G.R. No.

177783 January 23, 2013

HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIO-MANALO, MILFA D. IGNACIO-MANALO

AND FAUSTINO D. IGNACIO, Petitioners,
vs.
HOME BANKERS SAVINGS AND TRUST COMPANY, SPOUSES PHILLIP AND THELMA RODRIGUEZ,
CATHERINE, REYNOLD & JEANETTE, all surnamed ZUNIGA, Respondents.

DECISION

VILLARAMA, JR., J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 assailing the Decision1 dated
July 18, 2006 and Resolution2 dated May 2, 2007 of the Court of Appeals (CA) in CA-G.R. CV No.
73551. The CA reversed the Decision3 dated June 15, 1999 of the Regional Trial Court (RTC) of Pasig
City, Branch 151 in Civil Case No. 58980.

The factual antecedents:

In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels of land to Home Savings Bank
and Trust Company, the predecessor of respondent Home Bankers Savings and Trust Company, as
security for the ₱500,000.00 loan extended to him by said bank. These properties which are located
in Cabuyao, Laguna are covered by Transfer Certificate of Title Nos. (T-40380) T-8595 and (T-45804)
T-8350 containing an area of 83,303 square meters and 120,110 square meters, respectively.4

When petitioner defaulted in the payment of his loan obligation, respondent bank proceeded to
foreclose the real estate mortgage. At the foreclosure sale held on January 26, 1983, respondent
bank was the highest bidder for the sum of ₱764,984.67. On February 8, 1983, the Certificate of
Sale issued to respondent bank was registered with the Registry of Deeds of Calamba, Laguna. With
the failure of petitioner to redeem the foreclosed properties within one year from such registration,
title to the properties were consolidated in favor of respondent bank. Consequently, TCT Nos. T-
8595 and T-8350 were cancelled and TCT Nos. 111058 and 111059 were issued in the name of
respondent bank.5

Despite the lapse of the redemption period and consolidation of title in respondent bank, petitioner
offered to repurchase the properties. While the respondent bank considered petitioner's offer to
repurchase, there was no repurchase contract executed. The present controversy was fuelled by
petitioner's stance that a verbal repurchase/compromise agreement was actually reached and
implemented by the parties.

In the meantime, respondent bank made the following dispositions of the foreclosed properties
already titled in its name:

TCT No. 111059 (Subdivided into six lots with individual titles - TCT Nos. 117771, 117772, 117773,
117774, 117775 and 117776)
A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin Salvador and Bella Salvador under Deed of
Absolute Sale dated May 23, 1984 for the price of ₱150,000.00

B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions

1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar Remulla and Natividad Pagtakhan, Dr. Edilberto
Torres and Dra. Rebecca Amores under Deed of Absolute Sale dated April 17, 1985 for the price of
₱150,000.00

2) Lot 3-B-2 covered by separate title TCT No. 124660 (Subdivided into 3 portions -

Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. Myrna del Carmen Reyes under Deed of Absolute Sale
dated March 23, 1987 for the price of ₱150,000.00

Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. Rodito Boquiren under Deed of Absolute Sale dated March
23, 1987 for the price of ₱150,000.00

Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No. T-154568 -

C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina Pedrosa under Deed of Absolute Sale dated June
4, 1984 for the price of ₱150,000.00

The expenses for the subdivision of lots covered by TCT No. 111059 and TCT No. 117772 were
shouldered by petitioner who likewise negotiated the above-mentioned sale transactions. The
properties covered by TCT Nos. T-117774 to 117776 are still registered in the name of respondent
bank.6

In a letter addressed to respondent bank dated July 25, 1989, petitioner expressed his willingness to
pay the amount of ₱600,000.00 in full, as balance of the repurchase price, and requested
respondent bank to release to him the remaining parcels of land covered by TCT Nos. 111058 and T-
154658 ("subject properties").7 Respondent bank however, turned down his request. This
prompted petitioner to cause the annotation of an adverse claim on the said titles on September
18, 1989.8

Prior to the annotation of the adverse claim, on August 24, 1989, the property covered by TCT No.
154658 was sold by respondent bank to respondent spouses Phillip and Thelma Rodriguez, without
informing the petitioner. On October 6, 1989, again without petitioner's knowledge, respondent
bank sold the property covered by TCT No T-111058 to respondents Phillip and Thelma Rodriguez,
Catherine M. Zuñiga, Reynold M. Zuñiga and Jeannette M. Zuñiga.9

On December 27, 1989, petitioner filed an action for specific performance and damages in the RTC
against the respondent bank. As principal relief, petitioner sought in his original complaint the
reconveyance of the subject properties after his payment of ₱600,000.00.10 Respondent bank filed
its Answer denying the allegations of petitioner and asserting that it was merely exercising its right
as owner of the subject properties when the same were sold to third parties.
For failure of respondent bank to appear during the pre-trial conference, it was declared as in
default and petitioner was allowed to present his evidence ex parte on the same date (September 3,
1990). Petitioner simultaneously filed an "Ex-Parte Consignation" tendering the amount of
₱235,000.00 as balance of the repurchase price.11 On September 7, 1990, the trial court rendered
judgment in favor of petitioner. Said decision, as well as the order of default, were subsequently set
aside by the trial court upon the filing of a motion for reconsideration by the respondent bank.12

In its Order dated November 19, 1990, the trial court granted the motion for intervention filed by
respondents Phillip and Thelma Rodriguez, Catherine Zuñiga, Reynold Zuñiga and Jeannette Zuñiga.
Said intervenors asserted their status as innocent purchasers for value who had no notice or
knowledge of the claim or interest of petitioner when they bought the properties already registered
in the name of respondent bank. Aside from a counterclaim for damages against the petitioner,
intervenors also prayed that in the event respondent bank is ordered to reconvey the properties,
respondent bank should be adjudged liable to the intervenors and return all amounts paid to it.13

On July 8, 1991, petitioner amended his complaint to include as alternative relief under the prayer
for reconveyance the payment by respondent bank of the prevailing market value of the subject
properties "less whatever remaining obligation due the bank by reason of the mortgage under the
terms of the compromise agreement.14

On June 15, 1999, the trial court rendered its Decision, the dispositive portion of which reads:

WHEREFORE, findings [sic] the facts aver[r]ed in the complaint supported by preponderance of
evidences adduced, judgment is hereby rendered in favor of the plaintiff and against the defendant
and intervenors by:

1. Declaring the two Deeds of Sale executed by the defendant in favor of the intervenors as null and
void and the Register of Deeds in Calamba, Laguna is ordered to cancel and/or annul the two
Transfer Certificate of Titles No. T-154658 and TCT No. T-111058 issued to the intervenors.

2. Ordering the defendant to refund the amount of ₱1,004,250.00 to the intervenors as the
consideration of the sale of the two properties.

3. Ordering the defendant to execute the appropriate Deed of Reconveyance of the two (2)
properties in favor of the plaintiff after the plaintiff pays in full the amount of ₱600,000.00 as
balance of the repurchase price.

4. Ordering the defendant bank to pay plaintiff the sum of ₱50,000.00 as attorney's fees.

5. Dismissing the counterclaim of the defendant and intervenors against the plaintiff.

Costs against the defendant.

SO ORDERED.15

The trial court found that respondent bank deliberately disregarded petitioner's substantial
payments on the total repurchase consideration. Reference was made to the letter dated March 22,
1984 (Exhibit "I")16 as the authority for petitioner in making the installment payments directly to
the Universal Properties, Inc. (UPI), respondent bank's collecting agent. Said court concluded that
the compromise agreement amounts to a valid contract of sale between petitioner, as Buyer, and
respondent bank, as Seller. Hence, in entertaining other buyers for the same properties already sold
to petitioner with intention to increase its revenues, respondent bank acted in bad faith and is thus
liable for damages to the petitioner. Intervenors were likewise found liable for damages as they
failed to exercise due diligence before buying the subject properties.

Respondent bank appealed to the CA which reversed the trial court's ruling, as follows:

WHEREFORE, the foregoing premises considered, the instant appeal is hereby GRANTED.
Accordingly, the assailed decision is hereby REVERSED and SET ASIDE.

SO ORDERED.17

The CA held that by modifying the terms of the offer contained in the March 22, 1984 letter of
respondent bank, petitioner effectively rejected the original offer with his counter-offer. There was
also no written conformity by respondent bank's officers to the amended conditions for repurchase
which were unilaterally inserted by petitioner. Consequently, no contract of repurchase was
perfected and respondent bank acted well within its rights when it sold the subject properties to
herein respondents-intervenors.

As to the receipts presented by petitioner allegedly proving the installment payments he had
completed, the CA said that these were not payments of the repurchase price but were actually
remittances of the payments made by petitioner's buyers for the purchase of the foreclosed
properties already titled in the name of respondent bank. It was noted that two of these receipts
(Exhibits "K" and "K-1")18 were issued to Fermin Salvador and Rizalina Pedrosa, the vendees of two
subdivided lots under separate Deeds of Absolute Sale executed in their favor by the respondent
bank. In view of the attendant circumstances, the CA concluded that petitioner acted merely as a
broker or middleman in the sales transactions involving the foreclosed properties. Lastly, the
respondents-intervenors were found to be purchasers who bought the properties in good faith
without notice of petitioner's interest or claim. Nonetheless, since there was no repurchase
contract perfected, the sale of the subject properties to respondents-intervenors remains valid and
binding, and the issue of whether the latter were innocent purchasers for value would be of no
consequence.

Petitioner's motion for reconsideration was likewise denied by the appellate court.

Hence, this petition alleging that:

A.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING

THE FINDING OF THE TRIAL COURT THAT THERE WAS A PERFECTED CONTRACT TO REPURCHASE
BETWEEN PETITIONER AND RESPONDENT-BANK.

B.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING
THE FINDING OF THE TRIAL COURT THAT PETITIONER DID NOT ACT AS BROKER IN THE SALE OF THE
FORECLOSED PROPERTIES AND THUS FAILED TO CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS
ISSUED IN THE NAME OF THE PETITIONER THAT ARE DULY NOTED FOR HIS ACCOUNT.

C.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING

THE FINDING OF THE TRIAL COURT THAT RESPONDENT-BANK DID NOT HAVE THE RIGHT TO DISPOSE
THE SUBJECT PROPERTIES.

D.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING

THE FINDING OF THE TRIAL COURT THAT RESPONDENTS-INTERVENORS ARE NOT INNOCENT
PURCHASERS FOR VALUE IN GOOD FAITH.19

It is to be noted that the above issues raised by petitioner alleged grave abuse of discretion
committed by the CA, which is proper in a petition for certiorari under Rule 65 of the 1997 Rules of
Civil Procedure, as amended, but not in the present petition for review on certiorari under Rule 45.

The core issue for resolution is whether a contract for the repurchase of the foreclosed properties
was perfected between petitioner and respondent bank.

The Court sustains the decision of the CA.

Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract.20 The requisite
acceptance of the offer is expressed in Article 1319 of the Civil Code which states:

ART. 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.

In Palattao v. Court of Appeals,21 this Court held that if the acceptance of the offer was not
absolute, such acceptance is insufficient to generate consent that would perfect a contract. Thus:

Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting of
the minds. Once there is concurrence between the offer and the acceptance upon the subject
matter, consideration, and terms of payment, a contract is produced. The offer must be certain. To
convert the offer into a contract, the acceptance must be absolute and must not qualify the terms
of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer
and is a rejection of the original offer. Consequently, when something is desired which is not exactly
what is proposed in the offer, such acceptance is not sufficient to generate consent because any
modification or variation from the terms of the offer annuls the offer.22
The acceptance must be identical in all respects with that of the offer so as to produce consent or
meeting of the minds.23 Where a party sets a different purchase price than the amount of the offer,
such acceptance was qualified which can be at most considered as a counter-offer; a perfected
contract would have arisen only if the other party had accepted this counter-offer.24 In Villanueva v.
Philippine National Bank25 this Court further elucidated on the meaning of unqualified acceptance,
as follows:

…While it is impossible to expect the acceptance to echo every nuance of the offer, it is imperative
that it assents to those points in the offer which, under the operative facts of each contract, are not
only material but motivating as well. Anything short of that level of mutuality produces not a
contract but a mere counter-offer awaiting acceptance. More particularly on the matter of the
consideration of the contract, the offer and its acceptance must be unanimous both on the rate of
the payment and on its term. An acceptance of an offer which agrees to the rate but varies the term
is ineffective.26 (Emphasis supplied)

Petitioner submitted as evidence of a perfected contract of repurchase the March 22, 1984 letter
(Exhibit "I")27 from Rita B. Manuel, then President of UPI, a corporation formed by respondent bank
to dispose of its acquired assets, with notations handwritten by petitioner himself. Said letter reads:

March 22, 1984

Honorable Judge Fausto Ignacio

412 Bagumbayan Street, Pateros
Metro Manila

Dear Judge Ignacio:

Your proposal to repurchase your foreclosed properties located at Cabuyao, Laguna consisting of a
total area of 203,413 square meters has been favorably considered subject to the following terms
and conditions:

1) Total Selling Price shall be ₱950,000.00

2) Downpayment of ₱150,00000 with the balance

Payable in Three (3) equal installments
as follows:

1st Installment - P 266,667 - on or before May 31, '84

2nd Installment - P 266,667 - on or before Sept. 31, '84

3rd Installment - P 266,666 - on or before Jan. 30, '85

TOTAL - P 800,000.00
3) All expenses pertinent to the subdivision of the parcel of land consisting of 120,110 square
meters shall be for your account.

Thank you,

Very truly yours,

RITA B. MANUEL
President

According to petitioner, he wrote the notations in the presence of a certain Mr. Lazaro, the
representative of Mrs. Manuel (President), and a certain Mr. Fajardo, which notations supposedly
represent their "compromise agreement."28 These notations indicate that the repurchase price
would be ₱900,000.00 which shall be paid as follows: ₱150,000 - end of May '84; ₱150,000 - end of
June '84; Balance - "Depending on financial position". Petitioner further alleged the following
conditions of the verbal agreement: (1) respondent bank shall release the equivalent land area for
payments made by petitioner who shall shoulder the expenses for subdivision of the land; (2) in
case any portion of the subdivided land is sold by petitioner, a separate document of sale would be
executed directly to the buyer; (3) the remaining portion of the properties shall not be subject of
respondent bank's transaction without the consent and authority of petitioner; (4) the petitioner
shall continue in possession of the properties and whatever portion still remaining, and attending to
the needs of its tenants; and (5) payments shall be made directly to UPI.29

The foregoing clearly shows that petitioner's acceptance of the respondent bank's terms and
conditions for the repurchase of the foreclosed properties was not absolute. Petitioner set a
different repurchase price and also modified the terms of payment, which even contained a
unilateral condition for payment of the balance (₱600,000), that is, depending on petitioner's
"financial position." The CA thus considered the qualified acceptance by petitioner as a counter-
proposal which must be accepted by respondent bank. However, there was no evidence of any
document or writing showing the conformity of respondent bank's officers to this counter-proposal.

Petitioner contends that the receipts issued by UPI on his installment payments are concrete proof
-- despite denials to the contrary by respondent bank -- that there was an implied acceptance of his
counter-proposal and that he did not merely act as a broker for the sale of the subdivided portions
of the foreclosed properties to third parties. Since all these receipts, except for two receipts issued
in the name of Fermin Salvador and Rizalina Pedrosa, were issued in the name of petitioner instead
of the buyers themselves, petitioner emphasizes that the payments were made for his account.
Moreover, petitioner asserts that the execution of the separate deeds of sale directly to the buyers
was in pursuance of the perfected repurchase agreement with respondent bank, such an
arrangement being "an accepted practice to save on taxes and shortcut paper works."

The Court is unconvinced.

In Adelfa Properties, Inc. v. CA,30 the Court ruled that:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must
be affirmatively and clearly made and must be evidenced by some acts or conduct communicated
to the offeror, it may be made either in a formal or an informal manner, and may be shown by acts,
conduct, or words of the accepting party that clearly manifest a present intention or determination
to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of
a party recognizing the existence of the contract of sale.31

Even assuming that the bank officer or employee whom petitioner claimed he had talked to
regarding the March 22, 1984 letter had acceded to his own modified terms for the repurchase,
their supposed verbal exchange did not bind respondent bank in view of its corporate nature. There
was no evidence that said Mr. Lazaro or Mr. Fajardo was authorized by respondent bank's Board of
Directors to accept petitioner's counter-proposal to repurchase the foreclosed properties at the
price and terms other than those communicated in the March 22, 1984 letter. As this Court ruled in
AF Realty & Development, Inc. v. Dieselman Freight Services, Co.32

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations
shall be exercised by the board of directors. Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors of a corporation validly

delegate some of its functions to individual officers or agents appointed by it.1âwphi1 Thus,
contracts or acts of a corporation must be made either by the board of directors or by a corporate
agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not in the course
of, or connected with, the performance of authorized duties of such director, are held not binding
on the corporation.33

Thus, a corporation can only execute its powers and transact its business through its Board of
Directors and through its officers and agents when authorized by a board resolution or its by-
laws.34

In the absence of conformity or acceptance by properly authorized bank officers of petitioner's

counter-proposal, no perfected repurchase contract was born out of the talks or negotiations
between petitioner and Mr. Lazaro and Mr. Fajardo. Petitioner therefore had no legal right to
compel respondent bank to accept the ₱600,000 being tendered by him as payment for the
supposed balance of repurchase price.

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When
there is merely an offer by one party without acceptance of the other, there is no contract.35 When
the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.36

In sum, we find the ruling of the CA more in accord with the established facts and applicable law
and jurisprudence. Petitioner's claim of utmost accommodation by respondent bank of his own
terms for the repurchase of his foreclosed properties are simply contrary to normal business
practice. As aptly observed by the appellate court:

The submission of the plaintiff-appellee is unimpressive.

First, if the counter-proposal was mutually agreed upon by both the plaintiff-appellee and
defendant-appellant, how come not a single signature of the representative of the defendant-
appellant was affixed thereto. Second, it is inconceivable that an agreement of such great
importance, involving two personalities who are both aware and familiar of the practical and legal
necessity of reducing agreements into writing, the plaintiff-appellee, being a lawyer and the
defendant-appellant, a banking institution, not to formalize their repurchase agreement. Third, it is
quite absurd and unusual that the defendant-appellant could have acceded to the condition that
the balance of the payment of the repurchase price would depend upon the financial position of
the plaintiff-appellee. Such open[-]ended and indefinite period for payment is hardly acceptable to
a banking institution like the defendant-appellant whose core existence fundamentally depends
upon its financial arrangements and transactions which, most, if not all the times are intended to
bear favorable outcome to its business. Last, had there been a repurchase agreement, then, there
should have been titles or deeds of conveyance issued in favor of the plaintiff-appellee. But as it
turned out, the plaintiff-appellee never had any land deeded or titled in his name as a result of the
alleged repurchase agreement. All these, reinforce the conclusion that the counter-proposal was
unilaterally made and inserted by the plaintiff-appellee in Exhibit "I" and could not have been
accepted by the defendant-appellant, and that a different agreement other than a repurchase
agreement was perfected between them.37

Petitioner Fausto C. Ignacio passed away on November 11, 2008 and was substituted by his heirs,
namely: Marfel D. Ignacio-Manalo, Milfa D. Ignacio-Manalo and Faustino D. Ignacio.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated July 18, 2006 and
Resolution dated May 2, 2007 of the Court of Appeals in CA-G.R. CV No. 73551 are hereby
AFFIRMED.

With costs against the petitioners.

SO ORDERED.
G.R. No. L-26872 July 25, 1975

VILLONCO REALTY COMPANY, plaintiff-appellee and EDITH PEREZ DE TAGLE, intervenor-appellee,

vs.
BORMAHECO, INC., FRANCISCO N. CERVANTES and ROSARIO N. CERVANTES, defendants-
appellants. Meer, Meer & Meer for plaintiff-appellee.

J. Villareal, Navarro and Associates for defendants-appellants.

P. P. Gallardo and Associates for intervenor-appellee.

AQUINO, J.:

This action was instituted by Villonco Realty Company against Bormaheco, Inc. and the spouses
Francisco N. Cervantes and Rosario N. Cervantes for the specific performance of a supposed
contract for the sale of land and the improvements thereon for one million four hundred thousand
pesos. Edith Perez de Tagle, as agent, intervened in order to recover her commission. The lower
court enforced the sale. Bormaheco, Inc. and the Cervantes spouses, as supposed vendors,
appealed.

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

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

Cervantes is the president of Bormaheco, Inc., a dealer and importer of industrial and agricultural
machinery. The entire lots are occupied by the building, machinery and equipment of Bormaheco,
Inc. and are adjacent to the property of Villonco Realty Company situated at 219 Buendia Avenue.

In the early part of February, 1964 there were negotiations for the sale of the said lots and the
improvements thereon between Romeo Villonco of Villonco Realty Company "and Bormaheco, Inc.,
represented by its president, Francisco N. Cervantes, through the intervention of Edith Perez de
Tagle, a real estate broker".

In the course of the negotiations, the brothers Romeo Villonco and Teofilo Villonco conferred with
Cervantes in his office to discuss the price and terms of the sale. Later, Cervantes "went to see
Villonco for the same reason until some agreement" was arrived at. On a subsequent occasion,
Cervantes, accompanied by Edith Perez de Tagle, discussed again the terms of the sale with Villonco.

During the negotiations, Villonco Realty Company assumed that the lots belonged to Bormaheco,
Inc. and that Cervantes was duly authorized to sell the same. Cervantes did not disclose to the
broker and to Villonco Realty Company that the lots were conjugal properties of himself and his wife
and that they were mortgaged to the DBP.

Bormaheco, Inc., through Cervantes, made a written offer dated February 12, 1964, to Romeo
Villonco for the sale of the property. The offer reads (Exh. B):

BORMAHECO, INC.

February 12,1964

Mr. Romeo
Villonco Villonco Building
Buendia Avenue
Makati, Rizal.

Dear Mr. Villonco:

This is with reference to our telephone conversation this noon on the matter of the sale of our
property located at Buendia Avenue, with a total area of 3,500 sq. m., under the following
conditions:

(1) That we are offering to sell to you the above property at the price of P400.00 per square
meter;

(2) That a deposit of P100,000.00 must be placed as earnest money on the purchase of the
above property which will become part payment of the property in the event that the sale is
consummated;

(3) That this sale is to be consummated only after I shall have also consummated my purchase
of another property located at Sta. Ana, Manila;

(4) That if my negotiations with said property will not be consummated by reason beyond my
control, I will return to you your deposit of P100,000 and the sale of my property to you will not also
be consummated; and

(5) That final negotiations on both properties can be definitely known after 45 days.

If the above terms is (are) acceptable to your Board, please issue out the said earnest money in
favor of Bormaheco, Inc., and deliver the same thru the bearer, Miss Edith Perez de Tagle.

Very truly yours,

SGD. FRANCISCO N. CERVANTES

President

The property mentioned in Bormaheco's letter was the land of the National Shipyards & Steel
Corporation (Nassco), with an area of twenty thousand square meters, located at Punta, Sta. Ana,
Manila. At the bidding held on January 17, 1964 that land was awarded to Bormaheco, Inc., the
highest bidder, for the price of P552,000. The Nassco Board of Directors in its resolution of February
18, 1964 authorized the General Manager to sign the necessary contract (Exh. H).

On February 28, 1964, the Nassco Acting General Manager wrote a letter to the Economic
Coordinator, requesting approval of that resolution. The Acting Economic Coordinator approved the
resolution on March 24, 1964 (Exh. 1).

In the meanwhile, Bormaheco, Inc. and Villonco Realty Company continued their negotiations for
the sale of the Buendia Avenue property. Cervantes and Teofilo Villonco had a final conference on
February 27, 1964. As a result of that conference Villonco Realty Company, through Teofilo Villonco,
in its letter of March 4, 1964 made a revised counter- offer (Romeo Villonco's first counter-offer was
dated February 24, 1964, Exh. C) for the purchase of the property. The counter-offer was accepted
by Cervantes as shown in Exhibit D, which is quoted below:

VILLONCO REALTY COMPANY

V. R. C. Building
219 Buendia Avenue, Makati,
Rizal, Philippines

March 4, 1964

Mr. Francisco Cervantes.

Bormaheco, Inc.
245 Buendia Avenue
Makati, Rizal

Dear Mr. Cervantes:

In reference to the letter of Miss E. Perez de Tagle dated February 12th and 26, 1964 in respect to
the terms and conditions on the purchase of your property located at Buendia Ave., Makati, Rizal,
with a total area of 3,500 sq. meters., we hereby revise our offer, as follows:

1. That the price of the property shall be P400.00 per sq. m., including the improvements
thereon;

2. That a deposit of P100,000.00 shall be given to you as earnest money which will become as
part payment in the event the sale is consummated;

3. This sale shall be cancelled, only if your deal with another property in Sta. Ana shall not be
consummated and in such case, the P100,000-00 earnest money will be returned to us with a 10%
interest p.a. However, if our deal with you is finalized, said P100,000.00 will become as part
payment for the purchase of your property without interest:

4. The manner of payment shall be as follows:

a. P100,000.00 earnest money and

650,000.00 as part of the down payment, or
P750,000.00 as total down payment

b. The balance is payable as follows:

P100,000.00 after 3 months
125,000.00 -do-
212,500.00 -do-
P650,000.00 Total

As regards to the other conditions which we have discussed during our last conference on February
27, 1964, the same shall be finalized upon preparation of the contract to sell.*

If the above terms and conditions are acceptable to you, kindly sign your conformity hereunder.
Enclosed is our check for ONE HUNDRED THOUSAND (P100,000.00) PESOS, MBTC Check No.
448314, as earnest money.

Very truly yours,

VILLONCO REALTY COMPANY

(Sgd.) TEOFILO VILLONCO

CONFORME:

BORMAHECO, INC.
(Sgd.) FRANCISCO CERVANTES

That this sale shall be subject to favorable consummation of a property in Sta. Ana we are
negotiating.

(Sgd.) FRANCISCO CERVANTES

The check for P100,000 (Exh. E) mentioned in the foregoing letter-contract was delivered by Edith
Perez de Tagle to Bormaheco, Inc. on March 4, 1964 and was received by Cervantes. In the voucher-
receipt evidencing the delivery the broker indicated in her handwriting that the earnest money was
"subject to the terms and conditions embodied in Bormaheco's letter" of February 12 and Villonco
Realty Company's letter of March 4, 1964 (Exh. E-1; 14 tsn).

Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six days after the signing of the
contract of sale, Exhibit D, Cervantes returned the earnest money, with interest amounting to
P694.24 (at ten percent per annum). Cervantes cited as an excuse the circumstance that "despite
the lapse of 45 days from February 12, 1964 there is no certainty yet" for the acquisition of the
Punta property (Exh. F; F-I and F-2). Villonco Realty Company refused to accept the letter and the
checks of Bormaheco, Inc. Cervantes sent them by registered mail. When he rescinded the contract,
he was already aware that the Punta lot had been awarded to Bormaheco, Inc. (25-26 tsn).
Edith Perez de Tagle, the broker, in a letter to Cervantes dated March 31, 1964 articulated her shock
and surprise at Bormaheco's turnabout. She reviewed the history of the deal and explained why
Romeo Villonco could not agree to the rescission of the sale (Exh. G).**

Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter, alleged that the forty-five day
period had already expired and the sale to Bormaheco, Inc. of the Punta property had not been
consummated. Cervantes said that his letter was a "manifestation that we are no longer interested
to sell" the Buendia Avenue property to Villonco Realty Company (Annex I of Stipulation of Facts).
The latter was furnished with a copy of that letter.

In a letter dated April 7, 1964 Villonco Realty Company returned the two checks to Bormaheco, Inc.,
stating that the condition for the cancellation of the contract had not arisen and at the same time
announcing that an action for breach of contract would be filed against Bormaheco, Inc. (Annex G of
Stipulation of Facts).1äwphï1.ñët

On that same date, April 7, 1964 Villonco Realty Company filed the complaint (dated April 6) for
specific performance against Bormaheco, Inc. Also on that same date, April 7, at eight-forty-five in
the morning, a notice of lis pendens was annotated on the titles of the said lots.

Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded the defense that the perfection of
the contract of sale was subject to the conditions (a) "that final acceptance or not shall be made
after 45 days" (sic) and (b) that Bormaheco, Inc. "acquires the Sta. Ana property".

On June 2, 1964 or during the pendency of this case, the Nassco Acting General Manager wrote to
Bormaheco, Inc., advising it that the Board of Directors and the Economic Coordinator had
approved the sale of the Punta lot to Bormaheco, Inc. and requesting the latter to send its duly
authorized representative to the Nassco for the signing of the deed of sale (Exh. 1).

The deed of sale for the Punta land was executed on June 26, 1964. Bormaheco, Inc. was
represented by Cervantes (Exh. J. See Bormaheco, Inc. vs. Abanes, L-28087, July 31, 1973, 52 SCRA
73).

In view of the disclosure in Bormaheco's amended answer that the three lots were registered in the
names of the Cervantes spouses and not in the name of Bormaheco, Inc., Villonco Realty Company
on July 21, 1964 filed an amended complaint impleading the said spouses as defendants.
Bormaheco, Inc. and the Cervantes spouses filed separate answers.

As of January 15, 1965 Villonco Realty Company had paid to the Manufacturers' Bank & Trust
Company the sum of P8,712.25 as interests on the overdraft line of P100,000 and the sum of P27.39
as interests daily on the same loan since January 16, 1965. (That overdraft line was later settled by
Villonco Realty Company on a date not mentioned in its manifestation of February 19, 1975).

Villonco Realty Company had obligated itself to pay the sum of P20,000 as attorney's fees to its
lawyers. It claimed that it was damaged in the sum of P10,000 a month from March 24, 1964 when
the award of the Punta lot to Bormaheco, Inc. was approved. On the other hand, Bormaheco, Inc.
claimed that it had sustained damages of P200,000 annually due to the notice of lis pendens which
had prevented it from constructing a multi-story building on the three lots. (Pars. 18 and 19,
Stipulation of Facts).1äwphï1.ñët

Miss Tagle testified that for her services Bormaheco, Inc., through Cervantes, obligated itself to pay
her a three percent commission on the price of P1,400,000 or the amount of forty-two thousand
pesos (14 tsn).

