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.

MELO,J.: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 annumfrom 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 wasto selland not merelyto 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 actingultra 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 toAreola vs.Court of Appeals(236 SCRA 643 [1994]) which citedPrudential Bank vs.Court of Appeals(22 SCRA 350 [1993]), which in turn relied uponMcIntosh 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 agreedto sell the property at the price of P1,000.00 per square meter . . .

(tsn, 12-3-90, p. 17; Emphasis supplied.)

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:

Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price is concerned, sir.

(ibid, p. 17.)

The requirements in the payment of the purchase price on terms instead of cash were suggested by BPI Vice-President Albano. Since the authority given to broker Revilla specified cash payment, the possibility of paying 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 our Trust Committee, Limketkai should pay in cash . . . the amount was no longer subject to the approval or disapproval of the Committee, it is only on the terms." (ibid, p. 19). This is incontrovertibly established in the following testimony of Aromin:

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 proposalifthey will be allowed to pay onterms. 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 butwith 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).

A Yes, sir.

Q At the start, did they show their willingness to pay in cash?

A Yes, sir.

Q You said that the agreement on terms was to be submitted to the trust committee for approval,are you telling the Court that what was to be approved by the trust committee was the provision on the payment on terms?

A Yes, sir.

Q So the amount was no longer subject to the approval or disapproval of the committee, it is only on the terms?

A Yes, sir.

(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 citesAng 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.

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 toAng Yu Asuncion,per Justice Vitug:

. . . A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation.Negotiationcovers the periodfromthe time the prospective contracting parties indicate interest in the contracttothe time the contract is concluded (perfected). Theperfectionof the contract takes place upon the concurrence of the essential elements thereof. A contract which isconsensualas 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 orcommodatum, is commonly referred to as arealcontract. In asolemncontract, 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].)

InVillonco 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 citesAbrenica 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 theAbrenicarule (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 inAbrenica"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.

(Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]).

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 respectivelyinfrasecs. 178-200, andinfrasecs. 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 respectivelyinfrasecs. 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.

(pp. 454-455, Original RTC Record.)

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 inSerrano 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.

(at p. 110.)

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 oflis pendensannotated 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 inOria 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.

G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG,petitioners,vs.THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION,respondents.

Antonio M. Albano for petitioners.

Umali, Soriano & Associates for private respondent.

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

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

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

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

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

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

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court inCA-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 courta quois legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The courta quoin 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 oncertiorari. 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 oflis pendensregarding 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 theNotice of Lis Pendensand 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.1On 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 courta quo.

In this petition for review oncertiorari, petitioners contend that Buen Realty can be held bound by the writ of execution by virtue of the notice oflis 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) Thevinculum jurisorjuridical tiewhich is the efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) theobjectwhich is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) thesubject-personswho, 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.Negotiationcovers the periodfromthe time the prospective contracting parties indicate interest in the contracttothe time the contract is concluded (perfected). Theperfectionof the contract takes place upon the concurrence of the essential elements thereof. A contract which isconsensualas 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 orcommodatum, is commonly referred to as arealcontract. In asolemncontract, 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 ofconsummationbegins 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 isnot absolutebutconditional, 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.2InDignos 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 anyprovisothat 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.3If 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).4An unconditionalmutual promiseto 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.5Anaccepted unilateral promisewhichspecifiesthething to be sold and the price to bepaid,when coupled with a valuable consideration distinctandseparate from the price, is what may properly be termed a perfected contract ofoption. 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)6Observe, however, that the option isnotthe contract of sale itself.7The 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.8Let 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 (seeArt. 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 inSouth Western Sugar vs. Atlantic Gulf, 97 Phil. 249;see alsoArt. 1319, Civil Code; Rural Bank of Paraaque, 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 deemedperfected, 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-offerorwithdraws the offer before its acceptance(exercise of the option) by the optionee-offeree, the latter may not sue forspecific performanceon 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 theconsiderationgiven, 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 sebe brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 13199of the same Code. An option or an offer would require, among other things,10a 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 thevinculum juriswould 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.11It 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 1912of the Civil Code, can warrant a recovery for damages.

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

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of thelis pendensin 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 decision13that decreed the execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the fixing of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).

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

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 August 1991 and 27 September 1991, of the courta quo. Costs against petitioners.

