable, but
void ab initio. Neither can the validity of said conveyances be defended on the theory that their true causa
is the liberality of the transferor and they may be considered in reality donations because the law also
prescribes that donations of immovable property, to be valid, must be made and accepted in a public
instrument, and it is not denied by the respondents that there has been no such acceptance which they
claim is not required. The transfers in question being void, it follows as a necessary consequence and
conformably to the concurring opinion in Armentia, with which the Court fully agrees, that the properties
purportedly conveyed remained part of the estate of Hilario Mateum, said transfers notwithstanding,
recoverable by his intestate heirs, the petitioners herein, whose status as such is not challenged.

Morales v. CA

Facts:

- Petitioner Morales Development Co., Inc. (Morales) seeks the review on certiorari of a decision of the
CA reversing that of CFI Quezon

- Montinola -> Reyes -> Abellas -> Deseos

> Lot No. 2488 used to belong to Enrique P. Montinola and was covered by TCT No. T-15687 of
the Register of Deeds of said province, in his name.

>> Alleging that his owner's duplicate copy of said certificate had been lost, Montinola
succeeded in securing, from the abovementioned Court , an order for the issuance of a
second owner's duplicate, with which he managed to sell the lot, on September 24, 1954,
to Pio Reyes.

> Upon registration of the deed of sale to Reyes, said TCT No. T-15687 was cancelled and, in
lieu thereof, TCT No. 21036, in the name of Reyes, was issued on November 18, 1954.

> Lupo Abella, married to Felisa Aguilar (Abellas) purchased the land from Reyes, whereupon the
deed of conveyance, executed by Reyes, was registered and the Abellas got TCT No. 21037 in
their name, upon cancellation of said TCT No. 21036.
 > About 7 months later, or on June 16, 1955: the Abellas sold the land, for P7,000, (P4,500 was
then paid) to the Deseos (Hermenegildo Deseo and Socorro Deseo), who immediately took
possession of the property.

- Montinola -> Morales

> It appears, however, that the first owner's duplicate of TCT No. T-15687 was either never lost or
subsequently found by Montinola, who, making use of it, mortgaged, the lot in question, before
February 21, 1956, to the Philippine National Bank, for P700.

> Then, on the date last mentioned, Montinola sold the property to Morales, for P2,000, from
which the sum due to the Bank was deducted.

> Upon presentation of the deed of sale in favor of Morales, the latter was advised by the office of
the Register of Deeds of Quezon that said TCT No. T-15687 had already been cancelled and the
property sold, first, to Pio Reyes, and, then, to the Abellas.

> Morales filed a petition for the annulment and cancellation of the second owner's copy of TCT
No. T-15687.

> After due notice to Reyes and the Abellas, but not to the Deseos, said petition was granted on
March 12, 1956.

- The Deseos’ brought an action to annul a sale to Morales of lot No. 2488 of the Cadastral Survey of
Catanauan, Province of Quezon, and to secure the registration of a deed of conveyance of said lot in their
favor.

> According to the Deseos, they enjoy preference over the sale to Morales having, prior to
Morales, bought lot No. 2488 in good faith and for value, and having been first in possession of
said lot, likewise, in good faith.

- Morales claimed to have a better right upon the ground that it had bought the property in good faith and
for value, relying upon the first owner's duplicate copy of TCT No. T-15687, unlike the Deseos, whose
predecessor in interest, Pio Reyes, had relied upon the second owner's duplicate, which is alleged by
Morales to have been secured fraudulently

> Morales also alleges that the sale to Reyes and that made by the latter to the Abellas are null
and void, because both sales took place under suspicious circumstances (consideration stated in
the deeds of sale in favor of Reyes and the Abellas is P1.00), so that Reyes and the Abellas were
not purchasers in good faith and for value.

- CFI: Rendered judgment in Morales’ favor

- CA: Reversed the CFI decision

Issue/s:

- W/N the sale by Montinola to Reyes and that made by Reyes to the Abellas are null and void based
upon the fact that the consideration stated in the deeds of sale in favor of Reyes and the Abellas is P1.00.
(No.)

Held / Ratio:
- The CA decision is affirmed.

- Adhering to the Anglo-Saxon practice

> It is not unusual in deeds of conveyance to state that the consideration given is the sum of
P1.00, although the actual consideration may have been much more.

- Assuming that P1.00 consideration is suspicious

> This does not necessarily justify the inference that Reyes and the Abellas were not purchasers
in good faith and for value.

> Neither does this inference warrant the conclusion that the sales were null and void ab initio.

> Bad faith and inadequacy of the monetary consideration do not render a conveyance inexistent,
for the assignor's liberality may be sufficient cause for a valid contract, whereas fraud or bad faith
may render either rescissible or voidable although valid until annulled, a contract concerning an
object certain, entered into with a cause and with the consent of the contracting parties, as in the
case at bar.

> The aforementioned conveyance may not be annulled, in the case at bar, inasmuch as Reyes
and the Abellas are not parties therein.

- The Deseos had bought the land in question for value and in good faith.

> They relied upon the transfer certificate of title in the name of their assignors, the Abellas.

> The sale by the latter to the former preceded the purchase made by Morales, by about eight (8)
months, and the Deseos took immediate possession of the land, which was actually held by them
at the time of its conveyance to Morales by Montinola, and is in the possession of the Deseos, up
to the present.

> TCT No. T-15687, in the name of Montinola, had been cancelled over a year before he sold the
property to Morales, who, in turn, was informed of this fact, what it sought to register the deed of
conveyance in its favor.

> TCT No. 21037, in the name of the Abellas, on which the Deseos had relied in buying the lot in
dispute, has not been ordered cancelled.

- Possession

> Since the object of this litigation is a registered land and the two (2) buyers have so far been
unable to register the deeds of conveyance in their respective favor, it follows that “the
ownership” of said lot “pertain(s)” — pursuant to Article 1544 of our Civil Code — to the Deseos,
as the only party who took possession thereof in good faith.
- Negligence

> Morales argues that it was not enough for the Deseos to have gone to the office of the Register
of Deeds and found therein that there were no flaws in the title of the Abellas, and that the
Deseos should have, also, ascertained why the Abellas had paid only P1.00 to Reyes, and why
the latter had paid the same amount to Montinola.

> To begin with, the Deseos did not know that said sum was the consideration paid by the
Abellas to Reyes and by Reyes to Montinola.

> Also, the Deseos were not bound to check the deeds of conveyance by Reyes to the Abellas,
and by Montinola to Reyes. Having found that the owner's duplicate copy of TCT No. 21037, in
the name of the Abellas, was a genuine copy of the original on file with the Office of the Register
of Deeds, the Deseos were fully justified in relying upon said TCT No. 21037, and had no legal
obligation to make farther investigation.

> Lastly, if the SC were we to adopt the process of reasoning advocated by Morales, the result
would still be adverse thereto. If it were not sufficient for the Deseos to verify in said office the
genuineness of the owner's duplicate of TCT No. 21037, much less would Morales have been
justified in relying upon Montinola's copy of TCT No, T-15687 in his name.

>> In fact, had Morales, at least gone to the Office of the Register of Deeds as the
Deseos did before purchasing the property in dispute, Morales would have found out, not only
that TCT No. T-15687 had long been cancelled, but, also, that the property had been previously
sold by Montinola to Reyes and by Reyes to the Abellas. In short, the negligence of Morales was
the proximate cause of the resulting wrong, and, hence, Morales should be the party to suffer its
consequences.

d. Non-payment of price

2. Must be in money or its equivalent

Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership 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. (1445a)

Article 1468. If the consideration of the contract consists partly in money, and partly in another thing, the
transaction shall be characterized by the manifest intention of the parties. If such intention does not
clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration
exceeds the amount of the money or its equivalent; otherwise, it is a sale. (1446a)

Republic v. Phil. Resources

FACTS:
Macario Apostol, allegedly acting for the Philippine Resources Development Corp. (PRDC),
contracted with the Bureau of Prison for the purchase of 100 tons of designated logs, but only a small
payment of the purchase price was made. In lieu of the balance of the purchase price, he caused to be
delivered goods of the PRDC to the Bureau of Prison as payment for the outstanding price. The
Government asserted that the subject matter of its litigation with Apostol was a sum of money allegedly due
to the Bureau of Prison from Apostol and not the goods reportedly turned over by Apostol in payment of his
private debt to the Bureau of Prison and the recovery of which was sought by PRDC; and for this reason,
PRDC had no legal interest in the very subject matter in litigation as to entitle it to intervene. The
Government argued that the goods which belonged to PRDC were not connected with the sale because
“Price ... is always paid in terms of money and the supposed payment being in kind, it is no payment at all

ISSUE: Whether PRDC had the right to intervene in the sales transaction executed between Apostol and
the Bureau of Prisons and in the suit brought by the Government to enforce such sale.

HELD:
The Court held that the Government’s contentions were untenable, ruling that Article 1458 provides
that the purchaser may pay “a price certain in money or its equivalent,” which means payment of the price
need not be in money. Whether the goods claimed by PRDC belong to it and delivered to the Bureau of
Prison by Apostol in payment of his account is sufficient payment therefor, is for the court to pass upon and
decide after hearing all the parties in the case. PRDC therefore had a positive right to intervene in the case
because should the trial court credit Apostol with the value price of the materials delivered by him, certainly
PRDC would be affected adversely if its claim of ownership to such goods were upheld.
Republic is not at all authority to say that under Article 1458, as it defines a contract of sale, the
term “equivalent” of price can cover other than money or other media of exchange, since Republic covers
not the perfection stage of a contract of sale, but rather the consummation stage where the price agreed
upon (which ideally should be in money or its equivalent) can be paid under the mutual arrangements
agreed upon by the parties to the contract of sale, even by dation in payment, as was the case in Republic.

3. Must be certain or ascertainable at time of perfection (Art. 1469)

Toyota Shaw v. CA

Facts:

Sosa wanted to purchase a Toyota Car. She met Bernardo, the sales representative of Toyota. Sosa
emphasized to the sales rep that she needed the car not later than 17 June 1989. They contracted an
agreement on the delivery of the unit and that the balance of the purchase price would be paid by credit
financing. The following day, Sosa delivered the downpayment and a Vehicle sales proposal was printed.
On the day of delivery, Bernardo called Sosa to inform him that the car could not be delivered. Toyota
contends, on the other hand, that the Lite Ace was not delivered to Sosa because of the disapproval by
B.A. Finance of the credit financing application of Sosa. Toyota then gave Sosa the option to purchase the
unit by paying the full purchase price in cash but Sosa refused. Sosa asked that his down payment be
refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount, which
Sosa signed with the reservation, “without prejudice to our future claims for damages.” Thereafter, Sosa
sent two letters to Toyota. In the first letter, she demanded the refund of the down payment plus interest
from the time she paid it and for damages. Toyota refused to the demands of Sosa.

