G.R. No. 166862 December 20, 2006 bidder for P1,000,000.00.
bidder for P1,000,000.00. The Certificate of Sale7 issued in its favor was
MANILA METAL CONTAINER CORPORATION, petitioner,
REYNALDO C. TOLENTINO, intervenor,
vs.
PHILIPPINE NATIONAL BANK, respondent,
DMCI-PROJECT DEVELOPERS, INC., intervenor.
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
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 REPURCHASE.
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

THE LOWER COURT ERRED IN RULING THAT VI

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

II VII

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 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
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, 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.
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.

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;

G.R. No. 134971 March 25, 2004
HERMINIO TAYAG, petitioner,
vs.
AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON,
JUAN LACSON, TEODISIA LACSON-ESPINOSA and THE
COURT OF APPEALS, respondents.
The Case for the Petitioner
Respondents Angelica Tiotuyco Vda. de Lacson,3 and her children
Amancia, Antonio, Juan, and Teodosia, all surnamed Lacson, were the
registered owners of three parcels of land located in Mabalacat, Pampanga,
covered by Transfer Certificates of Title (TCT) Nos. 35922-R, 35923-R,
and 35925-R, registered in the Register of Deeds of San Fernando,
Pampanga. The properties, which were tenanted agricultural lands,4 were
administered by Renato Espinosa for the owner.
On March 17, 1996, a group of original farmers/tillers, namely, Julio
Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso
Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco
Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue,
Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, and another
group, namely, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno
Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis,
Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose
Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro
Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and
Aurelio Flores,5 individually executed in favor of the petitioner separate
Deeds of Assignment6 in which the assignees assigned to the petitioner
their respective rights as tenants/tillers of the landholdings possessed and
tilled by them for and in consideration of P50.00 per square meter. The
said amount was made payable "when the legal impediments to the sale of
the property to the petitioner no longer existed." The petitioner was also
granted the exclusive right to buy the property if and when the
respondents, with the concurrence of the defendants-tenants, agreed to sell
the property. In the interim, the petitioner gave varied sums of money to
the tenants as partial payments, and the latter issued receipts for the said
amounts.
On July 24, 1996, the petitioner called a meeting of the defendants-tenants
to work out the implementation of the terms of their separate
agreements.7 However, on August 8, 1996, the defendants-tenants,
through Joven Mariano, wrote the petitioner stating that they were not
attending the meeting and instead gave notice of their collective decision
to sell all their rights and interests, as tenants/lessees, over the landholding
to the respondents.8 Explaining their reasons for their collective decision,
they wrote as follows:
Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating
napagkasunduan, hindi tumanggap ng ibang buyer o ahente, pero sinira
ninyo ang aming pagtitiwala sa pamamagitan ng demanda ninyo at
pagbibigay ng problema sa amin na hindi naman nagbenta ng lupa.
Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming
karapatan o ang aming lupang sinasaka sa landowner o sa mga pamilyang
Lacson, dahil ayaw naming magkaroon ng problema.
Kaya kung ang sasabihin ninyong ito’y katangahan, lalo sigurong
magiging katangahan kung ibebenta pa namin sa inyo ang aming lupang
sinasaka, kaya pasensya na lang Mister Tayag. Dahil sinira ninyo ang
aming pagtitiwala at katapatan.9
On August 19, 1996, the petitioner filed a complaint with the Regional
Trial Court of San Fernando, Pampanga, Branch 44, against the
defendants-tenants, as well as the respondents, for the court to fix a period
within which to pay the agreed purchase price of P50.00 per square meter
to the defendants, as provided for in the Deeds of Assignment. The
petitioner also prayed for a writ of preliminary injunction against the
defendants and the respondents therein.10 The case was docketed as Civil - -
Case No. 10910. [son of Felix
Gozun
In his complaint, the petitioner alleged, inter alia, the following: (deceased)]

3. Rosita
4. That defendants Julio Tiamson, Renato Gozun, Rosita P
Hernandez - P 5,000 14,374.24 231274
19,374.24
Hernandez, Bienvenido Tongol, Alfonso Flores, Norma ---
Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr.,
Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga 4. P 10,000 14,465.90 231285 24,465.90
Bienvenido
Laxamana, Felicencia de Leon, Emiliano Ramos are original Tongol - - -
farmers or direct tillers of landholdings over parcels of lands [Son of
covered by Transfer Certificate of Title Nos. 35922-R, 35923-R Abundio
and 35925-R which are registered in the names of defendants Tongol
(deceased)]
LACSONS; while defendants Felino G. Tolentino, Rica Gozun,
Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman 5. Alfonso
Laxamana, Eddie San Luis, Alfredo Gozun, Jose Tiamson, Flores - - - - - P 30,000 26,648.40 231271 56,648.40
Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro -
Tolentino, Ceferino de Leon, Alberto Hernandez, and Aurelio
Flores are sub-tenants over the same parcel of land. 6. Norma
Quiambao - - P 10,000 41,501.10 231279 51,501.10
--
5. That on March 17, 1996 the defendants TIAMSON, et al.,
entered into Deeds of Assignment with the plaintiff by which the 7. Rosita
defendants assigned all their rights and interests on their Tolentino - - P 10,000 22,126.08 231284 32,126.08
---
landholdings to the plaintiff and that on the same date (March 17,
1996), the defendants received from the plaintiff partial payments 8. Jose Sosa
in the amounts corresponding to their names. Subsequent P 10,000 14,861.31 231291 24,861.31
---------
payments were also received:
9. Francisco
Tolentino, P 10,000 24,237.62 231283 34,237.62
1st 2nd CHECK Sr.
TOTAL
PAYMENT PAYMENT NO.
10. Emiliano
1.Julio Laxamana - P 10,000 ------ ------ ------
P P
Tiamson - - - P 20,000 231281 -
10,621.54 30,621.54
---
11. Ruben
P P
2. Renato P 10,000 96,000 106,000.0 Torres - - - - P 10,000 ------
33,587.31 43,587.31
Gozun - - - - 0 - -
[Son of 24.
Mariano Nicenciana 10,000 ------ ------ ------
Torres Miranda
(deceased)]
25. Jose
10,000 ------ ------ ------
12. Meliton P Gozun
P 10,000 12,944.77 231269
Allanigue 22,944.77
26. Alfredo
5,000 ------ ------ ------
13. Dominga Sosa
P 5,000 22,269.02 231275 27,269.02
Laxamana
27. Jose
10,000 ------ ------ ------
14. Tiamson
Felicencia 10,000 ------ ------ ------
de Leon 28. Augusto
5,000 ------ ------ ------
Tolentino
15. Emiliano
5,000 18,869.60 231280 23,869.60
Ramos 29. Sixto
10,000 ------ ------ ------
Hernandez
16. Felino G.
10,000 ------ ------ ------
Tolentino 30. Alex
10,000 ------ ------ ------
Quiambao
17. Rica
5,000 ------ ------ ------
Gozun 31. Isidro
10,000 ------ ------ ------
Tolentino
18. Perla
10,000 ------ ------ ------
Gozun 32. Ceferino
------ 11,378.70 231270 ------
de Leon
19. Benigno
10,000 ------ ------ ------
Tolentino 33. Alberto
10,000 ------ ------ ------
Hernandez
20. Rodolfo
10,000 ------ ------ ------
Quiambao 34. Orlando
10,000 ------ ------ ------
Florez
21. Roman
10,000 ------ ------ ------
Laxamana 35. Aurelio
10,000 ------ ------ ------
Flores
22. Eddie
10,000 ------ ------ ------
San Luis
6. That on July 24, 1996, the plaintiff wrote the defendants
23. Ricardo
10,000 ------ ------ ------ TIAMSON, et al., inviting them for a meeting regarding the
Hernandez
negotiations/implementations of the terms of their Deeds of
Assignment;
7. That on August 8, 1996, the defendants TIAMSON, et al.,
through Joven Mariano, replied that they are no longer willing to
pursue with the negotiations, and instead they gave notice to the
plaintiff that they will sell all their rights and interests to the
registered owners (defendants LACSONS).
A copy of the letter is hereto attached as Annex "A" etc.;
8. That the defendants TIAMSON, et. al., have no right to deal
with the defendants LACSON or with any third persons while
their contracts with the plaintiff are subsisting; defendants
LACSONS are inducing or have induced the defendants
TIAMSON, et. al., to violate their contracts with the plaintiff;
9. That by reason of the malicious acts of all the defendants,
plaintiff suffered moral damages in the forms of mental anguish,
mental torture and serious anxiety which in the sum of
P500,000.00 for which defendants should be held liable jointly
and severally.11
In support of his plea for injunctive relief, the petitioner, as
plaintiff, also alleged the following in his complaint:
11. That to maintain the status quo, the defendants TIAMSON, et
al., should be restrained from rescinding their contracts with the
plaintiff, and the defendants LACSONS should also be restrained
from accepting any offer of sale or alienation with the defendants
TIAMSON, et al., in whatever form, the latter’s rights and
interests in the properties mentioned in paragraph 4 hereof;
further, the LACSONS should be restrained from
encumbering/alienating the subject properties covered by TCT
No. 35922-R, 35923-R and TCT No. 35925-R, Registry of Deeds
of San Fernando, Pampanga;
12. That the defendants TIAMSON, et al., threaten to rescind their
contracts with the plaintiff and are also bent on selling/alienating
their rights and interests over the subject properties to their co-
defendants (LACSONS) or any other persons to the damage and
prejudice of the plaintiff who already invested much money,
efforts and time in the said transactions;
13. That the plaintiff is entitled to the reliefs being demanded in
the complaint;
14. That to prevent irreparable damages and prejudice to the
plaintiff, as the latter has no speedy and adequate remedy under
the ordinary course of law, it is essential that a Writ of Preliminary
Injunction be issued enjoining and restraining the defendants
TIAMSON, et al., from rescinding their contracts with the
plaintiff and from selling/alienating their properties to the
LACSONS or other persons;
15. That the plaintiff is willing and able to put up a reasonable
bond to answer for the damages which the defendants would
suffer should the injunction prayed for and granted be found
without basis.12
The petitioner prayed, that after the proceedings, judgment be rendered as
follows:
1. Pending the hearing, a Writ of Preliminary Injunction be issued
prohibiting, enjoining and restraining defendants Julio Tiamson,
Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso
Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco
Tolentino Sr., Emiliano Laxamana, Ruben Torres, Meliton
Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano
Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno
Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San
Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun,
Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Ceferino de
Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores
from rescinding their contracts with the plaintiff and from
 alienating their rights and interest over the aforementioned
properties in favor of defendants LACSONS or any other third
persons; and prohibiting the defendants LACSONS from
encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-
R of the Registry of Deeds of San Fernando, Pampanga.
2. And pending the hearing of the Prayer for a Writ of Preliminary
Injunction, it is prayed that a restraining order be issued
restraining the aforementioned defendants (TIAMSON, et al.)
from rescinding their contracts with the plaintiff and from
alienating the subject properties to the defendants LACSONS or
any third persons; further, restraining and enjoining the
defendants LACSONS from encumbering/selling the properties
covered by TCT Nos. 35922-R, 35923-R, and 35925-R of the
Registry of Deeds of San Fernando, Pampanga.
3. Fixing the period within which plaintiff shall pay the balance of
the purchase price to the defendants TIAMSON, et al., after the
lapse of legal impediment, if any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum of
P500,000.00 as moral damages;
6. Ordering the defendants to pay the plaintiff attorney’s fees in
the sum of P100,000.00 plus litigation expenses of P50,000.00;
Plaintiff prays for such other relief as may be just and equitable under the
premises.13
In their answer to the complaint, the respondents as defendants asserted
that (a) the defendant Angelica Vda. de Lacson had died on April 24, 1993;
(b) twelve of the defendants were tenants/lessees of respondents, but the
tenancy status of the rest of the defendants was uncertain; (c) they never
induced the defendants Tiamson to violate their contracts with the
petitioner; and, (d) being merely tenants-tillers, the defendants-tenants had
no right to enter into any transactions involving their properties without
their knowledge and consent. They also averred that the transfers or
assignments of leasehold rights made by the defendants-tenants to the
petitioner is contrary to Presidential Decree (P.D.) No. 27 and Republic
Act No. 6657, the Comprehensive Agrarian Reform Program
(CARP).14 The respondents interposed counterclaims for damages against
the petitioner as plaintiff.
The defendants-tenants Tiamson, et al., alleged in their answer with
counterclaim for damages, that the money each of them received from the
petitioner were in the form of loans, and that they were deceived into
signing the deeds of assignment:
a) That all the foregoing allegations in the Answer are hereby
repleaded and incorporated in so far as they are material and
relevant herein;
b) That the defendants Tiamson, et al., in so far as the Deeds of
Assignment are concern[ed] never knew that what they did sign is
a Deed of Assignment. What they knew was that they were made
to sign a document that will serve as a receipt for the loan granted
[to] them by the plaintiff;
c) That the Deeds of Assignment were signed through the
employment of fraud, deceit and false pretenses of plaintiff and
made the defendants believe that what they sign[ed] was a mere
receipt for amounts received by way of loans;
d) That the documents signed in blank were filled up and
completed after the defendants Tiamson, et al., signed the
documents and their completion and accomplishment was done in
the absence of said defendants and, worst of all, defendants were
not provided a copy thereof;
 e) That as completed, the Deeds of Assignment reflected that the
defendants Tiamson, et al., did assign all their rights and interests
in the properties or landholdings they were tilling in favor of the
plaintiff. That if this is so, assuming arguendo that the documents
were voluntarily executed, the defendants Tiamson, et al., do not
have any right to transfer their interest in the landholdings they are
tilling as they have no right whatsoever in the landholdings, the
landholdings belong to their co-defendants, Lacson, et al., and
therefore, the contract is null and void;
f) That while it is admitted that the defendants Tiamson, et al.,
received sums of money from plaintiffs, the same were received
as approved loans granted by plaintiff to the defendants Tiamson,
et al., and not as part consideration of the alleged Deeds of
Assignment; and by way of:…15
At the hearing of the petitioner’s plea for a writ of preliminary injunction,
the respondents’ counsel failed to appear. In support of his plea for a writ
of preliminary injunction, the petitioner adduced in evidence the Deeds of
Assignment,16 the receipts17 issued by the defendants-tenants for the
amounts they received from him; and the letter18 the petitioner received
from the defendants-tenants. The petitioner then rested his case.
The respondents, thereafter, filed a Comment/Motion to dismiss/deny the
petitioner’s plea for injunctive relief on the following grounds: (a) the
Deeds of Assignment executed by the defendants-tenants were contrary to
public policy and P.D. No. 27 and Rep. Act No. 6657; (b) the petitioner
failed to prove that the respondents induced the defendants-tenants to
renege on their obligations under the "Deeds of Assignment;" (c) not being
privy to the said deeds, the respondents are not bound by the said deeds;
and, (d) the respondents had the absolute right to sell and dispose of their
property and to encumber the same and cannot be enjoined from doing so
by the trial court.
The petitioner opposed the motion, contending that it was premature for
the trial court to resolve his plea for injunctive relief, before the
respondents and the defendants-tenants adduced evidence in opposition
thereto, to afford the petitioner a chance to adduce rebuttal evidence and
prove his entitlement to a writ of preliminary injunction. The respondents
replied that it was the burden of the petitioner to establish the requisites of
a writ of preliminary injunction without any evidence on their part, and
that they were not bound to adduce any evidence in opposition to the
petitioner’s plea for a writ of preliminary injunction.
On February 13, 1997, the court issued an Order19 denying the motion of
the respondents for being premature. It directed the hearing to proceed for
the respondents to adduce their evidence. The court ruled that the
petitioner, on the basis of the material allegations of the complaint, was
entitled to injunctive relief. It also held that before the court could resolve
the petitioner’s plea for injunctive relief, there was need for a hearing to
enable the respondents and the defendants-tenants to adduce evidence to
controvert that of the petitioner. The respondents filed a motion for
reconsideration, which the court denied in its Order dated April 16, 1997.
The trial court ruled that on the face of the averments of the complaint, the
pleadings of the parties and the evidence adduced by the petitioner, the
latter was entitled to injunctive relief unless the respondents and the
defendants-tenants adduced controverting evidence.
The respondents, the petitioners therein, filed a petition for certiorari in the
Court of Appeals for the nullification of the February 13, 1997 and April
16, 1997 Orders of the trial court. The case was docketed as CA-G.R. SP
No. 44883. The petitioners therein prayed in their petition that:
1. An order be issued declaring the orders of respondent court
dated February 13, 1997 and April 16, 1997 as null and void;
2. An order be issued directing the respondent court to issue an
order denying the application of respondent Herminio Tayag for
the issuance of a Writ of Preliminary Injunction and/or restraining
order.
 3. In the meantime, a Writ of Preliminary Injunction be issued
against the respondent court, prohibiting it from issuing its own
writ of injunction against Petitioners, and thereafter making said
injunction to be issued by this Court permanent.
Such other orders as may be deemed just & equitable under the premises
also prayed for.20
The respondents asserted that the Deeds of Assignment executed by the
assignees in favor of the petitioner were contrary to paragraph 13 of P.D.
No. 27 and the second paragraph of Section 70 of Rep. Act No. 6657, and,
as such, could not be enforced by the petitioner for being null and void.
The respondents also claimed that the enforcement of the deeds of
assignment was subject to a supervening condition:
3. That this exclusive and absolute right given to the assignee shall be
exercised only when no legal impediments exist to the lot to effect the
smooth transfer of lawful ownership of the lot/property in the name of the
ASSIGNEE.21
The respondents argued that until such condition took place, the petitioner
would not acquire any right to enforce the deeds by injunctive relief.
Furthermore, the petitioner’s plea in his complaint before the trial court,
to fix a period within which to pay the balance of the amounts due to the
tenants under said deeds after the "lapse" of any legal impediment,
assumed that the deeds were valid, when, in fact and in law, they were not.
According to the respondents, they were not parties to the deeds of
assignment; hence, they were not bound by the said deeds. The issuance
of a writ of preliminary injunction would restrict and impede the exercise
of their right to dispose of their property, as provided for in Article 428 of
the New Civil Code. They asserted that the petitioner had no cause of
action against them and the defendants-tenants.
On April 17, 1998, the Court of Appeals rendered its decision against the
petitioner, annulling and setting aside the assailed orders of the trial court;
and permanently enjoining the said trial court from proceeding with Civil
Case No. 10901. The decretal portion of the decision reads as follows:
However, even if private respondent is denied of the injunctive relief he
demands in the lower court still he could avail of other course of action in
order to protect his interest such as the institution of a simple civil case of
collection of money against TIAMSON, et al.
For all the foregoing considerations, the orders dated 13 February 1997
and 16 April 1997 are hereby NULLIFIED and ordered SET ASIDE for
having been issued with grave abuse of discretion amounting to lack or
excess of jurisdiction. Accordingly, public respondent is permanently
enjoined from proceeding with the case designated as Civil Case No.
10901.22
The CA ruled that the respondents could not be enjoined from alienating
or even encumbering their property, especially so since they were not
privies to the deeds of assignment executed by the defendants-tenants. The
defendants-tenants were not yet owners of the portions of the landholdings
respectively tilled by them; as such, they had nothing to assign to the
petitioner. Finally, the CA ruled that the deeds of assignment executed by
the defendants-tenants were contrary to P.D. No. 27 and Rep. Act No.
6657.
On August 4, 1998, the CA issued a Resolution denying the petitioner’s
motion for reconsideration.23
Hence, the petitioner filed his petition for review on certiorari before this
Court, contending as follows:
I
A MERE ALLEGATION IN THE ANSWER OF THE TENANTS
COULD NOT BE USED AS EVIDENCE OR BASIS FOR ANY
CONCLUSION, AS THIS ALLEGATION, IS STILL THE SUBJECT OF
TRIAL IN THE LOWER COURT (RTC).24
II
THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A
PETITION FOR PRELIMINARY INJUNCTION AT A TIME WHEN
THE LOWER COURT (RTC) IS STILL RECEIVING EVIDENCE
PRECISELY TO DETERMINE WHETHER OR NOT THE WRIT OF
PRELIMINARY INJUNCTION BEING PRAYED FOR BY TAYAG
SHOULD BE GRANTED OR NOT.25
III
THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN
EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE TENANTS
ARE NOT YET "AWARDEES OF THE LAND REFORM.26
IV
THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT
STOPPAGE OF THE ENTIRE PROCEEDINGS BELOW INCLUDING
THE TRIAL ON THE MERITS OF THE CASE CONSIDERING THAT
THE ISSUE INVOLVED ONLY THE PROPRIETY OF
MAINTAINING THE STATUS QUO.27
V the appellate court to determine the merits of his case since no evidentiary
THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION
THE CASE OF THE OTHER 35 TENANTS WHO DO NOT QUESTION
THE JURISDICTION OF THE LOWER COURT (RTC) OVER THE
CASE AND WHO ARE IN FACT STILL PRESENTING THEIR
EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO
PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY
FILED AGAINST THE PETITIONER.28
VI
THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE
FILED BY TAYAG FOR "FIXING OF PERIOD" UNDER ART. 1197
OF THE NEW CIVIL CODE AND FOR "DAMAGES" AGAINST THE
LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE
CANNOT BE SUPPRESSED OR RENDERED NUGATORY
UNCEREMONIOUSLY.29
The petitioner faults the Court of Appeals for permanently enjoining the
trial court from proceeding with Civil Case No. 10910. He opines that the
same was too drastic, tantamount to a dismissal of the case. He argues that
at that stage, it was premature for the appellate court to determine the
merits of the case since no evidentiary hearing thereon was conducted by
the trial court. This, the Court of Appeals cannot do, since neither party
moved for the dismissal of Civil Case No. 10910. The petitioner points out
that the Court of Appeals, in making its findings, went beyond the issue
raised by the private respondents, namely, whether or not the trial court
committed a grave abuse of discretion amounting to excess or lack of
jurisdiction when it denied the respondent’s motion for the
denial/dismissal of the petitioner’s plea for a writ of preliminary
injunction. He, likewise, points out that the appellate court erroneously
presumed that the leaseholders were not DAR awardees and that the deeds
of assignment were contrary to law. He contends that leasehold tenants are
not prohibited from conveying or waiving their leasehold rights in his
favor. He insists that there is nothing illegal with his contracts with the
leaseholders, since the same shall be effected only when there are no more
"legal impediments."
At bottom, the petitioner contends that, at that stage, it was premature for
hearing on the merits of his complaint had yet been conducted by the trial
court.
The Comment/Motion of the
Respondents to Dismiss/Deny
Petitioner’s Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the respondents to
dismiss/deny the petitioner’s plea for a writ of preliminary injunction after
the petitioner had adduced his evidence, testimonial and documentary, and
had rested his case on the incident, was proper and timely. It bears
stressing that the petitioner had the burden to prove his right to a writ of
preliminary injunction. He may rely solely on the material allegations of
his complaint or adduce evidence in support thereof. The petitioner
adduced his evidence to support his plea for a writ of preliminary
injunction against the respondents and the defendants-tenants and rested
his case on the said incident. The respondents then had three options: (a)
file a motion to deny/dismiss the motion on the ground that the petitioner
failed to discharge his burden to prove the factual and legal basis for his
plea for a writ of preliminary injunction and, if the trial court denies his
motion, for them to adduce evidence in opposition to the petitioner’s plea;
(b) forgo their motion and adduce testimonial and/or documentary
evidence in opposition to the petitioner’s plea for a writ of preliminary
injunction; or, (c) waive their right to adduce evidence and submit the
incident for consideration on the basis of the pleadings of the parties and
the evidence of the petitioner. The respondents opted not to adduce any
evidence, and instead filed a motion to deny or dismiss the petitioner’s
plea for a writ of preliminary injunction against them, on their claim that
the petitioner failed to prove his entitlement thereto. The trial court cannot
compel the respondents to adduce evidence in opposition to the
petitioner’s plea if the respondents opt to waive their right to adduce such
evidence. Thus, the trial court should have resolved the respondents’
motion even without the latter’s opposition and the presentation of
evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the petitioner was
entitled to a writ of preliminary injunction against the respondents on the
basis of the material averments of the complaint. In its April 16, 1997
Order, the trial court denied the respondents’ motion for reconsideration
of the previous order, on its finding that the petitioner was entitled to a
writ of preliminary injunction based on the material allegations of his
complaint, the evidence on record, the pleadings of the parties, as well as
the applicable laws:
… For the record, the Court denied the LACSONS’
COMMENT/MOTION on the basis of the facts culled from the evidence
presented, the pleadings and the law applicable unswayed by the partisan
or personal interests, public opinion or fear of criticism (Canon 3, Rule
3.02, Code of Judicial Ethics).30
Section 3, Rule 58 of the Rules of Court, as amended, enumerates the
grounds for the issuance of a writ of preliminary injunction, thus:
(a) That the applicant is entitled to the relief demanded, and the
whole or part of such relief consists in restraining the commission
or continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or
perpetually;
(b) That the commission, continuance or non-performance of the
act or acts complained of during the litigation would probably
work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or
is attempting to do, or is procuring or suffering to be done, some
act or acts probably in violation of the rights of the applicant
respecting the subject of the action or proceeding, and tending to
render the judgment ineffectual.
A preliminary injunction is an extraordinary event calculated to preserve
or maintain the status quo of things ante litem and is generally availed of
to prevent actual or threatened acts, until the merits of the case can be
heard. Injunction is accepted as the strong arm of equity or a transcendent
remedy.31 While generally the grant of a writ of preliminary injunction
rests on the sound discretion of the trial court taking cognizance of the
case, extreme caution must be observed in the exercise of such
discretion.32 Indeed, in Olalia v. Hizon,33 we held:
It has been consistently held that there is no power the exercise of which
is more delicate, which requires greater caution, deliberation and sound
discretion, or more dangerous in a doubtful case, than the issuance of an
injunction. It is the strong arm of equity that should never be extended
unless to cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the
freedom of action of the defendant and should not be granted lightly or
precipitately. It should be granted only when the court is fully satisfied
that the law permits it and the emergency demands it.34
The very foundation of the jurisdiction to issue writ of injunction rests in
the existence of a cause of action and in the probability of irreparable
injury, inadequacy of pecuniary compensation and the prevention of the
multiplicity of suits. Where facts are not shown to bring the case within
these conditions, the relief of injunction should be refused.35
For the court to issue a writ of preliminary injunction, the petitioner was
burdened to establish the following: (1) a right in esse or a clear and
unmistakable right to be protected; (2) a violation of that right; (3) that
there is an urgent and permanent act and urgent necessity for the writ to
prevent serious damage.36 Thus, in the absence of a clear legal right, the
issuance of the injunctive writ constitutes a grave abuse of discretion.
Where the complainant’s right is doubtful or disputed, injunction is not
proper. Injunction is a preservative remedy aimed at protecting substantial
rights and interests. It is not designed to protect contingent or future rights.
The possibility of irreparable damage without proof of adequate existing
rights is not a ground for injunction.37
We have reviewed the pleadings of the parties and found that, as contended
by the respondents, the petitioner failed to establish the essential requisites
for the issuance of a writ of preliminary injunction. Hence, the trial court
committed a grave abuse of its discretion amounting to excess or lack of
jurisdiction in denying the respondents’ comment/motion as well as their
motion for reconsideration.
First. The trial court cannot enjoin the respondents, at the instance of the
petitioner, from selling, disposing of and encumbering their property. As
the registered owners of the property, the respondents have the right to
enjoy and dispose of their property without any other limitations than those
established by law, in accordance with Article 428 of the Civil Code. The
right to dispose of the property is the power of the owner to sell, encumber,
transfer, and even destroy the property. Ownership also includes the right
to recover the possession of the property from any other person to whom
the owner has not transmitted such property, by the appropriate action for
restitution, with the fruits, and for indemnification for damages.38 The
right of ownership of the respondents is not, of course, absolute. It is
limited by those set forth by law, such as the agrarian reform laws. Under
Article 1306 of the New Civil Code, the respondents may enter into
contracts covering their property with another under such terms and
conditions as they may deem beneficial provided they are not contrary to
law, morals, good conduct, public order or public policy.
The respondents cannot be enjoined from selling or encumbering their
property simply and merely because they had executed Deeds of
Assignment in favor of the petitioner, obliging themselves to assign and
transfer their rights or interests as agricultural farmers/laborers/sub-
tenants over the landholding, and granting the petitioner the exclusive right
to buy the property subject to the occurrence of certain conditions. The
respondents were not parties to the said deeds. There is no evidence that
the respondents agreed, expressly or impliedly, to the said deeds or to the
terms and conditions set forth therein. Indeed, they assailed the validity of
the said deeds on their claim that the same were contrary to the letter and
spirit of P.D. No. 27 and Rep. Act No. 6657. The petitioner even admitted
when he testified that he did not know any of the respondents, and that he
had not met any of them before he filed his complaint in the RTC. He did
not even know that one of those whom he had impleaded as defendant,
Angelica Vda. de Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are residents of the
United States?
 A: I do not know, sir.
Q: You do not know also that Angela Tiotuvie (sic) Vda. de
Lacson had already been dead?
A: I am aware of that, sir.39
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie against
petitioners. As owners of the lands being tilled by TIAMSON, et al.,
petitioners, under the law, have the right to enjoy and dispose of the same.
Thus, they have the right to possess the lands, as well as the right to
encumber or alienate them. This principle of law notwithstanding, private
respondent in the lower court sought to restrain the petitioners from
encumbering and/or alienating the properties covered by TCT No. 35922-
R, 35923-R and TCT No. 35925-R of the Registry of Deeds of San
Fernando, Pampanga. This cannot be allowed to prosper since it would
constitute a limitation or restriction, not otherwise established by law on
their right of ownership, more so considering that petitioners were not
even privy to the alleged transaction between private respondent and
TIAMSON, et al.40
Second. A reading the averments of the complaint will show that the
petitioner clearly has no cause of action against the respondents for the
principal relief prayed for therein, for the trial court to fix a period within
which to pay to each of the defendants-tenants the balance of the P50.00
per square meter, the consideration under the Deeds of Assignment
executed by the defendants-tenants. The respondents are not parties or
privies to the deeds of assignment. The matter of the period for the
petitioner to pay the balance of the said amount to each of the defendants-
tenants is an issue between them, the parties to the deed.
Third. On the face of the complaint, the action of the petitioner against the
respondents and the defendants-tenants has no legal basis. Under the
Deeds of Assignment, the obligation of the petitioner to pay to each of the
defendants-tenants the balance of the purchase price was conditioned on
the occurrence of the following events: (a) the respondents agree to sell
their property to the petitioner; (b) the legal impediments to the sale of the
landholding to the petitioner no longer exist; and, (c) the petitioner decides
to buy the property. When he testified, the petitioner admitted that the legal
impediments referred to in the deeds were (a) the respondents’ refusal to
sell their property; and, (b) the lack of approval of the Department of
Agrarian Reform:
Q : There is no specific agreement prior to the execution of those
documents as when they will pay?
A : We agreed to that, that I will pay them when there are no legal
impediment, sir.
Q : Many of the documents are unlattered (sic) and you want to
convey to this Honorable Court that prior to the execution of these
documents you have those tentative agreement for instance that
the amount or the cost of the price is to be paid when there are no
legal impediment, you are using the word "legal impediment," do
you know the meaning of that?
A : When there are (sic) no more legal impediment exist, sir.
Q : Did you make how (sic) to the effect that the meaning of that
phrase that you used the unlettered defendants?
A : We have agreed to that, sir.
ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer my
question not to answer in the way he wanted it.
COURT:
 Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment then
especially if the Lacsons will not agree to sell their shares to me
or to us it would be hard to (sic) me to pay them in full. And those
covered by DAR. I explain[ed] to them and it was clearly stated
in the title that there is [a] prohibited period of time before you
can sell the property. I explained every detail to them.41
It is only upon the occurrence of the foregoing conditions that the
petitioner would be obliged to pay to the defendants-tenants the balance
of the P50.00 per square meter under the deeds of assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will mutually
agree to sell the said lot to the ASSIGNEE, who is given an
exclusive and absolute right to buy the lot, the ASSIGNOR shall
receive the sum of FIFTY PESOS (P50.00) per square meter as
consideration of the total area actually tilled and possessed by the
ASSIGNOR, less whatever amount received by the ASSIGNOR
including commissions, taxes and all allowable deductions
relative to the sale of the subject properties.
3. That this exclusive and absolute right given to the ASSIGNEE
shall be exercised only when no legal impediments exist to the lot
to effect the smooth transfer of lawful ownership of the
lot/property in the name of the ASSIGNEE;
4. That the ASSIGNOR will remain in peaceful possession over
the said property and shall enjoy the fruits/earnings and/or harvest
of the said lot until such time that full payment of the agreed
purchase price had been made by the ASSIGNEE.42
There is no showing in the petitioner’s complaint that the respondents had
agreed to sell their property, and that the legal impediments to the
agreement no longer existed. The petitioner and the defendants-tenants
had yet to submit the Deeds of Assignment to the Department of Agrarian
Reform which, in turn, had to act on and approve or disapprove the same.
In fact, as alleged by the petitioner in his complaint, he was yet to meet
with the defendants-tenants to discuss the implementation of the deeds of
assignment. Unless and until the Department of Agrarian Reform
approved the said deeds, if at all, the petitioner had no right to enforce the
same in a court of law by asking the trial court to fix a period within which
to pay the balance of the purchase price and praying for injunctive relief.
We do not agree with the contention of the petitioner that the deeds of
assignment executed by the defendants-tenants are perfected option
contracts.43 An option is a contract by which the owner of the property
agrees with another person that he shall have the right to buy his property
at a fixed price within a certain time. It is a condition offered or contract
by which the owner stipulates with another that the latter shall have the
right to buy the property at a fixed price within a certain time, or under, or
in compliance with certain terms and conditions, or which gives to the
owner of the property the right to sell or demand a sale. It imposes no
binding obligation on the person holding the option, aside from the
consideration for the offer. Until accepted, it is not, properly speaking,
treated as a contract.44 The second party gets in praesenti, not lands, not an
agreement that he shall have the lands, but the right to call for and receive
lands if he elects.45 An option contract is a separate and distinct contract
from which the parties may enter into upon the conjunction of the option.46
In this case, the defendants-tenants-subtenants, under the deeds of
assignment, granted to the petitioner not only an option but the exclusive
right to buy the landholding. But the grantors were merely the defendants-
tenants, and not the respondents, the registered owners of the property. Not
being the registered owners of the property, the defendants-tenants could
not legally grant to the petitioner the option, much less the "exclusive
right" to buy the property. As the Latin saying goes, "NEMO DAT QUOD
NON HABET."
Fourth. The petitioner impleaded the respondents as parties-defendants
solely on his allegation that the latter induced or are inducing the
defendants-tenants to violate the deeds of assignment, contrary to the
provisions of Article 1314 of the New Civil Code which reads:
Art. 1314. Any third person who induces another to violate his contract
shall be liable for damages to the other contracting party.
In So Ping Bun v. Court of Appeals,47 we held that for the said law to
apply, the pleader is burdened to prove the following: (1) the existence of
a valid contract; (2) knowledge by the third person of the existence of the
contract; and (3) interference by the third person in the contractual relation
without legal justification.
Where there was no malice in the interference of a contract, and the
impulse behind one’s conduct lies in a proper business interest rather than
in wrongful motives, a party cannot be a malicious interferer. Where the
alleged interferer is financially interested, and such interest motivates his
conduct, it cannot be said that he is an officious or malicious
intermeddler.48
In fine, one who is not a party to a contract and who interferes thereon is
not necessarily an officious or malicious intermeddler. The only evidence
adduced by the petitioner to prove his claim is the letter from the
defendants-tenants informing him that they had decided to sell their rights
and interests over the landholding to the respondents, instead of honoring
their obligation under the deeds of assignment because, according to them,
the petitioner harassed those tenants who did not want to execute deeds of
assignment in his favor, and because the said defendants-tenants did not
want to have any problem with the respondents who could cause their
eviction for executing with the petitioner the deeds of assignment as the
said deeds are in violation of P.D. No. 27 and Rep. Act No. 6657.49 The
defendants-tenants did not allege therein that the respondents induced
them to breach their contracts with the petitioner. The petitioner himself
admitted when he testified that his claim that the respondents induced the
defendants-assignees to violate contracts with him was based merely on
what "he heard," thus:
Q: Going to your last statement that the Lacsons induces (sic) the
defendants, did you see that the Lacsons were inducing the
defendants?
A: I heard and sometime in [the] first week of August, sir, they
went in the barrio (sic). As a matter of fact, that is the reason why
they sent me letter that they will sell it to the Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic) personally,
the alleged negotiator and has the authority to sell the property.50
Even if the respondents received an offer from the defendants-tenants to
assign and transfer their rights and interests on the landholding, the
respondents cannot be enjoined from entertaining the said offer, or even
negotiating with the defendants-tenants. The respondents could not even
be expected to warn the defendants-tenants for executing the said deeds in
violation of P.D. No. 27 and Rep. Act No. 6657. Under Section 22 of the
latter law, beneficiaries under P.D. No. 27 who have culpably sold,
disposed of, or abandoned their land, are disqualified from becoming
beneficiaries.
From the pleadings of the petitioner, it is quite evident that his purpose in
having the defendants-tenants execute the Deeds of Assignment in his
favor was to acquire the landholding without any tenants thereon, in the
event that the respondents agreed to sell the property to him. The petitioner
knew that under Section 11 of Rep. Act No. 3844, if the respondents
agreed to sell the property, the defendants-tenants shall have preferential
right to buy the same under reasonable terms and conditions:
SECTION 11. Lessee’s Right of Pre-emption. – In case the agricultural
lessor desires to sell the landholding, the agricultural lessee shall have the
preferential right to buy the same under reasonable terms and conditions:
Provided, That the entire landholding offered for sale must be pre-empted
by the Land Authority if the landowner so desires, unless the majority of
the lessees object to such acquisition: Provided, further, That where there
are two or more agricultural lessees, each shall be entitled to said
preferential right only to the extent of the area actually cultivated by him.
…51
Under Section 12 of the law, if the property was sold to a third person
without the knowledge of the tenants thereon, the latter shall have the right
to redeem the same at a reasonable price and consideration. By assigning
their rights and interests on the landholding under the deeds of assignment
in favor of the petitioner, the defendants-tenants thereby waived, in favor
of the petitioner, who is not a beneficiary under Section 22 of Rep. Act
No. 6657, their rights of preemption or redemption under Rep. Act No.
3844. The defendants-tenants would then have to vacate the property in
favor of the petitioner upon full payment of the purchase price. Instead of
acquiring ownership of the portions of the landholding respectively tilled
by them, the defendants-tenants would again become landless for a measly
sum of P50.00 per square meter. The petitioner’s scheme is subversive,
not only of public policy, but also of the letter and spirit of the agrarian
laws. That the scheme of the petitioner had yet to take effect in the future
or ten years hence is not a justification. The respondents may well argue
that the agrarian laws had been violated by the defendants-tenants and the
petitioner by the mere execution of the deeds of assignment. In fact, the
petitioner has implemented the deeds by paying the defendants-tenants
amounts of money and even sought their immediate implementation by
setting a meeting with the defendants-tenants. In fine, the petitioner would
not wait for ten years to evict the defendants-tenants. For him, time is of
the essence.
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.
We agree with the petitioner’s contention that the appellate court erred
when it permanently enjoined the RTC from continuing with the
proceedings in Civil Case No. 10910. The only issue before the appellate
court was whether or not the trial court committed a grave abuse of
discretion amounting to excess or lack of jurisdiction in denying the
respondents’ motion to deny or dismiss the petitioner’s plea for a writ of
preliminary injunction. Not one of the parties prayed to permanently
enjoin the trial court from further proceeding with Civil Case No. 10910
or to dismiss the complaint. It bears stressing that the petitioner may still
amend his complaint, and the respondents and the defendants-tenants may
file motions to dismiss the complaint. By permanently enjoining the trial
court from proceeding with Civil Case No. 10910, the appellate court acted
arbitrarily and effectively dismissed the complaint motu proprio, including
the counterclaims of the respondents and that of the defendants-tenants.
The defendants-tenants were even deprived of their right to prove their
special and affirmative defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals nullifying the February
13, 1996 and April 16, 1997 Orders of the RTC is AFFIRMED. The writ
of injunction issued by the Court of Appeals permanently enjoining the
RTC from further proceeding with Civil Case No. 10910 is hereby
LIFTED and SET ASIDE. The Regional Trial Court of Mabalacat,
Pampanga, Branch 44, is ORDERED to continue with the proceedings in
Civil Case No. 10910 as provided for by the Rules of Court, as amended.
SO ORDERED.
G.R. No. 111238 January 25, 1995
ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and
SALUD JIMENEZ, respondents.
The main issues presented for resolution in this petition for review
on certiorari of the judgment of respondent Court of appeals, dated April
6, 1993, in CA-G.R. CV No. 347671 are (1) whether of not the "Exclusive
Option to Purchase" executed between petitioner Adelfa Properties, Inc.
and private respondents Rosario Jimenez-Castañeda and Salud Jimenez is
an option contract; and (2) whether or not there was a valid suspension of
payment of the purchase price by said petitioner, and the legal effects
thereof on the contractual relations of the parties.
The records disclose the following antecedent facts which culminated in
the present appellate review, to wit:
1. Herein private respondents and their brothers, Jose and Dominador
Jimenez, were the registered co-owners of a parcel of land consisting of
17,710 square meters, covered by Transfer Certificate of Title (TCT) No.
309773,2situated in Barrio Culasi, Las Piñas, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their share
consisting of one-half of said parcel of land, specifically the eastern
portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng
Lupa."3Subsequently, a "Confirmatory Extrajudicial Partition
Agreement"4 was executed by the Jimenezes, wherein the eastern portion
of the subject lot, with an area of 8,855 square meters was adjudicated to
Jose and Dominador Jimenez, while the western portion was allocated to
herein private respondents.
3. Thereafter, herein petitioner expressed interest in buying the western
portion of the property from private respondents. Accordingly, on
November 25, 1989, an "Exclusive Option to Purchase"5 was executed
between petitioner and private respondents, under the following terms and
conditions:
1. The selling price of said 8,655 square meters of the subject property is
TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE
HUNDRED FIFTY PESOS ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from ADELFA
PROPERTIES, INC. as an option money shall be credited as partial
payment upon the consummation of the sale and the balance in the sum of
TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE
HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before
November 30, 1989;
3. In case of default on the part of ADELFA PROPERTIES, INC. to pay
said balance in accordance with paragraph 2 hereof, this option shall be
cancelled and 50% of the option money to be forfeited in our favor and we
will refund the remaining 50% of said money upon the sale of said
property to a third party;
4. All expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the VENDORS, and expenses
for the registration of the deed of sale in the Registry of Deeds are for the
account of ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of title
issued to respondent Salud Jimenez had been lost, a petition for the re-
issuance of a new owner's copy of said certificate of title was filed in court
through Atty. Bayani L. Bernardo, who acted as private respondents'
counsel. Eventually, a new owner's copy of the certificate of title was
issued but it remained in the possession of Atty. Bernardo until he turned
it over to petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it received summons6 on
November 29, 1989, together with a copy of a complaint filed by the
nephews and nieces of private respondents against the latter, Jose and
Dominador Jimenez, and herein petitioner in the Regional Trial Court of
Makati, docketed as Civil Case No. 89-5541, for annulment of the deed of
sale in favor of Household Corporation and recovery of ownership of the
property covered by TCT No. 309773.7
5. As a consequence, in a letter dated November 29, 1989, petitioner
informed private respondents that it would hold payment of the full
purchase price and suggested that private respondents settle the case with
their nephews and nieces, adding that ". . . if possible, although November
30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our
office up to 7:00 p.m."8 Another letter of the same tenor and of even date
was sent by petitioner to Jose and Dominador Jimenez.9 Respondent Salud
Jimenez refused to heed the suggestion of petitioner and attributed the
suspension of payment of the purchase price to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on the title of
the lot its option contract with private respondents, and its contract of sale
with Jose and Dominador Jimenez, as Entry No. 1437-4 and entry No.
1438-4, respectively.
7. On December 14, 1989, private respondents sent Francisca Jimenez to
see Atty. Bernardo, in his capacity as petitioner's counsel, and to inform
the latter that they were cancelling the transaction. In turn, Atty. Bernardo
offered to pay the purchase price provided that P500,000.00 be deducted
therefrom for the settlement of the civil case. This was rejected by private
respondents. On December 22, 1989, Atty. Bernardo wrote private
respondents on the same matter but this time reducing the amount from
P500,000.00 to P300,000.00, and this was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed
Civil Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to
be annotated anew on TCT No. 309773 the exclusive option to purchase
as Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed a
Deed of Conditional Sale 10 in favor of Emylene Chua over the same
parcel of land for P3,029,250, of which P1,500,000.00 was paid to private
respondents on said date, with the balance to be paid upon the transfer of
title to the specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents
informing the latter that in view of the dismissal of the case against them,
petitioner was willing to pay the purchase price, and he requested that the
corresponding deed of absolute sale be executed. 11 This was ignored by
private respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to petitioner
enclosing therein a check for P25,000.00 representing the refund of fifty
percent of the option money paid under the exclusive option to purchase.
Private respondents then requested petitioner to return the owner's
duplicate copy of the certificate of title of respondent Salud
Jimenez. 12 Petitioner failed to surrender the certificate of title, hence
private respondents filed Civil Case No. 7532 in the Regional Trial Court
of Pasay City, Branch 113, for annulment of contract with damages,
praying, among others, that the exclusive option to purchase be declared
null and void; that defendant, herein petitioner, be ordered to return the
owner's duplicate certificate of title; and that the annotation of the option
contract on TCT No. 309773 be cancelled. Emylene Chua, the subsequent
purchaser of the lot, filed a complaint in intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991
holding that the agreement entered into by the parties was merely an option
contract, and declaring that the suspension of payment by herein petitioner
constituted a counter-offer which, therefore, was tantamount to a rejection
of the option. It likewise ruled that herein petitioner could not validly
suspend payment in favor of private respondents on the ground that the
vindicatory action filed by the latter's kin did not involve the western
portion of the land covered by the contract between petitioner and private
respondents, but the eastern portion thereof which was the subject of the
sale between petitioner and the brothers Jose and Dominador Jimenez. The
trial court then directed the cancellation of the exclusive option to
purchase, declared the sale to intervenor Emylene Chua as valid and
binding, and ordered petitioner to pay damages and attorney's fees to
private respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in toto the decision
of the court a quo and held that the failure of petitioner to pay the purchase
price within the period agreed upon was tantamount to an election by
petitioner not to buy the property; that the suspension of payment
constituted an imposition of a condition which was actually a counter-offer
amounting to a rejection of the option; and that Article 1590 of the Civil
Code on suspension of payments applies only to a contract of sale or a
contract to sell, but not to an option contract which it opined was the nature
of the document subject of the case at bar. Said appellate court similarly
upheld the validity of the deed of conditional sale executed by private
respondents in favor of intervenor Emylene Chua.
In the present petition, the following assignment of errors are raised:
1. Respondent court of appeals acted with grave abuse of discretion in
making its finding that the agreement entered into by petitioner and private
respondents was strictly an option contract;
2. Granting arguendo that the agreement was an option contract,
respondent court of Appeals acted with grave abuse of discretion in
grievously failing to consider that while the option period had not lapsed,
private respondents could not unilaterally and prematurely terminate the
option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in
failing to appreciate fully the attendant facts and circumstances when it
made the conclusion of law that Article 1590 does not apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in
conforming with the sale in favor of appellee Ma. Emylene Chua and the
award of damages and attorney's fees which are not only excessive, but
also without in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence
presented by the parties, irresistibly leads to the conclusion that the
agreement between the parties is a contract to sell, and not an option
contract or a contract of sale.
I
1. In view of the extended disquisition thereon by respondent court, it
would be worthwhile at this juncture to briefly discourse on the rationale
behind our treatment of the alleged option contract as a contract to sell,
rather than a contract of sale. The distinction between the two is important
for in contract of sale, the title passes to the vendee upon the delivery of
the thing sold; whereas in a contract to sell, by agreement the ownership
is reserved in the vendor and is not to pass until the full payment of the
price. In a contract of sale, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or rescinded; whereas
in a contract to sell, title is retained by the vendor until the full payment of
the price, such payment being a positive suspensive condition and failure
of which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective. Thus, a deed of sale is
considered absolute in nature where there is neither a stipulation in the
deed that title to the property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the right to unilaterally
resolve the contract the moment the buyer fails to pay within a fixed
period. 15
There are two features which convince us that the parties never intended
to transfer ownership to petitioner except upon the full payment of the
purchase price. Firstly, the exclusive option to purchase, although it
provided for automatic rescission of the contract and partial forfeiture of
the amount already paid in case of default, does not mention that petitioner
is obliged to return possession or ownership of the property as a
consequence of non-payment. There is no stipulation anent reversion or
reconveyance of the property to herein private respondents in the event
that petitioner does not comply with its obligation. With the absence of
such a stipulation, although there is a provision on the remedies available
to the parties in case of breach, it may legally be inferred that the parties
never intended to transfer ownership to the petitioner to completion of
payment of the purchase price.
In effect, there was an implied agreement that ownership shall not pass to
the purchaser until he had fully paid the price. Article 1478 of the civil
code does not require that such a stipulation be expressly made.
Consequently, an implied stipulation to that effect is considered valid and,
therefore, binding and enforceable between the parties. It should be noted
that under the law and jurisprudence, a contract which contains this kind
of stipulation is considered a contract to sell.
Moreover, that the parties really intended to execute a contract to sell, and
not a contract of sale, is bolstered by the fact that the deed of absolute sale
would have been issued only upon the payment of the balance of the
purchase price, as may be gleaned from petitioner's letter dated April 16,
1990 16 wherein it informed private respondents that it "is now ready and
willing to pay you simultaneously with the execution of the corresponding
deed of absolute sale."
Secondly, it has not been shown there was delivery of the property, actual
or constructive, made to herein petitioner. The exclusive option to
purchase is not contained in a public instrument the execution of which
would have been considered equivalent to delivery. 17 Neither did
petitioner take actual, physical possession of the property at any given
time. It is true that after the reconstitution of private respondents'
certificate of title, it remained in the possession of petitioner's counsel,
Atty. Bayani L. Bernardo, who thereafter delivered the same to herein
petitioner. Normally, under the law, such possession by the vendee is to
be understood as a delivery.18 However, private respondents explained that
there was really no intention on their part to deliver the title to herein
petitioner with the purpose of transferring ownership to it. They claim that
Atty. Bernardo had possession of the title only because he was their
counsel in the petition for reconstitution. We have no reason not to believe
this explanation of private respondents, aside from the fact that such
contention was never refuted or contradicted by petitioner.
2. Irrefragably, the controverted document should legally be considered as
a perfected contract to sell. On this particular point, therefore, we reject
the position and ratiocination of respondent Court of Appeals which, while
awarding the correct relief to private respondents, categorized the
instrument as "strictly an option contract."
The important task in contract interpretation is always the ascertainment
of the intention of the contracting parties and that task is, of course, to be
discharged by looking to the words they used to project that intention in
their contract, all the words not just a particular word or two, and words in
context not words standing alone. 19 Moreover, judging from the
subsequent acts of the parties which will hereinafter be discussed, it is
undeniable that the intention of the parties was to enter into a contract to
sell. 20 In addition, the title of a contract does not necessarily determine its
true nature. 21 Hence, the fact that the document under discussion is
entitled "Exclusive Option to Purchase" is not controlling where the text
thereof shows that it is a contract to sell.
An option, as used in the law on sales, is a continuing offer or contract by
which the owner stipulates with another that the latter shall have the right
to buy the property at a fixed price within a certain time, or under, or in
compliance with, certain terms and conditions, or which gives to the owner
of the property the right to sell or demand a sale. It is also sometimes called
an "unaccepted offer." An option is not of itself a purchase, but merely
secures the privilege to buy. 22 It is not a sale of property but a sale of
property but a sale of the right to purchase. 23 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 it is, the right or privilege to buy at the election or option
of the other party. 24 Its distinguishing characteristic is that it imposes no
binding obligation on the person holding the option, aside from the
consideration for the offer. Until acceptance, it is not, properly speaking,
a contract, and does not vest, transfer, or agree to transfer, any title to, or
any interest or right in the subject matter, but is merely a contract by which
the owner of property gives the optionee the right or privilege of accepting
the offer and buying the property on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of
minds two persons whereby one binds himself, with respect to the other,
to give something or to render some service. 26 Contracts, in general, are
perfected by mere consent, 27 which is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance
absolute. 28
The distinction between an "option" and a contract of sale is that an option
is an unaccepted offer. It states the terms and conditions on which the
owner is willing to sell the land, if the holder elects to accept them within
the time limited. If the holder does so elect, he must give notice to the other
party, and the accepted offer thereupon becomes a valid and binding
contract. If an acceptance is not made within the time fixed, the owner is
no longer bound by his offer, and the option is at an end. A contract of
sale, on the other hand, fixes definitely the relative rights and obligations
of both parties at the time of its execution. The offer and the acceptance
are concurrent, since the minds of the contracting parties meet in the terms
of the agreement. 29
A perusal of the contract in this case, as well as the oral and documentary
evidence presented by the parties, readily shows that there is indeed a
concurrence of petitioner's offer to buy and private respondents'
acceptance thereof. The rule is that except where a formal acceptance is so
required, although the acceptance must be affirmatively and clearly made
and must be evidenced by some acts or conduct communicated to the
offeror, it may be made either in a formal or an informal manner, and may
be shown by acts, conduct, or words of the accepting party that clearly
manifest a present intention or determination to accept the offer to buy or
sell. Thus, acceptance may be shown by the acts, conduct, or words of a
party recognizing the existence of the contract of sale. 30
The records also show that private respondents accepted the offer of
petitioner to buy their property under the terms of their contract. At the
time petitioner made its offer, private respondents suggested that their
transfer certificate of title be first reconstituted, to which petitioner agreed.
As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo,
who assisted private respondents in filing a petition for reconstitution.
After the title was reconstituted, the parties agreed that petitioner would
pay either in cash or manager's check the amount of P2,856,150.00 for the
lot. Petitioner was supposed to pay the same on November 25, 1989, but
it later offered to make a down payment of P50,000.00, with the balance
of P2,806,150.00 to be paid on or before November 30, 1989. Private
respondents agreed to the counter-offer made by petitioner. 31 As a result,
the so-called exclusive option to purchase was prepared by petitioner and
was subsequently signed by private respondents, thereby creating a
perfected contract to sell between them.
It cannot be gainsaid that the offer to buy a specific piece of land was
definite and certain, while the acceptance thereof was absolute and without
any condition or qualification. The agreement as to the object, the price of
the property, and the terms of payment was clear and well-defined. No
other significance could be given to such acts that than they were meant to
finalize and perfect the transaction. The parties even went beyond the basic
requirements of the law by stipulating that "all expenses including the
corresponding capital gains tax, cost of documentary stamps are for the
account of the vendors, and expenses for the registration of the deed of
sale in the Registry of Deeds are for the account of Adelfa properties, Inc."
Hence, there was nothing left to be done except the performance of the
respective obligations of the parties.
We do not subscribe to private respondents' submission, which was upheld
by both the trial court and respondent court of appeals, that the offer of
petitioner to deduct P500,000.00, (later reduced to P300,000.00) from the
purchase price for the settlement of the civil case was tantamount to a
counter-offer. It must be stressed that there already existed a perfected
contract between the parties at the time the alleged counter-offer was
made. Thus, any new offer by a party becomes binding only when it is
accepted by the other. In the case of private respondents, they actually
refused to concur in said offer of petitioner, by reason of which the original
terms of the contract continued to be enforceable.
At any rate, the same cannot be considered a counter-offer for the simple
reason that petitioner's sole purpose was to settle the civil case in order
that it could already comply with its obligation. In fact, it was even
indicative of a desire by petitioner to immediately comply therewith,
except that it was being prevented from doing so because of the filing of
the civil case which, it believed in good faith, rendered compliance
improbable at that time. In addition, no inference can be drawn from that
suggestion given by petitioner that it was totally abandoning the original
contract.
More importantly, it will be noted that the failure of petitioner to pay the
balance of the purchase price within the agreed period was attributed by
private respondents to "lack of word of honor" on the part of the former.
The reason of "lack of word of honor" is to us a clear indication that private
respondents considered petitioner already bound by its obligation to pay
the balance of the consideration. In effect, private respondents were
demanding or exacting fulfillment of the obligation from herein petitioner.
with the arrival of the period agreed upon by the parties, petitioner was
supposed to comply with the obligation incumbent upon it to perform, not
merely to exercise an option or a right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of an
obligation to give something, that is, the payment of the purchase price.
The contract did not simply give petitioner the discretion to pay for the
property. 32 It will be noted that there is nothing in the said contract to
show that petitioner was merely given a certain period within which to
exercise its privilege to buy. The agreed period was intended to give time
to herein petitioner within which to fulfill and comply with its obligation,
that is, to pay the balance of the purchase price. No evidence was presented
by private respondents to prove otherwise.
The test in determining whether a contract is a "contract of sale or
purchase" or a mere "option" is whether or not the agreement could be
specifically enforced. 33 There is no doubt that the obligation of petitioner
to pay the purchase price is specific, definite and certain, and consequently
binding and enforceable. Had private respondents chosen to enforce the
contract, they could have specifically compelled petitioner to pay the
balance of P2,806,150.00. This is distinctly made manifest in the contract
itself as an integral stipulation, compliance with which could legally and
definitely be demanded from petitioner as a consequence.
This is not a case where no right is as yet created nor an obligation
declared, as where something further remains to be done before the buyer
and seller obligate themselves. 34 An agreement is only an "option" when
no obligation rests on the party to make any payment except such as may
be agreed on between the parties as consideration to support the option
until he has made up his mind within the time specified. 35 An option, and
not a contract to purchase, is effected by an agreement to sell real estate
for payments to be made within specified time and providing forfeiture of
money paid upon failure to make payment, where the purchaser does not
agree to purchase, to make payment, or to bind himself in any way other
than the forfeiture of the payments made. 36 As hereinbefore discussed,
this is not the situation obtaining in the case at bar.
While there is jurisprudence to the effect that a contract which provides
that the initial payment shall be totally forfeited in case of default in
payment is to be considered as an option contract, 37 still we are not
inclined to conform with the findings of respondent court and the court a
quo that the contract executed between the parties is an option contract,
for the reason that the parties were already contemplating the payment of
the balance of the purchase price, and were not merely quoting an agreed
value for the property. The term "balance," connotes a remainder or
something remaining from the original total sum already agreed upon.
In other words, the alleged option money of P50,000.00 was actually
earnest money which was intended to form part of the purchase price. The
amount of P50,000.00 was not distinct from the cause or consideration for
the sale of the property, but was itself a part thereof. It is a statutory rule
that whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the
contract. 38 It constitutes an advance payment and must, therefore, be
deducted from the total price. Also, earnest money is given by the buyer
to the seller to bind the bargain.
There are clear distinctions between earnest money and option
money, viz.: (a) earnest money is part of the purchase price, while option
money ids the money given as a distinct consideration for an option
contract; (b) earnest money is given only where there is already a sale,
while option money applies to a sale not yet perfected; and (c) when
earnest money is given, the buyer is bound to pay the balance, while when
the would-be buyer gives option money, he is not required to buy. 39
The aforequoted characteristics of earnest money are apparent in the so-
called option contract under review, even though it was called "option
money" by the parties. In addition, private respondents failed to show that
the payment of the balance of the purchase price was only a condition
precedent to the acceptance of the offer or to the exercise of the right to
buy. On the contrary, it has been sufficiently established that such payment
was but an element of the performance of petitioner's obligation under the
contract to sell. 40
II
1. This brings us to the second issue as to whether or not there was valid
suspension of payment of the purchase price by petitioner and the legal
consequences thereof. To justify its failure to pay the purchase price within
the agreed period, petitioner invokes Article 1590 of the civil Code which
provides:
Art. 1590. Should the vendee be disturbed in the
possession or ownership of the thing acquired, or should
he have reasonable grounds to fear such disturbance, by a
vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has
caused the disturbance or danger to cease, unless the latter
gives security for the return of the price in a proper case,
or it has been stipulated that, notwithstanding any such
contingency, the vendee shall be bound to make the
payment. A mere act of trespass shall not authorize the
suspension of the payment of the price.
Respondent court refused to apply the aforequoted provision of law on the
erroneous assumption that the true agreement between the parties was a
contract of option. As we have hereinbefore discussed, it was not an option
contract but a perfected contract to sell. Verily, therefore, Article 1590
would properly apply.
Both lower courts, however, are in accord that since Civil Case No. 89-
5541 filed against the parties herein involved only the eastern half of the
land subject of the deed of sale between petitioner and the Jimenez
brothers, it did not, therefore, have any adverse effect on private
respondents' title and ownership over the western half of the land which is
covered by the contract subject of the present case. We have gone over the
complaint for recovery of ownership filed in said case 41 and we are not
persuaded by the factual findings made by said courts. At a glance, it is
easily discernible that, although the complaint prayed for the annulment
only of the contract of sale executed between petitioner and the Jimenez
brothers, the same likewise prayed for the recovery of therein plaintiffs'
share in that parcel of land specifically covered by TCT No. 309773. In
other words, the plaintiffs therein were claiming to be co-owners of the
entire parcel of land described in TCT No. 309773, and not only of a
portion thereof nor, as incorrectly interpreted by the lower courts, did their
claim pertain exclusively to the eastern half adjudicated to the Jimenez
brothers.
Such being the case, petitioner was justified in suspending payment of the
balance of the purchase price by reason of the aforesaid vindicatory action
filed against it. The assurance made by private respondents that petitioner
did not have to worry about the case because it was pure and simple
harassment 42 is not the kind of guaranty contemplated under the exceptive
clause in Article 1590 wherein the vendor is bound to make payment even
with the existence of a vindicatory action if the vendee should give a
security for the return of the price.
2. Be that as it may, and the validity of the suspension of payment
notwithstanding, we find and hold that private respondents may no longer
be compelled to sell and deliver the subject property to petitioner for two
reasons, that is, petitioner's failure to duly effect the consignation of the
purchase price after the disturbance had ceased; and, secondarily, the fact
that the contract to sell had been validly rescinded by private respondents.
The records of this case reveal that as early as February 28, 1990 when
petitioner caused its exclusive option to be annotated anew on the
certificate of title, it already knew of the dismissal of civil Case No. 89-
5541. However, it was only on April 16, 1990 that petitioner, through its
counsel, wrote private respondents expressing its willingness to pay the
balance of the purchase price upon the execution of the corresponding
deed of absolute sale. At most, that was merely a notice to pay. There was
no proper tender of payment nor consignation in this case as required by
law.
The mere sending of a letter by the vendee expressing the intention to
pay, without the accompanying payment, is not considered a valid tender
of payment. 43 Besides, a mere tender of payment is not sufficient to
compel private respondents to deliver the property and execute the deed
of absolute sale. It is consignation which is essential in order to extinguish
petitioner's obligation to pay the balance of the purchase price. 44 The rule
is different in case of an option contract 45 or in legal redemption or in a
sale with right to repurchase, 46 wherein consignation is not necessary
because these cases involve an exercise of a right or privilege (to buy,
redeem or repurchase) rather than the discharge of an obligation, hence
tender of payment would be sufficient to preserve the right or privilege.
This is because the provisions on consignation are not applicable when
there is no obligation to pay. 47 A contract to sell, as in the case before us,
involves the performance of an obligation, not merely the exercise of a
privilege of a right. consequently, performance or payment may be
effected not by tender of payment alone but by both tender and
consignation.
Furthermore, petitioner no longer had the right to suspend payment after
the disturbance ceased with the dismissal of the civil case filed against it.
Necessarily, therefore, its obligation to pay the balance again arose and
resumed after it received notice of such dismissal. Unfortunately,
petitioner failed to seasonably make payment, as in fact it has deposit the
money with the trial court when this case was originally filed therein.
By reason of petitioner's failure to comply with its obligation, private
respondents elected to resort to and did announce the rescission of the
contract through its letter to petitioner dated July 27, 1990. That written
notice of rescission is deemed sufficient under the circumstances. Article
1592 of the Civil Code which requires rescission either by judicial action
or notarial act is not applicable to a contract to sell. 48 Furthermore, judicial
action for rescission of a contract is not necessary where the contract
provides for automatic rescission in case of breach,49 as in the contract
involved in the present controversy.
We are not unaware of the ruling in University of the Philippines vs. De
los Angeles, etc. 50 that the right to rescind is not absolute, being ever
subject to scrutiny and review by the proper court. It is our considered
view, however, that this rule applies to a situation where the extrajudicial
rescission is contested by the defaulting party. In other words, resolution
of reciprocal contracts may be made extrajudicially unless successfully
impugned in court. If the debtor impugns the declaration, it shall be subject
to judicial determination51 otherwise, if said party does not oppose it, the
extrajudicial rescission shall have legal effect. 52