SO ORDERED.

G.R. No. L-11668 April 1, 1918ANTONIO ENRIQUEZ DE LA CAVADA,plaintiff-appellee,vs.ANTONIO DIAZ,defendant-appellant.

Ramon Diokno for appellant.Alfredo Chicote and Jose Arnaiz for appellee.JOHNSON,J.:This action was instituted by the plaintiff for the purpose of requiring the defendant to comply with a certain "contract of option" to purchase a certain piece or parcel of land described in said contract and for damages for a noncompliance with said contract. After the close of the trial the Honorable James A. Ostrand, judge, rendered a judgment the dispositive part of which is as follows:

Wherefore, it is hereby ordered and adjudged that the defendant, within the period of thirty days from the date upon which this decision becomes final, convey to the plaintiff a good and sufficient title in fee simple to the land described in decrees Nos. 13909 and 13919 of the Court of Land Registration, upon payment or legal tender of payment by said plaintiff of the sum of thirty thousand pesos (P30,000) in cash, and upon said plaintiff giving security approved by this court for the payment within the term of 6 years from the date of the conveyance for the additional sum of forty thousand pesos (P40,000) with interest at the rate of 6 per cent per annum.

It is further ordered and adjudged that in the event of the failure of the defendant to execute the conveyance as aforesaid, the plaintiff have and recover judgment against him, the said defendant, for the sum of twenty thousand pesos (P20,000), with interest at the rate of six per cent (6 per cent per annum from the date upon which the conveyance should have been made). It is so ordered.

From that judgment the defendant appealed and made several assignment of error.

It appears from the record that on the 15th day of November, 1912, the defendant and the plaintiff entered into the following "contract of option:"

(EXHIBIT A.)

CONTRACT OF OPTION.

I, the undersigned, Antonio Diaz, of legal age, with personal registration certificate Number F-855949, issued at Pitogo, Tayabas, January 16, 1912, and temporarily residing in Manila, P. I., do hereby grant an option to Antonio Enriquez to purchase my hacienda at Pitogo consisting of 100 and odd hectares, within the period necessary for the approval and issuance of a Torrens title thereto by the Government for which he may pay me either the sum of thirty thousand pesos (P30,000), Philippine currency, in cash, or within the period of six (6) years, beginning with the date of the purchase, the sum of forty thousand pesos (P40,000), Philippine currency, at six per cent interest per annum, with due security for the payment of the said P40,000 in consideration of the sale to him of my property described as follows, to wit:

About one hundred hectares of land in Pitogo, Tayabas, containing about 20,000 coconut trees and 10,000 nipa-palm trees, all belonging to me, which I hereby sell to Antonio Enriquez de la Cavada for seventy thousand pesos, under the conditions herein specified.

I declare that Antonio Enriquez is the sole person who has, and shall have, during the period of this option, the right to purchase the property above-mentioned.

I likewise declare that Antonio Enriquez shall be free to resell the said property at whatever price he may desire, provided that he should comply with the stipulations covenanted with me.

In witness of my entire conformity with the foregoing, I hereunto affix my signature, in Manila, P. I., this 15th day of November, 1912.

(Sgd.) Antonio Diaz.

Signed in the presence of:

(Sgd.) J. VALDS DIAZ.

(EXHIBIT B.)

P. I., November 15, 1912.

Sr. Don ANTONIO DIAZ,Calle Victoria, No. 125, W. C., Manila, P. I.DEAR SIR: I have the honor to inform you that, in conformity with the letter of option in my favor of even date, I will buy your coconut plantation in Pitogo, containing one hundred hectares, together with all the coconut and nipa-palm trees planted thereon, under the following conditions:

1. I shall send a surveyor to survey the said property, and to apply to the Government for a Torrens title therefore, and, if the expenses incurred for the same should not exceed P1,000, I shall pay the P500 and you the other P500;Provided, however, that you shall give the surveyor all necessary assistance during his stay at thehacienda.

2. I shall pay the purchase price to you in conformity with our letter of option of this date, and after the Torrens title shall have been officially approved.

Yours respectfully,

(Sgd.) A. ENRIQUEZ

I acknowledge receipt of, and conform with, the foregoing.