Issue:
Whether or not there was a perfected contract of sale

Ruling:
What is clear from the agreement signed by Sosa and Gilbert is not a contract of sale. No obligation on the
part of Toyota to transfer ownership of the car to Sosa and no correlative obligation on the part of Sosa to
pay . The provision on the down payment of PIOO,OOO.OO made no specific reference to a sale of a
vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP
executed the following day. Nothing was mentioned about the full purchase price and the manner the
installments were to be paid. An agreement on the manner of payment of the price is an essential element
in the formation of a binding and enforceable contract of sale. This is so because the agreement as to the
manner of payment goes, into the price such that a disagreement on the manner of payment is tantamount
to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement
to sell personal property.

How Price is determined

1. By a third person (Art. 1469)
2. By the courts (Art. 1469)
3. By reference to a definite day (Art. 1472)
4. By reference to another thing certain
5. Never by one party (Art. 1472, Art. 1182)
Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the
obligation shall take effect in conformity with the provisions of this Code. (1115)

Inadequacy of Price (Art. 1355, 1470)

Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (n)

When no Price agreed (Art. 1474)

Manner of Payment must be agreed upon

Velasco v. CA

FACTS:
 Lorenzo Velasco filed a complaint for specific performance against respondent, Magdalena Estate
Inc.
 Petitioner alleged that:
1. Nov 29, 1962, petitioner and respondent entered into a contract of sale;
2. They agreed that the subject matter of the sale is a parcel of land with an area of 2, 059 sq
m for P100,000;
3. The agreement was that he was to give a down payment of P10, 000 to be followed by
P20, 000 and the balance of P70, 000 would be paid in installment, the equal amortization
of which was to be determined as soon as the P30, 000 is completed.
4. He paid the P10, 000 as down payment on Nov 29, 1962 as per receipt.
5. He tendered the amount of P20, 000 to complete P30, 000. However, respondent refused
to execute a formal deed of sale.
 The respondent denies that it has had any dealings or contractual relation with the petitioner.
Alleges that the said contract of sale is unenforceable under Statutes of Frauds.
 The respondent alleged that:
1. The subject parcel of land is leased to Socorro Velasco who indicated her desire to
purchase the said lot.
2. They agreed that the price of P100, 000.00 under the condition that a down payment of
P30, 000.00 be made, P20, 000.00 of which was to be paid on November 31, 1962, and
that the balance of P70, 000.00 including interest a 9% per annum was to be paid on
installments for a period of ten years at the rate of P5, 381.32 on June 30 and December
of every year until the same shall have been fully paid.
3. Socorro Velasco offered the amount of P10, 000 as a down payment, which was received
by the respondent. A receipt was made in the name of her brother-in-law, herein petitioner.
4. Socorro failed to complete the down payement. However, she tendered the amount of P20,
000 however, respondent refused to accept for it considered the contract as rescinded.

ISSUE: WON there is a valid contract of sale

HELD: NONE. The material averments shows that there is a lack of complete agreement in
regards to the manner of payments.
The petitioners admitted that they have to meet with the respondents to agree on how and when
the down payment and the installments were to be paid.
The definite agreement as to the manner of payment of purchase price is essential element in the
formation of a binding and unforceable contract of sale. The payment of the down payment cannot be
considered as sufficient proof of perfection of any purchase and sale agreement beteweeen the partes
provided under Art 1482 of the New Civil Code, the terms of payment still had to be mutually covenanted.

Earnest Money v. Option Money

Article 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract. (1454a)

Limson v. CA

FACTS:

This is a Petition for Review on Certiorari to review, reverse and set aside the Decision of the Court of
Appeals which reversed the Decision of the Regional Trial Court. The petitioner likewise assails
the Resolution of the appellate court denying petitioner's Motion for Reconsideration.

Petitioner Lourdes Ong Limson and respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera
agreed that petitioner would buy a parcel of land owned by respondents. On 31 July 1978, petitioner paid
P20,000 as "earnest money"; respondents signed a receipt and gave her a 10-day option period to purchase
the property.

The parties agreed to meet on August 5 and August 11, but failed to consummate the sale because the
respondent spouses did not appear. Petitioner soon learned that subject propery was also under
negotiation with respondent spouses and with Sunvar Realty Development Corporation (SUNVAR). On 15
September 1978, Limson filed an affidavit of Adverse Claim with the Office of the Registry of Deeds and
informed SUNVAR. TCT N0. S-72377 was issued on 26 September 1978 in favor of SUNVAR with
the adverse Claim of petitioner annotated thereon.

Petitioner claimed that the Deed of Sale should be annuled, that TCT No. S-72377 be canceled and
ownership be restored to respondent spouses, and that a Deed of Sale be executed in favor of her.

The Regional Trial Court rendered its Decision in favor of petitioner. On appeal, the Court of Appeals
completely reversed the decision of the trial court. Petitioner timely filed a Motion for Reconsideration which
was denied by the Court of Appeals on 19 October 1998. Hence, this petition.

ISSUES:

(1) Whether or not there was a perfected contract to sell between petitioner and respondent spouses.

(2) Whether or not the P20,000 paid by Limson represented "earnest money".

RULING:
(1) No, there was no perfected contract to sell. 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.1

(2) No, the money paid by petitioner was 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. 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.

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.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.

San Miguel Properties v. Huang

San Miguel Properties vs. Sps. Huang

Facts: San Miguel Properties is engaged in the purchase and sale of real properties, of which include two
parcels of land. These properties were offered for sale at P52,140,000.00. Such offer was made to Atty.
Dauz on behalf of Sps. Huang. Atty. Dauz wrote San Miguel informing the respondents’ interest to buy the
property and enclosed therein a check (P1,000,000.00) as earnest deposit subject to certain conditions, 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. Sobrecarey, San Miguel Properties VP indicated his conformity to the offer; signed the
letter; and accepted the earnest deposit. By agreement of the parties, they agreed that respondents will be
given 6 months within which to pay. Upon failure of respondents to pay despite the extension of time given,
petitioner through its Pres & CEO Gonzales, wrote Atty. Dauz, that they are returning the earnest deposit.
Respondent spouses through counsel, wrote petitioner demanding the execution of a deed of conveyance
in their favor. They attempted to return the earnest deposit but was refused by San Miguel. Respondent
spouses filed a complaint for specific performance. Trial court, upon motion, dismissed the complaint, which
was reversed by the CA.

Arguments:

San Miguel: the Court of Appeals erred in finding that there was a perfected contract of sale between the
parties because the 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 courts ruling that Isidro A. Sobrecarey had authority to sell the subject real properties.

Sps. Huang: As held by CA, there is a perfected contract of sale since the earnest money was allegedly
given by respondents and accepted by petitioner through its vice-president and operations manager,
Sobrecarey. The Court holds that respondents did not give the P1 million as "earnest money" as provided
by Art. 1482 of the Civil Code. They presented the amount merely as a deposit of what would eventually
become the earnest money or 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.

Issue:

WON the earnest deposit could have been given as earnest money contemplated in Art. 1482, and thus
there was a perfected contract of sale.

Held: No, hence, there was no perfected contract of sale.

In the present case, the P1 million "earnest-deposit" could not have been given as earnest money as
contemplated in Art. 1482 because, at the time when petitioner accepted the terms of respondents’ offer,
their contract had not yet been perfected. The first condition for an option period of 30 days

sufficiently shows that a sale was never perfected. 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.

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.
Was it an earnest deposit? NO. At the time when petitioner accepted the terms of respondents’ offer of
March 29, 1994, their contract had not yet been perfected. It does not satisfy Article 1482.

The stages of a contract of sale are as follows: (1) negotiation, (2) perfection, and (3) consummation. The
alleged “indubitable evidence” 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.

There was also failure to agree on the manner of payment. 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.

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
 VI. FORMATION OF THE CONTRACT OF SALE

PREPARATORY

Article 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
promisor if the promise is supported by a consideration distinct from the price. (1451a)

1. Offer

Article 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts. (1450a)

Villonco v. Bormaheco

FACTS:
Francisco Cervantes of Bormaheco Inc. agrees to sell to Villonco Realty a parcel of land and its
improvements located in Buendia, Makati.

Bormaheco made the terms and condition for the sale and Villonco returned it with some modifications.

The sale is for P400 per square meter but it is only to be consummated after respondent shall have also
consummated purchase of a property in Sta. Ana, Manila. Bormaheco won the bidding for the Sta.Ana
land and subsequently bought the property.

Villonco issued a check to Bormaheco amounting to P100,000 as earnest money. 26 days after signing
the contract of sale, Bormaheco returned the P100,000 to Villonco with 10% interest for the reason that
they are not sure yet if they will acquire the Sta.Ana property.
Villonco rejected the return of the check and demanded for specific performance.

ISSUE:
WON Bormaheco is bound to perform the contract with Villonco.

HELD:
The contract is already consummated when Bormaheco accepted the offer by Villonco. The acceptance
can be proven when Bormaheco accepted the check from Villonco and then returned it with 10% interest
as stipulated in the terms made by Villonco.
On the other hand, the fact that Villonco did not object when Bormaheco encashed the check is a proof
that it accepted the offer of Bormaheco.

Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as
proof of the perfection of the contract" (Art. 1482, Civil Code).

a. Forms of offer

Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where the
offer was made. (1262a)

Article 1325. Unless it appears otherwise, business advertisements of things for sale are not definite
offers, but mere invitations to make an offer. (n)

Article 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is
not bound to accept the highest or lowest bidder, unless the contrary appears. (n)

Zayco v. Serra

FACTS:

Nov. 7, 1989 - Lorenzo Zayco who had a property and Salvador Serra who owned Palma Central
entered into a contract, the pertinent clauses of which state that:

Serra shall give Zayco an option to buy Palma Central for P1M. When the the purchase of Palma Central
is made and Zayco cannot pay the whole price in cash, he has to pay the first half in cash and half paid in
3 years. Provided that the Zayco gives a security or bond that satisfies the party of the first part. The
option of the party to buy or become a partner of Sarra expires on June 30,1919. If its sold or a
partnership with another is formed, Zayco shall have preference to make such a sale or become a partner
over any other persons desiring to purchase the central or enter into a partnership.