In the case at bar, it has been shown that although petitioner was duly
furnished and did receive a written notice of rescission which specified the
grounds therefore, it failed to reply thereto or protest against it. Its silence
thereon suggests an admission of the veracity and validity of private
respondents' claim. 53 Furthermore, the initiative of instituting suit was
transferred from the rescinder to the defaulter by virtue of the automatic
rescission clause in the contract. 54 But then, the records bear out the fact
that aside from the lackadaisical manner with which petitioner treated
private respondents' latter of cancellation, it utterly failed to seriously seek
redress from the court for the enforcement of its alleged rights under the
contract. If private respondents had not taken the initiative of filing Civil
Case No. 7532, evidently petitioner had no intention to take any legal
action to compel specific performance from the former. By such cavalier
disregard, it has been effectively estopped from seeking the affirmative
relief it now desires but which it had theretofore disdained.

WHEREFORE, on the foregoing modificatory premises, and considering

that the same result has been reached by respondent Court of Appeals with
respect to the relief awarded to private respondents by the court a
quo which we find to be correct, its assailed judgment in CA-G.R. CV No.
34767 is hereby AFFIRMED.

SO ORDERED.
G.R. No. 97332 October 10, 1991
SPOUSES JULIO D. VILLAMOR AND MARINA
VILLAMOR, petitioners,
vs.
THE HON. COURT OF APPEALS AND SPOUSES MACARIA
LABINGISA REYES AND ROBERTO REYES,respondents.
The facts of the case are as follows:
Macaria Labingisa Reyes was the owner of a 600-square meter lot located
at Baesa, Caloocan City, as evidenced by Transfer Certificate of Title No.
(18431) 18938, of the Register of Deeds of Rizal.
In July 1971, Macaria sold a portion of 300 square meters of the lot to the
Spouses Julio and Marina and Villamor for the total amount of
P21,000.00. Earlier, Macaria borrowed P2,000.00 from the spouses which
amount was deducted from the total purchase price of the 300 square meter
lot sold. The portion sold to the Villamor spouses is now covered by TCT
No. 39935 while the remaining portion which is still in the name of
Macaria Labing-isa is covered by TCT No. 39934 (pars. 5 and 7,
Complaint). On November 11, 1971, Macaria executed a "Deed of Option"
in favor of Villamor in which the remaining 300 square meter portion
(TCT No. 39934) of the lot would be sold to Villamor under the conditions
stated therein. The document reads:
DEED OF OPTION
This Deed of Option, entered into in the City of Manila, Philippines, this
11th day of November, 1971, by and between Macaria Labing-isa, of age,
married to Roberto Reyes, likewise of age, and both resideing on Reparo
St., Baesa, Caloocan City, on the one hand, and on the other hand the
spouses Julio Villamor and Marina V. Villamor, also of age and residing
at No. 552 Reparo St., corner Baesa Road, Baesa, Caloocan City.
WITNESSETH
That, I Macaria Labingisa, am the owner in fee simple of a parcel of land
with an area of 600 square meters, more or less, more particularly
described in TCT No. (18431) 18938 of the Office of the Register of Deeds
for the province of Rizal, issued in may name, I having inherited the same
from my deceased parents, for which reason it is my paraphernal property;
That I, with the conformity of my husband, Roberto Reyes, have sold one-
half thereof to the aforesaid spouses Julio Villamor and Marina V.
Villamor at the price of P70.00 per sq. meter, which was greatly higher
than the actual reasonable prevailing value of lands in that place at the
time, which portion, after segregation, is now covered by TCT No. 39935
of the Register of Deeds for the City of Caloocan, issued on August 17,
1971 in the name of the aforementioned spouses vendees;
That the only reason why the Spouses-vendees Julio Villamor and Marina
V. Villamor, agreed to buy the said one-half portion at the above-stated
price of about P70.00 per square meter, is because I, and my husband
Roberto Reyes, have agreed to sell and convey to them the remaining one-
half portion still owned by me and now covered by TCT No. 39935 of the
Register of Deeds for the City of Caloocan, whenever the need of such
sale arises, either on our part or on the part of the spouses (Julio) Villamor
and Marina V. Villamor, at the same price of P70.00 per square meter,
excluding whatever improvement may be found the thereon;
That I am willing to have this contract to sell inscribed on my aforesaid
title as an encumbrance upon the property covered thereby, upon payment
of the corresponding fees; and
That we, Julio Villamor and Marina V. Villamor, hereby agree to, and
accept, the above provisions of this Deed of Option.
IN WITNESS WHEREOF, this Deed of Option is signed in the City of
Manila, Philippines, by all the persons concerned, this 11th day of
November, 1971.
JULIO VILLAMOR MACARIA LABINGISA
With My Conformity: Doc. No. 1526;
Page No. 24;
MARINA VILLAMOR ROBERTO REYES Book No. 38;
Series of 1971. (pp. 25-29, Rollo)
Signed in the Presence Of:
According to Macaria, when her husband, Roberto Reyes, retired in 1984,
MARIANO Z. SUNIGA they offered to repurchase the lot sold by them to the Villamor spouses but
ROSALINDA S. EUGENIO Marina Villamor refused and reminded them instead that the Deed of
Option in fact gave them the option to purchase the remaining portion of
ACKNOWLEDGMENT the lot.

REPUBLIC OF THE PHILIPPINES)
CITY OF MANILA ) S.S.
At the City of Manila, on the 11th day of November, 1971, personally
appeared before me Roberto Reyes, Macaria Labingisa, Julio Villamor
and Marina Ventura-Villamor, known to me as the same persons who
executed the foregoing Deed of Option, which consists of two (2) pages
including the page whereon this acknowledgement is written, and signed
at the left margin of the first page and at the bottom of the instrument by
the parties and their witnesses, and sealed with my notarial seal, and said
parties acknowledged to me that the same is their free act and deed. The
Residence Certificates of the parties were exhibited to me as follows:
Roberto Reyes, A-22494, issued at Manila on Jan. 27, 1971, and B-
502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria Labingisa, A-
3339130 and B-1266104, both issued at Caloocan City on April 15, 1971,
their joint Tax Acct. Number being 3028-767-6; Julio Villamor, A-804,
issued at Manila on Jan. 14, 1971, and B-138, issued at Manila on March
1, 1971; and Marina Ventura-Villamor, A-803, issued at Manila on Jan.
14, 1971, their joint Tax Acct. Number being 608-202-6.
The Villamors, on the other hand, claimed that they had expressed their
desire to purchase the remaining 300 square meter portion of the lot but
the Reyeses had been ignoring them. Thus, on July 13, 1987, after
conciliation proceedings in the barangay level failed, they filed a
complaint for specific performance against the Reyeses.
On July 26, 1989, judgment was rendered by the trial court in favor of the
Villamor spouses, the dispositive portion of which states:
WHEREFORE, and (sic) in view of the foregoing, judgment is hereby
rendered in favor of the plaintiffs and against the defendants ordering the
defendant MACARIA LABING-ISA REYES and ROBERTO REYES, to
sell unto the plaintiffs the land covered by T.C.T No. 39934 of the Register
of Deeds of Caloocan City, to pay the plaintiffs the sum of P3,000.00 as
and for attorney's fees and to pay the cost of suit.
The counterclaim is hereby DISMISSED, for LACK OF MERIT.
SO ORDERED. (pp. 24-25, Rollo)

ARTEMIO M. MALUBAY Not satisfied with the decision of the trial court, the Reyes spouses
Notary Public appealed to the Court of Appeals on the following assignment of errors:
Until December 31, 1972
PTR No. 338203, Manila 1. HOLDING THAT THE DEED OF OPTION EXECUTED ON
January 15, 1971 NOVEMBER 11, 1971 BETWEEN THE PLAINTIFF-APPELLEES
AND DEFENDANT-APPELLANTS IS STILL VALID AND BINDING
DESPITE THE LAPSE OF MORE THAN THIRTEEN (13) YEARS
FROM THE EXECUTION OF THE CONTRACT;
2. FAILING TO CONSIDER THAT THE DEED OF OPTION
CONTAINS OBSCURE WORDS AND STIPULATIONS WHICH
SHOULD BE RESOLVED AGAINST THE PLAINTIFF-APPELLEES
WHO UNILATERALLY DRAFTED AND PREPARED THE SAME;
3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE
INTENTION AND PURPOSE OF THE PARTIES DESPITE ADVERSE,
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE
PLAINTIFF-APPELLEES;
4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON
ACCOUNT OF THEIR IGNORANCE PLACING THEM AT A
DISADVANTAGE IN THE DEED OF OPTION;
5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION
TILT IN FAVOR OF THE DEFENDANT-APPELLANTS; and
6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY
PLAINTIFF-APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY
WAY OF ATTORNEY'S FEES. (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision reversing
the decision of the trial court and dismissing the complaint. The reversal
of the trial court's decision was premised on the finding of respondent
court that the Deed of Option is void for lack of consideration.
The Villamor spouses brought the instant petition for review on certiorari
on the following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT
THE PHRASE WHENEVER THE NEED FOR SUCH SALE ARISES
ON OUR (PRIVATE RESPONDENT) PART OR ON THE PART OF
THE SPOUSES JULIO D. VILLAMOR AND MARINA V. VILLAMOR'
CONTAINED IN THE DEED OF OPTION DENOTES A SUSPENSIVE
CONDITION;
II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE
QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF
APPEALS ERRED IN NOT FINDING, THAT THE SAID CONDITION
HAD ALREADY BEEN FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE
QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF
APPEALS ERRED IN HOLDING THAT THE IMPOSITION OF SAID
CONDITION PREVENTED THE PERFECTION OF THE CONTRACT
OF SALE DESPITE THE EXPRESS OFFER AND ACCEPTANCE
CONTAINED IN THE DEED OF OPTION;
IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE
DEED OF OPTION IS VOID FOR LACK OF CONSIDERATION;
V. THE COURT OF APPEALS ERRED IN HOLDING THAT A
DISTINCT CONSIDERATION IS NECESSARY TO SUPPORT THE
DEED OF OPTION DESPITE THE EXPRESS OFFER AND
ACCEPTANCE CONTAINED THEREIN. (p. 12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed of
Option whereby the private respondents agreed to sell their lot to
petitioners "whenever the need of such sale arises, either on our part
(private respondents) or on the part of Julio Villamor and Marina Villamor
(petitioners)." The court a quo, rule that the Deed of Option was a
valid written agreement between the parties and made the following
conclusions:
xxx xxx xxx
It is interesting to state that the agreement between the parties are
evidence by a writing, hence, the controverting oral testimonies of the
herein defendants cannot be any better than the documentary evidence,
which, in this case, is the Deed of Option (Exh. "A" and "A-a")
The law provides that when the terms of an agreement have been reduced
to writing it is to be considered as containing all such terms, and therefore,
there can be, between the parties and their successors in interest no
evidence of their terms of the agreement, other than the contents of the
writing. ... (Section 7 Rule 130 Revised Rules of Court) Likewise, it is a
general and most inflexible rule that wherever written instruments are
appointed either by the requirements of law, or by the contract of the
parties, to be the repositories and memorials of truth, any other evidence
is excluded from being used, either as a substitute for such instruments, or
to contradict or alter them. This is a matter both of principle and of policy;
of principle because such instruments are in their nature and origin entitled
to a much higher degree of credit than evidence of policy, because it would
be attended with great mischief if those instruments upon which man's
rights depended were liable to be impeached by loose collateral
evidence. Where the terms of an agreement are reduced to writing, the
document itself, being constituted by the parties as the expositor of their
intentions, it is the only instrument of evidence in respect of that
agreement which the law will recognize so long as it exists for the purpose
of evidence. (Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy,
W.R. 68, cited in Francisco's Rules of Court, Vol. VII Part I p. 153)
(Emphasis supplied, pp. 126-127, Records).
The respondent appellate court, however, ruled that the said deed of option
is void for lack of consideration. The appellate court made the following
disquisitions:
Plaintiff-appellees say they agreed to pay P70.00 per square meter for the
portion purchased by them although the prevailing price at that time was
only P25.00 in consideration of the option to buy the remainder of the land.
This does not seem to be the case. In the first place, the deed of sale was
never produced by them to prove their claim. Defendant-appellants
testified that no copy of the deed of sale had ever been given to them by
the plaintiff-appellees. In the second place, if this was really the condition
of the prior sale, we see no reason why it should be reiterated in the Deed
of Option. On the contrary, the alleged overprice paid by the plaintiff-
appellees is given in the Deed as reason for the desire of the Villamors to
acquire the land rather than as a consideration for the option given to them,
although one might wonder why they took nearly 13 years to invoke their
right if they really were in due need of the lot.
At all events, the consideration needed to support a unilateral promise to
sell is a dinstinct one, not something that is as uncertain as P70.00 per
square meter which is allegedly 'greatly higher than the actual prevailing
value of lands.' A sale must be for a price certain (Art. 1458). For how
much the portion conveyed to the plaintiff-appellees was sold so that the
balance could be considered the consideration for the promise to sell has
not been shown, beyond a mere allegation that it was very much below
P70.00 per square meter.
The fact that plaintiff-appellees might have paid P18.00 per square meter
for another land at the time of the sale to them of a portion of defendant-
appellant's lot does not necessarily prove that the prevailing market price
at the time of the sale was P18.00 per square meter. (In fact they claim it
was P25.00). It is improbable that plaintiff-appellees should pay P52.00
per square meter for the privilege of buying when the value of the land
itself was allegedly P18.00 per square meter. (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the
why of the contracts, the essential reason which moves the contracting
parties to enter into the contract." The cause or the impelling reason on the
part of private respondent executing the deed of option as appearing in the
deed itself is the petitioner's having agreed to buy the 300 square meter
portion of private respondents' land at P70.00 per square meter "which was
greatly higher than the actual reasonable prevailing price." This cause or
consideration is clear from the deed which stated:
That the only reason why the spouses-vendees Julio Villamor and Marina
V. Villamor agreed to buy the said one-half portion at the above stated
price of about P70.00 per square meter, is because I, and my husband
Roberto Reyes, have agreed to sell and convey to them the remaining one-
half portion still owned by me ... (p. 26, Rollo)
The respondent appellate court failed to give due consideration to
petitioners' evidence which shows that in 1969 the Villamor spouses
bough an adjacent lot from the brother of Macaria Labing-isa for only
P18.00 per square meter which the private respondents did not rebut. Thus,
expressed in terms of money, the consideration for the deed of option is
the difference between the purchase price of the 300 square meter portion
of the lot in 1971 (P70.00 per sq.m.) and the prevailing reasonable price
of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though not
specifically stated in the deed of option, was ascertainable. Petitioner's
allegedly paying P52.00 per square meter for the option may, as opined by
the appellate court, be improbable but improbabilities does not invalidate
a contract freely entered into by the parties.
The "deed of option" entered into by the parties in this case had unique
features. Ordinarily, an optional contract is a privilege existing in one
person, for which he had paid a consideration and which gives him the
right to buy, for example, certain merchandise or certain specified
property, from another person, if he chooses, at any time within the agreed
period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We
look closely at the "deed of option" signed by the parties, We will notice
that the first part covered the statement on the sale of the 300 square meter
portion of the lot to Spouses Villamor at the price of P70.00 per square
meter "which was higher than the actual reasonable prevailing value of the
lands in that place at that time (of sale)." The second part stated that the
only reason why the Villamor spouses agreed to buy the said lot at a much
higher price is because the vendor (Reyeses) also agreed to sell to the
Villamors the other half-portion of 300 square meters of the land. Had the
deed stopped there, there would be no dispute that the deed is really an
ordinary deed of option granting the Villamors the option to buy the
remaining 300 square meter-half portion of the lot in consideration for
their having agreed to buy the other half of the land for a much higher
price. But, the "deed of option" went on and stated that the sale of the other
half would be made "whenever the need of such sale arises, either on our
(Reyeses) part or on the part of the Spouses Julio Villamor and Marina V.
Villamor. It appears that while the option to buy was granted to the
Villamors, the Reyeses were likewise granted an option to sell. In other
words, it was not only the Villamors who were granted an option to buy
for which they paid a consideration. The Reyeses as well were granted an
option to sell should the need for such sale on their part arise.
In the instant case, the option offered by private respondents had been
accepted by the petitioner, the promise, in the same document. The
acceptance of an offer to sell for a price certain created a bilateral contract
to sell and buy and upon acceptance, the offer, ipso facto assumes
obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102
Phil. 948). Demandabilitiy may be exercised at any time after the
execution of the deed. In Sanchez v. Rigos, No. L-25494, June 14, 1972,
45 SCRA 368, 376, We held:
In other words, since there may be no valid contract without a cause of
consideration, the promisory is not bound by his promise and may,
accordingly withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
A contract of sale is, under Article 1475 of the Civil Code, "perfected at
the moment there is a meeting of minds upon the thing which is the object
of the contract and upon the price. From that moment, the parties may
reciprocally demand perform of contracts." Since there was, between the
parties, a meeting of minds upon the object and the price, there was already
a perfected contract of sale. What was, however, left to be done was for
either party to demand from the other their respective undertakings under
the contract. It may be demanded at any time either by the private
respondents, who may compel the petitioners to pay for the property or the
petitioners, who may compel the private respondents to deliver the
property.
However, the Deed of Option did not provide for the period within which
the parties may demand the performance of their respective undertakings
in the instrument. The parties could not have contemplated that the in the exercise of its equity jurisdiction is not inclined to grant petitioners'
delivery of the property and the payment thereof could be made prayer.
indefinitely and render uncertain the status of the land. The failure of either
parties to demand performance of the obligation of the other for an ACCORDINGLY, the petition is DENIED. The decision of respondent
unreasonable length of time renders the contract ineffective. appellate court is AFFIRMED for reasons cited in this decision.
Judgement is rendered dismissing the complaint in Civil Case No. C-
Under Article 1144 (1) of the Civil Code, actions upon written contract 12942 on the ground of prescription and laches.
must be brought within ten (10) years. The Deed of Option was executed
on November 11, 1971. The acceptance, as already mentioned, was also SO ORDERED.
accepted in the same instrument. The complaint in this case was filed by
the petitioners on July 13, 1987, seventeen (17) years from the time of the
execution of the contract. Hence, the right of action had prescribed. There
were allegations by the petitioners that they demanded from the private
respondents as early as 1984 the enforcement of their rights under the
contract. Still, it was beyond the ten (10) years period prescribed by the
Civil Code. In the case of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and
subscribing to the observations of the court a quo held, thus:

... Assuming that Rosa Ganayo, the oppositor herein, had the right based
on the Agreement to Convey and Transfer as contained in Exhibits '1' and
'1-A', her failure or the abandonment of her right to file an action against
Pulmano Molintas when he was still a co-owner of the on-half (1/2)
portion of the 10,000 square meters is now barred by laches and/or
prescribed by law because she failed to bring such action within ten (10)
years from the date of the written agreement in 1941, pursuant to Art. 1144
of the New Civil Code, so that when she filed the adverse claim through
her counsel in 1959 she had absolutely no more right whatsoever on the
same, having been barred by laches.

It is of judicial notice that the price of real estate in Metro Manila is

continuously on the rise. To allow the petitioner to demand the delivery of
the property subject of this case thirteen (13) years or seventeen (17) years
after the execution of the deed at the price of only P70.00 per square meter
is inequitous. For reasons also of equity and in consideration of the fact
that the private respondents have no other decent place to live, this Court,
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Appeal from a decision of the Court of First Instance of Nueva Ecija to the
Court of Appeals, which certified the case to Us, upon the ground that it
involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and
defendant Severina Rigos executed an instrument entitled "Option to
Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to
sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the
barrios of Abar and Sibot, municipality of San Jose, province of Nueva
Ecija, and more particularly described in Transfer Certificate of Title No.
NT-12528 of said province, within two (2) years from said date with the
understanding that said option shall be deemed "terminated and elapsed,"
if "Sanchez shall fail to exercise his right to buy the property" within the
stipulated period. Inasmuch as several tenders of payment of the sum of
Pl,510.00, made by Sanchez within said period, were rejected by Mrs.
Rigos, on March 12, 1963, the former deposited said amount with the
Court of First Instance of Nueva Ecija and commenced against the latter
the present action, for specific performance and damages.
After the filing of defendant's answer — admitting some allegations of the
complaint, denying other allegations thereof, and alleging, as special
defense, that the contract between the parties "is a unilateral promise to
sell, and the same being unsupported by any valuable consideration, by
force of the New Civil Code, is null and void" — on February 11, 1964,
both parties, assisted by their respective counsel, jointly moved for a
judgment on the pleadings. Accordingly, on February 28, 1964, the lower
court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the
sum judicially consigned by him and to execute, in his favor, the requisite
deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00,
as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of
our Civil Code, which provides:
ART. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by
a consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under
consideration, "defendant agreed and committed to sell" and "the plaintiff
agreed and committed to buy" the land described in the option, copy of
which was annexed to said pleading as Annex A thereof and is quoted on
the margin.1 Hence, plaintiff maintains that the promise contained in the
contract is "reciprocally demandable," pursuant to the first paragraph of
said Article 1479. Although defendant had really "agreed, promised and
committed" herself to sell the land to the plaintiff, it is not true that the
latter had, in turn, "agreed and committed himself " to buy said property.
Said Annex A does not bear out plaintiff's allegation to this effect. What
is more, since Annex A has been made "an integral part" of his complaint,
the provisions of said instrument form part "and parcel"2 of said pleading.
The option did not impose upon plaintiff the obligation to
purchase defendant's property. Annex A is not a "contract to buy and sell."
It merely granted plaintiff an "option" to buy. And both parties so
understood it, as indicated by the caption, "Option to Purchase," given by
them to said instrument. Under the provisions thereof, the defendant
"agreed, promised and committed" herself to sell the land therein
described to the plaintiff for P1,510.00, but there is nothing in the contract
to indicate that her aforementioned agreement, promise and undertaking is
supported by a consideration "distinct from the price" stipulated for
the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower
court presumed the existence of said consideration, and this would seem
to be the main factor that influenced its decision in plaintiff's favor. It
should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second
paragraph of Article 1479 refers to "sales" in particular, and, more
specifically, to "an accepted unilateral promise to buy or to sell." In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the
promisor, Article 1479 requires the concurrence of a condition, namely,
that the promise be "supported by a consideration distinct from the price."
Accordingly, the promisee can not compel the promisor to comply with
the promise, unless the former establishes the existence of said distinct
consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even alleged the
existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and
pleaded as a special defense, the absence of said consideration for her
promise to sell and, by joining in the petition for a judgment on the
pleadings, plaintiff has impliedly admitted the truth of said averment in
defendant's answer. Indeed as early as March 14, 1908, it had been held,
in Bauermann v. Casas,3 that:
One who prays for judgment on the pleadings without offering proof as to
the truth of his own allegations, and without giving the opposing party an
opportunity to introduce evidence, must be understood to admit the truth
of all the material and relevant allegations of the opposing party, and to
rest his motion for judgment on those allegations taken together with such
of his own as are admitted in the pleadings. (La Yebana Company vs.
Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa4 and Mercy's
Incorporated v. Herminia Verde.5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf
& Pacific Co.,6 from which We quote:
The main contention of appellant is that the option granted to appellee to
sell to it barge No. 10 for the sum of P30,000 under the terms stated above
has no legal effect because it is not supported by any consideration and in
support thereof it invokes article 1479 of the new Civil Code. The article
provides:
"ART. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price."
On the other hand, Appellee contends that, even granting that the "offer of
option" is not supported by any consideration, that option became binding
on appellant when the appellee gave notice to it of its acceptance, and that
having accepted it within the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is ineffective. In support this
contention, appellee invokes article 1324 of the Civil Code which
provides:
"ART. 1324. When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn any time before acceptance by
communicating such withdrawal, except when the option is founded upon
consideration as something paid or promised."
There is no question that under article 1479 of the new Civil Code "an
option to sell," or "a promise to buy or to sell," as used in said article, to
be valid must be "supported by a consideration distinct from the price."
This is clearly inferred from the context of said article that a unilateral
promise to buy or to sell, even if accepted, is only binding if supported by
consideration. In other words, "an accepted unilateral promise can only
have a binding effect if supported by a consideration which means that the
option can still be withdrawn, even if accepted, if the same is not supported
by any consideration. It is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding the
acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the general rule
regarding offer and acceptance is that, when the offerer gives to the offeree
a certain period to accept, "the offer may be withdrawn at any time before
acceptance" except when the option is founded upon consideration, but
this general rule must be interpreted as modified by the provision of article
1479 above referred to, which applies to "a promise to buy and
sell" specifically. As already stated, this rule requires that a promise to sell
to be valid must be supported by a consideration distinct from the price.
We are not oblivious of the existence of American authorities which hold
that an offer, once accepted, cannot be withdrawn, regardless of whether
it is supported or not by a consideration (12 Am. Jur. 528). These
authorities, we note, uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code. But we are prevented from
applying them in view of the specific provision embodied in article 1479.
While under the "offer of option" in question appellant has assumed a clear
obligation to sell its barge to appellee and the option has been exercised in
accordance with its terms, and there appears to be no valid or justifiable
reason for appellant to withdraw its offer, this Court cannot adopt a
different attitude because the law on the matter is clear. Our imperative
duty is to apply it unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua
Hian Tek,8 decided later that Southwestern Sugar & Molasses Co. v.
Atlantic Gulf & Pacific Co.,9 saw no distinction between Articles 1324 and
1479 of the Civil Code and applied the former where a unilateral promise
to sell similar to the one sued upon here was involved, treating such
promise as an option which, although not binding as a contract in itself for
lack of a separate consideration, nevertheless generated a bilateral contract
of purchase and sale upon acceptance. Speaking through Associate Justice,
later Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed
whenever the offeree should decide to exercise his option within the
specified time. After accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He is free either to
buy or not to buy later. In this case, however, upon accepting herein
petitioner's offer a bilateral promise to sell and to buy ensued, and the
respondent ipso facto assumed the obligation of a purchaser. He did not
just get the right subsequently to buy or not to buy. It was not a mere option
then; it was a bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding
for lack of consideration, the authorities hold that:
"If the option is given without a consideration, it is a mere offer of a
contract of sale, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding contract
of sale, even though the option was not supported by a sufficient
consideration. ... . (77 Corpus Juris Secundum, p. 652. See also 27 Ruling
Case Law 339 and cases cited.)
"It can be taken for granted, as contended by the defendant, that the option
contract was not valid for lack of consideration. But it was, at least, an
offer to sell, which was accepted by letter, and of the acceptance the offerer
had knowledge before said offer was withdrawn. The concurrence of both
acts — the offer and the acceptance — could at all events have generated
a contract, if none there was before (arts. 1254 and 1262 of the Civil
Code)." (Zayco vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract without a cause or
consideration, the promisor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles 1324
— on the general principles on contracts — and 1479 — on sales — of the
Civil Code, in line with the cardinal rule of statutory construction that, in
construing different provisions of one and the same law or code, such
interpretation should be favored as will reconcile or harmonize said
provisions and avoid a conflict between the same. Indeed, the presumption
is that, in the process of drafting the Code, its author has maintained a
consistent philosophy or position. Moreover, the decision in Southwestern
Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art.
1324 is modified by Art. 1479 of the Civil Code, in effect, considers the
latter as an exception to the former, and exceptions are not favored, unless
the intention to the contrary is clear, and it is not so, insofar as said two (2)
articles are concerned. What is more, the reference, in both the second
paragraph of Art. 1479 and Art. 1324, to an option or promise supported
by or founded upon a consideration, strongly suggests that the two (2)
provisions intended to enforce or implement the same principle.

