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GREGORIO FULE, petitioner, vs. COURT OF APPEALS, NINEVETCH CRUZ and JUANBELARMINO, respondents.

D E C I S I O N

ROMERO, J .:

This petition for review on certiorari questions the affirmance by the Court of Appeals of the decision [1] ofthe Regional Trial Court of San Pablo City, Branch 30, dismissing the complaint that prayed for the nullification

of a contract of sale of a 10-hectare property in Tanay, Rizal in consideration of the amount of P40,000.00 anda 2.5 carat emerald-cut diamond (Civil Case No. SP-2455). The lower courts decision disposed of the case asfollows:

WHEREFORE, premises considered, the Court hereby renders judgment dismissing the complaint for lack ofmerit and ordering plaintiff to pay:

1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral damages and the sumof P100,000.00 as and for exemplary damages;

2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral damages and the sumof P150,000.00 as and for exemplary damages;

3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as and for attorneys fees andlitigation expenses; and

4. The costs of suit.

SO ORDERED.

As found by the Court of Appeals and the lower court, the antecedent facts of this case are as follows:

Petitioner Gregorio Fule, a banker by profession and a jeweler at the same time, acquired a 10-hectareproperty in Tanay, Rizal (hereinafter Tanay property), covered by Transfer Certificate of Title No. 320725 which

used to be under the name of Fr. Antonio Jacobe. The latter had mortgaged it earlier to the Rural Bank of Alaminos (the Bank), Laguna, Inc. to secure a loan in the amount of P10,000.00, but the mortgage was laterforeclosed and the property offered for public auction upon his default.

In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Dichoso and Oliva Mendoza tolook for a buyer who might be interested in the Tanay property. The two found one in the person of hereinprivate respondent Dr. Ninevetch Cruz. It so happened that at the time, petitioner had shown interest in buyinga pair of emerald-cut diamond earrings owned by Dr. Cruz which he had seen in January of the same yearwhen his mother examined and appraised them as genuine. Dr. Cruz, however, declined petitioners offer tobuy the jewelry for P100,000.00. Petitioner then made another bid to buy them for US$6,000.00 at theexchange rate of $1.00 to P25.00. At this point, petitioner inspected said jewelry at the lobby of the PrudentialBank branch in San Pablo City and then made a sketch thereof. Having sketched the jewelry for twenty to thirty

minutes, petitioner gave them back to Dr. Cruz who again refused to sell them since the exchange rate of thepeso at the time appreciated to P19.00 to a dollar.

Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Dr. Cruzrequested herein private respondent Atty. Juan Belarmino to check the property who, in turn, found out that nosale or barter was feasible because the one-year period for redemption of the said property had not yet expiredat the time.

In an effort to cut through any legal impediment, petitioner executed on October 19, 1984, a deed ofredemption on behalf of Fr. Jacobe purportedly in the amount of P15,987.78, and on even date, Fr. Jacobesold the property to petitioner for P75,000.00. The haste with which the two deeds were executed is shown bythe fact that the deed of sale was notarized ahead of the deed of redemption. As Dr. Cruz had already agreedto the proposed barter, petitioner went to Prudential Bank once again to take a look at the jewelry.

In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the latters residence to prepare thedocuments of sale.[2] Dr. Cruz herself was not around but Atty. Belarmino was aware that she and petitionerhad previously agreed to exchange a pair of emerald-cut diamond earrings for the Tanay property. Atty.Belarmino accordingly caused the preparation of a deed of absolute sale while petitioner and Dr. Cruzattended to the safekeeping of the jewelry.

The following day, petitioner, together with Dichoso and Mendoza, arrived at the residence of Atty.Belarmino to finally execute a deed of absolute sale. Petitioner signed the deed and gave Atty. Belarmino theamount of P13,700.00 for necessary expenses in the transfer of title over the Tanay property. Petitioner alsoissued a certification to the effect that the actual consideration of the sale was P200,000.00 andnot P80,000.00 as indicated in the deed of absolute sale. The disparity between the actual contract price andthe one indicated on the deed of absolute sale was purportedly aimed at minimizing the amount of the capital

gains tax that petitioner would have to shoulder. Since the jewelry was appraised only at P160,000.00, theparties agreed that the balance of P40,000.00 would just be paid later in cash.

http://sc.judiciary.gov.ph/jurisprudence/1998/mar1998/112212.htm#_edn1









As pre-arranged, petitioner left Atty. Belarminos residence with Dichoso and Mendoza and headed for thebank, arriving there at past 5:00 p.m. Dr. Cruz also arrived shortly thereafter, but the cashier who kept theother key to the deposit box had already left the bank. Dr. Cruz and Dichoso, therefore, looked for said cashierand found him having a haircut. As soon as his haircut was finished, the cashier returned to the bank andarrived there at 5:48 p.m., ahead of Dr. Cruz and Dichoso who arrived at 5:55 p.m. Dr. Cruz and the cashierthen opened the safety deposit box, the former retrieving a transparent plastic or cellophane bag with the

jewelry inside and handing over the same to petitioner. The latter took the jewelry from the bag, went near theelectric light at the banks lobby, held the jewelry against the light and examined it for ten tofifteen minutes. After a while, Dr. Cruz asked, Okay na ba iyan? Petitioner expressed his satisfaction by

nodding his head.

For services rendered, petitioner paid the agents, Dichoso and Mendoza, the amount of US$300.00 andsome pieces of jewelry. He did not, however, give them half of the pair of earrings in question which he hadearlier promised.

Later, at about 8:00 oclock in the evening of the same day, petitioner arrived at the residence of Atty.Belarmino complaining that the jewelry given to him was fake. He then used a tester to prove the allegedfakery. Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence of Dr. Cruz to borrow her car sothat, with Atty. Belarmino, they could register the Tanay property. After Dr. Cruz had agreed to lend her car,Dichoso called up Atty. Belarmino. The latter, however, instructed Dichoso to proceed immediately to hisresidence because petitioner was there. Believing that petitioner had finally agreed to give them half of the pairof earrings, Dichoso went posthaste to the residence of Atty. Belarmino only to find petitioner alreadydemonstrating with a tester that the earrings were fake. Petitioner then accused Dichoso and Mendoza ofdeceiving him which they, however, denied. They countered that petitioner could not have been fooledbecause he had vast experience regarding jewelry. Petitioner nonetheless took back the US$300.00 and

jewelry he had given them.

Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have theearrings tested. Dimayuga, after taking one look at the earrings, immediately declared them counterfeit. Ataround 9:30 p.m., petitioner went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision in SanPablo City, complaining about the fake jewelry.Upon being advised by the latter, petitioner reported the matterto the police station where Dichoso and Mendoza likewise executed sworn statements.