June 28, 1919- Zayco through attorney accepted the contract and partly paid using a cash order
from BPI Iloilo for P100,000. Notice was also given to Serra in the letter that PNB agreed to transfer his
long term loan of P600,000 to the account of Zayco to hold him responsible for all the amounts had and
received due to the loan.
 Serra was to be completely removed from responsibility
 Ready to give the bond required by the contract b
 Demanded Serra to execute the deed of sale

Serra knew about it and answered June 30, 1919. But on July 15, Serra wrote that the option
contract of Nov. 7 was cancelled.

July 30, 1919 – Zayco brought suit vs. Serra to compel him to execute the deed of sale, convey
Palma Central, and pay P500,000 damages. Jan. 23, 1920 amended complaint that after Nov. 7 contract
and before June 28, 1919, a stipulation was made by them that the sum to be paid in cash of total price
was P100,000.
 Re first complaint: Serra said contract of Nov. 7, 1918 did not specify the part of the price that
was to be paid in cash and the part that was to be paid not exceeding 3 years
 After amendment: Serra alleged there was no such stipulation that specified how much he
needed to pay.

March 19, 1920- SUPPLEMENTAL COMPLAINT cus Serra sold Palma Central to certain people for
P1.5M on the terms of the said contract. Prayed that Zayco be declared entitled to buy on the same terms
as sthe sale to 3rd parties.

Held:

Nov. 7, 1918 contract: Zayco had the right to (1) buy Palma Central until June 30, 1919, and (2) have
preference, after that date, over any other purchaser making the same terms.
COURT: While it is true that the contract did not state any consideration on the part of Serra, it is
presumed that there is a consideration in all contracts (Art. 1277, CC). Consideration can be proved and
there is evidence in this case.

1. As to the validity and consideration of the contract

The Palma Central was competing with the Bearin Central of Lizarraga Hermanos and both were wooing
Zayco who owned an estate between them that grows sugar cane. Lizarraga offered to remit his P40K
debt, and Serra offered 60% of the sugar milled from his canes in Palma instead of usual 55%. He chose
Palma.
 Contract was valid. These events + contract evidence of consideration. The consideration was
Zayco waiving possible benefits from Bearin and his support/loyalty to Palma Central was
a prestation of a thing or service which benefited Serra.
 Initial agreement was at least an offer to sell which Zayco accepted before it was unknowingly
withdrawn and sold it to someone else. Serra KNEW he accepted the offer before withdrawing it.

2. As to the effect of Zayco’s acceptance

However, Zayco’s acceptance in his letter to support Serra’s Palma Central did not perfect the contract
because for acceptance to have effect, it must be plain and unconditional because if not it’s a new
proposal. The November contract stipulated that a part of the price of P1M that could be paid in
installments, was to be paid in cash. But the amount was undetermined. The 100k given was merely a
proposal since the amount was not clearly specified. But the amount was not accepted by Serra. The
contract should have had: (a) Zayco’s acceptance of the terms, and (b) Serra accepting the 100k.
 Other allegations of Zayco like the stipulation of 100k, that he agreed to assume the P600k debt
of Serra with PNB, were not alleged in the complaint or presented as evidence in court.

3. As to claim to preference

3 justices believe he has preference but majority do not because “plaintiffs have not formally
offered to repay the defendant third parties incurred under the contract.” (I’m sorry I don’t understand
maybe the hard copy has a different phrase”.

ACCEPTANCE OF ZAYCO NOT ENOUGH TO PERFECT THE CONTRACT AND SERRA IS NOT
COMPELLED TO EXECUTE THE SALE.

DISPO: Affirmed judgement.

*Note: The case only mentioned Art. 1277. Did not really cite any other provisions but please keep in
mind the lesson provisions in the syllabus as mentioned under the title.
RSAT
b. Forms of Acceptance (Art. 1319)
c. Vices vitiating consent
Article 1330. A contract where consent is given through mistake, violence, intimidation, undue influence,
or fraud is voidable. (1265a)

Article 1338. There is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not have agreed to.
(1269)

Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing
which is the object of the contract, or to those conditions which have principally moved one or both parties
to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity
or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction. (1266a)

2. Option Contract (Art. 1479, Art 1324)

De la Cavada v. Diaz

FACTS:
Plaintiff Antonio dela Cavada and defendant Antonio Diaz made a Contract of Option where the latter
promised to sell to the former his Hacienda de Pitogo located in Tayabas together with its coconut and
nipa palm trees for 30 and 70 thousand pesos respectively.

The contract provides that Dela Cavada has the right to purchase the land until after Diaz acquires
its Torrens title.

Diaz applied two land titles for the hacienda dividing it in two parts. After the titles have been issued, Diaz
offers to sell to Dela Cavada only a portion of the entire hacienda.

ISSUE:
WON Diaz is obliged to sell to Dela Cavada the entire hacienda and not only a part of it.

HELD:
A promise made by one party, if made in accordance with the forms required by the law, may be a good
consideration (causa) for a promise made by another party.
The contract is complete, provided they have complied with the forms required by the law and the
consideration need not be paid at the time of the promise.

The plaintiff stood ready to comply with his part of the contract. The defendant, even though he had
obtained a registered title to said parcel of land, refused to comply with his promise.

The contract was not, in fact, what is generally known as a "contract of option." It differs very essentially
from a contract of option. An optional contract is a privilege existing in one person, for which he had paid
a consideration, which gives him the right to buy, for example, certain merchandise of certain specified
property, from another person, if he chooses, at any time within the agreed period, at a fixed price.

The contract is already in the perfected stage.

Carcellar v. CA

FACTS:
Respondent State Investment Houses Inc. has a parcel of land in Cebu City leased to petitioner Jose
Ramon Caceller with an option to purchase valid until the expiration of the lease contract.

3weeks before the expiration of the contract, petitioner made a request to the respondent for the
extension of the lease contact so he can have an ample time to raise enough funds to avail of the option
of sale.

Respondent denied the request and a month after the expiration of the contract, petitioner made known
his intention to buy the property.

Respondent reiterated the provisions in the contract and asked the petitioner to leave the property, which
will now be offered to the general public for a higher price.
ISSUE:
WON can still exercise his option of sale even after the time to do such has already lapsed.

HELD:
The contract must be interpreted together with the intention of the parties. The letter of the plaintiff to the
respondent requesting for an extension is sufficient proof of his intent to avail of the option of sale.

In contractual relations, the law allows the parties reasonable leeway on the terms of their agreement,
which is the law between them. When petitioner made his intention to buy known to the buyer one month
after the expiration of contract is within a reasonable time- frame.

Petitioner may buy the property but not anymore to the price stated in the contract. As such, respondent
may increase the price of the land but only to a reasonable and fair market value.

An option is a preparatory contract in which one party grants to the other, for a fixed period and under
specified conditions, the power to decide, whether or not to enter into a principal contract. It binds the
party who has given the option, not to enter into the principal contract with any other person during the
period designated, and, within that period, to enter into such contract with the one to whom the option
was granted, if the latter should decide to use the option. It is a separate agreement distinct from the
contract which the parties may enter into upon the consummation of the option.

a. Meaning of Consideration

Villamor v. CA

Facts:

On July 1971, Macaria Labingisa Reyes sold a portion of 300 square meters of the lot to the Spouses Julio
and Marina and Villamor for the total amount of P21,000.00. On November 11, 1971, Macaria executed a
"Deed of Option" in favor of Villamor in which the remaining 300 square meter portion (TCT No. 39934) of
the lot would be sold to Villamor under certain conditions, one of which:

That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor, agreed to
buy
the said one-half portion at the above-stated price of about P70.00 per square meter, is because I,
and my husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half
portion still owned by me xxx , whenever the need of such sale arises, either on our part or on the
part of the spouses (Julio) Villamor and Marina V. Villamor, at the same price of P70.00 per square
meter, excluding whatever improvement may be found the thereon.

According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to repurchase the
lot sold by them to the Villamor spouses but Marina Villamor refused and reminded them instead that the
Deed of Option in fact gave them the option to purchase the remaining portion of the lot.

The Villamors, on the other hand, claimed that they had expressed their desire to purchase the remaining
300
square meter portion of the lot but the Reyeses had been ignoring them. Thus, on July 13, 1987, after
conciliation proceedings in the barangay level failed, they filed a complaint for specific performance against
the Reyeses.

Trial Court decided in favour of the Villamors, but this was reversed by the CA. Present case is a petition
for review on certiorari of the CA’s decision.

Issue
W/N there was a VALID Deed of Option whereby the private respondents agreed to sell their lot to
petitioners "whenever the need of such sale arises, either on our part (private respondents) or on the part
of Julio Villamor and Marina Villamor.

Held

While the Deed of Option was valid, it already lapsed. It is of judicial notice that the price of real estate in
Metro Manila is continuously on the rise. To allow the petitioner to demand the delivery of the property
subject of this case thirteen (13) years or seventeen (17) years after the execution of the deed at the price
of only P70.00 per square meter is inequitous. For reasons also of equity and in consideration of the fact
that the private respondents have no other decent place to live, this Court, in the exercise of its equity
jurisdiction is not inclined to grant petitioners' prayer.

Ratioo

The Deed of Option did not provide for the period within which the parties may demand the performance of
their respective undertakings in the instrument. The parties could not have contemplated that the delivery
of the property and the payment thereof could be made indefinitely and render uncertain the status of the
land. The failure of either parties to demand performance of the obligation of the other for an unreasonable
length of time renders the contract ineffective.

Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within ten (10) years.
The Deed of Option was executed on November 11, 1971. The acceptance, as already mentioned, was
also accepted in the same instrument. The complaint in this case was filed by the petitioners on July 13,
1987, seventeen (17) years from the time of the execution of the contract. Hence, the right of action had
prescribed. There were allegations by the petitioners that they demanded from the private respondents as
early as 1984 the enforcement of their rights under the contract. Still, it was beyond the ten (10) years
period prescribed by the Civil Code.

Disposition
Petition is DENIED. The decision of respondent appellate court is AFFIRMED for reasons cited in this
decision. Judgement is rendered dismissing the complaint in Civil Case No. C-12942 on the ground of
prescription and laches.