Upon mature deliberation, the Court is of the considered opinion that it

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

WHEREFORE, the decision appealed from is hereby affirmed, with costs

against defendant-appellant Severina Rigos. It is so ordered.
G.R. No. L-51824 February 7, 1992
PERCELINO DIAMANTE, petitioner,
vs.
HON. COURT OF APPEALS and GERARDO
DEYPALUBUS, respondents.
Assailed in this petition for review is the Resolution of the respondent
Court of Appeals dated 21 March 1979 in C.A.-G.R. No. SP-04866 setting
aside its earlier decision therein, promulgated on 6 December 1978, which
reversed the decision of the then Court of First Instance (now Regional
Trial Court) of Iloilo City. The latter nullified the Orders of the Secretary
of the Department of Agriculture and Natural Resources (DANR) dated
29 August 1969, 20 November 1969 and 21 April 1970, declared binding
the Fishpond Lease Agreement (FLA) issued to private respondent and
disallowed petitioner from repurchasing from private respondent a portion
of the fishery lot located at Dumangas, Iloilo, covered by the FLA.
The pleadings of the parties and the decision of the respondent Court
disclose the factual antecedents of this case.
A fishery lot, encompassing an area of 9.4 hectares and designated as Lot
No. 518-A of the Cadastral Survey of Dumangas, Iloilo, was previously
covered by Fishpond Permit No. F-2021 issued in the name of Anecita
Dionio. Upon Anecita's death, her heirs, petitioner Diamante and Primitivo
Dafeliz, inherited the property which they later divided between
themselves; petitioner got 4.4. hectares while Dafeliz got 5 hectares. It is
the petitioner's share that is the subject of the present controversy.
Primitivo Dafeliz later sold his share to private respondent.
On 21 May 1959, petitioner sold to private respondent his leasehold rights
over the property in question for P8,000.00 with the right to repurchase
the same within three (3) years from said date.
On 16 August 1960, private respondent filed an application with the
Bureau of Fisheries, dated 12 July 1960, for a fishpond permit and a
fishpond lease agreement over the entire lot, submitting therewith the
deeds of sale executed by Dafeliz and the petitioner.
Pressed by urgent financial needs, petitioner, on 17 October 1960, sold all
his remaining rights over the property in question to the private respondent
for P4,000.00.
On 25 October 1960, private respondent, with his wife's consent, executed
in favor of the petitioner an Option to Repurchase the property in question
within ten (10) years from said date, with a ten-year grace period.
Private respondent submitted to the Bureau of Fisheries the definite deed
of sale; he did not, however, submit the Option to Repurchase.
Thereafter, on 2 August 1961, the Bureau of Fisheries issued to private
respondent Fishpond Permit No. 4953-Q; on 17 December 1962, it
approved FLA No. 1372 in the latter's favor.
On 11 December 1963, petitioner, contending that he has a valid twenty-
year option to repurchase the subject property, requested the Bureau of
Fisheries to nullify FLA No. 1372 insofar as the said property is
concerned. On 18 December 1964, his letter-complaint was dismissed.
Petitioner then sought a reconsideration of the dismissal; the same was
denied on 29 April 1965. His appeal to the Secretary of the DANR was
likewise dismissed on 30 October 1968. Again, on 20 November 1968,
petitioner sought for a reconsideration; this time, however, he was
successful. On 29 August 1969, the DANR Secretary granted his motion
in an Order cancelling FLA No. 1372 and stating, inter alia, that:
Evidently, the application as originally filed, could not be
favorably acted upon by reason of the existing right of a
third party over a portion thereof. It was only the
submission of the deed of absolute sale which could
eliminate the stumbling block to the approval of the
transfer and the issuance of a permit or lease agreement.
It was on the basis of this deed of sale, in fact, the one
 entitled "option to repurchase" executed barely a week
from the execution of the deed of absolute sale, (which)
reverted, in effect, the status of the land in question to
what it was after the execution of the deed of sale with
right to repurchase; that is, the land was again placed
under an encumbrance in favor of a third party.
Circumstantially, there is a ground (sic) to believe that the
deed of absolute sale was executed merely with the end in
view of circumventing the requirements for the approval
of the transfer of leasehold rights of Diamante in favor of
Deypalubos; and the subsequent execution of the "Option
to Repurchase" was made to assure the maintenance of a
vendor a retro's rights in favor of Diamante. There was,
therefore, a misrepresentation of an essential or material
fact committed by the lessee-appellee (Deypalubos) in his
application for the permit and the lease agreement,
without which the same could not have been issued. 1
The Secretary based his action on Section 20 of Fisheries Administrative
Order No. 60, the second paragraph of which reads:
Any and all of the statements made in the corresponding
application shall be considered as essential conditions and
parts of the permit or lease granted. Any false statements
in the application of facts or any alteration, change or
modification of any or all terms and conditions made
therein shall ipso facto cause the cancellation of the
permit or lease.
Private respondent moved for a reconsideration of this last Order arguing
that the DANR Secretary's previous Order of 30 October 1968 dismissing
petitioner's letter-complaint had already become final on the ground that
he (private respondent) was not served a copy of petitioner's 20 November
1968 motion for reconsideration. On 20 November 1969, private
respondent's motion for reconsideration was denied; a second motion for
reconsideration was likewise denied on 20 April 1970.
On 5 May 1970, private respondent filed with the Court of First Instance
of Iloilo City a special civil action for certiorari with preliminary
injunction (docketed as Civil Case No. 8209), seeking to annul the
Secretary's Orders of 20 April 1970, 20 November 1969 and 29 August
1969 on the ground that the Secretary: (1) gravely abused his discretion in
not giving him the opportunity to be heard on the question of whether or
not the Option to Repurchase was forged; and (2) has no jurisdiction to set
aside FLA No. 1372 as the Order of the Bureau of Fisheries dismissing
petitioner's 11 December 1963 letter-complaint had already become final.
After issuing a temporary restraining order and a writ of preliminary
injunction, the lower court tried the case jointly with Criminal Case No.
520 wherein both the petitioner and a certain Atty. Agustin Dioquino, the
Notary Public who notarized the 25 October 1960 Option to Repurchase,
were charged with falsification of a public document.
After due trial, the lower court acquitted the accused in the criminal case
and decided in favor of the private respondent in Civil Case No. 8209; the
court ruled that: (1) the DANR Secretary abused his discretion in issuing
the questioned Orders, (2) petitioner cannot repurchase the property in
question as the Option to Repurchase is of doubtful validity, and (3) FLA
No. 1372 in the name of private respondent is valid and binding.
Petitioner appealed to the respondent Court which, on 6 December 1978,
reversed the decision of the trial court 2 on the ground that no grave abuse
of discretion was committed by respondent Secretary inasmuch as private
respondent was given the opportunity to be heard on his claim that the
Option to Repurchase is spurious, and that the trial court merely indulged
in conjectures in not upholding its validity. Said the respondent Court:
With all the foregoing arguments appellee had exhaustively adduced to
show the spuriousness of the deed of "Option to Repurchase", appellee can
hardly complain of not having been given an opportunity to be heard,
which is all that is necessary in relation to the requirement of notice and
hearing in administrative proceedings. Moreover, appellee never asked for
a formal hearing at the first opportunity that he had to do so, as when he
filed his first motion for reconsideration. He asked for a formal hearing
only in his second motion for reconsideration evidently as a mere
afterthought, upon realizing that his arguments were futile without proofs
to support them.
The only remaining question, therefore, is whether the Secretary acted
with grave abuse of discretion in giving weight to the alleged execution by
appellee of the deed of Option to Repurchase, on the basis of the xerox
copy of said deed as certified by the Notary Public, Agustin Dioquino.
With such documentary evidence duly certified by the Notary Public,
which is in effect an affirmation of the existence of the deed of "Option of
Repurchase" (sic) and its due execution, the Secretary may not be said to
have gravely abused his discretion in giving the document enough
evidentiary weight to justify his action in applying the aforequoted
provisions of Fisheries Adm. Order No. 60. This piece of evidence may be
considered substantial enough to support the conclusion reached by the
respondent Secretary, which is all that is necessary to sustain an
administrative finding of fact (Ortua vs. Encarnacion, 59 Phil. 635; Ang
Tibay vs. CIR, 69 Phil. 635; Ramos vs. The Sec. of Agriculture and
Natural Resources, et al. L-29097, Jan. 28, 1974, 55 SCRA 330).
Reviewing courts do not re-examine the sufficiency of the evidence in an
administrative case, if originally instituted as such, nor are they authorized
to receive additional evidence that was not submitted to the administrative
agency concerned. For common sense dictates that the question of whether
the administrative agency abused its discretion in weighing evidence
should be resolved solely on the basis of the proof that the administrative
authorities had before them and no other (Timbancaya vs. Vicente, L-
19100, Dec. 27, 1963, 9 SCRA 852). In the instant case the evidence
presented for the first time before the court a quo could be considered only
for the criminal case heard jointly with this case.
The lower court's action of acquitting the notary public, Agustin Dioquino,
and appellant Diamante in Criminal Case No. 520 for falsification of
public document is in itself a finding that the alleged forgery has not been
conclusively established. This finding is quite correct considering the
admission of the NBI handwriting expert that admission of the NBI
handwriting expert that he cannot make any finding on the question of
whether appellee's signature on the deed of "Option to Repurchase" is
forged or not, because of the lack of (sic) specimen signature of appellee
for comparative examination. The Secretary may have such signature in
the application papers of appellee on file with the former's office upon
which to satisfy himself of (sic) the genuineness of appellee's signature. It
would be strange, indeed, that appellee had not provided the NBI expert
with a specimen of his signature when his purpose was to have an expert
opinion that his signature on the questioned document is forged.
On the other hand, as to the signature of his wife, the latter herself admitted
the same to be her own. Thus —
Q There is a signature below the typewritten words "with my marital
consent" and above the name Edelina Duyo, whose signature is this?
A That is my signature. (T.s.n., Crim. Case No. 520, April 5, 1971, p. 14).
In not finding in favor of the perfect validity of the "Option to
Repurchase," the court a quo merely indulged in conjectures. Thus,
believing the testimony of appellee that the later (sic) could not have
executed the deed of option to repurchase after spending allegedly
P12,000.00, and that if there was really a verbal agreement upon the
execution of the deed of absolute sale, as alleged by appellant, that
appellant's right to repurchase, as was stipulated in the earlier deed of sale,
shall be preserved, such agreement should have been embodied in the deed
of sale of October 17, 1960 (Exh. D), the court doubted the genuineness
of the deed of Option to Repurchase (sic).
It is highly doubtful if appellee had spent P12,000.00
during the period from October 17, 1960 to October 25,
1960 when the deed of option was executed. Likewise, the
right to repurchase could not have been embodied in the
deed of absolute sale since, as the Secretary of DANR
found, the purpose of the deed of absolute sale is to
circumvent the law and insure the approval of appellee's
application, as with his right to 4.4 hectares appearing to
be subject to an encumbrance, his application would not
have been given favorable action.
Above all, the speculation and conjectures as indulged in
by the court a quo cannot outweigh the probative effect of
the document itself, a certified xerox copy thereof as
issued by the Notary Public, the non-presentation of the
original having been explained by its loss, as was the
testimony of the same Notary Public, who justly won
acquittal when charged with falsification of public
document at the instance of appellee. The fact that the
spaces for the document number, page and book numbers
were not filled up in the photostatic copy presented by the
representative of the Bureau of Records Management
does not militate against the genuineness of the document.
It simply means that the copy sent to the said Bureau
happens to have those spaces unfilled up (sic). But the
sending of a copy of the document to the Bureau of
Records Management attests strongly to the existence of
such document, the original of which was duly executed,
complete with the aforesaid data duly indicated thereon,
as shown by the xerox copy certified true by the Notary
Public.
Indeed, in the absence of positive and convincing proof of
forgery, a public instrument executed with the
intervention of a Notary Public must be held in high
respect and accorded full integrity, if only upon the
presumption of the regularity of official functions as in
the nature of those upon the presumption of the regularity
of official functions as in the nature of those of a notary
public (Bautista vs. Dy Bun Chin, 49 OG 179; El Hogar
Filipino vs. Olviga, 60 Phil. 17).
Subsequently, the respondent Court, acting on private respondent's motion
for reconsideration, promulgated on 21 March 1979 the challenged
Resolution 3 setting aside the earlier decision and affirmed, in toto, the
ruling of the trial court, thus:
. . . the respondent (DANR) Secretary had gone beyond
his statutory authority and had clearly acted in abuse of
discretion in giving due weight to the alleged option to
repurchase whose (sic) genuiness (sic) and due execution
had been impugned and denied by petitioner-appellee
(Deypalubos). While the certified true copy of the option
to repurchase may have been the basis of the respondent
Secretary in resolving the motion for reconsideration, the
Court believes that he should have first ordered the
presentation of evidence to resolve this factual issue
considering the conflicting claims of the parties. As
earlier pointed out, all that was submitted to the Bureau
of Fisheries and consequently to the respondent Secretary,
was a xerox copy of the questioned document which was
certified to by a notary public to be a copy of a deed found
in his notarial file which did not bear any specimen of the
signatures of the contracting parties. And assuming that a
certification made by a notary public as to the existence
of a document should be deemed an affirmation that such
document actually exists. Nevertheless, (sic) when such
claim is impugned, the one who assails the existence of a
document should be afforded the opportunity to prove
such claim, because, at most, the presumption of
regularity in the performance of official duties is merely
disputable and can be rebutted by convincing and positive
evidence to the contrary.
His motion for reconsideration having been denied, the petitioner filed the
instant petition for review.
Petitioner contends that the Rules of Court should not be strictly applied
to administrative proceedings and that the findings of fact of
administrative bodies, absent a showing of arbitrariness, should be
accorded respect.
While the petition has merit, petitioner's victory is hollow and illusory for,
as shall hereafter be shown, even as We reverse the assailed resolution of
the respondent Court of Appeals, the questioned decision of the Secretary
must, nevertheless, be set aside on the basis of an erroneous conclusion of
law with respect to the Option to Repurchase.
The respondent Court correctly held in its decision of 6 December 1978
that the respondent Secretary provided the private respondent sufficient
opportunity to question the authenticity of the Option to Repurchase and
committed no grave abuse of discretion in holding that the same was in
fact executed by private respondent. We thus find no sufficient legal and
factual moorings for respondent Court's sudden turnabout in its resolution
of 21 March 1979. That private respondent and his wife executed the
Option to Repurchase in favor of petitioner on 25 October 1960 is beyond
dispute. As determined by the respondent Court in its decision of 6
December 1978, private respondent's wife, Edelina Duyo, admitted having
affixed her signature to the said document. Besides, the trial court itself in
Criminal Case No. 520 which was jointly tried with the civil case,
acquitted both the petitioners and the notary public, before whom the
Option to Repurchase was acknowledged, of the crime of falsification of
said document.
We hold, however, that the respondent Secretary gravely erred in holding
that private respondent's non-disclosure and suppression of the fact that
4.4 hectares of the area subject of the application is burdened with or
encumbered by the Option to Repurchase constituted a falsehood or a
misrepresentation of an essential or material fact which, under the second
paragraph of Section 29 of Fisheries Administrative Order No. 60 earlier
quoted, "shall ipso facto cause the cancellation of the permit or lease." In
short, the Secretary was of the opinion that the Option to Repurchase was
an encumbrance on the property which affected the absolute and exclusive
character of private respondent's ownership over the 4.4 hectares sold to
him by petitioner. This is a clear case of a misapplication of the law on
conventional redemption and a misunderstanding of the effects of a right
to repurchase granted subsequently in an instrument different from the
original document of sale.
Article 1601 of the Civil Code provides:
Conventional redemption shall take place when the
vendor reserves the right to repurchase the thing sold,
with the obligation to comply with the provisions of
article 1616 and other stipulations which may have been
agreed upon.
In Villarica, et al. vs. Court of Appeals, et al., 4 decided on 29 November
1968, or barely seven (7) days before the respondent Court promulgated
its decision in this case, this Court, interpreting the above Article, held:
The right of repurchase is not a right granted the vendor
by the vendee in a subsequent instrument, but is a right
reserved by the vendor in the same instrument of sale as
one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can no
longer reserve the right to repurchase, and any right
thereafter granted the vendor by the vendee in a separate
instrument cannot be a right of repurchase but some other
right like the option to buy in the instant case. . . .
In the earlier case of Ramos, et al. vs. Icasiano, et al., 5 decided in 1927,
this Court had already ruled that "an agreement to repurchase becomes a
promise to sell when made after the sale, because when the sale is made
without such an agreement, the purchaser acquires the thing sold
absolutely, and if he afterwards grants the vendor the right to repurchase,
it is a new contract entered into by the purchaser, as absolute owner already
of the object. In that case the vendor has not reserved to himself the right
to repurchase."
In Vda. de Cruzo, et al. vs. Carriaga, et al., 6 this Court found another
occasion to apply the foregoing principle.
Hence, the Option to Repurchase executed by private respondent in the
present case, was merely a promise to sell, which must be governed by
Article 1479 of the Civil Code which reads as follows:
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.
A copy of the so-called Option to Repurchase is neither attached to the
records nor quoted in any of the pleadings of the parties. This Court
cannot, therefore, properly rule on whether the promise was accepted and
a consideration distinct from the price, supports the option. Undoubtedly,
in the absence of either or both acceptance and separate consideration, the
promise to sell is not binding upon the promissor (private respondent).
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.
xxx xxx xxx
. . . The contract of option is a separate and distinct
contract from the contract which the parties may enter into
upon the consummation of the option, and a consideration
for an optional contract is just as important as the
consideration for any other kind of contract. Thus, a
distinction should be drawn between the consideration for
the option to repurchase, and the consideration for the
contract of repurchase itself.7
Even if the promise was accepted, private respondent was not bound
thereby in the absence of a distinct consideration. 8
It may be true that the foregoing issues were not squarely raised by the
parties. Being, however, intertwined with the issue of the correctness of
the decision of the respondent Secretary and, considering further that the
determination of said issues is essential and indispensable for the rendition
of a just decision in this case, this Court does not hesitate to rule on them.
In Hernandez vs. Andal, 9 this Court held:
If the appellants' assignment of error be not considered a
direct challenge to the decision of the court below, we still
believe that the objection takes a narrow view of practice
and procedure contrary to the liberal spirit which pervades
the Rules of Court. The first injunction of the new Rules
(Rule 1, section 2) is that they "shall be liberally construed
in order to promote their object and to assist the parties in
obtaining just, speedy, and inexpensive determination of
every action and proceeding." In line with the modern
trends of procedure, we are told that, "while an
assignment of error which is required by law or rule of
court has been held essential to appellate review, and only
those assigned will be considered, there are a number of
cases which appear to accord to the appellate court a
broad discretionary power to waive the lack of proper
assignment of errors and consider errors not assigned.
 And an unassigned error closely related to an error
properly assigned, or upon which the determination of the
question raised by the error properly assigned is
dependent, will be considered by the appellate court
notwithstanding the failure to assign it as error." (4 C.J.S.,
1734; 3 C.J., 1341, footnote 77). At the least, the
assignment of error, viewed in this light, authorizes us to
examine and pass upon the decision of the court below.
In Insular Life Assurance Co., Ltd. Employees Association-NATU vs.
Insular Life Assurance Co., Ltd., 10 this Court ruled:
. . . (t)he Supreme Court has ample authority to review
and resolve matter not assigned and specified as errors by
either of the parties in the appeal if it finds the
consideration and determination of the same essential and
indispensable in order to arrive at a just decision in the
case. 11 This Court, thus, has the authority to waive the
lack of proper assignment of errors if the unassigned
errors closely relate to errors properly pinpointed out or if
the unassigned errors refer to matters upon which the
determination of the questions raised by the errors
properly assigned depend. 12
particularly raised by the parties surface as necessary for
the complete adjudication of the rights and obligations of
the parties and such questions fall within the issues
already framed by the parties, the interests of justice
dictate that the Court consider and resolve them.
WHEREFORE, the instant petition is GRANTED. The Resolution of
respondent Court of Appeals of 21 March 1979 in C.A.-G.R. No. SP-
04866 and the Decision of the trial court in Civil Case No. 8209, insofar
as they declare, for the reasons therein given, Fishpond Lease Agreement
No. 1372, valid and binding, are hereby REVERSED and SET ASIDE.
The challenged Orders of the respondent Secretary of Agriculture and
Natural Resources of 29 August 1969, 20 November 1969 and 21 April
1970 are likewise REVERSED and SET ASIDE and Fishpond Lease
Agreement No. 1372 is ordered REINSTATED.
No pronouncement as to costs.
IT IS SO ORDERED.

The same also applies to issues not specifically raised by

the parties. The Supreme Court, likewise, has broad
discretionary power, in the resolution of a controversy, to
take into consideration matters on record which the
parties fail to submit to the Court as specific questions for
determination. 13 Where the issues already raised also rest
on other issues not specifically presented, as long as the
latter issues bear relevance and close relation to the
former and as long as they arise from matters on record,
the Court has the authority to include them in its
discussion of the controversy as well as to pass upon
them. In brief, in those cases wherein questions not
G.R. No. 126454 November 26, 2004
BIBLE BAPTIST CHURCH and PASTOR REUBEN
BELMONTE, petitioners,
vs.
COURT OF APPEALS and MR. & MRS. ELMER TITO MEDINA
VILLANUEVA, respondents.
The antecedents are:
On June 7, 1985, the Bible Baptist Church (petitioner Baptist Church)
entered into a contract of lease4 with Mr. & Mrs. Elmer Tito Medina
Villanueva (respondent spouses Villanueva). The latter are the registered
owners of a property located at No. 2436 (formerly 2424) Leon Guinto St.,
Malate, Manila. The pertinent stipulations in the lease contract were:
1. That the LESSOR lets and leases to the LESSEE a store space
known as 2424 Leon Guinto Sr. St., Malate, Manila, of which
property the LESSOR is the registered owner in accordance with
the Land Registration Act.
2. That the lease shall take effect on June 7, 1985 and shall be for
the period of Fifteen (15) years.
3. That LESSEE shall pay the LESSOR within five (5) days of
each calendar month, beginning Twelve (12) months from the date
of this agreement, a monthly rental of Ten Thousand Pesos
(P10,000.00) Philippine Currency, plus 10% escalation clause per
year starting on June 7, 1988.
4. That upon signing of the LEASE AGREEMENT, the LESSEE
shall pay the sum of Eighty Four Thousand Pesos (P84,000.00)
Philippine Currency. Said sum is to be paid directly to the Rural
Bank, Valenzuela, Bulacan for the purpose of redemption of said
property which is mortgaged by the LESSOR.
5. That the title will remain in the safe keeping of the Bible Baptist
Church, Malate, Metro Manila until the expiration of the lease
agreement or the leased premises be purchased by the LESSEE,
whichever comes first. In the event that the said title will be lost
or destroyed while in the possession of the LESSEE, the LESSEE
agrees to pay all costs involved for the re-issuance of the title.
6. That the leased premises may be renovated by the LESSEE, to
the satisfaction of the LESSEE to be fit and usable as a Church.
7. That the LESSOR will remove all other tenants from the leased
premises no later than March 15, 1986. It is further agreed that if
those tenants are not vacated by June 1, 1986, the rental will be
lowered by the sum of Three Thousand Pesos (P3,000.00) per
month until said tenants have left the leased premises.
8. That the LESSEE has the option to buy the leased premises
during the Fifteen (15) years of the lease. If the LESSEE decides
to purchase the premises the terms will be: A) A selling Price of
One Million Eight Hundred Thousand Pesos (P1.8 million),
Philippine Currency. B) A down payment agreed upon by both
parties. C) The balance of the selling price may be paid at the rate
of One Hundred Twenty Thousand Pesos (P120,000.00),
Philippine Currency, per year.
x x x.5
The foregoing stipulations of the lease contract are the subject of the
present controversy.
Although the same lease contract resulted in several cases6 filed between
the same parties herein, petitioner submits, for this Court's review, only
the following errors allegedly committed by the Court of Appeals:
a) Respondent Court of Appeals erred in finding that the option to
buy granted the petitioner Baptist Church under its contract of
 lease with the Villanuevas did not have a consideration and,
therefore, did not bind the latter;
b) [R]espondent court again also erred in finding that the option
to buy did not have a fixed price agreed upon by the parties for the
purchase of the property; and
c) [F]inally, respondent court erred in not awarding petitioners
Baptist Church and its pastor attorney's fees.7
In sum, this Court has three issues to resolve: 1) Whether or not the option
to buy given to the Baptist Church is founded upon a consideration; 2)
Whether or not by the terms of the lease agreement, a price certain for the
purchase of the land had been fixed; and 3) Whether or not the Baptist
Church is entitled to an award for attorney's fees.
The stipulation in the lease contract which purportedly gives the lessee an
option to buy the leased premises at any time within the duration of the
lease, is found in paragraph 8 of the lease contract, viz:
8. That the LESSEE has the option to buy the leased premises
during the Fifteen (15) years of the lease. If the LESSEE decides
to purchase the premises the terms will be: A) A selling Price of
One Million Eight Hundred Thousand Pesos (P1.8 million),
Philippine Currency. B) A down payment agreed upon by both
parties. C) The balance of the selling price may be paid at the rate
of One Hundred Twenty Thousand Pesos (P120,000.00),
Philippine Currency, per year.
Under Article 1479 of the Civil Code, it is provided:
Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
The second paragraph of Article 1479 provides for the definition and
consequent rights and obligations under an option contract. For an option
contract to be valid and enforceable against the promissor, there must be a
separate and distinct consideration that supports it.
In this case, petitioner Baptist Church seeks to buy the leased premises
from the spouses Villanueva, under the option given to them. Petitioners
claim that the Baptist Church "agreed to advance the large amount needed
for the rescue of the property but, in exchange, it asked the Villanuevas to
grant it a long term lease and an option to buy the property for P1.8
million."8 They argue that the consideration supporting the option was
their agreement to pay off the Villanueva's P84,000 loan with the bank,
thereby freeing the subject property from the mortgage encumbrance.
They state further that the Baptist Church would not have agreed to
advance such a large amount as it did to rescue the property from bank
foreclosure had it not been given an enforceable option to buy that went
with the lease agreement.
In the petition, the Baptist Church states that "[t]rue, the Baptist Church
did not pay a separate and specific sum of money to cover the option alone.
But the P84,000 it paid the Villanuevas in advance should be deemed
consideration for the one contract they entered into – the lease with option
to buy."9 They rely on the case of Teodoro v. Court of Appeals10 to support
their stand.
This Court finds no merit in these contentions.
First, petitioners cannot insist that the P84,000 they paid in order to release
the Villanuevas' property from the mortgage should be deemed the
separate consideration to support the contract of option. It must be pointed
out that said amount was in fact apportioned into monthly rentals spread
over a period of one year, at P7,000 per month. Thus, for the entire period
of June 1985 to May 1986, petitioner Baptist Church's monthly rent had
already been paid for, such that it only again commenced paying the
rentals in June 1986. This is shown by the testimony of petitioner Pastor
Belmonte where he states that the P84,000 was advance rental equivalent
to monthly rent of P7,000 for one year, such that for the entire year from
1985 to 1986 the Baptist Church did not pay monthly rent.11
This Court agrees with respondents that the amount of P84,000 has been
fully exhausted and utilized by their occupation of the premises and there
is no separate consideration to speak of which could support the option.12
Second, petitioners' reliance on the case of Teodoro v. Court of
Appeals13 is misplaced. The facts of the Teodoro case reveal that therein
respondent Ariola was the registered lessee of a property owned by the
Manila Railroad Co. She entered into an agreement whereby she allowed
Teodoro to occupy a portion of the rented property and gave Teodoro an
option to buy the same, should Manila Railroad Co. decide to sell the
property to Ariola. In addition, Teodoro, who was occupying only a
portion of the subject rented property, also undertook to pay the Manila
Railroad Co., the full amount of the rent supposed to be paid by the
registered lessor Ariola. Consequently, unlike this case, Teodoro paid over
and above the amount due for her own occupation of a portion of the
property. That amount, which should have been paid by Ariola as lessor,
and for her own occupation of the property, was deemed by the Court as
sufficient consideration for the option to buy which Ariola gave to
Teodoro upon Ariola's acquiring the property.
Hence, in Teodoro, this Court was able to find that a separate consideration
supported the option contract and thus, its enforcement may be demanded.
Petitioners, therefore, cannot rely on Teodoro, for the case even supports
the respondents' stand that a consideration that is separate and distinct
from the purchase price is required to support an option contract.
Petitioners further insist that a consideration need not be a separate sum of
money. They posit that their act of advancing the money to "rescue" the
property from mortgage and impending foreclosure, should be enough
consideration to support the option.
In Villamor v. Court of Appeals,14 this Court defined consideration as "the
why of the contracts, the essential reason which moves the contracting
parties to enter into the contract."15 This definition illustrates that the
consideration contemplated to support an option contract need not be
monetary. Actual cash need not be exchanged for the option. However, by
the very nature of an option contract, as defined in Article 1479, the same
is an onerous contract for which the consideration must be something of
value, although its kind may vary.
Specifically, in Villamor v. Court of Appeals,16 half of a parcel of land was
sold to the spouses Villamor for P70 per square meter, an amount much
higher than the reasonable prevailing price. Thereafter, a deed of option
was executed whereby the sellers undertook to sell the other half to the
same spouses. It was stated in the deed that the only reason the spouses
bought the first half of the parcel of land at a much higher price, was the
undertaking of the sellers to sell the second half of the land, also at the
same price. This Court held that the cause or consideration for the option,
on the part of the spouses-buyers, was the undertaking of the sellers to sell
the other half of the property. On the part of the sellers, the consideration
supporting the option was the much higher amount at which the buyers
agreed to buy the property. It was explicit from the deed therein that for
the parties, this was the consideration for their entering into the contract.
It can be seen that the Court found that the buyer/optionee had parted with
something of value, which was the amount he paid over and above the
actual prevailing price of the land. Such amount, different from the price
of the land subject of the option, was deemed sufficient and distinct
consideration supporting the option contract. Moreover, the parties stated
the same in their contract.
Villamor is distinct from the present case because, First, this Court cannot
find that petitioner Baptist Church parted with anything of value, aside
from the amount of P84,000 which was in fact eventually utilized as rental
payments. Second, there is no document that contains an agreement
between the parties that petitioner Baptist Church's supposed rescue of the
mortgaged property was the consideration which the parties contemplated
in support of the option clause in the contract. As previously stated, the
amount advanced had been fully utilized as rental payments over a period
of one year. While the Villanuevas may have them to thank for extending
the payment at a time of need, this is not the separate consideration
contemplated by law.
Noting that the option clause was part of a lease contract, this Court looked
into its previous ruling in the early case of Vda. De Quirino v.
Palarca,17 where the Court did say that "in reciprocal contracts, like the
one in question,18 the obligation or promise of each party is the
consideration for that of the other."19 However, it must be noted that in that
case, it was also expressly stated in the deed that should there be failure to
exercise the option to buy the property, the optionee undertakes to sell the
building and/or improvements he has made on the premises. In addition,
the optionee had also been paying an amount of rent that was quite high
and in fact turned out to be too burdensome that there was a subsequent
agreement to reduce said rentals. The Court found that "the amount of
rentals agreed upon x x x – which amount turned out to be so burdensome
upon the lessee, that the lessor agreed, five years later, to reduce it – as
well as the building and/or improvements contemplated to be constructed
and/or introduced by the lessee, were, undoubtedly, part of the
consideration for his option to purchase the leased premises."20
Again, this Court notes that the parties therein clearly stipulated in their
contract that there was an undertaking on the part of the optionee to sell
the improvements made on the property if the option was not exercised.
Such is a valuable consideration that could support the option contract.
Moreover, there was the excessive rental payments that the optionee paid
for five years, which the Court also took into account in deciding that there
was a separate consideration supporting the option.
To summarize the rules, an option contract needs to be supported by a
separate consideration. The consideration need not be monetary but could
consist of other things or undertakings. However, if the consideration is
not monetary, these must be things or undertakings of value, in view of the
onerous nature of the contract of option. Furthermore, when a
consideration for an option contract is not monetary, said consideration
must be clearly specified as such in the option contract or clause.
This Court also notes that in the present case both the Regional Trial Court
and the Court of Appeals agree that the option was not founded upon a
separate and distinct consideration and that, hence, respondents
Villanuevas cannot be compelled to sell their property to petitioner Baptist
Church.
The Regional Trial Court found that "[a]ll payments made under the
contract of lease were for rentals. No money [was] ever exchanged for and
in consideration of the option." Hence, the Regional Trial Court found the
action of the Baptist Church to be "premature and without basis to compel
the defendant to sell the leased premises." The Regional Trial Court
consequently ruled:
WHEREFORE, judgment is rendered:
1) Denying plaintiffs' application for writ of injunction;
2) That defendant cannot be compelled to sell to plaintiffs
the leased premises in accordance with par. 8 of the
contract of lease;
3) Defendant is hereby ordered to reimburse plaintiffs the
sum of P15, 919.75 plus 12% interest representing real
estate taxes, plaintiffs paid the City Treasurer's Office of
Manila;
4) Declaring that plaintiff made a valid and legal
consignation to the Court of the initial amount of
P18,634.00 for the month of November and December
1990 and every month thereafter.
 All other claims of the plaintiffs are hereby dismissed for lack of No costs.
merit.
SO ORDERED.
No pronouncement as to costs.

SO ORDERED. 21

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

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

Anent the claim for attorney's fees, it is stipulated in paragraph 13 of the

lease agreement that in the event of failure of either of the parties to
comply with any of the conditions of the agreement, the aggrieved party
can collect reasonable attorney's fees.23

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

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

WHEREFORE, the Decision and Resolution of the Court of Appeals

subject of the petition are hereby AFFIRMED.
G.R. No. 83759 July 12, 1991
SPOUSES CIPRIANO VASQUEZ and VALERIANA
GAYANELO, petitioners,
vs.
HONORABLE COURT OF APPEALS and SPOUSES MARTIN
VALLEJERA and APOLONIA OLEA, respondents.
This petition seeks to reverse the decision of the Court of Appeals which
affirmed the earlier decision of the Regional Trial Court, 6th Judicial
Region, Branch 56, Himamaylan, Negros Occidental in Civil Case No.
839 (for specific performance and damages) ordering the petitioners
(defendants in the civil case) to resell Lot No. 1860 of the Cadastral Survey
of Himamaylan, Negros Occidental to the respondents (plaintiffs in the
civil case) upon payment by the latter of the amount of P24,000.00 as well
as the appellate court's resolution denying a motion for reconsideration. In
addition, the appellate court ordered the petitioners to pay the amount of
P5,000.00 as necessary and useful expenses in accordance with Article
1616 of the Civil Code.
The facts of the case are not in dispute. They are summarized by the
appellate court as follows:
On January 15, 1975, the plaintiffs-spouses (respondents herein)
filed this action against the defendants-spouses (petitioners
herein) seeking to redeem Lot No. 1860 of the Himamaylan
Cadastre which was previously sold by plaintiffs to defendants on
September 21, 1964.
The said lot was registered in the name of plaintiffs. On October
1959, the same was leased by plaintiffs to the defendants up to
crop year 1966-67, which was extended to crop year 1968-69.
After the execution of the lease, defendants took possession of the
lot, up to now and devoted the same to the cultivation of sugar.
On September 21, 1964, the plaintiffs sold the lot to the defendants
under a Deed of Sale for the amount of P9,000.00. The Deed of
Sale was duly ratified and notarized. On the same day and along
with the execution of the Deed of Sale, a separate instrument,
denominated as Right to Repurchase (Exh. E), was executed by
the parties granting plaintiffs the right to repurchase the lot for
P12,000.00, said Exh. E likewise duly ratified and notarized. By
virtue of the sale, defendants secured TCT No. T-58898 in their
name. On January 2, 1969, plaintiffs sold the same lot to Benito
Derrama, Jr., after securing the defendants' title, for the sum of
P12,000.00. Upon the protestations of defendant, assisted by
counsel, the said second sale was cancelled after the payment of
P12,000.00 by the defendants to Derrama.
Defendants resisted this action for redemption on the premise that
Exh. E is just an option to buy since it is not embodied in the same
document of sale but in a separate document, and since such
option is not supported by a consideration distinct from the price,
said deed for right to repurchase is not binding upon them.
After trial, the court below rendered judgment against the
defendants, ordering them to resell lot No. 1860 of the
Himamaylan Cadastre to the plaintiffs for the repurchase price of
P24,000.00, which amount combines the price paid for the first
sale and the price paid by defendants to Benito Derrama, Jr.
Defendants moved for, but were denied reconsideration.
Excepting thereto, defendants-appealed, . . . (Rollo, pp. 44-45)
The petition was given due course in a resolution dated February 12, 1990.
The petitioners insist that they can not be compelled to resell Lot No. 1860
of the Himamaylan Cadastre. They contend that the nature of the sale over
the said lot between them and the private respondents was that of an
absolute deed of sale and that the right thereafter granted by them to the
private respondents (Right to Repurchase, Exhibit "E") can only be either
an option to buy or a mere promise on their part to resell the property.
They opine that since the "RIGHT TO REPURCHASE" was not supported
by any consideration distinct from the purchase price it is not valid and
binding on the petitioners pursuant to Article 1479 of the Civil Code.
The document denominated as "RIGHT TO REPURCHASE" (Exhibit E)
provides:
RIGHT TO REPURCHASE
KNOW ALL MEN BY THESE PRESENTS:
I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses Martin
Vallejera and Apolonia Olea, their heirs and assigns, the right to
repurchase said Lot No. 1860 for the sum of TWELVE
THOUSAND PESOS (P12,000.00), Philippine Currency, within
the period TEN (10) YEARS from the agricultural year 1969-1970
when my contract of lease over the property shall expire and until
the agricultural year 1979-1980.
IN WITNESS WHEREOF, I have hereunto signed my name at
Binalbagan, Negros Occidental, this 21st day of September, 1964.
SGD. CIPRIANO VASQUEZ
SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS
(Rollo, p. 47)
The Court of Appeals, applying the principles laid down in the case of
Sanchez v. Rigos, 45 SCRA 368 [1972] decided in favor of the private
respondents.
In the Sanchez case, plaintiff-appellee Nicolas Sanchez and defendant-
appellant Severino Rigos executed a document entitled "Option to
Purchase," whereby Mrs. Rigos "agreed, promised and committed . . . to
sell" to Sanchez for the sum of P1,510.00, a registered parcel of land
within 2 years from execution of the document with the condition that said
option shall be deemed "terminated and lapsed," if "Sanchez shall fail to
exercise his right to buy the property" within the stipulated period. In the
same document, Sanchez" . . . hereby agree and conform with all the
conditions set forth in the option to purchase executed in my favor, that I
bind myself with all the terms and conditions." (Emphasis supplied) The
notarized document was signed both by Sanchez and Rigos.
After several tenders of payment of the agreed sum of P1,510.00 made by
Sanchez within the stipulated period were rejected by Rigos, the former
deposited said amount with the Court of First Instance of Nueva Ecija and
filed an action for specific performance and damages against Rigos.
The lower court rendered judgment in favor of Sanchez and ordered Rigos
to accept the sum judicially consigned and to execute in Sanchez' favor the
requisite deed of conveyance. Rigos appealed the case to the Court of
Appeals which certified to this Court on the ground that it involves a pure
question of law.
This Court after deliberating on two conflicting principles laid down in the
cases of Southwestern Sugar and Molasses Co. v. Atlantic Gulf and Pacific
Co., (97 Phil. 249 [1955]) and Atkins, Kroll & Co., Inc. v. Cua Hian Tek,
102 Phil. 948 [1958]) arrived at the conclusion that Article 1479 of the
Civil Code which provides: ––
Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissory if the
promise is supported by a consideration distinct from the price.
and Article 1324 thereof which provides:
 Art. 1324. When the offerer has allowed the offerer 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.
should be reconciled and harmonized to avoid a conflict between the two
provisions. In effect, the Court abandoned the ruling in the Southwestern
Sugar and Molasses Co. case and reiterated the ruling in the Atkins, Kroll
and Co. case, to wit:
However, this Court itself, in the case of Atkins, Kroll and Co.,
Inc. v. Cua Hian Tek, (102 Phil. 948, 951-952) decided later than
Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co., (supra) saw no distinction between Articles 1324 and 1479
of the Civil Code and applied the former where a unilateral
promise to sell similar to the one sued upon here was involved,
treating such promise as an option which, although not binding as
a contract in itself for lack of separate consideration, nevertheless
generated a bilateral contract of purchase and sale upon
acceptance. Speaking through Associate Justice, later Chief
Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at
the price fixed whenever the offeree should decide to
exercise his option within the specified time. After
accepting the promise and before he exercises his option,
the holder of the option is not bound to buy. He is free
either to buy or not to buy later. In this case however,
upon accepting herein petitioner's offer a bilateral
promise to sell and to buy ensued, and the respondent ipso
facto assumed the obligation of a purchaser. He did not
just get the right subsequently to buy or not to buy. It was
not a mere option then; it was bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option
which is not binding for lack of consideration, the
authorities hold that
If the option is given without a consideration, it is a mere
offer of a contract of sale, which is not binding until
accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale, even
though the option was not supported by a sufficient
consideration . . . (77 Corpus Juris Secundum p.
652. See also 27 Ruling Case Law 339 and cases cited.)
This Court affirmed the lower court's decision although the promise to sell
was not supported by a consideration distinct from the price. It was
obvious that Sanchez, the promisee, accepted the option to buy before
Rigos, the promisor, withdrew the same. Under such circumstances, the
option to purchase was converted into a bilateral contract of sale which
bound both parties.
In the instant case and contrary to the appellate court's finding, it is clear
that the right to repurchase was not supported by a consideration distinct
from the price. The rule is that the promisee has the burden of proving
such consideration. Unfortunately, the private respondents, promisees in
the right to repurchase failed to prove such consideration. They did not
even allege the existence thereof in their complaint. (See Sanchez v.
Rigos supra)
Therefore, in order that the Sanchez case can be applied, the evidence must
show that the private respondents accepted the right to repurchase.
The record, however, does not show that the private respondents accepted
the "Right to Repurchase" the land in question. We disagree with the
appellate court's finding that the private respondents accepted the "right to
repurchase" under the following circumstances: . . as evidenced by the
annotation and registration of the same on the back of the transfer of
certificate of title in the name of appellants. As vividly appearing therein,
it was signed by appellant himself and witnessed by his wife so that for all
intents and purposes the Vasquez spouses are estopped from disregarding
its obvious purpose and intention."
The annotation and registration of the right to repurchase at the back of the
certificate of title of the petitioners can not be considered as acceptance of
the right to repurchase. Annotation at the back of the certificate of title of
registered land is for the purpose of binding purchasers of such registered
land. Thus, we ruled in the case of Bel Air Village Association, Inc. v.
Dionisio (174 SCRA 589 [1989]), citing Tanchoco v. Aquino (154 SCRA
1 [1987]), and Constantino v. Espiritu (45 SCRA 557 [1972]) that
purchasers of a registered land are bound by the annotations found at the
back of the certificate of title covering the subject parcel of land. In effect,
the annotation of the right to repurchase found at the back of the certificate
of title over the subject parcel of land of the private respondents only
served as notice of the existence of such unilateral promise of the
petitioners to resell the same to the private respondents. This, however,
can not be equated with acceptance of such right to repurchase by the
private respondent.
Neither can the signature of the petitioners in the document called "right
to repurchase" signify acceptance of the right to repurchase. The
respondents did not sign the offer. Acceptance should be made by the
promisee, in this case, the private respondents and not the promisors, the
petitioners herein. It would be absurd to require the promisor of an option
to buy to accept his own offer instead of the promisee to whom the option
to buy is given.
Furthermore, the actions of the private respondents –– (a) filing a
complaint to compel re-sale and their demands for resale prior to filing of
the complaint cannot be considered acceptance. As stated in Vda. de
Zulueta v. Octaviano (121 SCRA 314 [1983]):
And even granting, arguendo that the sale was a pacto de
retro sale, the evidence shows that Olimpia, through her lawyer,
opted to repurchase the land only on 16 February 1962,
approximately two years beyond the stipulated period, that is not
later than May, 1960.
If Olimpia could not locate Aurelio, as she contends, and based on
her allegation that the contract between her was one of sale with
right to repurchase, neither, however, did she tender the
redemption price to private respondent Isauro, but merely wrote
him letters expressing her readiness to repurchase the property.
It is clear that the mere sending of letters by the vendor expressing
his desire to repurchase the property without accompanying tender
of the redemption price fell short of the requirements of law. (Lee
v. Court of Appeals, 68 SCRA 197 [1972])
Neither did petitioner make a judicial consignation of the
repurchase price within the agreed period.
In a contract of sale with a right of repurchase, the redemptioner
who may offer to make the repurchase on the option date of
redemption should deposit the full amount in court . . . (Rumbaoa
v. Arzaga, 84 Phil. 812 [1949])
To effectively exercise the right to repurchase the vendor a retro
must make an actual and simultaneous tender of payment or
consignation. (Catangcatang v. Legayada, 84 SCRA 51 [1978])
The private respondents' ineffectual acceptance of the option to buy
validated the petitioner's refusal to sell the parcel which can be considered
as a withdrawal of the option to buy.
We agree with the petitioners that the case of Vda. de Zulueta
v. Octaviano, (supra) is in point.
Stripped of non-essentials the facts of the Zulueta case are as follows: On
November 25, 1952 (Emphasis supplied) Olimpia Fernandez Vda. de
Zulueta, the registered owner of a 5.5 hectare riceland sold the lot to
private respondent Aurelio B. Octaviano for P8,600.00 subject to certain
terms and conditions. The contract was an absolute and definite sale. On
the same day, November 25, 1952, (Emphasis supplied) the vendee,
Aurelio signed another document giving the vendor Zulueta the "option to
repurchase" the property at anytime after May 1958 but not later than May
1960. When however, Zulueta tried to exercise her "option to buy" the
property, Aurelio resisted the same prompting Zulueta to commence suit
for recovery of ownership and possession of the property with the then
Court of First Instance of Iloilo.
The trial court ruled in favor of Zulueta. Upon appeal, however, the Court
of Appeals reversed the trial court's decision.
We affirmed the appellate court's decision and ruled:
The nature of the transaction between Olimpia and Aurelio, from
the context of Exhibit "E" is not a sale with right to repurchase.
Conventional redemption takes place "when the vendor reserves
the right to repurchase the thing sold, with the obligation to
comply with the provisions of Article 1616 and other stipulations
which may have been agreed upon. (Article 1601, Civil Code).
In this case, there was no reservation made by the vendor,
Olimpia, in the document Exhibit "E" the "option to repurchase"
was contained in a subsequent document and was made by the
vendee, Aurelio. Thus, it was more of an option to buy or a mere
promise on the part of the vendee, Aurelio, to resell the property
to the vendor, Olimpia. (10 Manresa, p. 311 cited in Padilla's Civil
Code Annotated, Vol. V, 1974 ed., p. 467) As held in Villarica v.
Court of Appeals (26 SCRA 189 [1968]):
The right of repurchase is not a right granted the vendor
by the vendee in a subsequent instrument, but is a
right reserved by the vendor in the same instrument of
sale as one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can no
longer reserve the right to repurchase, and any right
thereafter granted the vendor by the vendee in a separate
instrument cannot be a right of repurchase but some other
right like the option to buy in the instant case. . .
(Emphasis supplied)
The appellate court rejected the application of the Zulueta case by stating:
. . . [A]s found by the trial court from which we quote with
approval below, the said cases involve the lapse of several days
for the execution of separate instruments after the execution of the
deed of sale, while the instant case involves the execution of an
instrument, separate as it is, but executed on the same day, and
notarized by the same notary public, to wit:
A close examination of Exh. "E" reveals that although it is a
separate document in itself, it is far different from the document
which was pronounced as an option by the Supreme Court in the
Villarica case. The option in the Villarica case was executed
several days after the execution of the deed of sale. In the present
case, Exh. "E" was executed and ratified by the same notary public
and the Deed of Sale of Lot No. 1860 by the plaintiffs to the
defendants were notarized by the same notary public and entered
in the same page of the same notarial register . . .
The latter case (Vda. de Zulueta v. Octaviano, supra), likewise
involved the execution of the separate document after an
intervention of several days and the question of laches was
decided therein, which is not present in the instant case. That
distinction is therefore crucial and We are of the opinion that the
appellee's right to repurchase has been adequately provided for
and reserved in conformity with Article 1601 of the Civil Code,
which states:
Conventional redemption shall take place when the vendor
reserves the right to repurchase the thing sold, with the obligation
 to comply with the provision of Article 1616 and other stipulations
which may have been agreed upon. (Rollo, pp. 46-47)

Obviously, the appellate court's findings are not reflected in the cited
decision.1âwphi1 As in the instant case, the option to repurchase involved
in the Zulueta case was executed in a separate document but on the same
date that the deed of definite sale was executed.