On October 26, 1984, petitioner filed a complaint before the Regional Trial Court of San Pablo City againstprivate respondents praying, among other things, that the contract of sale over the Tanay property be declarednull and void on the ground of fraud and deceit.

On October 30, 1984, the lower court issued a temporary restraining order directing the Register of Deedsof Rizal to refrain from acting on the pertinent documents involved in the transaction. On November 20, 1984,however, the same court lifted its previous order and denied the prayer for a writ of preliminary injunction.

After trial, the lower court rendered its decision on March 7, 1989. Confronting the issue of whether or notthe genuine pair of earrings used as consideration for the sale was delivered by Dr. Cruz to petitioner, thelower court said:

The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz delivered (the) subject jewelries (sic) into the hands of plaintiff who even raised the same nearer to the lights of the lobby of the bank

near the door. When asked by Dra. Cruz if everything was in order, plaintiff even nodded his satisfaction(Hearing of Feb. 24, 1988). At that instance, plaintiff did not protest, complain or beg for additional time toexamine further the jewelries (sic). Being a professional banker and engaged in the jewelry business plaintiff isconversant and competent to detect a fake diamond from the real thing. Plaintiff was accorded the reasonabletime and opportunity to ascertain and inspect the jewelries (sic) in accordance with Article 1584 of the CivilCode. Plaintiff took delivery of the subject jewelries (sic) before 6:00 p.m. of October 24, 1984. When he wentat 8:00 p.m. that same day to the residence of Atty. Belarmino already with a tester complaining about somefake jewelries (sic), there was already undue delay because of the lapse of a considerable length of time sincehe got hold of subject jewelries (sic). The lapse of two (2) hours more or less before plaintiff complained isconsidered by the Court as unreasonable delay.[3]

The lower court further ruled that all the elements of a valid contract under Article 1458 of the Civil Codewere present, namely: (a) consent or meeting of the minds; (b) determinate subject matter, and (c) price

certain in money or its equivalent. The same elements, according to the lower court, were present despite thefact that the agreement between petitioner and Dr. Cruz was principally a barter contract. The lower courtexplained thus:

x x x. Plaintiffs ownership over the Tanay property passed unto Dra. Cruz upon the constructive deliverythereof by virtue of the Deed of Absolute Sale (Exh. D). On the other hand, the ownership of Dra. Cruz over thesubject jewelries (sic) transferred to the plaintiff upon her actual personal delivery to him at the lobby of thePrudential Bank. It is expressly provided by law that the thing sold shall be understood as delivered, when it isplaced in the control and possession of the vendee (Art. 1497, Civil Code; Kuenzle & Straff vs. Watson & Co.13 Phil. 26). The ownership and/or title over the jewelries (sic) was transmitted immediately before 6:00 p.m. ofOctober 24, 1984. Plaintiff signified his approval by nodding his head. Delivery or tradition, is one of the modesof acquiring ownership (Art. 712, Civil Code).







Similarly, when Exhibit D was executed, it was equivalent to the delivery of the Tanay property in favor ofDra. Cruz. The execution of the public instrument (Exh. D) operates as a formal or symbolic delivery of theTanay property and authorizes the buyer, Dra. Cruz to use the document as proof of ownership (Florendo v.Foz, 20 Phil. 399). More so, since Exhibit D does not contain any proviso or stipulation to the effect that title tothe property is reserved with the vendor until full payment of the purchase price, nor is there a stipulation givingthe vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period(Taguba v. Vda. De Leon, 132 SCRA 722; Luzon Brokerage Co. Inc. vs. Maritime Building Co. Inc. 86 SCRA305; Froilan v. Pan Oriental Shipping Co. et al. 12 SCRA 276).[4]

Aside from concluding that the contract of barter or sale had in fact been consummated when petitionerand Dr. Cruz parted ways at the bank, the trial court likewise dwelt on the unexplained delay with whichpetitioner complained about the alleged fakery. Thus:

x x x. Verily, plaintiff is already estopped to come back after the lapse of considerable length of time toclaim that what he got was fake. He is a Business Management graduate of La Salle University, Class 1978-79, a professional banker as well as a jeweler in his own right. Two hours is more than enough time to make aswitch of a Russian diamond with the real diamond. It must be remembered that in July 1984 plaintiff made asketch of the subject jewelries (sic) at the Prudential Bank. Plaintiff had a tester at 8:00 p.m. at the residence of

Atty. Belarmino. Why then did he not bring it out when he was examining the subject jewelries (sic) at about6:00 p.m. in the banks lobby? Obviously, he had no need for it after being satisfied of the genuineness of thesubject jewelries (sic). When Dra. Cruz and plaintiff left the bank both of them had fully performed theirrespective prestations. Once a contract is shown to have been consummated or fully performed by the partiesthereto, its existence and binding effect can no longer be disputed. It is irrelevant and immaterial to dispute thedue execution of a contract if both of them have in fact performed their obligations thereunder and theirrespective signatures and those of their witnesses appear upon the face of the document (WeldonConstruction v. CA G.R. No. L-35721, Oct. 12, 1987).[5]

Finally, in awarding damages to the defendants, the lower court remarked:

The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino purports to show that the Tanayproperty is worth P25,000.00. However, also on that same day it was executed, the propertys worth wasmagnified at P75,000.00 (Exh. 3-Belarmino). How could in less than a day (Oct. 19, 1984) the value would (sic)triple under normal circumstances? Plaintiff, with the assistance of his agents, was able to exchange the Tanayproperty which his bank valued only at P25,000.00 in exchange for a genuine pair of emerald cut diamond

worth P200,000.00 belonging to Dra. Cruz. He also retrieved the US$300.00 and jewelries (sic) from hisagents. But he was not satisfied in being able to get subject jewelries for a song. He had to file a malicious andunfounded case against Dra. Cruz and Atty. Belarmino who are well known, respected and held in high esteemin San Pablo City where everybody practically knows everybody. Plaintiff came to Court with unclean handsdragging the defendants and soiling their clean and good name in the process. Both of them are near thetwilight of their lives after maintaining and nurturing their good reputation in the community only to be stunnedwith a court case. Since the filing of this case on October 26, 1984 up to the present they were living under apall of doubt. Surely, this affected not only their earning capacity in their practice of their respectiveprofessions, but also they suffered besmirched reputations. Dra. Cruz runs her own hospital and defendantBelarmino is a well respected legal practitioner.

