Republic of the Philippines

Supreme Court
Manila

FIRST DIVISION

ROBERTO D. TUAZON, G.R. No. 168325

Petitioner,

- versus -
Present:
LOURDES Q. DEL ROSARIO-
SUAREZ, CATALINA R. SUAREZ- CORONA, C. J., Chairperson,
DE LEON, WILFREDO DE LEON, LEONARDO-DE CASTRO,
MIGUEL LUIS S. DE LEON, DEL CASTILLO,
ROMMEL LEE S. DE LEON, and ABAD,⃰ and
GUILLERMA L. SANDICO-SILVA, PEREZ, JJ.
as attorney-in-fact of the defendants,
except Lourdes Q. Del Rosario-
Suarez, Promulgated:
Respondents. December 8, 2010
x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

In a situation where the lessor makes an offer to sell to the lessee a certain property at a
fixed price within a certain period, and the lessee fails to accept the offer or to purchase on
time, then the lessee loses his right to buy the property and the owner can validly offer it to
another.

This Petition for Review on Certiorari[1] assails the Decision[2] dated May 30, 2005 of the
Court of Appeals (CA) in CA-G.R. CV No. 78870, which affirmed the Decision[3] dated
November 18, 2002 of the Regional Trial Court (RTC), Branch 101, Quezon City in Civil
Case No. Q-00-42338.
Factual Antecedents

Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the owner of a parcel of land,
containing more or less an area of 1,211 square meters located along Tandang Sora
Street, BarangayOld Balara, Quezon City and previously covered by Transfer Certificate
of Title (TCT) No. RT-56118[4] issued by the Registry of Deeds of Quezon City.

On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and Lourdes executed a
Contract of Lease[5] over the abovementioned parcel of land for a period of three years. The
lease commenced in March 1994 and ended in February 1997. During the effectivity of
the lease, Lourdes sent a letter[6] dated January 2, 1995 to Roberto where she offered to sell
to the latter subject parcel of land. She pegged the price at P37,541,000.00 and gave him
two years from January 2, 1995 to decide on the said offer.

On June 19, 1997, or more than four months after the expiration of the Contract of
Lease, Lourdes sold subject parcel of land to her only child, Catalina Suarez-De Leon, her
son-in-law Wilfredo De Leon, and her two grandsons, Miguel Luis S. De Leon and
Rommel S. De Leon (the De Leons), for a total consideration of only P2,750,000.00 as
evidenced by a Deed of Absolute Sale[7] executed by the parties. TCT No. 177986[8] was
then issued by the Registry of Deeds of Quezon City in the name of the De Leons.

The new owners through their attorney-in-fact, Guillerma S. Silva, notified Roberto
to vacate the premises. Roberto refused hence, the De Leons filed a complaint for Unlawful
Detainer before the Metropolitan Trial Court (MeTC) of Quezon City against him. On
August 30, 2000, the MeTC rendered a Decision[9] ordering Roberto to vacate the property
for non-payment of rentals and expiration of the contract.
Ruling of the Regional Trial Court

On November 8, 2000, while the ejectment case was on appeal, Roberto filed with
the RTC of Quezon City a Complaint[10] for Annulment of Deed of Absolute Sale,
Reconveyance, Damages and Application for Preliminary Injunction against Lourdes and
the De Leons. On November 13, 2000, Roberto filed a Notice of Lis Pendens[11] with the
Registry of Deeds of Quezon City.
 On January 8, 2001, respondents filed An Answer with Counterclaim[12] praying
that the Complaint be dismissed for lack of cause of action. They claimed that the filing of
such case was a mere leverage of Roberto against them because of the favorable Decision
issued by the MeTC in the ejectment case.

On September 17, 2001, the RTC issued an Order[13] declaring Lourdes and the De
Leons in default for their failure to appear before the court for the second time despite
notice. Upon a Motion for Reconsideration,[14] the trial court in an Order[15] dated October
19, 2001 set aside its Order of default.

After trial, the court a quo rendered a Decision declaring the Deed of Absolute Sale
made by Lourdes in favor of the De Leons as valid and binding. The offer made
by Lourdes to Roberto did not ripen into a contract to sell because the price offered by the
former was not acceptable to the latter. The offer made by Lourdes is no longer binding
and effective at the time she decided to sell the subject lot to the De Leons because the
same was not accepted by Roberto. Thus, in a Decision dated November 18, 2002, the trial
court dismissed the complaint. Its dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the

above-entitled Complaint for lack of merit, and ordering the Plaintiff to pay the Defendants,
the following:

1. the amount of P30,000.00 as moral damages;

2. the amount of P30,000.00 as exemplary damages;
3. the amount of P30,000.00 as attorneys fees; and
4. cost of the litigation.

SO ORDERED.[16]

Ruling of the Court of Appeals

On May 30, 2005, the CA issued its Decision dismissing Robertos appeal and
affirming the Decision of the RTC.

Hence, this Petition for Review on Certiorari filed by Roberto advancing the following
arguments:
 I.
THE TRIAL COURT AND THE COURT OF APPEALS HAD DECIDED THAT THE
RIGHT OF FIRST REFUSAL EXISTS ONLY WITHIN THE PARAMETERS OF AN
OPTION TO BUY, AND DID NOT EXIST WHEN THE PROPERTY WAS SOLD
LATER TO A THIRD PERSON, UNDER FAVORABLE TERMS AND
CONDITIONS WHICH THE FORMER BUYER CAN MEET.

II.
WHAT IS THE STATUS OR SANCTIONS OF AN APPELLEE IN THE COURT OF
APPEALS WHO HAS NOT FILED OR FAILED TO FILE AN APPELLEES
BRIEF?[17]

Petitioners Arguments

Roberto claims that Lourdes violated his right to buy subject property under
the principle of right of first refusal by not giving him notice and the opportunity to buy the
property under the same terms and conditions or specifically based on the much lower price
paid by the De Leons.

Roberto further contends that he is enforcing his right of first refusal based on Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc.[18] which is the leading case on the right
of first refusal.
Respondents Arguments

On the other hand, respondents posit that this case is not covered by the principle of
right of first refusal but an unaccepted unilateral promise to sell or, at best, a contract of
option which was not perfected. The letter of Lourdes to Roberto clearly embodies an
option contract as it grants the latter only two years to exercise the option to buy the subject
property at a price certain of P37,541,000.00. As an option contract, the said letter would
have been binding upon Lourdes without need of any consideration, had Roberto accepted
the offer. But in this case there was no acceptance made neither was there a distinct
consideration for the option contract.

Our Ruling

The petition is without merit.

This case involves an option contract and not a
contract of a right of first refusal

In Beaumont v. Prieto,[19] the nature of an option contract is explained thus:

In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following
language:

A contract by virtue of which A, in consideration of the payment of a certain sum

to B, acquires the privilege of buying from, or selling to, B certain securities or properties
within a limited time at a specified price. (Story vs. Salamon, 71 N. Y., 420.)