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

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

WHEREFORE, the petition is GRANTED. The questioned decision and

resolution of the Court of Appeals are hereby REVERSED and SET
ASIDE. The complaint in Civil Case No. 839 of the then Court of First
Instance of Negros Occidental 12th Judicial District Branch 6 is
DISMISSED. No costs.

SO ORDERED.
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY
Assailed, in this petition for review, is the decision of the Court of
Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside
and declaring without force and effect the orders of execution of the trial
court, dated 30 August 1991 and 27 September 1991, in Civil Case No.
87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance
was filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu
Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court,
Branch 31, Manila in Civil Case No. 87-41058, alleging, among others,
that plaintiffs are tenants or lessees of residential and commercial spaces
owned by defendants described as Nos. 630-638 Ongpin Street, Binondo,
Manila; that they have occupied said spaces since 1935 and have been
religiously paying the rental and complying with all the conditions of the
lease contract; that on several occasions before October 9, 1986,
defendants informed plaintiffs that they are offering to sell the premises
and are giving them priority to acquire the same; that during the
negotiations, Bobby Cu Unjieng offered a price of P6-million while
plaintiffs made a counter offer of P5-million; that plaintiffs thereafter
asked the defendants to put their offer in writing to which request
defendants acceded; that in reply to defendant's letter, plaintiffs wrote
them on October 24, 1986 asking that they specify the terms and
conditions of the offer to sell; that when plaintiffs did not receive any
reply, they sent another letter dated January 28, 1987 with the same
request; that since defendants failed to specify the terms and conditions of
the offer to sell and because of information received that defendants were
about to sell the property, plaintiffs were compelled to file the complaint
to compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the
complaint and interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary
judgment which was granted by the lower court. The trial court found that
defendants' offer to sell was never accepted by the plaintiffs for the reason
that the parties did not agree upon the terms and conditions of the proposed
sale, hence, there was no contract of sale at all. Nonetheless, the lower
court ruled that should the defendants subsequently offer their property for
sale at a price of P11-million or below, plaintiffs will have the right of first
refusal. Thus the dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the defendants
and against the plaintiffs summarily dismissing the complaint subject to
the aforementioned condition that if the defendants subsequently decide to
offer their property for sale for a purchase price of Eleven Million Pesos
or lower, then the plaintiffs has the option to purchase the property or of
first refusal, otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21,
1990 (penned by Justice Segundino G. Chua and concurred in by Justices
Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with
modification the lower court's judgment, holding:
In resume, there was no meeting of the minds between the parties
concerning the sale of the property. Absent such requirement, the claim
for specific performance will not lie. Appellants' demand for actual, moral
and exemplary damages will likewise fail as there exists no justifiable
ground for its award. Summary judgment for defendants was properly
granted. Courts may render summary judgment when there is no genuine
issue as to any material fact and the moving party is entitled to a judgment
as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All
requisites obtaining, the decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed
from is hereby AFFIRMED, but subject to the following modification: The
court a quo in the aforestated decision gave the plaintiffs-appellants the
right of first refusal only if the property is sold for a purchase price of
Eleven Million pesos or lower; however, considering the mercurial and
uncertain forces in our market economy today. We find no reason not to
grant the same right of first refusal to herein appellants in the event that
the subject property is sold for a price in excess of Eleven Million pesos.
No pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition
for review on certiorari. The Supreme Court denied the appeal on May 6,
1991 "for insufficiency in form and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending
consideration by this Court, the Cu Unjieng spouses executed a Deed of
Sale (Annex D, Petition) transferring the property in question to herein
petitioner Buen Realty and Development Corporation, subject to the
following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS
(P15,000,000.00), receipt of which in full is hereby acknowledged, the
VENDORS hereby sells, transfers and conveys for and in favor of the
VENDEE, his heirs, executors, administrators or assigns, the above-
described property with all the improvements found therein including all
the rights and interest in the said property free from all liens and
encumbrances of whatever nature, except the pending ejectment
proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration
fees for the transfer of title in his favor and other expenses incidental to
the sale of above-described property including capital gains tax and
accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the
Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816
was issued in the name of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote
a letter to the lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that
petitioner brought the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058 annotated on TCT No.
105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the
Decision in Civil Case No. 87-41058 as modified by the Court of Appeals
in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition)
quoted as follows:
Presented before the Court is a Motion for Execution filed by plaintiff
represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng
and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty.
Anacleto Magno respectively were duly notified in today's consideration
of the motion as evidenced by the rubber stamp and signatures upon the
copy of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated September
21, 1990 as modified by the Court of Appeals in its decision in CA G.R.
CV-21123, and elevated to the Supreme Court upon the petition for review
and that the same was denied by the highest tribunal in its resolution dated
May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there
was an Entry of Judgment by the Supreme Court as of June 6, 1991, stating
that the aforesaid modified decision had already become final and
executory.
It is the observation of the Court that this property in dispute was the
subject of the Notice of Lis Pendens and that the modified decision of this
Court promulgated by the Court of Appeals which had become final to the
effect that should the defendants decide to offer the property for sale for a
price of P11 Million or lower, and considering the mercurial and uncertain
forces in our market economy today, the same right of first refusal to
herein plaintiffs/appellants in the event that the subject property is sold for
a price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the necessary
Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million
pesos in recognition of plaintiffs' right of first refusal and that a new
Transfer Certificate of Title be issued in favor of the buyer.
All previous transactions involving the same property notwithstanding the
issuance of another title to Buen Realty Corporation, is hereby set aside as
having been executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another
order, the dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled
case directing the Deputy Sheriff Ramon Enriquez of this Court to
implement said Writ of Execution ordering the defendants among others
to comply with the aforesaid Order of this Court within a period of one (1)
week from receipt of this Order and for defendants to execute the
necessary Deed of Sale of the property in litigation in favor of the plaintiffs
Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of
P15,000,000.00 and ordering the Register of Deeds of the City of Manila,
to cancel and set aside the title already issued in favor of Buen Realty
Corporation which was previously executed between the latter and
defendants and to register the new title in favor of the aforesaid plaintiffs
Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution
(Annex C, Petition) was issued.1
On 04 December 1991, the appellate court, on appeal to it by private
respondent, set aside and declared without force and effect the above
questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen
Realty can be held bound by the writ of execution by virtue of the notice
of lis pendens, carried over on TCT No. 195816 issued in the name of
Buen Realty, at the time of the latter's purchase of the property on 15
November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of
such arrangements as the right of first refusal, a purchase option and a
contract to sell. For ready reference, we might point out some fundamental
precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156,
Civil Code). The obligation is constituted upon the concurrence of the
essential elements thereof, viz: (a) The vinculum juris or juridical
tie which is the efficient cause established by the various sources of
obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b)
the object which is the prestation or conduct; required to be observed (to
give, to do or not to do); and (c) the subject-persons who, viewed from the
demandability of the obligation, are the active (obligee) and the passive
(obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code),
which is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service (Art. 1305, Civil Code). A contract undergoes various stages that
include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract to the time
the contract is concluded (perfected). The perfection of the contract takes
place upon the concurrence of the essential elements thereof. A contract
which is consensual as to perfection is so established upon a mere meeting
of minds, i.e., the concurrence of offer and acceptance, on the object and
on the cause thereof. A contract which requires, in addition to the above,
the delivery of the object of the agreement, as in a pledge or commodatum,
is commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a
donation of real property, is essential in order to make the act valid, the
prescribed form being thereby an essential element thereof. The stage
of consummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly, to
which the topic for discussion about the case at bench belongs, the contract
is perfected when a person, called the seller, obligates himself, for a price
certain, to deliver and to transfer ownership of a thing or right to another,
called the buyer, over which the latter agrees. Article 1458 of the Civil
Code provides:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to
Sell" where invariably the ownership of the thing sold is retained until the
fulfillment of a positive suspensive condition (normally, the full payment
of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force.2 In Dignos
vs. Court of Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still absolute where
the contract is devoid of any proviso that title is reserved or the right to
unilaterally rescind is stipulated, e.g., until or unless the price is paid.
Ownership will then be transferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document) of the property sold.
Where the condition is imposed upon the perfection of the contract itself,
the failure of the condition would prevent such perfection.3 If the condition
is imposed on the obligation of a party which is not fulfilled, the other
party may either waive the condition or refuse to proceed with the sale
(Art. 1545, Civil Code).4
An unconditional mutual promise to buy and sell, as long as the object is
made determinate and the price is fixed, can be obligatory on the parties,
and compliance therewith may accordingly be exacted.5
An accepted unilateral promise which specifies the thing to be sold and
the price to be paid, when coupled with a valuable consideration
distinct and separate from the price, is what may properly be termed a
perfected contract of option. This contract is legally binding, and in sales,
it conforms with the second paragraph of Article 1479 of the Civil Code,
viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price. (1451a)6
Observe, however, that the option is not the contract of sale itself.7 The
optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.8
Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public advertisements
or solicitations and the like are ordinarily construed as mere invitations to
make offers or only as proposals. These relations, until a contract is
perfected, are not considered binding commitments. Thus, at any time
prior to the perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the withdrawal is
effective immediately after its manifestation, such as by its mailing and
not necessarily when the offeree learns of the withdrawal (Laudico vs.
Arias, 43 Phil. 270). Where a period is given to the offeree within which
to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration,
the offeror is still free and has the right to withdraw the offer before its
acceptance, or, if an acceptance has been made, before the offeror's
coming to know of such fact, by communicating that withdrawal to the
offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua,
102 Phil. 948, holding that this rule is applicable to a unilateral promise to
sell under Art. 1479, modifying the previous decision in South Western
Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural
Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos,
45 SCRA 368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim
under Article 19 of the Civil Code which ordains that "every person must,
in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is
deemed perfected, and it would be a breach of that contract to withdraw
the offer during the agreed period. The option, however, is an independent
contract by itself, and it is to be distinguished from the projected main
agreement (subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may
not sue for specific performance on the proposed contract ("object" of the
option) since it has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for damages for breach
of the option. In these cases, care should be taken of the real nature of
the consideration given, for if, in fact, it has been intended to be part of
the consideration for the main contract with a right of withdrawal on the
part of the optionee, the main contract could be deemed perfected; a
similar instance would be an "earnest money" in a contract of sale that can
evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative
juridical relation. Needless to point out, it cannot be deemed a perfected
contract of sale under Article 1458 of the Civil Code. Neither can the right
of first refusal, understood in its normal concept, per se be brought within
the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 13199 of the same Code.
An option or an offer would require, among other things,10 a clear certainty
on both the object and the cause or consideration of the envisioned
contract. In a right of first refusal, while the object might be made
determinate, the exercise of the right, however, would be dependent not
only on the grantor's eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that obviously
are yet to be later firmed up. Prior thereto, it can at best be so described as
merely belonging to a class of preparatory juridical relations governed not
by contracts (since the essential elements to establish the vinculum
juris would still be indefinite and inconclusive) but by, among other laws
of general application, the pertinent scattered provisions of the Civil Code
on human conduct.
Even on the premise that such right of first refusal has been decreed under
a final judgment, like here, its breach cannot justify correspondingly an
issuance of a writ of execution under a judgment that merely recognizes
its existence, nor would it sanction an action for specific performance
without thereby negating the indispensable element of consensuality in the
perfection of contracts.11 It is not to say, however, that the right of first
refusal would be inconsequential for, such as already intimated above, an
unjustified disregard thereof, given, for instance, the circumstances
expressed in Article 1912 of the Civil Code, can warrant a recovery for
damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has
merely accorded a "right of first refusal" in favor of petitioners. The
consequence of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed to us, petitioners
are aggrieved by the failure of private respondents to honor the right of
first refusal, the remedy is not a writ of execution on the judgment, since
there is none to execute, but an action for damages in a proper forum for
the purpose.
between the Cu Unjiengs and respondent lessees, or the
fixing of the price of the sale, or the cancellation of title
in the name of petitioner (Limpin vs. IAC, 147 SCRA
516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143
SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor
vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-
41058 could not have decreed at the time the execution of any deed of sale
between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting
aside the questioned Orders, dated 30 August 1991 and 27 September
1991, of the court a quo. Costs against petitioners.
SO ORDERED.

Furthermore, whether private respondent Buen Realty Development

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

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

Finally, the questioned writ of execution is in variance

with the decision of the trial court as modified by this
Court. As already stated, there was nothing in said
decision 13 that decreed the execution of a deed of sale
G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &
BAUERMANN, INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
Before us is a petition for review of the decision1 of the Court of
Appeals2 involving questions in the resolution of which the respondent
appellate court analyzed and interpreted particular provisions of our laws
on contracts and sales. In its assailed decision, the respondent court
reversed the trial court3 which, in dismissing the complaint for specific
performance with damages and annulment of contract,4 found the option
clause in the lease contracts entered into by private respondent Mayfair
Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann,
Inc. (hereafter, Carmelo) to be impossible of performance and unsupported
by a consideration and the subsequent sale of the subject property to
petitioner Equatorial Realty Development, Inc. (hereafter, Equatorial) to
have been made without any breach of or prejudice to, the said lease
contracts.5
We reproduce below the facts as narrated by the respondent court, which
narration, we note, is almost verbatim the basis of the statement of facts as
rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey buildings
constructed thereon located at Claro M Recto Avenue, Manila, and
covered by TCT No. 18529 issued in its name by the Register of Deeds of
Manila.
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for
the latter's lease of a portion of Carmelo's property particularly described,
to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square
meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 150 square
meters.
for use by Mayfair as a motion picture theater and for a term of twenty
(20) years. Mayfair thereafter constructed on the leased property a movie
house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a second
contract of lease with Carmelo for the lease of another portion of
Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,064 square
meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto Avenue,
Manila, with a floor area of 300 square meters and bearing street numbers
1871 and 1875, for similar use as a movie theater and for a similar term of
twenty (20) years. Mayfair put up another movie house known as
"Miramar Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded paragraph 8,
which reads:
That if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other
than the LESSEE, the LESSOR is bound and obligated, as it hereby binds
and obligates itself, to stipulate in the Deed of Sale hereof that the
purchaser shall recognize this lease and be bound by all the terms and
conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr.
Henry Yang, President of Mayfair, through a telephone conversation that
Carmelo was desirous of selling the entire Claro M. Recto property. Mr.
Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the
whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang
if the latter was willing to buy the property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision. On
August 23, 1974, Mayfair replied through a letter stating as follows:
It appears that on August 19, 1974 your Mr. Henry Pascal informed our
client's Mr. Henry Yang through the telephone that your company desires
to sell your above-mentioned C.M. Recto Avenue property.
Under your company's two lease contracts with our client, it is uniformly
provided:
8. That if the LESSOR should desire to sell the leased premises the
LESSEE shall be given 30-days exclusive option to purchase the same. In
the event, however, that the leased premises is sold to someone other than
the LESSEE, the LESSOR is bound and obligated, as it is (sic) herebinds
(sic) and obligates itself, to stipulate in the Deed of Sale thereof that the
purchaser shall recognize this lease and be bound by all the terms and
conditions hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo purporting
to express interest in acquiring not only the leased premises but "the entire
building and other improvements if the price is reasonable. However, both
Carmelo and Equatorial questioned the authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto
Avenue land and building, which included the leased premises housing the
"Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed of
Absolute Sale, for the total sum of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for specific
performance and annulment of the sale of the leased premises to
Equatorial. In its Answer, Carmelo alleged as special and affirmative
defense (a) that it had informed Mayfair of its desire to sell the entire C.M.
Recto Avenue property and offered the same to Mayfair, but the latter
answered that it was interested only in buying the areas under lease, which
was impossible since the property was not a condominium; and (b) that
the option to purchase invoked by Mayfair is null and void for lack of
consideration. Equatorial, in its Answer, pleaded as special and affirmative
defense that the option is void for lack of consideration (sic) and is
unenforceable by reason of its impossibility of performance because the
leased premises could not be sold separately from the other portions of the
land and building. It counterclaimed for cancellation of the contracts of
lease, and for increase of rentals in view of alleged supervening
extraordinary devaluation of the currency. Equatorial likewise cross-
claimed against co-defendant Carmelo for indemnification in respect of
Mayfair's claims.
During the pre-trial conference held on January 23, 1979, the parties
stipulated on the following:
1. That there was a deed of sale of the contested premises by the defendant
Carmelo . . . in favor of defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the stipulation granting
the plaintiff exclusive option to purchase the leased premises should the
lessor desire to sell the same (admitted subject to the contention that the
stipulation is null and void);
3. That the two buildings erected on this land are not of the condominium
plan;
4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b)
of the contracts of lease constitute the consideration for the plaintiff's
occupancy of the leased premises, subject of the same contracts of lease,
Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified in the option to buy embodied
in the contract;
7. That Carmelo & Bauermann owned the land and the two buildings
erected thereon;
8. That the leased premises constitute only the portions actually occupied
by the theaters; and
9. That what was sold by Carmelo & Bauermann to defendant Equatorial
Realty is the land and the two buildings erected thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed
decision, the decretal portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;
(2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00
by way of attorney's fees on its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per
month as reasonable compensation for the use of areas not covered by the
contract (sic) of lease from July 31, 1979 until plaintiff vacates said area
(sic) plus legal interest from July 31, 1978; P70,000 00 per month as
reasonable compensation for the use of the premises covered by the
contracts (sic) of lease dated (June 1, 1967 from June 1, 1987 until plaintiff
vacates the premises plus legal interest from June 1, 1987; P55,000.00 per
month as reasonable compensation for the use of the premises covered by
the contract of lease dated March 31, 1969 from March 30, 1989 until
plaintiff vacates the premises plus legal interest from March 30, 1989; and
P40,000.00 as attorney's fees;
(4) Dismissing defendant Equatorial's crossclaim against defendant
Carmelo & Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are declared
expired and all persons claiming rights under these contracts are directed
to vacate the premises.6
The trial court adjudged the identically worded paragraph 8 found in both
aforecited lease contracts to be an option clause which however cannot be
deemed to be binding on Carmelo because of lack of distinct consideration
therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties that the
option in the contract of lease is not supported by a separate consideration.
Without a consideration, the option is therefore not binding on defendant
Carmelo & Bauermann to sell the C.M. Recto property to the former. The
option invoked by the plaintiff appears in the contracts of lease . . . in effect
there is no option, on the ground that there is no consideration. Article
1352 of the Civil Code, provides:
Contracts without cause or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good
custom, public order or public policy.
Contracts therefore without consideration produce no effect whatsoever.
Article 1324 provides:
When the offeror has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating
such withdrawal, except when the option is founded upon consideration,
as something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determine thing for a
price certain is binding upon the promissor if the promise is supported by
a consideration distinct from the price.
The plaintiff cannot compel defendant Carmelo to comply with the
promise unless the former establishes the existence of a distinct
consideration. In other words, the promisee has the burden of proving the
consideration. The consideration cannot be presumed as in Article 1354:
Although the cause is not stated in the contract, it is presumed that it exists
and is lawful unless the debtor proves the contrary. where consideration is
legally presumed to exists. Article 1354 applies to contracts in general,
whereas when it comes to an option it is governed particularly and more
specifically by Article 1479 whereby the promisee has the burden of
proving the existence of consideration distinct from the price. Thus, in the
case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to contracts in general, whereas the second
paragraph of Article 1479 refers to sales in particular, and, more
specifically, to an accepted unilateral promise to buy or to sell. In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be binding upon the
promissor, Article 1479 requires the concurrence of a condition, namely,
that the promise be supported by a consideration distinct from the price.
Accordingly, the promisee cannot compel the promissor to comply with
the promise, unless the former establishes the existence of said distinct
consideration. In other words, the promisee has the burden of proving such
consideration. Plaintiff herein has not even alleged the existence thereof
in his complaint. 7
It follows that plaintiff cannot compel defendant Carmelo & Bauermann
to sell the C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the battleground
shifted to the respondent Court of Appeals. Respondent appellate court
reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return
to Equatorial the amount of P11,300,000.00 within fifteen (15) days from
notice of this Decision, and ordering Equatorial Realty Development, Inc.
to accept such payment;
3. Upon payment of the sum of P11,300,000, directing Equatorial Realty
Development, Inc. to execute the deeds and documents necessary for the
issuance and transfer of ownership to Mayfair of the lot registered under
TCT Nos. 17350, 118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the
amount as adjudged, declaring the Deed of Absolute Sale between the
defendants-appellants Carmelo & Bauermann, Inc. and Equatorial Realty
Development, Inc. as valid and binding upon all the parties.8
Rereading the law on the matter of sales and option contracts, respondent
Court of Appeals differentiated between Article 1324 and Article 1479 of
the Civil Code, analyzed their application to the facts of this case, and
concluded that since paragraph 8 of the two lease contracts does not state
a fixed price for the purchase of the leased premises, which is an essential
element for a contract of sale to be perfected, what paragraph 8 is, must be
a right of first refusal and not an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles 1324 and
1479, second paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an offeror which the offeree
may or may not accept within a certain period. Under this article, the offer
may be withdrawn by the offeror before the expiration of the period and
while the offeree has not yet accepted the offer. However, the offer cannot
be withdrawn by the offeror within the period if a consideration has been
promised or given by the offeree in exchange for the privilege of being
given that period within which to accept the offer. The consideration is
distinct from the price which is part of the offer. The contract that arises is
known as option. In the case of Beaumont vs. Prieto, 41 Phil. 670, the
Supreme court, citing Bouvier, defined an option as follows: "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," (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of an
"accepted unilateral promise to buy or to sell a determinate thing for a
price within (which) is binding upon the promisee if the promise is
supported by a consideration distinct from the price." That "unilateral
promise to buy or to sell a determinate thing for a price certain" is called
an offer. An "offer", in laws, is a proposal to enter into a contract
(Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the
proposal must be certain as to the object, the price and other essential terms
of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision granting
Mayfair "30-days exclusive option to purchase" the leased premises is
NOT AN OPTION in the context of Arts. 1324 and 1479, second
paragraph, of the Civil Code. Although the provision is certain as to the
object (the sale of the leased premises) the price for which the object is to
be sold is not stated in the provision Otherwise stated, the questioned
stipulation is not by itself, an "option" or the "offer to sell" because the
clause does not specify the price for the subject property.
Although the provision giving Mayfair "30-days exclusive option to
purchase" cannot be legally categorized as an option, it is, nevertheless, a
valid and binding stipulation. What the trial court failed to appreciate was
the intention of the parties behind the questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type customarily found
in a contract of lease. Even appellees have recognized that the stipulation
was incorporated in the two Contracts of Lease at the initiative and behest
of Mayfair. Evidently, the stipulation was intended to benefit and protect
Mayfair in its rights as lessee in case Carmelo should decide, during the
term of the lease, to sell the leased property. This intention of the parties
is achieved in two ways in accordance with the stipulation. The first is by
giving Mayfair "30-days exclusive option to purchase" the leased
property. The second is, in case Mayfair would opt not to purchase the
leased property, "that the purchaser (the new owner of the leased property)
shall recognize the lease and be bound by all the terms and conditions
thereof."
In other words, paragraph 8 of the two Contracts of lease, particularly the
stipulation giving Mayfair "30-days exclusive option to purchase the
(leased premises)," was meant to provide Mayfair the opportunity to
purchase and acquire the leased property in the event that Carmelo should
decide to dispose of the property. In order to realize this intention, the
implicit obligation of Carmelo once it had decided to sell the leased
property, was not only to notify Mayfair of such decision to sell the
property, but, more importantly, to make an offer to sell the leased
premises to Mayfair, giving the latter a fair and reasonable opportunity to
accept or reject the offer, before offering to sell or selling the leased
property to third parties. The right vested in Mayfair is analogous to the
right of first refusal, which means that Carmelo should have offered the
sale of the leased premises to Mayfair before offering it to other parties,
or, if Carmelo should receive any offer from third parties to purchase the
leased premises, then Carmelo must first give Mayfair the opportunity to
match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right of
first refusal when he made the telephone call to Mr. Yang in 1974. Mr.
Pascal thus testified:
Q Can you tell this Honorable Court how you made the offer to Mr. Henry
Yang by telephone?
A I have an offer from another party to buy the property and having the
offer we decided to make an offer to Henry Yang on a first-refusal basis.
(TSN November 8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on August 1974 can you remember exactly
what you have told him in connection with that matter, Mr. Pascal?
A More or less, I told him that I received an offer from another party to
buy the property and I was offering him first choice of the enter property.
(TSN, November 29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders effectual
the intention of the parties.9
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal
as to which the requirement of distinct consideration indispensable in an
option contract, has no application, respondent appellate court also
addressed the claim of Carmelo and Equatorial that assuming
arguendo that the option is valid and effective, it is impossible of
performance because it covered only the leased premises and not the entire
Claro M. Recto property, while Carmelo's offer to sell pertained to the
entire property in question. The Court of Appeals ruled as to this issue in
this wise:
We are not persuaded by the contentions of the defendants-appellees. It is
to be noted that the Deed of Absolute Sale between Carmelo and
Equatorial covering the whole Claro M. Recto property, made reference to
four titles: TCT Nos. 17350, 118612, 60936 and 52571. Based on the
information submitted by Mayfair in its appellant's Brief (pp. 5 and 46)
which has not been controverted by the appellees, and which We,
therefore, take judicial notice of the two theaters stand on the parcels of
land covered by TCT No. 17350 with an area of 622.10 sq. m and TCT
No. 118612 with an area of 2,100.10 sq. m. The existence of four separate
parcels of land covering the whole Recto property demonstrates the legal
and physical possibility that each parcel of land, together with the
buildings and improvements thereof, could have been sold independently
of the other parcels.
At the time both parties executed the contracts, they were aware of the
physical and structural conditions of the buildings on which the theaters
were to be constructed in relation to the remainder of the whole Recto
property. The peculiar language of the stipulation would tend to limit
Mayfair's right under paragraph 8 of the Contract of Lease to the
acquisition of the leased areas only. Indeed, what is being contemplated
by the questioned stipulation is a departure from the customary situation
wherein the buildings and improvements are included in and form part of
the sale of the subjacent land. Although this situation is not common,
especially considering the non-condominium nature of the buildings, the
sale would be valid and capable of being performed. A sale limited to the
leased premises only, if hypothetically assumed, would have brought into
operation the provisions of co-ownership under which Mayfair would
have become the exclusive owner of the leased premises and at the same
time a co-owner with Carmelo of the subjacent land in proportion to
Mayfair's interest over the premises sold to it.10
Carmelo and Equatorial now comes before us questioning the correctness
and legal basis for the decision of respondent Court of Appeals on the basis
of the following assigned errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN
CONCLUDING THAT THE OPTION CLAUSE IN THE
CONTRACTS OF LEASE IS ACTUALLY A RIGHT
OF FIRST REFUSAL PROVISO. IN DOING SO THE
COURT OF APPEALS DISREGARDED THE
CONTRACTS OF LEASE WHICH CLEARLY AND
UNEQUIVOCALLY PROVIDE FOR AN OPTION,
AND THE ADMISSION OF THE PARTIES OF SUCH
OPTION IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST
REFUSAL, THE COURT OF APPEALS ERRED IN
DIRECTING EQUATORIAL TO EXECUTE A DEED
OF SALE EIGHTEEN (18) YEARS AFTER MAYFAIR
FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS
RIGHT OF FIRST REFUSAL ASSUMING IT WAS
ONE) WHEN THE CONTRACTS LIMITED THE
EXERCISE OF SUCH OPTION TO 30 DAYS FROM
NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED
WHEN IT DIRECTED IMPLEMENTATION OF ITS
DECISION EVEN BEFORE ITS FINALITY, AND
WHEN IT GRANTED MAYFAIR A RELIEF THAT
WAS NOT EVEN PRAYED FOR IN THE
COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN
INTERNAL RULES IN THE ASSIGNMENT OF
APPEALED CASES WHEN IT ALLOWED THE
SAME DIVISION XII, PARTICULARLY JUSTICE
MANUEL HERRERA, TO RESOLVE ALL THE
MOTIONS IN THE "COMPLETION PROCESS" AND
TO STILL RESOLVE THE MERITS OF THE CASE IN
THE "DECISION STAGE".11
We shall first dispose of the fourth assigned error respecting alleged
irregularities in the raffle of this case in the Court of Appeals. Suffice it to
say that in our Resolution,12 dated December 9, 1992, we already took note
of this matter and set out the proper applicable procedure to be the
following:
On September 20, 1992, counsel for petitioner Equatorial Realty
Development, Inc. wrote a letter-complaint to this Court alleging certain
irregularities and infractions committed by certain lawyers, and Justices of
the Court of Appeals and of this Court in connection with case CA-G.R.
CV No. 32918 (now G.R. No. 106063). This partakes of the nature of an
administrative complaint for misconduct against members of the judiciary.
While the letter-complaint arose as an incident in case CA-G.R. CV No.
32918 (now G.R. No. 106063), the disposition thereof should be separate
and independent from Case G.R. No. 106063. However, for purposes of
receiving the requisite pleadings necessary in disposing of the
administrative complaint, this Division shall continue to have control of
the case. Upon completion thereof, the same shall be referred to the
Court En Banc for proper disposition.13
This court having ruled the procedural irregularities raised in the fourth
assigned error of Carmelo and Equatorial, to be an independent and
separate subject for an administrative complaint based on misconduct by
the lawyers and justices implicated therein, it is the correct, prudent and
consistent course of action not to pre-empt the administrative proceedings
to be undertaken respecting the said irregularities. Certainly, a discussion
thereupon by us in this case would entail a finding on the merits as to the
real nature of the questioned procedures and the true intentions and
motives of the players therein.
In essence, our task is two-fold: (1) to define the true nature, scope and
efficacy of paragraph 8 stipulated in the two contracts of lease between
Carmelo and Mayfair in the face of conflicting findings by the trial court
and the Court of Appeals; and (2) to determine the rights and obligations
of Carmelo and Mayfair, as well as Equatorial, in the aftermath of the sale
by Carmelo of the entire Claro M. Recto property to Equatorial.
Both contracts of lease in question provide the identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other
than the LESSEE, the LESSOR is bound and obligated, as it hereby binds
and obligates itself, to stipulate in the Deed of Sale thereof that the
purchaser shall recognize this lease and be bound by all the terms and
conditions thereof.14
We agree with the respondent Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of
Mayfair. It is not an option clause or an option contract. It is a contract of
a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto,15 unequivocal was
our characterization of an option contract as one necessarily involving the
choice granted to another for a distinct and separate consideration as to
whether or not to purchase a determinate thing at a predetermined fixed
price.
It is unquestionable that, by means of the document Exhibit E, to wit, the
letter of December 4, 1911, quoted at the beginning of this decision, the
defendant Valdes granted to the plaintiff Borck the right to purchase the
Nagtajan Hacienda belonging to Benito Legarda, during the period of three
months and for its assessed valuation, a grant which necessarily implied
the offer or obligation on the part of the defendant Valdes to sell to Borck
the said hacienda during the period and for the price mentioned . . . There
was, therefore, a meeting of minds on the part of the one and the other,
with regard to the stipulations made in the said document. But it is not
shown that there was any cause or consideration for that agreement, and
this omission is a bar which precludes our holding that the stipulations
contained in Exhibit E is a contract of option, for, . . . there can be no
contract without the requisite, among others, of the cause for the obligation
to be established.
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, the subject of the agreement made by the
parties; while in the case at bar there was no such cause or
consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of option
or the option clause in a contract, in order to be valid and enforceable,
must, among other things, indicate the definite price at which the person
granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased
property for a named price per square meter upon failure to make the
purchase within the time specified;17 in one other case we freed the
landowner from her promise to sell her land if the prospective buyer could
raise P4,500.00 in three weeks because such option was not supported by
a distinct consideration;18 in the same vein in yet one other case, we also
invalidated an instrument entitled, "Option to Purchase" a parcel of land
for the sum of P1,510.00 because of lack of consideration;19 and as an
exception to the doctrine enumerated in the two preceding cases, in
another case, we ruled that the option to buy the leased premises for
P12,000.00 as stipulated in the lease contract, is not without consideration
for in reciprocal contracts, like lease, the obligation or promise of each
party is the consideration for that of the other. 20 In all these cases, the
selling price of the object thereof is always predetermined and specified in
the option clause in the contract or in the separate deed of option. We
elucidated, thus, in the very recent case of Ang Yu Asuncion vs. Court of
Appeals21 that:
. . . In sales, particularly, to which the topic for discussion about the case
at bench belongs, the contract is perfected when a person, called the seller,
obligates himself, for a price certain, to deliver and to transfer ownership
of a thing or right to another, called the buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to
Sell" where invariably the ownership of the thing sold in retained until the
fulfillment of a positive suspensive condition (normally, the full payment
of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force. . . .
An unconditional mutual promise to buy and sell, as long as the object is
made determinate and the price is fixed, can be obligatory on the parties,
and compliance therewith may accordingly be exacted.
An accepted unilateral promise which specifies the thing to be sold and
the price to be paid, when coupled with a valuable consideration distinct
and separate from the price, is what may properly be termed a perfected
contract of option. This contract is legally binding, and in sales, it
conforms with the second paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price. (1451a).
Observe, however, that the option is not the contract of sale itself. The
optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.
Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public advertisements
or solicitations and the like are ordinarily construed as mere invitations to
make offers or only as proposals. These relations, until a contract is
perfected, are not considered binding commitments. Thus, at any time
prior to the perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the withdrawal is
effective immediately after its manifestation, such as by its mailing and
not necessarily when the offeree learns of the withdrawal (Laudico vs.
Arias, 43 Phil. 270). Where a period is given to the offeree within which
to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration,
the offeror is still free and has the right to withdraw the offer before its
acceptance, or if an acceptance has been made, before the offeror's coming
to know of such fact, by communicating that withdrawal to the offeree (see
Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948,
holding that this rule is applicable to a unilateral promise to sell under Art.
1479, modifying the previous decision in South Western Sugar vs. Atlantic
Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of
Parañaque, Inc. vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45
SCRA 368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim
under Article 19 of the Civil Code which ordains that "every person must,
in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option"
deemed perfected, and it would be a breach of that contract to withdraw
the offer during the agreed period. The option, however, is an independent
contract by itself; and it is to be distinguished from the projected main
agreement (subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may
not sue for specific performance on the proposed contract ("object" of the
option) since it has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for damages for breach
of the opinion. . .
In the light of the foregoing disquisition and in view of the wording of the
questioned provision in the two lease contracts involved in the instant case,
we so hold that no option to purchase in contemplation of the second
paragraph of Article 1479 of the Civil Code, has been granted to Mayfair
under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8
grants the right of first refusal to Mayfair and is not an option contract. It
also correctly reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and
March 31, 1969 contracts which would bring them into the ambit of the
usual offer or option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an agreed
time and at a determined price. It is a separate and distinct contract from
that which the parties may enter into upon the consummation of the option.
It must be supported by consideration.22 In the instant case, the right of
first refusal is an integral part of the contracts of lease. The consideration
is built into the reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8 of
the contracts is governed by Article 1324 on withdrawal of the offer or
Article 1479 on promise to buy and sell would render in effectual or
"inutile" the provisions on right of first refusal so commonly inserted in
leases of real estate nowadays. The Court of Appeals is correct in stating
that Paragraph 8 was incorporated into the contracts of lease for the benefit
of Mayfair which wanted to be assured that it shall be given the first crack
or the first option to buy the property at the price which Carmelo is willing
to accept. It is not also correct to say that there is no consideration in an
agreement of right of first refusal. The stipulation is part and parcel of the
entire contract of lease. The consideration for the lease includes the
consideration for the right of first refusal. Thus, Mayfair is in effect stating
that it consents to lease the premises and to pay the price agreed upon
provided the lessor also consents that, should it sell the leased property,
then, Mayfair shall be given the right to match the offered purchase price
and to buy the property at that price. As stated in Vda. De Quirino
vs. Palarca,23 in reciprocal contract, the obligation or promise of each
party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true
nature of the aforecited paragraph 8 to be that of a contractual grant of the
right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and
liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an amplification
of the precedent in Ang Yu Asuncion vs. Court of Appeals.24
First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the event
Carmelo sells the leased premises. It is undisputed that Carmelo did
recognize this right of Mayfair, for it informed the latter of its intention to
sell the said property in 1974. There was an exchange of letters evidencing
the offer and counter-offers made by both parties. Carmelo, however, did
not pursue the exercise to its logical end. While it initially recognized
Mayfair's right of first refusal, Carmelo violated such right when without
affording its negotiations with Mayfair the full process to ripen to at least
an interface of a definite offer and a possible corresponding acceptance
within the "30-day exclusive option" time granted Mayfair, Carmelo
abandoned negotiations, kept a low profile for some time, and then sold,
without prior notice to Mayfair, the entire Claro M Recto property to
Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it
of the property in question rescissible. We agree with respondent
Appellate Court that the records bear out the fact that Equatorial was aware
of the lease contracts because its lawyers had, prior to the sale, studied the
said contracts. As such, Equatorial cannot tenably claim to be a purchaser
in good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under Article 1380
to 1381(3) of the Civil Code, a contract otherwise valid may nonetheless
be subsequently rescinded by reason of injury to third persons, like
creditors. The status of creditors could be validly accorded the Bonnevies
for they had substantial interests that were prejudiced by the sale of the
subject property to the petitioner without recognizing their right of first
priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure reparation for
damages caused to them by a contract, even if this should be valid, by
means of the restoration of things to their condition at the moment prior to
the celebration of said contract. It is a relief allowed for the protection of
one of the contracting parties and even third persons from all injury and
damage the contract may cause, or to protect some incompatible and
preferent right created by the contract. Rescission implies a contract
which, even if initially valid, produces a lesion or pecuniary damage to
someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of
the contract is an obstacle to the action for its rescission where it is shown
that such third person is in lawful possession of the subject of the contract
and that he did not act in bad faith. However, this rule is not applicable in
the case before us because the petitioner is not considered a third party in
relation to the Contract of Sale nor may its possession of the subject
property be regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale.
Moreover, the petitioner cannot be deemed a purchaser in good faith for
the record shows that it categorically admitted it was aware of the lease in
favor of the Bonnevies, who were actually occupying the subject property
at the time it was sold to it. Although the Contract of Lease was not
annotated on the transfer certificate of title in the name of the late Jose
Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge
of such lease which was equivalent to and indeed more binding than
presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or 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 the claim or interest of some other
person in the property. Good faith connotes an honest intention to abstain
from taking unconscientious advantage of another. Tested by these
principles, the petitioner cannot tenably claim to be a buyer in good faith
as it had notice of the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice its own interests.
The petitioner insists that it was not aware of the right of first priority
granted by the Contract of Lease. Assuming this to be true, we
nevertheless agree with the observation of the respondent court that:
If Guzman-Bocaling failed to inquire about the terms of the Lease
Contract, which includes Par. 20 on priority right given to the Bonnevies,
it had only itself to blame. Having known that the property it was buying
was under lease, it behooved it as a prudent person to have required
Reynoso or the broker to show to it the Contract of Lease in which Par. 20
is contained.25
Petitioners assert the alleged impossibility of performance because the
entire property is indivisible property. It was petitioner Carmelo which
fixed the limits of the property it was leasing out. Common sense and
fairness dictate that instead of nullifying the agreement on that basis, the
stipulation should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the right of first
refusal. A valid and legal contract where the ascendant or the more
important of the two parties is the landowner should be given effect, if
possible, instead of being nullified on a selfish pretext posited by the
owner. Following the arguments of petitioners and the participation of the
owner in the attempt to strip Mayfair of its rights, the right of first refusal
should include not only the property specified in the contracts of lease but
also the appurtenant portions sold to Equatorial which are claimed by
petitioners to be indivisible. Carmelo acted in bad faith when it sold the
entire property to Equatorial without informing Mayfair, a clear violation
of Mayfair's rights. While there was a series of exchanges of letters
evidencing the offer and counter-offers between the parties, Carmelo
abandoned the negotiations without giving Mayfair full opportunity to
negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court
should also order that Mayfair be authorized to exercise its right of first
refusal under the contract to include the entirety of the indivisible
property. The boundaries of the property sold should be the boundaries of
the offer under the right of first refusal. As to the remedy to enforce
Mayfair's right, the Court disagrees to a certain extent with the concluding
part of the dissenting opinion of Justice Vitug. The doctrine enunciated
in Ang Yu Asuncion vs.Court of Appeals should be modified, if not
amplified under the peculiar facts of this case.
As also earlier emphasized, the contract of sale between Equatorial and
Carmelo is characterized by bad faith, since it was knowingly entered into
in violation of the rights of and to the prejudice of Mayfair. In fact, as
correctly observed by the Court of Appeals, Equatorial admitted that its
lawyers had studied the contract of lease prior to the sale. Equatorial's
knowledge of the stipulations therein should have cautioned it to look
further into the agreement to determine if it involved stipulations that
would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if
the fraudulent sale is first set aside or rescinded. All of these matters are
now before us and so there should be no piecemeal determination of this
case and leave festering sores to deteriorate into endless litigation. The
facts of the case and considerations of justice and equity require that we
order rescission here and now. Rescission is a relief allowed for the
protection of one of the contracting parties and even third persons from all
injury and damage the contract may cause or to protect some incompatible
and preferred right by the contract.26 The sale of the subject real property
by Carmelo to Equatorial should now be rescinded considering that
Mayfair, which had substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate within the
30-day stipulated period.27
This Court has always been against multiplicity of suits where all remedies
according to the facts and the law can be included. Since Carmelo sold the
property for P11,300,000.00 to Equatorial, the price at which Mayfair
could have purchased the property is, therefore, fixed. It can neither be
more nor less. There is no dispute over it. The damages which Mayfair
suffered are in terms of actual injury and lost opportunities. The fairest
solution would be to allow Mayfair to exercise its right of first refusal at
the price which it was entitled to accept or reject which is P11,300,000.00.
This is clear from the records.
To follow an alternative solution that Carmelo and Mayfair may resume
negotiations for the sale to the latter of the disputed property would be
unjust and unkind to Mayfair because it is once more compelled to litigate
to enforce its right. It is not proper to give it an empty or vacuous victory
in this case. From the viewpoint of Carmelo, it is like asking a fish if it
would accept the choice of being thrown back into the river. Why should
Carmelo be rewarded for and allowed to profit from, its wrongdoing?
Prices of real estate have skyrocketed. After having sold the property for
P11,300,000.00, why should it be given another chance to sell it at an
increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated
that there was nothing to execute because a contract over the right of first
refusal belongs to a class of preparatory juridical relations governed not
by the law on contracts but by the codal provisions on human relations.
This may apply here if the contract is limited to the buying and selling of
the real property. However, the obligation of Carmelo to first offer the
property to Mayfair is embodied in a contract. It is Paragraph 8 on the right
of first refusal which created the obligation. It should be enforced
according to the law on contracts instead of the panoramic and indefinite
rule on human relations. The latter remedy encourages multiplicity of
suits. There is something to execute and that is for Carmelo to comply with
its obligation to the property under the right of the first refusal according
to the terms at which they should have been offered then to Mayfair, at the
price when that offer should have been made. Also, Mayfair has to accept
the offer. This juridical relation is not amorphous nor is it merely
preparatory. Paragraphs 8 of the two leases can be executed according to
their terms.
On the question of interest payments on the principal amount of
P11,300,000.00, it must be borne in mind that both Carmelo and
Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a
contract entered into with Mayfair. It sold the property to Equatorial with
purpose and intend to withhold any notice or knowledge of the sale coming
to the attention of Mayfair. All the circumstances point to a calculated and
contrived plan of non-compliance with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it
bought the property with notice and full knowledge that Mayfair had a
right to or interest in the property superior to its own. Carmelo and
Equatorial took unconscientious advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on
equity which might warrant the grant of interests. The vendor received as
payment from the vendee what, at the time, was a full and fair price for the
property. It has used the P11,300,000.00 all these years earning income or
interest from the amount. Equatorial, on the other hand, has received rents
and otherwise profited from the use of the property turned over to it by
Carmelo. In fact, during all the years that this controversy was being
litigated, Mayfair paid rentals regularly to the buyer who had an inferior
right to purchase the property. Mayfair is under no obligation to pay any
interests arising from this judgment to either Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
DENIED. The Deed of Absolute Sale between petitioners Equatorial
Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby
deemed rescinded; petitioner Carmelo & Bauermann is ordered to return
to petitioner Equatorial Realty Development the purchase price. The latter
is directed to execute the deeds and documents necessary to return
ownership to Carmelo and Bauermann of the disputed lots. Carmelo &
Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid
lots for P11,300,000.00.