The length of time this case dragged on during which period their reputation were (sic) tarnished and theirnames maligned by the pendency of the case, the Court is of the belief that some of the damages they prayedfor in their answers to the complaint are reasonably proportionate to the sufferings they underwent (Art. 2219,New Civil Code). Moreover, because of the falsity, malice and baseless nature of the complaint defendantswere compelled to litigate. Hence, the award of attorneys fees is warranted under the circumstances (Art.2208, New Civil Code).[6]

From the trial courts adverse decision, petitioner elevated the matter to the Court of Appeals. On October20, 1992, the Court of Appeals, however, rendered a decision [7]affirming in toto the lower courts decision. Hismotion for reconsideration having been denied on October 19, 1993, petitioner now files the instant petitionalleging that:

I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS COMPLAINT AND IN HOLDING THATTHE PLAINTIFF ACTUALLY RECEIVED A GENUINE PAIR OF EMERALD CUT DIAMONDEARRING(S) FROM DEFENDANT CRUZ x x x;

II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR OF DEFENDANTS AND AGAINST THE PLAINTIFF IN THISCASE; and

III.THE TRIAL COURT ERRED IN NOT DECLARING THE DEED OF SALE OF THE TANAYPROPERTY (EXH. `D) AS NULL AND VOID OR IN NOT ANNULLING THE SAME, AND INFAILING TO GRANT REASONABLE DAMAGES IN FAVOR OF THE PLAINTIFF.[8]

As to the first allegation, the Court observes that petitioner is essentially raising a factual issue as it invitesus to examine and weigh anew the facts regarding the genuineness of the earrings bartered in exchange forthe Tanay property. This, of course, we cannot do without unduly transcending the limits of our review power inpetitions of this nature which are confined merely to pure questions of law. We accord, as a general rule,

conclusiveness to a lower courts findings of fact unless it is shown, inter alia, that: (1) the conclusion is a





















finding grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurdand impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on amisapprehension of facts; (5) when the findings of fact are conflicting; and (6) when the Court of Appeals, inmaking its findings, went beyond the issues of the case and the same is contrary to the admission of bothparties.[9] We find nothing, however, that warrants the application of any of these exceptions.

Consequently, this Court upholds the appellate courts findings of fact especially because these concurwith those of the trial court which, upon a thorough scrutiny of the records, are firmly grounded on evidencepresented at the trial.[10] To reiterate, this Courts jurisdiction is only limited to reviewing errors of law in the

absence of any showing that the findings complained of are totally devoid of support in the record or that theyare glaringly erroneous as to constitute serious abuse of discretion. [11]

Nonetheless, this Court has to closely delve into petitioners allegation that the lower courts decision ofMarch 7, 1989 is a ready-made one because it was handed down a day after the last date of the trial of thecase.[12] Petitioner, in this regard, finds it incredible that Judge J. Ausberto Jaramillo was able to write a 12-page single-spaced decision, type it and release it on March 7, 1989, less than a day after the last hearing onMarch 6, 1989. He stressed that Judge Jaramillo replaced Judge Salvador de Guzman and heard only hisrebuttal testimony.

This allegation is obviously no more than a desperate effort on the part of petitioner to disparage the lowercourts findings of fact in order to convince this Court to review the same. It is noteworthy that Atty. Belarminoclarified that Judge Jaramillo had issued the first order in the case as early as March 9, 1987 or two years

before the rendition of the decision. In fact, Atty. Belarmino terminated presentation of evidence on October 13,1987, while Dr. Cruz finished hers on February 4, 1989, or more than a month prior to the rendition of the

judgment. The March 6, 1989 hearing was conducted solely for the presentation of petitioner's rebuttaltestimony.[13] In other words, Judge Jaramillo had ample time to study the case and write the decision becausethe rebuttal evidence would only serve to confirm or verify the facts already presented by the parties.

The Court finds nothing anomalous in the said situation. No proof has been adduced that Judge Jaramillowas motivated by a malicious or sinister intent in disposing of the case with dispatch. Neither is there proof thatsomeone else wrote the decision for him. The immediate rendition of the decision was no more than JudgeJaramillos compliance with his duty as a judge to dispose of the courts business promptly and decide caseswithin the required periods.[14] The two-year period within which Judge Jaramillo handled the case provided himwith all the time to study it and even write down its facts as soon as these were presented to court. In fact, thisCourt does not see anything wrong in the practice of writing a decision days before the scheduledpromulgation of judgment and leaving the dispositive portion for typing at a time close to the date ofpromulgation, provided that no malice or any wrongful conduct attends its adoption . [15] The practice serves thedual purposes of safeguarding the confidentiality of draft decisions and rendering decisions withpromptness. Neither can Judge Jaramillo be made administratively answerable for the immediate rendition ofthe decision. The acts of a judge which pertain to his judicial functions are not subject to disciplinary powerunless they are committed with fraud, dishonesty, corruption or bad faith. [16] Hence, in the absence of sufficientproof to the contrary, Judge Jaramillo is presumed to have performed his job in accordance with law andshould instead be commended for his close attention to duty.

Having disposed of petitioners first contention, we now come to the core issue of this petition which iswhether the Court of Appeals erred in upholding the validity of the contract of barter or sale under thecircumstances of this case.

The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties arebound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which,according to their nature, may be in keeping with good faith, usage and law. [17] A contract of sale is perfected atthe moment there is a meeting of the minds upon the thing which is the object of the contract and upon theprice.[18] Being consensual, a contract of sale has the force of law between the contracting parties and they areexpected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Codewhich requires the embodiment of certain contracts in a public instrument, is only for convenience, [19] andregistration of the instrument only adversely affects third parties. [20] Formal requirements are, therefore, for thebenefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor thecontractual rights and obligations of the parties thereunder.

It is evident from the facts of the case that there was a meeting of the minds between petitioner and Dr.

Cruz. As such, they are bound by the contract unless there are reasons or circumstances that warrant itsnullification. Hence, the problem that should be addressed in this case is whether or not under the facts dulyestablished herein, the contract can be voided in accordance with law so as to compel the parties to restore toeach other the things that have been the subject of the contract with their fruits, and the price with interest. [21]

Contracts that are voidable or annullable, even though there may have been no damage to the contractingparties are: (1) those where one of the parties is incapable of giving consent to a contract; and (2) those wherethe consent is vitiated by mistake, violence, intimidation, undue influence or fraud. [22] Accordingly, petitionernow stresses before this Court that he entered into the contract in the belief that the pair of emerald-cutdiamond earrings was genuine. On the pretext that those pieces of jewelry turned out to be counterfeit,however, petitioner subsequently sought the nullification of said contract on the ground that it was, in fact,tainted with fraud[23] such that his consent was vitiated.