(Sgd.) ANTONIO DIAZ

It appears from the record that soon after the execution of said contract, and in part compliance with the terms thereof, the defendant presented two petitions in the Court of Land Registration (Nos. 13909 and 13919), each for the purpose of obtaining the registration ofa partof the "Hacienda de Pitogo." Said petitions were granted, and each parcel as registered and a certificate of title was issued for each part under the Torrens system to the defendant herein. Later, and pretending to comply with the terms of said contract, the defendant offered to transfer to the plaintiffoneof said parcelsonly, which was a part of said "hacienda." The plaintiff refused to accept said certificate for a part only of said "hacienda" upon the ground (a) that it was only a part of the "Hacienda de Pitogo," and (b) under the contract (Exhibits A and B) he was entitled to a transfer to him all said "hacienda."

The theory of the defendant is that the contract of sale of said "Hacienda de Pitogo" included only 100 hectares, more or less, of said "hacienda," and that by offering to convey to the plaintiff a portion of said "hacienda" composed of "100 hectares, more or less," he thereby complied with the terms of the contract. The theory of the plaintiff is that he had purchasedallof said "hacienda," and that the same contained, at least, 100 hectares, more or less. The lower court sustained the contention of the plaintiff, to wit, that the sale was a sale of the "Hacienda de Pitogo" and not a sale of a part of it, and rendered a judgment requiring the defendant to comply with the terms of the contract by transferring to the plaintiff, by proper deeds of conveyance, all said "hacienda," or to pay in lieu thereof the sum of P20,000 damages, together with 6 per cent interest from the date upon which said conveyance should have been made.

After issue had been joined between the plaintiff and defendant upon their pleadings, they entered into the following agreement with reference to the method of presenting their proof:

The attorneys for the parties in this case make the following stipulations:

1. Each of the litigating parties shall present his evidence before Don Felipe Canillas, assistant clerk of the Court of First Instance of Manila, who, for such purpose, should be appointed commissioner.

2. Said commissioner shall set a day and hour for the presentation of the evidence above-mentioned, both oral and documentary, and in the stenographic notes shall have record entered of all objections made to the evidence by either party, in order that they may afterwards be decided by the court.

3. The transcription of the stenographic notes, containing the record of the evidence taken, shall be paid for in equal shares by both parties.

4. At the close of the taking of the evidence, each of the parties shall file his brief in respect to such evidence, whereupon the case as it then stands shall be submitted to the decision of the court.

The parties request the court to approve this agreement in the part thereof which refers to the proceedings in this case.

Manila, P. I., December 21, 1914.

(Sgd.) ANTONIO V. HERRERO. (Sgd.) ALFREDO CHICOTE.

Approved:

(Sgd.) GEO. R. HARVEY, Judge.Said agreement was approved by the lower court, and proof was taken in accordance therewith. The defendant-appellant now alleges, giving several reasons therefor, that the proof was improperly practiced, and that the judge was without authority o decide the cause upon proof taken in the manner agreed upon by the respective parties. The defendant-appellant makes no contention that he was not permitted to present all the proof he desired to present. He makes no contention that he has been prejudiced in any manner whatsoever by virtue of the method agreed upon for taking the testimony.

There is nothing in the law nor in public policy which prohibits the parties in a civil litigation from making the agreement above quoted. While the law concedes to parties litigant, generally, the right to have their proof taken in the presence of the judge, such right is a renounceable one. In a civil action the parties litigant have a right to agree, outside of the court, upon the facts in litigation. Under certain conditions the parties litigant have a right to take the depositions of witnesses and submit the sworn statements in that form to the court. The proof, as it was submitted to the court in the present case, by virtue of said agreement, was, in effect, in the form of a deposition of the various witnesses presented. Having agreed to the method of taking the proof, and the same having been taking in compliance with said agreement, it is now too late, there being no law to the contrary, for them to deny and repudiate the effect of their agreement. (Biunas vs. Mora, R. G. No. 11464, March 11, 1918; Behr vs. Levy Hermanos, R. G. No 12211, March 19, 1918.1)

Not only is there no law prohibiting the parties from entering into an agreement to submit their proof to the court in civil actions as was done in the present case, but it may be a method highly convenient, not only to the parties, but to busy courts. The judgment of the lower court, therefore, should not be modified or reversed on account of the first assignment of error.