SO ORDERED.
G.R. No. 183612 March 15, 2010
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, Petitioner,
vs.
GOLDEN HORIZON REALTY CORPORATION, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 184260
NATIONAL DEVELOPMENT COMPANY, Petitioner,
vs.
GOLDEN HORIZON REALTY CORPORATION, Respondent.
The above-titled consolidated petitions filed under Rule 45 of the 1997
Rules of Civil Procedure, as amended, seek to reverse the Decision1 dated
June 25, 2008 and Resolution dated August 22, 2008 of the Court of
Appeals (CA) in CA-G.R. CV No. 84399 which affirmed the
Decision2 dated November 25, 2004 of the Regional Trial Court (RTC) of
Makati City, Branch 144 in Civil Case No. 88-2238.
The undisputed facts are as follows:
Petitioner National Development Company (NDC) is a government-
owned and controlled corporation, created under Commonwealth Act No.
182, as amended by Com. Act No. 311 and Presidential Decree (P.D.) No.
668. Petitioner Polytechnic University of the Philippines (PUP) is a public,
non-sectarian, non-profit educational institution created in 1978 by virtue
of P.D. No. 1341.
In the early sixties, NDC had in its disposal a ten (10)-hectare property
located along Pureza St., Sta. Mesa, Manila. The estate was popularly
known as the NDC Compound and covered by Transfer Certificate of Title
Nos. 92885, 110301 and 145470.
On September 7, 1977, NDC entered into a Contract of Lease (C-33-77)
with Golden Horizon Realty Corporation (GHRC) over a portion of the
property, with an area of 2,407 square meters for a period of ten (10) years,
renewable for another ten (10) years with mutual consent of the parties.3
On May 4, 1978, a second Contract of Lease (C-12-78) was executed
between NDC and GHRC covering 3,222.80 square meters, also
renewable upon mutual consent after the expiration of the ten (10)-year
lease period. In addition, GHRC as lessee was granted the "option to
purchase the area leased, the price to be negotiated and determined at the
time the option to purchase is exercised."4
Under the lease agreements, GHRC was obliged to construct at its own
expense buildings of strong material at no less than the stipulated cost, and
other improvements which shall automatically belong to the NDC as lessor
upon the expiration of the lease period. Accordingly, GHRC introduced
permanent improvements and structures as required by the terms of the
contract. After the completion of the industrial complex project, for which
GHRC spent ₱5 million, it was leased to various manufacturers,
industrialists and other businessmen thereby generating hundreds of jobs.5
On June 13, 1988, before the expiration of the ten (10)-year period under
the second lease contract, GHRC wrote a letter to NDC indicating its
exercise of the option to renew the lease for another ten (10) years. As no
response was received from NDC, GHRC sent another letter on August
12, 1988, reiterating its desire to renew the contract and also requesting
for priority to negotiate for its purchase should NDC opt to sell the leased
premises.6 NDC still did not reply but continued to accept rental payments
from GHRC and allowed the latter to remain in possession of the property.
Sometime after September 1988, GHRC discovered that NDC had decided
to secretly dispose the property to a third party. On October 21, 1988,
GHRC filed in the RTC a complaint for specific performance, damages
with preliminary injunction and temporary restraining order.7
In the meantime, then President Corazon C. Aquino issued Memorandum
Order No. 214 dated January 6, 1989, ordering the transfer of the whole
NDC Compound to the National Government, which in turn would convey
the said property in favor of PUP at acquisition cost. The memorandum
order cited the serious need of PUP, considered the "Poor Man’s
University," to expand its campus, which adjoins the NDC Compound, to
accommodate its growing student population, and the willingness of PUP
to buy and of NDC to sell its property. The order of conveyance of the
10.31-hectare property would automatically result in the cancellation of
NDC’s total obligation in favor of the National Government in the amount
of ₱57,193,201.64.8
On February 20, 1989, the RTC issued a writ of preliminary injunction
enjoining NDC and its attorneys, representatives, agents and any other
persons assisting it from proceeding with the sale and disposition of the
leased premises.9
On February 23, 1989, PUP filed a motion to intervene as party defendant,
claiming that as a purchaser pendente lite of a property subject of litigation
it is entitled to intervene in the proceedings. The RTC granted the said
motion and directed PUP to file its Answer-in-Intervention.10
PUP also demanded that GHRC vacate the premises, insisting that the
latter’s lease contract had already expired. Its demand letter unheeded by
GHRC, PUP filed an ejectment case (Civil Case No. 134416) before the
Metropolitan Trial Court (MeTC) of Manila on January 14, 1991.11
Due to this development, GHRC filed an Amended and/or Supplemental
Complaint to include as additional defendants PUP, Honorable Executive
Secretary Oscar Orbos and Judge Ernesto A. Reyes of the Manila MeTC,
and to enjoin the afore-mentioned defendants from prosecuting Civil Case
No. 134416 for ejectment. A temporary restraining order was
subsequently issued by the RTC enjoining PUP from prosecuting and
Judge Francisco Brillantes, Jr. from proceeding with the ejectment case.12
In its Second Amended and/or Supplemental Complaint, GHRC argued
that Memorandum Order No. 214 is a nullity, for being violative of the
writ of injunction issued by the trial court, apart from being an
infringement of the Constitutional prohibition against impairment of
obligation of contracts, an encroachment on legislative functions and a bill
of attainder. In the alternative, should the trial court adjudge the
memorandum order as valid, GHRC contended that its existing right must
still be respected by allowing it to purchase the leased premises.13
Pre-trial was set but was suspended upon agreement of the parties to await
the final resolution of a similar case involving NDC, PUP and another
lessee of NDC, Firestone Ceramics, Inc. (Firestone), then pending before
the RTC of Pasay City.14
On November 14, 2001, this Court rendered a decision in G.R. Nos.
143513 (Polytechnic University of the Philippines v. Court of Appeals)
and 143590 (National Development Corporation v. Firestone Ceramics,
Inc.),15which declared that the sale to PUP by NDC of the portion leased
by Firestone pursuant to Memorandum Order No. 214 violated the right of
first refusal granted to Firestone under its third lease contract with NDC.
We thus decreed:
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are
DENIED. Inasmuch as the first contract of lease fixed the area of the
leased premises at 2.90118 hectares while the second contract placed it at
2.60 hectares, let a ground survey of the leased premises be immediately
conducted by a duly licensed, registered surveyor at the expense of private
respondent FIRESTONE CERAMICS, INC., within two (2) months from
the finality of the judgment in this case. Thereafter, private respondent
FIRESTONE CERAMICS, INC., shall have six (6) months from receipt
of the approved survey within which to exercise its right to purchase the
leased property at P1,500.00 per square meter, and petitioner Polytechnic
University of the Philippines is ordered to reconvey the property to
FIRESTONE CERAMICS, INC., in the exercise of its right of first refusal
upon payment of the purchase price thereof.
SO ORDERED.16
The RTC resumed the proceedings and when mediation and pre-trial failed
to settle the case amicably, trial on the merits ensued.17
On November 25, 2004, the RTC rendered its decision upholding the right
of first refusal granted to GHRC under its lease contract with NDC and
ordering PUP to reconvey the said portion of the property in favor of
GHRC. The dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendants ordering the plaintiff to
cause immediate ground survey of the premises subject of the leased
contract under Lease Contract No. C-33-77 and C-12-78 measuring 2,407
and 3,222.8 square meters respectively, by a duly licensed and registered
surveyor at the expense of the plaintiff within two months from receipt of
this Decision and thereafter, the plaintiff shall have six (6) months from
receipt of the approved survey within which to exercise its right to
purchase the leased property at P554.74 per square meter. And finally, the
defendant PUP, in whose name the property is titled, is hereby ordered to
reconvey the aforesaid property to the plaintiff in the exercise of its right
of its option to buy or first refusal upon payment of the purchase price
thereof.
The defendant NDC is hereby further ordered to pay the plaintiff
attorney’s fees in the amount of P100,000.00.
The case against defendant Executive Secretary is dismissed and this
decision shall bind defendant Metropolitan Trial Court, Branch 20 of
Manila.
With costs against defendants NDC and PUP.
SO ORDERED.18
NDC and PUP separately appealed the decision to the CA.19 By Decision
of June 25, 2008, the CA affirmed in toto the decision of the RTC.20
Both the RTC and the CA applied this Court’s ruling in Polytechnic
University of the Philippines v. Court of Appeals (supra), considering that
GHRC is similarly situated as a lessee of NDC whose right of first refusal
under the lease contract was violated by the sale of the property to PUP
without NDC having first offered to sell the same to GHRC despite the
latter’s request for the renewal of the lease and/or to purchase the leased
premises prior to the expiration of the second lease contract. The CA
further agreed with the RTC’s finding that there was an implied renewal
of the lease upon the failure of NDC to act on GHRC’s repeated requests
for renewal of the lease contract, both verbal and written, and continuing
to accept monthly rental payments from GHRC which was allowed to
continue in possession of the leased premises.
The CA also rejected the argument of NDC and PUP that even assuming
that GHRC had the right of first refusal, said right pertained only to the
second lease contract, C-12-78 covering 3,222.80 square meters, and not
to the first lease contract, C-33-77 covering 2,407 square meters, which
had already expired. It sustained the RTC’s finding that the two (2) lease
contracts were interrelated because each formed part of GHRC’s industrial
complex, such that business operations would be rendered useless and
inoperative if the first contract were to be detached from the other, as
similarly held in the afore-mentioned case of Polytechnic University of the
Philippines v. Court of Appeals.
Petitioner PUP argues that respondent’s right to exercise the option to
purchase had expired with the termination of the original contract of lease
and was not carried over to the subsequent implied new lease between
respondent and petitioner NDC. As testified to by their witnesses Leticia
Cabantog and Atty. Rhoel Mabazza, there was no agreement or document
to the effect that respondent’s request for extension or renewal of the
subject contracts of lease for another ten (10) years was approved by NDC.
Hence, respondent can no longer exercise the option to purchase the leased
premises when the same were conveyed to PUP pursuant to Memorandum
Order No. 214 dated January 6, 1989, long after the expiration of C-33-77
and C-12-78 in September 1988.21
Petitioner PUP further contends that while it is conceded that there was an
implied new lease between respondent and petitioner NDC after the
expiration of the lease contracts, the same did not include the right of first
refusal originally granted to respondent. The CA should have applied the
ruling in Dizon v. Magsaysay22 that the lessee cannot any more exercise its
option to purchase after the lapse of the one (1)-year period of the lease
contract. With the implicit renewal of the lease on a monthly basis, the
other terms of the original contract of lease which are revived in the
implied new lease under Article 1670 of the Civil Code are only those
terms which are germane to the lessee’s right of continued enjoyment of
the property leased. The provision entitling the lessee the option to
purchase the leased premises is not deemed incorporated in the impliedly
renewed contract because it is alien to the possession of the lessee.
Consequently, as in this case, respondent’s right of option to purchase the
leased premises was not violated despite the impliedly renewed contract
of lease with NDC. Respondent cannot favorably invoke the decision in
G.R. Nos. 143513 and 143590 (Polytechnic University of the Philippines
v. Court of Appeals) for the simple reason, among others, that unlike in
said cases, the contracts of lease of respondent with NDC were not
mutually extended or renewed for another ten (10) years. Thus, when the
leased premises were conveyed to PUP, respondent did not any more have
any right of first refusal, which incidentally appears only in the second
lease contract and not in the first lease contract.23
On its part, petitioner NDC assails the CA in holding that the contracts of
lease were impliedly renewed for another ten (10)-year period. The
provisions of C-33-77 and C-12-78 clearly state that the lessee is granted
the option "to renew for another ten (10) years with the mutual consent of
both parties." As regards the continued receipt of rentals by NDC and
possession by the respondent of the leased premises, the impliedly
renewed lease was only month-to-month and not ten (10) years since the
rentals are being paid on a monthly basis, as held in Dizon v. Magsaysay.24
Petitioner NDC further faults the CA in sustaining the RTC’s decision
which erroneously granted respondent the option to purchase the leased
premises at the rate of ₱554.74 per square meter, the same rate for which
NDC sold the property to petitioner PUP and/or the National Government,
which is the mere acquisition cost thereof. It must be noted that such
consideration or rate was imposed by Memorandum Order No. 214 under
the premise that it shall, in effect, be a sale and/or purchase from one (1)
government agency to another. It was intended merely as a transfer of one
(1) user of the National Government to another, with the beneficiary, PUP
in this case, merely returning to the petitioner/transferor the cost of
acquisition thereof, as appearing on its accounting books. It does not in
any way reflect the true and fair market value of the property, nor was it a
price a "willing seller" would demand and accept for parting with his real
property. Such benefit, therefore, cannot be extended to respondent as a
private entity, as the latter does not share the same pocket, so to speak,
with the National Government.25
The issue to be resolved is whether or not our ruling in Polytechnic
University of the Philippines v. Court of Appealsapplies in this case
involving another lessee of NDC who claimed that the option to purchase
the portion leased to it was similarly violated by the sale of the NDC
Compound in favor of PUP pursuant to Memorandum Order No. 214.
We rule in the affirmative.
The second lease contract contained the following provision:
III. It is mutually agreed by the parties that this Contract of Lease shall be
in full force and effect for a period of ten (10) years counted from the
effectivity of the payment of rental as provided under sub-paragraph (b)
of Article I, with option to renew for another ten (10) years with the mutual
consent of both parties. In no case should the rentals be increased by more
than 100% of the original amount fixed.
Lessee shall also have the option to purchase the area leased, the price
to be negotiated and determined at the time the option to purchase is
exercised. [emphasis supplied]
An option is a contract by which the owner of the property agrees with
another person that the latter shall have the right to buy the former’s
property at a fixed price within a certain time. It is a condition offered or
contract by which the owner stipulates with another that the latter shall
have the right to buy the property at a fixed price within a certain time, or
under, or in compliance with certain terms and conditions; or which gives
to the owner of the property the right to sell or demand a sale. 26 It binds
the party, who has given the option, not to enter into the principal contract
with any other person during the period designated, and, within that
period, to enter into such contract with the one to whom the option was
granted, if the latter should decide to use the option.271avvphi1
Upon the other hand, a right of first refusal is a contractual grant, not of
the sale of a property, but of the first priority to buy the property in the
event the owner sells the same.28 As distinguished from an option contract,
in a right of first refusal, while the object might be made determinate, the
exercise of the right of first refusal would be dependent not only on the
owner’s eventual intention to enter into a binding juridical relation with
another but also on terms, including the price, that are yet to be firmed
up.29
As the option to purchase clause in the second lease contract has no
definite period within which the leased premises will be offered for sale to
respondent lessee and the price is made subject to negotiation and
determined only at the time the option to buy is exercised, it is obviously
a mere right of refusal, usually inserted in lease contracts to give the lessee
the first crack to buy the property in case the lessor decides to sell the
same. That respondent was granted a right of first refusal under the second
lease contract appears not to have been disputed by petitioners. What
petitioners assail is the CA’s erroneous conclusion that such right of
refusal subsisted even after the expiration of the original lease period,
when respondent was allowed to continue staying in the leased premises
under an implied renewal of the lease and without the right of refusal
carried over to such month-to-month lease. Petitioners thus maintain that
no right of refusal was violated by the sale of the property in favor of PUP
pursuant to Memorandum Order No. 214.
Petitioners’ position is untenable.
When a lease contract contains a right of first refusal, the lessor has the
legal duty to the lessee not to sell the leased property to anyone at any
price until after the lessor has made an offer to sell the property to the
lessee and the lessee has failed to accept it. Only after the lessee has failed
to exercise his right of first priority could the lessor sell the property to
other buyers under the same terms and conditions offered to the lessee, or
under terms and conditions more favorable to the lessor.30
Records showed that during the hearing on the application for a writ of
preliminary injunction, respondent adduced in evidence a letter of Antonio
A. Henson dated 15 July 1988 addressed to Mr. Jake C. Lagonera,
Director and Special Assistant to Executive Secretary Catalino Macaraeg,
reviewing a proposed memorandum order submitted to President Corazon
C. Aquino transferring the whole NDC Compound, including the premises
leased by respondent, in favor of petitioner PUP. This letter was offered
in evidence by respondent to prove the existence of documents as of that
date and even prior to the expiration of the second lease contract or the
lapse of the ten (10)-year period counted from the effectivity of the rental
payment -- that is, one hundred and fifty (150) days from the signing of
the contract (May 4, 1978), as provided in Art. I, paragraph (b) of C-12-
78, or on October 1, 1988.
Respondent thus timely exercised its option to purchase on August 12,
1988. However, considering that NDC had been negotiating through the
National Government for the sale of the property in favor of PUP as early
as July 15, 1988 without first offering to sell it to respondent and even
when respondent communicated its desire to exercise the option to
purchase granted to it under the lease contract, it is clear that NDC violated
respondent’s right of first refusal. Under the premises, the matter of the
right of refusal not having been carried over to the impliedly renewed
month-to-month lease after the expiration of the second lease contract on
October 21, 1988 becomes irrelevant since at the time of the negotiations
of the sale to a third party, petitioner PUP, respondent’s right of first
refusal was still subsisting.
Petitioner NDC in its memorandum contended that the CA erred in
applying the ruling in Polytechnic University of the Philippines v. Court
of Appeals pointing out that the case of lessee Firestone Ceramics, Inc. is
different because the lease contract therein had not yet expired while in
this case respondent’s lease contracts have already expired and never
renewed. The date of the expiration of the lease contract in said case is
December 31, 1989 which is prior to the issuance of Memorandum Order
No. 214 on January 6, 1989. In contrast, respondent’s lease contracts had
already expired (September 1988) at the time said memorandum order was
issued.31
Such contention does not hold water. As already mentioned, the reckoning
point of the offer of sale to a third party was not the issuance of
Memorandum Order No. 214 on January 6, 1989 but the commencement
of such negotiations as early as July 1988 when respondent’s right of first
refusal was still subsisting and the lease contracts still in force. Petitioner
NDC did not bother to respond to respondent’s letter of June 13, 1988
informing it of respondent’s exercise of the option to renew and requesting
to discuss further the matter with NDC, nor to the subsequent letter of
August 12, 1988 reiterating the request for renewing the lease for another
ten (10) years and also the exercise of the option to purchase under the
lease contract. Petitioner NDC had dismissed these letters as "mere
informative in nature, and a request at its best."32
Perusal of the letter dated August 12, 1988, however, belies such claim of
petitioner NDC that it was merely informative, thus:
August 12, 1988
HON. ANTONIO HENSON
General Manager
NATIONAL DEVELOPMENT COMPANY
377 Se(n). Gil J. Puyat Avenue
Makati, Metro Manila
REF: Contract of Lease
Nos. C-33-77 & C-12-78
Dear Sir:
This is further to our earlier letter dated June 13, 1988 formally
advising your goodselves of our intention to exercise our option for
another ten (10) years. Should the National Development Company
opt to sell the property covered by said leases, we also request for
priority to negotiate for its purchase at terms and/or conditions
mutually acceptable.
As a backgrounder, we wish to inform you that since the start of our lease,
we have improved on the property by constructing bodega-type buildings
which presently house all legitimate trading and manufacturing concerns.
These business are substantial taxpayers, employ not less than 300
employees and contribute even foreign earnings.
It is in this context that we are requesting for the extension of the lease
contract to prevent serious economic disruption and dislocation of the
business concerns, as well as provide ourselves, the lessee, an
opportunity to recoup our investments and obtain a fair return
thereof.
Your favorable consideration on our request will be very much
appreciated.
very truly yours,
TIU HAN TENG
President33
As to petitioners’ argument that respondent’s right of first refusal can be
invoked only with respect to the second lease contract which expressly
provided for the option to purchase by the lessee, and not in the first lease
contract which contained no such clause, we sustain the RTC and CA in
finding that the second contract, covering an area of 3,222.80 square
meters, is interrelated to and inseparable from the first contract over 2,407
square meters. The structures built on the leased premises, which are
adjacent to each other, form part of an integrated system of a commercial
complex leased out to manufacturers, fabricators and other businesses.
Petitioners submitted a sketch plan and pictures taken of the driveways, in
an effort to show that the leased premises can be used separately by
respondent, and that the two (2) lease contracts are distinct from each
other.34 Such was a desperate attempt to downplay the commercial
purpose of respondent’s substantial improvements which greatly
contributed to the increased value of the leased premises. To prove that
petitioner NDC had considered the leased premises as a single unit,
respondent submitted evidence showing that NDC issued only one (1)
receipt for the rental payments for the two portions.35 Respondent further
presented the blueprint plan prepared by its witness, Engr. Alejandro E.
Tinio, who supervised the construction of the structures on the leased
premises, to show the building concept as a one-stop industrial site and
integrated commercial complex.36
In fine, the CA was correct in declaring that there exists no justifiable
reason not to apply the same rationale in Polytechnic University of the
Philippines v. Court of Appeals in the case of respondent who was
similarly prejudiced by petitioner NDC’s sale of the property to PUP, as
to entitle the respondent to exercise its option to purchase until October
1988 inasmuch as the May 4, 1978 contract embodied the option to renew
the lease for another ten (10) years upon mutual consent and giving
respondent the option to purchase the leased premises for a price to be
negotiated and determined at the time such option was exercised by
respondent. It is to be noted that Memorandum Order No. 214 itself
declared that the transfer is "subject to such liens/leases existing [on the
subject property]." Thus:
...we now proceed to determine whether FIRESTONE should be allowed
to exercise its right of first refusal over the property. Such right
was expressly stated by NDC and FIRESTONE in par. XV of their
third contract denominated as A-10-78 executed on 22 December
1978 which, as found by the courts a quo, was interrelated to and
inseparable from their first contract denominated as C-30-65
executed on 24 August 1965 and their second contract denominated
as C-26-68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased premises during the term of
this Agreement, or any extension thereof, the LESSOR shall first give to
the LESSEE, which shall have the right of first option to purchase the
leased premises subject to mutual agreement of both parties.
In the instant case, the right of first refusal is an integral and indivisible
part of the contract of lease and is inseparable from the whole contract.
The consideration for the right is built into the reciprocal obligations of
the parties. Thus, it is not correct for petitioners to insist that there was no
consideration paid by FIRESTONE to entitle it to the exercise of the right,
inasmuch as the stipulation is part and parcel of the contract of lease
making the consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains a
right of first refusal, the lessor is under a legal duty to the lessee not to sell
to anybody at any price until after he has made an offer to sell to the latter
at a certain price and the lessee has failed to accept it. The lessee has a
right that the lessor’s first offer shall be in his favor.
The option in this case was incorporated in the contracts of lease by
NDC for the benefit of FIRESTONE which, in view of the total
amount of its investments in the property, wanted to be assured that
it would be given the first opportunity to buy the property at a price
for which it would be offered. Consistent with their agreement, it was
then implicit for NDC to have first offered the leased premises of 2.60
hectares to FIRESTONE prior to the sale in favor of PUP. Only if
FIRESTONE failed to exercise its right of first priority could NDC
lawfully sell the property to petitioner PUP.37 [emphasis supplied]
As we further ruled in the afore-cited case, the contractual grant of a right
of first refusal is enforceable, and following an earlier ruling in Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc.,38 the execution of such
right consists in directing the grantor to comply with his obligation
according to the terms at which he should have offered the property in
favor of the grantee and at that price when the offer should have been
made. We then determined the proper rate at which the leased portion
should be reconveyed to respondent by PUP, to whom the lessor NDC sold
it in violation of respondent lessee’s right of first refusal, as follows:
It now becomes apropos to ask whether the courts a quo were correct in
fixing the proper consideration of the sale at ₱1,500.00 per square meter.
In contracts of sale, the basis of the right of first refusal must be the current
offer of the seller to sell or the offer to purchase of the prospective buyer.
Only after the lessee-grantee fails to exercise its right under the same terms
and within the period contemplated can the owner validly offer to sell the
property to a third person, again, under the same terms as offered to the
grantee. It appearing that the whole NDC compound was sold to PUP for
₱554.74 per square meter, it would have been more proper for the courts
below to have ordered the sale of the property also at the same price.
However, since FIRESTONE never raised this as an issue, while on
the other hand it admitted that the value of the property stood at
₱1,500.00 per square meter, then we see no compelling reason to
modify the holdings of the courts a quo that the leased premises be
sold at that price.39 [emphasis supplied]
In the light of the foregoing, we hold that respondent, which did not offer
any amount to petitioner NDC, and neither disputed the ₱1,500.00 per
square meter actual value of NDC’s property at that time it was sold to
PUP at ₱554.74 per square meter, as duly considered by this Court in
the Firestone case, should be bound by such determination. Accordingly,
the price at which the leased premises should be sold to respondent in the
exercise of its right of first refusal under the lease contract with petitioner
NDC, which was pegged by the RTC at ₱554.74 per square meter, should
be adjusted to ₱1,500.00 per square meter, which more accurately reflects
its true value at that time of the sale in favor of petitioner PUP.
Indeed, basic is the rule that a party to a contract cannot unilaterally
withdraw a right of first refusal that stands upon valuable
consideration.40 We have categorically ruled that it is not correct to say
that there is no consideration for the grant of the right of first refusal if
such grant is embodied in the same contract of lease. Since the stipulation
forms part of the entire lease contract, the consideration for the lease
includes the consideration for the grant of the right of first refusal. In
entering into the contract, the lessee is in effect stating that it consents to
lease the premises and to pay the price agreed upon provided the lessor
also consents that, should it sell the leased property, then, the lessee shall
be given the right to match the offered purchase price and to buy the
property at that price.41
We have further stressed that not even the avowed public welfare or the
constitutional priority accorded to education, invoked by petitioner PUP
in the Firestone case, would serve as license for us, and any party for that
matter, to destroy the sanctity of binding obligations. While education may
be prioritized for legislative and budgetary purposes, it is doubtful if such
importance can be used to confiscate private property such as the right of
first refusal granted to a lessee of petitioner NDC.42 Clearly, no reversible
error was committed by the CA in sustaining respondent’s contractual
right of first refusal and ordering the reconveyance of the leased portion
of petitioner NDC’s property in its favor.
WHEREFORE, the petitions are DENIED. The Decision dated
November 25, 2004 of the Regional Trial Court of Makati City, Branch
144 in Civil Case No. 88-2238, as affirmed by the Court of Appeals in its
Decision dated June 25, 2008 in CA-G.R. CV No. 84399, is
hereby AFFIRMED with MODIFICATION in that the price to be paid
by respondent Golden Horizon Realty Corporation for the leased portion
of the NDC Compound under Lease Contract Nos. C-33-77 and C-12-78
is hereby increased to ₱1,500.00 per square meter.
G.R. No. 111538 February 26, 1997
PARAÑAQUE KINGS ENTERPRISES,
INCORPORATED, petitioner,
vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her
attorney-in-fact, LUZ B. PROTACIO, and DAVID A.
RAYMUNDO, respondents.
Do allegations in a complaint showing violation of a contractual right of
"first option or priority to buy the properties subject of the lease" constitute
a valid cause of action? Is the grantee of such right entitled to be offered
the same terms and conditions as those given to a third party who
eventually bought such properties? In short, is such right of first refusal
enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court in resolving
this petition for review under Rule 45 of the Rules of Court challenging
the Decision 1 of the Court of Appeals 2 promulgated on March 29, 1993,
in CA-G.R. CV No. 34987 entitled "Parañaque Kings Enterprises, Inc. vs.
Catalina L. Santos, et al.," which affirmed the order 3of September 2, 1991,
of the Regional Trial Court of Makati, Branch 57, 4 dismissing Civil Case
No. 91-786 for lack of a valid cause of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial Court
of Makati a complaint, 5 which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing under and by
virtue of the laws of the Philippines, with principal place of business of
(sic) Dr. A. Santos Avenue, Parañaque, Metro Manila, while defendant
Catalina L. Santos, is of legal age, widow, with residence and postal
address at 444 Plato Street, Ct., Stockton, California, USA, represented in
this action by her attorney-in-fact, Luz B. Protacio, with residence and
postal address at No, 12, San Antonio Street, Magallanes Village, Makati,
Metro Manila, by virtue of a general power of attorney. Defendant David
A. Raymundo, is of legal age, single, with residence and postal address at
1918 Kamias Street, Damariñas Village, Makati, Metro Manila, where
they (sic) may be served with summons and other court processes. Xerox
copy of the general power of attorney is hereto attached as Annex "A".
2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land
located at (sic) Parañaque, Metro Manila with transfer certificate of title
nos. S-19637, S-19638 and S-19643 to S-19648. Xerox copies of the said
title (sic) are hereto attached as Annexes "B" to "I", respectively.
3. On November 28, 1977, a certain Frederick Chua leased the above-
described property from defendant Catalina L. Santos, the said lease was
registered in the Register of Deeds. Xerox copy of the lease is hereto
attached as Annex "J".
4. On February 12, 1979, Frederick Chua assigned all his rights and
interest and participation in the leased property to Lee Ching Bing, by
virtue of a deed of assignment and with the conformity of defendant
Santos, the said assignment was also registered. Xerox copy of the deed of
assignment is hereto attached as Annex "K".
5. On August 6, 1979, Lee Ching Bing also assigned all his rights and
interest in the leased property to Parañaque Kings Enterprises,
Incorporated by virtue of a deed of assignment and with the conformity of
defendant Santos, the same was duly registered, Xerox copy of the deed
of assignment is hereto attached as Annex "L".
6. Paragraph 9 of the assigned leased (sic) contract provides among others
that:
"9. That in case the properties subject of the lease agreement are sold or
encumbered, Lessors shall impose as a condition that the buyer or
mortgagee thereof shall recognize and be bound by all the terms and
conditions of this lease agreement and shall respect this Contract of Lease
as if they are the LESSORS thereof and in case of sale, LESSEE shall have
the first option or priority to buy the properties subject of the lease;"
7. On September 21, 1988, defendant Santos sold the eight parcels of land
subject of the lease to defendant David Raymundo for a consideration of
FIVE MILLION (P5,000,000.00) PESOS. The said sale was in
contravention of the contract of lease, for the first option or priority to buy
was not offered by defendant Santos to the plaintiff. Xerox copy of the
deed of sale is hereto attached as Annex "M".
8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff
informing the same of the sale of the properties to defendant Raymundo,
the said letter was personally handed by the attorney-in-fact of defendant
Santos, Xerox copy of the letter is hereto attached as Annex "N".
9. Upon learning of this fact plaintiff's representative wrote a letter to
defendant Santos, requesting her to rectify the error and consequently
realizing the error, she had it reconveyed to her for the same consideration
of FIVE MILLION (P5,000,000.00) PESOS. Xerox copies of the letter
and the deed of reconveyance are hereto attached as Annexes "O" and "P".
10. Subsequently the property was offered for sale to plaintiff by the
defendant for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS.
Plaintiff was given ten (10) days to make good of the offer, but therefore
(sic) the said period expired another letter came from the counsel of
defendant Santos, containing the same tenor of (sic) the former letter.
Xerox copies of the letters are hereto attached as Annexes "Q" and "R".
11. On May 8, 1989, before the period given in the letter offering the
properties for sale expired, plaintiff's counsel wrote counsel of defendant
Santos offering to buy the properties for FIVE MILLION (P5,000,000.00)
PESOS. Xerox copy of the letter is hereto attached as Annex "S".
12. On May 15, 1989, before they replied to the offer to purchase, another
deed of sale was executed by defendant Santos (in favor of) defendant
Raymundo for a consideration of NINE MILLION (P9,000,000.00)
PESOS. Xerox copy of the second deed of sale is hereto attached as Annex
"T".
13. Defendant Santos violated again paragraph 9 of the contract of lease
by executing a second deed of sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant Santos replied to the letter
of the plaintiff's offer to buy or two days after she sold her properties. In
her reply she stated among others that the period has lapsed and the
plaintiff is not a privy (sic) to the contract. Xerox copy of the letter is
hereto attached as Annex "U".
15. On June 28, 1989, counsel for plaintiff informed counsel of defendant
Santos of the fact that plaintiff is the assignee of all rights and interest of
the former lessor. Xerox copy of the letter is hereto attached as Annex "V".
16. On July 6, 1989, counsel for defendant Santos informed the plaintiff
that the new owner is defendant Raymundo. Xerox copy of the letter is
hereto attached as Annex "W".
17. From the preceding facts it is clear that the sale was simulated and that
there was a collusion between the defendants in the sales of the leased
properties, on the ground that when plaintiff wrote a letter to defendant
Santos to rectify the error, she immediately have (sic) the property
reconveyed it (sic) to her in a matter of twelve (12) days.
18. Defendants have the same counsel who represented both of them in
their exchange of communication with plaintiff's counsel, a fact that led to
the conclusion that a collusion exist (sic) between the defendants.
19. When the property was still registered in the name of defendant Santos,
her collector of the rental of the leased properties was her brother-in-law
David Santos and when it was transferred to defendant Raymundo the
collector was still David Santos up to the month of June, 1990. Xerox
copies of cash vouchers are hereto attached as Annexes "X" to "HH",
respectively.
20. The purpose of this unholy alliance between defendants Santos and
Raymundo is to mislead the plaintiff and make it appear that the price of
the leased property is much higher than its actual value of FIVE MILLION
(P5,000,000.00) PESOS, so that plaintiff would purchase the properties at
a higher price.
21. Plaintiff has made considerable investments in the said leased property
by erecting a two (2) storey, six (6) doors commercial building amounting
to THREE MILLION (P3,000,000.00) PESOS. This considerable
improvement was made on the belief that eventually the said premises
shall be sold to the plaintiff.
22. As a consequence of this unlawful act of the defendants, plaintiff will
incurr (sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the
actual cost of the building and as such defendants should be charged of the
same amount for actual damages.
23. As a consequence of the collusion, evil design and illegal acts of the
defendants, plaintiff in the process suffered mental anguish, sleepless
nights, bismirched (sic) reputation which entitles plaintiff to moral
damages in the amount of FIVE MILLION (P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner and as a deterrent to the commission of similar acts,
they should be made to answer for exemplary damages, the amount left to
the discretion of the Court.
25. Plaintiff demanded from the defendants to rectify their unlawful acts
that they committed, but defendants refused and failed to comply with
plaintiffs just and valid and (sic) demands. Xerox copies of the demand
letters are hereto attached as Annexes "KK" to "LL", respectively.
26. Despite repeated demands, defendants failed and refused without
justifiable cause to satisfy plaintiff's claim, and was constrained to
engaged (sic) the services of undersigned counsel to institute this action at
a contract fee of P200,000.00, as and for attorney's fees, exclusive of cost
and expenses of litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that judgment be rendered in
favor of the plaintiff and against defendants and ordering that:
a. The Deed of Sale between defendants dated May 15, 1989, be annulled
and the leased properties be sold to the plaintiff in the amount of
P5,000,000.00;
b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual
damages;
c. Defendants pay the sum of P5,000,000.00 as moral damages;
d. Defendants pay exemplary damages left to the discretion of the Court;
e. Defendants pay the sum of not less than P200,000.00 as attorney's fees.
Plaintiff further prays for other just and equitable reliefs plus cost of suit.
Instead of filing their respective answers, respondents filed motions to
dismiss anchored on the grounds of lack of cause of action, estoppel and
laches.
On September 2, 1991, the trial court issued the order dismissing the
complaint for lack of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiff's Complaint itself, it therefore
indubitably appears that the defendant Santos had verily complied with
paragraph 9 of the Lease Agreement by twice offering the properties for
sale to the plaintiff for ~1 5 M. The said offers, however, were plainly
rejected by the plaintiff which scorned the said offer as "RIDICULOUS".
There was therefore a definite refusal on the part of the plaintiff to accept
the offer of defendant Santos. For in acquiring the said properties back to
her name, and in so making the offers to sell both by herself (attorney-in-
fact) and through her counsel, defendant Santos was indeed
conscientiously complying with her obligation under paragraph 9 of the
Lease Agreement. . . . .
xxx xxx xxx
This is indeed one instance where a Complaint, after barely commencing
to create a cause of action, neutralized itself by its subsequent averments
which erased or extinguished its earlier allegations of an impending
wrong. Consequently, absent any actionable wrong in the very face of the
Complaint itself, the plaintiffs subsequent protestations of collusion is
bereft or devoid of any meaning or purpose. . . . .
The inescapable result of the foregoing considerations point to no other
conclusion than that the Complaint actually does not contain any valid
cause of action and should therefore be as it is hereby ordered
DISMISSED. The Court finds no further need to consider the other
grounds of estoppel and laches inasmuch as this resolution is sufficient to
dispose the matter. 6
Petitioners appealed to the Court of Appeals which affirmed in toto the
ruling of the trial court, and further reasoned that:
. . . . Appellant's protestations that the P15 million price quoted by appellee
Santos was reduced to P9 million when she later resold the leased
properties to Raymundo has no valid legal moorings because appellant, as
a prospective buyer, cannot dictate its own price and forcibly ram it against
appellee Santos, as owner, to buy off her leased properties considering the
total absence of any stipulation or agreement as to the price or as to how
the price should be computed under paragraph 9 of the lease contract, . . .
.7
Petitioner moved for reconsideration but was denied in an order dated
August 20, 1993. 8
Hence this petition. Subsequently, petitioner filed an "Urgent Motion for
the Issuance of Restraining Order and/or Writ of Preliminary Injunction
and to Hold Respondent David A. Raymundo in Contempt of
Court." 9 The motion sought to enjoin respondent Raymundo and his
counsel from pursuing the ejectment complaint filed before the barangay
captain of San Isidro, Parañaque, Metro Manila; to direct the dismissal of
said ejectment complaint or of any similar action that may have been filed;
and to require respondent Raymundo to explain why he should not be held
in contempt of court for forum-shopping. The ejectment suit initiated by
respondent Raymundo against petitioner arose from the expiration of the
lease contract covering the property subject of this case. The ejectment suit
was decided in favor of Raymundo, and the entry of final judgment in
respect thereof renders the said motion moot and academic.
Issue
The principal legal issue presented before us for resolution is whether the
aforequoted complaint alleging breach of the contractual right of "first
option or priority to buy" states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal
erred in dismissing the complaint because it in fact had not just one but at
least three (3) valid causes of action, to wit: (1) breach of contract, (2) its
right of first refusal founded in law, and (3) damages.
Respondents Santos and Raymundo, in their separate comments, aver that
the petition should be denied for not raising a question of law as the issue
involved is purely factual — whether respondent Santos complied with
paragraph 9 of the lease agreement — and for not having complied with
Section 2, Rule 45 of the Rules of Court, requiring the filing of twelve (12)
copies of the petitioner's brief. Both maintain that the complaint filed by
petitioner before the Regional Trial Court of Makati stated no valid cause
of action and that petitioner failed to substantiate its claim that the lower
courts decided the same "in a way not in accord with law and applicable
decisions of the Supreme Court"; or that the Court of Appeals has
"sanctioned departure by a trial court from the accepted and usual course
of judicial proceedings" so as to merit the exercise by this Court of the
power of review under Rule 45 of the Rules of Court. Furthermore, they
reiterate estoppel and laches as grounds for dismissal, claiming that
petitioner's payment of rentals of the leased property to respondent
Raymundo from June 15, 1989, to June 30, 1990, was an acknowledgment
of the latter's status as new owner-lessor of said property, by virtue of
which petitioner is deemed to have waived or abandoned its first option to
purchase.
Private respondents likewise contend that the deed of assignment of the
lease agreement did not include the assignment of the option to purchase.
Respondent Raymundo further avers that he was not privy to the contract
of lease, being neither the lessor nor lessee adverted to therein, hence he
could not be held liable for violation thereof.
The Court's Ruling
Preliminary Issue: Failure to File
Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents, particularly
petitioner's failure to file twelve (12) copies of its brief. We have ruled that
when non-compliance with the Rules was not intended for delay or did not
result in prejudice to the adverse party, dismissal of appeal on mere
technicalities — in cases where appeal is a matter of right — may be
stayed, in the exercise of the court's equity jurisdiction. 10 It does not
appear that respondents were unduly prejudiced by petitioner's
nonfeasance. Neither has it been shown that such failure was intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents' contention that the issue involved
is purely factual. The principal legal question, as stated earlier, is whether
the complaint filed by herein petitioner in the lower court states a valid
cause of action. Since such question assumes the facts alleged in the
complaint as true, it follows that the determination thereof is one of law,
and not of facts. There is a question of law in a given case when the doubt
or difference arises as to what the law is on a certain state of facts, and
there is a question of fact when the doubt or difference arises as to the truth
or the falsehood of alleged facts. 11
At the outset, petitioner concedes that when the ground for a motion to
dismiss is lack of cause of action, such ground must appear on the face of
the complaint; that to determine the sufficiency of a cause of action, only
the facts alleged in the complaint and no others should be considered; and
that the test of sufficiency of the facts alleged in a petition or complaint to
constitute a cause of action is whether, admitting the facts alleged, the
court could render a valid judgment upon the same in accordance with the
prayer of the petition or complaint.
A cause of action exists if the following elements are present: (1) a right
in favor of the plaintiff by whatever means and under whatever law it
arises or is created; (2) an obligation on the part of the named defendant
to respect or not to violate such right, and (3) an act or omission on the
part of such defendant violative of the right of plaintiff or constituting a
breach of the obligation of defendant to the plaintiff for which the latter
may maintain an action for recovery of damages. 12
In determining whether allegations of a complaint are sufficient to support
a cause of action, it must be borne in mind that the complaint does not
have to establish or allege facts proving the existence of a cause of action
at the outset; this will have to be done at the trial on the merits of the case.
To sustain a motion to dismiss for lack of cause of action, the complaint
must show that the claim for relief does not exist, rather than that a claim
has been defectively stated, or is ambiguous, indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the
ground of lack of cause of action is regarded as having hypothetically
admitted all the averments thereof. 14
A careful examination of the complaint reveals that it sufficiently alleges
an actionable contractual breach on the part of private respondents. Under
paragraph 9 of the contract of lease between respondent Santos and
petitioner, the latter was granted the "first option or priority" to purchase
the leased properties in case Santos decided to sell. If Santos never decided
to sell at all, there can never be a breach, much less an enforcement of such
"right." But on September 21, 1988, Santos sold said properties to
Respondent Raymundo without first offering these to petitioner. Santos
indeed realized her error, since she repurchased the properties after
petitioner complained. Thereafter, she offered to sell the properties to
petitioner for P15 million, which petitioner, however, rejected because of
the "ridiculous" price. But Santos again appeared to have violated the same
provision of the lease contract when she finally resold the properties to
respondent Raymundo for only P9 million without first offering them to
petitioner at such price. Whether there was actual breach which entitled
petitioner to damages and/or other just or equitable relief, is a question
which can better be resolved after trial on the merits where each party can
present evidence to prove their respective allegations and defenses. 15
The trial and appellate courts based their decision to sustain respondents'
motion to dismiss on the allegations of Parañaque Kings Enterprises that
Santos had actually offered the subject properties for sale to it prior to the
final sale in favor of Raymundo, but that the offer was rejected. According
to said courts, with such offer, Santos had verily complied with her
obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the
contractual right granting petitioner the first option to purchase, the sale of
the properties for the amount of P9 million, the price for which they were
finally sold to respondent Raymundo, should have likewise been first
offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of,
and obligations under, a right of first refusal in the case of Guzman,
Bocaling & Co. vs. Bonnevie. 16 In that case, under a contract of lease, the
lessees (Raul and Christopher Bonnevie) were given a "right of first
priority" to purchase the leased property in case the lessor (Reynoso)
decided to sell. The selling price quoted to the Bonnevies was 600,000.00
to be fully paid in cash, less a mortgage lien of P100,000.00. On the other
hand, the selling price offered by Reynoso to and accepted by Guzman
was only P400,000.00 of which P137,500.00 was to be paid in cash while
the balance was to be paid only when the property was cleared of
occupants. We held that even if the Bonnevies could not buy it at the price
quoted (P600,000.00), nonetheless, Reynoso could not sell it to another
for a lower price and under more favorable terms and conditions without
first offering said favorable terms and price to the Bonnevies as well. Only
if the Bonnevies failed to exercise their right of first priority could
Reynoso thereafter lawfully sell the subject property to others, and only
under the same terms and conditions previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the
Bonnevies could exercise the right of first priority, "all things and
conditions being equal." This Court interpreted this proviso to mean that
there should be identity of terms and conditions to be offered to the
Bonnevies and all other prospective buyers, with the Bonnevies to enjoy
the right of first priority. We hold that the same rule applies even without
the same proviso if the right of first refusal (or the first option to buy) is
not to be rendered illusory.
From the foregoing, the basis of the right of first refusal* must be
the current offer to sell of the seller or offer to purchase of any prospective
buyer. Only after the optionee fails to exercise its right of first priority
under the same terms and within the period contemplated, could the owner
validly offer to sell the property to a third person, again, under the same
terms as offered to the optionee.
This principle was reiterated in the very recent case of Equatorial Realty
vs. Mayfair Theater, Inc. 17 which was decided en banc. This Court upheld
the right of first refusal of the lessee Mayfair, and rescinded the sale of the
property by the lessor Carmelo to Equatorial Realty "considering that
Mayfair, which had substantial interest over the subject property, was
prejudiced by its sale to Equatorial without Carmelo conferring to
Mayfair every opportunity to negotiate within the 30-day stipulated
period" (emphasis supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided
"that if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30 days exclusive option to purchase the same." Carmelo
initially offered to sell the leased property to Mayfair for six to seven
million pesos. Mayfair indicated interest in purchasing the property though
it invoked the 30-day period. Nothing was heard thereafter from Carmelo.
Four years later, the latter sold its entire Recto Avenue property, including
the leased premises, to Equatorial for P11,300,000.00 without priorly
informing Mayfair. The Court held that both Carmelo and Equatorial acted
in bad faith: Carmelo for knowingly violating the right of first option of
Mayfair, and Equatorial for purchasing the property despite being aware
of the contract stipulation. In addition to rescission of the contract of sale,
the Court ordered Carmelo to allow Mayfair to buy the subject property at
the same price of P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land
Reform Law, as another source of its right of first refusal. It claims to be
covered under said law, being the "rightful occupant of the land and its
structures" since it is the lawful lessee thereof by reason of contract. Under
the lease contract, petitioner would have occupied the property for
fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under
said law, suffice it to say that this Court has previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the
exercise of the lessee's right of first refusal to purchase shall be determined
by the Urban Zone Expropriation and Land Management Committee.
Hence, . . . . certain prerequisites must be complied with by anyone who
wishes to avail himself of the benefits of the decree." 19There being no
allegation in its complaint that the prerequisites were complied with, it is
clear that the complaint did fail to state a cause of action on this ground.
Deed of Assignment included
the option to purchase
Neither do we find merit in the contention of respondent Santos that the
assignment of the lease contract to petitioner did not include the option to
purchase. The provisions of the deeds of assignment with regard to matters
assigned were very clear. Under the first assignment between Frederick
Chua as assignor and Lee Ching Bing as assignee, it was expressly stated
that:
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and
ASSIGNS to herein ASSIGNEE, all his rights, interest
and participation over said premises afore-described, . . .
. 20 (emphasis supplied)
And under the subsequent assignment executed between Lee Ching Bing
as assignor and the petitioner, represented by its Vice President Vicenta
Lo Chiong, as assignee, it was likewise expressly stipulated that;
. . . . the ASSIGNOR hereby sells, transfers and assigns
all his rights, interest and participation over said leased
premises, . . . . 21 (emphasis supplied)
One of such rights included in the contract of lease and, therefore, in the
assignments of rights was the lessee's right of first option or priority to buy
the properties subject of the lease, as provided in paragraph 9 of the
assigned lease contract. The deed of assignment need not be very specific
as to which rights and obligations were passed on to the assignee. It is
understood in the general provision aforequoted that all specific rights
and obligationscontained in the contract of lease are those referred to as
being assigned. Needless to state, respondent Santos gave her unqualified
conformity to both assignments of rights.
Respondent Raymundo privy
to the Contract of Lease
With respect to the contention of respondent Raymundo that he is not privy
to the lease contract, not being the lessor nor the lessee referred to therein,
he could thus not have violated its provisions, but he is nevertheless a
proper party. Clearly, he stepped into the shoes of the owner-lessor of the
land as, by virtue of his purchase, he assumed all the obligations of the
lessor under the lease contract. Moreover, he received benefits in the form
of rental payments. Furthermore, the complaint, as well as the petition,
prayed for the annulment of the sale of the properties to him. Both
pleadings also alleged collusion between him and respondent Santos
which defeated the exercise by petitioner of its right of first refusal.
denial, the movant is not to be deprived of the right to submit its own case
and to submit evidence to rebut the allegations in the complaint. Neither
will the grant of the motion by a trial court and the ultimate reversal thereof
by an appellate court have the effect of stifling such right. 23 So too, the
trial court should be given the opportunity to evaluate the evidence, apply
the law and decree the proper remedy. Hence, we remand the instant case
to the trial court to allow private respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of the
trial court and Court of Appeals are hereby REVERSED and SET ASIDE.
The case is REMANDED to the Regional Trial Court of Makati for further
proceedings.
SO ORDERED.