There is fraud when, through the insidious words or machinations of one of the contracting parties, theother is induced to enter into a contract which, without them, he would not have agreed to. [24] The records,


































































however, are bare of any evidence manifesting that private respondents employed such insidious words ormachinations to entice petitioner into entering the contract of barter. Neither is there any evidence showing thatDr. Cruz induced petitioner to sell his Tanay property or that she cajoled him to take the earrings in exchangefor said property.On the contrary, Dr. Cruz did not initially accede to petitioners proposal to buy the said

jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the Tanayproperty was worth exchanging for her jewelry as he represented that its value was P

400,000.00 or more thandouble that of the jewelry which was valued only at P160,000.00. If indeed petitioners property was truly worththat much, it was certainly contrary to the nature of a businessman-banker like him to have parted with his realestate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to

exchange her jewelry for the Tanay property.

Moreover, petitioner did not clearly allege mistake as a ground for nullification of the contract of sale. Evenassuming that he did, petitioner cannot successfully invoke the same. To invalidate a contract, mistake mustrefer to the substance of the thing that is the object of the contract, or to those conditions which haveprincipally moved one or both parties to enter into the contract. [25] An example of mistake as to the object of thecontract is the substitution of a specific thing contemplated by the parties with another . [26] In his allegations inthe complaint, petitioner insinuated that an inferior one or one that had only Russian diamonds was substitutedfor the jewelry he wanted to exchange with his 10-hectare land. He, however, failed to prove the fact that priorto the delivery of the jewelry to him, private respondents endeavored to make such substitution.

Likewise, the facts as proven do not support the allegation that petitioner himself could be excused for themistake. On account of his work as a banker-jeweler, it can be rightfully assumed that he was an expert onmatters regarding gems. He had the intellectual capacity and the business acumen as a banker to takeprecautionary measures to avert such a mistake, considering the value of both the jewelry and his land. Thefact that he had seen the jewelry before October 24, 1984 should not have precluded him from having itsgenuineness tested in the presence of Dr. Cruz. Had he done so, he could have avoided the present situationthat he himself brought about. Indeed, the finger of suspicion of switching the genuine jewelry for a fakeinevitably points to him. Such a mistake caused by manifest negligence cannot invalidate a juridical act . [27] Asthe Civil Code provides, (t)here is no mistake if the party alleging it knew the doubt, contingency or riskaffecting the object of the contract.[28]

Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil Codewithin which to examine the jewelry as he in fact accepted them when asked by Dr. Cruz if he was satisfiedwith the same.[29] By taking the jewelry outside the bank, petitioner executed an act which was more consistent

with his exercise of ownership over it. This gains credence when it is borne in mind that he himself had earlierdelivered the Tanay property to Dr. Cruz by affixing his signature to the contract of sale. That after two hourshe later claimed that the jewelry was not the one he intended in exchange for his Tanay property, could notsever the juridical tie that now bound him and Dr. Cruz. The nature and value of the thing he had takenpreclude its return after that supervening period within which anything could have happened, not excluding thealteration of the jewelry or its being switched with an inferior kind.

Both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for thenullification of the contract of sale. Ownership over the parcel of land and the pair of emerald-cut diamondearrings had been transferred to Dr. Cruz and petitioner, respectively, upon the actual and constructivedelivery thereof .[30] Said contract of sale being absolute in nature, title passed to the vendee upon delivery ofthe thing sold since there was no stipulation in the contract that title to the property sold has been reserved inthe seller until full payment of the price or that the vendor has the right to unilaterally resolve the contract themoment the buyer fails to pay within a fixed period.[31] Such stipulations are not manifest in the contract of sale.

While it is true that the amount of P40,000.00 forming part of the consideration was still payable topetitioner, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the transfer ofownership and possession of the things exchanged considering the fact that their contract is silent as to whenit becomes due and demandable.[32]

Neither may such failure to pay the balance of the purchase price result in the payment of interestthereon. Article 1589 of the Civil Code prescribes the payment of interest by the vendee for the period betweenthe delivery of the thing and the payment of the price in the following cases:

(1) Should it have been so stipulated;

(2) Should the thing sold and delivered produce fruits or income;

(3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of theprice.

Not one of these cases obtains here. This case should, of course, be distinguished from De la Cruz v.Legaspi ,[33] where the court held that failure to pay the consideration after the notarization of the contract aspreviously promised resulted in the vendees liability for payment of interest. In the case at bar, there is nostipulation for the payment of interest in the contract of sale nor proof that the Tanay property produced fruitsor income. Neither did petitioner demand payment of the price as in fact he filed an action to nullify the contractof sale.

All told, petitioner appears to have elevated this case to this Court for the principal reason of mitigating theamount of damages awarded to both private respondents which petitioner considers as exorbitant. He

contends that private respondents do not deserve at all the award of damages. In fact, he pleads for the total







































deletion of the award as regards private respondent Belarmino whom he considers a mere nominal partybecause no specific claim for damages against him was alleged in the complaint. When he filed the case, allthat petitioner wanted was that Atty. Belarmino should return to him the owners duplicate copy of TCT No.320725, the deed of sale executed by Fr. Antonio Jacobe, the deed of redemption and the check alloted forexpenses. Petitioner alleges further that Atty. Belarmino should not have delivered all those documents to Dr.Cruz because as the lawyer for both the seller and the buyer in the sale contract, he should have protected therights of both parties. Moreover, petitioner asserts that there was no firm basis for damages except for Atty.Belarminos uncorroborated testimony.[34]

Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding suchdamages, the court shall take into account the circumstances obtaining in the case and assess damagesaccording to its discretion.[35] To warrant the award of damages, it must be shown that the person to whomthese are awarded has sustained injury. He must likewise establish sufficient data upon which the court canproperly base its estimate of the amount of damages. [36] Statements of facts should establish such data ratherthan mere conclusions or opinions of witnesses.[37] Thus:

x x x. For moral damages to be awarded, it is essential that the claimant must have satisfactorilyproved during the trial the existence of the factual basis of the damages and its causal connection withthe adverse partys acts. If the court has no proof or evidence upon which the claim for moral damagescould be based, such indemnity could not be outrightly awarded. The same holds true with respect tothe award of exemplary damages where it must be shown that the party acted in a wanton, oppressiveor malevolent manner .[38]

In this regard, the lower court appeared to have awarded damages on a ground analogous to maliciousprosecution under Article 2219(8) of the Civil Code [39] as shown by (1) petitioners wanton bad faith in bloatingthe value of the Tanay property which he exchanged for a genuine pair of emerald-cut diamondworth P200,000.00; and (2) his filing of a malicious and unfounded case against private respondents who werewell known, respected and held in high esteem in San Pablo City where everybody practically knowseverybody and whose good names in the twilight of their lives were soiled by petitioners coming to court withunclean hands, thereby affecting their earning capacity in the exercise of their respective professions andbesmirching their reputation.