In the second assignment of error, the appellant alleges (a) that the lower court committed an error in declaring the contract (Exhibits A and B) a valid obligation, for the reason that it not been admitted in evidence, and (b) that the same was null for a failure of consideration. Upon the first question, an examination of the proof shows that said contract (Exhibits A and B) was offered in evidence and admitted as proof without objection. Said contract was, therefore, properly presented to the court as proof. Not only was the contract before the court by reason of its having been presented in evidence, but the defendant himself made said contract an integral part of his pleadings. The defendant admitted the execution and delivery of the contract, and alleged that he made an effort to comply with its terms. His only defense is that he sold to the plaintiff a part of the "hacienda" only and that he offered, in compliance with the terms of the contract, to convey to the plaintiff all of the land which he had promised to sell.

With reference to the second objection, to wit, that there was no consideration for said contract it may be said (a) that the contract was for the sale of a definite parcel of land; (b) that it was reduced to writing; (c) that the defendant promised to convey to the plaintiff said parcel of land; (d) that the plaintiff promised to pay therefor the sum of P70,000 in the manner prescribed in said contract; (e) that the defendant admitted the execution and delivery of the contract and alleged that he made an effort to comply with the same (par. 3 of defendant's answer) and requested the plaintiff to comply with his part of the contract; and (f) that no defense or pretension was made in the lower court that there was no consideration for his contract. Having admitted the execution and delivery of the contract, having admitted an attempt to comply with its terms, and having failed in the court below to raise any question whatsoever concerning the inadequacy of consideration, it is rather late, in the face of said admissions, to raise that question for the first time in this court. The only dispute between the parties in the lower court was whether or not the defendant was obliged to convey to the plaintiffallof said "hacienda." The plaintiff insisted that his contract entitled him to a conveyance of all of said "hacienda." The defendant contended that he had complied with the terms of his contract by offering to convey to the plaintiff a part of the said "hacienda" only. That was the only question presented to the lower court and that was the only question decided.

A promise made by one party, if made in accordance with the forms required by the law, may be a good consideration (causa) for a promise made by another party. (Art. 1274, Civil Code.) In other words, the consideration (causa) need not pass from one to the other at the time the contract is entered into. For example, A promises to sell a certain parcel of land to B for the sum of P70,000. A, by virtue of the promise of B to pay P70,000, promises to sell said parcel of land to B for said sum, then the contract is complete, provided they have complied with the forms required by the law. The consideration need not be paid at the time of the promise. The one promise is a consideration for the other. Of course, A cannot enforce a compliance with the contract and require B to pay said sum until he has complied with his part of the contract. In the present case, the defendant promised to convey the land in question to the plaintiff as soon as the same could be registered. The plaintiff promised to pay to the defendant P70,000 therefor in accordance with the terms of their contract. The plaintiff stood ready to comply with his part of the contract. The defendant, even though he had obtained a registered title to said parcel of land, refused to comply with his promise. All of the conditions of the contract on the part of the defendant had been concluded, except delivering the deeds of transfer. Of course, if the defendant had been unable to obtain a registration of his title, or if he had violated the terms of the alleged optional contract by selling the same to some other person than the plaintiff, then he might have raised the objection that he had received nothing from the plaintiff for the option which he had conceded. That condition, of course, would have presented a different question from the one which we have before us. The said contract (Exhibits A and B) was not, in fact, an "optional contract" as that phrase is generally used. Reading the said contract from its four corners it is clearly as absolute promise to sell a definite parcel of land for a fixed price upon definite conditions. The defendant promised to convey to the plaintiff the land in question as soon as the same was registered under the Torrens system, and the plaintiff promised to pay to the defendant the sum of P70,000, under the conditions named, upon the happening of that event. The contract was not, in fact, what is generally known as a "contract of option." It differs very essentially from a contract of option. An optional contract is a privilege existing in one person, for which he had paid a consideration, which gives him the right to buy, for example, certain merchandise of certain specified property, from another person, if he chooses, at any time within the agreed period, at a fixed price. The contract of option is a separate and distinct contract from the contract which the parties may enter into upon the consummation of the option. A consideration for an optional contract is just as important as the consideration for any other kind of contract. If there was no consideration for the contract of option, then it cannot be entered any more than any other contract where no consideration exists. To illustrate, A offers B the sum of P100,000 for the option of buying his property within the period of 30 days. While it is true that the conditions upon which A promises to buy the property at the end of the period mentioned are usually fixed in the option, the consideration for the option is an entirely different consideration from the consideration of the contract with reference to which the option exists. A contract of option is a contract by virtue of the terms of which the parties thereto promise and obligate themselves to enter into contract at a future time, upon the happening of certain events, or the fulfillment of certain conditions.