From Vol. 6, page 5001, of the work Words and Phrases, citing the case of Ide vs. Leiser (24 Pac.,
695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:

An agreement in writing to give a person the option to purchase lands within a

given time at a named price is neither a sale nor an agreement to sell. It is simply a
contract by which the owner of property agrees with another person that he shall
have the right to buy his property at a fixed price within a certain time. He does not
sell his land; he does not then agree to sell it; but he does sell something; that is, the right
or privilege to buy at the election or option of the other party. The second party gets in
praesenti, not lands, nor an agreement that he shall have lands, but he does get something
of value; that is, the right to call for and receive lands if he elects. The owner parts with his
right to sell his lands, except to the second party, for a limited period. The second party
receives this right, or rather, from his point of view, he receives the right to elect to buy.

But the two definitions above cited refer to the contract of option, or, what amounts to the same
thing, to the case where there was cause or consideration for the obligation x x x. (Emphasis
supplied.)

On the other hand, in Ang Yu Asuncion v. Court of Appeals,[20] an elucidation on the

right of first refusal was made thus:

In the law on sales, the so-called right of first refusal is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458
of the Civil Code. Neither can the right of first refusal, understood in its normal
concept, per se be brought within the purview of an option under the second paragraph of
Article 1479, aforequoted, or possibly of an offer under Article 1319 of the same Code. An
option or an offer would require, among other things, a clear certainty on both the object
and the cause or consideration of the envisioned contract. In a right of first refusal, while
the object might be made determinate, the exercise of the right, however, would be
 dependent not only on the grantor's eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that obviously
are yet to be later firmed up. Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations governed not by contracts (since the
essential elements to establish the vinculum juris would still be indefinite and inconclusive)
but by, among other laws of general application, the pertinent scattered provisions of the
Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of a writ of
execution under a judgment that merely recognizes its existence, nor would it sanction an
action for specific performance without thereby negating the indispensable element of
consensuality in the perfection of contracts. It is not to say, however, that the right of first
refusal would be inconsequential for, such as already intimated above, an unjustified
disregard thereof, given, for instance, the circumstances expressed in Article 19 of the Civil
Code, can warrant a recovery for damages. (Emphasis supplied.)

From the foregoing, it is thus clear that an option contract is entirely different and distinct
from a right of first refusal in that in the former, the option granted to the offeree is for
a fixed periodand at a determined price. Lacking these two essential requisites, what is
involved is only a right of first refusal.

In this case, the controversy is whether the letter of Lourdes to Roberto dated January 2,
1995 involved an option contract or a contract of a right of first refusal. In its entirety, the
said letter-offer reads:

206 Valdes Street

Josefa Subd. Balibago
Angeles City 2009
January 2, 1995

Tuazon Const. Co.

986 Tandang Sora Quezon City

Dear Mr. Tuazon,

I received with great joy and happiness the big box of sweet grapes and ham, fit
for a kings party. Thanks very much.

I am getting very old (79 going 80 yrs. old) and wish to live in the U.S.A. with my only
family. I need money to buy a house and lot and a farm with a little cash to start.
 I am offering you to buy my 1211 square meter at P37,541,000.00 you can pay me in
dollars in the name of my daughter. I never offered it to anyone. Please shoulder the
expenses for the transfer. I wish the Lord God will help you buy my lot easily and you will
be very lucky forever in this place. You have all the time to decide when you can, but
not for 2 years or more.

I wish you long life, happiness, health, wealth and great fortune always!

I hope the Lord God will help you be the recipient of multi-billion projects aid from other
countries.
Thank you,
Lourdes Q. del Rosario vda de Suarez

It is clear that the above letter embodies an option contract as it grants Roberto a fixed
period of only two years to buy the subject property at a price certain of P37,541,000.00. It
being an option contract, the rules applicable are found in Articles 1324 and 1479 of the
Civil Code which provide:

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

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

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

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

It is clear from the provision of Article 1324 that there is a great difference between
the effect of an option which is without a consideration from one which is founded upon a
consideration. If the option is without any consideration, the offeror may withdraw his offer
by communicating such withdrawal to the offeree at anytime before acceptance; if it is
founded upon a consideration, the offeror cannot withdraw his offer before the lapse of the
period agreed upon.

The second paragraph of Article 1479 declares that an accepted unilateral promise to buy
or to sell a determinate thing for a price certain is binding upon the promissor if the promise
is supported by a consideration distinct from the price. Sanchez v. Rigos[21] provided an
interpretation of the said second paragraph of Article 1479 in relation to Article 1324. Thus:

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

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

In Diamante v. Court of Appeals,[22] this Court further declared that:

A unilateral promise to buy or sell is a mere offer, which is not converted into a
contract except at the moment it is accepted. Acceptance is the act that gives life to a
juridical obligation, because, before the promise is accepted, the promissor may
withdraw it at any time. Upon acceptance, however, a bilateral contract to sell and to buy
is created, and the offeree ipso facto assumes the obligations of a purchaser; the offeror, on
the other hand, would be liable for damages if he fails to deliver the thing he had offered
for sale.

xxxx

Even if the promise was accepted, private respondent was not bound thereby
in the absence of a distinct consideration. (Emphasis ours.)

In this case, it is undisputed that Roberto did not accept the terms stated in the letter
of Lourdes as he negotiated for a much lower price. Robertos act of negotiating for a much
lower price was a counter-offer and is therefore not an acceptance of the offer
of Lourdes. Article 1319 of the Civil Code provides:
 Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer. (Emphasis supplied.)

The counter-offer of Roberto for a much lower price was not accepted by Lourdes.
There is therefore no contract that was perfected between them with regard to the sale of
subject property. Roberto, thus, does not have any right to demand that the property be sold
to him at the price for which it was sold to the De Leons neither does he have the right to
demand that said sale to the De Leons be annulled.

Equatorial Realty Development, Inc. v. Mayfair

Theater, Inc. is not applicable here

It is the position of Roberto that the facts of this case and that of Equatorial are similar in
nearly all aspects. Roberto is a lessee of the property like Mayfair Theater
in Equatorial. There was an offer made to Roberto by Lourdes during the effectivity of the
contract of lease which was also the case in Equatorial. There were negotiations as to the
price which did not bear fruit because Lourdes sold the property to the De Leons which
was also the case in Equatorial wherein Carmelo and Bauermann sold the property to
Equatorial. The existence of the lease of the property is known to the De Leons as they are
related to Lourdes while in Equatorial, the lawyers of Equatorial studied the lease contract
of Mayfair over the property. The property in this case was sold by Lourdes to the De
Leons at a much lower price which is also the case in Equatorial where Carmelo and
Bauerman sold to Equatorial at a lesser price. It is Robertos conclusion that as in the case
of Equatorial, there was a violation of his right of first refusal and hence annulment or
rescission of the Deed of Absolute Sale is the proper remedy.

Robertos reliance in Equatorial is misplaced. Despite his claims, the facts

in Equatorial radically differ from the facts of this case. Roberto overlooked the fact that
in Equatorial, there was an express provision in the Contract of Lease that

(i)f the LESSOR should desire to sell the leased properties, the LESSEE shall be given 30-
days exclusive option to purchase the same.
 There is no such similar provision in the Contract of Lease between Roberto
and Lourdes. What is involved here is a separate and distinct offer made
by Lourdes through a letter dated January 2, 1995 wherein she is selling the leased property
to Roberto for a definite price and which gave the latter a definite period for
acceptance. Roberto was not given a right of first refusal. The letter-offer of Lourdes did
not form part of the Lease Contract because it was made more than six months after the
commencement of the lease.