For its part, the Court of Appeals affirmed the award of damages to private respondents for these reasons:

The malice with which Fule filed this case is apparent. Having taken possession of the genuine jewelry

of Dra. Cruz, Fule now wishes to return a fake jewelry to Dra. Cruz and, more than that, get back thereal property, which his bank owns. Fule has obtained a genuine jewelry which he could sell anytime,anywhere and to anybody, without the same being traced to the original owner for practicallynothing. This is plain and simple, unjust enrichment.[40]

While, as a rule, moral damages cannot be recovered from a person who has filed a complaint againstanother in good faith because it is not sound policy to place a penalty on the right to litigate , [41] the same,however, cannot apply in the case at bar. The factual findings of the courts a quo to the effect that petitionerfiled this case because he was the victim of fraud; that he could not have been such a victim because heshould have examined the jewelry in question before accepting delivery thereof, considering his exposure tothe banking and jewelry businesses; and that he filed the action for the nullification of the contract of sale withunclean hands, all deserve full faith and credit to support the conclusion that petitioner was motivated more byill will than a sincere attempt to protect his rights in commencing suit against respondents.

As pointed out earlier, a closer scrutiny of the chain of events immediately prior to and on October 24,1984 itself would amply demonstrate that petitioner was not simply negligent in failing to exercise due diligenceto assure himself that what he was taking in exchange for his property were genuine diamonds. He had ratherplaced himself in a situation from which it preponderantly appears that his seeming ignorance was actually justa ruse. Indeed, he had unnecessarily dragged respondents to face the travails of litigation in speculating at thepossible favorable outcome of his complaint when he should have realized that his supposed predicament washis own making. We, therefore, see here no semblance of an honest and sincere belief on his part that he wasswindled by respondents which would entitle him to redress in court. It must be noted that before petitioner wasable to convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner took pains to thoroughlyexamine said jewelry, even going to the extent of sketching their appearance. Why at the precise momentwhen he was about to take physical possession thereof he failed to exert extra efforts to check their

genuineness despite the large consideration involved has never been explained at all by petitioner. His actsthus failed to accord with what an ordinary prudent man would have done in the same situation. Being anexperienced banker and a businessman himself who deliberately skirted a legal impediment in the sale of theTanay property and to minimize the capital gains tax for its exchange, it was actually gross recklessness forhim to have merely conducted a cursory examination of the jewelry when every opportunity for doing so wasnot denied him. Apparently, he carried on his person a tester which he later used to prove the alleged fakerybut which he did not use at the time when it was most needed. Furthermore, it took him two more hours ofunexplained delay before he complained that the jewelry he received were counterfeit. Hence, we statedearlier that anything could have happened during all the time that petitioner was in complete possession andcontrol of the jewelry, including the possibility of substituting them with fake ones, against which respondentswould have a great deal of difficulty defending themselves. The truth is that petitioner even failed tosuccessfully prove during trial that the jewelry he received from Dr. Cruz were not genuine. Add to that the fact

that he had been shrewd enough to bloat the Tanay propertys price only a few days after he purchased it at amuch lower value. Thus, it is our considered view that if this slew of circumstances were connected, like pieces


































of fabric sewn into a quilt, they would sufficiently demonstrate that his acts were not merely negligent but ratherstudied and deliberate.

We do not have here, therefore, a situation where petitioners complaint was simply found later to be basedon an erroneous ground which, under settled jurisprudence, would not have been a reason for awarding moraland exemplary damages.[42] Instead, the cause of action of the instant case appears to have been contrived bypetitioner himself. In other words, he was placed in a situation where he could not honestly evaluate whetherhis cause of action has a semblance of merit, such that it would require the expertise of the courts to put it to atest. His insistent pursuit of such case then coupled with circumstances showing that he himself was guilty in

bringing about the supposed wrongdoing on which he anchored his cause of action would render himanswerable for all damages the defendant may suffer because of it. This is precisely what took place in thepetition at bar and we find no cogent reason to disturb the findings of the courts below that respondents in thiscase suffered considerable damages due to petitioners unwarranted action.

WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is hereby AFFIRMED intoto. Dr. Cruz, however, is ordered to pay petitioner the balance of the purchase price of P40,000.00 within ten(10) days from the finality of this decision. Costs against petitioner.

SO ORDERED.

G.R. No. 115307 July 8, 1997

MANUEL LAO, petitioner,

vs.

COURT OF APPEALS and BETTER HOMES REALTY & HOUSING CORPORATION, respondents.







PANGANIBAN, J.:

As a general rule, the main issue in an ejectment suit is possession de facto, not possession de jure. In the event the

issue of ownership is raised in the pleadings, such issue shall be taken up only for the limited purpose of determining

who between the contending parties has the better right to possession. However, where neither of the parties objects

to the allegation of the question of ownership — which may be initially improvident or improper — in an ejectment suit

and, instead, both present evidence thereon, argue the question in their various submissions and participate in allaspects of the trial without objecting to the Metropolitan (or Municipal) Trial Court's jurisdiction to decide the question

of ownership, the Regional Trial Court — in the exercise of its original jurisdiction as authorized by Section 11, Rule 40 of

the Rules of Court — may rule on the issue and the corollary question of whether the subject deed is one of sale or of

equitable mortgage.

These postulates are discussed by the Court as it resolves this petition under Rule 45 seeking a reversal of the December

21, 1993 Decision 1 and April 28, 1994 Resolution 2 of the Court of Appeals in CA-G.R. SP No. 92-14293.

The Antecedent Facts

The facts of this case are narrated by Respondent Court of Appeals as follows: 3

On June 24, 1992, (herein Private Respondent Better Homes Realty and Housing Corporation) filed with the

Metropolitan Trial Court of Quezon City, a complaint for unlawful detainer, on the ground that (said private respondent)

is the owner of the premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, evidenced by Transfer Certificate

of Title No. 22184 of the Registry of Deeds of Quezon City; that (herein Petitioner Manuel Lao) occupied the property

without rent, but on (private respondent's) pure liberality with the understanding that he would vacate the property

upon demand, but despite demand to vacate made by letter received by (herein petitioner) on February 5, 1992, the

(herein petitioner) refused to vacate the premises.

In his answer to the complaint, (herein petitioner) claimed that he is the true owner of the house and lot located at Unit

I, No. 21 N. Domingo Street, Quezon City; that the (herein private respondent) purchased the same from N. Domingo

Realty and Development Corporation but the agreement was actually a loan secured by mortgage; and that plaintiff's

cause of action is for accion publiciana, outside the jurisdiction of an inferior court.