After trial, the lower court rendered a decision ordering the Cervantes spouses to execute in favor
of Bormaheco, Inc. a deed of conveyance for the three lots in question and directing Bormaheco,
Inc. (a) to convey the same lots to Villonco Realty Company, (b) to pay the latter, as consequential
damages, the sum of P10,000 monthly from March 24, 1964 up to the consummation of the sale, (c)
to pay Edith Perez de Tagle the sum of P42,000 as broker's commission and (d) pay P20,000 as to
attorney's fees (Civil Case No. 8109).

Bormaheco, Inc. and the Cervantes spouses appealed. Their principal contentions are (a) that no
contract of sale was perfected because Cervantes made a supposedly qualified acceptance of the
revised offer contained in Exhibit D, which acceptance amounted to a counter-offer, and because
the condition that Bormaheco, inc. would acquire the Punta land within the forty-five-day period
was not fulfilled; (2) that Bormaheco, Inc. cannot be compelled to sell the land which belongs to the
Cervantes spouses and (3) that Francisco N. Cervantes did not bind the conjugal partnership and his
wife when, as president of Bormaheco, Inc., he entered into negotiations with Villonco Realty
Company regarding the said land.

We hold that the appeal, except as to the issue of damages, is devoid of merit.

"By the contract of sale one of the contracting parties obligates himself to transfer the ownership of
and to deliver a determining thing, and the other to pay therefor a price certain in money or its
equivalent. A contract of sale may be absolute or conditional" (Art. 1458, Civil Code).

"The contract of sale is perfected at the moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the form of contracts" (Art.
1475, Ibid.).

"Contracts are perfected by mere consent, and from that moment the parties are bound not only to
the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law" (Art. 1315, Civil Code).

"Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance absolute.
A qualified acceptance constitutes a counter-offer" (Art. 1319, Civil Code). "An acceptance may be
express or implied" (Art. 1320, Civil Code).

Bormaheco's acceptance of Villonco Realty Company's offer to purchase the Buendia Avenue
property, as shown in Teofilo Villonco's letter dated March 4, 1964 (Exh. D), indubitably proves that
there was a meeting of minds upon the subject matter and consideration of the sale. Therefore, on
that date the sale was perfected. (Compare with McCullough vs. Aenlle & Co., 3 Phil. 285; Goyena
vs. Tambunting, 1 Phil. 490). Not only that Bormaheco's acceptance of the part payment of one
hundred ,thousand pesos shows that the sale was conditionally consummated or partly executed
subject to the purchase by Bormaheco, Inc. of the Punta property. The nonconsummation of that
purchase would be a negative resolutory condition (Taylor vs. Uy Tieng Piao, 43 Phil. 873).

On February 18, 1964 Bormaheco's bid for the Punta property was already accepted by the Nassco
which had authorized its General Manager to sign the corresponding deed of sale. What was
necessary only was the approval of the sale by the Economic Coordinator and a request for that
approval was already pending in the office of that functionary on March 4, 1964.

Bormaheco, Inc. and the Cervantes spouses contend that the sale was not perfected because
Cervantes allegedly qualified his acceptance of Villonco's revised offer and, therefore, his
acceptance amounted to a counter-offer which Villonco Realty Company should accept but no such
acceptance was ever transmitted to Bormaheco, Inc. which, therefore, could withdraw its offer.

That contention is not well-taken. It should be stressed that there is no evidence as to what changes
were made by Cervantes in Villonco's revised offer. And there is no evidence that Villonco Realty
Company did not assent to the supposed changes and that such assent was never made known to
Cervantes.

What the record reveals is that the broker, Miss Tagle, acted as intermediary between the parties. It
is safe to assume that the alleged changes or qualifications made by Cervantes were approved by
Villonco Realty Company and that such approval was duly communicated to Cervantes or
Bormaheco, Inc. by the broker as shown by the fact that Villonco Realty Company paid, and
Bormaheco, Inc. accepted, the sum of P100,000 as earnest money or down payment. That crucial
fact implies that Cervantes was aware that Villonco Realty Company had accepted the modifications
which he had made in Villonco's counter-offer. Had Villonco Realty Company not assented to those
insertions and annotations, then it would have stopped payment on its check for P100,000. The fact
that Villonco Realty Company allowed its check to be cashed by Bormaheco, Inc. signifies that the
company was in conformity with the changes made by Cervantes and that Bormaheco, Inc. was
aware of that conformity. Had those insertions not been binding, then Bormaheco, Inc. would not
have paid interest at the rate of ten percent per annum, on the earnest money of P100,000.

The truth is that the alleged changes or qualifications in the revised counter — offer (Exh. D) are not
material or are mere clarifications of what the parties had previously agreed upon.

Thus, Cervantes' alleged insertion in his handwriting of the figure and the words "12th and" in
Villonco's counter-offer is the same as the statement found in the voucher-receipt for the earnest
money, which reads: "subject to the terms and conditions embodied in Bormaheco's letter of Feb.
12, 1964 and your letter of March 4, 1964" (Exh. E-1).

Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of Villonco's revised counter-offer
and substituted for it the word "another" so that the original phrase, "Nassco's property in Sta.
Ana", was made to read as "another property in Sta. Ana". That change is trivial. What Cervantes
did was merely to adhere to the wording of paragraph 3 of Bormaheco's original offer (Exh. B) which
mentions "another property located at Sta. Ana." His obvious purpose was to avoid jeopardizing his
negotiation with the Nassco for the purchase of its Sta. Ana property by unduly publicizing it.
It is noteworthy that Cervantes, in his letter to the broker dated April 6, 1964 (Annex 1) or after the
Nassco property had been awarded to Bormaheco, Inc., alluded to the "Nassco property". At that
time, there was no more need of concealing from the public that Bormaheco, Inc. was interested in
the Nassco property.

Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum) after the word "interest" in
that same paragraph 3 of the revised counter-offer (Exh. D) could not be categorized as a major
alteration of that counter-offer that prevented a meeting of the minds of the parties. It was
understood that the parties had contemplated a rate of ten percent per annum since ten percent a
month or semi-annually would be usurious.

Appellants Bormaheco, Inc. and Cervantes further contend that Cervantes, in clarifying in the
voucher for the earnest money of P100,000 that Bormaheco's acceptance thereof was subject to
the terms and conditions embodied in Bormaheco's letter of February 12, 1964 and your (Villonco's)
letter of March 4, 1964" made Bormaheco's acceptance "qualified and conditional".

That contention is not correct. There is no incompatibility between Bormaheco's offer of February
12, 1964 (Exh. B) and Villonco's counter-offer of March 4, 1964 (Exh. D). The revised counter-offer
merely amplified Bormaheco's original offer.

The controlling fact is that there was agreement between the parties on the subject matter, the
price and the mode of payment and that part of the price was paid. "Whenever earnest money is
given in a contract of sale, it shall be considered as part of the price and as proof of the perfection
of the contract" (Art. 1482, Civil Code).

"It is true that an acceptance may contain a request for certain changes in the terms of the offer and
yet be a binding acceptance. 'So long as it is clear that the meaning of the acceptance is positively
and unequivocally to accept the offer, whether such request is granted or not, a contract is formed.'
" (Stuart vs. Franklin Life Ins. Co., 165 Fed. 2nd 965, citing Sec. 79, Williston on Contracts).

Thus, it was held that the vendor's change in a phrase of the offer to purchase, which change does
not essentially change the terms of the offer, does not amount to a rejection of the offer and the
tender of a counter-offer (Stuart vs. Franklin Life Ins. Co., supra).

The instant case is not governed by the rulings laid down in Beaumont vs. Prieto, 41 Phil. 670, 985,
63 L. Ed. 770, and Zayco vs. Serra, 44 Phil. 326. In those two cases the acceptance radically altered
the offer and, consequently, there was no meeting of the minds of the parties.

Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo Zayco his sugar central for
P1,000,000 on condition that the price be paid in cash, or, if not paid in cash, the price would be
payable within three years provided security is given for the payment of the balance within three
years with interest. Zayco, instead of unconditionally accepting those terms, countered that he was
going to make a down payment of P100,000, that Serra's mortgage obligation to the Philippine
National Bank of P600,000 could be transferred to Zayco's account and that he (plaintiff) would give
a bond to secure the payment of the balance of the price. It was held that the acceptance was
conditional or was a counter-offer which had to be accepted by Serra. There was no such
acceptance. Serra revoked his offer. Hence, there was no perfected contract.

In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan Hacienda owned by
Benito Legarda, who had empowered Valdes to sell it. Borck was given three months from
December 4, 1911 to buy the hacienda for P307,000. On January 17, 1912 Borck wrote to Valdes,
offering to purchase the hacienda for P307,000 payable on May 1, 1912. No reply was made to that
letter. Borck wrote other letters modifying his proposal. Legarda refused to convey the property.

It was held that Borck's January 17th letter plainly departed from the terms of the offer as to the
time of payment and was a counter-offer which amounted to a rejection of Valdes' original offer. A
subsequent unconditional acceptance could not revive that offer.

The instant case is different from Laudico and Harden vs. Arias Rodriguez, 43 Phil. 270 where the
written offer to sell was revoked by the offer or before the offeree's acceptance came to the
offeror's knowledge.

Appellants' next contention is that the contract was not perfected because the condition that
Bormaheco, Inc. would acquire the Nassco land within forty-five days from February 12, 1964 or on
or before March 28, 1964 was not fulfilled. This contention is tied up with the following letter of
Bormaheco, Inc. (Exh. F):

BORMAHECO, INC.

March 30, 1964

Villonco Realty Company

V.R.C. Building
219 Buendia Ave.,
Makati, Rizal

Gentlemen:

We are returning herewith your earnest money together with interest thereon at 10% per annum.
Please be informed that despite the lapse of the 45 days from February 12, 1964 there is no
certainty yet for us to acquire a substitute property, hence the return of the earnest money as
agreed upon.

Very truly yours,

SGD. FRANCISCO N. CERVANTES

President

Encl.: P.N.B. Check No. 112994 J

P.N.B. Check No. 112996J
That contention is predicated on the erroneous assumption that Bormaheco, Inc. was to acquire the
Nassco land within forty-five days or on or before March 28, 1964.

The trial court ruled that the forty-five-day period was merely an estimate or a forecast of how long
it would take Bormaheco, Inc. to acquire the Nassco property and it was not "a condition or a
deadline set for the defendant corporation to decide whether or not to go through with the sale of
its Buendia property".

The record does not support the theory of Bormaheco, Inc. and the Cervantes spouses that the
forty-five-day period was the time within which (a) the Nassco property and two Pasong Tamo lots
should be acquired, (b) when Cervantes would secure his wife's consent to the sale of the three lots
and (c) when Bormaheco, Inc. had to decide what to do with the DBP encumbrance.

Cervantes in paragraph 3 of his offer of February 12, 1964 stated that the sale of the Buendia lots
would be consummated after he had consummated the purchase of the Nassco property. Then, in
paragraph 5 of the same offer he stated "that final negotiations on both properties can be definitely
known after forty-five days" (See Exh. B).

It is deducible from the tenor of those statements that the consummation of the sale of the Buendia
lots to Villonco Realty Company was conditioned on Bormaheco's acquisition of the Nassco land.
But it was not spelled out that such acquisition should be effected within forty-five days from
February 12, 1964. Had it been Cervantes' intention that the forty-five days would be the period
within which the Nassco land should be acquired by Bormaheco, then he would have specified that
period in paragraph 3 of his offer so that paragraph would read in this wise: "That this sale is to be
consummated only after I shall have consummated my purchase of another property located at Sta.
Ana, Manila within forty-five days from the date hereof ." He could have also specified that period
in his "conforme" to Villonco's counter-offer of March 4, 1964 (Exh. D) so that instead of merely
stating "that this sale shall be subject to favorable consummation of a property in Sta. Ana we are
negotiating" he could have said: "That this sale shall be subject to favorable consummation within
forty-five days from February 12, 1964 of a property in Sta. Ana we are negotiating".

No such specification was made. The term of forty-five days was not a part of the condition that the
Nassco property should be acquired. It is clear that the statement "that final negotiations on both
property can be definitely known after 45 days" does not and cannot mean that Bormaheco, Inc.
should acquire the Nassco property within forty-five days from February 12, 1964 as pretended by
Cervantes. It is simply a surmise that after forty-five days (in fact when the forty-five day period
should be computed is not clear) it would be known whether Bormaheco, Inc. would be able to
acquire the Nassco property and whether it would be able to sell the Buendia property. That
aforementioned paragraph 5 does not even specify how long after the forty-five days the outcome
of the final negotiations would be known.

It is interesting to note that in paragraph 6 of Bormaheco's answer to the amended complaint,

which answer was verified by Cervantes, it was alleged that Cervantes accepted Villonco's revised
counter-offer of March 4, 1964 subject to the condition that "the final negotiations (acceptance) will
have to be made by defendant within 45 days from said acceptance" (31 Record on Appeal). If that
were so, then the consummation of Bormaheco's purchase of the Nassco property would be made
within forty-five days from March 4, 1964.
What makes Bormaheco's stand more confusing and untenable is that in its three answers it
invariably articulated the incoherent and vague affirmative defense that its acceptance of Villonco's
revised counter-offer was conditioned on the circumstance "that final acceptance or not shall be
made after 45 days" whatever that means. That affirmative defense is inconsistent with the other
aforequoted incoherent statement in its third answer that "the final negotiations (acceptance) will
have to be made by defendant within 45 days from said acceptance" (31 Record on
Appeal).1äwphï1.ñët

Thus, Bormaheco's three answers and paragraph 5 of his offer of February 12, 1964 do not sustain
at all its theory that the Nassco property should be acquired on or before March 28, 1964. Its
rescission or revocation of its acceptance cannot be anchored on that theory which, as articulated
in its pleadings, is quite equivocal and unclear.

It should be underscored that the condition that Bormaheco, Inc. should acquire the Nassco
property was fulfilled. As admitted by the appellants, the Nassco property was conveyed to
Bormaheco, Inc. on June 26, 1964. As early as January 17, 1964 the property was awarded to
Bormaheco, Inc. as the highest bidder. On February 18, 1964 the Nassco Board authorized its
General Manager to sell the property to Bormaheco, Inc. (Exh. H). The Economic Coordinator
approved the award on March 24, 1964. It is reasonable to assume that had Cervantes been more
assiduous in following up the transaction, the Nassco property could have been transferred to
Bormaheco, Inc. on or before March 28, 1964, the supposed last day of the forty-five-day period.

The appellants, in their fifth assignment of error, argue that Bormaheco, Inc. cannot be required to
sell the three lots in question because they are conjugal properties of the Cervantes spouses. They
aver that Cervantes in dealing with the Villonco brothers acted as president of Bormaheco, Inc. and
not in his individual capacity and, therefore, he did not bind the conjugal partnership nor Mrs.
Cervantes who was allegedly opposed to the sale.

Those arguments are not sustainable. It should be remembered that Cervantes, in rescinding the
contract of sale and in returning the earnest money, cited as an excuse the circumstance that there
was no certainty in Bormaheco's acquisition of the Nassco property (Exh. F and Annex 1). He did not
say that Mrs. Cervantes was opposed to the sale of the three lots. He did not tell Villonco Realty
Company that he could not bind the conjugal partnership. In truth, he concealed the fact that the
three lots were registered "in the name of FRANCISCO CERVANTES, Filipino, of legal age, married to
Rosario P. Navarro, as owner thereof in fee simple". He certainly led the Villonco brothers to believe
that as president of Bormaheco, Inc. he could dispose of the said lots. He inveigled the Villoncos
into believing that he had untrammelled control of Bormaheco, Inc., that Bormaheco, Inc. owned
the lots and that he was invested with adequate authority to sell the same.

Thus, in Bormaheco's offer of February 12, 1964, Cervantes first identified the three lots as "our
property" which "we are offering to sell ..." (Opening paragraph and par. 1 of Exh. B). Whether the
prounoun "we" refers to himself and his wife or to Bormaheco, Inc. is not clear. Then, in paragraphs
3 and 4 of the offer, he used the first person and said: "I shall have consummated my purchase" of
the Nassco property; "... my negotiations with said property" and "I will return to you your deposit".
Those expressions conveyed the impression and generated the belief that the Villoncos did not have
to deal with Mrs. Cervantes nor with any other official of Bormaheco, Inc.
The pleadings disclose that Bormaheco, Inc. and Cervantes deliberately and studiously avoided
making the allegation that Cervantes was not authorized by his wife to sell the three lots or that he
acted merely as president of Bormaheco, Inc. That defense was not interposed so as not to place
Cervantes in the ridiculous position of having acted under false pretenses when he negotiated with
the Villoncos for the sale of the three lots.

Villonco Realty Company, in paragraph 2 of its original complaint, alleged that "on February 12,
1964, after some prior negotiations, the defendant (Bormaheco, Inc.) made a formal offer to sell to
the plaintiff the property of the said defendant situated at the abovenamed address along Buendia
Avenue, Makati, Rizal, under the terms of the letter-offer, a copy of which is hereto attached as
Annex A hereof", now Exhibit B (2 Record on Appeal).

That paragraph 2 was not, repeat, was not denied by Bormaheco, Inc. in its answer dated May 5,
1964. It did not traverse that paragraph 2. Hence, it was deemed admitted. However, it filed an
amended answer dated May 25, 1964 wherein it denied that it was the owner of the three lots. It
revealed that the three lots "belong and are registered in the names of the spouses Francisco N.
Cervantes and Rosario N. Cervantes."

The three answers of Bormaheco, Inc. contain the following affirmative defense:

13. That defendant's insistence to finally decide on the proposed sale of the land in question
after 45 days had not only for its purpose the determination of its acquisition of the said Sta. Ana
(Nassco) property during the said period, but also to negotiate with the actual and registered owner
of the parcels of land covered by T.C.T. Nos. 43530, 43531 and 43532 in question which plaintiff was
fully aware that the same were not in the name of the defendant (sic; Par. 18 of Answer to
Amended Complaint, 10, 18 and 34, Record on Appeal).

In that affirmative defense, Bormaheco, Inc. pretended that it needed forty- five days within which
to acquire the Nassco property and "to negotiate" with the registered owner of the three lots. The
absurdity of that pretension stands out in bold relief when it is borne in mind that the answers of
Bormaheco, Inc. were verified by Cervantes and that the registered owner of the three lots is
Cervantes himself. That affirmative defense means that Cervantes as president of Bormaheco, Inc.
needed forty-five days in order to "negotiate" with himself (Cervantes).

The incongruous stance of the Cervantes spouses is also patent in their answer to the amended
complaint. In that answer they disclaimed knowledge or information of certain allegations which
were well-known to Cervantes as president of Bormaheco, Inc. and which were admitted in
Bormaheco's three answers that were verified by Cervantes.

It is significant to note that Bormaheco, Inc. in its three answers, which were verified by Cervantes,
never pleaded as an affirmative defense that Mrs. Cervantes opposed the sale of the three lots or
that she did not authorize her husband to sell those lots. Likewise, it should be noted that in their
separate answer the Cervantes spouses never pleaded as a defense that Mrs. Cervantes was
opposed to the sale of three lots or that Cervantes could not bind the conjugal partnership. The
appellants were at first hesitant to make it appear that Cervantes had committed the skullduggery
of trying to sell property which he had no authority to alienate.
It was only during the trial on May 17, 1965 that Cervantes declared on the witness stand that his
wife was opposed to the sale of the three lots, a defense which, as already stated, was never
interposed in the three answers of Bormaheco, Inc. and in the separate answer of the Cervantes
spouses. That same viewpoint was adopted in defendants' motion for reconsideration dated
November 20, 1965.

But that defense must have been an afterthought or was evolved post litem motam since it was
never disclosed in Cervantes' letter of rescission and in his letter to Miss Tagle (Exh. F and Annex 1).
Moreover, Mrs. Cervantes did not testify at the trial to fortify that defense which had already been
waived for not having been pleaded (See sec. 2, Rule 9, Rules of Court).

Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and his wife and the fact
that the three lots were entirely occupied by Bormaheco's building, machinery and equipment and
were mortgaged to the DBP as security for its obligation, and considering that appellants' vague
affirmative defenses do not include Mrs. Cervantes' alleged opposition to the sale, the plea that
Cervantes had no authority to sell the lots strains the rivets of credibility (Cf. Papa and Delgado vs.
Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21 Phil. 31).

"Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith" (Art. 1159, Civil Code). Inasmuch as the sale was perfected
and even partly executed, Bormaheco, Inc., and the Cervantes spouses, as a matter of justice and
good faith, are bound to comply with their contractual commitments.

Parenthetically, it may be observed that much misunderstanding could have been avoided had the
broker and the buyer taken the trouble of making some research in the Registry of Deeds and
availing themselves of the services of a competent lawyer in drafting the contract to sell.

Bormaheco, Inc. and the Cervantes spouses in their sixth assignment of error assail the trial court's
award to Villonco Realty Company of consequential damage amounting to ten thousand pesos
monthly from March 24, 1964 (when the Economic Coordinator approved the award of the Nassco
property to Bormaheco, Inc.) up to the consummation of the sale. The award was based on
paragraph 18 of the stipulation of facts wherein Villonco Realty Company "submits that the delay in
the consummation of the sale" has caused it to suffer the aforementioned damages.

The appellants contend that statement in the stipulation of facts simply means that Villonco Realty
Company speculates that it has suffered damages but it does not mean that the parties have agreed
that Villonco Realty Company is entitled to those damages.

Appellants' contention is correct. As rightly observed by their counsel, the damages in question
were not specifically pleaded and proven and were "clearly conjectural and speculative".

However, appellants' view in their seventh assignment of error that the trial court erred in ordering
Bormaheco, Inc. to pay Villonco Realty Company the sum of twenty thousand pesos as attorney's
fees is not tenable. Under the facts of the case, it is evident that Bormaheco, Inc. acted in gross and
evident bad faith in refusing to satisfy the valid and just demand of Villonco Realty Company for
specific performance. It compelled Villonco Realty Company to incure expenses to protect its
interest. Moreover, this is a case where it is just and equitable that the plaintiff should recover
attorney's fees (Art. 2208, Civil Code).

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

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

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

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

2. Within five (5) days from the execution of such deed of conveyance, Bormaheco, Inc. should
execute in favor of Villonco Realty Company, V. R. C. Building, 219 Buendia Avenue, Makati, Rizal a
registerable deed of sale for the said three lots and all the improvements thereon, free from all lien
and encumbrances, at the price of four hundred pesos per square meter, deducting from the total
purchase price the sum of P100,000 previously paid by Villonco Realty Company to Bormaheco, Inc.

3. Upon the execution of such deed of sale, Villonco Realty Company is obligated to pay
Bormaheco, Inc. the balance of the price in the sum of one million three hundred thousand pesos
(P1,300,000).

4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty Company twenty thousand pesos
(P20,000) as attorney's fees and (b) to pay Edith Perez de Tagle the sum of forty-two thousand pesos
(P42,000) as commission. Costs against the defendants-appellants.

SO ORDERED.
G.R. No. 166862 December 20, 2006

MANILA METAL CONTAINER CORPORATION, petitioner,

REYNALDO C. TOLENTINO, intervenor,
vs.
PHILIPPINE NATIONAL BANK, respondent,
DMCI-PROJECT DEVELOPERS, INC., intervenor.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-
G.R. No. 46153 which affirmed the decision2 of the Regional Trial Court (RTC), Branch 71, Pasig City,
in Civil Case No. 58551, and its Resolution3 denying the motion for reconsideration filed by
petitioner Manila Metal Container Corporation (MMCC).

The Antecedents

Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a
City), Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No. 332098 of
the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent
Philippine National Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent
PNB later granted petitioner a new credit accommodation of P1,000,000.00; and, on November 16,
1973, petitioner executed an Amendment4 of Real Estate Mortgage over its property. On March 31,
1981, petitioner secured another loan of P653,000.00 from respondent PNB, payable in quarterly
installments of P32,650.00, plus interests and other charges.5

On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate
mortgage and sought to have the property sold at public auction for P911,532.21, petitioner's
outstanding obligation to respondent PNB as of June 30, 1982,6 plus interests and attorney's fees.

After due notice and publication, the property was sold at public auction on September 28, 1982
where respondent PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale7
issued in its favor was registered with the Office of the Register of Deeds of Rizal, and was
annotated at the dorsal portion of the title on February 17, 1983. Thus, the period to redeem the
property was to expire on February 17, 1984.

Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an
extension of time to redeem/repurchase the property.8 In its reply dated August 30, 1983,
respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for
appropriate action and recommendation.9

In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from
February 17, 1984 within which to redeem/repurchase the property on installment basis. It
reiterated its request to repurchase the property on installment.11 Meanwhile, some PNB Pasay
City Branch personnel informed petitioner that as a matter of policy, the bank does not accept
"partial redemption."12

Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on
June 1, 1984, and issued a new title in favor of respondent PNB.13 Petitioner's offers had not yet
been acted upon by respondent PNB.

Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of
account, and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included
the bid price of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes,
registration expenses, miscellaneous expenses and publication cost.14 When apprised of the
statement of account, petitioner remitted P725,000.00 to respondent PNB as "deposit to
repurchase," and Official Receipt No. 978191 was issued to it.15

In the meantime, the SAMD recommended to the management of respondent PNB that petitioner
be allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the
PNB management informed petitioner that it was rejecting the offer and the recommendation of
the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its minimum
market value. Respondent PNB gave petitioner until December 15, 1984 to act on the proposal;
otherwise, its P725,000.00 deposit would be returned and the property would be sold to other
interested buyers.16

Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter
dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter
dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property
for P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner
desire to withdraw its offer to purchase the property.17 On February 25, 1985, petitioner, through
counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner declared that
it had already agreed to the SAMD's offer to purchase the property for P1,574,560.47, and that was
why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse
should PNB insist on the position.18

On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted
petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00
already deposited with it.19 On page two of the letter was a space above the typewritten name of
petitioner's President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did
not conform to the letter but merely indicated therein that he had received it.20 Petitioner did not
respond, so PNB requested petitioner in a letter dated June 30, 1988 to submit an amended offer to
repurchase.

Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that
respondent PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00
downpayment had been accepted, respondent PNB was proscribed from increasing the purchase
price of the property.21 Petitioner averred that it had a net balance payable in the amount of
P643,452.34. Respondent PNB, however, rejected petitioner's offer to pay the balance of
P643,452.34 in a letter dated August 1, 1989.22
On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of
Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." To
support its cause of action for specific performance, it alleged the following:

34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the
substantial amount of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as
approved by its SMAD and considering the reliance made by Manila Metal and the long time that
has elapsed, the approval of the higher management of the Bank to confirm the agreement of its
SMAD is clearly a potestative condition which cannot legally prejudice Manila Metal which has
acted and relied on the approval of SMAD. The Bank cannot take advantage of a condition which is
entirely dependent upon its own will after accepting and benefiting from the substantial payment
made by Manila Metal.

35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from
Manila Metal. PNB cannot take advantage of its own delay and long inaction in demanding a higher
amount based on unilateral computation of interest rate without the consent of Manila Metal.

Petitioner later filed an amended complaint and supported its claim for damages with the following
arguments:

36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank,
plaintiff is constrained to engage the services of counsel at an agreed fee of P50,000.00 and to incur
litigation expenses of at least P30,000.00, which the defendant PNB should be condemned to pay
the plaintiff Manila Metal.

37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila
Metal suffered besmirched reputation for which defendant PNB is liable for moral damages of at
least P50,000.00.

38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible,
exemplary damages should be awarded in favor of the plaintiff by way of example or correction for
the public good of at least P30,000.00.23

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:

a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal
force and effect.

b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property
and setting it for auction sale null and void.

c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT
NO. 43792) covering the property described in paragraph 4 of the Complaint, to reinstate TCT No.
37025 in the name of Manila Metal and to cancel the annotation of the mortgage in question at the
back of the TCT No. 37025 described in paragraph 4 of this Complaint.
d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025
described in paragraph 4 of this Complaint to the plaintiff Manila Metal.

e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages, moral and
exemplary damages in the aggregate amount of not less than P80,000.00 as may be warranted by
the evidence and fixed by this Honorable Court in the exercise of its sound discretion, and attorney's
fees of P50,000.00 and litigation expenses of at least P30,000.00 as may be proved during the trial,
and costs of suit.

Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the
premises.24

In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it
had acquired ownership over the property after the period to redeem had elapsed. It claimed that
no contract of sale was perfected between it and petitioner after the period to redeem the property
had expired.

During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of
facts.25 The parties agreed to limit the issues to the following:

1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer to
purchase the property is still valid and legally enforceable.

2. Whether or not the plaintiff has waived its right to purchase the property when it failed to
conform with the conditions set forth by the defendant in its letter dated June 4, 1985.

3. Whether or not there is a perfected contract of sale between the parties.26

While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner
vacate the property within 15 days from notice,27 but petitioners refused to do so.

On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer
was however rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the
prevailing market value of the property was approximately P30,000,000.00, and as a matter of
policy, it could not sell the property for less than its market value.29 On June 21, 1993, petitioner
offered to purchase the property for P4,250,000.00 in cash.30 The offer was again rejected by
respondent PNB on September 13, 1993.31

On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and
respondent PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit
petitioner had made.32 The trial court ruled that there was no perfected contract of sale between
the parties; hence, petitioner had no cause of action for specific performance against respondent.
The trial court declared that respondent had rejected petitioner's offer to repurchase the property.
Petitioner, in turn, rejected the terms and conditions contained in the June 4, 1985 letter of the
SAMD. While petitioner had offered to repurchase the property per its letter of July 14, 1988, the
amount of P643,422.34 was way below the P1,206,389.53 which respondent PNB had demanded. It
further declared that the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985
was a "deposit," and not a downpayment or earnest money.

On appeal to the CA, petitioner made the following allegations:

I
THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE 1985
APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE SUBJECT PROPERTY IS
NOT VALID AND ENFORCEABLE.

II
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE
BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE.

III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO
PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET FORTH
BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985.

IV
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-APPELLEE
WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE
BALANCE OF THEIR PURCHASE PRICE.

V
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION OR
CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE.

VI
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT THE
AMENDED REPURCHASE OFFER.

VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFF-APPELLANT.