It is also very clear that in Equatorial, the property was sold within the lease period. In this
case, the subject property was sold not only after the expiration of the period provided in
the letter-offer of Lourdes but also after the effectivity of the Contract of Lease.

Moreover, even if the offer of Lourdes was accepted by Roberto, still the former is not
bound thereby because of the absence of a consideration distinct and separate from the
price. The argument of Roberto that the separate consideration was the liberality on the
part of Lourdes cannot stand. A perusal of the letter-offer of Lourdes would show that
what drove her to offer the property to Roberto was her immediate need for funds as she
was already very old. Offering the property to Roberto was not an act of liberality on the
part of Lourdes but was a simple matter of convenience and practicality as he was the one
most likely to buy the property at that time as he was then leasing the same.

All told, the facts of the case, as found by the RTC and the CA, do not support Robertos
claims that the letter of Lourdes gave him a right of first refusal which is similar to the one
given to Mayfair Theater in the case of Equatorial. Therefore, there is no justification to
annul the deed of sale validly entered into by Lourdes with the De Leons.
What is the effect of the failure of Lourdes to file
her appellees brief at the CA?

Lastly, Roberto argues that Lourdes should be sanctioned for her failure to file her
appellees brief before the CA.

Certainly, the appellees failure to file her brief would not mean that the case would be
automatically decided against her. Under the circumstances, the prudent action on the part
of the CA would be to deem Lourdes to have waived her right to file her appellees
brief. De Leon v. Court of Appeals,[23] is instructive when this Court decreed:

On the second issue, we hold that the Court of Appeals did not commit grave abuse
of discretion in considering the appeal submitted for decision. The proper remedy in case
of denial of the motion to dismiss is to file the appellees brief and proceed with the appeal.
Instead, petitioner opted to file a motion for reconsideration which, unfortunately, was pro
forma. All the grounds raised therein have been discussed in the first resolution of the
respondent Court of Appeals. There is no new ground raised that might warrant reversal of
the resolution. A cursory perusal of the motion would readily show that it was a
near verbatim repetition of the grounds stated in the motion to dismiss; hence, the filing of
the motion for reconsideration did not suspend the period for filing the appellees
brief. Petitioner was therefore properly deemed to have waived his right to file
appellees brief. (Emphasis supplied.)

In the above cited case, De Leon was the plaintiff in a Complaint for a sum of money in
the RTC. He obtained a favorable judgment and so defendant went to the CA. The appeal
of defendant-appellant was taken cognizance of by the CA but De Leon filed a Motion to
Dismiss the Appeal with Motion to Suspend Period to file Appellees Brief. The CA denied
the Motion to Dismiss.De Leon filed a Motion for Reconsideration which actually did not
suspend the period to file the appellees brief. De Leon therefore failed to file his brief
within the period specified by the rules and hence he was deemed by the CA to have waived
his right to file appellees brief.
The failure of the appellee to file his brief would not result to the rendition of a decision
favorable to the appellant. The former is considered only to have waived his right to file
the Appellees Brief. The CA has the jurisdiction to resolve the case based on the Appellants
Brief and the records of the case forwarded by the RTC. The appeal is therefore considered
submitted for decision and the CA properly acted on it.

WHEREFORE, the instant petition for review on certiorari is DENIED. The

assailed Decision of the Court of Appeals in CA-G.R. CV No. 78870, which affirmed the
Decision dated November 18, 2002 of the Regional Trial Court, Branch 101, Quezon
City in Civil Case No. Q-00-42338 is AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 179594 September 11, 2013

MANUEL UY & SONS, INC., Petitioner,

vs.
VALBUECO, INCORPORATED, Respondent.

DECISION

PERALTA, J.:

This is a petition for review on certiorari1 of the Court of Appeals’ Decision2 dated December 11, 2006
in CA-G.R. CV No. 85877, and its Resolution dated September 4, 2007, denying petitioner’s motion
for reconsideration.

The Court of Appeals reversed and set aside the Decision3 of the Regional Trial Court (RTC) of Manila,
Branch 1, dismissing the Complaint for specific performance and damages. The Court of Appeals
reinstated the Complaint and directed petitioner to execute deeds of absolute sale in favor of
respondent after payment of the purchase price of the subject lots.

The facts, as stated by the Court of Appeals, are as follows:

Petitioner Manuel Uy & Sons, Inc. is the registered owner of parcels of land located in Teresa, Rizal
covered by Transfer Certificate of Title(TCT) No. 59534, covering an area of about 6,119 square
meters; TCT No.59445, covering an area of about 6,838 square meters; TCT No. 59446,covering an
area of about 12,389 square meters; and TCT No. 59444,covering an area of about 32,047 square
meters.

On November 29, 1973, two Conditional Deeds of Sale were executed by petitioner, as vendor, in
favor of respondent Valbueco, Incorporated, as vendee. The first Conditional Deed of Sale 4 covered
TCT Nos. 59534, 59445 and 59446, and contained the following terms and conditions:

That for and in consideration of the sum of ONE HUNDREDSIXTY-FOUR THOUSAND SEVEN
HUNDRED FORTY-NINE(Php164,749.00) PESOS, Philippine currency, the VENDOR hereby agrees
to SELL, CEDE, TRANSFER and CONVEY unto the VENDEE xx x the aforementioned properties,
payable under the following terms and conditions:

1. The sum of FORTY-ONE THOUSAND ONE HUNDREDEIGHTY-SEVEN and 25/100 (Php

41,187.25) PESOS shall be paid upon signing of this conditional deed of sale; and

2. The balance of ONE HUNDRED TWENTY-THREETHOUSAND FIVE HUNDRED SIXTY-

ONE and 75/100 (Php123,561.75) PESOS shall be paid within a period of one (1) year from
November 15, 1973, with interest of 12% per annum based on the balance, in the mode and
manner specified below:

a) January 4, 1974 – ₱16,474.90 plus interest

 b) On or before May 15, 1974 – ₱53,543.43 plus interest

c) On or before November 15, 1974 – ₱53,543.32 plus interest

3. That the vendee shall be given a grace period of thirty (30)days from the due date of any
installment with corresponding interest to be added, but should the VENDEE fail to make such
payment within the grace period this contract shall be deemed rescinded and without force
and effect after notice in writing by VENDOR to VENDEE.

4. That the VENDOR agrees to have the existing Mortgages on the properties subject of this
sale released on or before May 20, 1974.

5. That the VENDOR agrees to have the above-described properties freed and cleared of all
lessees, tenants, adverse occupants or squatters within 100 days from the execution of this
conditional deed of sale. In case of failure by the VENDOR to comply with the undertaking
provided in this paragraph and the VENDEE shall find it necessary to file a case or cases in
court to eject the said lessees, tenants, occupants and/or squatters from the land, subject of
this sale, the VENDOR agrees to answer and pay for all the expenses incurred and to be
incurred in connection with said cases until the same are fully and finally terminated.