Soriano v. Bautista

FACTS: Spouses Bautista are the absolute and registered owners of a parcel of land. In May 30, 1956,
the said spouses entered into an agreement entitled Kasulatan ng Sanglaan (mortgage) in favor of
spouses Soriano for the amount of P1,800. Simultaneously with the signing of the deed, the spouses
Bautista transferred the possession of the subject property to spouses Soriano. The spouses Soriano
have, since that date, been in possession of the property and are still enjoying the produce thereof to the
exclusion of all other persons
1. Sometime after May 1956, the spouses Bautista received from spouses Soriano the sum of P450
pursuant to the conditions agreed upon in the document. However, no receipt was issued. The said
amount was returned by the spouses Bautista
2. In May 13, 1958, a certain Atty. Ver informed the spouses Bautista that the spouses Soriano have
decided to purchase the subject property pursuant to par. 5 of the document which states that “…the
mortgagees may purchase the said land absolutely within the 2-year term of the mortgage for P3,900.”
3. Despite the receipt of the letter, the spouses Bautista refused to comply with Soriano’s demand
4. As such, spouses Soriano filed a case, praying that they be allowed to consign or deposit with the
Clerk of Court the sum of P1,650 as the balance of the purchase price of the land in question
5. The trial court held in favor of Soriano and ordered Bautista to execute a deed of absolute sale over
the said property in favor of Soriano.
6. Subsequently spouses Bautista filed a case against Soriano, asking the court to order Soriano to
accept the payment of the principal obligation and release the mortgage and to make an accounting the
harvest for the 2 harvest seasons (1956-1957).
7. CFI held in Soriano’s favor and ordered the execution of the deed of sale in their favor
8. Bautista argued that as mortgagors, they cannot be deprived of the right to redeem the mortgaged
property, as such right is inherent in and inseparable from a mortgage.

ISSUE: WON spouses Bautista are entitled to redemption of subject property

HELD: No. While the transaction is undoubtedly a mortgage and contains the customary stipulation
concerning redemption, it carries the added special provision which renders the mortgagor’s right to
redeem defeasible at the election of the mortgagees. There is nothing illegal or immoral in this as this is
allowed under Art 1479 NCC which states: “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 supported by a consideration apart from the
price.”

In the case at bar, the mortgagor’s promise is supported by the same consideration as that of the
mortgage itself, which is distinct from the consideration in sale should the option be exercised. The
mortgagor’s promise was in the nature of a continuing offer, non-withdrawable during a period of 2 years,
which upon acceptance by the mortgagees gave rise to a perfected contract of sale.

TENDER INEFFECTIVE AS PREEMPTIVE RIGHT TO PURCHASE BY OTHER PARTY HAS BEEN

EXERCISED
The tender of P1,800 to redeem the mortgage by spouses Bautista was ineffective for the purpose
intended. Such tender must have been made after the option to purchase had been exercised by spouses
Soriano. Bautista’s offer to redeem could be defeated by Soriano’s preemptive right to purchase within
the period of 2 years from May 30, 1956. Such right was availed of and spouses Bautista were
accordingly notified by Soriano. Offer and acceptance converged and gave rise to a perfected and
binding contract of purchase and sale.

b. An option to buy is not a contract of purchase and sale

Adelfa Properties v. CA

FACTS: Private respondents and their brothers Jose and Dominador were the registered CO-OWNERS
of a parcel of land in Las Pinas, covered by a TCT.

Jose and Dominador sold their share (eastern portion of the land) to Adelfa. Thereafter, Adelfa expressed
interest in buying the western portion of the property from private respondents herein. Accordingly, an
“exclusive Option to Purchase” was executed between Adelfa and Private respondents and an option
money of 50,000 was given to the latter.

A new owner’s copy of the certificate of title was issued (as the copy with respondent Salud was lost) was
issued but was kept by Adelfa’s counsel, Atty. Bernardo.

Before Adelfa could make payments, it received summons as a case was filed (RTC Makati) against
Jose and Dominador and Adelfa, because of a complaint in a civil case by the nephews and nieces of
private respondents herein. As a consequence, Adelfa, through a letter, informed the private respondents
that it would hold payment of the full purchase price and suggested that they settle the case with their
said nephews and nieces. Salud did not heed the suggestion; respondent’s informed Atty. Bernardo that
they are canceling the transaction. Atty Bernardo made offers but they were all rejected.

RTC Makati dismissed the civil case. A few days after, private respondents executed a Deed of
Conditional Sale in favor of Chua, over the same parcel of land.
Atty Bernardo wrote private respondents informing them that in view of the dismissal of the case, Adelfa
is willing to pay the purchase price, and requested that the corresponding deed of Absolute Sale be
executed. This was ignored by private respondents.

Private respondents sent a letter to Adelfa enclosing therein a check representing the refund of half the
option money paid under the exclusive option to purchase, and requested Adelfa to return the owner’s
duplicate copy of Salud. Adelfa failed to surrender the certificate of title, hence the private respondents
filed a civil case before the RTC Pasay, for annulment of contract with damages. The trial court directed
the cancellation of the exclusive option to purchase. On appeal, respondent CA affirmed in toto the
decision of the RTC hence this petition.

ISSUE:

WON the agreement between Adelfa and Private respondents was strictly an option contract
WON Article 1590 applies in this case, thereby justifiying the refusal by Adelfa to pay the balance of the
purchase price
WON Private respondents could unilaterraly and prematurely terminate the option period, if indeed it is a
option contract, as the option period has not lapsed yet.

HELD: The judgement of the CA is AFFIRMED

1. NO. The agreement between the parties is a contract to sell, and not an option contract or a contract of
sale.

c. Without consideration void as option but valid as offer

Sanchez v. Rigos

Facts:

Nicolas Sanchez and Severina Rigos executed an instrument entitled “Option to Purchase” wherein Mrs.
Rigos agreed, promised and committed to sell to Mr. Sanchez a parcel of land for the amount of P1,510
within two years from the date of the instrument, with the understanding that the said option shall be
deemed terminated and elapsed if Mr. Sanchez shall fail to exercise his right to buy the property within
the stipulated period.

Mrs. Rigos agreed and committed to sell and Mr. Sanchez agreed and committed to buy. But there is
nothing in the contract to indicate that her agreement, promise and undertaking is supported by a
consideration distinct from the price stipulated for the sale of the land.

Mr. Sanchez has made several tenders of payment in the said amount within the period before any
withdrawal from the contract has been made by Mrs. Rigos, but were rejected nevertheless.

Issue:

Can an accepted unilateral promise to sell without consideration distinct from the price be withdrawn
arbitrarily?

Held:

No. An accepted promise to sell is an offer to sell when accepted becomes a contract of sale.

Rationale:
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.

Article 1324. When the offeror has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the
option is founded upon consideration, as something paid or promised.

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

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

The Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the
Atkins, Kroll and 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.

J. Antonio concurring

I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar & Molasses
Co. vs. Atlantic Gulf and Pacific Co. (97 Phil 249) which hold that an option to sell can still be withdrawn,
even if accepted, if the same is not supported by any consideration, and the reaffirmance of the doctrine
in Atkins, Kroll & Co., Inc. v. Cua Hian Tek (102 Phil 948), holding that “an option implies xxx the legal
obligation to keep the offer (to sell) open for the time specified;” that it could be withdrawn before
acceptance, if there was no consideration for the option, but once the “offer to sell” is accepted, a bilateral
promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations of a purchaser. In
other words, if the option is given without a consideration, it is a mere offer to sell, which is not binding
until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of
sale. The concurrence of both acts – the offer and the acceptance – could in such event generate a
contract.

While the law permits the offerror to withdraw the offer at any time before acceptance even before the
period has expired, some writers hold the view, that the offeror cannot exercise this right in an arbitrary or
capricious manner. This is upon the principle that an offer implies an obligation on the part of the offeror
to maintain it for such length of time as to permit the offeree to decide whether to accept or not, and
therefore cannot arbitrarily revoke the offer without being liable for damages which the offeree may suffer.
A contrary view would remove the stability and security of business transactions.

d. Proper exercise of option

Nietes v. CA

FACTS:
Petitioner Aquilino Nietes and respondent Dr.Pablo Garcia entered a “Contract of Lease and Option to
Buy” where the latter agreed to lease his Angeles Educational Institute to the former.

The rent is set to P5000 per year up to 5 years and that the LESSOR agrees to give the LESSEE an
option to buy the land and the school building, for P100,000 within the period of the Contract of Lease.
Nietes paid Garcia P2200 on Dec.16, 1962 for partial payment on the purchase of the property. Through
their lawyers, Garcia decided to rescind the contract while Nietes expresses his intention to buy the
property.

Nietes also deposited 84K to a bank corresponding to the balance for the purchase of the property.

ISSUE:
WON Nietes can aval of his option to buy the property.

HELD:
Nietes can avail of the option to buy because he already express his intention to buy the property before
the termination of the contract. The contention of the respondent that the full price of the property should
first be paid before the option could be exercised is of no merit.

The contract doesn’t provide such stipulation and as such, the provision of reciprocal obligations in
oblicon should prevail. Notice of the creditor's decision to exercise his option to buy need not be coupled
with actual payment of the price, so long as this is delivered to the owner of the property upon
performance of his part of the agreement.

Nietes had validly and effectively exercised his option to buy the property of Dr. Garcia, at least, on
December 13, 1962, when he acknowledged receipt from Mrs. Nietes of the sum of P2,200 then delivered
by her "in partial payment on the purchase of the property" described in the "Contract of Lease with
Option to Buy"

e. There must be acceptance of option

Sps. Vasquez v. CA

Facts:
 A lot of the Himalayan Cadastre was registered under the name of spouses Olea.
 October 1959: the lot was leased by respondent-spouses Olea to spouses Vasquezz.
 September 21, 1964: the spouses Olea sold the lot to spouses Vasquez under a Deed of Sale for
the amount of P9,000.00. The Deed of Sale was duly ratified and notarized.
 On the same day and along with the execution of the Deed of Sale, a separate instrument,
denominated as Right to Repurchase, was executed by the parties granting spouses Olea the right
to repurchase the lot for P12,000.00, likewise duly ratified and notarized.
 January 2, 1969: spouses Olea sold the same lot to Benito Derrama, Jr., after securing spouses
Vasquez' title, for the sum of P12,000.00. Upon the protestations of spouses Vasquez, assisted by
counsel, the said second sale was cancelled after the payment.
 January 15, 1975: Respondents Spouses Olea filed an action against the Spouses Vasquez and
Gayanelo seeking to redeem the subject property which was previously sold by Spouses Olea to
Spouses Vasquez on September 21, 1964.
 Spouses Vasquez resisted this action for redemption on the premise that the Right to Repurchase
is just an option to buy since it is not embodied in the same document of sale but in a separate
document, and since such option is not supported by a consideration distinct from the price, said
deed for right to repurchase is not binding upon them.
 RTC ruled against spouses Vasquez ordering them to resell the lots to spouses Olea for the
repurchase price of P24,000.00, which amount combines the price paid for the first sale and the
price paid by defendants to Benito Derrama, Jr.
 Spouses Vasquez insist that they cannot be compelled to resell the lot contending that the nature of
the sale over the said lot between them and spouses Olea was that of an absolute deed of sale and
that the Right to Repurchase can only be either an option to buy or a mere promise on their part to
resell the property.
  They argued that since the "RIGHT TO REPURCHASE" was not supported by any consideration
distinct from the purchase price it is not valid and binding on the petitioners pursuant to Article 1479
of the Civil Code.