On October 9, 1992, the Metropolitan Trial Court of Quezon City rendered judgment ordering the (petitioner) to vacate

the premises located at Unit I, No. 21 N. Domingo Street, Quezon City; to pay (private respondent) the sum of P300.00 a

day starting on January 31, 1992, as reasonable rent for the use and occupation of the premises; to pay plaintiff

P5,000.00, as attorney's fees, and costs.

On appeal to the Regional Trial Court of Quezon City, 4 on March 30, 1993, the latter court rendered a decision reversing

that of the Metropolitan Trial Court, and ordering the dismissal of the (private respondent's) complaint for lack of merit,

with costs taxed against (private respondent).

In its decision, the Regional Trial Court held that the subject property was acquired by (private respondent) from N.

Domingo Realty and Development Corporation, by a deed of sale, and (private respondent) is now the registered owner

under Transfer Certificate of Title No. 316634 of the Registry of Deeds of Quezon City, but in truth the (petitioner) is the

beneficial owner of the property because the real transaction over the subject property was not a sale but a loan

secured by a mortgage thereon.

The dispositive portion of the Regional Trial Court's decision is quoted below: 5

WHEREFORE, judgment is hereby rendered reversing the appealed decision and ordering the dismissal of plaintiffs

complaint for lack of merit, with the costs taxed against it.

IT IS SO ORDERED.

On April 28, 1993, private respondent filed an appeal with the Court of Appeals which reversed the decision of the

Regional Trial Court. The Respondent Court ruled:



The Metropolitan Trial Court has no jurisdiction to resolve the issue of ownership in an action for unlawful detainer (B.P.

129, Sec. 33 [2]; Cf. Alvir vs. Vera, 130 SCRA 357). The jurisdiction of a court is determined by the nature of the action

alleged in the complaint (Ching vs. Malaya, l53 SCRA 412). In its complaint in the inferior court, the plaintiff alleged that

it is the owner of the premises located at Unit I, No. 21 N. Domingo Street, Quezon City, and that defendant's occupation

is rent free and based on plaintiffs pure liberality coupled with defendant's undertaking to vacate the premises upon

demand, but despite demands, defendant has refused to vacate. The foregoing allegations suffice to constitute a cause

of action for ejectment (Banco de Oro vs. Court of Appeals, 182 SCRA 464).

The Metropolitan Trial Court is not ousted of jurisdiction simply because the defendant raised the question ownership

(Bolus vs. Court of Appeals, 218 SCRA 798). The inferior court shall resolve the issue of ownership only to determine who

is entitled to the possession of the premises (B.P. 129, Sec. 33[2]; Bolus vs. Court of Appeals, supra).

Here, the Metropolitan Trial Court ruled that as owner, plaintiff (herein private respondent Better Homes Realty and

Housing Corporation) is entitled to the possession of the premises because the defendant's stay is by mere tolerance of

the plaintiff (herein private respondent).

On the other hand, the Regional Trial Court ruled that the subject property is owned by the defendant, (herein

petitioner Manuel Lao) and, consequently, dismissed the complaint for unlawful detainer. Thus, the Regional Trial Courtresolved the issue of ownership, as if the case were originally before it as an action for recovery of possession, or accion

publiciana, within its original jurisdiction. In an appeal from a decision of the Municipal Trial Court, or Metropolitan Trial

Court, in an unlawful detainer case, the Regional Trial Court is simply to determine whether the inferior court correctly

resolved the issue of possession; it shall not delve into the issue of ownership (Manuel vs. Court of Appeals, 199 SCRA

603). What the Regional Trial Court did was to rule that the real agreement between the plaintiff and the previous

owner of the property was not a sale, but an equitable mortgage. Defendant was only a director of the seller

corporation, and his claim of ownership could not be true. This question could not be determined summarily. It was not

properly in issue before the inferior court because, as aforesaid, the only issue was possession de facto (Manlapaz vs.

Court of Appeals, 191 SCRA 795), or who has a better right to physical possession (Dalida vs. Court of Appeals, 117 SCRA

480). Consequently, the Regional Trial Court erred in reversing the decision of the Metropolitan Trial Court.

WHEREFORE, the Court hereby REVERSES the decision of the Regional Trial Court. In lieu thereof, We affirm the decision

of the Metropolitan Trial Court of Quezon City sentencing the defendant and all persons claiming right under him to

vacate the premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, and to surrender possession to the

plaintiff; to pay plaintiff the sum of P300.00, a day starting on January 31, 1992, until defendant shall have vacated the

premises; to pay plaintiff P5,000.00 as attorneys fees, and costs.

SO ORDERED. 6

Manuel Lao's motion for reconsideration dated January 24, 1994 was denied by the Court of Appeals in its Resolution

promulgated on April 28, 1994. Hence, this petition for review before this Court. 7

The Issues

Petitioner Manuel Lao raises three issues:

3.1 Whether or not the lower court can decide on the issue of ownership in the present ejectment case.

3.2 Whether or not private respondent had acquired ownership over the property in question.

3.3 Whether or not petitioner should be ejected from the premises in question 8

The Court's Ruling

The petition for review is meritorious.

First Issue: Jurisdiction to Decide the Issue of Ownership

The Court of Appeals held that as a general rule, the issue in an ejectment suit is possession de facto, not possession de

jure, and that in the event the issue of ownership is raised as a defense, the issue is taken up for the limited purpose of



determining who between the contending parties has the better right to possession. Beyond this, the MTC acts in excess

of its jurisdiction. However, we hold that this is not a hard and fast rule that can be applied automatically to all unlawful

detainer cases.

Section 11, Rule 40 of the Rules of Court provides that "[a] case tried by an inferior court without jurisdiction over the

subject matter shall be dismissed on appeal by the Court of First Instance. But instead of dismissing the case, the Court

of First Instance, in the exercise of its original jurisdiction, may try the case on the merits if the parties therein file their

pleadings and go to the trial without any objection to such jurisdiction." After a thorough review of the records of this

case, the Court finds that the respondent appellate court failed to apply this Rule and erroneously reversed the RTCDecision.