6. That the VENDOR and the VENDEE agree that during the existence of this Contract and
without previous expressed written permission from the other, they shall not sell, cede, assign,
transfer or mortgage, or in any way encumber unto another person or party any right, interest
or equity that they may have in and to said parcels of land. x x x x

8. That it is understood that ownership of the properties herein conveyed shall not pass
to the VENDEE until after payment of the full purchase price; provided, however, that the
VENDOR shall allow the annotation of this Conditional Deed of Sale at the back of the titles of
the above-described parcels of land in the corresponding Registry of Deeds x xx.

9. That upon full payment of the total purchase price, a Deed of Absolute Sale shall be
executed in favor of the VENDEE and the VENDOR agrees to pay the documentary stamps
and the science stamp tax of the Deed of Sale; while the VENDEE agrees to pay the
registration and other expenses for the issuance of a new title.

10. That it is mutually agreed that in case of litigation, the venue of the case shall be in the
courts of Manila, having competent jurisdiction, any other venue being expressly waived.5

On the other hand, the second Conditional Deed of Sale6 covering Lot No. 59444 provides, thus:

1. The sum of FIFTY-TWO THOUSAND SEVENTY-SIXAND 37/100 (Php 52,076.37)

PESOS, shall be paid upon signing of this conditional deed of sale; and

2. The balance of ONE HUNDRED FIFTY-SIXTHOUSAND TWO HUNDRED TWENTY-

NINE and 13/100 (Php156,229.13) PESOS shall be paid within a period of one (1) year from
November 15, 1973, with interest of 12% per annum based on the balance, in the mode and
manner specified below:

a) January 4, 1974 – ₱20,830.55 plus interest

b) On or before May 15, 1974 – ₱67,699.29 plus interest

 c) On or before November 15, 1974, ₱67,699.29 plus interest

3. That the VENDEE shall be given a grace period of thirty (30) days from the due date of
any installment with corresponding interest to be added, but should the VENDEE fail to make
such payment within the grace period, this contract shall be deemed rescinded and without
force and effect after notice in writing by VENDOR to VENDEE.

4. That the VENDOR agrees and acknowledges that any and all payments to be made by
the VENDEE by reason of this presents unless hereafter advised by VENDOR to the
contrary, shall be made in favor of and to the Philippine Trust Company by way of liquidation
and payment of the existing mortgage on the property subject of this sale.

5. That after each payment adverted to above the VENDOR shall issue the corresponding
receipt for the amount paid by the VENDOR to the Philippine Trust Company.

6. That the VENDOR agrees to have the above-described property freed and cleared of all
lessees, tenants, adverse occupants or squatters within 100 days from the execution of this
conditional deed of sale. In case of failure by the VENDOR to comply with this undertaking
provided in this paragraph and the VENDEE shall find it necessary to file a case or cases in
court to eject the said lessees, tenants, occupants and/or squatters from the land, subject of
this sale, the VENDOR agrees to answer and pay for all the expenses incurred and to be
incurred in connection with said cases until the same are fully and finally terminated.

7. That the VENDOR and the VENDEE agree that during the existence of this Contract and
without previous expressed written permission from the other, they shall not sell, cede,
assign, transfer or mortgage, or in any way encumber unto another person or party any right,
interest or equity that they may have in and to said parcel of land.

xxxx

9. That it is understood that ownership of the property herein conveyed shall not pass to the
VENDEE until after payment of the full purchase price, provided, however, that the VENDOR
shall allow the annotation of the Conditional Deed of Sale at the back of the Title of the
above-described parcel of land in the corresponding Registry of Deeds; x xx.

10. That upon full payment of the total purchase price, a Deed of Absolute Sale shall be
executed in favor of the VENDEE and the VENDOR agrees to pay the documentary stamps
and the science stamp tax of the Deed of Sale; while the VENDEE agrees to pay the
registration and other expenses for the issuance of a new title.

11. That it is mutually agreed that in case of litigation, the venue of the case shall be in the
courts of Manila, having competent jurisdiction, any other venue being expressly waived.7

Respondent was able to pay petitioner the amount of ₱275,055.558 as partial payment for the two
properties corresponding to the initial payments and the first installments of the said properties.

At the same time, petitioner complied with its obligation under the conditional deeds of sale, as follows:
(1) the mortgage for TCT No. 59446 was released on May 18, 1984, while the mortgages for TCT Nos.
59445and 59534 were released on July 19, 1974; (2) the unlawful occupants of the lots covered by
TCT Nos. 59444, 59534, 59445 and 59446 surrendered their possession and use of the said lots in
consideration of the amount of ₱6,000.00 in a document9 dated November 19, 1973, and they agreed
to demolish their shanties on or before December 7, 1973; and (3) the mortgage with Philippine Trust
Company covering TCT No. 59444 was discharged10 in 1984.

However, respondent suspended further payment as it was not satisfied with the manner petitioner
complied with its obligations under the conditional deeds of sale. Consequently, on March 17, 1978,
petitioner sent respondent a letter 11 informing respondent of its intention to rescind the conditional
deeds of sale and attaching therewith the original copy of the respective notarial rescission.

On November 28, 1994, respondent filed a Complaint12 for specific performance and damages against
petitioner with the RTC of Antipolo City. However, on January 15, 1996, the case was dismissed
without prejudice13 for lack of interest, as respondent's counsel failed to attend the pre-trial conference.

Five years later, or on March 16, 2001, respondent again filed with the RTC of Manila, Branch 1 (trial
court) a Complaint14 for specific performance and damages, seeking to compel petitioner to accept the
balance of the purchase price for the two conditional deeds of sale and to execute the corresponding
deeds of absolute sale. Respondent contended that its non-payment of the installments was due to
the following reasons:(1) Petitioner refused to receive the balance of the purchase price as the
properties were mortgaged and had to be redeemed first before a deed of absolute sale could be
executed; (2) Petitioner assured that the existing mortgages on the properties would be discharged
on or before May 20,1974, or that petitioner did not inform it (respondent) that the mortgages on the
properties were already released; and (3) Petitioner failed to fully eject the unlawful occupants in the
area.

In its Answer,15 petitioner argued that the case should be dismissed, as it was barred by prior judgment.
Moreover, petitioner contended that it could not be compelled to execute any deed of absolute sale,
because respondent failed to pay in full the purchase price of the subject lots. Petitioner claimed that
it gave respondent a notice of notarial rescission of both conditional deeds of sale that would take
effect 30 days from receipt thereof. The notice of notarial rescission was allegedly received by
respondent on March 17,1978. Petitioner asserted that since respondent failed to pay the full purchase
price of the subject lots, both conditional deeds of sale were rescinded as of April 16, 1978; hence,
respondent had no cause of action against it.