VIII
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND
EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND LITIGATION EXPENSES.33

Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where
it waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT
No. 37025 in favor of Bayani Gabriel, one of its Directors.34 Thereafter, Bayani Gabriel executed a
Deed of Assignment over 51% of the ownership and management of the property in favor of
Reynaldo Tolentino, who later moved for leave to intervene as plaintiff-appellant. On July 14, 1993,
the CA issued a resolution granting the motion,35 and likewise granted the motion of Reynaldo
Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as
intervenor.36
The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.37 It declared that
petitioner obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53)
since petitioner had kept on insisting that the selling price should be lowered to P1,574,560.47.
Clearly therefore, there was no meeting of the minds between the parties as to the price or
consideration of the sale.

The CA ratiocinated that petitioner's original offer to purchase the subject property had not been
accepted by respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter
specifically on the selling price; petitioner did not agree to the counter-offer; and the negotiations
did not prosper. Moreover, petitioner did not pay the balance of the purchase price within the sixty-
day period set in the June 4, 1985 letter of respondent PNB. Consequently, there was no perfected
contract of sale, and as such, there was no contract to rescind.

According to the appellate court, the claim for damages and the counterclaim were correctly
dismissed by the court a quo for no evidence was presented to support it. Respondent PNB's letter
dated June 30, 1988 cannot revive the failed negotiations between the parties. Respondent PNB
merely asked petitioner to submit an amended offer to repurchase. While petitioner reiterated its
request for a lower selling price and that the balance of the repurchase be reduced, however,
respondent rejected the proposal in a letter dated August 1, 1989.

Petitioner filed a motion for reconsideration, which the CA likewise denied.

Thus, petitioner filed the instant petition for review on certiorari, alleging that:

I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO
PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT.

II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT OF
PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.

III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE OF
THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNB'S
JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT
OF SALE BETWEEN THE PARTIES.

IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE
PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB DATED
JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO VALID AND
LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.

V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-
APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT
PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED CONTRACT OF
SALE.38
The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected
contract for petitioner to repurchase the property from respondent.

Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the
property for P1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it
then deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt No. 978194
which respondent had issued. Petitioner avers that the SAMD's acceptance of the deposit
amounted to an acceptance of its offer to repurchase. Moreover, as gleaned from the letter of
SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioner's offer to purchase
the property. It claims that this was the suspensive condition, the fulfillment of which gave rise to
the contract. Respondent could no longer unilaterally withdraw its offer to sell the property for
P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of sale; it was
obliged to remit to respondent the balance of the original purchase price of P1,574,560.47, while
respondent was obliged to transfer ownership and deliver the property to petitioner, conformably
with Article 1159 of the New Civil Code.

Petitioner posits that respondent was proscribed from increasing the interest rate after it had
accepted respondent's offer to sell the property for P1,574,560.00. Consequently, respondent could
no longer validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise
maintains that, although the P725,000.00 was considered as "deposit for the repurchase of the
property" in the receipt issued by the SAMD, the amount constitutes earnest money as
contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of this Court in
Villonco v. Bormaheco39 and Topacio v. Court of Appeals.40

Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and
its failure to pay the balance of the price as fixed by respondent within the 60-day period from
notice was to protest respondent's breach of its obligation to petitioner. It did not amount to a
rejection of respondent's offer to sell the property since respondent was merely seeking to enforce
its right to pay the balance of P1,570,564.47. In any event, respondent had the option either to
accept the balance of the offered price or to cause the rescission of the contract.

Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of
the case in the RTC were merely to compromise the pending lawsuit, they did not constitute
separate offers to repurchase the property. Such offer to compromise should not be taken against it,
in accordance with Section 27, Rule 130 of the Revised Rules of Court.

For its part, respondent contends that the parties never graduated from the "negotiation stage" as
they could not agree on the amount of the repurchase price of the property. All that transpired was
an exchange of proposals and counter-proposals, nothing more. It insists that a definite agreement
on the amount and manner of payment of the price are essential elements in the formation of a
binding and enforceable contract of sale. There was no such agreement in this case. Primarily, the
concept of "suspensive condition" signifies a future and uncertain event upon the fulfillment of
which the obligation becomes effective. It clearly presupposes the existence of a valid and binding
agreement, the effectivity of which is subordinated to its fulfillment. Since there is no perfected
contract in the first place, there is no basis for the application of the principles governing
"suspensive conditions."
According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot
be classified as a counter-offer; it is simply a recital of its total monetary claims against petitioner.
Moreover, the amount stated therein could not likewise be considered as the counter-offer since as
admitted by petitioner, it was only recommendation which was subject to approval of the PNB
Board of Directors.

Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale
contract. As gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo,
the amount is merely an acknowledgment of the receipt of P725,000.00 as deposit to repurchase
the property. The deposit of P725,000.00 was accepted by respondent on the condition that the
purchase price would still be approved by its Board of Directors. Respondent maintains that its
acceptance of the amount was qualified by that condition, thus not absolute. Pending such
approval, it cannot be legally claimed that respondent is already bound by any contract of sale with
petitioner.

According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and
that its authority is limited to administering, managing and preserving the properties and other
special assets of PNB. The SAMD does not have the power to sell, encumber, dispose of, or
otherwise alienate the assets, since the power to do so must emanate from its Board of Directors.
The SAMD was not authorized by respondent's Board to enter into contracts of sale with third
persons involving corporate assets. There is absolutely nothing on record that respondent
authorized the SAMD, or made it appear to petitioner that it represented itself as having such
authority.

Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been
approved by the Board subject to the condition, among others, "that the selling price shall be the
total bank's claim as of documentation date x x x payable in cash (P725,000.00 already deposited)

within 60 days from notice of approval." A new Statement of Account was attached therein
indicating the total bank's claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00.
Furthermore, while respondent's Board of Directors accepted petitioner's offer to repurchase the
property, the acceptance was qualified, in that it required a higher sale price and subject to
specified terms and conditions enumerated therein. This qualified acceptance was in effect a
counter-offer, necessitating petitioner's acceptance in return.

The Ruling of the Court

The ruling of the appellate court that there was no perfected contract of sale between the parties
on June 4, 1985 is correct.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service.41 Under Article 1318 of the New Civil Code,
there is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

Contracts are perfected by mere consent which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract.42 Once perfected,
they bind other contracting parties and the obligations arising therefrom have the form of law
between the parties and should be complied with in good faith. The parties are bound not only to
the fulfillment of what has been expressly stipulated but also to the consequences which, according
to their nature, may be in keeping with good faith, usage and law.43

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of
and deliver a determinate thing, and the other to pay therefor a price certain in money or its
equivalent.44 The absence of any of the essential elements will negate the existence of a perfected
contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:45

A definite agreement as to the price is an essential element of a binding agreement to sell personal
or real property because it seriously affects the rights and obligations of the parties. Price is an
essential element in the formation of a binding and enforceable contract of sale. The fixing of the
price can never be left to the decision of one of the contracting parties. But a price fixed by one of
the contracting parties, if accepted by the other, gives rise to a perfected sale.46

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When
there is merely an offer by one party without acceptance of the other, there is no contract.47 When
the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.48

In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the stages of a contract of
sale are as follows: (1) negotiation, covering the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which
takes place upon the concurrence of the essential elements of the sale which are the meeting of the
minds of the parties as to the object of the contract and upon the price; and (3) consummation,
which begins when the parties perform their respective undertakings under the contract of sale,
culminating in the extinguishment thereof.

A negotiation is formally initiated by an offer, which, however, must be certain.50 At any time prior
to the perfection of the contract, either negotiating party may stop the negotiation. At this stage,
the offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To
convert the offer into a contract, the acceptance must be absolute and must not qualify the terms
of the offer; it must be plain, unequivocal, unconditional and without variance of any sort from the
proposal. In Adelfa Properties, Inc. v. Court of Appeals,51 the Court ruled that:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must
be affirmatively and clearly made and must be evidenced by some acts or conduct communicated
to the offeror, it may be shown by acts, conduct, or words of the accepting party that clearly
manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of
sale.52
A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a
rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer
and an attempt to end the negotiation between the parties on a different basis.53 Consequently,
when something is desired which is not exactly what is proposed in the offer, such acceptance is not
sufficient to guarantee consent because any modification or variation from the terms of the offer
annuls the offer.54 The acceptance must be identical in all respects with that of the offer so as to
produce consent or meeting of the minds.

In this case, petitioner had until February 17, 1984 within which to redeem the property. However,
since it lacked the resources, it requested for more time to redeem/repurchase the property under
such terms and conditions agreed upon by the parties.55 The request, which was made through a
letter dated August 25, 1983, was referred to the respondent's main branch for appropriate
action.56 Before respondent could act on the request, petitioner again wrote respondent as follows:

1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND
PESOS (P150,000.00);

2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED
FIFTY THOUSAND PESOS (P450,000.00); and

3. The remaining balance together with the interest and other expenses that will be incurred will be
paid within the last six months of the one year grave period requested for.57

When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a letter
to respondent's President reiterating its offer to purchase the property.59 There was no response to
petitioner's letters dated February 10 and 15, 1984.

The statement of account prepared by the SAMD stating that the net claim of respondent as of June
25, 1984 was P1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to
purchase the property. The statement is but a computation of the amount which petitioner was
obliged to pay in case respondent would later agree to sell the property, including interests,
advances on insurance premium, advances on realty taxes, publication cost, registration expenses
and miscellaneous expenses.

There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept
petitioner's offer and sell the property for P1,574,560.47. Any acceptance by the SAMD of
petitioner's offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs.
Diesehuan Freight Services, Inc.:60

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations
shall be exercised by the board of directors. Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its
functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation
must be made either by the board of directors or by a corporate agent duly authorized by the
board. Absent such valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or connected with the
performance of authorized duties of such director, are held not binding on the corporation.

Thus, a corporation can only execute its powers and transact its business through its Board of
Directors and through its officers and agents when authorized by a board resolution or its by-
laws.61

It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's
offer to repurchase the property even beyond the one-year period; it recommended that petitioner
be allowed to redeem the property and pay P1,574,560.00 as the purchase price. Respondent later
approved the recommendation that the property be sold to petitioner. But instead of the
P1,574,560.47 recommended by the SAMD and to which petitioner had previously conformed,
respondent set the purchase price at P2,660,000.00. In fine, respondent's acceptance of petitioner's
offer was qualified, hence can be at most considered as a counter-offer. If petitioner had accepted
this counter-offer, a perfected contract of sale would have arisen; as it turns out, however,
petitioner merely sought to have the counter-offer reconsidered. This request for reconsideration
would later be rejected by respondent.

We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent
was "earnest money" which could be considered as proof of the perfection of a contract of sale
under Article 1482 of the New Civil Code. The provision reads:

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

This contention is likewise negated by the stipulation of facts which the parties entered into in the
trial court:

8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an
updated Statement of Account showing MMCC's total liability to PNB as of June 25, 1984 to be
P1,574,560.47 and recommended this amount as the repurchase price of the subject property.

9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The
deposit of P725,000 was accepted by PNB on the condition that the purchase price is still subject to
the approval of the PNB Board.62

Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the
property, in the event that respondent would approve the recommendation of SAMD for
respondent to accept petitioner's offer to purchase the property for P1,574,560.47. Unless and until
the respondent accepted the offer on these terms, no perfected contract of sale would arise.
Absent proof of the concurrence of all the essential elements of a contract of sale, the giving of
earnest money cannot establish the existence of a perfected contract of sale.63

It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept
the offer to purchase the property for P1,931,389.53. However, this amounted to an amendment of
respondent's qualified acceptance, or an amended counter-offer, because while the respondent
lowered the purchase price, it still declared that its acceptance was subject to the following terms
and conditions:

1. That the selling price shall be the total Bank's claim as of documentation date (pls. see attached
statement of account as of 5-31-85), payable in cash (P725,000.00 already deposited) within sixty
(60) days from notice of approval;

2. The Bank sells only whatever rights, interests and participation it may have in the property and
you are charged with full knowledge of the nature and extent of said rights, interests and
participation and waive your right to warranty against eviction.

3. All taxes and other government imposts due or to become due on the property, as well as
expenses including costs of documents and science stamps, transfer fees, etc., to be incurred in
connection with the execution and registration of all covering documents shall be borne by you;

4. That you shall undertake at your own expense and account the ejectment of the occupants of the
property subject of the sale, if there are any;

5. That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt
of advice accepting your offer, your deposit shall be forfeited and the Bank is thenceforth
authorized to sell the property to other interested parties.

6. That the sale shall be subject to such other terms and conditions that the Legal Department may
impose to protect the interest of the Bank.64

It appears that although respondent requested petitioner to conform to its amended counter-offer,
petitioner refused and instead requested respondent to reconsider its amended counter-offer.
Petitioner's request was ultimately rejected and respondent offered to refund its P725,000.00
deposit.

In sum, then, there was no perfected contract of sale between petitioner and respondent over the
subject property.

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

The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation.

SO ORDERED.
G.R. No. 199648 January 28, 2015

FIRST OPTIMA REALTY CORPORATION, Petitioner,

vs.
SECURITRON SECURITY SERVICES, INC., Respondent.

DECISION

DEL CASTILLO, J.:

In a potential sale transaction, the prior payment of earnest money even before the property owner
can agree to sell his property is irregular, and cannot be used to bind the owner to the obligations of
a seller under an otherwise perfected contract of sale; to cite a well-worn cliche, the carriage
cannot be placed before the horse. The property owner-prospective seller may not be legally
obliged to enter into a sale with a prospective buyer through the latter's employment of
questionable practices which prevent the owner from freely giving his consent to the transaction;
this constitutes a palpable transgression of the prospective seller's rights of ownership over his
property, an anomaly which the Court will certainly not condone.

This Petition for Review on Certiorari1 seeks to set aside: 1) the September 30, 2011 Decision2 of
the Court of Appeals (CA) in CA-G.R. CV No. 93715 affirming the February 16, 2009 Decision' of the
Regional Trial Court (RTC) of Pasay City, Branch 115 in Civil Case No. 06-0492 CFM; and 2) the CA’s
December 9, 2011 Resolution4 denying the herein petitioner’s Motion for Reconsideration5 of the
assailed judgment.

Factual Antecedents

Petitioner First Optima Realty Corporation is a domestic corporation engaged in the real estate
business. It is the registered owner of a 256-square meter parcel of land with improvements located
in Pasay City, covered by Transfer Certificate of Title No. 125318 (the subject property).6
Respondent Securitron Security Services, Inc., on the other hand, is a domestic corporation with
offices located beside the subject property.

Looking to expand its business and add toits existing offices, respondent – through its General
Manager, Antonio Eleazar (Eleazar) – sent a December 9, 2004 Letter7 addressed to petitioner –
through its Executive Vice-President, Carolina T. Young (Young) – offering to purchase the subject
property at ₱6,000.00 per square meter. A series of telephone calls ensued, but only between
Eleazar and Young’s secretary;8 Eleazar likewise personally negotiated with a certain Maria Remoso
(Remoso), who was an employee of petitioner.9 At this point, Eleazar was unable to personally
negotiate with Young or the petitioner’s board of directors.

Sometime thereafter, Eleazar personally went to petitioner’s office offering to pay for the subject
property in cash, which he already brought with him. However, Young declined to accept payment,
saying that she still needed to secure her sister’s advice on the matter.10 She likewise informed
Eleazar that prior approval of petitioner’s Board of Directors was required for the transaction, to
which remark Eleazar replied that respondent shall instead await such approval.11
On February 4, 2005, respondent sent a Letter12 of even date to petitioner. It was accompanied by
Philippine National Bank Check No. 24677 (the subject check), issued for ₱100,000.00 and made
payable to petitioner. The letter states thus:

Gentlemen:

As agreed upon, we are making a deposit of ONE HUNDRED THOUSAND PESOS (Php 100,000.00) as
earnest money for your property at the corner of Layug St., & Lim-An St., Pasay City as per TCT No.
125318 with an area of 256 sq. m. at 6,000.00/ sq. m. for a total of ONE MILLION FIVE HUNDRED
THIRTY SIX THOUSAND PESOS (Php 1,536,000.00).

Full payment upon clearing of the tenants at said property and signing of the Deed of Sale.

(signed)
ANTONIO S. ELEAZAR13

Despite the delicate nature of the matter and large amount involved, respondent did not deliver the
letter and check directly to Young or her office; instead, they were coursed through an ordinary
receiving clerk/receptionist of the petitioner, who thus received the same and therefor issued and
signed Provisional Receipt No. 33430.14 The said receipt reads:

Received from x x x Antonio Eleazar x x x the sum of Pesos One Hundred Thousand x x x

IN PAYMENT OF THE FOLLOWING x x x

Earnest money or Partial payment of

Pasay Property Layug & Lim-an St. x x x.

Note: This is issued to transactions not

yet cleared but subsequently an OfficialReceipt will be issued. x x x15

The check was eventually deposited with and credited to petitioner’s bank account.

Thereafter, respondent through counsel demanded in writing that petitioner proceed with the sale
of the property.16 In a March 3, 2006 Letter17 addressed to respondent’s counsel, petitioner wrote
back:

Dear Atty. De Jesus:

Anent your letter dated January 16, 2006 received on February 20, 2006, please be informed of the
following:

1. It was your client SECURITRON SECURITY SERVICES, INC. represented by Mr. Antonio Eleazar who
offered to buy our property located at corner Layug and Lim-An St., Pasay City;
2. It tendered an earnest money despite the fact that we are still undecided to sell the said
property;

3. Our Board of Directors failed to pass a resolution to date whether it agrees to sell the property;

4. We have no Contract for the earnest money nor Contract to Sell the said property with your
client;

Considering therefore the above as well as due to haste and demands which we feel [are forms] of
intimidation and harassment, we regret to inform you that we are now incline (sic) not to accept
your offer to buy our property. Please inform your client to coordinate with us for the refund of this
(sic) money.

Very truly yours,

(signed)
CAROLINA T. YOUNG
Executive Vice[-]President18

Ruling of the Regional Trial Court of Pasay City

On April 18, 2006, respondent filed with the Pasay RTC a civil case against petitioner for specific
performance with damages to compel the latter to consummate the supposed sale of the subject
property. Docketed as Civil Case No. 06-0492 CFM and assigned to Branch 115 of the Pasay RTC, the
Complaint19 is predicated on the claim that since a perfected contract of sale arose between the
parties after negotiations were conducted and respondent paid the ₱100,000.00 supposed earnest
money – which petitioner accepted, the latter should be compelled to sell the subject property to
the former. Thus, respondent prayed that petitioner be ordered to comply with its obligation as
seller, accept the balance of the purchase price, and execute the corresponding deed of sale in
respondent’s favor; and that petitioner be made to pay ₱200,000.00 damages for its breach and
delay in the performance of its obligations, ₱200,000.00 by way of attorney's fees, and costs of suit.

In its Answer with Compulsory Counterclaim,20 petitioner argued that it never agreed to sell the
subject property; that its board of directors did not authorize the sale thereof to respondent, as no
corresponding board resolution to such effect was issued; that the respondent’s ₱100,000.00 check
payment cannot be considered as earnest money for the subject property, since said payment was
merely coursed through petitioner’s receiving clerk, who was forced to accept the same; and that
respondent was simply motivated by a desire to acquire the subject property at any cost. Thus,
petitioner prayed for the dismissal of the case and, by way of counterclaim, it sought the payment
of moral damages in the amount of ₱200,000.00; exemplary damages in the amount of
₱100,000.00; and attorney’s fees and costs of suit.

In a Reply,21 respondent countered that authorization by petitioner’s Board of Directors was not
necessary since it is a real estate corporation principally engaged in the buying and selling of real
property; that respondent did not force nor intimidate petitioner’s receiving clerk into accepting the
February 4, 2005 letter and check for ₱100,000.00; that petitioner’s acceptance of the check and its
failure – for more than a year – to return respondent’s payment amounts to estoppel and a
ratification of the sale; and that petitioner is not entitled to its counterclaim.

After due proceedings were taken, the Pasay RTC issued its Decision dated February 16, 2009,
decreeing as follows:

WHEREFORE, defendant First Optima Realty Corporation is directed to comply with its obligation by
accepting the remaining balance of One Million Five Hundred Thirty-Six Thousand Pesos and Ninety-
Nine Centavos (₱1,536,000.99), and executing the corresponding deed of sale in favor of the
plaintiff Securitron Security Services, Inc. over the subject parcel of land.

No costs.

SO ORDERED.22

In ruling for the respondent, the trial court held that petitioner’s acceptance of ₱100,000.00 earnest
money indicated the existence of a perfected contract of sale between the parties; that there is no
showing that when respondent gave the February 4, 2005 letter and check to petitioner’s receiving
clerk, the latter was harassed or forced to accept the same; and that for the sale of the subject
property, no resolution of petitioner’s board of directors was required since Young was "free to
represent" the corporation in negotiating with respondent for the sale thereof. Ruling of the Court
of Appeals

Petitioner filed an appeal with the CA. Docketed as CA-G.R. CV No. 93715, the appeal made out a
case that no earnest money can be considered to have been paid to petitioner as the supposed
payment was received by a mere receiving clerk, who was not authorized to accept the same; that
the required board of directors resolution authorizing the sale of corporate assets cannot be
dispensed with in the case of petitioner; that whatever negotiations were held between the parties
only concerned the possible sale, not the sale itself, of the subject property; that without the
written authority of petitioner’s board of directors, Young cannot enter into a sale of its corporate
property; and finally, that there was no meeting of the minds between the parties in the first place.

On September 30, 2011, the CA issued the assailed Decision affirming the trial court’s February 16,
2009Decision, pronouncing thus:

Article 1318 of the Civil Code declares that no contract exists unless the following requisites concur:
(1) consent of the contracting parties; (2) object certain which is the subject matter of the contract;
and (3) cause of the obligation established.

A careful perusal of the records of the case show[s] that there was indeed a negotiation between
the parties as regards the sale of the subject property, their disagreement lies on whether they have
arrived on an agreement regarding said sale. Plaintiff-appellee avers that the parties have already
agreed on the sale and the price for it and the payment of earnest money and the remaining
balance upon clearing of the property of unwanted tenants. Defendant-appellant on the other hand
disputes the same and insists that there was no concrete agreement between the parties.
Upon a careful consideration of the arguments of the parties and the records of the case, we are
more inclined to sustain the arguments of the plaintiff-appellee and affirm the findings of the trial
court that there was indeed a perfected contract of sale between the parties. The following
instances militate against the claim of the defendant-appellant: First. The letter of the plaintiff-
appellee dated February 4, 2005 reiterating their agreement as to the sale of the realty for the
consideration of Php 1,536,000.00 was not disputed nor replied to by the defendant-appellant, the
said letter also provides for the payment of the earnest money of Php 100,000.00 and the full
payment upon the clearing of the property of unwanted tenants, if the defendant-appellant did not
really agree on the sale of the property it could have easily replied to the said letter informing the
plaintiff-appellee that it is not selling the property or that the matter will be decided first by the
board of directors, defendant-appellant’s silence or inaction on said letter shows its conformity or
consent thereto; Second. In addition to the aforementioned letter, defendant-appellant’s
acceptance of the earnest money and the issuance of a provisional receipt clearly shows that there
was indeed an agreement between the parties and we do not subscribe to the argument of the
defendant-appellant that the check was merely forced upon its employee and the contents of the
receipt was just dictated by the plaintiff-appellee’s employee because common sense dictates that a
person would not issue a receipt for a check with a huge amount if she does not know what that is
for and similarly would not issue [a] receipt which would bind her employer if she does not have
prior instructions to do [so] from her superiors; Third. The said check for earnest money was
deposited in the bank by defendant-appellant and not until after one year did it offer to return the
same. Defendant-appellant cannot claim lack of knowledge of the payment of the check since there
was a letter for it, and it is just incredible that a big amount of money was deposited in [its] account
[without knowing] about it [or] investigat[ing] what [it was] for. We are more inclined to believe that
their inaction for more than one year on the earnest money paid was due to the fact that after the
payment of earnest money the place should be cleared of unwanted tenants before the full amount
of the purchase price will be paid as agreed upon as shown in the letter sent by the plaintiff-
appellee.

As stated above the presence of defendant-appellant’s consent and, corollarily, the existence of a
perfected contract between the parties are evidenced by the payment and receipt of Php
100,000.00 as earnest money by the contracting parties’ x x x. Under the law on sales, specifically
Article 1482 of the Civil Code, it provides that whenever earnest money is given in a contract of sale,
it shall be considered as part of the price and proof of the perfection of the contract. Although the
presumption is not conclusive, as the parties may treat the earnest money differently, there is
nothing alleged in the present case that would give rise to a contrary presumption.

We also do not find merit in the contention of the defendant-appellant that there is a need for a
board resolution for them to sell the subject property since it is a corporation, a juridical entity
which acts only thru the board of directors. While we agree that said rule is correct, we must also
point out that said rule is the general rule for all corporations [but] a corporation [whose main
business is buying and selling real estate] like herein defendant-appellant, is not required to have a
board resolution for the sale of the realty in the ordinary course of business, thus defendant-
appellant’s claim deserves scant consideration.

Furthermore, the High Court has held that "a corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that the authority to do so has been
conferred upon him, and this includes powers which have been intentionally conferred, and also
such powers as, in the usual course of the particular business, are incidental to, or may be implied
from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining
to the particular officer or agent, and such apparent powers as the corporation has caused persons
dealing with the officer or agent to believe that it was conferred."

In the case at bench, it is not disputed and in fact was admitted by the defendant-appellant that Ms.
Young, the Executive Vice-President was authorized to negotiate for the possible sale of the subject
parcel of land. Therefore, Ms. Young can represent and bind defendant-appellant in the transaction.

Moreover, plaintiff-appellee can assume that Ms. Young, by virtue of her position, was authorized to
sell the property of the corporation. Selling of realty is not foreign to [an] executive
vice[-]president’s function, and the real estate sale was shown to be a normal business activity of
defendant-appellant since its primary business is the buy and sell of real estate. Unmistakably, its
Executive Vice-President is cloaked with actual or apparent authority to buy or sell real property, an
activity which falls within the scope of her general authority.

Furthermore, assuming arguendo that a board resolution was indeed needed for the sale of the
subject property, the defendant-appellant is estopped from raising it now since, [it] did not inform
the plaintiff-appellee of the same, and the latter deal (sic) with them in good faith. Also it must be
stressed that the plaintiff-appellee negotiated with one of the top officer (sic) of the company thus,
any requirement on the said sale must have been known to Ms. Young and she should have
informed the plaintiff-appellee of the same.

In view of the foregoing we do not find any reason to deviate from the findings of the trial court, the
parties entered into the contract freely, thus they must perform their obligation faithfully.
Defendant-appellant’s unjustified refusal to perform its part of the agreement constitutes bad faith
and the court will not tolerate the same.

WHEREFORE, premises considered, the Decision of the Regional Trial Court of Pasay City Branch
115, in Civil Case No. 06-0492 CFM is hereby AFFIRMED.

SO ORDERED.23

Petitioner moved for reconsideration,24 but in a December 9, 2011 Resolution, the CA held its
ground. Hence, the present Petition.

Issues

In an October 9,2013 Resolution,25 this Court resolved to give due course to the Petition, which
raises the following issues:

THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE
MONEY RESPONDENT DELIVERED TO PETITIONER WAS EARNEST MONEY THEREBY PROVIDING A
PERFECTED CONTRACT OF SALE.
II

THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE
TIME THAT LAPSED IN RETURNING THE MONEY AND IN REPLYING TO THE LETTER IS PROOF OF
ACCEPTANCE OF EARNEST MONEY.

III

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND GRAVE ERROR WHEN IT
IGNOREDTHE RESERVATION IN THE PROVISIONAL RECEIPT – "Note: This is issued to transactions not
yet cleared but subsequently an Official Receipt will be issued."26

Petitioner’s Arguments

In its Petition and Reply27 seeking to reverse and set aside the assailed CA dispositions and in effect
to dismiss Civil Case No. 06-0492 CFM, petitioner argues that respondent failed to prove its case
that a contract of sale was perfected between the parties. It particularly notes that, contrary to the
CA’s ruling, respondent’s delivery of the February 4, 2005 letter and check; petitioner’s failure to
respond to said letter; petitioner’s supposed acceptance of the check by depositing the same in its
account; and its failure to return the same after more than one year from its tender – these
circumstances do not at all prove that a contract of sale was perfected between the parties. It
claims that there was never an agreement in the first place between them concerning the sale of
the subject property, much less the payment of earnest money therefor; that during trial, Eleazar
himself admitted that the check was merely a "deposit";28 that the February 4, 2005 letter and
check were delivered not to Young, but to a mere receiving clerk of petitioner who knew nothing
about the supposed transaction and was simply obliged to accept the same without the prerogative
to reject them; that the acceptance of respondent’s supposed payment was not cleared and was
subject to approval and issuance of the corresponding official receipt as noted in Provisional Receipt
No. 33430; that respondent intentionally delivered the letter and check in the manner that it did in
order to bind petitioner to the supposed sale with or without the latter’s consent; that petitioner
could not be faulted for receiving the check and for depositing the same as a matter of operational
procedure with respect to checks received in the course of its day-to-day business.

Petitioner argues that ultimately, it cannot be said that it gave its consent to any transaction with
respondent or to the payment made by the latter. Respondent’s letter and check constitute merely
an offer which required petitioner’s acceptance in order to give rise to a perfected sale;
"[o]therwise, a buyer can easily bind any unsuspecting seller to a contract of sale by merely devising
a way that prevents the latter from acting on the communicated offer."29

Petitioner thus theorizes that since it had no perfected agreement with the respondent, the latter’s
check should be treated not as earnest money, but as mere guarantee, deposit or option money to
prevent the prospective seller from backing out from the sale,30 since the payment of any
consideration acquires the character of earnest money only after a perfected sale between the
parties has been arrived at.31

Respondent’s Arguments
In its Comment,32 respondent counters that petitioner’s case typifies a situation where the seller
has had an undue change of mind and desires to escape the legal consequences attendant to a
perfected contract of sale. It reiterates the appellate court’s pronouncements that petitioner’s
failure to reply to respondent’s February 4, 2005 letter indicates its consent to the sale; that its
acceptance of the check as earnest money and the issuance of the provisional receipt prove that
there is a prior agreement between the parties; that the deposit of the check in petitioner’s account
and failure to timely return the money to respondent militates against petitioner’s claim of lack of
knowledge and consent. Rather they indicate petitioner’s decision to sell subject property as
agreed. Respondent adds that contrary to petitioner’s claim, negotiations were in fact held between
the parties after it sent its December 9, 2004 letter-offer, which negotiations precisely culminated in
the preparation and issuance of the February4, 2005 letter; that petitioner’s failure to reply to its
February 4, 2005 letter meant that it was amenable to respondent’s terms; that the issuance of a
provisional receipt does not prevent the perfection of the agreement between the parties, since
earnest money was already paid; and that petitioner cannot pretend to be ignorant of respondent’s
check payment, as it involved a large sum of money that was deposited in the former’s bank
account.