Issue: WON the right of repurchase was supported by a consideration distinct from the price. NO

Held:

It is clear that the right to repurchase was not supported by a consideration distinct from the price
The rule is that the promisee has the burden of proving such consideration. Unfortunately, the spouses
Olea, promisees in the right to repurchase failed to prove such consideration. They did not even allege the
existence thereof in their complaint.

The Sanchez ruling is not applicable

Therefore, in order that the Sanchez case can be applied, the evidence must show that the spouses Olea
accepted the right to repurchase.

The record, however, does not show that spouses Olea accepted the "Right to Repurchase" the land in
question. The SC disagrees with the lower court's finding that spouses Olea accepted the "right to
repurchase" under the following circumstances:
... as evidenced by the annotation and registration of the same on the back of the transfer of certificate of
title in the name of appellants. As vividly appearing therein, it was signed by appellant himself and witnessed
by his wife so that for all intents and purposes the Vasquez spouses are estopped from disregarding its
obvious purpose and intention."

The annotation and registration of the right to repurchase at the back of the certificate of title of the
petitioners cannot be considered as acceptance of the right to repurchase Annotation at the back of the
certificate of title of registered land is for the purpose of binding purchasers of such registered land.

Purchasers of a registered land are bound by the annotations found at the back of the certificate of title
covering the subject parcel of land. In effect, the annotation of the right to repurchase found at the back of
the certificate of title over the subject parcel of land of the private respondents only served as notice of the
existence of such unilateral promise of the petitioners to resell the same to the private respondents. This,
however, cannot be equated with acceptance of such right to repurchase by the private respondent.

Neither can the signature of the spouses Vasquez in the document called "right to repurchase"
signify acceptance of the right to repurchase
The spouses Olea did not sign the offer. Acceptance should be made by the promisee, in this case, the
private respondents and not the promisors, the petitioners herein. It would be absurd to require the promisor
of an option to buy to accept his own offer instead of the promisee to whom the option to buy is given.

Furthermore, the actions of the private respondents –– (a) filing a complaint to compel re-sale and their
demands for resale prior to filing of the complaint cannot be considered acceptance.
The right of repurchase is not a right granted to the seller to the buyer
The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is
a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract.
Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase,
and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of
repurchase but some other right like the option to buy in the instant case.

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

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

3. Right of First Refusal

Equitorial Realty v. Mayfair

FACTS:

Carmelo & Bauermann, Inc. owned a land, together with two 2-storey buildings at Claro M. Recto
Avenue, Manila, and covered by TCT No. 18529.

On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. fpr 20 years. The
lease covered a portion of the second floor and mezzanine of a two-storey building with about 1,610
square meters of floor area, which respondent used as Maxim Theater.

Two years later, on March 31, 1969, Mayfair entered into a second Lease with Carmelo for another
portion of the latter’s property this time, a part of the second floor of the two-storey building, and two store
spaces on the ground floor. In that space, Mayfair put up another movie house known as Miramar
Theater. The Contract of Lease was likewise for a period of 20 years.

Both leases contained a clause giving Mayfair a right of first refusal to purchase the subject properties.
Sadly, on July 30, 1978 - within the 20-year-lease term -- the subject properties were sold by Carmelo to
Equatorial Realty Development, Inc. for eleven million smackers, without their first being offered to
Mayfair.

As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the
Regional Trial Court of Manila for the recission of the Deed of Absolute Sale between Carmelo and
Equatorial, specific performance, and damages. RTC decided for Carmelo and Equatorial. Tsk tsk.

CA reversed and ruled for Mayfair. The SC denied a petition questioning the CA decision. What
happened is that the contract did get rescinded, Equatorial got its money back and asserted that Mayfair
have the right to purchase the lots for 11 million bucks.

Decision became final and executory, so Mayfair deposited with the clerk the 11M (less 847grand
withholding) payment for the properties (Carmelo somehow disappeared).

Meanwhile, on Sept 18, 1997, barely five months after Mayfair submitted its Motion for Execution,
Equatorial demanded from Mayfair backrentals and reasonable compensation for the Mayfair’s continued
use of the subject premises after its lease contracts expired. Remember that Mayfair was still occupying
the premises during all this hullabaloo.

ISSUE:

Whether or not Equatorial was the owner of the subject property and could thus enjoy the fruits and
rentals.

HELD:NO.
Nor right of ownership was transferred from Carmelo to Equatorial since there was failure to deliver the
property to the buyer. Compound this with the fact that the sale was even rescinded.

The court went on to assert that rent is a civil fruit that belonged to the owner of the property producing it
by right of accession. Hence, the rentals that fell due from the time of the perfection of the sale to
petitioner until its rescission by final judgment should belong to the owner of the property during that
period.

We remember from SALES that in a contract of sale, “one of the contracting parties obligates himself to
transfer ownership of and to deliver a determinate thing and the other to pay therefor a price certain in
money or its equivalent.”

Ownership of the thing sold is a real right, which the buyer acquires only upon delivery of the thing to him
“in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that
the possession is transferred from the vendor to the vendee.” This right is transferred, not by contract
alone, but by tradition or delivery. There is delivery if and when the thing sold “is placed in the control and
possession of the vendee.”

While execution of a public instrument of sale is recognized by law as equivalent to the delivery of the
thing sold, such constructive or symbolic delivery is merely presumptive. It is nullified by the failure of the
vendee to take actual possession of the land sold.

For property to be delivered, we need two things. Delivery of property or title, and transfer of control or
custody to the buyer.

Possession was never acquired by the petitioner. It therefore had no rights to rent.

Paranaque Kings v. CA

Facts:
 PR Catalina L. Santos is the owner of 8 parcels of land located at Parañaque, Metro Manila.
 November 28, 1977: a certain Frederick Chua leased the subject property from defendant Catalina
L. Santos, the said lease was registered in the Register of Deeds.
 February 12, 1979: Frederick Chua assigned all his rights and interest and participation in the
leased property to Lee Ching Bing, by virtue of a deed of assignment and with the conformity of
defendant Santos, the said assignment was also registered.
 August 6, 1979: Lee Ching Bing also assigned all his rights and interest in the leased property to
Parañaque Kings Enterprises, Incorporated by virtue of a deed of assignment and with the
conformity of defendant Santos. Their contract provided that:
 "9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors
shall impose as a condition that the buyer or mortgagee thereof shall recognize and be bound by all
the terms and conditions of this lease agreement and shall respect this Contract of Lease as if they
are the LESSORS thereof and in case of sale, LESSEE shall have the first option or priority to buy
the properties subject of the lease;"
 September 21, 1988: Catalina Santos sold the eight parcels of land subject of the lease to
defendant David Raymundo for a consideration of P5,000,000.
 Upon learning of this fact, the representative of Paranaque King wrote a letter to defendant Santos,
requesting her to rectify the error and consequently realizing the error, she had it reconveyed to her
for the same consideration of P5M.
 Only 2 days after Catalina Santos sold her properties did she reply to Paranaque Kings’ letter
saying period has lapsed.
 July 6, 1989: counsel for defendant Santos informed the petitioners Paranaque Kings that the new
owner is RAYMUNDO.
  From the preceding facts, it is clear that the sale was simulated and that there was a collusion
between the respondents Santos and Raymundo in the sales of the leased properties (defendants
SANTOS and RAYMUNDO have the same counsel who represented both of them in their
exchange of communication with PK’s counsel, a fact that led to the conclusion that a collusion
exist between them, among others)
 Petitioner Paranaque demanded from the defendants to rectify their unlawful acts that they
committed, but defendants refused and failed to comply with plaintiffs just and valid demands.
 RTC issued the order dismissing the complaint for lack of a valid cause of action. CA affirmed in
toto.

Issue: Is such right of first refusal enforceable by an action for specific performance? YES
(WON the complaint filed by Paranaque Kings states a valid cause of action. YES)

Held:

Paranaque Kings was granted a first option or priority to purchase the subject property (Based on
the Par. 9 of the Lease Contract)
A careful examination of the complaint filed by Paranaque Kings reveals that it sufficiently alleges an
actionable contractual breach on the part of private respondents.

Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was
granted the "first option or priority" to purchase the leased properties in case Santos decided to sell. If
Santos never decided to sell at all, there can never be a breach, much less an enforcement of such "right."

But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering
these to petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner
complained. Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner,
however, rejected because of the "ridiculous" price. But Santos again appeared to have violated the same
provision of the lease contract when she finally resold the properties to respondent Raymundo for only P9
million without first offering them to petitioner at such price. Whether there was actual breach which entitled
petitioner to damages and/or other just or equitable relief, is a question which can better be resolved after
trial on the merits where each party can present evidence to prove their respective allegations and
defenses.

The basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase
of any prospective buyer.
Only after the optionee fails to exercise its right of first priority under the same terms and within the period
contemplated, could the owner validly offer to sell the property to a third person, again, under the same
terms as offered to the optionee.

The contention of Raymundo that he is not a privy to the contract is untenable

With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being
the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is
nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue
of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he
received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed
for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him
and respondent Santos which defeated the exercise by petitioner of its right of first refusal.

In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not
indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of
respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first
option to buy.
Deed of Assignment included the option to purchase
The provisions of the deeds of assignment with regard to matters assigned were very clear. Under the first
assignment between Frederick Chua as assignor and Lee Ching Bing as assignee, it was expressly stated
that:

. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights,
interest and participation over said premises afore-described, . . . .

And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner,
represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that;

. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said
leased premises, . . . .