In its Reply, respondent denied that it received the alleged notice of notarial rescission. Respondent
also denied that the alleged recipient (one Wenna Laurenciana)17 of the letter dated March 17, 1978,
which was attached to the notice of notarial rescission, was its employee. Respondent stated that
assuming arguendo that the notice was sent to it, the address (6th Floor, SGC Bldg., Salcedo Street,
Legaspi Village, Makati, Metro Manila) was not the given address of respondent. Respondent
contended that its address on the conditional deeds of sale and the receipts issued by it and petitioner
showed that its principal business address was the 7th Floor, Bank of P.I. Bldg, Ayala Avenue, Makati,
Rizal.

On August 1, 2005, the trial court rendered a Decision,18 dismissing the complaint, as petitioner had
exercised its right to rescind the contracts. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, the complaint is DISMISSED for lack of merit.

Claims and counterclaims for damages are also dismissed.19

The trial court stated that the issues before it were: (1) Did petitioner unlawfully evade its obligation
to execute the final deed of sale and to eject the squatters/occupants on the properties; (2) Is the
case barred by prior judgment; and (3) Does respondent have a cause of action against petitioner.
The trial court said that both conditional deeds of sale clearly provided that "ownership x x x shall not
pass to the VENDEE until after full payment of the purchase price." Respondent admitted that it has
not yet fully paid the purchase price. The trial court held that the conditions in the conditional deeds of
sale being suspensive, that is, its fulfillment gives rise to the obligation, the reasons for the inability of
respondent to fulfill its own obligations is material, in order that the obligation of petitioner to execute
the final deeds of absolute sale will arise. The trial court stated that the evidence showed that petitioner
had exercised its right to rescind the contract by a written notice dated March 17, 1978 and notarial
acts both dated March15, 1978. The trial court noted that respondent denied having received the
notice and disclaimed knowing the recipient, Wenna Laurenciana. However, on cross-examination,
respondent's witness, Gaudencio Juan, who used to be respondent's Personnel Manager and
Forester at the same time, admitted knowing Laurenciana because she was the secretary of Mr.
Valeriano Bueno, respondent's president at that time, although Laurenciana was not employed by
respondent, but she was employed by Mahogany Products Corporation, presumably one of the 14
other companies being controlled by Mr. Bueno.20

The trial court held that the conditional deeds of sale were executed on November 29, 1973 and were
already covered by Republic Act (R.A.) No. 6552, otherwise known as the Realty Installment Buyer
Act. Under Section 4 of the law, if the buyer fails to pay the installments due at the expiration of the
grace period, which is not less than 60 days from the date the installment became due, the seller may
cancel the contract after 30 days from receipt of the buyer of the notice of cancellation or the demand
for rescission of the contracts by notarial act. The trial court found no lawful ground to grant the relief
prayed for and dismissed the complaint for lack of merit.

Respondent appealed the decision of the trial court to the Court of Appeals, and made these
assignments of error: (1) the trial court erred in holding that petitioner did not unlawfully evade
executing a final deed of sale, since respondent's failure to fulfill its own obligation is material; (2) the
trial court erred in holding that it is unbelievable and a self-contradiction that respondent was informed
of the mortgage only when it was paying the balance of the properties; and (3) the trial court erred in
holding that as early as November 19, 1973, petitioner had already taken necessary steps to evict the
squatters/occupants through the intercession of the agrarian reform officer.

On December 11, 2006, the Court of Appeals rendered a Decision, reversing and setting aside the
Decision of the trial court. It reinstated the complaint of respondent, and directed petitioner to execute
deeds of absolute sale in favor of respondent after payment of the balance of the purchase price of
the subject lots. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, the August 1, 2005Decision of the Regional Trial Court of
Manila, Branch 1, in Civil Case No. 01-100411, is hereby REVERSED and SET ASIDE.

A new one is hereby entered: REINSTATING the complaint and defendant-appellee MANUEL UY &
SONS INC. is hereby DIRECTED, pursuant to Sec. 4, R. A. No. 6552, otherwise known as the
Maceda Law, to EXECUTE and DELIVER:

(1) Deeds of Absolute Sale in favor of VALBUECO, INC.; and

(2) Transfer Certificates of Title pertaining to Nos. 59534, 59445,59446 and 59444, in the
name of plaintiff-appellant VALBUECO, INC., after VALBUECO pays MANUEL UY & SONS,
without additional interest, within thirty days from finality of this judgment, the balance of the
contract price.
If MANUEL UY & SONS refuses to deliver the Deeds of Absolute Sale and the co-owner's copy of
the TCTs, the Register of Deeds of Antipolo, Rizal is hereby DIRECTED to CANCEL the latest TCTs
issued derived from TCT Nos. 59534, 59445, 59446 and 59444, and to

ISSUE new TCTS in the name of VALBUECO.

Only if VALBUECO fails in the payment directed above, then defendant-appellee MANUEL UY &
SONS INC. has the opportunity to serve a valid notice of notarial rescission.

SO ORDERED.21

The Court of Appeals held that the two conditional deeds of sale in this case are contracts to sell. It
stated that the law applicable to the said contracts to sell on installments is R.A. No. 6552, specifically
Section 4thereof, as respondent paid less than two years in installments. It held that upon repeated
defaults in payment by respondent, petitioner had the right to cancel the said contracts, but subject to
the proper receipt of respondent of the notice of cancellation or the demand for the rescission of the
contracts by notarial act.

However, the Court of Appeals found that petitioner sent the notice of notarial rescission to the wrong
address. The business address of respondent, as used in all its transactions with petitioner, was the
7th Floor, Bank of the Philippine Islands Building, Ayala Avenue, Makati City, but the notice of notarial
rescission was sent to the wrong address at the 6th Floor, SGC Building, Salcedo Street, Legaspi
Village, Makati, Metro Manila. Petitioner served the notice to the address of Mahogany Products
Corporation. It was established that the person who received the notice, one Wenna Laurenciana, was
an employee of Mahogany Products Corporation and not an employee of respondent or Mr. Valeriano
Bueno, the alleged president of Mahogany Products Corporation and respondent company.22 The
appellate court stated that this cannot be construed as to have been contructively received by
respondent as the two corporations are two separate entities with a distinct personality independent
from each other. Thus, the Court of Appeals held that the notarial rescission was in validly served. It
stated that it is a general rule that when service of notice is an issue, the person alleging that the notice
was served must prove the fact of service by a preponderance of evidence. In this case, the Court of
Appeals held that there was no evidence that the notice of cancellation by notarial act was actually
received by respondent. Thus, for petitioner's failure to cancel the contract in accordance with the
procedure provided by law, the Court of Appeals held that the contracts to sell on installment were
valid and subsisting, and respondent has the right to offer to pay for the balance of the purchase price
before actual cancellation.

Petitioner's motion for reconsideration was denied for lack of merit by the Court of Appeals in a
Resolution23 dated September 4, 2007.

Petitioner filed this petition raising the following issues:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED INREVERSING THE RTC DECISION
AND REINSTATING THECOMPLAINT WHEN ON ITS FACE IT HAS LONG BEENPRESCRIBED, AS
IT WAS FILED AFTER 27 YEARS AND HAS NOJURISDICTION (SIC).