Our Ruling

The Court grants the Petition. The trial and appellate courts erred materially in deciding the case;
they overlooked important facts that should change the complexion and outcome of the case.

It cannot be denied that there were negotiations between the parties conducted after the
respondent’s December 9, 2004 letter-offer and prior to the February 4, 2005 letter. These
negotiations culminated in a meeting between Eleazar and Young whereby the latter declined to
enter into an agreement and accept cash payment then being tendered by the former. Instead,
Young informed Eleazar during said meeting that she still had to confer with her sister and
petitioner’s board of directors; in turn, Eleazar told Young that respondent shall await the necessary
approval.

Thus, the trial and appellate courts failed to appreciate that respondent’s offer to purchase the
subject property was never accepted by the petitioner at any instance, even after negotiations were
held between them. Thus, as between them, there is no sale to speak of. "When there is merely an
offer by one party without acceptance of the other, there is no contract."33 To borrow a
pronouncement in a previously decided case,

The stages of a contract of sale are: (1) negotiation, starting from the time the prospective
contracting parties indicate interest in the contract to the time the contract is perfected; (2)
perfection, which takes place upon the concurrence of the essential elements of the sale; and (3)
consummation, which commences when the parties perform their respective undertakings under
the contract of sale, culminating in the extinguishment of the contract.

In the present case, the parties never got past the negotiation stage. Nothing shows that the parties
had agreed on any final arrangement containing the essential elements of a contract of sale,
namely, (1) consent or the meeting of the minds of the parties; (2) object or subject matter of the
contract; and (3) price or consideration of the sale.34
Respondent’s subsequent sending of the February 4, 2005 letter and check to petitioner – without
awaiting the approval of petitioner’s board of directors and Young’s decision, or without making a
new offer – constitutes a mere reiteration of its original offer which was already rejected previously;
thus, petitioner was under no obligation to reply to the February 4, 2005 letter. It would be absurd
to require a party to reject the very same offer each and every time it is made; otherwise, a
perfected contract of sale could simply arise from the failure to reject the same offer made for the
hundredth time.1âwphi1 Thus, said letter cannot be considered as evidence of a perfected sale,
which does not exist in the first place; no binding obligation on the part of the petitioner to sell its
property arose as a consequence. The letter made no new offer replacing the first which was
rejected.

Since there is no perfected sale between the parties, respondent had no obligation to make
payment through the check; nor did it possess the right to deliver earnest money to petitioner in
order to bind the latter to a sale. As contemplated under Art. 1482 of the Civil Code, "there must
first be a perfected contract of sale before we can speak of earnest money."35 "Where the parties
merely exchanged offers and counter-offers, no contract is perfected since they did not yet give
their consent to such offers. Earnest money applies to a perfected sale."36

This Court is inclined to accept petitioner’s explanation that since the check was mixed up with all
other checks and correspondence sent to and received by the corporation during the course of its
daily operations, Young could not have timely discovered respondent’s check payment; petitioner’s
failure to return the purported earnest money cannot mean that it agreed to respondent’s offer.

Besides, respondent’s payment of supposed earnest money was made under dubious circumstances
and in disregard of sound business practice and common sense. Indeed, respondent must be
faulted for taking such a course of action that is irregular and extraordinary: common sense and
logic dictate that if any payment is made under the supposed sale transaction, it should have been
made directly to Young or coursed directly through her office, since she is the officer directly
responsible for negotiating the sale, as far as respondent is concerned and considering the amount
of money involved; no other ranking officer of petitioner can be expected to know of the ongoing
talks covering the subject property. Respondent already knew, from Eleazar’s previous meeting with
Young, that it could only effectively deal with her; more than that, it should know that corporations
work only through the proper channels. By acting the way it did – coursing the February 4, 2005
letter and check through petitioner’s mere receiving clerk or receptionist instead of directly with
Young’s office, respondent placed itself under grave suspicion of putting into effect a premeditated
plan to unduly bind petitioner to its rejected offer, in a manner which it could not achieve through
negotiation and employing normal business practices. It impresses the Court that respondent
attempted to secure the consent needed for the sale by depositing part of the purchase price and
under the false pretense that an agreement was already arrived at, even though there was none.
Respondent achieved the desired effect up to this point, but the Court will not be fooled.

Thus, as between respondent’s irregular and improper actions and petitioner’s failure to timely
return the ₱100,000.00 purported earnest money, this Court sides with petitioner. In a manner of
speaking, respondent cannot fault petitioner for not making a refund since it is equally to blame for
making such payment under false pretenses and irregular circumstances, and with improper
motives. Parties must come to court with clean hands, as it were.
In a potential sale transaction, the prior payment of earnest money even before the property owner
can agree to sell his property is irregular, and cannot be used to bind the owner to the obligations of
a seller under an otherwise perfected contract of sale; to cite a well-worn cliché, the carriage
cannot be placed before the horse. The property owner-prospective seller may not be legally
obliged to enter into a sale with a prospective buyer through the latter’s employment of
questionable practices which prevent the owner from freely giving his consent to the transaction;
this constitutes a palpable transgression of the prospective seller’s rights of ownership over his
property, an anomaly which the Court will certainly not condone. An agreement where the prior
free consent of one party thereto is withheld or suppressed will be struck down, and the Court shall
always endeavor to protect a property owner’s rights against devious practices that put his property
in danger of being lost or unduly disposed without his prior knowledge or consent. As this ponente
has held before, "[t]his Court cannot presume the existence of a sale of land, absent any direct
proof of it."37

Nor will respondent's supposed payment be 'treated as a deposit or guarantee; its actions will not
be dignified and must be called for what they are: they were done irregularly and with a view to
acquiring the subject property against petitioner's consent.

Finally, since there is nothing in legal contemplation which petitioner must perform particularly for
the respondent, it should follow that Civil Case No. 06-0492 CFM for specific performance with
damages is left with no leg. to stand on; it must be dismissed.

With the foregoing view, there is no need to resolve the other specific issues and arguments raised
by the petitioner, as they do not materially affect the rights and obligations of the parties - the Court
having declared that no agreement exists between them; nor do they have the effect of altering the
outcome of the case.

WHEREFORE, the Petition is GRANTED. The September 30, 2011 Decision and December 9, 2011
Resolution of the Court of Appeals in CA-G.R. CV No. 93715, as well as the February 16, 2009
Decision of the Regional Trial Court of Pasay City, Branch 115 in Civil Case No. 06-0492 CFM are
REVERSED and SET ASIDE. Civil Case No. 06-0492 CFM is ordered DISMISSED. , Petitioner First
Optima Realty Corporation is ordered to REFUND the amount of ₱100,000.00 to respondent
Securitron Security Services, Inc. without interest, unless petitioner has done so during the course
of the proceedings.

SO ORDERED.
G.R. No. 157493 February 5, 2007

RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and FERNANDO, ERNESTO, LEONORA,
BIBIANO, JR., LIBRADO and ENRIQUETA, all surnamed OESMER, Petitioners,
vs.
PARAISO DEVELOPMENT CORPORATION, Respondent.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of
Civil Procedure seeking to reverse and set aside the Court of Appeals Decision1 dated 26 April 2002
in CA-G.R. CV No. 53130 entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta, Adolfo,
and Jesus, all surnamed Oesmer vs. Paraiso Development Corporation, as modified by its
Resolution2 dated 4 March 2003, declaring the Contract to Sell valid and binding with respect to the
undivided proportionate shares of the six signatories of the said document, herein petitioners,
namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); and
ordering them to execute the Deed of Absolute Sale concerning their 6/8 share over the subject
parcels of land in favor of herein respondent Paraiso Development Corporation, and to pay the
latter the attorney’s fees plus costs of the suit. The assailed Decision, as modified, likewise ordered
the respondent to tender payment to the petitioners in the amount of ₱3,216,560.00 representing
the balance of the purchase price of the subject parcels of land.

The facts of the case are as follows:

Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all surnamed Oesmer,
together with Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are brothers and sisters, and the
co-owners of undivided shares of two parcels of agricultural and tenanted land situated in Barangay
Ulong Tubig, Carmona, Cavite, identified as Lot 720 with an area of 40,507 square meters (sq. m.)
and Lot 834 containing an area of 14,769 sq. m., or a total land area of 55,276 sq. m. Both lots are
unregistered and originally owned by their parents, Bibiano Oesmer and Encarnacion Durumpili,
who declared the lots for taxation purposes under Tax Declaration No. 34383 (cancelled by I.D. No.
6064-A) for Lot 720 and Tax Declaration No. 34374 (cancelled by I.D. No. 5629) for Lot 834. When
the spouses Oesmer died, petitioners, together with Adolfo and Jesus, acquired the lots as heirs of
the former by right of succession.

Respondent Paraiso Development Corporation is known to be engaged in the real estate business.

Sometime in March 1989, Rogelio Paular, a resident and former Municipal Secretary of Carmona,
Cavite, brought along petitioner Ernesto to meet with a certain Sotero Lee, President of respondent
Paraiso Development Corporation, at Otani Hotel in Manila. The said meeting was for the purpose
of brokering the sale of petitioners’ properties to respondent corporation.

Pursuant to the said meeting, a Contract to Sell5 was drafted by the Executive Assistant of Sotero
Lee, Inocencia Almo. On 1 April 1989, petitioners Ernesto and Enriqueta signed the aforesaid
Contract to Sell. A check in the amount of ₱100,000.00, payable to Ernesto, was given as option
money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and Librado also signed the said
Contract to Sell. However, two of the brothers, Adolfo and Jesus, did not sign the document.

On 5 April 1989, a duplicate copy of the instrument was returned to respondent corporation. On 21
April 1989, respondent brought the same to a notary public for notarization.

In a letter6 dated 1 November 1989, addressed to respondent corporation, petitioners informed the
former of their intention to rescind the Contract to Sell and to return the amount of ₱100,000.00
given by respondent as option money.

Respondent did not respond to the aforesaid letter. On 30 May 1991, herein petitioners, together
with Adolfo and Jesus, filed a Complaint7 for Declaration of Nullity or for Annulment of Option
Agreement or Contract to Sell with Damages before the Regional Trial Court (RTC) of Bacoor, Cavite.
The said case was docketed as Civil Case No. BCV-91-49.

During trial, petitioner Rizalino died. Upon motion of petitioners, the trial court issued an Order,8
dated 16 September 1992, to the effect that the deceased petitioner be substituted by his surviving
spouse, Josefina O. Oesmer, and his children, Rolando O. Oesmer and Fernando O. Oesmer.
However, the name of Rizalino was retained in the title of the case both in the RTC and the Court of
Appeals.

After trial on the merits, the lower court rendered a Decision9 dated 27 March 1996 in favor of the
respondent, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of herein [respondent]

Paraiso Development Corporation. The assailed Contract to Sell is valid and binding only to the
undivided proportionate share of the signatory of this document and recipient of the check, [herein
petitioner] co-owner Ernesto Durumpili Oesmer. The latter is hereby ordered to execute the
Contract of Absolute Sale concerning his 1/8 share over the subject two parcels of land in favor of
herein [respondent] corporation, and to pay the latter the attorney’s fees in the sum of Ten
Thousand (₱10,000.00) Pesos plus costs of suit.

The counterclaim of [respondent] corporation is hereby Dismissed for lack of merit.10

Unsatisfied, respondent appealed the said Decision before the Court of Appeals. On 26 April 2002,
the appellate court rendered a Decision modifying the Decision of the court a quo by declaring that
the Contract to Sell is valid and binding with respect to the undivided proportionate shares of the
six signatories of the said document, herein petitioners, namely: Ernesto, Enriqueta, Librado,
Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The decretal portion of the said Decision
states that:

WHEREFORE, premises considered, the Decision of the court a quo is hereby MODIFIED. Judgment
is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed
Contract to Sell is valid and binding with respect to the undivided proportionate share of the six (6)
signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora (all surnamed Oesmer). The said [petitioners] are hereby ordered to
execute the Deed of Absolute Sale concerning their 6/8 share over the subject two parcels of land
and in favor of herein [respondent] corporation, and to pay the latter the attorney’s fees in the sum
of Ten Thousand Pesos (₱10,000.00) plus costs of suit.11

Aggrieved by the above-mentioned Decision, petitioners filed a Motion for Reconsideration of the
same on 2 July 2002. Acting on petitioners’ Motion for Reconsideration, the Court of Appeals issued
a Resolution dated 4 March 2003, maintaining its Decision dated 26 April 2002, with the
modification that respondent tender payment to petitioners in the amount of ₱3,216,560.00,
representing the balance of the purchase price of the subject parcels of land. The dispositive
portion of the said Resolution reads:

WHEREFORE, premises considered, the assailed Decision is hereby modified.1awphi1.net Judgment

is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed
Contract to Sell is valid and binding with respect to the undivided proportionate shares of the six (6)
signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora (all surnamed Oesmer). The said [petitioners] are hereby ordered to
execute the Deed of Absolute Sale concerning their 6/8 share over the subject two parcels of land in
favor of herein [respondent] corporation, and to pay the latter attorney’s fees in the sum of Ten
Thousand Pesos (₱10,000.00) plus costs of suit. Respondent is likewise ordered to tender payment
to the above-named [petitioners] in the amount of Three Million Two Hundred Sixteen Thousand
Five Hundred Sixty Pesos (₱3,216,560.00) representing the balance of the purchase price of the
subject two parcels of land. 12

Hence, this Petition for Review on Certiorari.

Petitioners come before this Court arguing that the Court of Appeals erred:

I. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is not binding
upon petitioner Ernesto Oesmer’s co-owners (herein petitioners Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora).

II. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is void
altogether considering that respondent itself did not sign it as to indicate its consent to be bound by
its terms. Moreover, Exhibit D is really a unilateral promise to sell without consideration distinct
from the price, and hence, void.

Petitioners assert that the signatures of five of them namely: Enriqueta, Librado, Rizalino, Bibiano,
Jr., and Leonora, on the margins of the supposed Contract to Sell did not confer authority on
petitioner Ernesto as agent to sell their respective shares in the questioned properties, and hence,
for lack of written authority from the above-named petitioners to sell their respective shares in the
subject parcels of land, the supposed Contract to Sell is void as to them. Neither do their signatures
signify their consent to directly sell their shares in the questioned properties. Assuming that the
signatures indicate consent, such consent was merely conditional. The effectivity of the alleged
Contract to Sell was subject to a suspensive condition, which is the approval of the sale by all the co-
owners.

Petitioners also assert that the supposed Contract to Sell (Exhibit D), contrary to the findings of the
Court of Appeals, is not couched in simple language.
They further claim that the supposed Contract to Sell does not bind the respondent because the
latter did not sign the said contract as to indicate its consent to be bound by its terms. Furthermore,
they maintain that the supposed Contract to Sell is really a unilateral promise to sell and the option
money does not bind petitioners for lack of cause or consideration distinct from the purchase price.

The Petition is bereft of merit.

It is true that the signatures of the five petitioners, namely: Enriqueta, Librado, Rizalino, Bibiano, Jr.,
and Leonora, on the Contract to Sell did not confer authority on petitioner Ernesto as agent
authorized to sell their respective shares in the questioned properties because of Article 1874 of the
Civil Code, which expressly provides that:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the sale shall be void.

The law itself explicitly requires a written authority before an agent can sell an immovable. The
conferment of such an authority should be in writing, in as clear and precise terms as possible. It is
worth noting that petitioners’ signatures are found in the Contract to Sell. The Contract is absolutely
silent on the establishment of any principal-agent relationship between the five petitioners and
their brother and co-petitioner Ernesto as to the sale of the subject parcels of land. Thus, the
Contract to Sell, although signed on the margin by the five petitioners, is not sufficient to confer
authority on petitioner Ernesto to act as their agent in selling their shares in the properties in
question.

However, despite petitioner Ernesto’s lack of written authority from the five petitioners to sell their
shares in the subject parcels of land, the supposed Contract to Sell remains valid and binding upon
the latter.

As can be clearly gleaned from the contract itself, it is not only petitioner Ernesto who signed the
said Contract to Sell; the other five petitioners also personally affixed their signatures thereon.
Therefore, a written authority is no longer necessary in order to sell their shares in the subject
parcels of land because, by affixing their signatures on the Contract to Sell, they were not selling
their shares through an agent but, rather, they were selling the same directly and in their own right.

The Court also finds untenable the following arguments raised by petitioners to the effect that the
Contract to Sell is not binding upon them, except to Ernesto, because: (1) the signatures of five of
the petitioners do not signify their consent to sell their shares in the questioned properties since
petitioner Enriqueta merely signed as a witness to the said Contract to Sell, and that the other
petitioners, namely: Librado, Rizalino, Leonora, and Bibiano, Jr., did not understand the importance
and consequences of their action because of their low degree of education and the contents of the
aforesaid contract were not read nor explained to them; and (2) assuming that the signatures
indicate consent, such consent was merely conditional, thus, the effectivity of the alleged Contract
to Sell was subject to a suspensive condition, which is the approval by all the co-owners of the sale.

It is well-settled that contracts are perfected by mere consent, upon the acceptance by the offeree
of the offer made by the offeror. From that moment, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which, according
to their nature, may be in keeping with good faith, usage and law. To produce a contract, the
acceptance must not qualify the terms of the offer. However, the acceptance may be express or
implied. For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the
acceptance can be withdrawn or revoked before it is made known to the offeror.13

In the case at bar, the Contract to Sell was perfected when the petitioners consented to the sale to
the respondent of their shares in the subject parcels of land by affixing their signatures on the said
contract. Such signatures show their acceptance of what has been stipulated in the Contract to Sell
and such acceptance was made known to respondent corporation when the duplicate copy of the
Contract to Sell was returned to the latter bearing petitioners’ signatures.

As to petitioner Enriqueta’s claim that she merely signed as a witness to the said contract, the
contract itself does not say so. There was no single indication in the said contract that she signed
the same merely as a witness. The fact that her signature appears on the right-hand margin of the
Contract to Sell is insignificant. The contract indisputably referred to the "Heirs of Bibiano and
Encarnacion Oesmer," and since there is no showing that Enriqueta signed the document in some
other capacity, it can be safely assumed that she did so as one of the parties to the sale.

Emphasis should also be given to the fact that petitioners Ernesto and Enriqueta concurrently
signed the Contract to Sell. As the Court of Appeals mentioned in its Decision,14 the records of the
case speak of the fact that petitioner Ernesto, together with petitioner Enriqueta, met with the
representatives of the respondent in order to finalize the terms and conditions of the Contract to
Sell. Enriqueta affixed her signature on the said contract when the same was drafted. She even
admitted that she understood the undertaking that she and petitioner Ernesto made in connection
with the contract. She likewise disclosed that pursuant to the terms embodied in the Contract to
Sell, she updated the payment of the real property taxes and transferred the Tax Declarations of the
questioned properties in her name.15 Hence, it cannot be gainsaid that she merely signed the
Contract to Sell as a witness because she did not only actively participate in the negotiation and
execution of the same, but her subsequent actions also reveal an attempt to comply with the
conditions in the said contract.

With respect to the other petitioners’ assertion that they did not understand the importance and
consequences of their action because of their low degree of education and because the contents of
the aforesaid contract were not read nor explained to them, the same cannot be sustained.

We only have to quote the pertinent portions of the Court of Appeals Decision, clear and concise, to
dispose of this issue. Thus,

First, the Contract to Sell is couched in such a simple language which is undoubtedly easy to read
and understand. The terms of the Contract, specifically the amount of ₱100,000.00 representing the
option money paid by [respondent] corporation, the purchase price of ₱60.00 per square meter or
the total amount of ₱3,316,560.00 and a brief description of the subject properties are well-
indicated thereon that any prudent and mature man would have known the nature and extent of
the transaction encapsulated in the document that he was signing.
Second, the following circumstances, as testified by the witnesses and as can be gleaned from the
records of the case clearly indicate the [petitioners’] intention to be bound by the stipulations
chronicled in the said Contract to Sell.

As to [petitioner] Ernesto, there is no dispute as to his intention to effect the alienation of the
subject property as he in fact was the one who initiated the negotiation process and culminated the
same by affixing his signature on the Contract to Sell and by taking receipt of the amount of
₱100,000.00 which formed part of the purchase price.

xxxx

As to [petitioner] Librado, the [appellate court] finds it preposterous that he willingly affixed his
signature on a document written in a language (English) that he purportedly does not understand.
He testified that the document was just brought to him by an 18 year old niece named Baby and he
was told that the document was for a check to be paid to him. He readily signed the Contract to Sell
without consulting his other siblings. Thereafter, he exerted no effort in communicating with his
brothers and sisters regarding the document which he had signed, did not inquire what the check
was for and did not thereafter ask for the check which is purportedly due to him as a result of his
signing the said Contract to Sell. (TSN, 28 September 1993, pp. 22-23)

The [appellate court] notes that Librado is a 43 year old family man (TSN, 28 September 1993, p.
19). As such, he is expected to act with that ordinary degree of care and prudence expected of a
good father of a family. His unwitting testimony is just divinely disbelieving.

The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise bound by the said Contract to
Sell. The theory adopted by the [petitioners] that because of their low degree of education, they did
not understand the contents of the said Contract to Sell is devoid of merit. The [appellate court]
also notes that Adolfo (one of the co-heirs who did not sign) also possess the same degree of
education as that of the signing co-heirs (TSN, 15 October 1991, p. 19). He, however, is employed at
the Provincial Treasury Office at Trece Martirez, Cavite and has even accompanied Rogelio Paular to
the Assessor’s Office to locate certain missing documents which were needed to transfer the titles
of the subject properties. (TSN, 28 January 1994, pp. 26 & 35) Similarly, the other co-heirs
[petitioners], like Adolfo, are far from ignorant, more so, illiterate that they can be extricated from
their obligations under the Contract to Sell which they voluntarily and knowingly entered into with
the [respondent] corporation.

The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207 SCRA 753 [1992]), citing the
case of Tan Sua Sia v. Yu Baio Sontua (56 Phil. 711), instructively ruled as follows:

"The Court does not accept the petitioner’s claim that she did not understand the terms and
conditions of the transactions because she only reached Grade Three and was already 63 years of
age when she signed the documents. She was literate, to begin with, and her age did not make her
senile or incompetent. x x x.

At any rate, Metrobank had no obligation to explain the documents to the petitioner as nowhere
has it been proven that she is unable to read or that the contracts were written in a language not
known to her. It was her responsibility to inform herself of the meaning and consequence of the
contracts she was signing and, if she found them difficult to comprehend, to consult other persons,
preferably lawyers, to explain them to her. After all, the transactions involved not only a few
hundred or thousand pesos but, indeed, hundreds of thousands of pesos.

As the Court has held:

x x x The rule that one who signs a contract is presumed to know its contents has been applied even
to contracts of illiterate persons on the ground that if such persons are unable to read, they are
negligent if they fail to have the contract read to them. If a person cannot read the instrument, it is
as much his duty to procure some reliable persons to read and explain it to him, before he signs it,
as it would be to read it before he signed it if he were able to do and his failure to obtain a reading
and explanation of it is such gross negligence as will estop from avoiding it on the ground that he
was ignorant of its contents."16

That the petitioners really had the intention to dispose of their shares in the subject parcels of land,
irrespective of whether or not all of the heirs consented to the said Contract to Sell, was unveiled by
Adolfo’s testimony as follows:

ATTY. GAMO: This alleged agreement between you and your other brothers and sisters that unless
everybody will agree, the properties would not be sold, was that agreement in writing?

WITNESS: No sir.

ATTY. GAMO: What you are saying is that when your brothers and sisters except Jesus and you did
not sign that agreement which had been marked as [Exhibit] "D", your brothers and sisters were
grossly violating your agreement.

WITNESS: Yes, sir, they violated what we have agreed upon.17

We also cannot sustain the allegation of the petitioners that assuming the signatures indicate
consent, such consent was merely conditional, and that, the effectivity of the alleged Contract to
Sell was subject to the suspensive condition that the sale be approved by all the co-owners. The
Contract to Sell is clear enough. It is a cardinal rule in the interpretation of contracts that if the
terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulation shall control.18 The terms of the Contract to Sell made no mention
of the condition that before it can become valid and binding, a unanimous consent of all the heirs is
necessary. Thus, when the language of the contract is explicit, as in the present case, leaving no
doubt as to the intention of the parties thereto, the literal meaning of its stipulation is controlling.

In addition, the petitioners, being owners of their respective undivided shares in the subject
properties, can dispose of their shares even without the consent of all the co-heirs. Article 493 of
the Civil Code expressly provides:

Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are involved. But the effect of the
alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may
be allotted to him in the division upon the termination of the co-ownership. [Emphases supplied.]

Consequently, even without the consent of the two co-heirs, Adolfo and Jesus, the Contract to Sell is
still valid and binding with respect to the 6/8 proportionate shares of the petitioners, as properly
held by the appellate court.

Therefore, this Court finds no error in the findings of the Court of Appeals that all the petitioners
who were signatories in the Contract to Sell are bound thereby.

The final arguments of petitioners state that the Contract to Sell is void altogether considering that
respondent itself did not sign it as to indicate its consent to be bound by its terms; and moreover,
the Contract to Sell is really a unilateral promise to sell without consideration distinct from the
price, and hence, again, void. Said arguments must necessarily fail.

The Contract to Sell is not void merely because it does not bear the signature of the respondent
corporation. Respondent corporation’s consent to be bound by the terms of the contract is shown in
the uncontroverted facts which established that there was partial performance by respondent of its
obligation in the said Contract to Sell when it tendered the amount of ₱100,000.00 to form part of
the purchase price, which was accepted and acknowledged expressly by petitioners. Therefore, by
force of law, respondent is required to complete the payment to enforce the terms of the contract.
Accordingly, despite the absence of respondent’s signature in the Contract to Sell, the former
cannot evade its obligation to pay the balance of the purchase price.

As a final point, the Contract to Sell entered into by the parties is not a unilateral promise to sell
merely because it used the word option money when it referred to the amount of ₱100,000.00,
which also form part of the purchase price.

Settled is the rule that in the interpretation of contracts, the ascertainment of the intention of the
contracting parties is to be discharged by looking to the words they used to project that intention in
their contract, all the words, not just a particular word or two, and words in context, not words
standing alone.19

In the instant case, the consideration of ₱100,000.00 paid by respondent to petitioners was referred
to as "option money." However, a careful examination of the words used in the contract indicates
that the money is not option money but earnest money. "Earnest money" and "option money" are
not the same but distinguished thus: (a) earnest money is part of the purchase price, while option
money is the money given as a distinct consideration for an option contract; (b) earnest money is
given only where there is already a sale, while option money applies to a sale not yet perfected;
and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the
would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on
the terms of the option.20

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

WHEREFORE, premises considered, the Petition is DENIED, and the Decision and Resolution of the
Court of Appeals dated 26 April 2002 and 4 March 2003, respectively, are AFFIRMED, thus, (a) the
Contract to Sell is DECLARED valid and binding with respect to the undivided proportionate shares in
the subject parcels of land of the six signatories of the said document, herein petitioners Ernesto,
Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); (b) respondent is
ORDERED to tender payment to petitioners in the amount of ₱3,216,560.00 representing the
balance of the purchase price for the latter’s shares in the subject parcels of land; and (c) petitioners
are further ORDERED to execute in favor of respondent the Deed of Absolute Sale covering their
shares in the subject parcels of land after receipt of the balance of the purchase price, and to pay
respondent attorney’s fees plus costs of the suit. Costs against petitioners.

SO ORDERED.
G.R. No. 160132 April 17, 2009

SERAFIN, RAUL, NENITA, NAZARETO, NEOLANDA, all surnamed NARANJA, AMELIA NARANJA-
RUBINOS, NILDA NARANJA-LIMANA, and NAIDA NARANJA-GICANO, Petitioners,
vs.
COURT OF APPEALS, LUCILIA P. BELARDO, represented by her Attorney-in-Fact, REBECCA
CORDERO, and THE LOCAL REGISTER OF DEEDS, BACOLOD CITY, Respondents.

DECISION

NACHURA, J.:

This petition seeks a review of the Court of Appeals (CA) Decision1 dated September 13, 2002 and
Resolution2 dated September 24, 2003 which upheld the contract of sale executed by petitioners’
predecessor, Roque Naranja, during his lifetime, over two real properties.

Roque Naranja was the registered owner of a parcel of land, denominated as Lot No. 4 in
Consolidation-Subdivision Plan (LRC) Pcs-886, Bacolod Cadastre, with an area of 136 square meters
and covered by Transfer Certificate of Title (TCT) No. T-18764. Roque was also a co-owner of an
adjacent lot, Lot No. 2, of the same subdivision plan, which he co-owned with his brothers, Gabino
and Placido Naranja. When Placido died, his one-third share was inherited by his children, Nenita,
Nazareto, Nilda, Naida and Neolanda, all surnamed Naranja, herein petitioners. Lot No. 2 is covered
by TCT No. T-18762 in the names of Roque, Gabino and the said children of Placido. TCT No. T-18762
remained even after Gabino died. The other petitioners — Serafin Naranja, Raul Naranja, and
Amelia Naranja-Rubinos — are the children of Gabino.3

The two lots were being leased by Esso Standard Eastern, Inc. for 30 years from 1962-1992. For his
properties, Roque was being paid ₱200.00 per month by the company.4

In 1976, Roque, who was single and had no children, lived with his half sister, Lucilia P. Belardo
(Belardo), in Pontevedra, Negros Occidental. At that time, a catheter was attached to Roque’s body
to help him urinate. But the catheter was subsequently removed when Roque was already able to
urinate normally. Other than this and the influenza prior to his death, Roque had been physically
sound.5

Roque had no other source of income except for the ₱200.00 monthly rental of his two properties.
To show his gratitude to Belardo, Roque sold Lot No. 4 and his one-third share in Lot No. 2 to
Belardo on August 21, 1981, through a Deed of Sale of Real Property which was duly notarized by
Atty. Eugenio Sanicas. The Deed of Sale reads:

I, ROQUE NARANJA, of legal age, single, Filipino and a resident of Bacolod City, do hereby declare
that I am the registered owner of Lot No. 4 of the Cadastral Survey of the City of Bacolod, consisting
of 136 square meters, more or less, covered by Transfer Certificate of Title No. T-18764 and a co-
owner of Lot No. 2, situated at the City of Bacolod, consisting of 151 square meters, more or less,
covered by Transfer Certificate of Title No. T-18762 and my share in the aforesaid Lot No. 2 is one-
third share.
That for and in consideration of the sum of TEN THOUSAND PESOS (₱10,000.00), Philippine
Currency, and other valuable consideration, receipt of which in full I hereby acknowledge to my
entire satisfaction, by these presents, I hereby transfer and convey by way of absolute sale the
above-mentioned Lot No. 4 consisting of 136 square meters covered by Transfer Certificate of Title
No. T-18764 and my one-third share in Lot No. 2, covered by Transfer Certificate of Title No. T-
18762, in favor of my sister LUCILIA P. BELARDO, of legal age, Filipino citizen, married to Alfonso D.
Belardo, and a resident of Pontevedra, Negros Occidental, her heirs, successors and assigns.

IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of August, 1981 at Bacolod City,
Philippines.

(SGD.)
ROQUE NARANJA6

Roque’s copies of TCT No. T-18764 and TCT No. T-18762 were entrusted to Atty. Sanicas for
registration of the deed of sale and transfer of the titles to Belardo. But the deed of sale could not
be registered because Belardo did not have the money to pay for the registration fees.7

Belardo’s only source of income was her store and coffee shop. Sometimes, her children would give
her money to help with the household expenses, including the expenses incurred for Roque’s
support. At times, she would also borrow money from Margarita Dema-ala, a neighbor.8 When the
amount of her loan reached ₱15,000.00, Dema-ala required a security. On November 19, 1983,
Roque executed a deed of sale in favor of Dema-ala, covering his two properties in consideration of
the ₱15,000.00 outstanding loan and an additional ₱15,000.00, for a total of ₱30,000.00. Dema-ala
explained that she wanted Roque to execute the deed of sale himself since the properties were still
in his name. Belardo merely acted as a witness. The titles to the properties were given to Dema-ala
for safekeeping.9

Three days later, or on December 2, 1983, Roque died of influenza. The proceeds of the loan were
used for his treatment while the rest was spent for his burial.10

In 1985, Belardo fully paid the loan secured by the second deed of sale. Dema-ala returned the
certificates of title to Belardo, who, in turn, gave them back to Atty. Sanicas.11

Unknown to Belardo, petitioners, the children of Placido and Gabino Naranja, executed an
Extrajudicial Settlement Among Heirs12 on October 11, 1985, adjudicating among themselves Lot
No. 4. On February 19, 1986, petitioner Amelia Naranja-Rubinos, accompanied by Belardo,
borrowed the two TCTs, together with the lease agreement with Esso Standard Eastern, Inc., from
Atty. Sanicas on account of the loan being proposed by Belardo to her. Thereafter, petitioners had
the Extrajudicial Settlement Among Heirs notarized on February 25, 1986. With Roque’s copy of TCT
No. T-18764 in their possession, they succeeded in having it cancelled and a new certificate of title,
TCT No. T-140184, issued in their names.13

In 1987, Belardo decided to register the Deed of Sale dated August 21, 1981. With no title in hand,
she was compelled to file a petition with the RTC to direct the Register of Deeds to annotate the
deed of sale even without a copy of the TCTs. In an Order dated June 18, 1987, the RTC granted the
petition. But she only succeeded in registering the deed of sale in TCT No. T-18762 because TCT No.
T-18764 had already been cancelled.14

On December 11, 1989, Atty. Sanicas prepared a certificate of authorization, giving Belardo’s
daughter, Jennelyn P. Vargas, the authority to collect the payments from Esso Standard Eastern, Inc.
But it appeared from the company’s Advice of Fixed Payment that payment of the lease rental had
already been transferred from Belardo to Amelia Naranja-Rubinos because of the Extrajudicial
Settlement Among Heirs.

On June 23, 1992, Belardo,15 through her daughter and attorney-in-fact, Rebecca Cordero,
instituted a suit for reconveyance with damages. The complaint prayed that judgment be rendered
declaring Belardo as the sole legal owner of Lot No. 4, declaring null and void the Extrajudicial
Settlement Among Heirs, and TCT No. T-140184, and ordering petitioners to reconvey to her the
subject property and to pay damages. The case was docketed as Civil Case No. 7144.

Subsequently, petitioners also filed a case against respondent for annulment of sale and quieting of
title with damages, praying, among others, that judgment be rendered nullifying the Deed of Sale,
and ordering the Register of Deeds of Bacolod City to cancel the annotation of the Deed of Sale on
TCT No. T-18762. This case was docketed as Civil Case No. 7214.

On March 5, 1997, the RTC rendered a Decision in the consolidated cases in favor of petitioners. The
trial court noted that the Deed of Sale was defective in form since it did not contain a technical
description of the subject properties but merely indicated that they were Lot No. 4, covered by TCT
No. T-18764 consisting of 136 square meters, and one-third portion of Lot No. 2 covered by TCT No.
T-18762. The trial court held that, being defective in form, the Deed of Sale did not vest title in
private respondent. Full and absolute ownership did not pass to private respondent because she
failed to register the Deed of Sale. She was not a purchaser in good faith since she acted as a
witness to the second sale of the property knowing that she had already purchased the property
from Roque. Whatever rights private respondent had over the properties could not be superior to
the rights of petitioners, who are now the registered owners of the parcels of land. The RTC
disposed, thus:

IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered:

1. Dismissing Civil Case No. 7144.

2. Civil Case No. 7214.

a) Declaring the Deed of Sale dated August 21, 1981, executed by Roque Naranja, covering his one-
third (1/3) share of Lot 2 of the consolidation-subdivision plan (LRC) Pcs-886, being a portion of the
consolidation of Lots 240-A, 240-B, 240-C and 240-D, described on plan, Psd-33443 (LRC) GLRO Cad.
Rec. No. 55 in favor of Lucilia Belardo, and entered as Doc. No. 80, Page 17, Book No. XXXVI, Series
of 1981 of Notary Public Eugenio Sanicas of Bacolod City, as null and void and of no force and effect;

b) Ordering the Register of Deeds of Bacolod City to cancel Entry No. 148123 annotate at the back
of Transfer Certificate of Title No. T-18762;
c) Ordering Lucilia Belardo or her successors-in-interest to pay plaintiffs the sum of ₱20,000.00 as
attorney’s fees, the amount of ₱500.00 as appearance fees.

Counterclaims in both Civil Cases Nos. 7144 and 7214 are hereby DISMISSED.

SO ORDERED.16

On September 13, 2002, the CA reversed the RTC Decision. The CA held that the unregisterability of
a deed of sale will not undermine its validity and efficacy in transferring ownership of the properties
to private respondent. The CA noted that the records were devoid of any proof evidencing the
alleged vitiation of Roque’s consent to the sale; hence, there is no reason to invalidate the sale.
Registration is only necessary to bind third parties, which petitioners, being the heirs of Roque
Naranja, are not. The trial court erred in applying Article 1544 of the Civil Code to the case at bar
since petitioners are not purchasers of the said properties. Hence, it is not significant that private
respondent failed to register the deed of sale before the extrajudicial settlement among the heirs.
The dispositive portion of the CA Decision reads:

WHEREFORE, the decision dated March 5, 1997 in Civil Cases Nos. 7144 and 7214 is hereby
REVERSED and SET ASIDE. In lieu thereof, judgment is hereby rendered as follows:

1. Civil Case No. 7214 is hereby ordered DISMISSED for lack of cause of action.

2. In Civil Case No. 7144, the extrajudicial settlement executed by the heirs of Roque Naranja
adjudicating among themselves Lot No. 4 of the consolidation-subdivision plan (LRC) Pcs – 886 of
the Bacolod Cadastre is hereby declared null and void for want of factual and legal basis. The
certificate of title issued to the heirs of Roque Naranja (Transfer Certificate of [T]i[t]le No. T-140184)
as a consequence of the void extra-judicial settlement is hereby ordered cancelled and the previous
title to Lot No. 4, Transfer Certificate of Title No. T-18764, is hereby ordered reinstated. Lucilia
Belardo is hereby declared the sole and legal owner of said Lot No. 4, and one-third of Lot No. 2 of
the same consolidation-subdivision plan, Bacolod Cadastre, by virtue of the deed of sale thereof in
her favor dated August 21, 1981.

SO ORDERED.17

The CA denied petitioners’ motion for reconsideration on September 24, 2003.18 Petitioners filed
this petition for review, raising the following issues:

1. WHETHER OR NOT THE HONORABLE RESPONDENT COURT OF APPEALS IS CORRECT IN IGNORING

THE POINT RAISED BY [PETITIONERS] THAT THE DEED OF SALE WHICH DOES NOT COMPL[Y] WITH
THE PROVISIONS OF ACT NO. 496 IS [NOT] VALID.

2. WHETHER OR NOT THE ALLEGED DEED OF SALE [OF REAL PROPERTIES] IS VALID CONSIDERING
THAT THE CONSENT OF THE LATE ROQUE NARANJA HAD BEEN VITIATED; x x x THERE [IS] NO
CONCLUSIVE SHOWING THAT THERE WAS CONSIDERATION AND THERE [ARE] SERIOUS
IRREGULARITIES IN THE NOTARIZATION OF THE SAID DOCUMENTS.19
In her Comment, private respondent questioned the Verification and Certification of Non-Forum
Shopping attached to the Petition for Review, which was signed by a certain Ernesto Villadelgado
without a special power of attorney. In their reply, petitioners remedied the defect by attaching a
Special Power of Attorney signed by them.

Pursuant to its policy to encourage full adjudication of the merits of an appeal, the Court had
previously excused the late submission of a special power of attorney to sign a certification against
forum-shopping.20 But even if we excuse this defect, the petition nonetheless fails on the merits.

The Court does not agree with petitioners’ contention that a deed of sale must contain a technical
description of the subject property in order to be valid. Petitioners anchor their theory on Section
127 of Act No. 496,21 which provides a sample form of a deed of sale that includes, in particular, a
technical description of the subject property.

To be valid, a contract of sale need not contain a technical description of the subject property.
Contracts of sale of real property have no prescribed form for their validity; they follow the general
rule on contracts that they may be entered into in whatever form, provided all the essential
requisites for their validity are present.22 The requisites of a valid contract of sale under Article
1458 of the Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter; and
(3) price certain in money or its equivalent.

The failure of the parties to specify with absolute clarity the object of a contract by including its
technical description is of no moment. What is important is that there is, in fact, an object that is
determinate or at least determinable, as subject of the contract of sale. The form of a deed of sale
provided in Section 127 of Act No. 496 is only a suggested form. It is not a mandatory form that
must be strictly followed by the parties to a contract.

In the instant case, the deed of sale clearly identifies the subject properties by indicating their
respective lot numbers, lot areas, and the certificate of title covering them. Resort can always be
made to the technical description as stated in the certificates of title covering the two properties.

On the alleged nullity of the deed of sale, we hold that petitioners failed to submit sufficient proof
to show that Roque executed the deed of sale under the undue influence of Belardo or that the
deed of sale was simulated or without consideration.1avvphi1

A notarized document carries the evidentiary weight conferred upon it with respect to its due
execution, and documents acknowledged before a notary public have in their favor the presumption
of regularity. It must be sustained in full force and effect so long as he who impugns it does not
present strong, complete, and conclusive proof of its falsity or nullity on account of some flaws or
defects provided by law.23

Petitioners allege that Belardo unduly influenced Roque, who was already physically weak and
senile at that time, into executing the deed of sale. Belardo allegedly took advantage of the fact that
Roque was living in her house and was dependent on her for support.

There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice.24 One who alleges any defect, or
the lack of consent to a contract by reason of fraud or undue influence, must establish by full, clear
and convincing evidence, such specific acts that vitiated the party’s consent; otherwise, the latter’s
presumed consent to the contract prevails.25 For undue influence to be present, the influence
exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his
free agency, making him express the will of another rather than his own.26

Petitioners adduced no proof that Roque had lost control of his mental faculties at the time of the
sale. Undue influence is not to be inferred from age, sickness, or debility of body, if sufficient
intelligence remains.27 The evidence presented pertained more to Roque’s physical condition
rather than his mental condition. On the contrary, Atty. Sanicas, the notary public, attested that
Roque was very healthy and mentally sound and sharp at the time of the execution of the deed of
sale. Atty. Sanicas said that Roque also told him that he was a Law graduate.28

Neither was the contract simulated. The late registration of the Deed of Sale and Roque’s execution
of the second deed of sale in favor of Dema-ala did not mean that the contract was simulated. We
are convinced with the explanation given by respondent’s witnesses that the deed of sale was not
immediately registered because Belardo did not have the money to pay for the fees. This
explanation is, in fact, plausible considering that Belardo could barely support herself and her
brother, Roque. As for the second deed of sale, Dema-ala, herself, attested before the trial court
that she let Roque sign the second deed of sale because the title to the properties were still in his
name.

Finally, petitioners argue that the Deed of Sale was not supported by a consideration since no
receipt was shown, and it is incredulous that Roque, who was already weak, would travel to Bacolod
City just to be able to execute the Deed of Sale.

The Deed of Sale which states "receipt of which in full I hereby acknowledge to my entire
satisfaction" is an acknowledgment receipt in itself. Moreover, the presumption that a contract has
sufficient consideration cannot be overthrown by a mere assertion that it has no consideration.29

Heirs are bound by contracts entered into by their predecessors-in-interest.30 As heirs of Roque,
petitioners are bound by the contract of sale that Roque executed in favor of Belardo. Having been
sold already to Belardo, the two properties no longer formed part of Roque’s estate which
petitioners could have inherited. The deed of extrajudicial settlement that petitioners executed over
Lot No. 4 is, therefore, void, since the property subject thereof did not become part of Roque’s
estate.

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated
September 13, 2002 and Resolution dated September 24, 2003 are AFFIRMED.

SO ORDERED.
G.R. No. 78903 February 28, 1990

SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, petitioners,

vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO SABESAJE, JR., respondents.

Francisco A. Puray, Sr. for petitioners.

Gabriel N. Duazo for private respondent.

MEDIALDEA, J.:

This is a petition to annul and set aside the decision of the Court of Appeals rendered on May 26,
1987, upholding the validity of the sale of a parcel of land by petitioner Segundo Dalion (hereafter,
"Dalion") in favor of private respondent Ruperto Sabesaje, Jr. (hereafter, "Sabesaje"), described
thus:

A parcel of land located at Panyawan, Sogod, Southern Leyte, declared in the name of Segundo
Dalion, under Tax Declaration No. 11148, with an area of 8947 hectares, assessed at P 180.00, and
bounded on the North, by Sergio Destriza and Titon Veloso, East, by Feliciano Destriza, by Barbara
Bonesa (sic); and West, by Catalino Espina. (pp. 36-37, Rollo)

The decision affirms in toto the ruling of the trial court 1 issued on January 17, 1984, the dispositive
portion of which provides as follows:

WHEREFORE, IN VIEW OF THE FOREGOING, the Court hereby renders judgment.

(a) Ordering the defendants to deliver to the plaintiff the parcel of land subject of this case,
declared in the name of Segundo Dalion previously under Tax Declaration No. 11148 and lately
under Tax Declaration No. 2297 (1974) and to execute the corresponding formal deed of
conveyance in a public document in favor of the plaintiff of the said property subject of this case,
otherwise, should defendants for any reason fail to do so, the deed shall be executed in their behalf
by the Provincial Sheriff or his Deputy;

(b) Ordering the defendants to pay plaintiff the amount of P2,000.00 as attorney's fees and P
500.00 as litigation expenses, and to pay the costs; and

(c) Dismissing the counter-claim. (p. 38, Rollo)

The facts of the case are as follows:

On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land, based on a private
document of absolute sale, dated July 1, 1965 (Exhibit "A"), allegedly executed by Dalion, who,
however denied the fact of sale, contending that the document sued upon is fictitious, his signature
thereon, a forgery, and that subject land is conjugal property, which he and his wife acquired in
1960 from Saturnina Sabesaje as evidenced by the "Escritura de Venta Absoluta" (Exhibit "B"). The
spouses denied claims of Sabesaje that after executing a deed of sale over the parcel of land, they
had pleaded with Sabesaje, their relative, to be allowed to administer the land because Dalion did
not have any means of livelihood. They admitted, however, administering since 1958, five (5) parcels
of land in Sogod, Southern Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje,
who died in 1956. They never received their agreed 10% and 15% commission on the sales of copra
and abaca, respectively. Sabesaje's suit, they countered, was intended merely to harass, preempt
and forestall Dalion's threat to sue for these unpaid commissions.

From the adverse decision of the trial court, Dalion appealed, assigning errors some of which,
however, were disregarded by the appellate court, not having been raised in the court below. While
the Court of Appeals duly recognizes Our authority to review matters even if not assigned as errors
in the appeal, We are not inclined to do so since a review of the case at bar reveals that the lower
court has judicially decided the case on its merits.

As to the controversy regarding the identity of the land, We have no reason to dispute the Court of
Appeals' findings as follows:

To be sure, the parcel of land described in Exhibit "A" is the same property deeded out in Exhibit
"B". The boundaries delineating it from adjacent lots are identical. Both documents detail out the
following boundaries, to wit:

On the North-property of Sergio Destriza and Titon Veloso;

On the East-property of Feliciano Destriza;

On the South-property of Barbara Boniza and

On the West-Catalino Espina.

(pp. 41-42, Rollo)

The issues in this case may thus be limited to: a) the validity of the contract of sale of a parcel of
land and b) the necessity of a public document for transfer of ownership thereto.

The appellate court upheld the validity of the sale on the basis of Secs. 21 and 23 of Rule 132 of the
Revised Rules of Court.

SEC. 21. Private writing, its execution and authenticity, how proved.-Before any private writing
may be received in evidence, its due execution and authenticity must be proved either:

(a) By anyone who saw the writing executed;

(b) By evidence of the genuineness of the handwriting of the maker; or
(c) By a subscribing witness
xxx xx xxx

SEC. 23. Handwriting, how proved. — The handwriting of a person may be proved by any
witness who believes it to be the handwriting of such person, and has seen the person write, or has
seen writing purporting to be his upon which the witness has acted or been charged, and has thus
acquired knowledge of the handwriting of such person. Evidence respecting the handwriting may
also be given by a comparison, made by the witness or the court, with writings admitted or treated
as genuine by the party against whom the evidence is offered, or proved to be genuine to the
satisfaction of the judge. (Rule 132, Revised Rules of Court)

And on the basis of the findings of fact of the trial court as follows:

Here, people who witnessed the execution of subject deed positively testified on the authenticity
thereof. They categorically stated that it had been executed and signed by the signatories thereto.
In fact, one of such witnesses, Gerardo M. Ogsoc, declared on the witness stand that he was the
one who prepared said deed of sale and had copied parts thereof from the "Escritura De Venta
Absoluta" (Exhibit B) by which one Saturnina Sabesaje sold the same parcel of land to appellant
Segundo Dalion. Ogsoc copied the bounderies thereof and the name of appellant Segundo Dalion's
wife, erroneously written as "Esmenia" in Exhibit "A" and "Esmenia" in Exhibit "B". (p. 41, Rollo)

xxx xxx xxx

Against defendant's mere denial that he signed the document, the positive testimonies of the
instrumental Witnesses Ogsoc and Espina, aside from the testimony of the plaintiff, must prevail.
Defendant has affirmatively alleged forgery, but he never presented any witness or evidence to
prove his claim of forgery. Each party must prove his own affirmative allegations (Section 1, Rule
131, Rules of Court). Furthermore, it is presumed that a person is innocent of a crime or wrong
(Section 5 (a), Idem), and defense should have come forward with clear and convincing evidence to
show that plaintiff committed forgery or caused said forgery to be committed, to overcome the
presumption of innocence. Mere denial of having signed, does not suffice to show forgery.

In addition, a comparison of the questioned signatories or specimens (Exhs. A-2 and A-3) with the
admitted signatures or specimens (Exhs. X and Y or 3-C) convinces the court that Exhs. A-2 or Z and
A-3 were written by defendant Segundo Dalion who admitted that Exhs. X and Y or 3-C are his
signatures. The questioned signatures and the specimens are very similar to each other and appear
to be written by one person.

Further comparison of the questioned signatures and the specimens with the signatures Segundo D.
Dalion appeared at the back of the summons (p. 9, Record); on the return card (p. 25, Ibid.); back of
the Court Orders dated December 17, 1973 and July 30, 1974 and for October 7, 1974 (p. 54 & p.
56, respectively, Ibid.), and on the open court notice of April 13, 1983 (p. 235, Ibid.) readily reveal
that the questioned signatures are the signatures of defendant Segundo Dalion.

It may be noted that two signatures of Segundo D. Dalion appear on the face of the questioned
document (Exh. A), one at the right corner bottom of the document (Exh. A-2) and the other at the
left hand margin thereof (Exh. A-3). The second signature is already a surplusage. A forger would
not attempt to forge another signature, an unnecessary one, for fear he may commit a revealing
error or an erroneous stroke. (Decision, p. 10) (pp. 42-43, Rollo)

We see no reason for deviating from the appellate court's ruling (p. 44, Rollo) as we reiterate that

Appellate courts have consistently subscribed to the principle that conclusions and findings of fact
by the trial courts are entitled to great weight on appeal and should not be disturbed unless for
strong and cogent reasons, since it is undeniable that the trial court is in a more advantageous
position to examine real evidence, as well as to observe the demeanor of the witnesses while
testifying in the case (Chase v. Buencamino, Sr., G.R. No. L-20395, May 13, 1985, 136 SCRA 365;
Pring v. Court of Appeals, G.R. No. L-41605, August 19, 1985, 138 SCRA 185)

Assuming authenticity of his signature and the genuineness of the document, Dalion nonetheless
still impugns the validity of the sale on the ground that the same is embodied in a private
document, and did not thus convey title or right to the lot in question since "acts and contracts
which have for their object the creation, transmission, modification or extinction of real rights over
immovable property must appear in a public instrument" (Art. 1358, par 1, NCC).

This argument is misplaced. The provision of Art. 1358 on the necessity of a public document is only
for convenience, not for validity or enforceability. It is not a requirement for the validity of a
contract of sale of a parcel of land that this be embodied in a public instrument.

A contract of sale is a consensual contract, which means that the sale is perfected by mere consent.
No particular form is required for its validity. Upon perfection of the contract, the parties may
reciprocally demand performance (Art. 1475, NCC), i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold
(Art. 1458, NCC).

The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of land and to
execute corresponding formal deed of conveyance in a public document. Under Art. 1498, NCC,
when the sale is made through a public instrument, the execution thereof is equivalent to the
delivery of the thing. Delivery may either be actual (real) or constructive. Thus delivery of a parcel of
land may be done by placing the vendee in control and possession of the land (real) or by
embodying the sale in a public instrument (constructive).

As regards petitioners' contention that the proper action should have been one for specific
performance, We believe that the suit for recovery of ownership is proper. As earlier stated, Art.
1475 of the Civil Code gives the parties to a perfected contract of sale the right to reciprocally
demand performance, and to observe a particular form, if warranted, (Art. 1357). The trial court,
aptly observed that Sabesaje's complaint sufficiently alleged a cause of action to compel Dalion to
execute a formal deed of sale, and the suit for recovery of ownership, which is premised on the
binding effect and validity inter partes of the contract of sale, merely seeks consummation of said
contract.

... . A sale of a real property may be in a private instrument but that contract is valid and binding
between the parties upon its perfection. And a party may compel the other party to execute a
public instrument embodying their contract affecting real rights once the contract appearing in a
private instrument hag been perfected (See Art. 1357).

... . (p. 12, Decision, p. 272, Records)

ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals upholding the ruling
of the trial court is hereby AFFIRMED. No costs.

SO ORDERED.
G.R. No. 85240 July 12, 1991

HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely, MODESTA CLAUDEL, LORETA
HERRERA, JOSE CLAUDEL, BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA CLAUDEL, MARIO
CLAUDEL, ROBERTO CLAUDEL, LEONARDO CLAUDEL, ARSENIA VILLALON, PERPETUA CLAUDEL and
FELISA CLAUDEL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA, RAYMUNDA and CELESTINA, all
surnamed CLAUDEL, respondents.

Ricardo L. Moldez for petitioners.

Juan T. Aquino for private respondents

SARMIENTO, J.:

This petition for review on certiorari seeks the reversal of the decision rendered by the Court of
Appeals in CA-G.R. CV No. 044291 and the reinstatement of the decision of the then Court of First
Instance (CFI) of Rizal, Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of Macario Claudel, et
al. v. Heirs of Cecilio Claudel, et al.," which dismissed the complaint of the private respondents
against the petitioners for cancellation of titles and reconveyance with damages.2

As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from the Bureau of
Lands, Lot No. 1230 of the Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa,
Rizal, with an area of 10,107 square meters; he secured Transfer Certificate of Title (TCT) No. 7471
issued by the Registry of Deeds for the Province of Rizal in 1923; he also declared the lot in his
name, the latest Tax Declaration being No. 5795. He dutifully paid the real estate taxes thereon until
his death in 1937.3 Thereafter, his widow "Basilia" and later, her son Jose, one of the herein
petitioners, paid the taxes.

The same piece of land purchased by Cecilio would, however, become the subject of protracted
litigation thirty-nine years after his death.

Two branches of Cecilio's family contested the ownership over the land-on one hand the children of
Cecilio, namely, Modesto, Loreta, Jose, Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo,
Nenita, Arsenia Villalon, and Felisa Claudel, and their children and descendants, now the herein
petitioners (hereinafter referred to as HEIRS OF CECILIO), and on the other, the brother and sisters
of Cecilio, namely, Macario, Esperidiona, Raymunda, and Celestina and their children and
descendants, now the herein private respondents (hereinafter referred to as SIBLINGS OF CECILIO).
In 1972, the HEIRS OF CECILIO partitioned this lot among themselves and obtained the
corresponding Transfer Certificates of Title on their shares, as follows:

TCT No. 395391 1,997 sq. m. –– Jose Claudel

TCT No. 395392 1,997 sq. m. –– Modesta Claudel and children

TCT No. 395393 1,997 sq. m. –– Armenia C. Villalon

TCT No. 395394 1,997 sq. m. –– Felisa Claudel4

Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO, filed Civil Case No.
5276-P as already adverted to at the outset, with the then Court of First Instance of Rizal, a
"Complaint for Cancellation of Titles and Reconveyance with Damages," alleging that 46 years
earlier, or sometime in 1930, their parents had purchased from the late Cecilio Claudel several
portions of Lot No. 1230 for the sum of P30.00. They admitted that the transaction was verbal.
However, as proof of the sale, the SIBLINGS OF CECILIO presented a subdivision plan of the said
land, dated March 25, 1930, indicating the portions allegedly sold to the SIBLINGS OF CECILIO.

As already mentioned, the then Court of First Instance of Rizal, Branch CXI, dismissed the complaint,
disregarding the above sole evidence (subdivision plan) presented by the SIBLINGS OF CECILIO, thus:

Examining the pleadings as well as the evidence presented in this case by the parties, the Court can
not but notice that the present complaint was filed in the name of the Heirs of Macario, Espiridiona,
Raymunda and Celestina, all surnamed Claudel, without naming the different heirs particularly
involved, and who wish to recover the lots from the defendants. The Court tried to find this out
from the evidence presented by the plaintiffs but to no avail. On this point alone, the Court would
not be able to apportion the property to the real party in interest if ever they are entitled to it as
the persons indicated therein is in generic term (Section 2, Rule 3). The Court has noticed also that
with the exception of plaintiff Lampitoc and (sic) the heirs of Raymunda Claudel are no longer
residing in the property as they have (sic) left the same in 1967. But most important of all the
plaintiffs failed to present any document evidencing the alleged sale of the property to their
predecessors in interest by the father of the defendants. Considering that the subject matter of the
supposed sale is a real property the absence of any document evidencing the sale would preclude
the admission of oral testimony (Statute of Frauds). Moreover, considering also that the alleged sale
took place in 1930, the action filed by the plaintiffs herein for the recovery of the same more than
thirty years after the cause of action has accrued has already prescribed.

WHEREFORE, the Court renders judgment dismissing the complaint, without pronouncement as to
costs.

SO ORDERED.5

On appeal, the following errors6 were assigned by the SIBLINGS OF CECILIO:

1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS' COMPLAINT DESPITE CONCLUSIVE

EVIDENCE SHOWING THE PORTION SOLD TO EACH OF PLAINTIFFS' PREDECESSORS.

2. THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFFS FAILED TO PROVE ANY DOCUMENT
EVIDENCING THE ALLEGED SALE.

3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO THE PLAN, EXHIBIT A, SHOWING THE
PORTIONS SOLD TO EACH OF THE PLAINTIFFS' PREDECESSORS-IN-INTEREST.
4. THE TRIAL COURT ERRED IN NOT DECLARING PLAINTIFFS AS OWNERS OF THE PORTION
COVERED BY THE PLAN, EXHIBIT A.

5. THE TRIAL COURT ERRED IN NOT DECLARING TRANSFER CERTIFICATES OF TITLE NOS.
395391, 395392, 395393 AND 395394 OF THE REGISTER OF DEEDS OF RIZAL AS NULL AND VOID.

The Court of Appeals reversed the decision of the trial court on the following grounds:

1. The failure to bring and prosecute the action in the name of the real party in interest,
namely the parties themselves, was not a fatal omission since the court a quo could have
adjudicated the lots to the SIBLINGS OF CECILIO, the parents of the herein respondents, leaving it to
them to adjudicate the property among themselves.

2. The fact of residence in the disputed properties by the herein respondents had been made
possible by the toleration of the deceased Cecilio.

3. The Statute of Frauds applies only to executory contracts and not to consummated sales as
in the case at bar where oral evidence may be admitted as cited in Iñigo v. Estate of Magtoto7 and
Diana, et al. v. Macalibo.8

In addition,

. . . Given the nature of their relationship with one another it is not unusual that no document to
evidence the sale was executed, . . ., in their blind faith in friends and relatives, in their lack of
experience and foresight, and in their ignorance, men, in spite of laws, will make and continue to
make verbal contracts. . . .9

4. The defense of prescription cannot be set up against the herein petitioners despite the lapse
of over forty years from the time of the alleged sale in 1930 up to the filing of the "Complaint for
Cancellation of Titles and Reconveyance . . ." in 1976.