In order then to accord complete relief to petitioner, respondent Raymundo

was a necessary, if not indispensable, party to the case. 22 A favorable
judgment for the petitioner will necessarily affect the rights of respondent
Raymundo as the buyer of the property over which petitioner would like
to assert its right of first option to buy.

Having come to the conclusion that the complaint states a valid cause of
action for breach of the right of first refusal and that the trial court should
thus not have dismissed the complaint, we find no more need to pass upon
the question of whether the complaint states a cause of action for damages
or whether the complaint is barred by estoppel or laches. As these matters
require presentation and/or determination of facts, they can be best
resolved after trial on the merits.

While the lower courts erred in dismissing the complaint, private

respondents, however, cannot be denied their day in court. While, in the
resolution of a motion to dismiss, the truth of the facts alleged in the
complaint are theoretically admitted, such admission is merely
hypothetical and only for the purpose of resolving the motion. In case of
G.R. No. 140479 March 8, 2001
ROSENCOR DEVELOPMENT CORPORATION and RENE
JOAQUIN, petitioners,
vs.
PATERNO INQUING, IRENE GUILLERMO, FEDERICO
BANTUGAN, FERNANDO MAGBANUA and LIZZA
TIANGCO, respondents.
This is a petition for review on certiorari under Rule 45 of the Rules of
Court seeking reversal of the Decision1 of the Court of Appeals dated June
25, 1999 in CA-G.R. CV No. 53963. The Court of Appeals decision
reversed and set aside the Decision2 dated May 13, 1996 of Branch 217 of
the Regional Trial Court of Quezon City in Civil Case No. Q-93-
18582.1âwphi1.nêt
The case was originally filed on December 10, 1993 by Paterno Inquing,
Irene Guillermo and Federico Bantugan, herein respondents, against
Rosencor Development Corporation (hereinafter "Rosencor"), Rene
Joaquin, and Eufrocina de Leon. Originally, the complaint was one for
annulment of absolute deed of sale but was later amended to one for
rescission of absolute deed of sale. A complaint-for intervention was
thereafter filed by respondents Fernando Magbanua and Danna Lizza
Tiangco. The complaint-in-intervention was admitted by the trial court in
an Order dated May 4, 1994.3
The facts of the case, as stated by the trial court and adopted by the
appellate court, are as follows:
"This action was originally for the annulment of the Deed of Absolute Sale
dated September 4, 1990 between defendants Rosencor and Eufrocina de
Leon but later amended (sic) praying for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees since
1971 of a two-story residential apartment located at No. 150 Tomas
Morato Ave., Quezon City covered by TCT No. 96161 and owned by
spouses Faustino and Cresencia Tiangco. The lease was not covered by
any contract. The lessees were renting the premises then for P150.00 a
month and were allegedly verbally granted by the lessors the pre-emptive
right to purchase the property if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of the
property was adjudicated to their heirs who were represented by Eufrocina
de Leon. The lessees were allegedly promised the same pre-emptive right
by the heirs of Tiangcos since the latter had knowledge that this right was
extended to the former by the late spouses Tiangcos. The lessees continued
to stay in the premises and allegedly spent their own money amounting
from P50,000.00 to P100,000.00 for its upkeep. These expenses were
never deducted from the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila
demanding that they vacate the premises so that the demolition of the
building be undertaken. They refused to leave the premises. In that same
month, de Leon refused to accept the lessees’ rental payment claiming that
they have run out of receipts and that a new collector has been assigned to
receive the payments. Thereafter, they received a letter from Eufrocina de
Leon offering to sell to them the property they were leasing for
P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the amount of
P1,000,000.00. De Leon told them that she will be submitting the offer to
the other heirs. Since then, no answer was given by de Leon as to their
offer to buy the property. However, in November 1990, Rene Joaquin
came to the leased premises introducing himself as its new owner.
In January 1991, the lessees again received another letter from Atty.
Aguila demanding that they vacate the premises. A month thereafter, the
lessees received a letter from de Leon advising them that the heirs of the
late spouses Tiangcos have already sold the property to Rosencor. The
following month Atty. Aguila wrote them another letter demanding the
rental payment and introducing herself as counsel for Rosencor/Rene
Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had disregarded the pre-
emptive right she and the late Tiangcos have promised them. They also
asked for a copy of the deed of sale between her and the new owners
thereof but she refused to heed their request. In the same manner, when
they asked Rene Joaquin a copy of the deed of sale, the latter turned down
their request and instead Atty. Aguila wrote them several letters
demanding that they vacate the premises. The lessees offered to tender
their rental payment to de Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the Building
Official, the barangay interceded between the parties herein after which
Rosencor raised the issue as to the rental payment of the premises. It was
also at this instance that the lessees were furnished with a copy of the Deed
of Sale and discovered that they were deceived by de Leon since the sale
between her and Rene Joaquin/Rosencor took place in September 4, 1990
while de Leon made the offer to them only in October 1990 or after the
sale with Rosencor had been consummated. The lessees also noted that the
property was sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of P726,000.00
plus an additional P274,000.00 to complete their P1,000.000.00 earlier
offer. When their offer was refused, they filed the present action praying
for the following: a) rescission of the Deed of Absolute Sale between de
Leon and Rosencor dated September 4, 1990; b) the defendants
Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon;
and c) de Leon be ordered to reimburse the plaintiffs for the repairs of the
property, or apply the said amount as part of the price for the purchase of
the property in the sum of P100,000.00."4
After trial on the merits, the Regional Trial Court rendered a
Decision5 dated May 13, 1996 dismissing the complaint. The trial court
held that the right of redemption on which the complaint. The trial court
held that the right of redemption on which the complaint was based was
merely an oral one and as such, is unenforceable under the law. The
dispositive portion of the May 13, 1996 Decision is as follows:
"WHEREFORE, in view of the foregoing, the Court DISMISSES
the instant action. Plaintiffs and plaintiffs-intervenors are hereby
ordered to pay their respective monthly rental of P1,000.00 per
month reckoned from May 1990 up to the time they leave the
premises. No costs.
SO ORDERED."6
Not satisfied with the decision of the trial court, respondents herein filed a
Notice of Appeal dated June 3, 1996. On the same date, the trial court
issued an Order for the elevation of the records of the case to the Court of
Appeals. On August 8, 1997, respondents filed their appellate brief before
the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its decision7 reversing
the decision of the trial court. The dispositive portion of the June 25, 1999
decision is as follows:
"WHEREFORE, premises considered, the appealed decision
(dated May 13, 1996) of the Regional Trial Court (Branch 217) in
Quezon City in Case No. Q-93-18582 is hereby REVERSED and
SET ASIDE. In its stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed
between the appellees on September 4, 1990;
(2) The reconveyance of the subject premises to appellee
Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru
appellee Eufrocina de Leon, to afford the appellants thirty
days within which to exercise their right of first refusal by
paying the amount of ONE MILLION PESOS
(P1,000,000.00) for the subject property; and
 (4) The appellants to, in turn, pay the appellees back
rentals from May 1990 up to the time this decision is
promulgated.
No pronouncement as to costs.
SO ORDERED".8
Petitioners herein filed a Motion for Reconsideration of the decision of the
Court of Appeals but the same was denied in a Resolution dated October
15, 1999.9
Hence, this petition for review on certiorari where petitioners Rosencor
Development Corporation and Rene Joaquin raise the following
assignment of errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT
ORDERED THE RESCISSION OF THE ABSOLUTE DEED OF
SALE BETWEEN EUFROCINA DE LEON AND PETITIONER
ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED MANIFEST
ERROR IN MANDATING THAT EUFROCINA DE LEON
AFFORD RESPONDENTS THE OPPORTUNITY TO
EXERCISE THEIR RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN
CONCLUDING THAT RESPONDENTS HAVE
ESTABLISHED THEIR RIGHT OF FIRST REFUSAL
DESPITE PETITIONERS’ RELIANCE ON THEIR DEFENSE
BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses Faustino
and Crescencia Tiangco, did not appeal the decision of the Court of
Appeals.
At the onset, we not that both the Court of Appeals and the Regional Trial
Court relied on Article 1403 of the New Civil Code, more specifically the
provisions on the statute of frauds, in coming out with their respective
decisions. The trial court, in denying the petition for reconveyance, held
that right of first refusal relied upon by petitioners was not reduced to
writing and as such, is unenforceable by virtue of the said article. The
Court of Appeals, on the other hand, also held that the statute of frauds
governs the "right of first refusal" claimed by respondents. However, the
appellate court ruled that respondents had duly proven the same by reason
of petitioners’ waiver of the protection of the statute by reason of their
failure to object to the presentation of oral evidence of the said right.
Both the appellate court and the trial court failed to discuss, however, the
threshold issue of whether or not a right of first refusal is indeed covered
by the provisions of the New Civil Code on the statute of frauds. The
resolution of the issue on the applicability of the statute of frauds is
important as it will determine the type of evidence which may be
considered by the trial court as proof of the alleged right of first refusal.
The term "statute of frauds" is descriptive of statutes which require certain
classes of contracts to be in writing. This statute does not deprive the
parties of the right to contract with respect to the matters therein involved,
but merely regulates the formalities of the contract necessary to render it
enforceable. Thus, they are included in the provisions of the New Civil
Code regarding unenforceable contracts, more particularly Art. 1403,
paragraph 2. Said article provides, as follows:
"Art. 1403. The following contracts are unenforceable, unless they
are ratified:
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:
a) An agreement that by its terms is not to be performed
within a year from the making thereof;
b) A special promise to answer for the debt, default, or
miscarriage of another;
c) An agreement made in consideration of marriage, other
than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or things
in action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things
in action, or pay at the time some part of the purchase
money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of
the sale, of the amount and kind of property sold, terms of
sale, price, names of purchasers and person on whose
account the sale is made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than
one year, or for the sale of real property or of an interest
therein;
f) A representation to the credit of a third person."
The purpose of the statute is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the unassisted
memory of witnesses by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be
charged.11 Moreover, the statute of frauds refers to specific kinds of
transactions and cannot apply to any other transaction that is not
enumerated therein.12 The application of such statute presupposes the
existence of a perfected contract.13
The question now is whether a "right of first refusal" is among those
enumerated in the list of contracts covered by the Statute of Frauds. More
specifically, is a right of first refusal akin to "an agreement for the leasing
of a longer period than one year, or for the sale of real property or of an
interest therein" as contemplated by Article 1403, par. 2(e) of the New
Civil Code.
We have previously held that not all agreements "affecting land" must be
put into writing to attain enforceability.14Thus, we have held that the
setting up of boundaries,15 the oral partition of real property16, and an
agreement creating a right of way17 are not covered by the provisions of
the statute of frauds. The reason simply is that these agreements are not
among those enumerated in Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under the
statute of frauds. Furthermore, the application of Article 1403, par. 2(e) of
the New Civil Code presupposes the existence of a perfected, albeit
unwritten, contract of sale.18 A right of first refusal, such as the one
involved in the instant case, is not by any means a perfected contract of
sale of real property. At best, it is a contractual grant, not of the sale of the
real property involved, but of the right of first refusal over the property
sought to be sold19.
It is thus evident that the statute of frauds does not contemplate cases
involving a right of first refusal. As such, a right of first refusal need not
be written to be enforceable and may be proven by oral evidence.
The next question to be ascertained is whether or not respondents have
satisfactorily proven their right of first refusal over the property subject of
the Deed of Absolute Sale dated September 4, 1990 between petitioner
Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of Appeals
that respondents have adequately proven the existence of their right of first
refusal. Federico Bantugan, Irene Guillermo, and Paterno Inquing
uniformly testified that they were promised by the late spouses Faustino
and Crescencia Tiangco and, later on, by their heirs a right of first refusal
over the property they were currently leasing should they decide to sell the
same. Moreover, respondents presented a letter20 dated October 9, 1990
where Eufrocina de Leon, the representative of the heirs of the spouses
Tiangco, informed them that they had received an offer to buy the disputed
property for P2,000,000.00 and offered to sell the same to the respondents
at the same price if they were interested. Verily, if Eufrocina de Leon did
not recognize respondents’ right of first refusal over the property they were
leasing, then she would not have bothered to offer the property for sale to
the respondents.
It must be noted that petitioners did not present evidence before the trial
court contradicting the existence of the right of first refusal of respondents
over the disputed property. They only presented petitioner Rene Joaquin,
the vice-president of petitioner Rosencor, who admitted having no
personal knowledge of the details of the sales transaction between
Rosencor and the heirs of the spouses Tiangco21. They also dispensed with
the testimony of Eufrocina de Leon22 who could have denied the existence
or knowledge of the right of first refusal. As such, there being no evidence
to the contrary, the right of first refusal claimed by respondents was
substantially proven by respondents before the lower court.
Having ruled upon the question as to the existence of respondents’ right of
first refusal, the next issue to be answered is whether or not the Court of
Appeals erred in ordering the rescission of the Deed of Absolute Sale dated
September 4, 1990 between Rosencor and Eufrocina de Leon and in
decreeing that the heirs of the spouses Tiangco should afford respondents
the exercise of their right of first refusal. In other words, may a contract of
sale entered into in violation of a third party’s right of first refusal be
rescinded in order that such third party can exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the Court upheld the
decision of a lower court ordering the rescission of a deed of sale which
violated a right of first refusal granted to one of the parties therein. The
Court held:
"xxx Contract of Sale was not voidable but rescissible. Under
Article 1380 to 1381 (3) of the Civil Code, a contract otherwise
valid may nonetheless be subsequently rescinded by reason of
injury to third persons, like creditors. The status of creditors could
be validly accorded the Bonnevies for they had substantial
interests that were prejudiced by the sale of the subject property
to the petitioner without recognizing their right of first priority
under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to
the contracting parties and even to third persons, to secure
reparations for damages caused to them by a contract, even if this
should be valid, by means of the restoration of things to their
condition at the moment prior to the celebration of said contract.
It is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the
contract may cause, or to protect some incompatible and preferent
right created by the contract. Rescission implies a contract which,
even if initially valid, produces a lesion or pecuniary damage to
someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its rescission
where it is shown that such third person is in lawful possession of
the subject of the contract and that he did not act in bad faith.
 However, this rule is not applicable in the case before us because
the petitioner is not considered a third party in relation to the
Contract of Sale nor may its possession of the subject property be
regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract
of Sale. Moreover, the petitioner cannot be deemed a purchaser in
good faith for the record shows that it categorically admitted that
it was aware of the lease in favor of the Bonnevies, who were
actually occupying the subject property at the time it was sold to
it. Although the occupying the subject property at the time it was
sold to it. Although the Contract of Lease was not annotated on
the transfer certificate of title in the name of the late Jose Reynoso
and Africa Reynoso, the petitioner cannot deny actual knowledge
of such lease which was equivalent to and indeed more binding
than presumed notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a
right to or interest in such property without and pays a full and fair
price for the same at the time of such purchase or before he has
notice of the claim or interest of some other person in the property.
Good faith connotes an honest intention to abstain from taking
unconscientious advantage of another. Tested by these principles,
the petitioner cannot tenably claim to be a buyer in good faith as
it had notice of the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the
agreement to determine if it involved stipulations that would
prejudice its own interests."
Subsequently24 in Equatorial Realty and Development, Inc. vs. Mayfair
Theater, Inc.25, the Court, en banc, with three justices
dissenting,26 ordered the rescission of a contract entered into in violation
of a right of first refusal. Using the ruling in Guzman Bocaling & Co., Inc.
vs. Bonnevie as basis, the Court decreed that since respondent therein had
a right of first refusal over the said property, it could only exercise the said
right if the fraudulent sale is first set aside or rescinded. Thus:
"What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in
the event Carmelo sells the leased premises. It is undisputed that
Carmelo did recognize this right of Mayfair, for it informed the
latter of its intention to sell the said property in 1974. There was
an exchange of letters evidencing the offer and counter-offers
made by both parties. Carmelo, however, did not pursue the
exercise to its logical end. While it initially recognized Mayfair’s
right of first refusal, Carmelo violated such right when without
affording its negotiations with Mayfair the full process to ripen to
at least an interface of a definite offer and a possible
corresponding acceptance within the "30-day exclusive option"
time granted Mayfair, Carmelo abandoned negotiations, kept a
low profile for some time, and then sold, without prior notice to
Mayfair, the entire Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the
sale to it of the property in question, rescissible. We agree with
respondent Appellate Court that the records bear out the fact that
Equatorial was aware of the lease contracts because its lawyers
had, prior to the sale, studied the said contracts. As such,
Equatorial cannot tenably claim that to be a purchaser in good
faith, and, therefore, rescission lies.
XXX
As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith, since it was
knowingly entered into in violation of the rights of and to the
prejudice of Mayfair. In fact, as correctly observed by the Court
of Appeals, Equatorial admitted that its lawyers had studied the
contract or lease prior to the sale. Equatorial’s knowledge of the
stipulations therein should have cautioned it to look further into
 the agreement to determine if it involved stipulations that would
prejudice its own interests.
Since Mayfair had a right of first refusal, it can exercise the right
only if the fraudulent sale is first set aside or rescinded. All of
these matters are now before us and so there should be no
piecemeal determination of this case and leave festering sores to
deteriorate into endless litigation. The facts of the case and
considerations of justice and equity require that we order
rescission here and now. Rescission is a relief allowed for the
protection of one of the contracting parties and even third persons
from all injury and damage the contract may cause or to protect
some incompatible and preferred right by the contract. The sale of
the subject real property should now be rescinded considering that
Mayfair, which had substantial interest over the subject property,
was prejudiced by the sale of the subject property to Equatorial
without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulate periond.27
28
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals, the Court
held that the allegations in a complaint showing violation of a contractual
right of "first option or priority to buy the properties subject of the lease"
constitute a valid cause of action enforceable by an action for specific
performance. Summarizing the rulings in the two previously cited cases,
the Court affirmed the nature of and concomitant rights and obligations of
parties under a right of first refusal. Thus:
"We hold however, that in order to have full compliance with the
contractual right granting petitioner the first option to purchase,
the sale of the properties for the amount of P9,000,000.00, the
price for which they were finally sold to respondent Raymundo,
should have likewise been offered to petitioner.
The Court has made an extensive and lengthy discourse on the
concept of, and obligations under, a right of first refusal in the case
of Guzman, Bocaling & Co. vs. Bonnevie. In that case, under a
contract of lease, the lessees (Raul and Christopher Bonnevie)
were given a "right of first priority" to purchase the leased
property in case the lessor (Reynoso) decided to sell. The selling
price quoted to the Bonnevies was 600,000.00 to be fully paid in
cash, less a mortgage lien of P100,000.00. On the other hand, the
selling price offered by Reynoso to and accepted by Guzman was
only P400,000.00 of which P137,500.00 was to be paid in cash
while the balance was to be paid only when the property was
cleared of occupants. We held that even if the Bonnevies could
not buy it at the price quoted (P600,000.00), nonetheless, Reynoso
could not sell it to another for a lower price and under more
favorable terms and conditions without first offering said
favorable terms and price to the Bonnevies as well. Only if the
Bonnevies failed to exercise their right of first priority could
Reynoso thereafter lawfully sell the subject property to others, and
only under the same terms and conditions previously offered to
the Bonnevies.
XXX
This principle was reiterated in the very recent case of Equatorial
Realty vs. Mayfair Theater, Inc. which was decided en banc. This
Court upheld the right of first refusal of the lessee Mayfair, and
rescinded the sale of the property by the lessor Carmelo to
Equatorial Realty "considering that Mayfair, which had
substantial interest over the subject property, was prejudiced by
its sale to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair
provided "that if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30 days exclusive option to
purchase the same." Carmelo initially offered to sell the leased
property to Mayfair for six to seven million pesos. Mayfair
indicated interest in purchasing the property though it invoked the
30-day period. Nothing was heard thereafter from Carmelo. Four
 years later, the latter sold its entire Recto Avenue property,
including the leased premises, to Equatorial for P11,300,000.00
without priorly informing Mayfair. The Court held that both
Carmelo and Equatorial acted in bad faith: Carmelo or knowingly
violating the right of first option of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract
stipulation. In addition to rescission of the contract of sale, the
Court ordered Carmelo to allow Mayfair to buy the subject
property at the same price of P11,300,000.00.
In the recent case of Litonjua vs L&R Corporation,29 the Court, also citing
the case of Guzman, Bocaling & Co. vs. Bonnevie, held that the sale made
therein in violation of a right of first refusal embodied in a mortgage
contract, was rescissible. Thus:
"While petitioners question the validity of paragraph 8 of their
mortgage contract, they appear to be silent insofar as paragraph 9
thereof is concerned. Said paragraph 9 grants upon L&R
Corporation the right of first refusal over the mortgaged property
in the event the mortgagor decides to sell the same. We see
nothing wrong in this provision. The right of first refusal has long
been recognized as valid in our jurisdiction. The consideration for
the loan mortgage includes the consideration for the right of first
refusal. L&R Corporation is in effect stating that it consents to
lend out money to the spouses Litonjua provided that in case they
decide to sell the property mortgaged to it, then L&R Corporation
shall be given the right to match the offered purchase price and to
buy the property at that price. Thus, while the spouses Litonjua
had every right to sell their mortgaged property to PWHAS
without securing the prior written consent of L&R Corporation,
they had the obligation under paragraph 9, which is a perfectly
valid provision, to notify the latter of their intention to sell the
property and give it priority over other buyers. It is only upon the
failure of L&R Corporation to exercise its right of first refusal
could the spouses Litonjua validly sell the subject properties to the
others, under the same terms and conditions offered to L&R
Corporation.
What then is the status of the sale made to PWHAS in violation of
L & R Corporation’s contractual right of first refusal? On this
score, we agree with the Amended Decision of the Court of
Appeals that the sale made to PWHAS is rescissible. The case
of Guzman, Bocaling & Co. v. Bonnevie is instructive on this
point.
XXX
It was then held that the Contract of Sale there, which violated the
right of first refusal, was rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of
first refusal granted to L & R Corporation over the subject
properties since the Deed of Real Estate Mortgage containing such
a provision was duly registered with the Register of Deeds. As
such, PWHAS is presumed to have been notified thereof by
registration, which equates to notice to the whole world.
XXX
All things considered, what then are the relative rights and
obligations of the parties? To recapitulate: the sale between the
spouses Litonjua and PWHAS is valid, notwithstanding the
absence of L & R Corporation’s prior written consent thereto.
Inasmuch as the sale to PWHAS was valid, its offer to redeem and
its tender of the redemption price, as successor-in-interest of the
spouses Litonjua, within the one-year period should have been
accepted as valid by the L & R Corporation. However, while the
sale is, indeed, valid, the same is rescissible because it ignored L
& R Corporation’s right of first refusal."
Thus, the prevailing doctrine, as enunciated in the cited cases, is that a
contract of sale entered into in violation of a right of first refusal of another
person, while valid, is rescissible.
There is, however, a circumstance which prevents the application of this
doctrine in the case at bench. In the cases cited above, the Court ordered
the rescission of sales made in violation of a right of first refusal precisely
because the vendees therein could not have acted in good faith as they
were aware or should have been aware of the right of first refusal granted
to another person by the vendors therein. The rationale for this is found in
the provisions of the New Civil Code on rescissible contracts. Under
Article 1381 of the New Civil Code, paragraph 3, a contract validly agreed
upon may be rescinded if it is "undertaken in fraud of creditors when the
latter cannot in any manner collect the claim due them." Moreover, under
Article 1385, rescission shall not take place "when the things which are
the object of the contract are legally in the possession of third persons who
did not act in bad faith."30
It must be borne in mind that, unlike the cases cited above, the right of first
refusal involved in the instant case was an oral one given to respondents
by the deceased spouses Tiangco and subsequently recognized by their
heirs. As such, in order to hold that petitioners were in bad faith, there
must be clear and convincing proof that petitioners were made aware of
the said right of first refusal either by the respondents or by the heirs of the
spouses Tiangco.
It is axiomatic that good faith is always presumed unless contrary evidence
is adduced.31 A purchaser in good faith is one who buys the property of
another without notice that some other person has a right or interest in such
a property and pays a full and fair price at the time of the purchase or
before he has notice of the claim or interest of some other person in the
property.32 In this regard, the rule on constructive notice would be
inapplicable as it is undisputed that the right of first refusal was an oral
one and that the same was never reduced to writing, much less registered
with the Registry of Deeds. In fact, even the lease contract by which
respondents derive their right to possess the property involved was an oral
one.
On this point, we hold that the evidence on record fails to show that
petitioners acted in bad faith in entering into the deed of sale over the
disputed property with the heirs of the spouses Tiangco. Respondents
failed to present any evidence that prior to the sale of the property on
September 4, 1990, petitioners were aware or had notice of the oral right
of first refusal.
Respondents point to the letter dated June 1, 199033 as indicative of
petitioners’ knowledge of the said right. In this letter, a certain Atty.
Erlinda Aguila demanded that respondent Irene Guillermo vacate the
structure they were occupying to make way for its demolition.
We fail to see how the letter could give rise to bad faith on the part of the
petitioner. No mention is made of the right of first refusal granted to
respondents. The name of petitioner Rosencor or any of it officers did not
appear on the letter and the letter did not state that Atty. Aguila was writing
in behalf of petitioner. In fact, Atty. Aguila stated during trial that she
wrote the letter in behalf of the heirs of the spouses Tiangco. Moreover,
even assuming that Atty. Aguila was indeed writing in behalf of petitioner
Rosencor, there is no showing that Rosencor was aware at that time that
such a right of first refusal existed.
Neither was there any showing that after receipt of this June 1, 1990 letter,
respondents notified Rosencor or Atty. Aguila of their right of first refusal
over the property. Respondents did not try to communicate with Atty.
Aguila and inform her about their preferential right over the disputed
property. There is even no showing that they contacted the heirs of the
spouses Tiangco after they received this letter to remind them of their right
over the property.
Respondents likewise point to the letter dated October 9, 1990 of
Eufrocina de Leon, where she recognized the right of first refusal of
respondents, as indicative of the bad faith of petitioners. We do not agree.
Eufrocina de Leon wrote the letter on her own behalf and not on behalf of
petitioners and, as such, it only shows that Eufrocina de Leon was aware
of the existence of the oral right of first refusal. It does not show that
petitioners were likewise aware of the existence of the said right.
Moreover, the letter was made a month after the execution of the Deed of
Absolute Sale on September 4, 1990 between petitioner Rosencor and the
heirs of the spouses Tiangco. There is no showing that prior to the date of
the execution of the said Deed, petitioners were put on notice of the
existence of the right of first refusal.
WHEREFORE, premises considered, the decision of the Court of Appeals
dated June 25, 1999 is REVERSED and SET ASIDE. The Decision dated
May 13, 1996 of the Quezon City Regional Trial Court, Branch 217 is
hereby REINSTATED insofar as it dismisses the action for rescission of
the Deed of Absolute Sale dated September 4, 1990 and orders the
payment of monthly rentals of P1,000.00 per month reckoned from May
1990 up to the time respondents leave the premises.
SO ORDERED.

Clearly, if there was any indication of bad faith based on respondents’

evidence, it would only be on the part of Eufrocina de Leon as she was
aware of the right of first refusal of respondents yet she still sold the
disputed property to Rosencor. However, bad faith on the part of Eufrocina
de Leon does not mean that petitioner Rosencor likewise acted in bad faith.
There is no showing that prior to the execution of the Deed of Absolute
Sale, petitioners were made aware or put on notice of the existence of the
oral right of first refusal. Thus, absent clear and convincing evidence to
the contrary, petitioner Rosencor will be presumed to have acted in good
faith in entering into the Deed of Absolute Sale over the disputed property.

Considering that there is no showing of bad faith on the part of the

petitioners, the Court of Appeals thus erred in ordering the rescission of
the Deed of Absolute Sale dated September 4, 1990 between petitioner
Rosencor and the heirs of the spouses Tiangco. The acquisition by
Rosencor of the property subject of the right of first refusal is an obstacle
to the action for its rescission where, as in this case, it was shown that
Rosencor is in lawful possession of the subject of the contract and that it
did not act in bad faith.34