II
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED ANDGRAVELY ABUSED ITS
DISCRETION IN COMPELLINGPETITIONER TO EXECUTE A FINAL DEED OF ABSOLUTE SALE
EVEN IF RESPONDENT JUDICIALLY ADMITTED ITS NON-PAYMENT OF THE BALANCE OF THE
DEEDS OF CONDITIONALSALE DUE SINCE 1974.

III

THE HONORABLE COURT OF APPEALS GRAVELY ERRED INGRANTING THE RELIEFS

PRAYED BY RESPONDENT IN ITSCOMPLAINT FOR SPECIFIC PERFORMANCE WHEN IT
WASRESPONDENT WHO BREACHED THE CONTRACT.

IV

THE HONORABLE COURT OF APPEALS COMMITTED GRAVEINJUSTICE WHEN IT PENALIZED

PETITIONER FOR EXERCISINGITS LEGAL RIGHT AND DID NOT COMMIT AN
ACTIONABLEWRONG WHILE IT HEFTILY REWARDED RESPONDENT, WHOBREACHED THE
CONTRACT, AND ORDERED TO PAY WITHOUTINTEREST PHP 97,998.95, WHICH IS DUE SINCE
1974 UNDER THECONTRACT, FOR FOUR (4) PARCELS OF LAND (57,393 SQUAREMETERS),
NOW WORTH HUNDRED MILLIONS.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED INANNULING THE NOTARIAL

RESCISSION WHEN THE COMPLAINT IS ONLY FOR SPECIFIC PERFORMANCE AND WAS NOT
AN ISSUE RAISED IN THE PLEADINGS OR DURING THETRIAL.24

The main issue is whether respondent is entitled to the relief granted by the Court of Appeals.
Petitioner contends that the Court of Appeals erred in directing it to execute deeds of absolute sale
over the subject lots even if respondent admitted non-payment of the balance of the purchase price.

As found by the Court of Appeals, the two conditional deeds of sale entered into by the parties are
contracts to sell, as they both contained a stipulation that ownership of the properties shall not pass
to the vendee until after full payment of the purchase price. In a conditional sale, as in a contract to
sell, ownership remains with the vendor and does not pass to the vendee until full payment of the
purchase price.25 The full payment of the purchase price partakes of a suspensive condition, and non-
fulfillment of the condition prevents the obligation to sell from arising.26To differentiate, a deed of sale
is absolute when there is no stipulation in the contract that title to the property remains with the seller
until full payment of the purchase price.

Ramos v. Heruela27 held that Articles 1191 and 1592 of the Civil Code28 are applicable to contracts
of sale, while R.A. No. 6552 applies to contracts to sell.

The Court of Appeals correctly held that R.A. No. 6552, otherwise known as the Realty Installment
Buyer Act, applies to the subject contracts to sell. R.A. No. 6552 recognizes in conditional sales of
all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract
upon non-payment of an installment by the buyer, which is simply an event that prevents the
obligation of the vendor to convey title from acquiring binding force.29

It also provides the right of the buyer on installments in case he defaults in the payment of
succeeding installments30 as follows:
Section 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as
amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at
least two years of installments, the buyer is entitled to the following rights in case he defaults in the
payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him which is hereby fixed at the rate of one month grace period for every
one year of installment payments made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty per cent of the total payments made, and,
after five years of installments, an additional five per cent every year but not to exceed ninety
per cent of the total payments made: Provided, That the actual cancellation of the contract
shall take place after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total
number of installment payments made. chanrobles a law library

Sec. 4. In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.31

In this case, respondent has paid less than two years of installments; therefore, Section 4 of R.A.
No. 6552 applies.

The Court of Appeals held that even if respondent defaulted in its full payment of the purchase price
of the subject lots, the conditional deeds of sale remain valid and subsisting, because there was no
valid notice of notarial rescission to respondent, as the notice was sent to the wrong address, that is,
to Mahogany Products Corporation, and it was received by a person employed by Mahogany Products
Corporation and not the respondent. The Court of Appeals stated that the allegation that Mahogany
Products Corporation and respondent have the same President, one Valeriano Bueno, is irrelevant
and has not been actually proven or borne by evidence. The appellate court held that there was
insufficient proof that respondent actually received the notice of notarial rescission of the conditional
deeds of sale; hence, the unilateral rescission of the conditional deeds of sale cannot be given
credence.

However, upon review of the records of this case, the Court finds that respondent had been served a
notice of the notarial rescission of the conditional deeds of sale when it was furnished with the
petitioner's Answer, dated February 16, 1995, to its first Complaint filed on November 28, 1994with
the RTC of Antipolo City, which case was docketed as Civil Case No.94-3426, but the complaint was
later dismissed without prejudice on January15, 1996.32

It appears that after respondent filed its first Complaint for specific performance and damages with
the RTC of Antipolo City on November 28,1994, petitioner filed an Answer and attached thereto a
copy of the written notice dated March 17, 1978 and copies of the notarial acts of rescission dated
March 15, 1978, and that respondent received a copy of the said Answer with the attached notices
of notarial rescission. However, to reiterate, the first Complaint was dismissed without prejudice.

Five years after the dismissal of the first Complaint, respondent again filed this case for specific
performance and damages, this time, with the RTC of Manila. Petitioner filed an Answer, and alleged,
among others, that the case was barred by prior judgment, since respondent filed a complaint on
November 28, 1994 before the RTC of Antipolo City, Branch 73, against it (petitioner) involving the
same issues and that the case, docketed as Civil Case No. 94-3426, was dismissed on January 15,
1996 for lack of interest. Respondent filed a Reply33 dated July 18, 2001, asserting that petitioner
prayed for the dismissal of the first case filed on November 28, 1994 (Civil Case No. 94-3426) on the
ground of improper venue as the parties agreed in the deeds of conditional sale that in case of
litigation, the venue shall be in the courts of Manila. To prove its assertion, respondent attached to its
Reply a copy of petitioner’s Answer to the first Complaint in Civil Case No. 94-3426, which Answer
included the written notice dated March 17, 1978 and two notarial acts of rescission, both dated March
15, 1978, of the two conditional deeds of sale. Hence, respondent is deemed to have had notice of
the notarial rescission of the two conditional deeds of sale when it received petitioner’s Answer to its
first complaint filed with the RTC of Antipolo, since petitioner’s Answer included notices of notarial
rescission of the two conditional deeds of sale. The first complaint was filed six years earlier before
this complaint was filed. As stated earlier, the first complaint was dismissed without prejudice, because
respondent’s counsel failed to appear at the pre-trial. Since respondent already received notices of
the notarial rescission of the conditional deeds of sale, together with petitioner’s Answer to the first
Complaint five years before it filed this case, it can no longer deny having received notices of the
notarial rescission in this case, as respondent admitted the same when it attached the notices of
notarial rescission to its Reply in this case. Consequently, respondent is not entitled to the relief
granted by the Court of Appeals.

Under R.A. No. 6552, the right of the buyer to refund accrues only when he has paid at least two
years of installments.34 In this case, respondent has paid less than two years of installments; hence,
it is not entitled to a refund.35

Moreover, petitioner raises the issue of improper venue and lack of jurisdiction of the RTC of Manila
over the case. It contends that the complaint involved real properties in Antipolo City and
cancellation of titles; hence, it was improperly filed in the RTC of Manila.