According to the Court of Appeals, the action was not for the recovery of possession of real
property but for the cancellation of titles issued to the HEIRS OF CECILIO in 1973. Since the SIBLINGS
OF CECILIO commenced their complaint for cancellation of titles and reconveyance with damages
on December 7, 1976, only four years after the HEIRS OF CECILIO partitioned this lot among
themselves and obtained the corresponding Transfer Certificates of Titles, then there is no
prescription of action yet.

Thus the respondent court ordered the cancellation of the Transfer Certificates of Title Nos. 395391,
395392, 395393, and 395394 of the Register of Deeds of Rizal issued in the names of the HEIRS OF
CECILIO and corollarily ordered the execution of the following deeds of reconveyance:

To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.

To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.

To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.

To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.10

The respondent court also enjoined that this disposition is without prejudice to the private
respondents, as heirs of their deceased parents, the SIBLINGS OF CECILIO, partitioning among
themselves in accordance with law the respective portions sold to and herein adjudicated to their
parents.

The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927 square meters,
respectively would go to Cecilio or his heirs, the herein petitioners. Beyond these apportionments,
the HEIRS OF CECILIO would not receive anything else.

The crux of the entire litigation is whether or not the Court of Appeals committed a reversible error
in disposing the question of the true ownership of the lots.

And the real issues are:

1. Whether or not a contract of sale of land may be proven orally:

2. Whether or not the prescriptive period for filing an action for cancellation of titles and
reconveyance with damages (the action filed by the SIBLINGS OF CECILIO) should be counted from
the alleged sale upon which they claim their ownership (1930) or from the date of the issuance of
the titles sought to be cancelled in favor of the HEIRS OF CECILIO (1976).

The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may
have been entered into.11 For nowhere does law or jurisprudence prescribe that the contract of
sale be put in writing before such contract can validly cede or transmit rights over a certain real
property between the parties themselves.

However, in the event that a third party, as in this case, disputes the ownership of the property, the
person against whom that claim is brought can not present any proof of such sale and hence has no
means to enforce the contract. Thus the Statute of Frauds was precisely devised to protect the
parties in a contract of sale of real property so that no such contract is enforceable unless certain
requisites, for purposes of proof, are met.

The provisions of the Statute of Frauds pertinent to the present controversy, state:

Art. 1403 (Civil Code). The following contracts are unenforceable, unless they are ratified:

xxx xxx xxx

2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases, an agreement hereafter made shall be unenforceable by action unless the same, or
some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:
xxx xxx xxx

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

xxx xxx xxx

(Emphasis supplied.)

The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence upon the unassisted memory of witnesses by requiring
certain enumerated contracts and transactions to be evidenced in Writing.12

The provisions of the Statute of Frauds originally appeared under the old Rules of Evidence.
However when the Civil Code was re-written in 1949 (to take effect in 1950), the provisions of the
Statute of Frauds were taken out of the Rules of Evidence in order to be included under the title on
Unenforceable Contracts in the Civil Code. The transfer was not only a matter of style but to show
that the Statute of Frauds is also a substantive law.

Therefore, except under the conditions provided by the Statute of Frauds, the existence of the
contract of sale made by Cecilio with his siblings13 can not be proved.

On the second issue, the belated claim of the SIBLINGS OF CECILIO who filed a complaint in court
only in 1976 to enforce a light acquired allegedly as early as 1930, is difficult to comprehend.

The Civil Code states:

Art. 1145. The following actions must be commenced within six years:

(1) Upon an oral contract . . . (Emphasis supplied).

If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the oral purchase
made by their parents in 1930, then the action filed in 1976 would have clearly prescribed. More
than six years had lapsed.

We do not agree with the parties SIBLINGS OF CECILIO when they reason that an implied trust in
favor of the SIBLINGS OF CECILIO was established in 1972, when the HEIRS OF CECILIO executed a
contract of partition over the said properties.

But as we had pointed out, the law recognizes the superiority of the torrens title.

Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more weight as proof of
ownership than the survey or subdivision plan of a parcel of land in the name of SIBLINGS OF
CECILIO.

The Court has invariably upheld the indefeasibility of the torrens title. No possession by any person
of any portion of the land could defeat the title of the registered owners thereof.14
A torrens title, once registered, cannot be defeated, even by adverse, open and notorious
possession. A registered title under the torrens system cannot be defeated by prescription.1âwphi1
The title, once registered, is notice to the world. All persons must take notice. No one can plead
ignorance of the registration.15

xxx xxx xxx

Furthermore, a private individual may not bring an action for reversion or any action which would
have the effect of cancelling a free patent and the corresponding certificate of title issued on the
basis thereof, with the result that the land covered thereby will again form part of the public
domain, as only the Solicitor General or the officer acting in his stead may do so.16

It is true that in some instances, the Court did away with the irrevocability of the torrens title, but
the circumstances in the case at bar varied significantly from these cases.

In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title was disregarded when the
transferee who took it had notice of the flaws in the transferor's title. No right passed to a
transferee from a vendor who did not have any in the first place. The transferees bought the land
registered under the torrens system from vendors who procured title thereto by means of fraud.
With this knowledge, they can not invoke the indefeasibility of a certificate of title against the
private respondent to the extent of her interest. This is because the torrens system of land
registration, though indefeasible, should not be used as a means to perpetrate fraud against the
rightful owner of real property.

Mere registration of the sale is not good enough, good faith must concur with registration.
Otherwise registration becomes an exercise in futility.18

In Amerol v. Bagumbaran,19 we reversed the decision of the trial court. In this case, the title was
wrongfully registered in another person's name. An implied trust was therefore created. This
trustee was compelled by law to reconvey property fraudulently acquired notwithstanding the
irrevocability of the torrens title.20

In the present case, however, the facts belie the claim of ownership.

For several years, when the SIBLINGS OF CECILIO, namely, Macario, Esperidiona Raymunda, and
Celestina were living on the contested premises, they regularly paid a sum of money, designated as
"taxes" at first, to the widow of Cecilio, and later, to his heirs.21 Why their payments were never
directly made to the Municipal Government of Muntinlupa when they were intended as payments
for "taxes" is difficult to square with their claim of ownership. We are rather inclined to consider this
fact as an admission of non-ownership. And when we consider also that the petitioners HEIRS OF
CECILIO had individually paid to the municipal treasury the taxes corresponding to the particular
portions they were occupying,22 we can readily see the superiority of the petitioners' position.

Renato Solema and Decimina Calvez, two of the respondents who derive their right from the
SIBLINGS OF CLAUDEL, bought a portion of the lot from Felisa Claudel, one of the HEIRS OF
CLAUDEL.23 The Calvezes should not be paying for a lot that they already owned and if they did not
acknowledge Felisa as its owner.

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

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

No clear specific contrary evidence was cited by the respondent appellate court to justify the
reversal of the lower court's findings. Thus, in this case, between the factual findings of the trial
court and the appellate court, those of the trial court must prevail over that of the latter.26

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

SO ORDERED.
G.R. No. 144225 June 17, 2003

SPOUSES GODOFREDO ALFREDO and CARMEN LIMON ALFREDO, SPOUSES ARNULFO SAVELLANO
and EDITHA B. SAVELLANO, DANTON D. MATAWARAN, SPOUSES DELFIN F. ESPIRITU, JR. and
ESTELA S. ESPIRITU and ELIZABETH TUAZON, Petitioners,
vs.
SPOUSES ARMANDO BORRAS and ADELIA LOBATON BORRAS, Respondents.

DECISION

CARPIO, J.:

The Case

Before us is a petition for review assailing the Decision1 of the Court of Appeals dated 26 November
1999 affirming the decision2 of the Regional Trial Court of Bataan, Branch 4, in Civil Case No. DH-
256-94. Petitioners also question the Resolution of the Court of Appeals dated 26 July 2000 denying
petitioners’ motion for reconsideration.

The Antecedent Facts

A parcel of land measuring 81,524 square meters ("Subject Land") in Barrio Culis, Mabiga, Hermosa,
Bataan is the subject of controversy in this case. The registered owners of the Subject Land were
petitioner spouses, Godofredo Alfredo ("Godofredo") and Carmen Limon Alfredo ("Carmen"). The
Subject Land is covered by Original Certificate of Title No. 284 ("OCT No. 284") issued to Godofredo
and Carmen under Homestead Patent No. V-69196.

On 7 March 1994, the private respondents, spouses Armando Borras ("Armando") and Adelia
Lobaton Borras ("Adelia"), filed a complaint for specific performance against Godofredo and Carmen
before the Regional Trial Court of Bataan, Branch 4. The case was docketed as Civil Case No. DH-
256-94.

Armando and Adelia alleged in their complaint that Godofredo and Carmen mortgaged the Subject
Land for ₱7,000.00 with the Development Bank of the Philippines ("DBP"). To pay the debt, Carmen
and Godofredo sold the Subject Land to Armando and Adelia for ₱15,000.00, the buyers to pay the
DBP loan and its accumulated interest, and the balance to be paid in cash to the sellers.

Armando and Adelia gave Godofredo and Carmen the money to pay the loan to DBP which signed
the release of mortgage and returned the owner’s duplicate copy of OCT No. 284 to Godofredo and
Carmen. Armando and Adelia subsequently paid the balance of the purchase price of the Subject
Land for which Carmen issued a receipt dated 11 March 1970. Godofredo and Carmen then
delivered to Adelia the owner’s duplicate copy of OCT No. 284, with the document of cancellation of
mortgage, official receipts of realty tax payments, and tax declaration in the name of Godofredo.
Godofredo and Carmen introduced Armando and Adelia, as the new owners of the Subject Land, to
the Natanawans, the old tenants of the Subject Land. Armando and Adelia then took possession of
the Subject Land.
In January 1994, Armando and Adelia learned that hired persons had entered the Subject Land and
were cutting trees under instructions of allegedly new owners of the Subject Land. Subsequently,
Armando and Adelia discovered that Godofredo and Carmen had re-sold portions of the Subject
Land to several persons.

On 8 February 1994, Armando and Adelia filed an adverse claim with the Register of Deeds of
Bataan. Armando and Adelia discovered that Godofredo and Carmen had secured an owner’s
duplicate copy of OCT No. 284 after filing a petition in court for the issuance of a new copy.
Godofredo and Carmen claimed in their petition that they lost their owner’s duplicate copy.
Armando and Adelia wrote Godofredo and Carmen complaining about their acts, but the latter did
not reply. Thus, Armando and Adelia filed a complaint for specific performance.

On 28 March 1994, Armando and Adelia amended their complaint to include the following persons
as additional defendants: the spouses Arnulfo Savellano and Editha B. Savellano, Danton D.
Matawaran, the spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu, and Elizabeth Tuazon
("Subsequent Buyers"). The Subsequent Buyers, who are also petitioners in this case, purchased
from Godofredo and Carmen the subdivided portions of the Subject Land. The Register of Deeds of
Bataan issued to the Subsequent Buyers transfer certificates of title to the lots they purchased.

In their answer, Godofredo and Carmen and the Subsequent Buyers (collectively "petitioners")
argued that the action is unenforceable under the Statute of Frauds. Petitioners pointed out that
there is no written instrument evidencing the alleged contract of sale over the Subject Land in favor
of Armando and Adelia. Petitioners objected to whatever parole evidence Armando and Adelia
introduced or offered on the alleged sale unless the same was in writing and subscribed by
Godofredo. Petitioners asserted that the Subsequent Buyers were buyers in good faith and for
value. As counterclaim, petitioners sought payment of attorney’s fees and incidental expenses.

Trial then followed. Armando and Adelia presented the following witnesses: Adelia, Jesus Lobaton,
Roberto Lopez, Apolinario Natanawan, Rolando Natanawan, Tomas Natanawan, and Mildred
Lobaton. Petitioners presented two witnesses, Godofredo and Constancia Calonso.

On 7 June 1996, the trial court rendered its decision in favor of Armando and Adelia. The dispositive
portion of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs, the spouses
Adelia Lobaton Borras and Armando F. Borras, and against the defendant-spouses Godofredo
Alfredo and Carmen Limon Alfredo, spouses Arnulfo Sabellano and Editha B. Sabellano, spouses
Delfin F. Espiritu, Jr. and Estela S. Espiritu, Danton D. Matawaran and Elizabeth Tuazon, as follows:

1. Declaring the Deeds of Absolute Sale of the disputed parcel of land (covered by OCT No. 284)
executed by the spouses Godofredo Alfredo and Camen Limon Alfredo in favor of spouses Arnulfo
Sabellano and Editha B. Sabellano, spouses Delfin F. Espiritu, Danton D. Matawaran and Elizabeth
Tuazon, as null and void;

2. Declaring the Transfer Certificates of Title Nos. T-163266 and T-163267 in the names of spouses
Arnulfo Sabellano and Editha B. Sabellano; Transfer Certificates of Title Nos. T-163268 and 163272 in
the names of spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu; Transfer Certificates of Title Nos. T-
163269 and T-163271 in the name of Danton D. Matawaran; and Transfer Certificate of Title No. T-
163270 in the name of Elizabeth Tuazon, as null and void and that the Register of Deeds of Bataan is
hereby ordered to cancel said titles;

3. Ordering the defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo to execute and
deliver a good and valid Deed of Absolute Sale of the disputed parcel of land (covered by OCT No.
284) in favor of the spouses Adelia Lobaton Borras and Armando F. Borras within a period of ten
(10) days from the finality of this decision;

4. Ordering defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo to surrender their
owner’s duplicate copy of OCT No. 284 issued to them by virtue of the Order dated May 20, 1992 of
the Regional Trial Court of Bataan, Dinalupihan Branch, to the Registry of Deeds of Bataan within
ten (10) days from the finality of this decision, who, in turn, is directed to cancel the same as there
exists in the possession of herein plaintiffs of the owner’s duplicate copy of said OCT No. 284 and, to
restore and/or reinstate OCT No. 284 of the Register of Deeds of Bataan to its full force and effect;

5. Ordering the defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo to restitute
and/or return the amount of the respective purchase prices and/or consideration of sale of the
disputed parcels of land they sold to their co-defendants within ten (10) days from the finality of
this decision with legal interest thereon from date of the sale;

6. Ordering the defendants, jointly and severally, to pay plaintiff-spouses the sum of ₱20,000.00 as
and for attorney’s fees and litigation expenses; and

7. Ordering defendants to pay the costs of suit.

Defendants’ counterclaims are hereby dismissed for lack of merit.

SO ORDERED.3

Petitioners appealed to the Court of Appeals.

On 26 November 1999, the Court of Appeals issued its Decision affirming the decision of the trial
court, thus:

WHEREFORE, premises considered, the appealed decision in Civil Case No. DH-256-94 is hereby
AFFIRMED in its entirety. Treble costs against the defendants-appellants.

SO ORDERED.4

On 26 July 2000, the Court of Appeals denied petitioners’ motion for reconsideration.

The Ruling of the Trial Court

The trial court ruled that there was a perfected contract of sale between the spouses Godofredo
and Carmen and the spouses Armando and Adelia. The trial court found that all the elements of a
contract of sale were present in this case. The object of the sale was specifically identified as the
81,524-square meter lot in Barrio Culis, Mabigas, Hermosa, Bataan, covered by OCT No. 284 issued
by the Registry of Deeds of Bataan. The purchase price was fixed at ₱15,000.00, with the buyers
assuming to pay the sellers’ ₱7,000.00 DBP mortgage loan including its accumulated interest. The
balance of the purchase price was to be paid in cash to the sellers. The last payment of ₱2,524.00
constituted the full settlement of the purchase price and this was paid on 11 March 1970 as
evidenced by the receipt issued by Carmen.

The trial court found the following facts as proof of a perfected contract of sale: (1) Godofredo and
Carmen delivered to Armando and Adelia the Subject Land; (2) Armando and Adelia treated as their
own tenants the tenants of Godofredo and Carmen; (3) Godofredo and Carmen turned over to
Armando and Adelia documents such as the owner’s duplicate copy of the title of the Subject Land,
tax declaration, and the receipts of realty tax payments in the name of Godofredo; and (4) the DBP
cancelled the mortgage on the Subject Property upon payment of the loan of Godofredo and
Carmen. Moreover, the receipt of payment issued by Carmen served as an acknowledgment, if not a
ratification, of the verbal sale between the sellers and the buyers. The trial court ruled that the
Statute of Frauds is not applicable because in this case the sale was perfected.

The trial court concluded that the Subsequent Buyers were not innocent purchasers. Not one of the
Subsequent Buyers testified in court on how they purchased their respective lots. The Subsequent
Buyers totally depended on the testimony of Constancia Calonso ("Calonso") to explain the
subsequent sale. Calonso, a broker, negotiated with Godofredo and Carmen the sale of the Subject
Land which Godofredo and Carmen subdivided so they could sell anew portions to the Subsequent
Buyers.

Calonso admitted that the Subject Land was adjacent to her own lot. The trial court pointed out that
Calonso did not inquire on the nature of the tenancy of the Natanawans and on who owned the
Subject Land. Instead, she bought out the tenants for ₱150,000.00. The buy out was embodied in a
Kasunduan. Apolinario Natanawan ("Apolinario") testified that he and his wife accepted the money
and signed the Kasunduan because Calonso and the Subsequent Buyers threatened them with
forcible ejectment. Calonso brought Apolinario to the Agrarian Reform Office where he was asked to
produce the documents showing that Adelia is the owner of the Subject Land. Since Apolinario
could not produce the documents, the agrarian officer told him that he would lose the case. Thus,
Apolinario was constrained to sign the Kasunduan and accept the ₱150,000.00.

Another indication of Calonso’s bad faith was her own admission that she saw an adverse claim on
the title of the Subject Land when she registered the deeds of sale in the names of the Subsequent
Buyers. Calonso ignored the adverse claim and proceeded with the registration of the deeds of sale.

The trial court awarded ₱20,000.00 as attorney’s fees to Armando and Adelia. In justifying the
award of attorney’s fees, the trial court invoked Article 2208 (2) of the Civil Code which allows a
court to award attorney’s fees, including litigation expenses, when it is just and equitable to award
the same. The trial court ruled that Armando and Adelia are entitled to attorney’s fees since they
were compelled to file this case due to petitioners’ refusal to heed their just and valid demand.

The Ruling of the Court of Appeals

The Court of Appeals found the factual findings of the trial court well supported by the evidence.
Based on these findings, the Court of Appeals also concluded that there was a perfected contract of
sale and the Subsequent Buyers were not innocent purchasers.

The Court of Appeals ruled that the handwritten receipt dated 11 March 1970 is sufficient proof
that Godofredo and Carmen sold the Subject Land to Armando and Adelia upon payment of the
balance of the purchase price. The Court of Appeals found the recitals in the receipt as "sufficient to
serve as the memorandum or note as a writing under the Statute of Frauds."5 The Court of Appeals
then reiterated the ruling of the trial court that the Statute of Frauds does not apply in this case.

The Court of Appeals gave credence to the testimony of a witness of Armando and Adelia, Mildred
Lobaton, who explained why the title to the Subject Land was not in the name of Armando and
Adelia. Lobaton testified that Godofredo was then busy preparing to leave for Davao. Godofredo
promised that he would sign all the papers once they were ready. Since Armando and Adelia were
close to the family of Carmen, they trusted Godofredo and Carmen to honor their commitment.
Armando and Adelia had no reason to believe that their contract of sale was not perfected or validly
executed considering that they had received the duplicate copy of OCT No. 284 and other relevant
documents. Moreover, they had taken physical possession of the Subject Land.

The Court of Appeals held that the contract of sale is not void even if only Carmen signed the
receipt dated 11 March 1970. Citing Felipe v. Heirs of Maximo Aldon,6 the appellate court ruled that
a contract of sale made by the wife without the husband’s consent is not void but merely voidable.
The Court of Appeals further declared that the sale in this case binds the conjugal partnership even
if only the wife signed the receipt because the proceeds of the sale were used for the benefit of the
conjugal partnership. The appellate court based this conclusion on Article 1617 of the Civil Code.

The Subsequent Buyers of the Subject Land cannot claim that they are buyers in good faith because
they had constructive notice of the adverse claim of Armando and Adelia. Calonso, who brokered
the subsequent sale, testified that when she registered the subsequent deeds of sale, the adverse
claim of Armando and Adelia was already annotated on the title of the Subject Land. The Court of
Appeals believed that the act of Calonso and the Subsequent Buyers in forcibly ejecting the
Natanawans from the Subject Land buttresses the conclusion that the second sale was tainted with
bad faith from the very beginning.

Finally, the Court of Appeals noted that the issue of prescription was not raised in the Answer.
Nonetheless, the appellate court explained that since this action is actually based on fraud, the
prescriptive period is four years, with the period starting to run only from the date of the discovery
of the fraud. Armando and Adelia discovered the fraudulent sale of the Subject Land only in January
1994. Armando and Adelia lost no time in writing a letter to Godofredo and Carmen on 2 February
1994 and filed this case on 7 March 1994. Plainly, Armando and Adelia did not sleep on their rights
or lose their rights by prescription.

The Court of Appeals sustained the award of attorney’s fees and imposed treble costs on
petitioners.

The Issues
Petitioners raise the following issues:

Whether the alleged sale of the Subject Land in favor of Armando and Adelia is valid and
enforceable, where (1) it was orally entered into and not in writing; (2) Carmen did not obtain the
consent and authority of her husband, Godofredo, who was the sole owner of the Subject Land in
whose name the title thereto (OCT No. 284) was issued; and (3) it was entered into during the 25-
year prohibitive period for alienating the Subject Land without the approval of the Secretary of
Agriculture and Natural Resources.

II

Whether the action to enforce the alleged oral contract of sale brought after 24 years from its
alleged perfection had been barred by prescription and by laches.

III

Whether the deeds of absolute sale and the transfer certificates of title over the portions of the
Subject Land issued to the Subsequent Buyers, innocent purchasers in good faith and for value
whose individual titles to their respective lots are absolute and indefeasible, are valid.

IV

Whether petitioners are liable to pay Armando and Adelia ₱20,0000.00 as attorney’s fees and
litigation expenses and the treble costs, where the claim of Armando and Adelia is clearly
unfounded and baseless.

Whether petitioners are entitled to the counterclaim for attorney’s fees and litigation expenses,
where they have sustained such expenses by reason of institution of a clearly malicious and
unfounded action by Armando and Adelia.8

The Court’s Ruling

The petition is without merit.

In a petition for review on certiorari under Rule 45, this Court reviews only errors of law and not
errors of facts.9 The factual findings of the appellate court are generally binding on this Court.10
This applies with greater force when both the trial court and the Court of Appeals are in complete
agreement on their factual findings.11 In this case, there is no reason to deviate from the findings of
the lower courts. The facts relied upon by the trial and appellate courts are borne out by the record.
We agree with the conclusions drawn by the lower courts from these facts.

Validity and Enforceability of the Sale

The contract of sale between the spouses Godofredo and Carmen and the spouses Armando and
Adelia was a perfected contract. A contract is perfected once there is consent of the contracting
parties on the object certain and on the cause of the obligation.12 In the instant case, the object of
the sale is the Subject Land, and the price certain is ₱15,000.00. The trial and appellate courts found
that there was a meeting of the minds on the sale of the Subject Land and on the purchase price of
₱15,000.00. This is a finding of fact that is binding on this Court. We find no reason to disturb this
finding since it is supported by substantial evidence.

The contract of sale of the Subject Land has also been consummated because the sellers and buyers
have performed their respective obligations under the contract. In a contract of sale, the seller
obligates himself to transfer the ownership of the determinate thing sold, and to deliver the same,
to the buyer who obligates himself to pay a price certain to the seller.13 In the instant case,
Godofredo and Carmen delivered the Subject Land to Armando and Adelia, placing the latter in
actual physical possession of the Subject Land. This physical delivery of the Subject Land also
constituted a transfer of ownership of the Subject Land to Armando and Adelia.14 Ownership of the
thing sold is transferred to the vendee upon its actual or constructive delivery.15 Godofredo and
Carmen also turned over to Armando and Adelia the documents of ownership to the Subject Land,
namely the owner’s duplicate copy of OCT No. 284, the tax declaration and the receipts of realty tax
payments.

On the other hand, Armando and Adelia paid the full purchase price as evidenced by the receipt
dated 11 March 1970 issued by Carmen. Armando and Adelia fulfilled their obligation to provide the
₱7,000.00 to pay the Dir obliagtion rmen. rchase pricend Adelia . fredo and Carmen do not deny the
existence of the cBP loan of Godofredo and Carmen, and to pay the latter the balance of ₱8,000.00
in cash. The ₱2,524.00 paid under the receipt dated 11 March 1970 was the last installment to
settle fully the purchase price. Indeed, upon payment to DBP of the ₱7,000.00 and the accumulated
interests, the DBP cancelled the mortgage on the Subject Land and returned the owner’s duplicate
copy of OCT No. 284 to Godofredo and Carmen.

The trial and appellate courts correctly refused to apply the Statute of Frauds to this case. The
Statute of Frauds16 provides that a contract for the sale of real property shall be unenforceable
unless the contract or some note or memorandum of the sale is in writing and subscribed by the
party charged or his agent. The existence of the receipt dated 11 March 1970, which is a
memorandum of the sale, removes the transaction from the provisions of the Statute of Frauds.

The Statute of Frauds applies only to executory contracts and not to contracts either partially or
totally performed.17 Thus, where one party has performed one’s obligation, oral evidence will be
admitted to prove the agreement.18 In the instant case, the parties have consummated the sale of
the Subject Land, with both sellers and buyers performing their respective obligations under the
contract of sale. In addition, a contract that violates the Statute of Frauds is ratified by the
acceptance of benefits under the contract.19 Godofredo and Carmen benefited from the contract
because they paid their DBP loan and secured the cancellation of their mortgage using the money
given by Armando and Adelia. Godofredo and Carmen also accepted payment of the balance of the
purchase price.

Godofredo and Carmen cannot invoke the Statute of Frauds to deny the existence of the verbal
contract of sale because they have performed their obligations, and have accepted benefits, under
the verbal contract. 20 Armando and Adelia have also performed their obligations under the verbal
contract. Clearly, both the sellers and the buyers have consummated the verbal contract of sale of
the Subject Land. The Statute of Frauds was enacted to prevent fraud.21 This law cannot be used to
advance the very evil the law seeks to prevent.

Godofredo and Carmen also claim that the sale of the Subject Land to Armando and Adelia is void
on two grounds. First, Carmen sold the Subject Land without the marital consent of Godofredo.
Second, the sale was made during the 25-year period that the law prohibits the alienation of land
grants without the approval of the Secretary of Agriculture and Natural Resources.

These arguments are without basis.

The Family Code, which took effect on 3 August 1988, provides that any alienation or encumbrance
made by the husband of the conjugal partnership property without the consent of the wife is void.
However, when the sale is made before the effectivity of the Family Code, the applicable law is the
Civil Code.22

Article 173 of the Civil Code provides that the disposition of conjugal property without the wife’s
consent is not void but merely voidable. Article 173 reads:

The wife may, during the marriage, and within ten years from the transaction questioned, ask the
courts for the annulment of any contract of the husband entered into without her consent, when
such consent is required, or any act or contract of the husband which tends to defraud her or impair
her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or
her heirs, after the dissolution of the marriage, may demand the value of property fraudulently
alienated by the husband.

In Felipe v. Aldon,23 we applied Article 173 in a case where the wife sold some parcels of land
belonging to the conjugal partnership without the consent of the husband. We ruled that the
contract of sale was voidable subject to annulment by the husband. Following petitioners’ argument
that Carmen sold the land to Armando and Adelia without the consent of Carmen’s husband, the
sale would only be voidable and not void.

However, Godofredo can no longer question the sale. Voidable contracts are susceptible of
ratification.24 Godofredo ratified the sale when he introduced Armando and Adelia to his tenants as
the new owners of the Subject Land. The trial court noted that Godofredo failed to deny
categorically on the witness stand the claim of the complainants’ witnesses that Godofredo
introduced Armando and Adelia as the new landlords of the tenants.25 That Godofredo and
Carmen allowed Armando and Adelia to enjoy possession of the Subject Land for 24 years is
formidable proof of Godofredo’s acquiescence to the sale. If the sale was truly unauthorized, then
Godofredo should have filed an action to annul the sale. He did not. The prescriptive period to
annul the sale has long lapsed. Godofredo’s conduct belies his claim that his wife sold the Subject
Land without his consent.

Moreover, Godofredo and Carmen used most of the proceeds of the sale to pay their debt with the
DBP. We agree with the Court of Appeals that the sale redounded to the benefit of the conjugal
partnership. Article 161 of the Civil Code provides that the conjugal partnership shall be liable for
debts and obligations contracted by the wife for the benefit of the conjugal partnership. Hence,
even if Carmen sold the land without the consent of her husband, the sale still binds the conjugal
partnership.

Petitioners contend that Godofredo and Carmen did not deliver the title of the Subject Land to
Armando and Adelia as shown by this portion of Adelia’s testimony on cross-examination:

Q -- No title was delivered to you by Godofredo Alfredo?

A -- I got the title from Julie Limon because my sister told me.26

Petitioners raise this factual issue for the first time. The Court of Appeals could have passed upon
this issue had petitioners raised this earlier. At any rate, the cited testimony of Adelia does not
convincingly prove that Godofredo and Carmen did not deliver the Subject Land to Armando and
Adelia. Adelia’s cited testimony must be examined in context not only with her entire testimony but
also with the other circumstances.

Adelia stated during cross-examination that she obtained the title of the Subject Land from Julie
Limon ("Julie"), her classmate in college and the sister of Carmen. Earlier, Adelia’s own sister had
secured the title from the father of Carmen. However, Adelia’s sister, who was about to leave for the
United States, gave the title to Julie because of the absence of the other documents. Adelia’s sister
told Adelia to secure the title from Julie, and this was how Adelia obtained the title from Julie.