Respondent Court cites Alvir vs. Vera to support its Decision. On the contrary, we believe such case buttresses instead

the Regional Trial Court's decision. The cited case involves an unlawful detainer suit where the issue of possession was

inseparable from the issue of transfer of ownership, and the latter was determinable only after an examination of a

contract of sale involving the property in question. The Court ruled that where a "case was tried and heard by the lower

court in the exercise of its original jurisdiction by common assent of the parties by virtue of the issues raised . . . and the

proofs presented by them," any dismissal on the ground of lack of jurisdiction "would only lead to needless delays and

multiplicity of suits." The Court held:

In actions of forcible entry and detainer, the main issue is possession de facto, independently of any claim of ownershipor possession de jure that either party may set forth in his pleading. . . . Defendant's claim of ownership of the property

from which plaintiff seeks to eject him is not sufficient to divest the inferior court of its jurisdiction over the action of

forcible entry and detainer. However, if it appears during the trial that the principal issue relates to the ownership of the

property in dispute and any question of possession which maybe involved necessarily depends upon the result of the

inquiry into the title, previous rulings of this Court are that the jurisdiction of the municipal or city court is lost and the

action should be dismissed.

We have at bar a case where, in effect, the question of physical possession could not properly be determined without

settling that of lawful or de jure possession and of ownership and hence, following early doctrine, the jurisdiction of the

municipal court over the ejectment case was lost and the action should have been dismissed. As a consequence,respondent court would have no jurisdiction over the case on appeal and it should have dismissed the case on appeal

from the municipal trial court. However, in line with Section 11, Rule 40 of the Revised Rules of Court, which

reads —

Sec. 11. Lack of Jurisdiction. — A case tried by an inferior court without jurisdiction over the subject matter shall be

dismissed on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance in the

exercise of its original jurisdiction, may try the case on the merits if the parties therein file their pleadings and go to trial

without objection to such jurisdiction.

this Court held in Saliwan vs. Amores, 51 SCRA 329, 337, that dismissal "on the said ground of lack of appellate

jurisdiction on the part of the lower court flowing from the municipal court's loss of jurisdiction would lead only to

needless delay and multiplicity of suits in the attainment of the same result and ignores, as above stated, that the case

was tried and heard by the lower court in the exercise of its original jurisdiction by common assent of the parties by

virtue of the issues raised by the parties and the proof presented by them thereon." 9

This pronouncement was reiterated by this Court through Mr. Justice Teodoro R. Padilla in Consignado vs. Court of

Appeals 10 as follows:

As the MTC of Laguna had no jurisdiction over the unlawful detainer case in view of the raised question of title or

ownership over the property in dispute, the RTC of Laguna also had no appellate jurisdiction to decide the case on the

merits. It should have dismissed the appeal. However, it had original jurisdiction to pass upon the controversy. It is to be

noted, in this connection, that in their respective memoranda filed with the RTC of Laguna, the petitioners and private

respondents did not object to the said court exercising its original jurisdiction pursuant to the aforequoted provisions of

Section 11, Rule 40 of the Rules of Court.

xxx xxx xxx

Petitioners now contend, among others, that the Court of Appeals erred in resolving the question of ownership as if

actual title, not mere possession of subject premises, is involved in the instant case.

The petitioner's contention is untenable. Since the MTC and RTC of Laguna decided the question of ownership over the

property in dispute, on appeal the Court of Appeals had to review and resolve also the issue of ownership. . . .



It is clear, therefore, that although an action for unlawful detainer "is inadequate for the ventilation of issues involving

title or ownership of controverted real property, [i]t is more in keeping with procedural due process that where issues of

title or ownership are raised in the summary proceedings for unlawful detainer, said proceeding should be dismissed for

lack of jurisdiction, unless, in the case of an appeal from the inferior court to the Court of First Instance, the parties

agree to the latter Court hearing the case in its original jurisdiction in accordance with Section 11, Rule 40 . . ." 11

In the case at bar, a determination of the issue of ownership is indispensable to resolving the rights of both parties overthe property in controversy, and is inseparable from a determination of who between them has the right to possess the

same. Indeed, the very complaint for unlawful detainer filed in the Metropolitan Trial Court of Quezon City is anchored

on the alleged ownership of private respondent over the subject premises. 12 The parties did not object to the

incongruity of a question of ownership being brought in an ejectment suit. Instead they both submitted evidence on

such question, and the Metropolitan Trial Court decided on the issue. These facts are evident in the Metropolitan Trial

Court's decision:

From the records of the case, the evidence presented and the various arguments advanced by the parties, the Court

finds that the property subject matter of this case is in the name of (herein private respondent) Better Homes and Realty

Housing Corporation; that the Deed of Absolute Sale which was the basis for the issuance of said TCT No. 22184 isbetween N. Domingo Realty and Development Corporation and Better Homes Realty and Housing Corporation which

was signed by Artemio S. Lao representing the seller N. Domingo and Realty Development Corporation; that a Board

Resolution of N. Domingo and Realty and Development Corporation (Exhibit "D" position paper) shows that the

Directors of the Board of the N. Domingo Realty and Development Corporation passed a resolution selling apartment

units I and F located at No. 21 N. Domingo St., Quezon City and designating the (herein petitioner) with his brother

Artemio S. Lao as signatories to the Deed of Sale. The claim therefore of the (herein petitioner) that he owns the

property is not true . . . 13

When the MTC decision was appealed to the Regional Trial Court, not one of the parties questioned the Metropolitan

Trial Court's jurisdiction to decide the issue of ownership. In fact, the records show that both petitioner and privaterespondent discussed the issue in their respective pleadings before the Regional Trial Court. 14 They participated in all

aspects of the trial without objection to its jurisdiction to decide the issue of ownership. Consequently, the Regional Trial

Court aptly decided the issue based on the exercise of its original jurisdiction as authorized by Section 11, Rule 40 of the

Rules of Court.

This Court further notes that in both of the contending parties' pleadings filed on appeal before the Court of Appeals,

the issue of ownership was likewise amply discussed. 15 The totality of evidence presented was sufficient to decide

categorically the issue of ownership.

These considerations, taken together with the fact that both the Metropolitan Trial Court and the Regional Trial Court

decided the issue of ownership, justify the review of the lower courts' findings of fact and decision on the issue of

ownership. This we now do, as we dispose of the second issue and decide the case with finality to spare the parties the

time, trouble and expense of undergoing the rigors of another suit where they will have to present the same evidence all

over again and where, in all probability, the same ultimate issue of ownership will be brought up on appeal.

Second Issue: Absolute Sale or Equitable Mortgage?

Private Respondent Better Homes Realty and Housing Corporation anchored its right in the ejectment suit on a contract

of sale in which petitioner (through their family corporation) transferred the title of the property in question. Petitioner

contends, however that their transaction was not an absolute sale, but an equitable mortgage.