One of such rights included in the contract of lease and, therefore, in the assignments of rights was the
lessee's right of first option or priority to buy the properties subject of the lease, as provided in paragraph 9
of the assigned lease contract. The deed of assignment need not be very specific as to which rights and
obligations were passed on to the assignee. It is understood in the general provision aforequoted that all
specific rights and obligations contained in the contract of lease are those referred to as being assigned.
Needless to state, respondent Santos gave her unqualified conformity to both assignments of rights.

Ruling: WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of
Appeals are hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of
Makati for further proceedings.

Ang Yu v. CA

Facts:
Petitioners Ang Yu Asuncion et. al. are lessees of residential and commercial spaces owned by the
Unjiengs. They have been leasing the property and possessing it since 1935 and have been paying
rentals.

In 1986, the Unjiengs informed Petitioners Ang Yu Asuncion that the property was being sold and that
Petitioners were being given priority to acquire them (Right of First Refusal). They agreed on a price
of P5M but they had not yet agreed on the terms and conditions. Petitioners wrote to the Unjiengs twice,
asking them to specify the terms and conditions for the sale but received no reply. Later, the petitioners
found out that the property was already about to be sold, thus they instituted this case for Specific
Performance [of the right of first refusal].

The Trial Court dismissed the case. The trial court also held that the Unjieng’s offer to sell was never
accepted by the Petitioners for the reason that they 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.

The Court of Appeals affirmed the decision of the Trial Court.

In the meantime, in 1990, the property was sold to De Buen Realty, Private Respondent in this case. The
title to the property was transferred into the name of De Buen and demanded that the Petitioners vacate
the premises.

Because of this, Petitioners filed a motion for execution of the CA judgement. At first, CA directed the
Sheriff to execute an order directing the Unjiengs to issue a Deed of Sale in the Petitioner’s favour and
nullified the sale to De Buen Realty. But then, the CA reversed itself when the Private Respondents
Appealed.
Issues:
1. Whether or not the Contract of Sale is perfected by the grant of a Right of First Refusal.
2. Whether or not a Right of First Refusal may be enforced in an action for Specific
Performance.
Held:
1. No. A Right of First Refusal is not a Perfected Contract of Sale under Art. 1458 or an
option under Par. 2 Art 1479 or an offer under Art. 1319. In a Right of First Refusal, only the
object of the contract is determinate. This means that novinculum juris is created between the
seller-offeror and the buyer-offeree.
2. No. Since a contractual relationship does not exist between the parties, a Right of First
Refusal may not be enforced through an action for specific performance. Its conduct is governed
by the law on human relations under Art. 19-21 of the Civil Code and not by contract law.

Therefore, the Supreme Court held that the CA could not have decreed at the time the execution of any
deed of sale between the Unjiengs and Petitioners.

Other Rules, Comments and Discussion:

This case is notable because it lays down the rules on options contracts and right of first refusal as well
as promises to buy and sell. First, the Supreme Court discussed the stages of the formation of a sales
contract, these are:
1. Negotiation – covers the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is concluded (perfected).
2. Perfection – takes place upon the concurrence of the essential elements thereof. In a
sales contract this is governed by Art. 1458
3. Consummation – begins when the parties perform their respective undertakings under
the contract culminating in the extinguishment thereof
Until the contract is perfected (No. 2), it cannot, as an independent source of obligation, serve as a
binding juridical relation. A sales 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 (Art 1458).

Under Art. 1458, there is no perfection of a sale under a “Contract to Sell”. A Contract to Sell is
characterized as a conditional sale and the breach of the suspensive condition will prevent the obligation
to transfer title from acquiring obligatory force.

Promises to Buy and Sell

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. The Right
of First Refusal falls under this classification.

Accepted unilateral promise – If it specifies the thing to be sold and the price to be paid and 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. (Par. 2 Art. 1458) Note however,
that the option is a contract separate and distinct from the contract of sale. Once the option is exercised
before it is withdrawn, a bilateral promise to sell and to buy ensues and both parties are then reciprocally
bound to comply with their respective undertakings.

Offers with a Period

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 – Offeror may
withdraw offer at any time before its acceptance (or knowledge of its acceptance). However, the
 right to withdraw must not be exercised whimsically or arbitrarily otherwise it can give rise to
damages under Art. 19 of the New Civil Code
2. If period is founded on a separate consideration – This is a perfected contract of option.
Withdrawal of the offer within the period of the option is deemed a breach of the contract of option
(not the sale). “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.”
3. Earnest money – This is not an offer with a period. Earnest money is distinguished from
the option contract if the consideration given will be considered as a part of the purchase price of
the object of the sale. Earnest money is evidence of a perfected contract of sale. (Art. 1482)

Right of First Refusal

This is “an innovative juridical relation” because it is neither a perfected contract of sale under Art. 1458
nor an option contract under par. 2 Art 1479. The object might be made determinate, the exercise of the
right, however, is dependent on the offeror’s eventual intention to enter into a binding juridical relation
with another but also on terms and conditions such as price. There is no juridical tie or vinculum juris.

Breach of the right cannot justify correspondingly an issuance of a writ of execution under a court
judgement that recognizes its existence, such as in Ang Yu Asuncion. An action for Specific Performance
is not allowed under a Right of First Refusal because doing so would negate the indispensable element of
consensuality in the perfection of contracts.

This right is not inconsequential because it gives right to an action for damages under Art. 19.

Other Acts that Won’t Bind

Public advertisements or solicitations – Construed as mere invitations to make offers and/or
proposals.

Related Cases
The cases of Equatorial v. Mayfair and Parañaque Kings v. Court of Appeals held that if a
sale happens in violation of a Right of First Refusal where the buyer is aware of the
existence of that right in favor of another (such as when it is written in a lease contract),
the sale may be rescinded and the seller may be forced to offer the property to the party
with the Right of First Refusal.

However, the case of Ang Yu Asuncion may still be good law for cases not involving a third
party buyer in bad faith.

Rosencor v. Inquing

FACTS:
Respondents are tenants of a two-storey residential apartment in Tomas Morato QC. The lease was not
covered by any contract.
Lessees were verbally given by the lessors the pre-emptive right to purchase the property in case of sale.

The original lessors died and their heir also promised the lessees the same pre-emptive right to purchase.
The new lessors represented by Eufrocina de Leon demanded the lessees to vacate the property
because the building will allegedly be demolished but after the lessees declined, she sent them a letter
offering to sell the property for 2M. Lessees made a counter offer of 1M but no reply was made by the
lessors.

De leon subsequently informed the lessees that the property was already sold to Rosencor. Lessees
claimed that they were deceived because the property was already sold to Rosencor before it was offered
to them. They offered to reimburse the payment to the lessors but the offer was declined as hence, this
petition.

ISSUE:
WON the lessors should recognize the pre-emptive right of the lessees even if it was only given verbally.

HELD:
The right of first refusal is not covered by the Statute of Frauds. The application of such statute
presupposes the existence of a perfected contact which is no applicable in this case. As such, a right of
first refusal need not be written to be enforceable and can be proved by oral evidence.

Lessees have proven that the lessors admit the right of first refusal given to them when the property was
offered to them by 2M.

The prevailing doctrine is that a contract of sale entered in violation of right of first refusal is rescissible.
However, this doctrine cannot be applied here because the vendees (Rosencor) is in good faith. Under
Art.1358, recission cannot take place when things which are the object of sale is legally in possession of
third person who did not act in bad faith.

Rosencor could not have acted in bad faith because they are not aware of the right of first refusal given
verbally. Respondents should instead file for damages.

4. Mutual Promise to Buy and Sell (De La Cavada v. Diaz)

PERFECTION (Art. 1475, 1319, 1325, 1325)

1. When deviation allowed (Villonco v. Bormaheco)

2. Sale by Auction

Article 1476. In the case of a sale by auction:

(1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate
contract of sale.

(2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the
hammer, or in other customary manner. Until such announcement is made, any bidder may
retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has
been announced to be without reserve.

(3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise
provided by law or by stipulation.

(4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf of
the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to
bid at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such
sale on behalf of the seller or knowingly to take any bid from the seller or any person employed
by him. Any sale contravening this rule may be treated as fraudulent by the buyer. (n)

Article 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;
 (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the same,
or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by
his agent; evidence, therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making
thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to

marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things in action or pay at the time
some part of the purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;

(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;

( f ) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract.

Article 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is
not bound to accept the highest or lowest bidder, unless the contrary appears. (n)

3. Perfection (Art. 1475)

National Grains Authority v. Intermediate Appellate Court

FACTS:
Petitioner, National Grains Authority (now the NFA), is a government agency created under Presidential
Decree No. 4. One of the its incidental functions is the buying of palay grains from disqualified famers.

On August 23, 1979, private respondent Leon Soriano offered to sell palay grains to the NFA, through
William Cabal, the Provincial Manager of NFA stationed at Tuguegarao, Cagayan. He submitted the
documents required by the NFA for pre-qualifying as a seller. Then, private respondent’s documents were
processed accordingly; he was given a quota of 2 640 cavans of palay. The quota noted in the Farmer’s
Information Sheet represented the maximum number of cavans of palay that Soriano may sell to the NFA.

Soriano delivered 630 cavans of palay. The palay delivered were not rebagged, classified and weighed.
When Soriano demanded payment of 630 cavans of palay, he was informed that its payment will be held
in abeyance since Mr. Cabal was still investigating on an information he received that Soriano was not a
bona fide farmer and the palay delivered by him was not produced from his farmland but was taken from
the warehouse of a rice trader, Ben de Guzman. Then, private respondent was asked to withdraw from
the NFA Warehouse the 630 cavans Soriano delivered, stating that NFA cannot legally accept the said
delivery on the basis of the subsequent certification of the BAEX technician, Napoleon Callangan, that
Soriano is not a bona fide farmer.
Despite the advised to withdraw the cavans of palay, private respondent insisted that the palay grains
delivered be paid. Then, he filed a complaint for specific performance and collection of money with
damages against NFA and Mr. Cabal before the Court of First Instance of Tugeugarao.

Upon the agreement and order of the court, the cavans of play were withdrawn and an inventory was
made by the sheriff as representative of the court, representative of Soriano, and a representative of
NFA.

The Court of First Instance of Cagayan rendered judgment in favor of private respondent and ordered the
NFA to pay the amount of Php 47 250 representing the unpaid price of the 630 cavans of palay plus legal
interest. The lower court’s decision was then affirmed by the Intermediate Appellate Court.

ISSUE:
Is there a contract of sale between the parties?