This does not mean however that respondents are left without any remedy
for the unjustified violation of their right of first refusal. Their remedy
however is not an action for the rescission of the Deed of Absolute Sale
but an action for damages against the heirs of the spouses Tiangco for the
unjustified disregard of their right of first refusal35.
G.R. No. 149734 November 19, 2004
DR. DANIEL VAZQUEZ and MA. LUIZA M.
VAZQUEZ, petitioners,
vs.
AYALA CORPORATION, respondent.
The rise in value of four lots in one of the country's prime residential
developments, Ayala Alabang Village in Muntinlupa City, over a period
of six (6) years only, represents big money. The huge price difference lies
at the heart of the present controversy. Petitioners insist that the lots should
be sold to them at 1984 prices while respondent maintains that the
prevailing market price in 1990 should be the selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed this Petition for Review
on Certiorari2 dated October 11, 2001 assailing the Decision3 of the Court
of Appeals dated September 6, 2001 which reversed the Decision4 of the
Regional Trial Court (RTC) and dismissed their complaint for specific
performance and damages against Ayala Corporation.
Despite their disparate rulings, the RTC and the appellate court agree on
the following antecedents:5
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez
(hereafter, Vasquez spouses) entered into a Memorandum of Agreement
(MOA) with Ayala Corporation (hereafter, AYALA) with AYALA
buying from the Vazquez spouses, all of the latter's shares of stock in
Conduit Development, Inc. (hereafter, Conduit). The main asset of
Conduit was a 49.9 hectare property in Ayala Alabang, Muntinlupa, which
was then being developed by Conduit under a development plan where the
land was divided into Villages 1, 2 and 3 of the "Don Vicente Village."
The development was then being undertaken for Conduit by G.P.
Construction and Development Corp. (hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire property, less what was
defined as the "Retained Area" consisting of 18,736 square meters. This
"Retained Area" was to be retained by the Vazquez spouses. The area to
be developed by Ayala was called the "Remaining Area". In this
"Remaining Area" were 4 lots adjacent to the "Retained Area" and Ayala
agreed to offer these lots for sale to the Vazquez spouses at the prevailing
price at the time of purchase. The relevant provisions of the MOA on this
point are:
"5.7. The BUYER hereby commits that it will develop the 'Remaining
Property' into a first class residential subdivision of the same class as its
New Alabang Subdivision, and that it intends to complete the first phase
under its amended development plan within three (3) years from the date
of this Agreement. x x x"
5.15. The BUYER agrees to give the SELLERS a first option to purchase
four developed lots next to the "Retained Area" at the prevailing market
price at the time of the purchase."
The parties are agreed that the development plan referred to in paragraph
5.7 is not Conduit's development plan, but Ayala's amended development
plan which was still to be formulated as of the time of the MOA. While in
the Conduit plan, the 4 lots to be offered for sale to the Vasquez Spouses
were in the first phase thereof or Village 1, in the Ayala plan which was
formulated a year later, it was in the third phase, or Phase II-c.
Under the MOA, the Vasquez spouses made several express warranties, as
follows:
"3.1. The SELLERS shall deliver to the BUYER:
xxx
3.1.2. The true and complete list, certified by the Secretary and Treasurer
of the Company showing:
xxx
D. A list of all persons and/or entities with whom the Company has
pending contracts, if any.
xxx
3.1.5. Audited financial statements of the Company as at Closing date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are subject to
fulfillment prior to or at the Closing, of the following conditions:
4.1. The representations and warranties by the SELLERS contained in this
Agreement shall be true and correct at the time of Closing as though such
representations and warranties were made at such time; and
xxx
6. Representation and Warranties by the SELLERS
The SELLERS jointly and severally represent and warrant to the BUYER
that at the time of the execution of this Agreement and at the Closing:
xxx
6.2.3. There are no actions, suits or proceedings pending, or to the
knowledge of the SELLERS, threatened against or affecting the SELLERS
with respect to the Shares or the Property; and
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required to be
submitted at Closing in accordance with Par. 3.1.5 above, the SELLER
jointly and severally warrant to the BUYER that:
7.1.1 The said Audited Financial Statements shall show that on the day of
Closing, the Company shall own the "Remaining Property", free from all
liens and encumbrances and that the Company shall have no obligation to
any party except for billings payable to GP Construction & Development
Corporation and advances made by Daniel Vazquez for which BUYER
shall be responsible in accordance with Par. 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial
Statements of the Company as of Closing, and those disclosed to BUYER,
the Company as of the date thereof, has no liabilities of any nature whether
accrued, absolute, contingent or otherwise, including, without limitation,
tax liabilities due or to become due and whether incurred in respect of or
measured in respect of the Company's income prior to Closing or arising
out of transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any
basis for any assertion against the Company as at closing or any liability
of any nature and in any amount not fully reflected or reserved against
such Audited Financial Statements referred to above, and those disclosed
to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before
the Closing, the Company is not engaged in or a party to, or to the best of
the knowledge of the SELLERS, threatened with, any legal action or other
proceedings before any court or administrative body, nor do the SELLERS
know or have reasonable grounds to know of any basis for any such action
or proceeding or of any governmental investigation relative to the
Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in
the due performance and observance by the Company of any term,
covenant or condition of any instrument or agreement to which the
company is a party or by which it is bound, and no condition exists which,
with notice or lapse of time or both, will constitute such default or breach."
After the execution of the MOA, Ayala caused the suspension of work on
Village 1 of the Don Vicente Project. Ayala then received a letter from one
Maximo Del Rosario of Lancer General Builder Corporation informing
Ayala that he was claiming the amount of P1,509,558.80 as the
subcontractor of G.P. Construction...
G.P. Construction not being able to reach an amicable settlement with
Lancer, on March 22, 1982, Lancer sued G.P. Construction, Conduit and
Ayala in the then Court of First Instance of Manila in Civil Case No. 82-
8598. G.P. Construction in turn filed a cross-claim against Ayala. G.P.
Construction and Lancer both tried to enjoin Ayala from undertaking the
development of the property. The suit was terminated only on February
19, 1987, when it was dismissed with prejudice after Ayala paid both
Lancer and GP Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots adjacent to
the "Retained Area" within 3 years from the date of the MOA, the Vasquez
spouses sent several "reminder" letters of the approaching so-called
deadline. However, no demand after April 23, 1984, was ever made by the
Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the
letters signed by their authorized agent, Engr. Eduardo Turla, categorically
stated that they expected "development of Phase 1 to be completed by
February 19, 1990, three years from the settlement of the legal problems
with the previous contractor."
By early 1990 Ayala finished the development of the vicinity of the 4 lots
to be offered for sale. The four lots were then offered to be sold to the
Vasquez spouses at the prevailing price in 1990. This was rejected by the
Vasquez spouses who wanted to pay at 1984 prices, thereby leading to the
suit below.
After trial, the court a quo rendered its decision, the dispositive portion of
which states:
"THEREFORE, judgment is hereby rendered in favor of plaintiffs and
against defendant, ordering defendant to sell to plaintiffs the relevant lots
described in the Complaint in the Ayala Alabang Village at the price of
P460.00 per square meter amounting to P1,349,540.00; ordering defendant
to reimburse to plaintiffs attorney's fees in the sum of P200,000.00 and to
pay the cost of the suit."
In its decision, the court a quo concluded that the Vasquez spouses were
not obligated to disclose the potential claims of GP Construction, Lancer
and Del Rosario; Ayala's accountants should have opened the records of
Conduit to find out all claims; the warranty against suit is with respect to
"the shares of the Property" and the Lancer suit does not affect the shares
of stock sold to Ayala; Ayala was obligated to develop within 3 years; to
say that Ayala was under no obligation to follow a time frame was to put
the Vasquezes at Ayala's mercy; Ayala did not develop because of a slump
in the real estate market; the MOA was drafted and prepared by the
AYALA who should suffer its ambiguities; the option to purchase the 4
lots is valid because it was supported by consideration as the option is
incorporated in the MOA where the parties had prestations to each other.
[Emphasis supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in
holding that petitioners did not breach their warranties under the
MOA6 dated April 23, 1981; that it was obliged to develop the land where
the four (4) lots subject of the option to purchase are located within three
(3) years from the date of the MOA; that it was in delay; and that the option
to purchase was valid because it was incorporated in the MOA and the
consideration therefor was the commitment by Ayala Corporation to
petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC
Decision. According to the appellate court, Ayala Corporation was never
informed beforehand of the existence of the Lancer claim. In fact, Ayala
Corporation got a copy of the Lancer subcontract only on May 29, 1981
from G.P. Construction's lawyers. The Court of Appeals thus held that
petitioners violated their warranties under the MOA when they failed to
disclose Lancer's claims. Hence, even conceding that Ayala Corporation
was obliged to develop and sell the four (4) lots in question within three
(3) years from the date of the MOA, the obligation was suspended during
the pendency of the case filed by Lancer.
Interpreting the MOA's paragraph 5.7 above-quoted, the appellate court
held that Ayala Corporation committed to develop the first phase of its
own amended development plan and not Conduit's development plan.
Nowhere does the MOA provide that Ayala Corporation shall follow
Conduit's development plan nor is Ayala Corporation prohibited from
changing the sequence of the phases of the property it will develop.
Anent the question of delay, the Court of Appeals ruled that there was no
delay as petitioners never made a demand for Ayala Corporation to sell
the subject lots to them. According to the appellate court, what petitioners
sent were mere reminder letters the last of which was dated prior to April
23, 1984 when the obligation was not yet demandable. At any rate, the
Court of Appeals found that petitioners in fact waived the three (3)-year
period when they sent a letter through their agent, Engr. Eduardo Turla,
stating that they "expect that the development of Phase I will be completed
by 19 February 1990, three years from the settlement of the legal problems
with the previous contractor."7
The appellate court likewise ruled that paragraph 5.15 above-quoted is not
an option contract but a right of first refusal there being no separate
consideration therefor. Since petitioners refused Ayala Corporation's offer
to sell the subject lots at the reduced 1990 price of P5,000.00 per square
meter, they have effectively waived their right to buy the same.
In the instant Petition, petitioners allege that the appellate court erred in
ruling that they violated their warranties under the MOA; that Ayala
Corporation was not obliged to develop the "Remaining Property" within
three (3) years from the execution of the MOA; that Ayala was not in
delay; and that paragraph 5.15 of the MOA is a mere right of first refusal.
Additionally, petitioners insist that the Court should review the factual
findings of the Court of Appeals as they are in conflict with those of the
trial court.
Ayala Corporation filed a Comment on the Petition8 dated March 26, 2002,
contending that the petition raises questions of fact and seeks a review of
evidence which is within the domain of the Court of Appeals. Ayala
Corporation maintains that the subcontract between GP Construction, with
whom Conduit contracted for the development of the property under a
Construction Contract dated October 10, 1980, and Lancer was not
disclosed by petitioners during the negotiations. Neither was the liability
for Lancer's claim included in the Audited Financial Statements submitted
by petitioners after the signing of the MOA. These justify the conclusion
that petitioners breached their warranties under the afore-quoted
paragraphs of the MOA. Since the Lancer suit ended only in February
1989, the three (3)-year period within which Ayala Corporation committed
to develop the property should only be counted thence. Thus, when it
offered the subject lots to petitioners in 1990, Ayala Corporation was not
yet in delay.
In response to petitioners' contention that there was no action or
proceeding against them at the time of the execution of the MOA on April
23, 1981, Ayala Corporation avers that the facts and circumstances which
gave rise to the Lancer claim were already extant then. Petitioners
warranted that their representations under the MOA shall be true and
correct at the time of "Closing" which shall take place within four (4)
weeks from the signing of the MOA.9 Since the MOA was signed on April
23, 1981, "Closing" was approximately the third week of May 1981.
Hence, Lancer's claims, articulated in a letter which Ayala Corporation
received on May 4, 1981, are among the liabilities warranted against under
paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties under the MOA
are not just against suits but against all kinds of liabilities not reflected in
the Audited Financial Statements. It cannot be faulted for relying on the
express warranty that except for billings payable to GP Construction and
advances made by petitioner Daniel Vazquez in the amount of P38,766.04,
Conduit has no other liabilities. Hence, petitioners cannot claim that Ayala
Corporation should have examined and investigated the Audited Financial
Statements of Conduit and should now assume all its obligations and
liabilities including the Lancer suit and the cross-claim of GP
Construction.
Furthermore, Ayala Corporation did not make a commitment to complete
the development of the first phase of the property within three (3) years
from the execution of the MOA. The provision refers to a mere declaration
of intent to develop the first phase of its (Ayala Corporation's) own
development plan and not Conduit's. True to its intention, Ayala
Corporation did complete the development of the first phase (Phase II-A)
of its amended development plan within three (3) years from the execution
of the MOA. However, it is not obliged to develop the third phase (Phase
II-C) where the subject lots are located within the same time frame because
there is no contractual stipulation in the MOA therefor. It is free to decide
on its own the period for the development of Phase II-C. If petitioners
wanted to impose the same three (3)-year timetable upon the third phase
of the amended development plan, they should have filed a suit to fix the
time table in accordance with Article 119710 of the Civil Code. Having
failed to do so, Ayala Corporation cannot be declared to have been in
delay.
Ayala Corporation further contends that no demand was made on it for the
performance of its alleged obligation. The letter dated October 4, 1983
sent when petitioners were already aware of the Lancer suit did not
demand the delivery of the subject lots by April 23, 1984. Instead, it
requested Ayala Corporation to keep petitioners posted on the status of the
case. Likewise, the letter dated March 4, 1984 was merely an inquiry as to
the date when the development of Phase 1 will be completed. More
importantly, their letter dated June 27, 1988 through Engr. Eduardo Turla
expressed petitioners' expectation that Phase 1 will be completed by
February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a
right of first refusal and not an option contract.
Petitioners filed their Reply11 dated August 15, 2002 reiterating the
arguments in their Petition and contending further that they did not violate
their warranties under the MOA because the case was filed by Lancer only
on April 1, 1982, eleven (11) months and eight (8) days after the signing
of the MOA on April 23, 1981. Ayala Corporation admitted that it received
Lancer's claim before the "Closing" date. It therefore had all the time to
rescind the MOA. Not having done so, it can be concluded that Ayala
Corporation itself did not consider the matter a violation of petitioners'
warranty.
Moreover, petitioners submitted the Audited Financial Statements of
Conduit and allowed an acquisition audit to be conducted by Ayala
Corporation. Thus, the latter bought Conduit with "open eyes."
Petitioners also maintain that they had no knowledge of the impending
case against Conduit at the time of the execution of the MOA. Further, the
MOA makes Ayala Corporation liable for the payment of all billings of
GP Construction. Since Lancer's claim was actually a claim against GP
Construction being its sub-contractor, it is Ayala Corporation and not
petitioners which is liable.
Likewise, petitioners aver that although Ayala Corporation may change
the sequence of its development plan, it is obliged under the MOA to
develop the entire area where the subject lots are located in three (3) years.
They also assert that demand was made on Ayala Corporation to comply
with their obligation under the MOA. Apart from their reminder letters
dated January 24, February 18 and March 5, 1984, they also sent a letter
dated March 4, 1984 which they claim is a categorical demand for Ayala
Corporation to comply with the provisions of the MOA.
The parties were required to submit their respective memoranda in the
Resolution12 dated November 18, 2002. In compliance with this directive,
petitioners submitted their Memorandum13 dated February 14, 2003 on
even date, while Ayala Corporation filed its Memorandum14 dated
February 14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant
petition.
It is well-settled that the jurisdiction of this Court in cases brought to it
from the Court of Appeals by way of petition for review under Rule 45 is
limited to reviewing or revising errors of law imputed to it, its findings of
fact being conclusive on this Court as a matter of general principle.
However, since in the instant case there is a conflict between the factual
findings of the trial court and the appellate court, particularly as regards
the issues of breach of warranty, obligation to develop and incurrence of
delay, we have to consider the evidence on record and resolve such factual
issues as an exception to the general rule.15 In any event, the submitted
issue relating to the categorization of the right to purchase granted to
petitioners under the MOA is legal in character.
The next issue that presents itself is whether petitioners breached their
warranties under the MOA when they failed to disclose the Lancer claim.
The trial court declared they did not; the appellate court found otherwise.
Ayala Corporation summarizes the clauses of the MOA which petitioners
allegedly breached when they failed to disclose the Lancer claim:
a) Clause 7.1.1. – that Conduit shall not be obligated to anyone
except to GP Construction for P38,766.04, and for advances made
by Daniel Vazquez;
b) Clause 7.1.2. – that except as reflected in the audited financial
statements Conduit had no other liabilities whether accrued,
absolute, contingent or otherwise;
c) Clause 7.2. – that there is no basis for any assertion against
Conduit of any liability of any value not reflected or reserved in
the financial statements, and those disclosed to Ayala;
d) Clause 7.6.3. – that Conduit is not threatened with any legal
action or other proceedings; and
e) Clause 7.6.4. – that Conduit had not breached any term,
condition, or covenant of any instrument or agreement to which it
is a party or by which it is bound.16
The Court is convinced that petitioners did not violate the foregoing
warranties.
The exchanges of communication between the parties indicate that
petitioners substantially apprised Ayala Corporation of the Lancer claim
or the possibility thereof during the period of negotiations for the sale of
Conduit.
In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded
Ayala Corporation's Mr. Adolfo Duarte (Mr. Duarte) that prior to the
completion of the sale of Conduit, Ayala Corporation asked for and was
given information that GP Construction sub-contracted, presumably to
Lancer, a greater percentage of the project than it was allowed. Petitioners
gave this information to Ayala Corporation because the latter intimated a
desire to "break the contract of Conduit with GP." Ayala Corporation did
not deny this. In fact, Mr. Duarte's letter18 dated March 6, 1984 indicates
that Ayala Corporation had knowledge of the Lancer subcontract prior to
its acquisition of Conduit. Ayala Corporation even admitted that it "tried
to explore…legal basis to discontinue the contract of Conduit with GP"
but found this "not feasible when information surfaced about the tacit
consent of Conduit to the sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of the Lancer claim before
the date of Closing of the MOA. Lancer's letter19 dated April 30, 1981
informing Ayala Corporation of its unsettled claim with GP Construction
was received by Ayala Corporation on May 4, 1981, well before the
"Closing"20 which occurred four (4) weeks after the date of signing of the
MOA on April 23, 1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted hereunder
likewise indicate that certain matters pertaining to the liabilities of Conduit
were disclosed by petitioners to Ayala Corporation although the specifics
thereof were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on
the day of Closing, the Company shall own the "Remaining
Property", free from all liens and encumbrances and that the
Company shall have no obligation to any party except for billings
payable to GP Construction & Development Corporation and
advances made by Daniel Vazquez for which BUYER shall be
responsible in accordance with Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited
Financial Statements of the Company as of Closing, and those
disclosed to BUYER, the Company as of the date hereof, has no
liabilities of any nature whether accrued, absolute, contingent or
otherwise, including, without limitation, tax liabilities due or to
become due and whether incurred in respect of or measured in
respect of the Company's income prior to Closing or arising out of
transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know
of any basis for any assertion against the Company as at Closing
of any liability of any nature and in any amount not fully reflected
or reserved against such Audited Financial Statements referred to
above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on
or before the Closing, the Company is not engaged in or a party
to, or to the best of the knowledge of the SELLERS, threatened
with, any legal action or other proceedings before any court or
administrative body, nor do the SELLERS know or have
reasonable grounds to know of any basis for any such action or
proceeding or of any governmental investigation relative to the
Company.
7.6.4 To the knowledge of the SELLERS, no default or breach
exists in the due performance and observance by the Company of
any term, covenant or condition of any instrument or agreement
to which the Company is a party or by which it is bound, and no
condition exists which, with notice or lapse of time or both, will
constitute such default or breach."21 [Emphasis supplied]
Hence, petitioners' warranty that Conduit is not engaged in, a party to, or
threatened with any legal action or proceeding is qualified by Ayala
Corporation's actual knowledge of the Lancer claim which was disclosed
to Ayala Corporation before the "Closing."
At any rate, Ayala Corporation bound itself to pay all billings payable to
GP Construction and the advances made by petitioner Daniel Vazquez.
Specifically, under paragraph 2 of the MOA referred to in paragraph 7.1.1,
Ayala Corporation undertook responsibility "for the payment of all
billings of the contractor GP Construction & Development Corporation
after the first billing and any payments made by the company and/or
SELLERS shall be reimbursed by BUYER on closing which advances to
date is P1,159,012.87."22
The billings knowingly assumed by Ayala Corporation necessarily include
the Lancer claim for which GP Construction is liable. Proof of this is Ayala
Corporation's letter23 to GP Construction dated before "Closing" on May
4, 1981, informing the latter of Ayala Corporation's receipt of the Lancer
claim embodied in the letter dated April 30, 1981, acknowledging that it
is taking over the contractual responsibilities of Conduit, and requesting
copies of all sub-contracts affecting the Conduit property. The pertinent
excerpts of the letter read:
…
In this connection, we wish to inform you that this morning we
received a letter from Mr. Maximo D. Del Rosario, President of
Lancer General Builders Corporation apprising us of the existence
of subcontracts that they have with your corporation. They have
 also furnished us with a copy of their letter to you dated 30 April
1981.
Since we are taking over the contractual responsibilities of
Conduit Development, Inc., we believe that it is necessary, at this
point in time, that you furnish us with copies of all your
subcontracts affecting the property of Conduit, not only with
Lancer General Builders Corporation, but all subcontracts with
other parties as well…24
Quite tellingly, Ayala Corporation even attached to its Pre-Trial
Brief25 dated July 9, 1992 a copy of the letter26 dated May 28, 1981 of GP
Construction's counsel addressed to Conduit furnishing the latter with
copies of all sub-contract agreements entered into by GP Construction.
Since it was addressed to Conduit, it can be presumed that it was the latter
which gave Ayala Corporation a copy of the letter thereby disclosing to
the latter the existence of the Lancer sub-contract.
The ineluctable conclusion is that petitioners did not violate their
warranties under the MOA. The Lancer sub-contract and claim were
substantially disclosed to Ayala Corporation before the "Closing" date of
the MOA. Ayala Corporation cannot disavow knowledge of the claim.
Moreover, while in its correspondence with petitioners, Ayala Corporation
did mention the filing of the Lancer suit as an obstacle to its development
of the property, it never actually brought up nor sought redress for
petitioners' alleged breach of warranty for failure to disclose the Lancer
claim until it filed its Answer27 dated February 17, 1992.
We now come to the correct interpretation of paragraph 5.7 of the MOA.
Does this paragraph express a commitment or a mere intent on the part of
Ayala Corporation to develop the property within three (3) years from date
thereof? Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the
'Remaining Property' into a first class residential subdivision of
the same class as its New Alabang Subdivision, and that it intends
to complete the first phase under its amended development plan
within three (3) years from the date of this Agreement….28
Notably, while the first phrase of the paragraph uses the word "commits"
in reference to the development of the "Remaining Property" into a first
class residential subdivision, the second phrase uses the word "intends" in
relation to the development of the first phase of the property within three
(3) years from the date of the MOA. The variance in wording is significant.
While "commit"29 connotes a pledge to do something, "intend"30 merely
signifies a design or proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's
legal division who assisted in drafting the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer on that
point.
ATTY. BLANCO
Don't talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to emphasize
the tentative character of the period of development because it will
be noted that the sentence refers to and I quote "to complete the
first phase under its amended development plan within three (3)
years from the date of this agreement, at the time of the execution
of this agreement, your Honor." That amended development plan
was not yet in existence because the buyer had manifested to the
seller that the buyer could amend the subdivision plan originally
belonging to the seller to conform with its own standard of
development and second, your Honor, (interrupted)31
It is thus unmistakable that this paragraph merely expresses an intention
on Ayala Corporation's part to complete the first phase under its amended
development plan within three (3) years from the execution of the MOA.
Indeed, this paragraph is so plainly worded that to misunderstand its
import is deplorable.
More focal to the resolution of the instant case is paragraph 5.7's clear
reference to the first phase of Ayala Corporation's amended development
plan as the subject of the three (3)-year intended timeframe for
development. Even petitioner Daniel Vazquez admitted on cross-
examination that the paragraph refers not to Conduit's but to Ayala
Corporation's development plan which was yet to be formulated when the
MOA was executed:
Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is
stated as follows: "The Buyer hereby commits that to develop the
remaining property into a first class residential subdivision of the same
class as New Alabang Subdivision, and that they intend to complete the
first phase under its amended development plan within three years from
the date of this agreement."
Now, my question to you, Dr. Vasquez is that there is no dispute that the
amended development plan here is the amended development plan of
Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit "D-5" which is the original plan
of Conduit?
A: No, it is not.
Q: This Exhibit "D-5" was the plan that was being followed by GP
Construction in 1981?
A: Yes, sir.
Q: And point of fact during your direct examination as of the date
of the agreement, this amended development plan was still to be
formulated by Ayala?
A: Yes, sir.32
As correctly held by the appellate court, this admission is crucial because
while the subject lots to be sold to petitioners were in the first phase of the
Conduit development plan, they were in the third or last phase of the Ayala
Corporation development plan. Hence, even assuming that paragraph 5.7
expresses a commitment on the part of Ayala Corporation to develop the
first phase of its amended development plan within three (3) years from
the execution of the MOA, there was no parallel commitment made as to
the timeframe for the development of the third phase where the subject lots
are located.
Lest it be forgotten, the point of this petition is the alleged failure of Ayala
Corporation to offer the subject lots for sale to petitioners within three (3)
years from the execution of the MOA. It is not that Ayala Corporation
committed or intended to develop the first phase of its amended
development plan within three (3) years. Whether it did or did not is
actually beside the point since the subject lots are not located in the first
phase anyway.
We now come to the issue of default or delay in the fulfillment of the
obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
 (1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation
it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.
In order that the debtor may be in default it is necessary that the following
requisites be present: (1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance; and (3) that the creditor
requires the performance judicially or extrajudicially.33
Under Article 1193 of the Civil Code, obligations for whose fulfillment a
day certain has been fixed shall be demandable only when that day comes.
However, no such day certain was fixed in the MOA. Petitioners,
therefore, cannot demand performance after the three (3) year period fixed
by the MOA for the development of the first phase of the property since
this is not the same period contemplated for the development of the subject
lots. Since the MOA does not specify a period for the development of the
subject lots, petitioners should have petitioned the court to fix the period
in accordance with Article 119734 of the Civil Code. As no such action was
filed by petitioners, their complaint for specific performance was
premature, the obligation not being demandable at that point. Accordingly,
Ayala Corporation cannot likewise be said to have delayed performance
of the obligation.
Even assuming that the MOA imposes an obligation on Ayala Corporation
to develop the subject lots within three (3) years from date thereof, Ayala
Corporation could still not be held to have been in delay since no demand
was made by petitioners for the performance of its obligation.
As found by the appellate court, petitioners' letters which dealt with the
three (3)-year timetable were all dated prior to April 23, 1984, the date
when the period was supposed to expire. In other words, the letters were
sent before the obligation could become legally demandable. Moreover,
the letters were mere reminders and not categorical demands to perform.
More importantly, petitioners waived the three (3)-year period as
evidenced by their agent, Engr. Eduardo Turla's letter to the effect that
petitioners agreed that the three (3)-year period should be counted from
the termination of the case filed by Lancer. The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23, 1981,
it was undertaken by your goodselves to complete the
development of Phase I within three (3) years. Dr. & Mrs.
Vazquez were made to understand that you were unable to
accomplish this because of legal problems with the previous
contractor. These legal problems were resolved as of February 19,
1987, and Dr. & Mrs. Vazquez therefore expect that the
development of Phase I will be completed by February 19, 1990,
three years from the settlement of the legal problems with the
previous contractor. The reason for this is, as you know, that
security-wise, Dr. & Mrs. Vazquez have been advised not to
construct their residence till the surrounding area (which is Phase
I) is developed and occupied. They have been anxious to build
their residence for quite some time now, and would like to receive
assurance from your goodselves regarding this, in compliance
with the agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention
of Dr. & Mrs. Vazquez to exercise their option to purchase the two
 lots on each side (a total of 4 lots) adjacent to their "Retained
Area". They are concerned that although over a year has elapsed
since the settlement of the legal problems, you have not presented
them with the size, configuration, etc. of these lots. They would
appreciate being provided with these at your earliest
convenience.35
Manifestly, this letter expresses not only petitioners' acknowledgement
that the delay in the development of Phase I was due to the legal problems
with GP Construction, but also their acquiescence to the completion of the
development of Phase I at the much later date of February 19, 1990. More
importantly, by no stretch of semantic interpretation can it be construed as
a categorical demand on Ayala Corporation to offer the subject lots for
sale to petitioners as the letter merely articulates petitioners' desire to
exercise their option to purchase the subject lots and concern over the fact
that they have not been provided with the specifications of these lots.
The letters of petitioners' children, Juan Miguel and Victoria Vazquez,
dated January 23, 198436 and February 18, 198437 can also not be
considered categorical demands on Ayala Corporation to develop the first
phase of the property within the three (3)-year period much less to offer
the subject lots for sale to petitioners. The letter dated January 23, 1984
reads in part:
You will understand our interest in the completion of the roads to
our property, since we cannot develop it till you have constructed
the same. Allow us to remind you of our Memorandum of
Agreement, as per which you committed to develop the roads to
our property "as per the original plans of the company", and that
1. The back portion should have been developed before the front
portion – which has not been the case.
2. The whole project – front and back portions be completed by
1984.38
The letter dated February 18, 1984 is similarly worded. It states:
In this regard, we would like to remind you of Articles 5.7 and 5.9 of our
Memorandum of Agreement which states respectively:…39
Even petitioner Daniel Vazquez' letter40 dated March 5, 1984 does not
make out a categorical demand for Ayala Corporation to offer the subject
lots for sale on or before April 23, 1984. The letter reads in part:
…and that we expect from your goodselves compliance with our
Memorandum of Agreement, and a definite date as to when the
road to our property and the development of Phase I will be
completed.41
At best, petitioners' letters can only be construed as mere reminders which
cannot be considered demands for performance because it must appear that
the tolerance or benevolence of the creditor must have ended.42
The petition finally asks us to determine whether paragraph 5.15 of the
MOA can properly be construed as an option contract or a right of first
refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to
purchase four developed lots next to the "Retained Area" at the
prevailing market price at the time of the purchase.43
The Court has clearly distinguished between an option contract and a right
of first refusal. An option is a preparatory contract in which one party
grants to another, for a fixed period and at a determined price, the privilege
to buy or sell, or to decide whether or not to enter into a principal contract.
It binds the party who has given the option not to enter into the principal
contract with any other person during the period designated, and within
that period, to enter into such contract with the one to whom the option
was granted, if the latter should decide to use the option. It is a separate
and distinct contract from that which the parties may enter into upon the
consummation of the option. It must be supported by consideration.44
In a right of first refusal, on the other hand, while the object might be made
determinate, the exercise of the right would be dependent not only on the
grantor's eventual intention to enter into a binding juridical relation with
another but also on terms, including the price, that are yet to be firmed
up.45
Applied to the instant case, paragraph 5.15 is obviously a mere right of
first refusal and not an option contract. Although the paragraph has a
definite object, i.e., the sale of subject lots, the period within which they
will be offered for sale to petitioners and, necessarily, the price for which
the subject lots will be sold are not specified. The phrase "at the prevailing
market price at the time of the purchase" connotes that there is no definite
period within which Ayala Corporation is bound to reserve the subject lots
for petitioners to exercise their privilege to purchase. Neither is there a
fixed or determinable price at which the subject lots will be offered for
sale. The price is considered certain if it may be determined with reference
to another thing certain or if the determination thereof is left to the
judgment of a specified person or persons.46
Further, paragraph 5.15 was inserted into the MOA to give petitioners the
first crack to buy the subject lots at the price which Ayala Corporation
would be willing to accept when it offers the subject lots for sale. It is not
supported by an independent consideration. As such it is not governed by
Articles 1324 and 1479 of the Civil Code, viz:
Art. 1324. When the offeror has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon 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.
Consequently, the "offer" may be withdrawn anytime by communicating
the withdrawal to the other party.47
In this case, Ayala Corporation offered the subject lots for sale to
petitioners at the price of P6,500.00/square meter, the prevailing market
price for the property when the offer was made on June 18,
1990.48 Insisting on paying for the lots at the prevailing market price in
1984 of P460.00/square meter, petitioners rejected the offer. Ayala
Corporation reduced the price to P5,000.00/square meter but again,
petitioners rejected the offer and instead made a counter-offer in the
amount of P2,000.00/square meter.49 Ayala Corporation rejected
petitioners' counter-offer. With this rejection, petitioners lost their right to
purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation breached petitioners'
right of first refusal and should be compelled by an action for specific
performance to sell the subject lots to petitioners at the prevailing market
price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to
costs.
SO ORDERED.

G.R. No. 118509 December 1, 1995
LIMKETKAI SONS MILLING, INC., petitioner,
vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS
and NATIONAL BOOK STORE, respondents.
The issue in the petition before us is whether or not there was a perfected
contract between petitioner Limketkai Sons Milling, Inc. and respondent
Bank of the Philippine Islands (BPI) covering the sale of a parcel of land,
approximately 3.3 hectares in area, and located in Barrio Bagong Ilog,
Pasig City, Metro Manila.
Branch 151 of the Regional Trial Court of the National Capital Judicial
Region stationed in Pasig ruled that there was a perfected contract of sale
between petitioner and BPI. It stated that there was mutual consent
between the parties; the subject matter is definite; and the consideration
was determined. It concluded that all the elements of a consensual contract
are attendant. It ordered the cancellation of a sale effected by BPI to
respondent National Book Store (NBS) while the case was pending and
the nullification of a title issued in favor of said respondent NBS.
Upon elevation of the case to the Court of Appeals, it was held that no
contract of sale was perfected because there was no concurrence of the
three requisites enumerated in Article 1318 of the Civil Code. The decision
of the trial court was reversed and the complaint dismissed.
Hence, the instant petition.
Shorn of the interpretations given to the acts of those who participated in
the disputed sale, the findings of facts of the trial court and the Court of
Appeals narrate basically the same events and occurrences. The records
show that on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI
as its trustee to manage, administer, and sell its real estate property. One
such piece of property placed under trust was the disputed lot, a 33,056-
square meter lot at Barrio Bagong Ilog, Pasig, Metro Manila covered by
Transfer Certificate of Title No. 493122.
On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was
given formal authority by BPI to sell the lot for P1,000.00 per square
meter. This arrangement was concurred in by the owners of the Philippine
Remnants.
Broker Revilla contacted Alfonso Lim of petitioner company who agreed
to buy the land. On July 8, 1988, petitioner's officials and Revilla were
given permission by Rolando V. Aromin, BPI Assistant Vice-President, to
enter and view the property they were buying.
On July 9, 1988, Revilla formally informed BPI that he had procured a
buyer, herein petitioner. On July 11, 1988, petitioner's officials, Alfonso
Lim and Albino Limketkai, went to BPI to confirm the sale. They were
entertained by Vice-President Merlin Albano and Asst. Vice-President
Aromin. Petitioner asked that the price of P1,000.00 per square meter be
reduced to P900.00 while Albano stated the price to be P1,100.00. The
parties finally agreed that the lot would be sold at P1,000.00 per square
meter to be paid in cash. Since the authority to sell was on a first come,
first served and non-exclusive basis, it may be mentioned at this juncture
that there is no dispute over petitioner's being the first comer and the buyer
to be first served.
Notwithstanding the final agreement to pay P1,000.00 per square meter on
a cash basis, Alfonso Lim asked if it was possible to pay on terms. The
bank officials stated that there was no harm in trying to ask for payment
on terms because in previous transactions, the same had been allowed. It
was the understanding, however, that should the term payment be
disapproved, then the price shall be paid in cash.
It was Albano who dictated the terms under which the installment payment
may be approved, and acting thereon, Alfonso Lim, on the same date, July
11, 1988, wrote BPI through Merlin Albano embodying the payment
initially of 10% and the remaining 90% within a period of 90 days.
Two or three days later, petitioner learned that its offer to pay on terms
had been frozen. Alfonso Lim went to BPI on July 18, 1988 and tendered
the full payment of P33,056,000.00 to Albano. The payment was refused
because Albano stated that the authority to sell that particular piece of
property in Pasig had been withdrawn from his unit. The same check was
tendered to BPI Vice-President Nelson Bona who also refused to receive
payment.
An action for specific performance with damages was thereupon filed on
August 25, 1988 by petitioner against BPI. In the course of the trial, BPI
informed the trial court that it had sold the property under litigation to NBS
on July 14, 1989. The complaint was thus amended to include NBS.
On June 10, 1991, the trial court rendered judgment in the case as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and
against defendants Bank of the Philippine Islands and National Book
Store, Inc.: —
1. Declaring the Deed of Sale of the property covered by T.C.T. No.
493122 in the name of the Bank of the Philippine Islands, situated in
Barrio Bagong Ilog, Pasig, Metro Manila, in favor of National Book Store,
Inc., null and void;
2. Ordering the Register of Deeds of the Province of Rizal to cancel the
Transfer Certificate of Title which may have been issued in favor of
National Book Store, Inc. by virtue of the aforementioned Deed of Sale
dated July 14, 1989;
3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of
P33,056,000.00, to execute a Deed of Sale in favor of plaintiff of the
aforementioned property at the price of P1,000.00 per square meter; in
default thereof, the Clerk of this Court is directed to execute the said deed;
4. Ordering the Register of Deeds of Pasig, upon registration of the said
deed, whether executed by defendant BPI or the Clerk of Court and
payment of the corresponding fees and charges, to cancel said T.C.T. No.
493122 and to issue, in lieu thereof, another transfer certificate of title in
the name of plaintiff;
5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly
and severally, to the plaintiff the sums of P10,000,000.00 as actual and
consequential damages and P150,000.00 as attorney's fees and litigation
expenses, both with interest at 12% per annum from date hereof;
6. On the cross-claim of defendant bank against National Book Store,
ordering the latter to indemnify the former of whatever amounts BPI shall
have paid to the plaintiff by reason hereof; and
7. Dismissing the counterclaims of the defendants against the plaintiff and
National Book Store's cross-claim against defendant bank.
Costs against defendants.
(pp. 44-45, Rollo.)
As earlier intimated, upon the decision being appealed, the Court of
Appeals (Buena [P], Rasul, and Mabutas, JJ.), on August 12, 1994,
reversed the trial court's decision and dismissed petitioner's complaint for
specific performance and damages.
The issues raised by the parties revolve around the following four
questions:
(1) Was there a meeting of the minds between petitioner Limketkai and
respondent BPI as to the subject matter of the contract and the cause of the
obligation?
(2) Were the bank officials involved in the transaction authorized by BPI
to enter into the questioned contract?
(3) Is there competent and admissible evidence to support the alleged
meeting of the minds?
(4) Was the sale of the disputed land to the NBS during the pendency of
trial effected in good faith?
There is no dispute in regard to the following: (a) that BPI as trustee of the
property of Philippine Remnant Co. authorized a licensed broker, Pedro
Revilla, to sell the lot for P1,000.00 per square meter; (b) that Philippine
Remnants confirmed the authority to sell of Revilla and the price at which
he may sell the lot; (c) that petitioner and Revilla agreed on the former
buying the property; (d) that BPI Assistant Vice-President Rolando V.
Aromin allowed the broker and the buyer to inspect the property; and (e)
that BPI was formally informed about the broker having procured a buyer.
The controversy revolves around the interpretation or the significance of
the happenings or events at this point.
Petitioner states that the contract to sell and to buy was perfected on July
11, 1988 when its top officials and broker Revilla finalized the details with
BPI Vice-Presidents Merlin Albano and Rolando V. Aromin at the BPI
offices.
Respondents, however, contend that what transpired on this date were part
of continuing negotiations to buy the land and not the perfection of the
sale. The arguments of respondents center on two propositions — (1)
Vice-Presidents Aromin and Albano had no authority to bind BPI on this
particular transaction and (2) the subsequent attempts of petitioner to pay
under terms instead of full payment in cash constitutes a counter-offer
which negates the existence of a perfected contract.
The alleged lack of authority of the bank officials acting in behalf of BPI
is not sustained by the record.
At the start of the transactions, broker Revilla by himself already had full
authority to sell the disputed lot. Exhibit B dated June 23, 1988 states, "this
will serve as your authority to sell on an as is, where is basis the property
located at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's
testimony that the authority given to him was to sell and not merely to look
for a buyer, as contended by respondents.
Revilla testified that at the time he perfected the agreement to sell the
litigated property, he was acting for and in behalf of the BPI as if he were
the Bank itself. This notwithstanding and to firm up the sale of the land,
Revilla saw it fit to bring BPI officials into the transaction. If BPI could
give the authority to sell to a licensed broker, we see no reason to doubt
the authority to sell of the two BPI Vice-Presidents whose precise job in
the Bank was to manage and administer real estate property.
Respondent BPI alleges that sales of trust property need the approval of a
Trust Committee made up of top bank officials. It appears from the record
that this trust committee meets rather infrequently and it does not have to
pass on regular transactions.
Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He
directly supervised the BPI Real Property Management Unit. He had been
in the Real Estate Division since 1985 and was the head supervising officer
of real estate matters. Aromin had been with the BPI Trust Department
since 1968 and had been involved in the handling of properties of
beneficial owners since 1975 (tsn., December 3, 1990, p. 5).
Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President
Edmundo Barcelon, while purporting to inform Aromin of his poor
performance, is an admission of BPI that Aromin was in charge of Torrens
titles, lease contracts, problems of tenants, insurance policies, installment
receivables, management fees, quitclaims, and other matters involving real
estate transactions. His immediate superior, Vice-President Merlin Albano
had been with the Real Estate Division for only one week but he was
present and joined in the discussions with petitioner.
There is nothing to show that Alfonso Lim and Albino Limketkai knew
Aromin before the incident. Revilla brought the brothers directly to
Aromin upon entering the BPI premises. Aromin acted in a perfectly
natural manner on the transaction before him with not the slightest
indication that he was acting ultra vires. This shows that BPI held Aromin
out to the public as the officer routinely handling real estate transactions
and, as Trust Officer, entering into contracts to sell trust properties.
Respondents state and the record shows that the authority to buy and sell
this particular trust property was later withdrawn from Trust Officer
Aromin and his entire unit. If Aromin did not have any authority to act as
alleged, there was no need to withdraw authority which he never
possessed.
Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994])
which cited Prudential Bank vs. Court of Appeals (22 SCRA 350 [1993]),
which in turn relied upon McIntosh vs. Dakota Trust Co. (52 ND 752, 204
NW 818, 40 ALR 1021), to wit:
Accordingly a banking corporation is liable to innocent third persons
where the representation is made in the course of its business by an agent
acting within the general scope of his authority even though, in the
particular case, the agent is secretly abusing his authority and attempting
to perpetrate a fraud upon his principal or some other person for his own
ultimate benefit.
(at pp. 652-653.)
In the present case, the position and title of Aromin alone, not to mention
the testimony and documentary evidence about his work, leave no doubt
that he had full authority to act for BPI in the questioned transaction. There
is no allegation of fraud, nor is there the least indication that Aromin was
acting for his own ultimate benefit. BPI later dismissed Aromin because it
appeared that a top official of the bank was personally interested in the
sale of the Pasig property and did not like Aromin's testimony. Aromin
was charged with poor performance but his dismissal was only sometime
after he testified in court. More than two long years after the disputed
transaction, he was still Assistant Vice-President of BPI.
The records show that the letter of instruction dated June 14, 1988 from
the owner of Philippine Remnants Co. regarding the sale of the firm's
property was addressed to Aromin. The P1,000.00 figure on the first page
of broker Revilla's authority to sell was changed to P1,100.00 by Aromin.
The price was later brought down again to P1,000.00, also by Aromin. The
permission given to petitioner to view the lot was signed by Aromin and
honored by the BPI guards. The letter dated July 9, 1988 from broker
Revilla informing BPI that he had a buyer was addressed to Aromin. The
conference on July 11, 1988 when the contract was perfected was with
Aromin and Vice-President Albano. Albano and Aromin were the ones
who assured petitioner Limketkai's officers that term payment was
possible. It was Aromin who called up Miguel Bicharra of Philippine
Remnants to state that the BPI rejected payment on terms and it was to
Aromin that Philippine Remnants gave the go signal to proceed with the
cash sale. Everything in the record points to the full authority of Aromin
to bind the bank, except for the self-serving memoranda or letters later
produced by BPI that Aromin was an inefficient and undesirable officer
and who, in fact, was dismissed after he testified in this case. But, of
course, Aromin's alleged inefficiency is not proof that he was not fully
clothed with authority to bind BPI.
Respondents' second contention is that there was no perfected contract
because petitioner's request to pay on terms constituted a counter-offer and
that negotiations were still in progress at that point.
Asst. Vice-President Aromin was subpoenaed as a hostile witness for
petitioner during trial. Among his statements is one to the effect that —
. . . Mr. Lim offered to buy the property at P900.00 per square meter while
Mr. Albano counter-offered to sell the property at P1,100.00 per square
meter but after the usual haggling, we finally agreed to sell the property at
the price of P1,000.00 per square meter . . .
(tsn, 12-3-90, p. 17; Emphasis supplied.) Q At the start, did they show their
willingness to pay in cash?
Asked if there was a meeting of the minds between the buyer and the bank
in respect to the price of P1,000.00 per square meter, Aromin answered: A Yes, sir.

Yes, sir, as far as my evaluation there was a meeting of the minds as far as Q You said that the agreement on terms
the price is concerned, sir. was to be submitted to the trust
committee for approval, are you telling
(ibid, p. 17.) the Court that what was to be approved
by the trust committee was the provision
The requirements in the payment of the purchase price on terms instead of on the payment on terms?
cash were suggested by BPI Vice-President Albano. Since the authority
given to broker Revilla specified cash payment, the possibility of paying A Yes, sir.
on terms was referred to the Trust Committee but with the mutual
agreement that "if the proposed payment on terms will not be approved by Q So the amount was no longer subject to
our Trust Committee, Limketkai should pay in cash . . . the amount was the approval or disapproval of the
no longer subject to the approval or disapproval of the Committee, it is committee, it is only on the terms?
only on the terms." (ibid, p. 19). This is incontrovertibly established in the
following testimony of Aromin: A Yes, sir.

A. After you were able to agree on the price of P1,000.00/sq. m., since the
letter or authority says the payment must be in cash basis, what transpired
later on?
B. After we have agreed on the price, the Lim brothers inquired on how to
go about submitting the covering proposal if they will be allowed to pay
on terms. They requested us to give them a guide on how to prepare the
corresponding letter of proposal. I recall that, upon the request of Mr.
Albino Limketkai, we dictated a guide on how to word a written firm offer
that was to be submitted by Mr. Lim to the bank setting out the terms of
payment but with the mutual agreement that if his proposed payment on
terms will not be approved by our trust committee, Limketkai should pay
the price in cash.Q And did buyer Limketkai agree to pay in cash in case
the offer of terms will be cash (disapproved).
(tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.)
The record shows that if payment was in cash, either broker Revilla or
Aromin had full authority. But because petitioner took advantage of the
suggestion of Vice-President Albano, the matter was sent to higher
officials. Immediately upon learning that payment on terms was frozen
and/or denied, Limketkai exercised his right within the period given to him
and tendered payment in full. The BPI rejected the payment.
In its Comment and Memorandum, respondent NBS cites Ang Yu
Asuncion vs. Court of Appeals (238 SCRA 602 [1994]) to bolster its case.
Contrarywise, it would seem that the legal principles found in said case
strengthen and support petitioner's submission that the contract was
perfected upon the meeting of the minds of the parties.