Petitioner's contention lacks merit, as petitioner and respondent stipulated in both Conditional Deeds
of Sale that they mutually agreed that in case of litigation, the case shall be filed in the courts of Manila.

Further, petitioner contends that the action has prescribed. Petitioner points out that the cause of
action is based on a written contract; hence, the complaint should have been brought within 10 years
from the time the right of action accrues under Article 1144 of the Civil Code. Petitioner argues that it
is evident on the face of the complaint and the two contracts of conditional sale that the cause of action
accrued in 1974; yet, the complaint for specific performance was filed after 27 years. Petitioner asserts
that the action has prescribed.

The contention is meritorious.

Section 1, Rule 9 of the 1997 Rules of Civil Procedure provides:

Section 1. Defense and objections not pleaded. - Defenses and objections not pleaded whether in a
motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings
that the court has no jurisdiction over the subject matter, that there is another action pending between
the same parties for the same cause, or that the action is barred by a prior judgment or by statute of
limitations, the court shall dismiss the claim.37

In Gicano v. Gegato,38 the Court held:

x x x (T)rial courts have authority and discretion to dismiss an action on the ground of prescription
when the parties' pleadings or other facts on record show it to be indeed time-barred; (Francisco v.
Robles, Feb, 15,1954; Sison v. Mc Quaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28, 1961;Cordova
v. Cordova, Jan. 14, 1958; Convets, Inc. v. NDC, Feb. 28, 1958;32 SCRA 529; Sinaon v. Sorongan,
136 SCRA 408); and it may do so on the basis of a motion to dismiss (Sec. 1,f, Rule 16, Rules of
Court), or an answer which sets up such ground as an affirmative defense (Sec. 5, Rule16), or even
if the ground is alleged after judgment on the merits, as in a motion for reconsideration (Ferrer v. Ericta,
84 SCRA 705); or even if the defense has not been asserted at all, as where no statement thereof is
found in the pleadings (Garcia v. Mathis, 100 SCRA 250;PNB v. Pacific Commission House, 27 SCRA
766; Chua Lamco v.Dioso, et al., 97 Phil. 821);

or where a defendant has been declared in default (PNB v. Perez, 16 SCRA 270). What is essential
only, to repeat, is that the facts demonstrating the lapse of the prescriptive period, be otherwise
sufficiently and satisfactorily apparent on the record; either in the averments of the plaintiff's complaint,
or otherwise established by the evidence.39

Moreover, Dino v. Court of Appeals40 held:

Even if the defense of prescription was raised for the first time on appeal in respondent's Supplemental
Motion for Reconsideration of the appellate court's decision, this does not militate against the due
process right of the petitioners. On appeal, there was no new issue of fact that arose in connection
with the question of prescription, thus it cannot be said that petitioners were not given the opportunity
to present evidence in the trial court to meet a factual issue. Equally important, petitioners had the
opportunity to oppose the defense of prescription in their Opposition to the Supplemental Motion for
Reconsideration filed in the appellate court and in their Petition for Review in this Court.41

In this case, petitioner raised the defense of prescription for the first time before this Court, and
respondent had the opportunity to oppose the defense of prescription in its Comment to the petition.
Hence, the Court can resolve the issue of prescription as both parties were afforded the opportunity
to ventilate their respective positions on the matter. The Complaint shows that the Conditional Deeds
of Sale were executed on November 29, 1973, and payments were due on both Conditional Deeds of
Sale on November 15, 1974. Article 114442 of the Civil Code provides that actions based upon a written
contract must be brought within ten years from the time the right of action accrues. Non-fulfillment of
the obligation to pay on the last due date, that is, on November 15, 1974, would give rise to an action
by the vendor, which date of reckoning may also apply to any action by the vendee to determine his
right under R.A. No. 6552. The vendee, respondent herein, filed this case on March 16, 2001, which
is clearly beyond the 10-year prescriptive period; hence, the action has prescribed.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated December
11, 2006, in CA-G.R. CV No. 85877 and its Resolution dated September 4, 2007 are REVERSED
and SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch I, dated August 1, 2005
in Civil Case No. 01-100411, dismissing the case for lack of merit, is REINSTATED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 170405 February 2, 2010

RAYMUNDO S. DE LEON, Petitioner,

vs.
BENITA T. ONG.1 Respondent.

DECISION

CORONA, J.:

On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with improvements
situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real
Savings and Loan Association, Incorporated (RSLAI), petitioner and respondent executed a
notarized deed of absolute sale with assumption of mortgage3 stating:

xxx xxx xxx

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS
(₱1.1 million), Philippine currency, the receipt whereof is hereby acknowledged from
[RESPONDENT] to the entire satisfaction of [PETITIONER], said [PETITIONER] does hereby sell,
transfer and convey in a manner absolute and irrevocable, unto said [RESPONDENT], his heirs
and assigns that certain real estate together with the buildings and other improvements existing
thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the following terms and conditions:

1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN
THOUSAND FIVE HUNDRED (₱415,000), [petitioner] shall execute and sign a deed of
assumption of mortgage in favor of [respondent] without any further cost whatsoever;

2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED
EIGHTY FOUR THOUSAND FIVE HUNDRED PESOS (₱684,500) with REAL SAVINGS
AND LOAN,4 Cainta, Rizal… (emphasis supplied)

xxx xxx xxx

Pursuant to this deed, respondent gave petitioner ₱415,500 as partial payment. Petitioner, on the
other hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and
authorizing it to accept payment from respondent and release the certificates of title.

Thereafter, respondent undertook repairs and made improvements on the properties.5 Respondent
likewise informed RSLAI of her agreement with petitioner for her to assume petitioner’s outstanding
loan. RSLAI required her to undergo credit investigation.

Subsequently, respondent learned that petitioner again sold the same properties to one Leona
Viloria after March 10, 1993 and changed the locks, rendering the keys he gave her useless.
Respondent thus proceeded to RSLAI to inquire about the credit investigation. However, she was
informed that petitioner had already paid the amount due and had taken back the certificates of title.

Respondent persistently contacted petitioner but her efforts proved futile.

On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity of the
second sale and damages6 against petitioner and Viloria in the Regional Trial Court (RTC) of
Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the properties to
her on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus, petitioner
fraudulently deprived her of the properties.

Petitioner, on the other hand, insisted that respondent did not have a cause of action against him
and consequently prayed for the dismissal of the complaint. He claimed that since the transaction
was subject to a condition (i.e., that RSLAI approve the assumption of mortgage), they only entered
into a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI, the condition did not
arise. Consequently, the sale was not perfected and he could freely dispose of the properties.
Furthermore, he made a counter-claim for damages as respondent filed the complaint allegedly with
gross and evident bad faith.

Because respondent was a licensed real estate broker, the RTC concluded that she knew that the
validity of the sale was subject to a condition. The perfection of a contract of sale depended on
RSLAI’s approval of the assumption of mortgage. Since RSLAI did not allow respondent to assume
petitioner’s obligation, the RTC held that the sale was never perfected.