Upon the other hand, suppose that the defendant had complied with his part of the contract and had tendered the deeds of transfer of the "Hacienda de Pitogo" in accordance with its terms and had demanded the payments specified in the contract, and the plaintiff refused to comply what then would have been the rights of the defendant? Might he not have successfully maintained an action for the specific performance of the contract, or for the damages resulting from the breach of said contract? When the defendant alleged that he had complied with his part of the contract (par. 3 of defendant's answer) and demanded that the plaintiff should immediately comply with his part of the same, he evidently was laying the foundation for an action for damages, the nullification or a specific compliance with the contract.

The appellant contends that the contract which he made was not with the plaintiff but with Rosenstock, Elser and Co. That question was not presented in the court below. The contract in question shows, upon its face, that the defendant made the same with the plaintiff, Not having raised the question in the court below, and having admitted the execution and delivery of the contract in question with the plaintiff, we are of the opinion that his admission is conclusive upon that question (par. 1 of special defense of defendant's answer) and need not be further discussed.

The appellant further contends that the action was premature, for the reason that the plaintiff had not paid nor offered to pay the price agreed upon, under the conditions named, for the land in question. That question was not raised in the court below, which fact, ordinarily, would be a sufficient answer to the contention of the appellant. It may be added, however, that the defendant could not demand the payment until he had offered the deeds of conveyance, in accordance with the terms of his contract. He did not offer to comply with the terms of his contract. True it is that he offered to comply partially with the terms of the contract, but not fully. While the payment must be simultaneous with the delivery of the deeds of conveyance, the payment need not be made until the deed of conveyance is offered. The plaintiff stood ready and willing to perform his part of the contract immediately upon the performance on the part of the defendant. (Arts. 1258 and 1451 of Civil Code.)

In the fifth assignment of error the appellant contends that the lower court committed an error in not declaring that the defendant was not obligated to sell the "Hacienda de Pitogo" to the plaintiff "por incumplimiento, renuncia abandono y negligencia del mismo demandante, etc." (For nonfulfillment, renunciation, abandonment and negligence of plaintiff himself, etc.) That question was not presented to the court below. But even though it had been the record shows that the plaintiff, at all times, insisted upon a compliance with the terms of the contract on the part of the defendant, standing ready to comply with his part of the same.

The appellant contends in his sixth assignment of error that the plaintiff had not suffered the damages complained of, to wit, in the sum of P20,000. The only proof upon the question of damages suffered by the plaintiff for the noncompliance with the terms of the contract in question on the part of the defendant is that the plaintiff, in contemplation of the compliance with the terms of the contract on the part of the defendant, entered into a contract with a third party to sell the said "hacienda" at a profit of P30,000. That proof is not disputed. No attempt was made in the lower court to deny that fact. The proof shows that the person with whom the plaintiff had entered into a conditional sale of the land in question had made a deposit for the purpose of guaranteeing the final consummation of that contract. By reason of the failure of the defendant to comply with the contract here in question, the plaintiff was obliged to return the sum deposited by said third party with a promise to pay damages. The record does not show why the plaintiff did not ask for damages in the sum of P30,000. He asked for a judgment only in the sum of P20,000. He now asks that the judgment of the lower court be modified and that he be given a judgment for P30,000. Considering the fact that he neither asked for a judgment for more than P20,000 nor appealed from the judgment of the lower court, his request now cannot be granted. We find no reason for modifying the judgment of the lower court by virtue of the sixth assignment of error.