HELD:
Yes. Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby one of the
contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and
the other party to pay the price certain in money or its equivalent. A contract, on the other, 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. The essential requisites of contracts are: 1. consent of the contracting parties, 2.
Object certain which is the subject matter of the contract, and 3. cause of the obligation which is
established. In the present case, private respondent initially offered to sell palay grains produced in his
farmland to NFA. When the latter accepted the offer noting in Soriano’s Farmer’s Information Sheet a
quota of 2 640 cavans of palay, there was already meeting of minds between the parties. The object of
the contract, being the palay grains produced in Soriano’s farmland and the NFA was to pay the same
depending upon its quality. The fact the exact number is not determinate shall not be an obstacle to the
existence of the contract – Provided it is possible to determine the same, without the need of a new
contract between the parties. In this case, there was no need for NFA and Soriano to enter into a new
contract to determine the exact number of cavans of palay sold. Soriano can deliver so much of his
produce as long as it does not exceed 2 640 cavans.

Peoples Homesite and Housing v. CA

FACTS:

In February 1960, herein petitioner People’s Homesite & Housing Corporation (PHHC) passed a
resolution, subject to the approval of the Court Court Council of the PHHC’s consolidation subdivision
plan, awarding Lot 4 with an area of 4,182.2 square meters located at Diliman, Court City to respondents
Rizalino and Adelaida Mendoza (spouses Mendoza) at a price of twenty-one pesos (P21.00) per square
meter. The Court Court Council disapproved the consolidation subdivision plan in August 1960 but
approved in February 1964 its revised version where Lot 4 was reduced to an area of 2,608.7 square
meters. Then in October 1965, the PHHC withdrew the tentative award of Lot 4 to the spouses Mendoza
for the latter’s failure neither to pay its price nor to make a 20% initial deposit, and re-awarded said lot
jointly and in equal shares to Miguela Sto. Domingo, Enrique Esteban, Virgilio Pinzon, Leonardo Redublo
and Jose Fernandez, all of whom made the initial deposit. The subdivision of Lot 4 into five lots was later
approved by the Court council and the Bureau of Lands.

The spouses Mendoza asked for reconsideration and for the withdrawal of the said 2nd award to Sto.
Domingo and four others, and at the same time filed an action for specific performance plus damages.
The trial court sustained the award but the Court of Appeals reversed the said decision, declared void the
re-award to Sto. Domingo and four others, and ordered the PHHC to sell Lot 4 with an area of 2,608.7
square meters at P21.00 per square meter to spouses Mendoza.
ISSUE:

Was there a perfected sale of Lot 4, with its reduced area, between the parties?

COURT RULING:

The Supreme Court found that there was no perfected sale of Lot 4 because the said lot was conditionally
or contingently awarded to the Mendozas subject to the approval by the Court council of the proposed
consolidation subdivision plan and the approval of the award by the valuation committee and higher
authorities.

When the plan with the area of Lot 4 reduced to 2,608.7 square meters was approved in 1964, the
spouses Court should have manifested in writing their acceptance of the award for the purchase of Lot 4
just to show that they were still interested in its purchase although the area was reduced. Article 1475 of
the Civil Court says “[t]he contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. From that moment, the parties may
reciprocally demand performance, subject to the law governing the form of contracts.” Indeed, there was
a no meeting of the minds between the parties on the purchase of Lot 4 with an area of 2,608.7 square
meters at P21 a square meter and the PHHC board of directors acted within its rights in withdrawing the
tentative award.

4. Place of Perfection (Art. 1391)

5. Expenses of Execution and Registration (Art. 1487, 1521)

FORMALITIES OF THE CONTRACT

Form not important (Art. 1482, 1356, 1357, 1358)

Dalion v. CA

FACTS:
Petitioner Segundo Dalion allegedly sold his property in Southern Leyte to respondent Ruperto Sabesaje
through a private deed of sale.

Dalion denies the sale and claims that his signature in the document was forged.

ISSUE:
WON there has been a contract of sale between the parties.

HELD:
The authenticity of the signature of Dallion was proven by the testimony of several witness including the
person who made the deed of sale. Dalion never presented any evidence or witness to prove his claim of
forgery.

Dallion’s claim that the sale is invalid because it was not made in a public document is of no merit. This
argument is misplaced. The provision of Art. 1358 on the necessity of a public document is only for
convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of
a parcel of land that this be embodied in a public instrument. Sale is perfected upon meeting of the minds
of both parties.

Secuya v. Vda de Selma

FACTS:
 Before the grant of her application for private sale of Lot 5679, a friar land, the beautiful Maxima
Caballero executed a document entitled "Agreement of Partition," wherein she stipulated to transfer one-
third (1/3) of the lot to and accepted by Paciencia Sabellano, her aunt. When the application was approved,
Maxima failed to transfer the agreed portion to Paciencia who took possession thereof. Paciencia thereafter
sold the same to Dalmacio Secuya. When Paciencia died, her only heir, Ramon Sabellano, executed a
private document, "Deed of Confirmation of Sale," confirming the sale between Paciencia and Dalmacio.
The document was, however, lost. Meanwhile, Maxima sold the entire lot to Silverio Aro, husband of
Cesaria Caballero. Upon Silverio's death, the lot was transferred to Cesaria from whom respondent bought
the lot. Respondent was assured that petitioners who were occupying a portion of the land were tenants. A
clean title to the whole lot was transferred to respondent. Petitioners, heirs of Dalmacio Secuya, filed an
action for quieting of title on the ground that respondent's title is a cloud on their title as owners and
possessors of the property subject of litigation. They claimed that they had been occupying the property for
forty-seven years though they did not pay the land taxes. The trial court rendered judgment against
respondent. It was affirmed, on appeal, by the Court of Appeals.

ISSUES:
1. Whether or not the Agreement is one of partition
2. Whether or not there was a repudiation of the Express Trust

HELD:
(1) NO. It was an express trust. Trust is the right to the beneficial enjoyment of property, the legal title to
which is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property for
the benefit of the beneficiary. Trust relations between parties may either be express or implied. An
express trust is created by the intention of the trustor or of the parties. An implied trust comes into
being by operation of law. The present Agreement of Partition involves an express trust. Under Article
1444 of the Civil Code, "[n]o particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended." That Maxima Caballero bound herself to give one third of Lot No.
5629 to Paciencia Sabellona upon the approval of the former's application is clear from the terms of the
Agreement. Likewise, it is evident that Paciencia acquiesced to the covenant and is thus bound to fulfill her
obligation therein. As a result of the Agreement, Maxima Caballero held the portion specified therein as
belonging to Paciencia Sabellona when the application was eventually approved and a sale certificate was
issued in her name. Thus, she should have transferred the same to the latter, but she never did so during
her lifetime. Instead, her heirs sold the entire Lot No. 5679 to Silvestre Aro in 1955.

(2)YES. While no time limit is imposed for the enforcement of rights under express trusts, prescription may,
however, bar a beneficiary's action for recovery, if a repudiation of the trust is proven by clear and
convincing evidence and made known to the beneficiary. There was a repudiation of the express trust
when the heirs of Maxima Caballero failed to deliver or transfer the property to Paciencia Sabellona,
and instead sold the same to a third person not privy to the Agreement. In the memorandum of
incumbrances of TCT No. 3087, issued in the name of Maxima, there was no notation of the Agreement
between her and Paciencia. Equally important, the Agreement was not registered; thus, it could not bind
third persons. Neither was there any allegation that Silvestre Aro, who purchased the property from
Maxima's heirs, knew of it. Consequently, the subsequent sales transactions involving the land in dispute
and the titles covering it must be upheld, in the absence of proof that the said transactions were fraudulent
and irregular.
Exceptions: When form important
A. Form important for enforceability
a. Statute of Frauds (Arts. 1403, 1405)

Paredes v. Espino

Facts:
 Paredes filed an action to compel (i.e. specific performance and damages) Espino to execute a
deed of sale and to pay damages. The complaint alleged that Espino had entered into the sale to
Paredes of Lot. 67 of the Puerto Princesa Cadastre at P4.00 a square meter. According to Paredes,
said deal had been closed by letter and telegram but the actual execution of the deed of sale and
payment of the price were deferred to the arrival of Espino at Puerto Prinsesa. However, upon
Espino’s arrival, he refused and to execute the deed of sale. As a result, Paredes lost expected
profits from a resale of the property.
o Exhibit A: Letter from Espino accepting Paredes’ offer re: purchase price of P4.00 a square
meter
o Exhbit B: Telegram from Espino advising Paredes of his arrival by boat
 Espino filed a MD on the ground that the complaint stated no cause of action and was
unenforceable under the Statute of Frauds.
 CFI: Dismissed complaint there being no written contract (CC 1403).
Issue: WON enforcement pleaded in the complaint is barred by the Statute of Frauds; therefore,
unenforceable
Held: No.
Ratio:
 Article 1403 (2) – “…unless the same, or some note of memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents.”
 Exhibits A and B constitute an adequate memorandum of the transaction. All essential terms of the
contract are present; hence, they satisfy the requirements of the Statue of Frauds
o Signed by Espino
o Refered to property sold as Lot. 67 covered by TCT No. 62
o Stipulated its area as 1826 square meters
o Purchase price payable in cash
 Berg v Magdalena Estate: “a sufficient memorandum may be contained in two or more documents.”
 Shaffer v Palma: “whether the agreement is in writing or not, is a question of evidence; and the
authenticity of the writing need not be established until the trial is held.” Paredes having alleged
that the contract is backed by letter and telegram, and the same being a sufficient memorandum,
his cause of action is thereby established, especially since Espino has not denied the letters in
question. At any rate, if the Court below entertained any doubts about the existence of the written
memorandum, it should have called for a preliminary hearing on that point, and not dismissed the
complaint.

Dispositive: Appealed order is set aside and the case remanded to the Court of origin for trial and decision.