It is not necessary that the seller himself deliver the title of the property to the buyer because the
thing sold is understood as delivered when it is placed in the control and possession of the
vendee.27 To repeat, Godofredo and Carmen themselves introduced the Natanawans, their tenants,
to Armando and Adelia as the new owners of the Subject Land. From then on, Armando and Adelia
acted as the landlords of the Natanawans. Obviously, Godofredo and Carmen themselves placed
control and possession of the Subject Land in the hands of Armando and Adelia.

Petitioners invoke the absence of approval of the sale by the Secretary of Agriculture and Natural
Resources to nullify the sale. Petitioners never raised this issue before the trial court or the Court of
Appeals. Litigants cannot raise an issue for the first time on appeal, as this would contravene the
basic rules of fair play, justice and due process.28 However, we will address this new issue to finally
put an end to this case.

The sale of the Subject Land cannot be annulled on the ground that the Secretary did not approve
the sale, which was made within 25 years from the issuance of the homestead title. Section 118 of
the Public Land Act (Commonwealth Act No. 141) reads as follows:

SEC. 118. Except in favor of the Government or any of its branches, units, or institutions or legally
constituted banking corporation, lands acquired under free patent or homestead provisions shall
not be subject to encumbrance or alienation from the date of the approval of the application and
for a term of five years from and after the date of the issuance of the patent or grant.

xxx
No alienation, transfer, or conveyance of any homestead after 5 years and before twenty-five years
after the issuance of title shall be valid without the approval of the Secretary of Agriculture and
Commerce, which approval shall not be denied except on constitutional and legal grounds.

A grantee or homesteader is prohibited from alienating to a private individual a land grant within
five years from the time that the patent or grant is issued.29 A violation of this prohibition renders a
sale void.30 This prohibition, however, expires on the fifth year. From then on until the next 20
years31 the land grant may be alienated provided the Secretary of Agriculture and Natural
Resources approves the alienation. The Secretary is required to approve the alienation unless there
are "constitutional and legal grounds" to deny the approval. In this case, there are no apparent
constitutional or legal grounds for the Secretary to disapprove the sale of the Subject Land.

The failure to secure the approval of the Secretary does not ipso facto make a sale void.32 The
absence of approval by the Secretary does not nullify a sale made after the expiration of the 5-year
period, for in such event the requirement of Section 118 of the Public Land Act becomes merely
directory33 or a formality.34 The approval may be secured later, producing the effect of ratifying
and adopting the transaction as if the sale had been previously authorized.35 As held in Evangelista
v. Montano:36

Section 118 of Commonwealth Act No. 141, as amended, specifically enjoins that the approval by
the Department Secretary "shall not be denied except on constitutional and legal grounds." There
being no allegation that there were constitutional or legal impediments to the sales, and no
pretense that if the sales had been submitted to the Secretary concerned they would have been
disapproved, approval was a ministerial duty, to be had as a matter of course and demandable if
refused. For this reason, and if necessary, approval may now be applied for and its effect will be to
ratify and adopt the transactions as if they had been previously authorized. (Emphasis supplied)

Action Not Barred by Prescription and Laches

Petitioners insist that prescription and laches have set in. We disagree.

The Amended Complaint filed by Armando and Adelia with the trial court is captioned as one for
Specific Performance. In reality, the ultimate relief sought by Armando and Adelia is the
reconveyance to them of the Subject Land. An action for reconveyance is one that seeks to transfer
property, wrongfully registered by another, to its rightful and legal owner.37 The body of the
pleading or complaint determines the nature of an action, not its title or heading.38 Thus, the
present action should be treated as one for reconveyance.39

Article 1456 of the Civil Code provides that a person acquiring property through fraud becomes by
operation of law a trustee of an implied trust for the benefit of the real owner of the property. The
presence of fraud in this case created an implied trust in favor of Armando and Adelia. This gives
Armando and Adelia the right to seek reconveyance of the property from the Subsequent Buyers.40

To determine when the prescriptive period commenced in an action for reconveyance, plaintiff’s
possession of the disputed property is material. An action for reconveyance based on an implied
trust prescribes in ten years.41 The ten-year prescriptive period applies only if there is an actual
need to reconvey the property as when the plaintiff is not in possession of the property.42 However,
if the plaintiff, as the real owner of the property also remains in possession of the property, the
prescriptive period to recover title and possession of the property does not run against him.43 In
such a case, an action for reconveyance, if nonetheless filed, would be in the nature of a suit for
quieting of title, an action that is imprescriptible.44

In this case, the appellate court resolved the issue of prescription by ruling that the action should
prescribe four years from discovery of the fraud. We must correct this erroneous application of the
four-year prescriptive period. In Caro v. Court of Appeals,45 we explained why an action for
reconveyance based on an implied trust should prescribe in ten years. In that case, the appellate
court also erroneously applied the four-year prescriptive period. We declared in Caro:

We disagree. The case of Liwalug Amerol, et al. v. Molok Bagumbaran, G.R. No. L-33261, September
30, 1987,154 SCRA 396 illuminated what used to be a gray area on the prescriptive period for an
action to reconvey the title to real property and, corollarily, its point of reference:

xxx It must be remembered that before August 30, 1950, the date of the effectivity of the new Civil
Code, the old Code of Civil Procedure (Act No. 190) governed prescription. It provided:

SEC. 43. Other civil actions; how limited.- Civil actions other than for the recovery of real property
can only be brought within the following periods after the right of action accrues:

xxx xxx xxx

3. Within four years: xxx An action for relief on the ground of fraud, but the right of action in such
case shall not be deemed to have accrued until the discovery of the fraud;

xxx xxx xxx

In contrast, under the present Civil Code, we find that just as an implied or constructive trust is an
offspring of the law (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the
property and the title thereto in favor of the true owner. In this context, and vis-a-vis prescription,
Article 1144 of the Civil Code is applicable.

Article 1144. The following actions must be brought within ten years from the time the right of
action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

xxx xxx xxx

(Emphasis supplied).
An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten
years and not otherwise. A long line of decisions of this Court, and of very recent vintage at that,
illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based on an
implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the
property. The only discordant note, it seems, is Balbin vs. Medalla which states that the prescriptive
period for a reconveyance action is four years. However, this variance can be explained by the
erroneous reliance on Gerona vs. de Guzman. But in Gerona, the fraud was discovered on June
25,1948, hence Section 43(3) of Act No. 190, was applied, the new Civil Code not coming into effect
until August 30, 1950 as mentioned earlier. It must be stressed, at this juncture, that article 1144
and article 1456, are new provisions. They have no counterparts in the old Civil Code or in the old
Code of Civil Procedure, the latter being then resorted to as legal basis of the four-year prescriptive
period for an action for reconveyance of title of real property acquired under false pretenses.

An action for reconveyance has its basis in Section 53, paragraph 3 of Presidential Decree No. 1529,
which provides:

In all cases of registration procured by fraud, the owner may pursue all his legal and equitable
remedies against the parties to such fraud without prejudice, however, to the rights of any innocent
holder of the decree of registration on the original petition or application, xxx

This provision should be read in conjunction with Article 1456 of the Civil Code, which provides:

Article 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of
law, considered a trustee of an implied trust for the benefit of the person from whom the property
comes.

The law thereby creates the obligation of the trustee to reconvey the property and the title thereto
in favor of the true owner. Correlating Section 53, paragraph 3 of Presidential Decree No. 1529 and
Article 1456 of the Civil Code with Article 1144(2) of the Civil Code, supra, the prescriptive period
for the reconveyance of fraudulently registered real property is ten (10) years reckoned from the
date of the issuance of the certificate of title xxx (Emphasis supplied)46

Following Caro, we have consistently held that an action for reconveyance based on an implied trust
prescribes in ten years.47 We went further by specifying the reference point of the ten-year
prescriptive period as the date of the registration of the deed or the issuance of the title.48

Had Armando and Adelia remained in possession of the Subject Land, their action for reconveyance,
in effect an action to quiet title to property, would not be subject to prescription. Prescription does
not run against the plaintiff in actual possession of the disputed land because such plaintiff has a
right to wait until his possession is disturbed or his title is questioned before initiating an action to
vindicate his right.49 His undisturbed possession gives him the continuing right to seek the aid of a
court of equity to determine the nature of the adverse claim of a third party and its effect on his
title.50

Armando and Adelia lost possession of the Subject Land when the Subsequent Buyers forcibly drove
away from the Subject Land the Natanawans, the tenants of Armando and Adelia.51 This created an
actual need for Armando and Adelia to seek reconveyance of the Subject Land. The statute of
limitation becomes relevant in this case. The ten-year prescriptive period started to run from the
date the Subsequent Buyers registered their deeds of sale with the Register of Deeds.

The Subsequent Buyers bought the subdivided portions of the Subject Land on 22 February 1994,
the date of execution of their deeds of sale. The Register of Deeds issued the transfer certificates of
title to the Subsequent Buyers on 24 February 1994. Armando and Adelia filed the Complaint on 7
March 1994. Clearly, prescription could not have set in since the case was filed at the early stage of
the ten-year prescriptive period.

Neither is the action barred by laches. We have defined laches as the failure or neglect, for an
unreasonable time, to do that which, by the exercise of due diligence, could or should have been
done earlier.52 It is negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or declined to assert it.53
Armando and Adelia discovered in January 1994 the subsequent sale of the Subject Land and they
filed this case on 7 March 1994. Plainly, Armando and Adelia did not sleep on their rights.

Validity of Subsequent Sale of Portions of the Subject Land

Petitioners maintain that the subsequent sale must be upheld because the Subsequent Buyers, the
co-petitioners of Godofredo and Carmen, purchased and registered the Subject Land in good faith.
Petitioners argue that the testimony of Calonso, the person who brokered the second sale, should
not prejudice the Subsequent Buyers. There is no evidence that Calonso was the agent of the
Subsequent Buyers and that she communicated to them what she knew about the adverse claim
and the prior sale. Petitioners assert that the adverse claim registered by Armando and Adelia has
no legal basis to render defective the transfer of title to the Subsequent Buyers.

We are not persuaded. Godofredo and Carmen had already sold the Subject Land to Armando and
Adelia. The settled rule is when ownership or title passes to the buyer, the seller ceases to have any
title to transfer to any third person.54 If the seller sells the same land to another, the second buyer
who has actual or constructive knowledge of the prior sale cannot be a registrant in good faith.55
Such second buyer cannot defeat the first buyer’s title.56 In case a title is issued to the second
buyer, the first buyer may seek reconveyance of the property subject of the sale.57

Thus, to merit protection under the second paragraph of Article 154458 of the Civil Code, the
second buyer must act in good faith in registering the deed.59 In this case, the Subsequent Buyers’
good faith hinges on whether they had knowledge of the previous sale. Petitioners do not dispute
that Armando and Adelia registered their adverse claim with the Registry of Deeds of Bataan on 8
February 1994. The Subsequent Buyers purchased their respective lots only on 22 February 1994 as
shown by the date of their deeds of sale. Consequently, the adverse claim registered prior to the
second sale charged the Subsequent Buyers with constructive notice of the defect in the title of the
sellers,60 Godofredo and Carmen.

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

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

Attorney’s Fees and Costs

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

The Court of Appeals echoed the trial court’s condemnation of petitioners’ fraudulent
maneuverings in securing the second sale of the Subject Land to the Subsequent Buyers. We will
also not turn a blind eye on petitioners’ brazen tactics. Thus, we uphold the treble costs imposed by
the Court of Appeals on petitioners.

WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED. Treble costs against
petitioners.

SO ORDERED.
G.R. No. 133895 October 2, 2001

ZENAIDA M. SANTOS, petitioner,

vs.
CALIXTO SANTOS, ALBERTO SANTOS, ROSA SANTOS-CARREON and ANTONIO SANTOS,
respondents.

QUISUMBING, J.:

This petition for review1 seeks to annul and set aside the decision date March 10, 1998 of the Court
of Appeals that affirmed the decision of the Regional Trial Court of Manila, Branch 48, dated March
17, 1993. Petitioner also seeks to annul the resolution that denied her motion for reconsideration.

Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of private respondents
Calixto, Alberto, Antonio, all surnamed Santos and Rosa Santos-Carreon.

The spouses Jesus and Rosalia Santos owned a parcel of land registered under TCT No. 27571 with
an area of 154 square meters, located at Sta. Cruz Manila. On it was a four-door apartment
administered by Rosalia who rented them out. The spouses had five children, Salvador, Calixto,
Alberto, Antonio and Rosa.

On January 19, 1959, Jesus and Rosalia executed a deed of sale of the properties in favor of their
children Salvador and Rosa. TCT No. 27571 became TCT No. 60819. Rosa in turn sold her share to
Salvador on November 20, 1973 which resulted in the issuance of a new TCT No. 113221. Despite
the transfer of the property to Salvador, Rosalia continued to lease receive rentals form the
apartment units.1âwphi1.nêt

On November 1, 1979, Jesus died. Six years after or on January 9, 1985, Salvador died, followed by
Rosalia who died the following month. Shortly after, petitioner Zenaida, claiming to be Salvador's
heir, demanded the rent from Antonio Hombrebueno,2 a tenant of Rosalia. When the latter refused
to pay, Zenaida filed and ejectment suit against him with the Metropolitan Trial Court of Manila,
Branch 24, which eventually decided in Zenaida's favor.

On January 5, 1989, private respondents instituted an action for reconveyance of property with
preliminary injunction against petitioner in the Regional Trial Court of Manila, where they alleged
that the two deeds of sale executed on January 19, 1959 and November 20, 1973 were simulated
for lack of consideration. They were executed to accommodate Salvador in generation funds for his
business and providing him with greater business flexibility.

In her Answer, Zenaida denied the material allegations in the complaint as special and affirmative
defenses, argued that Salvador was the registered owner of the property, which could only be
subjected to encumbrances or liens annotated on the title; that the respondents' right to
reconveyance was already barred by prescription and laches; and that the complaint state no cause
of action.

On March 17, 1993, the trial court decided in private respondents' favor, thus:
WHEREFORE, viewed from all the foregoing considerations, judgment is hereby made in favor of the
plaintiffs and against the defendants:

a) Declaring Exh. "B", the deed of sale executed by Rosalia Santos and Jesus Santos on January 19,
1959, as entirely null and void for being fictitious or stimulated and inexistent and without any legal
force and effect:

b) Declaring Exh. "D", the deed of sale executed by Rosa Santos in favor of Salvador Santos on
November 20, 1973, also as entirely null and void for being likewise fictitious or stimulated and
inexistent and without any legal force and effect;

c) Directing the Register of Deeds of Manila to cancel Transfer Certificate of Title No. T-113221
registered in the name of Salvador Santos, as well as, Transfer Certificate of Title No. 60819 in the
names of Salvador Santos, Rosa Santos, and consequently thereafter, reinstating with the same legal
force and effect as if the same was not cancelled, and which shall in all respects be entitled to like
faith and credit; Transfer Certificate of Title No. T-27571 registered in the name of Rosalia A. Santos,
married to Jesus Santos, the same to be partitioned by the heirs of the said registered owners in
accordance with law; and

d) Making the injunction issued in this case permanent.

Without pronouncement as to costs.

SO OREDERED.3

The trial court reasoned that notwithstanding the deeds of sale transferring the property to
Salvador, the spouses Rosalia and Jesus continued to possess the property and to exercise rights of
ownership not only by receiving the monthly rentals, but also by paying the realty taxes. Also,
Rosalia kept the owner's duplicate copy of the title even after it was already in the name of
Salvador. Further, the spouses had no compelling reason in 1959 to sell the property and Salvador
was not financially capable to purchase it. The deeds of sale were therefore fictitious. Hence, the
action to assail the same does not prescribe.4

Upon appeal, the Court of Appeals affirmed the trial court's decision dated March 10, 1998. It held
that in order for the execution of a public instrument to effect tradition, as provided in Article 1498
of the Civil Code,5 the vendor shall have had control over the thing sold, at the moment of sale. It
was not enough to confer upon the purchaser the ownership and the right of possession. The thing
sold must be placed in his control. The subject deeds of sale did not confer upon Salvador the
ownership over the subject property, because even after the sale, the original vendors remained in
dominion, control, and possession thereof. The appellate court further said that if the reason for
Salvador's failure to control and possess the property was due to his acquiescence to his mother, in
deference to Filipino custom, petitioner, at least, should have shown evidence to prove that her
husband declared the property for tax purposes in his name or paid the land taxes, acts which
strongly indicate control and possession. The appellate court disposed:

WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby
AFFIRMED. No pronouncement as to costs.
SO ORDERED.6

Hence, this petition where petitioner avers that the Court of Appeals erred in:

I.

… HOLDING THAT THE OWNERSHIP OVER THE LITIGATED PROPERTY BY THE LATE HUSBAND OF
DEFENDANT-APPELLANT WAS AFFECTED BY HIS FAILURE TO EXERCISE CERTAIN ATTRIBUTES OF
OWNERSHIP.

II.

…HOLDING THAT DUE EXECUTION OF A PUBLIC INSTRUMENT IS NOT EQUIVALENT TO DELIVERY OF

THE LAND IN DISPUTE.

III.

…NOT FINDING THAT THE CAUSE OF ACTION OF ROSALIA SANTOS HAD PRESCRIBED AND/OR
BARRED BY LACHES.

IV.

… IGNORING PETITIONER'S ALLEGATION TO THE EFFECT THAT PLAINTIFF DR. ROSA [S.] CARREON IS
NOT DISQUALIFIED TO TESTIFY AS TO THE QUESTIONED DEEDS OF SALE CONSIDERING THAT
SALVADOR SANTOS HAS LONG BEEN DEAD.7

In this petition, we are asked to resolve the following:

1. Are payments of realty taxes and retention of possession indications of continued ownership by
the original owners?

2. Is a sale through a public instrument tantamount to delivery of the thing sold?

3. Did the cause of action of Rosalia Santos and her heirs prescribe?

4. Can petitioner invoke the "Dead Man's Statute?"8

On the first issue, petitioner contends that the Court of Appeals erred in holding that despite the
deeds of sale in Salvador's favor, Jesus and Rosalia still owned the property because the spouses
continued to pay the realty taxes and possess the property. She argues that tax declarations are not
conclusive evidence of ownership when not supported by evidence. She avers that Salvador allowed
his mother to possess the property out of respect to her in accordance with Filipino values.

It is true that neither tax receipts nor declarations of ownership for taxation purposes constitute
sufficient proof of ownership. They must be supported by other effective proofs.9 These requisite
proofs we find present in this case. As admitted by petitioner, despite the sale, Jesus and Rosalia
continued to possess and administer the property and enjoy its fruits by leasing it to third
persons.10 Both Rosa and Salvador did not exercise any right of ownership over it.11 Before the
second deed of sale to transfer her ½ share over the property was executed by Rosa, Salvador still
sought she permission of his mother.12 Further, after Salvador registered the property in his name,
he surrendered the title to his mother.13 These are clear indications that ownership still remained
with the original owners. In Serrano vs. CA, 139 SCRA 179, 189 (1985), we held that the continued
collection of rentals from the tenants by the seller of realty after execution of alleged deed of sale is
contrary to the notion of ownership.

Petitioner argues that Salvador, in allowing her mother to use the property even after the sale, did
so out of respect for her and out of generosity, a factual matter beyond the province of this
Court.14 Significantly, in Alcos vs. IAC 162 SCRA 823, 837 (1988), we noted that the buyer's
immediate possession and occupation of the property corroborated the truthfulness and
authenticity of the deed of sale. Conversely, the vendor's continued possession of the property
makes dubious the contract of sale between the parties.

On the second issue, is a sale through a public instrument tantamount to delivery of the thing sold?
Petitioner in her memorandum invokes Article 147715 of the Civil Code which provides that
ownership of the thing sold is transferred to the vendee upon its actual or constructive delivery.
Article 1498, in turn, provides that when the sale is made through a public instrument, its execution
is equivalent to the delivery of the thing subject of the contract. Petitioner avers that applying said
provisions to the case, Salvador became the owner of the subject property by virtue of the two
deeds of sale executed in his favor.

Nowhere in the Civil Code, however, does it provide that execution of a deed of sale is a conclusive
presumption of delivery of possession. The Code merely said that the execution shall be equivalent
to delivery. The presumption can be rebutted by clear and convincing evidence.16 Presumptive
delivery can be negated by the failure of the vendee to take actual possession of the land sold.17

In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), we held that for the execution of a public instrument
to effect tradition, the purchaser must be placed in control of the thing sold. When there is no
impediment to prevent the thing sold from converting to tenancy of the purchaser by the sole will
of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if,
notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy nor make use of it himself or through another in his name, then delivery has not
been effected.

As found by both the trial and appellate courts and amply supported by the evidence on record,
Salvador was never placed in control of the property. The original sellers retained their control and
possession. Therefore, there was no real transfer of ownership.

Moreover, in Norkis Distributors, Inc. vs. CA, 193 SCRA 694, 698-699 (1991), citing the land case of
Abuan vs. Garcia, 14 SCRA 759 (1965), we held that the critical factor in the different modes of
effecting delivery, which gives legal effect to the act is the actual intention of the vendor to deliver,
and its acceptance by the vendee. Without that intention, there is no tradition. In the instant case,
although the spouses Jesus and Rosalia executed a deed of sale, they did not deliver the possession
and ownership of the property to Salvador and Rosa. They agreed to execute a deed of sale merely
to accommodate Salvador to enable him to generate funds for his business venture.

On the third issue, petitioner argues that from the date of the sale from Rosa to Salvador on
November 20, 1973, up to his death on January 9, 1985, more or less twelve years had lapsed, and
from his death up to the filing of the case for reconveyance in the court a quo on January 5, 1989,
four years had lapsed. In other words, it took respondents about sixteen years to file the case
below. Petitioner argues that an action to annul a contract for lack of consideration prescribes in ten
years and even assuming that the cause of action has not prescribed, respondents are guilty of
laches for their inaction for a long period of time.

Has respondents' cause of action prescribed? In Lacsamana vs. CA, 288 SCRA 287, 292 (1998), we
held that the right to file an action for reconveyance on the ground that the certificate of title was
obtained by means of a fictitious deed of sale is virtually an action for the declaration of its nullity,
which does not prescribe. This applies squarely to the present case. The complaint filed by
respondent in the court a quo was for the reconveyance of the subject property to the estate of
Rosalia since the deeds of sale were simulated and fictitious. The complaint amounts to a
declaration of nullity of a void contract, which is imprescriptible. Hence, respondents' cause of
action has not prescribed.

Neither is their action barred by laches. The elements of laches are: 1) conduct on the part of the
defendant, or of one under whom he claims, giving rise to the situation of which the complaint
seeks a remedy; 2) delay in asserting the complainant's rights, the complainant having had
knowledge or notice of the defendant's conduct as having been afforded an opportunity to institute
a suit; 3) lack of knowledge or notice on the part of the defendant that the complainant would
assert the right in which he bases his suit; and 4) injury or prejudice to the defendant in the event
relief is accorded to the complainant, or the suit is not held barred.18 These elements must all be
proved positively. The conduct which caused the complaint in the court a quo was petitioner's
assertion of right of ownership as heir of Salvador. This started in December 1985 when petitioner
demanded payment of the lease rentals from Antonio Hombrebueno, the tenant of the apartment
units. From December 1985 up to the filing of the complaint for reconveyance on January 5, 1989,
only less than four years had lapsed which we do not think is unreasonable delay sufficient to bar
respondents' cause of action. We likewise find the fourth element lacking. Neither petitioner nor
her husband made considerable investments on the property from the time it was allegedly
transferred to the latter. They also did not enter into transactions involving the property since they
did not claim ownership of it until December 1985. Petitioner stood to lose nothing. As we held in
the same case of Lacsamana vs. CA, cited above, the concept of laches is not concerned with the
lapse of time but only with the effect of unreasonble lapse. In this case, the alleged 16 years of
respondents' inaction has no adverse effect on the petitioner to make respondents guilty of laches.

Lastly, petitioner in her memorandum seeks to expunge the testimony of Rosa Santos-Carreon
before the trial court in view of Sec. 23, Rule 130 of the Revised Rules of Court, otherwise known as
the "Dead Man's Statute."19 It is too late for petitioner, however, to invoke said rule. The trial court
in its order dated February 5, 1990, denied petitioner's motion to disqualify respondent Rosa as a
witness. Petitioner did not appeal therefrom. Trial ensued and Rosa testified as a witness for
respondents and was cross-examined by petitioner's counsel. By her failure to appeal from the
order allowing Rosa to testify, she waived her right to invoke the dean man's statute. Further, her
counsel cross-examined Rosa on matters that occurred during Salvadors' lifetime. In Goñi vs. CA,
144 SCRA 222, 231 (1986) we held that protection under the dead man's statute is effectively
waived when a counsel for a petitioner cross-examines a private respondent on matters occurring
during the deceased's lifetime. The Court of appeals cannot be faulted in ignoring petitioner on
Rosa's disqualification.1âwphi1.nêt

WHEREFORE, the instant petition is DENIED. The assailed decision dated March 10, 1998 of the
Court of Appeals, which sustained the judgment of the Regional Trial Court dated March 17, 1993,
in favor of herein private respondents, is AFFIRMED. Costs against petitioner.

SO ORDERED
G.R. No. 97130 June 19, 1991

FRANCISCO N. DY, JR., Substituted by his Estate Rep. by ROSARIO PEREZ-DY, Administratrix,
petitioner,
vs.
COURT OF APPEALS and FERTILIZER MARKETING COMPANY OF THE PHILIPPINES, respondents.

Loreta F. Sablaya for petitioner.

Rayala & Associates for private respondent.

GRIÑO-AQUINO, J.:

This is a petition for review of the Court of Appeals' decision dated December 11, 1990, which
affirmed in toto the decision of the Regional Trial Court of Makati dated July 18, 1988, which
ordered the petitioner to pay the private respondent the sum of P337,120.00 plus interest of 12%
per annum, attorney's fees and costs.

Private respondent Fertilizer Marketing Company of the Philippines filed an action to collect from
Francisco Dy, Jr. (now deceased) and the Francisco Dy, Jr. Trading Corporation the sum of
P337,120.00 as unpaid balance on their purchase of fertilizers on credit from the private
respondent.

The defendants were declared in default on August 15, 1983 for failure to answer the complaint
within the reglementary period. Private respondent was thereafter allowed to present its evidence
ex parte before the Branch Clerk of Court.

Subsequently, the defendants filed a motion to admit their answer, but it was denied by the court.
They filed a motion for reconsideration; it was granted; the order of default was set aside; their
answer was admitted; and they were allowed to present their evidence without retaking the
plaintiff s evidence.

On the date set for the reception of their evidence, the defendants failed to appear despite due
notice, so, judgment was rendered by the trial court against them on January 4, 1984.

On appeal to the Court of Appeals, the judgment by default was set aside and the case was
remanded to the lower court for pre-trial and trial on the merits (AC-G.R. CV No. 03747, p. 46,
Rollo).

At the pre-trial conference on November 12, 1987, the plaintiff and defendant Francisco Dy, Jr.
appeared, but there was no appearance for the defendant trading corporation, so it was declared in
default again and the plaintiff was allowed to present its evidence ex parte before the Branch Clerk
of Court. However, in that same pre-trial conference the parties agreed that the evidence previously
presented by the plaintiff shall remain on record for purposes of the continuation of the trial,
subject to cross-examination in open court, and, that the presentation of the affidavits in question
and answer form will constitute the direct testimony of the defendant's witnesses likewise subject
to cross-examination of the adverse counsel.
On motion for reconsideration, the order of default against the corporation was lifted. A second
motion for reconsideration was filed by the defendants on January 22, 1988 to set aside the
agreement for trial by affidavits but it was denied by the court.

On the date of the hearing set on April 25, 1988, the defendants failed to appear to present their
evidence despite due notice, hence, they were deemed to have waived the presentation of their
evidence. The case was submitted for decision upon the plaintiffs evidence.

On July 18, 1988, the trial court rendered a decision (mentioned earlier) for the plaintiff and against
the defendants. The latter appealed to the Court of Appeals (CA-G.R. CV No. 23540) alleging that
the court a quo erred (1) in reinstating the nullified proceedings on August 19, 1983 before the
Branch Clerk of Court; (2) in denying her procedural due process; and (3) in awarding damages
against her.

During the pendency of the appeal, Francisco Dy, Jr. passed away on June 20, 1989. His wife, Rosario
Perez-Dy, as judicial administratrix of his estate, prosecuted the appeal (Azarraga vs. Cortes, 9 Phil.
698).

On December 11, 1990, the Court of Appeals dismissed the appeal (CA-G.R. CV No. 23540) for lack
of merit.

In this petition for review of that decision, the petitioner reiterates the same issues that she raised
in the Court of Appeals.

With regard to the validity of the proceedings before the Branch Clerk of Court, we agree with the
observations of the Court of Appeals that:

Appellant is now estopped from questioning the retention of the proceedings held on August 19,
1983 before the Branch Clerk of Court since her husband agreed to the same during the pre-trial
conference held on November 12, 1987. Agreements reached at the pre-trial conference and
embodied in the pre-trial order shall control the subsequent course of the trial and should not be
disturbed unless there could be manifest injustice.

The agreement is not unjust to appellant. Aside from appellant having the right to adduce evidence
on her behalf, the parties agreed that the evidence presented by appellee before the Branch Clerk
of Court would be retained, with appellant having the right to cross-examine appellee's witnesses.

xxx xxx xxx

The agreement of the parties as contained in the pre-trial order is not invalid. The parties are
authorized by the Rules of Court to consider "[s]uch other matters as may aid in the prompt
disposition of the action." An authority believes this includes "agreement on certain matters so that
witnesses need not and will not be called." Undoubtedly, the procedure agreed upon by the parties
in this case would have greatly accelerated the trial and the decision therein, which, at the, time of
the pre-trial conference, had been pending for three years and had already gone up on appeal to
this Court. (pp. 27-28, Rollo.)
The presentation of the plaintiff's evidence before the Branch Clerk of Court was not void. The
Supreme Court, in the case of Continental Bank vs. Tiangco, et al. (94 SCRA 715) departing from its
contrary statement in the Lim Tan Hu case (66 SCRA 425), declared that a decision based on
evidence heard by a deputy clerk of court as commissioner is valid and enforceable because it was
rendered by a court of competent jurisdiction, was not impaired by extrinsic fraud, nor by lack of
due process, and there was no showing that the private respondents were prejudiced by such a
procedure, or that the commissioner committed any mistake or abuse of discretion, or that the
proceedings were vitiated by collusion and collateral fraud. That ruling applies four square to this
case.