In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of action
and ordered respondent to pay petitioner ₱100,000 moral damages, ₱20,000 attorney’s fees and the
cost of suit.

Aggrieved, respondent appealed to the Court of Appeals (CA),8 asserting that the court a quo erred
in dismissing the complaint.

The CA found that the March 10, 2003 contract executed by the parties did not impose any condition
on the sale and held that the parties entered into a contract of sale. Consequently, because
petitioner no longer owned the properties when he sold them to Viloria, it declared the second sale
void. Moreover, it found petitioner liable for moral and exemplary damages for fraudulently depriving
respondent of the properties.

In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and nullified the sale to
Viloria. It likewise ordered respondent to reimburse petitioner ₱715,250 (or the amount he paid to
RSLAI). Petitioner, on the other hand, was ordered to deliver the certificates of titles to respondent
and pay her ₱50,000 moral damages and ₱15,000 exemplary damages.

Petitioner moved for reconsideration but it was denied in a resolution dated November 11,
2005.10 Hence, this petition,11 with the sole issue being whether the parties entered into a contract of
sale or a contract to sell.

Petitioner insists that he entered into a contract to sell since the validity of the transaction was
subject to a suspensive condition, that is, the approval by RSLAI of respondent’s assumption of
mortgage. Because RSLAI did not allow respondent to assume his (petitioner’s) obligation, the
condition never materialized. Consequently, there was no sale.
Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner already
conveyed full ownership of the subject properties upon the execution of the deed.

We modify the decision of the CA.

Contract of Sale or Contract to Sell?

The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled that
it was a contract to sell while the CA held that it was a contract of sale.

In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of
the contract. Should the buyer default in the payment of the purchase price, the seller may either sue
for the collection thereof or have the contract judicially resolved and set aside. The non-payment of
the price is therefore a negative resolutory condition.12

On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does
not acquire ownership of the property until he fully pays the purchase price. For this reason, if the
buyer defaults in the payment thereof, the seller can only sue for damages.13

The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to
respondent "in a manner absolute and irrevocable" for a sum of ₱1.1 million.14 With regard to the
manner of payment, it required respondent to pay ₱415,500 in cash to petitioner upon the execution
of the deed, with the balance15 payable directly to RSLAI (on behalf of petitioner) within a reasonable
time.16 Nothing in said instrument implied that petitioner reserved ownership of the properties until
the full payment of the purchase price.17 On the contrary, the terms and conditions of the deed only
affected the manner of payment, not the immediate transfer of ownership (upon the execution of the
notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said terms
and conditions pertained to the performance of the contract, not the perfection thereof nor the
transfer of ownership.

Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to
the buyer.18 In this regard, Article 1498 of the Civil Code19 provides that, as a rule, the execution of a
notarized deed of sale is equivalent to the delivery of a thing sold.

In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent.
Moreover, not only did petitioner turn over the keys to the properties to respondent, he also
authorized RSLAI to receive payment from respondent and release his certificates of title to her. The
totality of petitioner’s acts clearly indicates that he had unqualifiedly delivered and transferred
ownership of the properties to respondent. Clearly, it was a contract of sale the parties entered into.

Furthermore, even assuming arguendo that the agreement of the parties was subject to the
condition that RSLAI had to approve the assumption of mortgage, the said condition was considered
fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation and taking back the
certificates of title without even notifying respondent. In this connection, Article 1186 of the Civil
Code provides:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment.

Void Sale Or Double Sale?

Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two
separate occasions.20 However, the second sale was not void for the sole reason that petitioner had
previously sold the same properties to respondent. On this account, the CA erred.

This case involves a double sale as the disputed properties were sold validly on two separate
occasions by the same seller to the two different buyers in good faith.

Article 1544 of the Civil Code provides:

Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who
in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith
was first in the possession; and, in the absence thereof, to the person who presents the
oldest title, provided there is good faith. (emphasis supplied)

This provision clearly states that the rules on double or multiple sales apply only to purchasers in
good faith. Needless to say, it disqualifies any purchaser in bad faith.

A purchaser in good faith is one who buys the property of another without notice that some other
person has a right to, or an interest in, such property and pays a full and fair price for the same at
the time of such purchase, or before he has notice of some other person’s claim or interest in the
property.21 The law requires, on the part of the buyer, lack of notice of a defect in the title of the seller
and payment in full of the fair price at the time of the sale or prior to having notice of any defect in
the seller’s title.

Was respondent a purchaser in good faith? Yes.

Respondent purchased the properties, knowing they were encumbered only by the mortgage to
RSLAI. According to her agreement with petitioner, respondent had the obligation to assume the
balance of petitioner’s outstanding obligation to RSLAI. Consequently, respondent informed RSLAI
of the sale and of her assumption of petitioner’s obligation. However, because petitioner
surreptitiously paid his outstanding obligation and took back her certificates of title, petitioner himself
rendered respondent’s obligation to assume petitioner’s indebtedness to RSLAI impossible to
perform.

Article 1266 of the Civil Code provides:

Article 1266. The debtor in obligations to do shall be released when the prestation become legally or
physically impossible without the fault of the obligor.

Since respondent’s obligation to assume petitioner’s outstanding balance with RSLAI became
impossible without her fault, she was released from the said obligation. Moreover, because petitioner
himself willfully prevented the condition vis-à-vis the payment of the remainder of the purchase price,
the said condition is considered fulfilled pursuant to Article 1186 of the Civil Code. For purposes,
therefore, of determining whether respondent was a purchaser in good faith, she is deemed to have
fully complied with the condition of the payment of the remainder of the purchase price.
Respondent was not aware of any interest in or a claim on the properties other than the mortgage to
RSLAI which she undertook to assume. Moreover, Viloria bought the properties from petitioner after
the latter sold them to respondent. Respondent was therefore a purchaser in good faith. Hence, the
rules on double sale are applicable.

Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties
with the registrar of deeds, the one who took prior possession of the properties shall be the lawful
owner thereof.

In this instance, petitioner delivered the properties to respondent when he executed the notarized
deed22 and handed over to respondent the keys to the properties. For this reason, respondent took
actual possession and exercised control thereof by making repairs and improvements thereon.
Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became
the lawful owner of the properties.

Nonetheless, while the condition as to the payment of the balance of the purchase price was
deemed fulfilled, respondent’s obligation to pay it subsisted. Otherwise, she would be unjustly
enriched at the expense of petitioner.

Therefore, respondent must pay petitioner ₱684,500, the amount stated in the deed. This is because
the provisions, terms and conditions of the contract constitute the law between the parties.
Moreover, the deed itself provided that the assumption of mortgage "was without any further cost
whatsoever." Petitioner, on the other hand, must deliver the certificates of title to respondent. We
likewise affirm the award of damages.

WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of
Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as
respondent Benita T. Ong is ordered to pay petitioner Raymundo de Leon ₱684,500 representing
the balance of the purchase price as provided in their March 10, 1993 agreement.

Costs against petitioner.

SO ORDERED.