Baretto v. Manila Railroad

Separate file

Inigo v. Estate of Maloto

Facts:
- March 29, 1963: In pursuant of a previous verbal understanding Margarita Iñigo (plaintiff-appellant) paid
Adriana Maloto P10,000.00 as purchase price for the disputed house and lot.
> Area: 453 sq. m
> Location: Iloilo City
> The deed of sale was to be executed later on.
- Iñigo did not press Maloto for a receipt for the money paid due to the following:
> The “almost filial relationship” between the two (Iñigo is a niece of Maloto’s deceased husband)
> Iñigo was told by Maloto that the matter of the preparation of the said receipt and the deed of
sale was to be referred to the latter's lawyer, Atty. Sulpicio Palma.
- Iñigo began to exercise ownership and dominion over the said property by improving the same and
constructing a retail store in its front.
- On two occasions (September and October 1963), on Adriana's instructions, Iñigo went to see Atty.
Palma for the preparation of a deed of sale.
> She was without success because Palma then was on the campaign trail as a candidate for
councilor of Iloilo City.
- October 20, 1963: Maloto died.
> Thereafter, the Torrens title to the property was transferred in the name of the present
defendants, nephews and niece of Adriana Maloto, after settlement of the latter's estate.
> Formal demand for the execution of a deed of sale by said defendants was rejected by them.
- CFI of Iloilo
> Suit to compel defendants to execute the said deed.
>> The averments of the complaint revealed that no written document was executed to
record the deed of sale or the payment of the purchase price of the house and land.
>> The Iloilo court declared that Iñigo's suit is unenforceable under the Statute of Frauds.
- City Court of Iloilo
> The defendants filed a suit for ejectment against Iñigo covering the same property
>> The defendants claimed that Iñigo was a mere lessee.
>> According to Iñigo, the City Court of Iloilo had no jurisdiction over the subject-matter
which involves a case of ownership; and that the issue of possession cannot be decided
by the city court without first resolving the question of ownership which properly belongs
to the CFI of Iloilo.
> Defendants' March 3, 1966 supplementary memorandum: The defendants aver the following:
>> The decision of January 4, 1966 in the ejectment case was in favor of defendants.
>> The said decision directed Margarita Iñigo to vacate the premises, to pay rentals,
attorney's fees and costs.
>> The aforesaid judgment became final.
>> On February 15, 1966, the City Judge issued a writ of execution to enforce the same.

Issue/s:
1. W/N Iñigo's suit is unenforceable under the Statute of Frauds. (No.)
2. W/N the prior decision on the ejectment suit bars another action for contesting ownership of the said
property. (No.)

Held / Ratio:
- The order of the CFI of Iloilo on January 18, 1965 dismissing the plaintiff's complaint is set aside.
- The case is remanded to the court of origin for further proceedings.

1. Iñigo's suit is enforceable under the Statute of Frauds.

- Article 1403 (2) (e) Civil Code: A verbal contract for the sale of real property is unenforceable, unless
ratified. For such contract offends the Statute of Frauds.
- But long accepted and well-settled is the rule that the Statute of Frauds is applicable only to executory
contracts (not to contracts either totally or partially performed).
- The facts alleged are constitutive of a consummated contract.
 > It matters not that neither the receipt for the consideration nor the sale itself was in writing.
Because “oral evidence of the alleged consummated sale of the land” is not forbidden by the
Statute of Frauds and may not be excluded in court.

2. The prior decision on the ejectment suit does not bar the action for contesting ownership of the said
property.
- The decision in the ejectment case is not an obstacle to the present suit.
- The simple reason is that an action of ejectment is no bar to another contesting ownership.
- It would appear from said decision that the City Court of Iloilo declared that it is “of the opinion that the
defendant Margarita Iñigo is only a lessee of the properties described in this complaint.” Implicit in this is
that the question of ownership was in reality seriously presented before the city court. So that,
possession, the problem before the city court, could not have been properly resolved there without first
settling that of ownership. Since the issue of ownership became apparent in the course of the trial of the
ejectment case aforesaid, the city court lost jurisdiction to proceed further with the trial thereof and the
judgment thereon.
- The decision in the ejectment case accordingly is not decisive of the question of ownership raised in the
complaint before the CFI of Iloilo in the case on appeal before the SC.

B. Form important for Validity

1. Sale of realty through an agent (Art. 1874)

City-Lite v. CA

Section 11. Authentication of Electronic Data Messages and Electronic Documents. - Until the Supreme
Court by appropriate rules shall have so provided, electronic documents, electronic data messages and
electronic signatures, shall be authenticated by demonstrating, substantiating and validating a claimed
identity of a user, device, or another entity is an information or communication system, among other ways,
as follows;

(a) The electronic signature shall be authenticated by proof than a letter , character, number or other
symbol in electronic form representing the persons named in and attached to or logically associated with
an electronic data message, electronic document, or that the appropriate methodology or security
procedures, when applicable, were employed or adopted by such person, with the intention of
authenticating or approving in an electronic data message or electronic document;

(b) The electronic data message or electronic document shall be authenticated by proof that an
appropriate security procedure, when applicable was adopted and employed for the purpose of verifying
the originator of an electronic data message and/or electronic document, or detecting error or alteration in
the communication, content or storage of an electronic document or electronic data message from a
specific point, which, using algorithm or codes, identifying words or numbers, encryptions, answers back
or acknowledgement procedures, or similar security devices.

The supreme court may adopt such other authentication procedures, including the use of electronic
notarization systems as necessary and advisable, as well as the certificate of authentication on printed or
hard copies of the electronic document or electronic data messages by electronic notaries, service
providers and other duly recognized or appointed certification authorities.

The person seeking to introduce an electronic data message or electronic document in any legal
proceeding has the burden of proving its authenticity by evidence capable of supporting a finding that the
electronic data message or electronic document is what the person claims it be.

In the absence of evidence to the contrary, the integrity of the information and communication system in
which an electronic data message or electronic document is recorded or stored may be established in any
legal proceeding -
a.) By evidence that at all material times the information and communication system or other similar
device was operating in a manner that did not affect the integrity of the electronic data message and/or
electronic document, and there are no other reasonable grounds to doubt the integrity of the information
and communication system,

b.) By showing that the electronic data message and/or electronic document was recorded or stored by a
party to the proceedings who is adverse in interest to the party using it; or

c.) By showing that the electronic data message and/or electronic document was recorded or stored in
the usual and ordinary course of business by a person who is not a party to the proceedings and who did
not act under the control of the party using the record.

2. Sale of large cattle (Art. 1581, Sec. 529 of Rev ADM Code)
3. Electronic Commerce Act

REPUBLIC ACT NO. 8792 June 14, 2000

AN ACT PROVIDING FOR THE RECOGNITION AND USE OF ELECTRONIC COMMERCIAL AND
NON-COMMERCIAL TRANSACTIONS AND DOCUMENTS, PENALTIES FOR UNLAWFUL USE
THEREOF, AND FOR OTHER PURPOSES

Section 7. Legal Recognition of Electronic Documents - Electronic documents shall have the legal effect,
validity or enforceability as any other document or legal writing, and -

(a) Where the law requires a document to be in writing, that requirement is met by an electronic
document if the said electronic document maintains its integrity and reliability and can be
authenticated so as to be usable for subsequent reference, in that -

i. The electronic document has remained complete and unaltered, apart from the addition
of any endorsement and any authorized change, or any change which arises in the
normal course of communication, storage and display; and

ii. The electronic document is reliable in the light of the purpose for which it was
generated and in the light of all relevant circumstances.

(b) Paragraph (a) applies whether the requirement therein is in the form of an obligation or
whether the law simply provides consequences for the document not being presented or retained
in its original from.

(c) Where the law requires that a document be presented or retained in its original form, that
requirement is met by an electronic document if -

i. There exists a reliable assurance as to the integrity of the document from the time when
it was first generated in its final form; and

ii. That document is capable of being displayed to the person to whom it is to be

presented: Provided, That no provision of this Act shall apply to vary any and all
requirements of existing laws on formalities required in the execution of documents for
their validity.

For evidentiary purposes, an electronic document shall be the functional equivalent of a written document
under existing laws.
This Act does not modify any statutory rule relating to admissibility of electronic data massages or
electronic documents, except the rules relating to authentication and best evidence.

Section 8. Legal Recognition of Electronic Signatures. - An electronic signature on the electronic

document shall be equivalent to the signature of a person on a written document if that signature is
proved by showing that a prescribed procedure, not alterable by the parties interested in the electronic
document, existed under which -

(a) A method is used to identify the party sought to be bound and to indicate said party's access
to the electronic document necessary for his consent or approval through the electronic signature;

(b) Said method is reliable and appropriate for the purpose for which the electronic document was
generated or communicated, in the light of all circumstances, including any relevant agreement;

(c) It is necessary for the party sought to be bound, in or order to proceed further with the
transaction, to have executed or provided the electronic signature; and

(d) The other party is authorized and enabled to verify the electronic signature and to make the
decision to proceed with the transaction authenticated by the same.

Section 11. Authentication of Electronic Data Messages and Electronic Documents. - Until the Supreme
Court by appropriate rules shall have so provided, electronic documents, electronic data messages and
electronic signatures, shall be authenticated by demonstrating, substantiating and validating a claimed
identity of a user, device, or another entity is an information or communication system, among other ways,
as follows;

(a) The electronic signature shall be authenticated by proof than a letter , character, number or
other symbol in electronic form representing the persons named in and attached to or logically
associated with an electronic data message, electronic document, or that the appropriate
methodology or security procedures, when applicable, were employed or adopted by such
person, with the intention of authenticating or approving in an electronic data message or
electronic document;

(b) The electronic data message or electronic document shall be authenticated by proof that an
appropriate security procedure, when applicable was adopted and employed for the purpose of
verifying the originator of an electronic data message and/or electronic document, or detecting
error or alteration in the communication, content or storage of an electronic document or
electronic data message from a specific point, which, using algorithm or codes, identifying words
or numbers, encryptions, answers back or acknowledgement procedures, or similar security
devices.

The supreme court may adopt such other authentication procedures, including the use of electronic
notarization systems as necessary and advisable, as well as the certificate of authentication on printed or
hard copies of the electronic document or electronic data messages by electronic notaries, service
providers and other duly recognized or appointed certification authorities.

The person seeking to introduce an electronic data message or electronic document in any legal
proceeding has the burden of proving its authenticity by evidence capable of supporting a finding that the
electronic data message or electronic document is what the person claims it be.

In the absence of evidence to the contrary, the integrity of the information and communication system in
which an electronic data message or electronic document is recorded or stored may be established in any
legal proceeding -
a.) By evidence that at all material times the information and communication system or other
similar device was operating in a manner that did not affect the integrity of the electronic data
message and/or electronic document, and there are no other reasonable grounds to doubt the
integrity of the information and communication system,

b.) By showing that the electronic data message and/or electronic document was recorded or
stored by a party to the proceedings who is adverse in interest to the party using it; or

c.) By showing that the electronic data message and/or electronic document was recorded or
stored in the usual and ordinary course of business by a person who is not a party to the
proceedings and who did not act under the control of the party using the record.