In the seventh assignment of error the appellant contends that the contract of sale was not in effect a contract of sale. He alleges that the contract was, in fact, a contract by virtue of which the plaintiff promised to find a buyer for the parcel of land in question; that the plaintiff was not in fact the purchaser; that the only obligation that the plaintiff assumed was to find some third person who would purchase the land from the defendant. Again, it would be sufficient to say, in answer to that assignment of error, that no contention of that nature was presented in the court below, and for that reason it is improperly presented now for the first time. In addition, however, it may be added that the defendant, in his answer, admitted that he not only sold the land in question, but offered to transfer the same to the plaintiff, in compliance with the contract. (See answer of defendant.)

In the eighth assignment of error the appellant contends that the lower court committed an error in its order requiring him to convey to the plaintiff the "Hacienda de Pitogo," for the reason that the plaintiff had not demanded a transfer of said property, and for the additional reason that a portion of said "hacienda" had already been sold to a third person. With reference to the first contention, the record clearly shows that the plaintiff was constantly insisting upon a compliance with the terms of the contract, to wit, a conveyance to him of the "Hacienda de Pitogo" by the defendant. Naturally, he refused, under the contract, to accept a conveyance of a part only of said "hacienda." With reference to the second contention, it may be said that the mere fact that the defendant had sold a part of the "hacienda" to other persons, is no sufficient reason for not requiring a strict compliance with the terms of his contract with the plaintiff, or to answer in damages for his failure. (Arts. 1101 and 1252 of the Civil Code.)

In view of the foregoing, and after a consideration of the facts and the law applicable thereto, we are persuaded that there is no reason given in the record justifying a modification or reversal of the judgment of the lower court. The same is, however, hereby affirmed, with costs. So ordered.

G.R. No. 124791 February 10, 1999

JOSE RAMON CARCELLER,petitioner,vs.COURT OF APPEALS and STATE INVESTMENT HOUSES, INC.,respondents.

QUISUMBING,J.:Before us is a petition for review of the Decision1dated September 21, 1995 of the Court of Appeals2in CA G. R. CV No. 37520, as well as its Resolution3dated April 25, 1996, denying both parties' motion for partial reconsideration or clarification. The assailed decision affirmed with modification the judgment4of the Regional Trial Court of Cebu City, Branch 5, in Civil Case No. CEB 4700, and disposed of the controversy as follows:

However, We do not find it just that the appellee, in exercising his option to buy, should pay appellant SIHI only P1,800,000.00. In fairness to appellant SIHI,the purchase price must be based on the prevailing market price of real property in Bulacao, Cebu City. (Emphasis supplied)

The factual background of this case is quite simple.

Private respondent State Investment Houses, Inc. (SIHI) is the registered owner of two (2) parcels of land with a total area of 9,774 square meters, including all the improvements thereon, located at Bulacao, Cebu City, covered by Transfer Certificate of Titles Nos. T-89152 and T-89153 of the Registry of Deeds of Cebu City.

On January 10, 1985, petitioner and SIHI entered into a lease contract with option to purchase5over said two parcels of land, at a monthly rental of Ten Thousand (P10,000.00) pesos for a period of eighteen (18) months, beginning on August 1, 1984 until January 30, 1986. The pertinent portion of the lease contract subject of the dispute reads in part:

4. As part of the consideration of this agreement, the LESSOR hereby grants unto the LESSEE the exclusive right, option and privilege to purchase, within the lease period, the leased premises thereon for the aggregate amount of P1,800,000.00 payable as follows:

a. Upon the signing of the Deed of Sale, the LESSEE shall immediately pay P360,000.00.

b. The balance of P1,440,000.00 shall be paid in equal installments of P41,425.87 over sixty (60) consecutive months computed with interest at 24% per annum on the diminishing balance;Provided, that the LESSEE shall have the right to accelerate payments at anytime in which event the stipulated interest for the remaining installments shall no longer be imposed.

x . . The option shall be exercised by a written notice to the LESSOR at anytime within the option period and the document of sale over the afore-described properties has to be consummated within the month immediately following the month when the LESSEE exercised his option under this contract.6On January 7, 1986, or approximately three (3) weeks before the expiration of the lease contract, SIHI notified petitioner of the impending termination of the lease agreement, and of the short period of time left within which he could still validly exercise the option. It likewise requested petitioner to advise them of his decision on the option, on or before January 20, 1986.7In a letter dated January 15, 1986, which was received by SIHI on January 29, 1986, petitioner requested for a six-month extensio