The practice of designating the clerk of court as a commissioner to receive evidence in the event of
the non-appearance of the defendant and its counsel, is not irregular and is sanctioned by Rule 33
of the Rules of Court on trial by commissioner (J.M. Tuazon, Inc. vs. Dela Rosa, 18 SCRA 591;
Wassmer vs. Velez, 12 SCRA 648).

The petitioner was not denied due process. As pointed out by the appellate court:

. . . Appellant retained her right to present evidence on her behalf and the opportunity to cross-
examine the witnesses already presented by appellee. At any rate, if appellant believes that her
right to procedural due process had been curtailed, the same was due to a voluntary waiver by her
husband. (p. 28, Rollo)

WHEREFORE, the petition for review is denied for lack of merit. Costs against the petitioners.

SO ORDERED.
G.R. No. L-12342 August 3, 1918

A. A. ADDISON, plaintiff-appellant,
vs.
MARCIANA FELIX and BALBINO TIOCO, defendants-appellees.

Thos. D. Aitken for appellant.

Modesto Reyes and Eliseo Ymzon for appellees.

FISHER, J.:

By a public instrument dated June 11, 1914, the plaintiff sold to the defendant Marciana Felix, with
the consent of her husband, the defendant Balbino Tioco, four parcels of land, described in the
instrument. The defendant Felix paid, at the time of the execution of the deed, the sum of P3,000
on account of the purchase price, and bound herself to pay the remainder in installments, the first
of P2,000 on July 15, 1914, and the second of P5,000 thirty days after the issuance to her of a
certificate of title under the Land Registration Act, and further, within ten years from the date of
such title P10, for each coconut tree in bearing and P5 for each such tree not in bearing, that might
be growing on said four parcels of land on the date of the issuance of title to her, with the condition
that the total price should not exceed P85,000. It was further stipulated that the purchaser was to
deliver to the vendor 25 per centum of the value of the products that she might obtain from the
four parcels "from the moment she takes possession of them until the Torrens certificate of title be
issued in her favor."

It was also covenanted that "within one year from the date of the certificate of title in favor of
Marciana Felix, this latter may rescind the present contract of purchase and sale, in which case
Marciana Felix shall be obliged to return to me, A. A. Addison, the net value of all the products of
the four parcels sold, and I shall obliged to return to her, Marciana Felix, all the sums that she may
have paid me, together with interest at the rate of 10 per cent per annum."

In January, 1915, the vendor, A. A. Addison, filed suit in Court of First Instance of Manila to compel
Marciana Felix to make payment of the first installment of P2,000, demandable in accordance with
the terms of the contract of sale aforementioned, on July 15, 1914, and of the interest in arrears, at
the stipulated rate of 8 per cent per annum. The defendant, jointly with her husband, answered the
complaint and alleged by way of special defense that the plaintiff had absolutely failed to deliver to
the defendant the lands that were the subject matter of the sale, notwithstanding the demands
made upon him for this purpose. She therefore asked that she be absolved from the complaint, and
that, after a declaration of the rescission of the contract of the purchase and sale of said lands, the
plaintiff be ordered to refund the P3,000 that had been paid to him on account, together with the
interest agreed upon, and to pay an indemnity for the losses and damages which the defendant
alleged she had suffered through the plaintiff's non-fulfillment of the contract.

The evidence adduced shows that after the execution of the deed of the sale the plaintiff, at the
request of the purchaser, went to Lucena, accompanied by a representative of the latter, for the
purpose of designating and delivering the lands sold. He was able to designate only two of the four
parcels, and more than two-thirds of these two were found to be in the possession of one Juan
Villafuerte, who claimed to be the owner of the parts so occupied by him. The plaintiff admitted
that the purchaser would have to bring suit to obtain possession of the land (sten. notes, record, p.
5). In August, 1914, the surveyor Santamaria went to Lucena, at the request of the plaintiff and
accompanied by him, in order to survey the land sold to the defendant; but he surveyed only two
parcels, which are those occupied mainly by the brothers Leon and Julio Villafuerte. He did not
survey the other parcels, as they were not designated to him by the plaintiff. In order to make this
survey it was necessary to obtain from the Land Court a writ of injunction against the occupants,
and for the purpose of the issuance of this writ the defendant, in June, 1914, filed an application
with the Land Court for the registration in her name of four parcels of land described in the deed of
sale executed in her favor by the plaintiff. The proceedings in the matter of this application were
subsequently dismissed, for failure to present the required plans within the period of the time
allowed for the purpose.

The trial court rendered judgment in behalf of the defendant, holding the contract of sale to be
rescinded and ordering the return to the plaintiff the P3,000 paid on account of the price, together
with interest thereon at the rate of 10 per cent per annum. From this judgment the plaintiff
appealed.

In decreeing the rescission of the contract, the trial judge rested his conclusion solely on the
indisputable fact that up to that time the lands sold had not been registered in accordance with the
Torrens system, and on the terms of the second paragraph of clause (h) of the contract, whereby it
is stipulated that ". . . within one year from the date of the certificate of title in favor of Marciana
Felix, this latter may rescind the present contract of purchase and sale . . . ."

The appellant objects, and rightly, that the cross-complaint is not founded on the hypothesis of the
conventional rescission relied upon by the court, but on the failure to deliver the land sold. He
argues that the right to rescind the contract by virtue of the special agreement not only did not exist
from the moment of the execution of the contract up to one year after the registration of the land,
but does not accrue until the land is registered. The wording of the clause, in fact, substantiates the
contention. The one year's deliberation granted to the purchaser was to be counted "from the date
of the certificate of title ... ." Therefore the right to elect to rescind the contract was subject to a
condition, namely, the issuance of the title. The record show that up to the present time that
condition has not been fulfilled; consequently the defendant cannot be heard to invoke a right
which depends on the existence of that condition. If in the cross-complaint it had been alleged that
the fulfillment of the condition was impossible for reasons imputable to the plaintiff, and if this
allegation had been proven, perhaps the condition would have been considered as fulfilled (arts.
1117, 1118, and 1119, Civ. Code); but this issue was not presented in the defendant's answer.

However, although we are not in agreement with the reasoning found in the decision appealed
from, we consider it to be correct in its result. The record shows that the plaintiff did not deliver the
thing sold. With respect to two of the parcels of land, he was not even able to show them to the
purchaser; and as regards the other two, more than two-thirds of their area was in the hostile and
adverse possession of a third person.

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered
to be delivered when it is placed "in the hands and possession of the vendee." (Civ. Code, art. 1462.)
It is true that the same article declares that the execution of a public instruments is equivalent to
the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery
may produce the effect of tradition, it is necessary that the vendor shall have had such control over
the thing sold that, at the moment of the sale, its material delivery could have been made. It is not
enough to confer upon the purchaser the ownership and the right of possession. The thing sold
must be placed in his control. When there is no impediment whatever to prevent the thing sold
passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through
the execution of a public instrument is sufficient. But if, notwithstanding the execution of the
instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make
use of it himself or through another in his name, because such tenancy and enjoyment are opposed
by the interposition of another will, then fiction yields to reality — the delivery has not been
effected.

As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his commentaries on article 1604 of the French
Civil code, "the word "delivery" expresses a complex idea . . . the abandonment of the thing by the
person who makes the delivery and the taking control of it by the person to whom the delivery is
made."

The execution of a public instrument is sufficient for the purposes of the abandonment made by the
vendor; but it is not always sufficient to permit of the apprehension of the thing by the purchaser.

The supreme court of Spain, interpreting article 1462 of the Civil Code, held in its decision of
November 10, 1903, (Civ. Rep., vol. 96, p. 560) that this article "merely declares that when the sale
is made through the means of a public instrument, the execution of this latter is equivalent to the
delivery of the thing sold: which does not and cannot mean that this fictitious tradition necessarily
implies the real tradition of the thing sold, for it is incontrovertible that, while its ownership still
pertains to the vendor (and with greater reason if it does not), a third person may be in possession
of the same thing; wherefore, though, as a general rule, he who purchases by means of a public
instrument should be deemed . . . to be the possessor in fact, yet this presumption gives way before
proof to the contrary."

It is evident, then, in the case at bar, that the mere execution of the instrument was not a fulfillment
of the vendors' obligation to deliver the thing sold, and that from such non-fulfillment arises the
purchaser's right to demand, as she has demanded, the rescission of the sale and the return of the
price. (Civ. Code, arts. 1506 and 1124.)

Of course if the sale had been made under the express agreement of imposing upon the purchaser
the obligation to take the necessary steps to obtain the material possession of the thing sold, and it
were proven that she knew that the thing was in the possession of a third person claiming to have
property rights therein, such agreement would be perfectly valid. But there is nothing in the
instrument which would indicate, even implicitly, that such was the agreement. It is true, as the
appellant argues, that the obligation was incumbent upon the defendant Marciana Felix to apply for
and obtain the registration of the land in the new registry of property; but from this it cannot be
concluded that she had to await the final decision of the Court of Land Registration, in order to be
able to enjoy the property sold. On the contrary, it was expressly stipulated in the contract that the
purchaser should deliver to the vendor one-fourth "of the products ... of the aforesaid four parcels
from the moment when she takes possession of them until the Torrens certificate of title be issued
in her favor." This obviously shows that it was not forseen that the purchaser might be deprived of
her possession during the course of the registration proceedings, but that the transaction rested on
the assumption that she was to have, during said period, the material possession and enjoyment of
the four parcels of land.

Inasmuch as the rescission is made by virtue of the provisions of law and not by contractual
agreement, it is not the conventional but the legal interest that is demandable.

It is therefore held that the contract of purchase and sale entered into by and between the plaintiff
and the defendant on June 11, 1914, is rescinded, and the plaintiff is ordered to make restitution of
the sum of P3,000 received by him on account of the price of the sale, together with interest
thereon at the legal rate of 6 per annum from the date of the filing of the complaint until payment,
with the costs of both instances against the appellant. So ordered.

Torres, Johnson, Street, Malcolm and Avanceña, JJ., concur.

G.R. No. 168499 November 26, 2012
SPOUSES EROSTO SANTIAGO and NELSIE SANTIAGO, Petitioners,
vs.
MANCER VILLAMOR, CARLOS VILLAMOR, JOHN VILLAMOR and DOMINGO VILLAMOR, JR.,
Respondents.
DECISION

BRION, J.:
We resolve the petition for review on certiorari1 tiled by spouses Eros to Santiago and Nelsie
Santiago (petitioners) to challenge the August 10, 2004 decision2 and the June 8, 2005 resolution3
of the Court of Appeals (CA) in CA-G.R. CV No. 59112. The CA decision set aside the May 28, 1997
decision4 of the Regional Trial Court (RTC) of San Jacinto, Masbate, Branch 50, in Civil Case No. 201.
The CA resolution denied the petitioners' subsequent motion for reconsideration.

THE FACTUAL ANTECEDENTS

In January 1982,5 the spouses Domingo Villamor, Sr. and Trinidad Gutierrez Villamor (spouses
Villamor, Sr.), the parents of Mancer Villamor, Carlos Villamor and Domingo Villamor, Jr.
(respondents) and the grandparents of respondent John Villamor, mortgaged their 4.5-hectare
coconut land in Sta. Rosa, San Jacinto, Masbate, known as Lot No. 1814, to the Rural Bank of San
Jacinto (Masbate), Inc. (San Jacinto Bank) as security for a P10,000.00 loan.

For non-payment of the loan, the San Jacinto Bank extrajudicially foreclosed the mortgage, and, as
the highest bidder at the public auction, bought the land. When the spouses Villamor, Sr. failed to
redeem the property within the prescribed period, the San Jacinto Bank obtained a final deed of
sale in its favor sometime in 1991. The San Jacinto Bank then offered the land for sale to any
interested buyer.6

a. The Specific Performance Case

Since the respondents had been in possession and cultivation of the land, they decided, together
with their sister Catalina Villamor Ranchez, to acquire the land from the San Jacinto Bank. The San
Jacinto Bank agreed with the respondents and Catalina to a P65,000.00 sale, payable in
installments. The respondents and Catalina made four (4) installment payments of P28,000.00,
P5,500.00, P7,000.00 and P24,500.00 on November 4, 1991, November 23, 1992, April 26, 1993 and
June 8, 1994, respectively.7

When the San Jacinto Bank refused to issue a deed of conveyance in their favor despite full
payment, the respondents and Catalina filed a complaint against the San Jacinto Bank (docketed as
Civil Case No. 200) with the RTC on October 11, 1994. The complaint was for specific performance
with damages.

The San Jacinto Bank claimed that it already issued a deed of repurchase in favor of the spouses
Villamor, Sr.; the payments made by the respondents and Catalina were credited to the account of
Domingo, Sr. since the real buyers of the land were the spouses Villamor, Sr.8
In a February 10, 2004 decision, the RTC dismissed the specific performance case. It found that the
San Jacinto Bank acted in good faith when it executed a deed of "repurchase" in the spouses
Villamor, Sr.’s names since Domingo, Sr., along with the respondents and Catalina, was the one who
transacted with the San Jacinto Bank to redeem the land.9

The CA, on appeal, set aside the RTC’s decision.10 The CA found that the respondents and Catalina
made the installment payments on their own behalf and not as representatives of the spouses
Villamor, Sr. The San Jacinto Bank mistakenly referred to the transaction as a "repurchase" when the
redemption period had already lapsed and the title had been transferred to its name; the
transaction of the respondents and Catalina was altogether alien to the spouses Villamor, Sr.’s loan
with mortgage. Thus, it ordered the San Jacinto Bank to execute the necessary deed of sale in favor
of the respondents and Catalina, and to pay P30,000.00 as attorney’s fees.11 No appeal appears to
have been taken from this decision.

b. The Present Quieting of Title Case

On July 19, 1994 (or prior to the filing of the respondents and Catalina’s complaint for specific
performance, as narrated above), the San Jacinto Bank issued a deed of sale in favor of Domingo,
Sr.12 On July 21, 1994, the spouses Villamor, Sr. sold the land to the petitioners for P150,000.00.13

After the respondents and Catalina refused the petitioners’ demand to vacate the land, the
petitioners filed on October 20, 1994 a complaint for quieting of title and recovery of possession
against the respondents.14 This is the case that is now before us.

The respondents and Catalina assailed the San Jacinto Bank’s execution of the deed of sale in favor
of Domingo, Sr., claiming that the respondents and Catalina made the installment payments on their
own behalf.15

In its May 28, 1997 decision,16 the RTC declared the petitioners as the legal and absolute owners of
the land, finding that the petitioners were purchasers in good faith; the spouses Villamor, Sr.’s
execution of the July 21, 1994 notarized deed of sale in favor of the petitioners resulted in the
constructive delivery of the land. Thus, it ordered the respondents to vacate and to transfer
possession of the land to the petitioners, and to pay P10,000.00 as moral damages.17

On appeal, the CA, in its August 10, 2004 decision, found that the petitioners’ action to quiet title
could not prosper because the petitioners failed to prove their legal or equitable title to the land. It
noted that there was no real transfer of ownership since neither the spouses Villamor, Sr. nor the
petitioners were placed in actual possession and control of the land after the execution of the deeds
of sale. It also found that the petitioners failed to show that the respondents and Catalina’s title or
claim to the land was invalid or inoperative, noting the pendency of the specific performance case,
at that time on appeal with the CA. Thus, it set aside the RTC decision and ordered the dismissal of
the complaint, without prejudice to the outcome of the specific performance case.18

When the CA denied19 the motion for reconsideration20 that followed, the petitioners filed the
present Rule 45 petition.

THE PETITION
The petitioners argue that the spouses Villamor, Sr.’s execution of the July 21, 1994 deed of sale in
the petitioners’ favor was equivalent to delivery of the land under Article 1498 of the Civil Code; the
petitioners are purchasers in good faith since they had no knowledge of the supposed transaction
between the San Jacinto Bank and the respondents and Catalina; and the respondents and
Catalina’s possession of the land should not be construed against them (petitioners) since, by
tradition and practice in San Jacinto, Masbate, the children use their parents’ property.

THE CASE FOR THE RESPONDENTS

The respondents and respondent John submit that they hold legal title to the land since they
perfected the sale with the San Jacinto Bank as early as November 4, 1991, the first installment
payment, and are in actual possession of the land; the petitioners are not purchasers in good faith
since they failed to ascertain why the respondents were in possession of the land.

THE ISSUE

The case presents to us the issue of whether the CA committed a reversible error when it set aside
the RTC decision and dismissed the petitioners’ complaint for quieting of title and recovery of
possession.

OUR RULING

The petition lacks merit.

Quieting of title is a common law remedy for the removal of any cloud, doubt or uncertainty
affecting title to real property. The plaintiffs must show not only that there is a cloud or contrary
interest over the subject real property,21 but that they have a valid title to it.22 Worth stressing, in
civil cases, the plaintiff must establish his cause of action by preponderance of evidence; otherwise,
his suit will not prosper.23

The petitioners anchor their claim over the disputed land on the July 21, 1994 notarized deed of
sale executed in their favor by the spouses Villamor, Sr. who in turn obtained a July 19, 1994
notarized deed of sale from the San Jacinto Bank. On the other hand, the respondents and
respondent John claim title by virtue of their installment payments to the San Jacinto Bank from
November 4, 1991 to June 8, 1994 and their actual possession of the disputed land.

After considering the parties’ evidence and arguments, we agree with the CA that the petitioners
failed to prove that they have any legal or equitable title over the disputed land.

Execution of the deed of sale only a prima facie presumption of delivery.

Article 1477 of the Civil Code recognizes that the "ownership of the thing sold shall be transferred
to the vendee upon the actual or constructive delivery thereof." Related to this article is Article
1497 which provides that "the thing sold shall be understood as delivered, when it is placed in the
control and possession of the vendee."
With respect to incorporeal property, Article 1498 of the Civil Code lays down the general rule: the
execution of a public instrument "shall be equivalent to the delivery of the thing which is the object
of the contract, if from the deed the contrary does not appear or cannot clearly be inferred."
However, the execution of a public instrument gives rise only to a prima facie presumption of
delivery, which is negated by the failure of the vendee to take actual possession of the land sold.24
"A person who does not have actual possession of the thing sold cannot transfer constructive
possession by the execution and delivery of a public instrument."25

In this case, no constructive delivery of the land transpired upon the execution of the deed of sale
since it was not the spouses Villamor, Sr. but the respondents who had actual possession of the
land. The presumption of constructive delivery is inapplicable and must yield to the reality that the
petitioners were not placed in possession and control of the land.

The petitioners are not purchasers in

good faith.

The petitioners can hardly claim to be purchasers in good faith.

"A purchaser in good faith is one who buys property without notice that some other person has a
right to or interest in such property and pays its fair price before he has notice of the adverse claims
and interest of another person in the same property."26 However, where the land sold is in the
possession of a person other than the vendor, the purchaser must be wary and must investigate the
rights of the actual possessor; without such inquiry, the buyer cannot be said to be in good faith and
cannot have any right over the property.27

In this case, the spouses Villamor, Sr. were not in possession of the land.1âwphi1 The petitioners, as
prospective vendees, carried the burden of investigating the rights of the respondents and
respondent John who were then in actual possession of the land. The petitioners cannot take refuge
behind the allegation that, by custom and tradition in San Jacinto, Masbate, the children use their
parents' property, since they offered no proof supporting their bare allegation. The burden of
proving the status of a purchaser in good faith lies upon the party asserting that status and cannot
be discharged by reliance on the legal presumption of good faith.28 The petitioners failed to
discharge this burden.

Lastly, since the specific performance case already settled the respondents and respondent John's
claim over the disputed land, the dispositive portion of the CA decision (dismissing the complaint
without prejudice to the outcome of the specific performance case29 ) is modified to reflect this
fact; we thus dismiss for lack of merit the complaint for quieting of title and recovery of possession.

WHEREFORE, we hereby DENY the petition and ORDER the DISMISSAL of Civil Case No. 201 before
the Regional Trial Court of San Jacinto, Masbate, Branch 50.

Costs against the petitioners.

SO ORDERED.
G.R. No. L-24069 June 28, 1968

LA FUERZA, INC., petitioner,

vs.
THE HON. COURT OF APPEALS and ASSOCIATED ENGINEERING CO., INC., respondents.

Sycip, Salazar, Luna and Associates for respondent Associated Engineering Co., Inc.
De Santos and Delfino for petitioner.

CONCEPCION, C.J.:

Ordinary action for the recovery of a sum of money. In due course, the Court of First Instance of
Manila rendered judgment for defendant, La Fuerza, Inc. — hereinafter referred to as La Fuerza —
which was at first affirmed by the Court of Appeals. On motion for reconsideration, the latter,
however, set aside its original decision and sentenced La Fuerza to pay to the plaintiff, Associated
Engineering Co., — hereinafter referred to as the Plaintiff — the sum of P8,250.00, with interest at
the rate of 1% per month, from July, 1960 until fully paid, plus P500 as attorney's fees and the costs.
Hence, this Petition for review on certiorari.

The facts, as found by the Court of First Instance and adopted by the Court of Appeals, are:

The plaintiff (Associated Engineering, Co., Inc.) is a corporation engaged in the manufacture and
installation of flat belt conveyors. The defendant (La Fuerza, Inc.) is also a corporation engaged in
the manufacture of wines. Sometime in the month of January, 1960, Antonio Co, the manager of
the plaintiff corporation, who is an engineer, called the office of the defendant located at 399
Muelle de Binondo, Manila and told Mariano Lim, the President and general manager of the
defendant that he had just visited the defendant's plant at Pasong Tamo, Makati, Rizal and was
impressed by its size and beauty but he believed it needed a conveyor system to convey empty
bottles from the storage room in the plant to the bottle washers in the production room thereof. He
therefore offered his services to manufacture and install a conveyor system which, according to him,
would increase production and efficiency of his business. The president of the defendant
corporation did not make up his mind then but suggested to Antonio Co to put down his offer in
writing. Effectively, on February 4, 1960, marked as Exhibit A in this case. Mariano Lim did not act on
the said offer until February 11, 1960, when Antonio Co returned to inquire about the action of the
defendant on his said offer. The defendants president and general manager then expressed his
conformity to the offer made in Exhibit A by writing at the foot thereof under the word
"confirmation" his signature. He caused, however, to be added to this offer at the foot a note which
reads: "All specifications shall be in strict accordance with the approved plan made part of this
agreement hereof." A few days later, Antonio Co made the demand for the down payment of
P5,000.00 which was readily delivered by the defendant in the form of a check for the said amount.
After that agreement, the plaintiff started to prepare the premises for the installations of the
conveyor system by digging holes in the cement floor of the plant and on April 18, 1960, they
delivered one unit of 110' 26" wide flat belt conveyor, valued at P3,750.00, and another unit
measuring 190' and 4" wide flat conveyor, valued at P4,500.00, or a total of P13,250.00. Deducting
the down payment of P5,000.00 from this value, there is a balance, of P8,250.00 to be paid by the
defendant upon the completion of the installation, Exhibit B.
The work went under way during the months of March and April, during which time the president
and general manager of the defendant corporation was duly apprised of the progress of the same
because his plant mechanic, one Mr. Santos, had kept him informed of the installation for which he
gave the go signal. It seems that the work was completed during the month of May, 1960. Trial runs
were made in the presence of the president and general manager of the defendant corporation,
Antonio Co, the technical manager of the plaintiff, and some other people. Several trial runs were
made then totalling about five. These runs were continued during the month of June where about
three trial runs were made and, lastly, during the month of July, 1960.

As a result of this trial or experimental runs, it was discovered, according to the defendant's general
manager, that the conveyor system did not function to their satisfaction as represented by the
technical manager of the plaintiff Antonio Co for the reason that, when operated several bottles
collided with each other, some jumping off the conveyor belt and were broken, causing considerable
damage. It was further observed that the flow of the system was so sluggish that in the opinion of
the said general manager of the defendant their old system of carrying the bottles from the storage
room to the washers by hand carrying them was even more efficient and faster.

After the last trial run made in the month of July and after the plaintiff's technical manager had
been advised several times to make the necessary and proper adjustments or corrections in order
to improve the efficiency of the conveyor system, it seems that the defects indicated by the said
president and general manager of the defendant had not been remedied so that they came to the
parting of the ways with the result that when the plaintiff billed the defendant for the balance of
the contract price, the latter refused to pay for the reason that according to the defendant the
conveyor system installed by the plaintiff did not serve the purpose for which the same was
manufactured and installed at such a heavy expense. The flat belt conveyors installed in the factory
of the defendant are still there....

xxx xxx xxx

On March 22, 1961, the contractor commenced the present action to recover the sums of P8,250,
balance of the stipulated price of the aforementioned conveyors, and P2,000, as attorney's fees, in
addition to the costs.

In its answer to the complaint, La Fuerza alleged that the "conveyors furnished and installed by the
plaintiff do not meet the conditions and warrantings" (warranties?) of the latter, and set up a
counterclaim for the P5,000 advanced by La Fuerza, which prayed that the complaint be dismissed;
that its contract with the plaintiff be rescinded; and that plaintiff be sentenced to refund said sum
of P5,000 to La Fuerza, as well as to pay thereto P1,000 as attorney's fees, apart from the costs.

After appropriate proceedings, the Court of First Instance of Manila rendered a decision the
dispositive part of which reads:

WHEREFORE, judgment is hereby rendered rescinding the contract entered into by the parties in
this case, marked as Exhibit A, and ordering the plaintiff to refund or return to the defendant the
amount of P5,000.00 which they had received as down payment, and the costs of this action. On
the other hand, defendant is ordered to permit the plaintiff to remove the flat belt conveyors
installed in their premises.
As above indicated, this decision was affirmed by the Court of Appeals, which, on motion for
reconsideration of the plaintiff, later set aside its original decision and rendered another in plaintiff's
favor, as stated in the opening paragraph hereof.

The appealed resolution of the Court of Appeals was, in effect, based upon the theory of
prescription of La Fuerza's right of action for rescission of its contract with the plaintiff, for — in the
language of said resolution — "Article 1571 of the Civil Code provides that an action to rescind 'shall
be barred after six months from delivery of the thing sold'", and, in the case at bar, La Fuerza did not
avail of the right to demand rescission until the filing of its answer in the Court of First Instance, on
April 17, 1961, or over ten (10) months after the installation of the conveyors in question had been
completed on May 30, 1960.

La Fuerza assails the view taken by the Court of Appeals, upon the ground: 1) that there has been,
in contemplation of law, no delivery of the conveyors by the plaintiff; and 2) that, assuming that
there has been such delivery, the period of six (6) months prescribed in said Art. 1571 refers to the
"period within which" La Fuerza may "bring an action to demand compliance of the warranty
against hidden defects", not the action for rescission of the contract. Both grounds are untenable.

With respect to the first point, La Fuerza maintains that plaintiff is deemed not to have delivered the
conveyors, within the purview of Art. 1571, until it shall have complied with the conditions or
requirements of the contract between them — that is to say, until the conveyors shall meet La
Fuerza's "need of a conveyor system that would mechanically transport empty bottles from the
storage room to the bottle workers in the production room thus increasing the production and
efficiency" of its business-and La Fuerza had accepted said conveyors.

On this point, the Court of Appeals had the following to say:

Article 1571 of the Civil Code provides that an action to rescind 'shall be barred after six months,
from delivery of the thing sold". This article is made applicable to the case at bar by Article 1714
which provides that "the pertinent provisions on warranty of title against hidden defect in a
contract of sale" shall be applicable to a contract for a piece of work. Considering that Article 1571
is a provision on sales, the delivery mentioned therein should be construed in the light of the
provisions on sales. Article 1497 provides that the thing sold shall be understood as delivered when
it is placed in the control and possession of the vendee. Therefore, when the thing subject of the
sale is placed in the control and possession of the vendee, delivery is complete. Delivery is an act of
the vendor. Thus, one of the obligations of the vendor is the delivery of the thing sold (Art. 1495).
The vendee has nothing to do with the act of delivery by the vendor. On the other hand, acceptance
is an obligation on the part of the vendee (Art. 1582). Delivery and acceptance are two distinct and
separate acts of different parties. Consequently, acceptance cannot be regarded as a condition to
complete delivery.

xxx xxx xxx

We find no plausible reason to disagree with this view. Upon the completion of the installation of
the conveyors, in May, 1960, particularly after the last trial run, in July 1960, La Fuerza was in a
position to decide whether or not it was satisfied with said conveyors, and, hence, to state whether
the same were a accepted or rejected. The failure of La Fuerza to express categorically whether they
accepted or rejected the conveyors does not detract from the fact that the same were actually in its
possession and control; that, accordingly, the conveyors had already been delivered by the plaintiff;
and that, the period prescribed in said Art. 1571 had begun to run.

With respect to the second point raised by La Fuerza, Art. 1571 of the Civil Code provides:

Actions arising from the provisions of the preceding ten articles shall be barred after six months,
from the delivery of the thing sold.

xxx xxx xxx

Among the "ten articles" referred to in this provision, are Articles 1566 and 1567, reading:

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold,
even though he was not aware thereof. ."This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold.

Art. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between
withdrawing from the contract and demanding a proportionate reduction of the price, with
damages in either case.

xxx xxx xxx

Pursuant to these two (2) articles, if the thing sold has hidden faults or defects — as the conveyors
are claimed to have — the vendor — in the case at bar, the plaintiff — shall be responsible therefor
and the vendee — or La Fuerza, in the present case — "may elect between withdrawing from the
contract and demanding a proportional reduction of the price, with damages in either case." In the
exercise of this right of election, La Fuerza had chosen to withdraw from the contract, by praying for
its rescission; but the action therefor — in the language of Art. 1571 — "shall be barred after six
months, from the delivery of the thing sold." The period of four (4) years, provided in Art. 1389 of
said Code, for "the action to claim rescission," applies to contracts, in general, and must yields, in
the instant case, to said Art. 1571, which refers to sales in particular.

Indeed, in contracts of the latter type, especially when goods, merchandise, machinery or parts or
equipment thereof are involved, it is obviously wise to require the parties to define their position, in
relation thereto, within the shortest possible time. Public interest demands that the status of the
relations between the vendor and the vendee be not left in a condition of uncertainty for an
unreasonable length of time, which would be the case, if the lifetime of the vendee's right of
rescission were four (4) years.

WHEREFORE, the appealed resolution of the Court of Appeals is hereby affirmed, with costs against
appellant, La Fuerza, Inc. It is so ordered.