A Yes, sir.
The negotiation or preparation stage started with the authority given by
Philippine Remnants to BPI to sell the lot, followed by (a) the authority
given by BPI and confirmed by Philippine Remnants to broker Revilla to
sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the
property and finally (d) the negotiations with Aromin and Albano at the
BPI offices.
The perfection of the contract took place when Aromin and Albano, acting
for BPI, agreed to sell and Alfonso Lim with Albino Limketkai, acting for
petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per
square meter. Aside from this there was the earlier agreement between
petitioner and the authorized broker. There was a concurrence of offer and
acceptance, on the object, and on the cause thereof.
The phases that a contract goes through may be summarized as follows:
a. preparation, conception or generation, which is the
period of negotiation and bargaining, ending at the
moment of agreement of the parties;
b. perfection or birth of the contract, which is the moment
when the parties come to agree on the terms of the
contract; and
c. consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract
(Toyota Shaw, Inc. vs. Court of Appeals, G.R. No.
116650, May 23, 1995).
But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:
. . . A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the
time the prospective contracting parties indicate interest
in the contract to the time the contract is concluded
(perfected). The perfection of the contract takes place
upon the concurrence of the essential elements thereof. A
contract which is consensual as to perfection is so
established upon a mere meeting of minds, i.e., the
concurrence of offer and acceptance, on the object and on
the cause thereof. A contract which requires, in addition
to the above, the delivery of the object of the agreement,
as in a pledge or commodatum, is commonly referred to
as a real contract. In a solemn contract, compliance with
certain formalities prescribed by law, such as in a
donation of real property, is essential in order to make the
act valid, the prescribed form being thereby an essential
element thereof. The stage of consummation begins when
the parties perform their respective undertakings under
the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an
independent source of obligation, serve as a binding
juridical relation. In sales, particularly, to which the topic
for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller,
obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the
buyer, over which the latter agrees.
(238 SCRA 602; 611 [1994].)
In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]),
bearing factual antecendents similar to this case, the Court, through Justice
Aquino (later to be Chief Justice), quoting authorities, upheld the
perfection of the contract of sale thusly:
The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties
may reciprocally demand performance, subject to the
 provisions of the law governing the form of contracts.
(Art. 1475, Ibid.)
xxx xxx xxx
Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer (Art. 1319, Civil Code). "An acceptance
may be express or implied." (Art. 1320, Civil Code).
xxx xxx xxx
It is true that an acceptance may contain a request for
certain changes in the terms of the offer and yet be a
binding acceptance. "So long as it is clear that the
meaning of the acceptance is positively and unequivocally
to accept the offer, whether such request is granted or not,
a contract is formed." (Stuart vs. Franklin Life Ins. Co.,
105 Fed. 2nd 965, citing Sec. 79, Williston on Contracts).
xxx xxx xxx
. . . the vendor's change in a phrase of the offer to
purchase, which change does not essentially change the
terms of the offer, does not amount to a rejection of the
offer and the tender or a counter-offer. (Stuart vs. Franklin
Life Ins. Co., supra.)
(at pp. 362-363; 365-366.)
In the case at bench, the allegation of NBS that there was no concurrence
of the offer and acceptance upon the cause of the contract is belied by the
testimony of the very BPI official with whom the contract was perfected.
Aromin and Albano concluded the sale for BPI. The fact that the deed of
sale still had to be signed and notarized does not mean that no contract had
already been perfected. A sale of land is valid regardless of the form it may
have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119
[1991]). The requisite form under Article 1458 of the Civil Code is merely
for greater efficacy or convenience and the failure to comply therewith
does not affect the validity and binding effect of the act between the parties
(Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised
Edition, p. 552). If the law requires a document or other special form, as
in the sale of real property, the contracting parties may compel each other
to observe that form, once the contract has been perfected. Their right may
be exercised simultaneously with action upon the contract (Article
1359, Civil Code).
Regarding the admissibility and competence of the evidence adduced by
petitioner, respondent Court of Appeals ruled that because the sale
involved real property, the statute of frauds is applicable.
In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916])
wherein it was held that contracts infringing the Statute of Frauds are
ratified when the defense fails to object, or asks questions on cross-
examination. The succinct words of Justice Araullo still ring in judicial
cadence:
As no timely objection or protest was made to the admission of the
testimony of the plaintiff with respect to the contract; and as the motion to
strike out said evidence came too late; and, furthermore, as the defendants
themselves, by the cross-questions put by their counsel to the witnesses in
respect to said contract, tacitly waived their right to have it stricken out,
that evidence, therefore, cannot be considered either inadmissible or
illegal, and court, far from having erred in taking it into consideration and
basing his judgment thereon, notwithstanding the fact that it was ordered
to be stricken out during the trial, merely corrected the error he committed
in ordering it to be so stricken out and complied with the rules of procedure
hereinbefore cited.
(at p. 748.)
In the instant case, counsel for respondents cross-examined petitioner's
witnesses at length on the contract itself, the purchase price, the tender of
cash payment, the authority of Aromin and Revilla, and other details of
the litigated contract. Under the Abrenica rule (reiterated in a number of
cases, among them Talosig vs. Vda. de Nieba 43 SCRA 472 [1972]), even
assuming that parol evidence was initially inadmissible, the same became
competent and admissible because of the cross-examination, which
elicited evidence proving the evidence of a perfected contract. The cross-
examination on the contract is deemed a waiver of the defense of the
Statute of Frauds (Vitug, Compendium of Civil Law and Jurisprudence,
1993 Revised Edition, supra, p. 563).
The reason for the rule is that as pointed out in Abrenica "if the answers
of those witnesses were stricken out, the cross-examination could have no
object whatsoever, and if the questions were put to the witnesses and
answered by them, they could only be taken into account by connecting
them with the answers given by those witnesses on direct examination"
(pp. 747-748).
Moreover, under Article 1403 of the Civil Code, an exception to the
unenforceability of contracts pursuant to the Statute of Frauds is the
existence of a written note or memorandum evidencing the contract. The
memorandum may be found in several writings, not necessarily in one
document. The memorandum or memoranda is/are written evidence that
such a contract was entered into.
We cite the findings of the trial court on this matter:
In accordance with the provisions of Art. 1403 of the Civil Code, the
existence of a written contract of the sale is not necessary so long as the
agreement to sell real property is evidenced by a written note or
memorandum, embodying the essentials of the contract and signed by the
party charged or his agent. Thus, it has been held:
The Statute of Frauds, embodied in Article 1403 of the Civil Code of the
Philippines, does not require that the contract itself be written. The plain
test of Article 1403, Paragraph (2) is clear that a written note or
memorandum, embodying the essentials of the contract and signed by the
party charged, or his agent suffices to make the verbal agreement
enforceable, taking it out of the operation of the statute. (Emphasis
supplied)
xxx xxx xxx
In the case at bar, the complaint in its paragraph 3 pleads that the deal had
been closed by letter and telegram (Record on Appeal, p. 2), and the letter
referred to was evidently the one copy of which was appended as Exhibit
A to plaintiffs opposition to the motion to dismiss. The letter, transcribed
above in part, together with the one marked as Appendix B, constitute an
adequate memorandum of the transaction. They are signed by the
defendant-appellant; refer to the property sold as a Lot in Puerto Princesa,
Palawan, covered by T.C.T. No. 62, give its area as 1,825 square meters
and the purchase price of four (P4.00) pesos per square meter payable in
cash. We have in them, therefore, all the essential terms of the contract and
they satisfy the requirements of the Statute of Frauds.
While there is no written contract of sale of the Pasig property executed
by BPI in favor of plaintiff, there are abundant notes and memoranda
extant in the records of this case evidencing the elements of a perfected
contract. There is Exhibit P, the letter of Kenneth Richard Awad addressed
to Roland Aromin, authorizing the sale of the subject property at the price
of P1,000.00 per square meter giving 2% commission to the broker and
instructing that the sale be on cash basis. Concomitantly, on the basis of
the instruction of Mr. Awad, (Exh. P), an authority to sell, (Exh. B) was
issued by BPI to Pedro Revilla, Jr., representing Assetrade Co.,
authorizing the latter to sell the property at the initial quoted price of
P1,000.00 per square meter which was altered on an unaccepted offer by
Technoland. After the letter authority was issued to Mr. Revilla, a letter
authority was signed by Mr. Aromin allowing the buyer to enter the
premises of the property to inspect the same (Exh. C). On July 9, 1988,
Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to BPI informing
it that he had procured a buyer in the name of Limketkai Sons Milling, Inc.
with offices at Limketkai Bldg., Greenhills, San Juan, Metro Manila,
represented by its Exec. Vice-President, Alfonso Lim (Exh. D). On July
11, 1988, the plaintiff, through Alfonso Lim, wrote a letter to the bank,
through Merlin Albano, confirming their transaction regarding the
purchase of the subject property (Exh. E). On July 18, 1988, the plaintiff
tendered upon the officials of the bank a check for P33,056,000.00 covered
by Check No. CA510883, dated July 18, 1988. On July 1, 1988, Alfonso
Zamora instructed Mr. Aromin in a letter to resubmit new offers only if
there is no transaction closed with Assetrade Co. (Exh. S). Combining all
these notes and memoranda, the Court is convinced of the existence of
perfected contract of sale. Aptly, the Supreme Court, citing American
cases with approval, held:
No particular form of language or instrument is necessary to constitute a
memorandum or note in writing under the statute of frauds; any document
or writing, formal or informal, written either for the purpose of furnishing
evidence of the contract or for another purpose, which satisfies all the
requirements of the statute as to contents and signature, as discussed
respectively infra secs. 178-200, and infra secs. 201-205, is a sufficient
memorandum or note. A memorandum may be written as well with lead
pencil as with pen and ink. It may also be filled in on a printed form. (37
C.J.S., 653-654).
The note or memorandum required by the statute of frauds need not be
contained in a single document, nor, when contained in two or more
papers, need each paper be sufficient as to contents and signature to satisfy
the statute. Two or more writings properly connected may be considered
together, matters missing or uncertain in one may be supplied or rendered
certain by another, and their sufficiency will depend on whether, taken
together, they meet the requirements of the statute as to contents and the
requirements of the statutes as to signature, as considered
respectively infra secs. 179-200 and secs. 201-215.
(pp. 460-463, Original RTC Record).
The credibility of witnesses is also decisive in this case. The trial court
directly observed the demeanor and manner of testifying of the witnesses
while the Court of Appeals relied merely on the transcript of stenographic
notes.
In this regard, the court of origin had this to say:
Apart from weighing the merits of the evidence of the parties, the Court
had occasion to observe the demeanor of the witnesses they presented.
This is one important factor that inclined the Court to believe in the version
given by the plaintiff because its witnesses, including hostile witness
Roland V. Aromin, an assistant vice-president of the bank, were
straightforward, candid and unhesitating in giving their respective
testimonies. Upon the other hand, the witnesses of BPI were evasive, less
than candid and hesitant in giving their answers to cross examination
questions. Moreover, the witnesses for BPI and NBS contradicted each
other. Fernando Sison III insisted that the authority to sell issued to Mr.
Revilla was merely an evidence by which a broker may convince a
prospective buyer that he had authority to offer the property mentioned
therein for sale and did not bind the bank. On the contrary, Alfonso
Zamora, a Senior Vice-President of the bank, admitted that the authority
to sell issued to Mr. Pedro Revilla, Jr. was valid, effective and binding
upon the bank being signed by two class "A" signatories and that the bank
cannot back out from its commitment in the authority to sell to Mr. Revilla.
While Alfredo Ramos of NBS insisted that he did not know personally and
was not acquainted with Edmundo Barcelon, the latter categorically
admitted that Alfredo Ramos was his friend and that they have even
discussed in one of the luncheon meetings the matter of the sale of the
Pasig property to NBS. George Feliciano emphatically said that he was not
a consultant of Mr. Ramos nor was he connected with him in any manner,
but his calling card states that he was a consultant to the chairman of the
Pacific Rim Export and Holdings Corp. whose chairman is Alfredo
Ramos. This deliberate act of Mr. Feliciano of concealing his being a
consultant to Mr. Alfredo Ramos evidently was done by him to avoid
possible implication that he committed some underhanded maneuvers in
manipulating to have the subject property sold to NBS, instead of being
sold to the plaintiff.
On the matter of credibility of witnesses where the findings or conclusions
of the Court of Appeals and the trial court are contrary to each other, the
pronouncement of the Court in Serrano vs. Court of Appeals (196 SCRA
107 [1991]) bears stressing:
It is a settled principle of civil procedure that the conclusions of the trial
court regarding the credibility of witnesses are entitled to great respect
from the appellate courts because the trial court had an opportunity to
observe the demeanor of witnesses while giving testimony which may
indicate their candor or lack thereof. While the Supreme Court ordinarily
does not rule on the issue of credibility of witnesses, that being a question
of fact not properly raised in a petition under Rule 45, the Court has
undertaken to do so in exceptional situations where, for instance, as here,
the trial court and the Court of Appeals arrived at divergent conclusions
on questions of fact and the credibility of witnesses.
On the fourth question of whether or not NBS is an innocent purchaser for
value, the record shows that it is not. It acted in bad faith.
Respondent NBS ignored the notice of lis pendens annotated on the title
when it bought the lot. It was the willingness and design of NBS to buy
property already sold to another party which led BPI to dishonor the
contract with Limketkai.
Petitioner cites several badges of fraud indicating that BPI and NBS
conspired to prevent petitioner from paying the agreed price and getting
possession of the property:
1. The sale was supposed to be done through an authorized broker, but top
officials of BPI personally and directly took over this particular sale when
a close friend became interested.
2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's
President, Alfredo Ramos, was his friend; that they had lunch meetings
before this incident and discussed NBS's purchase of the lot. Barcelon's
father was a business associate of Ramos.
3. George Feliciano, in behalf of NBS, offered P5 million and later P7
million if petitioner would drop the case and give up the lot. Feliciano went
to petitioner's office and haggled with Alfonso Lim but failed to convince
him inspite of various and increasing offers.
4. In a place where big and permanent buildings abound, NBS had
constructed only a warehouse marked by easy portability. The warehouse
is bolted to its foundations and can easily be dismantled.
It is the very nature of the deed of absolute sale between BPI and NBS
which, however, clearly negates any allegation of good faith on the part of
the buyer. Instead of the vendee insisting that the vendor guarantee its title
to the land and recognize the right of the vendee to proceed against the
vendor if the title to the land turns out to be defective as when the land
belongs to another person, the reverse is found in the deed of sale between
BPI and NBS. Any losses which NBS may incur in the event the title turns
out to be vested in another person are to be borne by NBS alone. BPI is
expressly freed under the contract from any recourse of NBS against it
should BPI's title be found defective.
NBS, in its reply memorandum, does not refute or explain the above
circumstance squarely. It simply cites the badges of fraud mentioned
in Oria vs. McMicking (21 Phil. 243 [1912]) and argues that the
enumeration there is exclusive. The decision in said case plainly states "the
following are some of the circumstances attending sales which have been
denominated by courts (as) badges of fraud." There are innumerable
situations where fraud is manifested. One enumeration in a 1912 decision
cannot possibly cover all indications of fraud from that time up to the
present and into the future.
The Court of Appeals did not discuss the issue of damages. Petitioner cites
the fee for filing the amended complaint to implead NBS, sheriffs fees,
registration fees, plane fare and hotel expenses of Cebu-based counsel.
Petitioner also claimed, and the trial court awarded, damages for the profits
and opportunity losses caused to petitioner's business in the amount of
P10,000,000.00.

We rule that the profits and the use of the land which were denied to
petitioner because of the non-compliance or interference with a solemn
obligation by respondents is somehow made up by the appreciation in land
values in the meantime.

Prescinding from the above, we rule that there was a perfected contract
between BPI and petitioner Limketkai; that the BPI officials who
transacted with petitioner had full authority to bind the bank; that the
evidence supporting the sale is competent and admissible; and that the sale
of the lot to NBS during the trial of the case was characterized by bad faith.

WHEREFORE, the questioned judgment of the Court of Appeals is hereby

REVERSED and SET ASIDE. The June 10, 1991 judgment of Branch 151
of the Regional Trial Court of The National Capital Judicial Region
stationed in Pasig, Metro Manila is REINSTATED except for the award
of Ten Million Pesos (P10,000,000.00) damages which is hereby
DELETED.

SO ORDERED.
 Before us is a Petition for Review seeking to set aside the July 30, 1998
Decision of the Court of Appeals (CA) in CA-G.R. CV No. 38580,1 which
affirmed the judgment2 of the Regional Trial Court (RTC) of Cebu City.
The CA ruled:

WHEREFORE, [there being] no error in the appealed decision,

the same is hereby AFFIRMED in toto.3

The decretal portion of the trial court Decision reads as follows:

WHEREFORE, in view of all the foregoing [evidence] and

considerations, this court hereby finds the preponderance of
evidence to be in favor of the defendant Gerarda Selma as
judgment is rendered:

1. Dismissing this Complaint for Quieting of title, Cancellation of

Certificate of Title of Gerarda vda. de Selma and damages,
G.R. No. 136021 February 22, 2000
2. Ordering the plaintiffs to vacate the premises in question and
BENIGNA SECUYA, MIGUEL SECUYA, MARCELINO SECUYA,
turn over the possession of the same to the defendant Gerarda
CORAZON SECUYA, RUFINA SECUYA, BERNARDINO
Selma;
SECUYA, NATIVIDAD SECUYA, GLICERIA SECUYA and
PURITA SECUYA, petitioners,
vs. 3. Requiring the plaintiffs to pay defendant the sum of P20,000 as
GERARDA M. VDA. DE SELMA, respondent. moral damages, according to Art. 2217, attorney's fees of
P15,000.00, litigation expenses of P5,000.00 pursuant to Art.
2208 No. 11 and to pay the costs of this suit.1âwphi1.nêt
PANGANIBAN, J.:

In action for quieting of title, the plaintiff must show not only that there is SO ORDERED.4
a cloud or contrary interest over the subject real property, but that the have
a valid title to it. In the present case, the action must fail, because Likewise challenged is the October 14, 1998 CA Resolution which denied
petitioners failed to show the requisite title. petitioners' Motion for Reconsideration.5

The Case The Facts

The present Petition is rooted in an action for quieting of title filed before
the RTC by Benigna, Miguel, Marcelino, Corazon, Rufina, Bernardino,
Natividad, Gliceria and Purita — all surnamed Secuya — against Gerarda
M. vda. de Selma. Petitioners asserted ownership over the disputed parcel
of land, alleging the following facts:
xxx xxx xxx
8. The parcel of land subject of this case is a PORTION of Lot 5679 of the
Talisay-Minglanilla Friar Lands Estate, referred to and covered [o]n Page
279, Friar Lands Sale Certificate Register of the Bureau of Lands (Exh.
"K"). The property was originally sold, and the covering patent issued, to
Maxima Caballero Vda. de Cariño (Exhs. "K-1"; "K-2). Lot 5679 has an
area of 12,750 square meters, more or less;
9. During the lifetime of Maxima Caballero, vendee and patentee of Lot
5679, she entered into that AGREEMENT OF PARTITION dated January
5, 1938 with Paciencia Sabellona, whereby the former bound herself and
parted [with] one-third (1/3) portion of Lot 5679 in favor of the latter (Exh.
"D"). Among others it was stipulated in said agreement of partition that
the said portion of one-third so ceded will be located adjoining the
municipal road (par. 5. Exh "D");
10. Paciencia Sabellona took possession and occupation of that one-third
portion of Lot 5679 adjudicated to her. Later, she sold the three thousand
square meter portion thereof to Dalmacio Secuya on October 20, 1953, for
a consideration of ONE THOUSAND EIGHT HUNDRED FIFTY PESOS
(P1,850.00), by means of a private document which was lost (p. 8, tsn.,
8/8/89-Calzada). Such sale was admitted and confirmed by Ramon
Sabellona, only heir of Paciencia Sabellona, per that instrument
denominated CONFIRMATION OF SALE OF UNDIVIDED SHARES,
dated September 28, 1976(Exh. "B");
11. Ramon Sabellona was the only [or] sole voluntary heir of Paciencia
Sabellona, per that KATAPUSAN NGA KABUT-ON UG PANUGON NI
PACIENCIA SABELLONA (Last Will and Testament of Paciencia
Sabellona), dated July 9, 1954, executed and acknowledged before Notary
Public Teodoro P. Villarmina (Exh. "C"). Pursuant to such will, Ramon
Sabellona inherited all the properties left by Paciencia Sabellona;
12. After the purchase [by] Dalmacio Secuya, predecessor-in interest of
plaintiffs of the property in litigation on October 20, 1953, Dalmacio,
together with his brothers and sisters — he being single — took physical
possession of the land and cultivated the same. In 1967, Edilberto
Superales married Rufina Secuya, niece of Dalmacio Secuya. With the
permission and tolerance of the Secuyas, Edilberto Superales constructed
his house on the lot in question in January 1974 and lived thereon
continuously up to the present (p. 8., tsn 7/25/88 — Daclan). Said house
is inside Lot 5679-C-12-B, along lines 18-19-20 of said lot, per
Certification dated August 10, 1985, by Geodetic Engineer Celestino R.
Orozco (Exh. "F");
13. Dalmacio Secuya died on November 20, 1961. Thus his heirs —
brothers, sisters, nephews and nieces — are the plaintiffs in Civil Case No.
CEB-4247 and now the petitioners;
14. In 1972, defendant-respondent Gerarda Selma bought a 1,000 square-
meter portion of Lot 5679, evidenced by Exhibit "P". Then on February
19, 1975, she bought the bigger bulk of Lot 5679, consisting of 9,302
square meters, evidenced by that deed of absolute sale, marked as Exhibit
"5". The land in question, a 3,000-square meter portion of Lot 5679, is
embraced and included within the boundary of the later acquisition by
respondent Selma;
15. Defendant-respondent Gerarda Selma lodged a complaint, and had the
plaintiffs-petitioners summoned, before the Barangay Captain of the place,
and in the confrontation and conciliation proceedings at the Lupong
Tagapayapa, defendant-respondent Selma was asserting ownership over
the land inherited by plaintiffs-petitioners from Dalmacio Secuya of which
they had long been in possession . . . in concept of owner. Such claim of
defendant-respondent Selma is a cloud on the title of plaintiffs-petitioners,
hence, their complaint (Annex "C").6
Respondent Selma's version of the facts, on the other hand, was
summarized by the appellate court as follows:
She is the registered owner of Lot 5679-C-120 consisting of 9,302 square
meters as evidenced by TCT No. T-35678 (Exhibit "6", Record, p. 324),
having bought the same sometime in February 1975 from Cesaria
Caballero as evidenced by a notarized Deed of Sale (Exhibit "5", Record,
p. 323) and ha[ve] been in possession of the same since then. Cesaria
Caballero was the widow of Silvestre Aro, registered owner of the mother
lot, Lot. No. 5679 with an area of 12,750 square meters of the Talisay-
Minglanilla Friar Lands Estate, as shown by Transfer Certificate of Title
No. 4752 (Exhibit "10", Record, p. 340). Upon Silvestre Aro's demise, his
heirs executed an "Extrajudicial Partition and Deed of Absolute Sale"
(Exhibit "11", Record, p. 341) wherein one-half plus one-fifth of Lot No.
5679 was adjudicated to the widow, Cesaria Caballero, from whom
defendant-appellee derives her title.7
The CA Ruling
In affirming the trial court's ruling, the appellate court debunked
petitioners' claim of ownership of the land and upheld Respondent Selma's
title thereto. It held that respondent's title can be traced to a valid TCT. On
the other hand, it ruled that petitioners anchor their claim on an
"Agreement of Partition" which is void for being violative of the Public
Land Act. The CA noted that the said law prohibited the alienation or
encumbrance of land acquired under a free patent or homestead patent, for
a period of five years from the issuance of the said patent.
Hence, this Petition.8
The Issues
In their Memorandum, petitioners urge the Court to resolve the following
questions:
1. Whether or not there was a valid transfer or conveyance of one-third
(1/3) portion of Lot 5679 by Maxima Caballero in favor of Paciencia
Sabellona, by virtue of [the] Agreement of Partition dated January 5,
1938[;] and
2. Whether or not the trial court, as well as the court, committed grave
abuse of discretion amounting to lack of jurisdiction in not making a
finding that respondent Gerarda M. vda. de Selma [was] a buyer in bad
faith with respect to the land, which is a portion of Lot 5679.9
For a clearer understanding of the above matters, we will divide the issues
into three: first, the implications of the Agreement of Partition; second, the
validity of the Deed of Confirmation of Sale executed in favor of the
petitioners; and third, the validity of private respondent's title.
The Court's Ruling
The Petition fails to show any reversible error in the assailed Decision.
Preliminary Matter:
The Action for Quieting of Title
In an action to quiet title, the plaintiffs or complainants must demonstrate
a legal or an equitable title to, or an interest in, the subject real
property.10 Likewise, they must show that the deed, claim, encumbrance
or proceeding that purportedly casts a cloud on their title is in fact invalid
or inoperative despite its prima facie appearance of validity or legal
efficacy.11 This point is clear from Article 476 of the Civil Code, which
reads:
Whenever there is cloud on title to real property or any interest therein, by
reason of any instrument, record, claim, encumbrance or proceeding which
is apparently valid or effective but is in truth and in fact invalid,
ineffective, voidable or unenforceable, and may be prejudicial to said title,
an action may be brought to remove such cloud or to quiet title.
An action may also be brought to prevent a cloud from being cast upon
title to real property or any interest therein.
In the case at bar, petitioners allege that TCT No. 5679-C-120, issued in
the name of Private Respondent Selma, is a cloud on their title as owners
and possessors of the subject property, which is a 3,000 —square-meter
portion of Lot No. 5679-C-120 covered by the TCT. But the underlying
question is, do petitioners have the requisite title that would enable them
to avail themselves of the remedy of quieting of title?
Petitioners anchor their claim of ownership on two documents: the
Agreement of Partition executed by Maxima Caballero and Paciencia
Sabellona and the Deed of Confirmation of Sale executed by Ramon
Sabellona. We will now examine these two documents.
First Issue:
The Real Nature of the "Agreement of Partition"
The duly notarized Agreement of Partition dated January 5, 1938; is
worded as follows:
AGREEMENT OF PARTITION
I, MAXIMA CABALLERO, Filipina, of legal age, married to Rafael
Cariño, now residing and with postal address in the Municipality of
Dumaguete, Oriental Negros, depose the following and say:
1. That I am the applicant of vacant lot No. 5679 of the Talisay-Minglanilla
Estate and the said application has already been indorsed by the District
Land Officer, Talisay, Cebu, for private sale in my favor;
2. That the said Lot 5679 was formerly registered in the name of Felix
Abad y Caballero and the sale certificate of which has already been
cancelled by the Hon. Secretary of Agriculture and Commerce;
3. That for and in representation of my brother, Luis Caballero, who is
now the actual occupant of said lot I deem it wise to have the said lot paid
by me, as Luis Caballero has no means o[r] any way to pay the
government;
4. That as soon as the application is approved by the Director of Lands,
Manila, in my favor, I hereby bind myself to transfer the one-third (l/3)
portion of the above mentioned lot in favor of my aunt, Paciencia
Sabellana y Caballero, of legal age, single, residing and with postal
address in Tungkop, Minglanilla, Cebu. Said portion of one-third (1/3) will
be subdivided after the approval of said application and the same will be
paid by her to the government [for] the corresponding portion.
5. That the said portion of one-third (1/3) will be located adjoining the
municipal road;
6. I, Paciencia Sabellana y Caballero, hereby accept and take the portion
herein adjudicated to me by Mrs. Maxima Caballero of Lot No. 5679
Talisay-Minglanilla Estate and will pay the corresponding portion to the
government after the subdivision of the same;
IN WITNESS WHEREOF, we have hereunto set our hands this
5th day of January, 1988, at Talisay, Cebu."12
The Agreement: An Express Trust, Not a Partition
Notwithstanding its purported nomenclature, this Agreement is not one of
partition, because there was no property to partition and the parties were
not co-owners. Rather, it is in the nature of a trust agreement.
Trust is the right to the beneficial enjoyment of property, the legal title to
which is vested in another. It is a fiduciary relationship that obliges the
trustee to deal with the property for the benefit of the beneficiary.13 Trust
relations between parties may either be express or implied. An express
trust is created by the intention of the trustor or of the parties. An implied
trust comes into being by operation of law.14
The present Agreement of Partition involves an express trust. Under
Article 1444 of the Civil Code, "[n]o particular words are required for the
creation of an express trust, it being sufficient that a trust is clearly
intended." That Maxima Caballero bound herself to give one third of Lot
No. 5629 to Paciencia Sabellona upon the approval of the former's
application is clear from the terms of the Agreement. Likewise, it is
evident that Paciencia acquiesced to the covenant and is thus bound to
fulfill her obligation therein.
As a result of the Agreement, Maxima Caballero held the portion specified
therein as belonging to Paciencia Sabellona when the application was
eventually approved and a sale certificate was issued in her name.15 Thus,
she should have transferred the same to the latter, but she never did so
during her lifetime. Instead, her heirs sold the entire Lot No. 5679 to
Silvestre Aro in 1955.
From 1954 when the sale certificate was issued until 1985 when petitioners
filed their Complaint, Paciencia and her successors-in-interest did not do
anything to enforce their proprietary rights over the disputed property or
to consolidate their ownership over the same. In fact, they did not even
register the said Agreement with the Registry of Property or pay the
requisite land taxes. While petitioners had been doing nothing, the
disputed property, as part of Lot No. 5679, had been the subject of several
sales transactions16 and covered by several transfer certificates of title.
The Repudiation of the Express Trust
While no time limit is imposed for the enforcement of rights under express
trusts,17 prescription may, however, bar a beneficiary's action for recovery,
if a repudiation of the trust is proven by clear and convincing evidence and
made known to the beneficiary.18
There was a repudiation of the express trust when the heirs of Maxima
Caballero failed to deliver or transfer the property to Paciencia Sabellona,
and instead sold the same to a third person not privy to the Agreement. In
the memorandum of incumbrances of TCT No. 308719 issued in the name
of Maxima, there was no notation of the Agreement between her and
Paciencia. Equally important, the Agreement was not registered; thus, it
could not bind third persons. Neither was there any allegation that
Silvestre Aro, who purchased the property from Maxima's heirs, knew of
it. Consequently, the subsequent sales transactions involving the land in
dispute and the titles covering it must be upheld, in the absence of proof
that the said transactions were fraudulent and irregular.
Second Issue:
The Purported Sale to Dalmacio Secuya
Even granting that the express trust subsists, petitioners have not proven
that they are the rightful successors-in-interest of Paciencia Sabellona.
The Absence of the Purported Deed of Sale
Petitioners insist that Paciencia sold the disputed property to Dalmacio
Secuya on October 20, 1953, and that the sale was embodied in a private
document. However, such document, which would have been the best
evidence of the transaction, was never presented in court, allegedly
because it had been lost. While a sale of a piece of land appearing in a
private deed is binding between the parties, it cannot be considered
binding on third persons, if it is not embodied in a public instrument and
recorded in the Registry of Property.20
Moreover, while petitioners could not present the purported deed
evidencing the transaction between Paciencia Sabellona and Dalmacio
Secuya, petitioners' immediate predecessor-in-interest, private respondent
in contrast has the necessary documents to support her claim to the
disputed property.
The Questionable Value of the Deed
Executed by Ramon Sabellona
To prove the alleged sale of the disputed property to Dalmacio, petitioners
instead presented the testimony of Miguel Secuya, one of the petitioners;
and a Deed21 confirming the sale executed by Ramon Sabellona,
Paciencia's alleged heir. The testimony of Miguel was a bare assertion that
the sale had indeed taken place and that the document evidencing it had
been destroyed. While the Deed executed by Ramon ratified the
transaction, its probative value is doubtful. His status as heir of Paciencia
was not affirmatively established. Moreover, he was not presented in court
and was thus not quizzed on his knowledge — or lack thereof — of the
1953 transaction.
Petitioners' Failure to Exercise Owners'
Rights to the Property
Petitioners insist that they had been occupying the disputed property for
forty-seven years before they filed their Complaint for quieting of title.
However, there is no proof that they had exercised their rights and duties
as owners of the same. They argue that they had been gathering the fruits
of such property; yet, it would seem that they had been remiss in their duty
to pay the land taxes. If petitioners really believed that they owned the
property, they have should have been more vigilant in protecting their
rights thereto. As noted earlier, they did nothing to enforce whatever
proprietary rights they had over the disputed parcel of land.
Third Issue:
The Validity of Private Respondent's Title
Petitioners debunk Private Respondent Selma's title to the disputed
property, alleging that she was aware of their possession of the disputed
properties. Thus, they insist that she could not be regarded as a purchaser
in good faith who is entitled to the protection of the Torrens system.
Indeed, a party who has actual knowledge of facts and circumstances that
would move a reasonably cautious man to make an inquiry will not be
protected by the Torrens system. In Sandoval v. Court of Appeals,22 we
held:
It is settled doctrine that one who deals with property registered
under the Torrens system need not go beyond the same, but only
has to rely on the title. He is charged with notice only of such
burdens and claims as are annotated on the title.
The aforesaid principle admits of an unchallenged exception: that
a person dealing with registered land has a right to rely on the
Torrens certificate of title and to dispense without the need of
inquiring further except when the party has actual knowledge of
facts and circumstances that would impel a reasonably cautious
man to make such inquiry, or when the purchaser has knowledge
of a defect or the lack of title in his vendor or of sufficient facts to
induce a reasonably prudent man to inquire into the status of title
of the property in litigation. The presence of anything which
excites or arouses suspicion should then prompt the vendee to look
beyond the certificate and investigate the title of the vendor
appearing on the face of the certificate. One who falls within the
exception can neither be denominated an innocent purchaser for
value purchaser in good faith; and hence does not merit the
protection of the law.
Granting arguendo that private respondent knew that petitioners, through
Superales and his family, were actually occupying the disputed lot, we
must stress that the vendor, Cesaria Caballero, assured her that petitioners
were just tenants on the said lot. Private respondent cannot be faulted for
believing this representation, considering that petitioners' claim was not
noted in the certificate of the title covering Lot No. 5679.
Moreover, the lot, including the disputed portion, had been the subject of
several sales transactions. The title thereto had been transferred several
times, without any protestation or complaint from the petitioners. In any
case, private respondent's title is amply supported by clear evidence, while
petitioners' claim is barren of proof.
Clearly, petitioners do not have the requisite title to pursue an action for Surallah, South Cotabato and the Resolution dated May 26, 1992, denying
quieting of title.1âwphi1.nêt the subsequent motion for reconsideration.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision Quoting from the decision of the Court of Appeals, the antecedent facts
AFFIRMED. Costs against petitioners. are as follows:

SO ORDERED. On October 23, 1953, the late Ernesto Biona, married to plaintiff-appellee
Soledad Biona, was awarded Homestead Patent No. V-840 over the
property subject of this suit, a parcel of agricultural land denominated as
lot 177 of PLS-285-D, located in Bo. 3, Banga, Cotabato, containing an
area of ten (10) hectares, forty-three (43) acres and sixty-eight (68)
centares, Original Certificate of Title No. (V-2323) P-3831 was issued in
his name by the Register of Deeds of Cotabato (Exh. C). On June 3, 1954,
Ernesto and Soledad Biona obtained a loan from the then Rehabilitation
Finance Corporation (now the Development Bank of the Philippines) and
put up as collateral the subject property (Exh. 4). On June 12, 1956,
Ernesto Biona died (Exh. B) leaving as his heirs herein plaintiffs-
G.R. No. 105647* July 31, 2001
appellees, namely, his wife, Soledad Estrobillo Vda. De Biona, and five
daughters, Editha B. Blancaflor, Marianita B. de Jesus, Vilma B.
Blancaflor, Elsie B. Ramos and Perlita B. Carmen.

On March 1, 1960, plaintiff-appellee Soledad Biona obtained a loan from

HEIRS OF ERNESTO BIONA, NAMELY: EDITHA B. defendant-appellant in the amount of P1,000 and as security therefore, the
BLANCAFLOR, MARIANITA D. DE JESUS, VILMA B. subject property was mortgaged. It was further agreed upon by the
BLANCAFLOR, ELSIE B. RAMOS and PERLITA B. CARMEN, contracting parties that for a period of two years until the debt is paid,
petitioners, defendant-appellant shall occupy the land in dispute and enjoy the usufruct
vs. thereof.
THE COURT OF APPEALS and LEOPOLDO
HILAJOS, respondents.
The two-year period elapsed but Soledad Biona was not able to pay her
indebtedness. Defendant-appellant continued occupying and cultivating
KAPUNAN, J.: the subject property without protest from plaintiffs-appellees.

Before us is a petition for review on certiorari under Rule 45 of the On July 3, 1962, defendant-appellant paid the sum of P1,400.00 to the
Decision of the Court of Appeals dated March 31, 1992, reversing the Development Bank of the Philippines to cancel the mortgage previously
decision of the Regional Trial Court, 11th Judicial region, Branch 26, constituted by the Biona spouses on June 3, 1953 (Exhs. 4 and 6).
Thereafter, and for a period of not less than twenty-five years, defendant-
appellant continued his peaceful and public occupation of the property,
declaring it in his name for taxation purposes (Exhs. 10 and 11), paying
real estate property taxes thereon (Exhs. 12, 13, 13-a to 13-e, F, G, H and
I), and causing the same to be tenanted (Exhs. 7, 8, 9).
On June 19, 1985, plaintiffs-appellees, filed a complaint for recovery of
ownership, possession, accounting and damages, with a prayer for a writ
of preliminary mandatory injunction and/ or restraining order against
defendant-appellant alleging, among others, that the latter had unlawfully
been depriving them of the use, possession and enjoyment of the subject
property; that the entire parcel of land, which was devoted and highly
suited to palay and corn, was yielding three harvests annually, with an
average of one hundred twenty (120) sacks of corn and eighty cavans of
rice per hectare; that plaintiffs-appellees were deprived of its total produce
amounting to P150,000.00. Plaintiffs-appellees prayed for the award of
moral damages in the sum of P50,000.00, exemplary damages in the
amount of P20,000,00 and litigation expenses in the amount of P2,000.00.
On September 19, 1986, defendant-appellant filed his answer with
counterclaim traversing the material allegations in the complaint and
alleging, by way of affirmative and special defenses, that: on September
11, 1961, Soledad Biona, after obtaining the loan of P1,000.00 from
defendant-appellant, approached and begged the latter to buy the whole of
Lot No. 177 since it was then at the brink of foreclosure by the
Development Bank of the Philippines and she had no money to redeem the
same nor the resources to support herself and her five small children; that
defendant-appellant agreed to buy the property for the amount of
P4,300.00, which consideration was to include the redemption price to be
paid to the Development Bank of the Philippines; that the purchase price
paid by defendant far exceeded the then current market value of the
property and defendant had to sell his own eight-hectare parcel of land in
Surallah to help Soledad Biona; that to evidence the transaction, a deed of
sale was handwritten by Soledad Biona and signed by her and the
defendant; that at the time of the sale, half of the portion of the property
was already submerged in water and from the years 1969 to 1984, two and
one-half hectares thereof were eroded by the Allah River; that by virtue of
his continuous and peaceful occupation of the property from the time of
its sale and for more than twenty- five years thereafter, defendant
possesses a better right thereto subject only to the rights of the tenants
whom he had allowed to cultivate the land under the Land Reform
Program of the government; that the complaint states no cause of action;
that plaintiff's alleged right, if any, is barred by the statutes of fraud. As
counterclaim, defendant-appellant prayed that plaintiffs-appellees be
ordered to execute a formal deed of sale over the subject property and to
pay him actual, moral and exemplary damages as the trial court may deem
proper. He likewise prayed for the award of attorney's fees in the sum of
P10,000.00.
During the hearing of the case, plaintiffs-appellees presented in evidence
the testimonies of Editha Biona Blancaflor and Vilma Biona Blancaflor,
and documentary exhibits A to G and their submarkings.
Defendant-appellant, for his part, presented the testimonies of himself and
Mamerto Famular, including documentary exhibits 1 to 13, F, G, H, I, and
their submarkings.1
On January 31, 1990, the RTC rendered a decision with the following
dispositive portion:
I (SIC) VIEW OF THE FOREGOING, decision is hereby rendered:
1. ordering the defendant to vacate possession of the lot in question to the
extent of six-tenths (6/10) of the total area thereof and to deliver the same
to the plaintiff Soledad Estrobillo Biona upon the latter's payment of the
sum of P1,000.00 TO THE FORMER IN REDEMPTION OF ITS
MORTGAGE CONSTITUTED UNDER exh. "1" of defendant;
2. ordering the defendant to vacate the possession of the remaining four-
tenths (4/10) of the area of the lot in question, representing the shares of
the children of the late Ernesto Biona and deliver the same to said
plaintiffs; the defendant shall render an accounting of the net produce of
the area ordered returned to the co-plaintiffs of Soledad Biona
commencing from the date of the filing of the complaint until possession
thereto has been delivered to said co-plaintiffs and to deliver or pay 25%
of said net produce to said co-plaintiffs;
3. ordering the defendant to pay the costs of this suit.
The defendant's counter-claim are dismissed for lack of merit.
SO ORDERED.2
Dissatisfied, herein private respondent appealed to the Court of Appeals
which reversed the trial court's ruling. The dispositive portion reads as
follows:
WHEREFORE, premises considered, the judgment appealed from
is set aside and a new one entered dismissing the complaint, and
the plaintiffs-appellees are ordered to execute a registrable deed
of conveyance of the subject property in favor of the defendant-
appellant within ten (10) days from the finality of this decision.
With costs against plaintiffs-appellees.3
Hence, the instant petition where the following assignment of errors were
made:
I. - RESPONDENT COURT OF APPEALS ERRED IN
CONCLUDING THAT THE SIGNATURE OF SOLEDAD
ESTROBILLO IN THE DEED OF SALE (EXHIBIT "2"), A
PRIVATE DOCUMENT, IS GENUINE.
II - RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE DEED OF SALE (EXHIBIT 2) IS
VALID AND COULD LEGALLY CONVEY TO PRIVATE
RESPONDENT OWNERSHIP AND TITLE OVER THE
SUBJECT PROPERTY.
III - RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT HEREIN PETITIONERS HAD LOST THEIR
RIGHT TO RECOVER THE SUBJECT PROPERTY BY
VIRTUE OF THE EQUITABLE PRINCIPLE OF LACHES.
IV - RESPONDENT COURT OF APPEALS ERRED IN NOT
HOLDING THAT PRIVATE RESPONDENT'S RIGHT OF
ACTION UNDER THE DEED OF SALE (EXHIBIT "2") HAD
PRESCRIBED.4
As correctly pointed out by the Court of Appeals, the pivotal issue in the
instant case is whether or not the deed of sale is valid and if it effectively
conveyed to the private respondents the subject property.
In ruling in favor of the petitioners, the trial court refused to give weight
to the evidence of private respondent which consisted of (1) the
handwritten and unnotarized deed of sale executed by Soledad Biona in
favor of the private respondent; and (2) the corresponding
acknowledgment receipt of the amount of P3,500.00 as partial payment
for the land in dispute. To the mind of the trial court, the signature of
Soledad Biona on the deed of sale was not genuine. There was no direct
evidence to prove that Soledad Biona herself signed the document.
Moreover, the deed of sale was not notarized and therefore, did not convey
any rights to the vendee. The trial court also ruled that petitioners' rights
over the land have not allegedly prescribed.
On the other hand, the respondent Court of Appeals accepted as genuine
the deed of sale (Exh. 2) which "sets forth in unmistakable terms that
Soledad Biona agreed for the consideration of P4,500.00, to transfer to
defendant-appellant Lot 177. The fact that payment was made is evidenced
by the acknowledgment receipt for P3,500.00 (Exh. 3) signed by Soledad
Biona, and private respondent previous delivery of P1,000.00 to her
pursuant to the Mutual Agreement (Exh. 1). The contract of sale between
the contracting parties was consummated by the delivery of the subject
land to private respondent who since then had occupied and cultivated the
same continuously and peacefully until the institution of this suit."5
Given the contrary findings of the trial court and the respondent court,
there is a need to re-examine the evidence altogether. After a careful study,
we are inclined to agree with the findings and conclusions of the
respondent court as they are more in accord with the law and evidence on
record.
As to the authenticity of the deed of sale, we subscribe to the Court of
Appeals' appreciation of evidence that private respondent has substantially
proven that Soledad Biona indeed signed the deed of sale of the subject
property in his favor. His categorical statement in the trial court that he
himself saw Soledad Estrobillo affix her signature on the deed of sale lends
credence. This was corroborated by another witness, Mamerto Famular.
Although the petitioners consider such testimony as self-serving and
biased,6 it can not, however, be denied that private respondent has shown
by competent proof that a contract of sale where all the essential elements
are present for its validity was executed between the parties.7 The burden
is on the petitioners to prove the contrary which they have dismally failed
to do. As aptly stated by the Court of Appeals:
Having established the due execution of the subject deed of sale and the
receipt evidencing payment of the consideration, the burden now shifted
to plaintiffs-appellees to prove by contrary evidence that the property was
not so transferred. They were not able to do this since the very person who
could deny the due execution of the document, Soledad Biona, did not
testify. She similarly failed to take the witness stand in order to deny her
signatures on Exhs. 2 and 3. Admitting as true that she was under
medication in Manila while the hearing of the case was underway, it was
easy enough to get her deposition. Her non-presentation gives rise to the
presumption that if her testimony was taken, the same would be adverse
to the claim by plaintiffs-appellees.1âwphi1.nêt
It must also be noted that under Sec. 22 Rule 132 of our procedural law,
evidence respecting 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. Our own close scrutiny
of the signature of Soledad Biona appearing on Exh. 1, the document
admitted by the contending parties, reveals that it is the same as the
signatures appearing on Exhs. 2 and 3, the documents in dispute.
Admittedly, as was pointed out by the trial court, the "S" in Exhs. 2 and 3
were written in printed type while that in Exh. 1 is in handwriting type.
But a careful look at the text of Exh. 2 would reveal that Soledad Biona
alternately wrote the letter "S" in longhand and printed form. Thus, the
words "Sum" and "Sept.," found in the penultimate and last paragraphs of
the document, respectively, were both written in longhand, while her name
appearing on first part of the document, as well as the erased word "Sept."
in the last paragraph thereof were written in printed form. Moreover, all
doubts about the genuineness of Soledad Biona's signatures on Exhs. 2 and
3 are removed upon their comparison to her signature appearing on the
special power of attorney (Exh. A) presented in evidence by plaintiffs-
appellees during trial. In said document, Soledad Biona signed her name
using the same fact that Soledad Estrobillo Biona wrote her entire name
on Exh. 2 while she merely affixed her maiden name on the other two
documents may have been due to the lesser options left to her when the
lawyers who drafted the two documents (Exhs. 2 and 3) already had
typewritten the names "SOLEDAD ESTROBILLO" thereon whereas in
Exh. 2, it was Soledad Biona herself who printed and signed her own
name. Thus, in the special power of attorney (Exh. A), Soledad Biona
signed her name in the same manner it was typewritten on the document.8
We agree with the private respondent that all the requisites for a valid
contract of sale are present in the instant case. For a valuable consideration
of P4,500.00, Soledad Biona agreed to sell and actually conveyed the
subject property to private respondent. The fact that the deed of sale was
not notarized does not render the agreement null and void and without any
effect. The provision of Article 1358 of the Civil Code9 on the necessity
of a public document is only for convenience, and not for validity or
enforceability.10 The observance of which is only necessary to insure its
efficacy, so that after the existence of said contract had been admitted, the
party bound may be compelled to execute the proper
document.11 Undeniably, a contract has been entered into by Soledad
Biona and the private respondent. Regardless of its form, it was valid,
binding and enforceable between the parties. We quote with favor the
respondent court's ratiocination on the matter:
xxx The trial court cannot dictate the manner in which the parties may
execute their agreement, unless the law otherwise provides for a prescribed
form, which is not so in this case. The deed of sale so executed, although
a private document, is effective as between the parties themselves and also
as the third persons having no better title, and should be admitted in
evidence for the purpose of showing the rights and relations of the
contracting parties (Carbonell v. Court of Appeals, 69 SCRA 99;
Elumbaring v. Elumbaring, 12 Phil. 384). Under Art. 1356 of the Civil
Code, contracts shall be obligatory in whatever form they may have been
entered into provided all the essential requisites for their necessary
elements for a valid contract of sale were met when Soledad Biona agreed
to sell and actually conveyed Lot 177 to defendant-appellant who paid the
amount of P4,500.00 therefore. The deed of sale (Exh. 2) is not made
ineffective merely because it is not notarized or does not appear in a public
document. The contract is binding upon the contracting parties, defendant-
appellant and Soledad Biona, including her successors-in-interest.
Pursuant to Art. 1357, plaintiffs-appellees may be compelled by
defendant-appellant to execute a public document to embody their valid
and enforceable contract and for the purpose of registering the property in
the latter's name (Clarin v. Rulona, 127 SCRA 512; Heirs of Amparo v.
Santos, 108 SCRA 43; Araneta v. Montelibano, 14 Phil. 117).12
Finally, we find no merit in petitioners' contention that their right over the
land has not prescribed. The principle of laches was properly applied
against petitioner. Laches has been defined as the failure or neglect, for an
unreasonable and unexplained length of time, to do that which by
exercising due diligence could or should have been done earlier, it is
negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it has either
abandoned it or declined to assert it.13 In the instant case, the Court of
Appeals point to the circumstances that warrant the principle to come into
play:
Laches had been defined to be such neglect or omission to assert a right
taken in conjunction with the lapse of time and other circumstances
causing prejudice to an adverse party, as will bar him in equity (Heirs of
Batiog Lacamen v. Heirs of Laruan, 65 SCRA 605, 609-610). In the instant
suit, Soledad Biona, at the time of the execution of the deed of sale (Exh.
2) on September 11, 1961, could only alienate that portion of Lot 177
belonging to her, which is seven-twelfths of the entire property. She had
no power or authority to dispose of the shares of her co-owners, the five
daughters of the deceased Ernesto Biona, who were entitled to an
indivisible five-twelfths portion of the whole property. It is not disputed,
however, that as early as 1960, when Soledad Biona borrowed money from
defendant-appellant (Exh. L), the latter entered, possessed and started
occupying the same in the concept of an owner. He caused its cultivation
through various tenants under Certificates of Land Transfer (Exhs. 7-9),
declared the property in his name, religiously paid taxes thereon, reaped
benefits therefrom, and executed other acts of dominion without any
protest or interference from plaintiffs-appellees for more than twenty-five
years. Even when the five daughters of the deceased Ernesto Biona were
way past the age of majority, when they could have already asserted their
right to their share, no sale in defendant-appellant's favor was ever brought
or any other action was taken by them to recover their share. Instead, they
allowed defendant-appellant to peacefully occupy the property without
protest. Although it is true that no title to registered land in derogation of
that of the registered owner shall be acquired by prescription or adverse
possession as the right to recover possession of registered land is
imprescriptible, jurisprudence has laid down the rule that a person and his
heirs may lose their right to recover back the possession of such property
and title thereto by reason of laches. (Victoriano v. Court of Appeals, 194
SCRA 19; Lola v. CA, 145 SCRA 439, 449). Indeed, it has been ruled in
the case of Miguel v. Catalino, 26 SCRA 234, 239, that:
'Courts can not look with favor at parties who, by their silence, delay and
inaction, knowingly induce another to spend time, effort and expense in
cultivating the land, paying taxes and making improvements thereof for
30 long years, only to spring from ambush and claim title when the
possessor's efforts and the rise of land values offer an opportunity to make
easy profit at his expense.'
Thus, notwithstanding the invalidity of the sale with respect to the share
of plaintiffs-appellees, the daughters of the late Ernesto Biona, they
[allowed] the vendee, defendant-appellant herein, to enter, occupy and
possess the property in the concept of an owner without demurrer and
molestation for a long period of time, never claiming the land as their own
until 1985 when the property has greatly appreciated in value. Vigilantibus
non dormientibus sequitas subvenit.14
WHEREFORE, the Petition is DENIED and the assailed Decision of the
Court of Appeals is AFFIRMED.
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.
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:
I agreement on their factual findings.11 In this case, there is no reason to
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.
V
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
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
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.