In determining the nature of a contract, the Court looks at the intent of the parties and not at the nomenclature used to

describe it. Pivotal to deciding this issue is the true aim and purpose of the contracting parties as shown by the

terminology used in the covenant, as well as "by their conduct, words, actions and deeds prior to, during and

immediately after executing the agreement." 16 In this regard, parol evidence becomes admissible to prove the true

intent and agreement of the parties which the Court will enforce even if the title of the property in question has already

been registered and a new transfer certificate of title issued in the name of the transferee. In Macapinlac vs. Gutierrez

Repide, which involved an identical question, the Court succintly stated:



. . . This conclusion is fully supported by the decision in Cuyugan vs. Santos (34 Phil., 100), where this court held that a

conveyance in the form of a contract of sale with pacto de retro will be treated as a mere mortgage, if really executed as

security for a debt, and that this fact can be shown by oral evidence apart from the instrument of conveyance, a

doctrine which has been followed in the later cases of Villa vs. Santiago (38 Phil., 157), and Cuyugan vs. Santos (39 Phil.,

970).

xxx xxx xxx

In the first place, it must be borne in mind that the equitable doctrine which has been so fully stated above, to the effect

that any conveyance intended as security for a debt will be held in effect to be a mortgage, whether so actually

expressed in the instrument or not, operates regardless of the form of the agreement chosen by the contracting parties

as the repository of their will. Equity looks through the form and considers the substance; and no kind of engagement

can be adopted which will enable the parties to escape from the equitable doctrine to which reference is made. In other

words, a conveyance of land, accompanied by registration in the name of the transferee and the issuance of a new

certificate, is no more secured from the operation of this equitable doctrine than the most informal conveyance that

could be devised. 17

The law enumerates when a contract may be presumed to be an equitable mortgage:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right repurchase another instrument extending the period of

redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall

secure the payment of a debt or the performance of any other obligation.

xxx xxx xxx 18

The foregoing presumption applies also to a "contract purporting to be an absolute sale." 19

Applying the preceding principles to the factual milieu of this case, we find the agreement between the private

respondent and N. Domingo Realty & Housing Corporation, as represented by petitioner, manifestly one of equitable

mortgage. First, possession of the property in the controversy remained with Petitioner Manuel Lao who was the

beneficial owner of the property, before, during and after the alleged sale. 20 It is settled that a "pacto de retro sale

should be treated as a mortgage where the (property) sold never left the possession of the vendors." 21 Second, the

option given to Manuel Lao to purchase the property in controversy had been extended twice 22 through documents

executed by Mr. Tan Bun Uy, President and Chairman of the Board of Better Homes Realty & Housing Corporation. The

wording of the first extension is a refreshing revelation that indeed the parties really intended to be bound by a loan

with mortgage, not by a pacto de retro. It reads, "On June 10, 88, this option is extended for another sixty days to

expired (sic) on Aug. 11, 1988. The purchase price is increased to P137,000.00. Since Mr. Lao borrow (sic) P20,000.00

from me." 23 These extensions clearly represent the extension of time to pay the loan given to Manuel Lao upon his

failure to pay said loan on its maturity. Mr. Lao was even granted an additional loan of P20,000.00 as evidenced by the

above-quoted document. Third, unquestionably, Manuel Lao and his brother were in such "dire need of money" that

they mortgaged their townhouse units registered under the name of N. Domingo Realty Corporation, the family

corporation put up by their parents, to Private Respondent Better Homes Realty & Housing Corporation. In retrospect, it

is easy to blame Petitioner Manuel Lao for not demanding a reformation of the contract to reflect the true intent of the

parties. But this seeming inaction is sufficiently explained by the Lao brothers' desperate need for money, compelling

them to sign the document purporting to be a sale after they were told that the same was just for "formality." 24 In fact,

this Court, in various cases involving the same situation, had occasion to state:



. . . In Jayme, et al. v. Salvador, et al., this Court upheld a judgment of the Court of First Instance of Iloilo which found the

transaction between the parties to be a loan instead of a sale of real property notwithstanding the terminology used in

the document, after taking into account the surrounding circumstances of the transaction. The Court through Justice

Norberto Romualdez stated that while it was true that plaintiffs were aware of the contents of the contracts, the

preponderance of the evidence showed however that they signed knowing that said contracts did not express their real

intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining fund. "Necessitous men

are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may

impose upon them." 25

Moreover, since the borrower's urgent need for money places the latter at a disadvantage vis-a-vis the lender who can

thus dictate the terms of their contract, the Court, in case of an ambiguity, deems the contract to be one which involves

the lesser transmission of rights and interest over the property in controversy. 26

As aptly found and concluded by the regional trial court:

The evidence of record indicates that while as of April 4, 1988 (the date of execution of the Deed of Absolute Sale

whereby the N. Domingo and Realty & Development Corporation purportedly sold the townhouse and lot subject of this

suit to [herein private respondent Better Homes Realty & Housing Corporation] for P100,000.000) said N. DomingoRealty & Development Corporation (NDRDC, for short) was the registered owner of the subject property under Transfer

Certificate of Title (TCT) No. 316634 of the Registry of Deeds for Quezon City, (herein petitioner Manuel Lao) in fact was

and has been since 1975 the beneficial owner of the subject property and, thus, the same was assigned to him by the

NDRDC, the family corporation set up by his parents and of which (herein petitioner) and his siblings are directors. That

the parties' real transaction or contract over the subject property was not one of sale but, rather, one of loan secured,

by a mortgage thereon is unavoidably inferrable from the following facts of record, to (herein petitioner's) possession of

the subject property, which started in 1975 yet, continued and remained even after the alleged sale of April 4, 1988;

(herein private respondent) executed an option to purchase in favor (herein petitioner) as early as April 2, 1988 or two

days before (herein private respondent) supposedly acquired ownership of the property; the said option was renewed

several times and the price was increased with each renewal (thus, the original period for the exercise of the option wasup to June 11, 1988 and the price was P109,000.00; then, on June 10, 1988, the option was extended for 60 days or until

August 11, 1988 and the price was increased to P137,000.00; and then on August 11, 1988, the option was again

extended until November 11,1988 and the price was increased to P158,840.00); and, the Deed of Absolute Sale of April

4, 1988 was registered and the property transferred in the name of (private respondent) only on May 10, 1989, per TCT

No. 22184 of the Registry of Deeds for Quezon City (Arts. 1602, nos. 2, 3, & 6, & 1604, Civil Code). Indeed, if it were true,

as it would have the Court believe, that (private respondent) was so appreciative of (petitioner's) alleged facilitation of

the subject property's sale to it, it is quite strange why (private respondent) some two days before such supposed sale

would have been minded and inclined to execute an option to purchase allowing (petitioner) to acquire the property —

the very same property it was still hoping to acquire at the time. Certainly, what is more likely and thus credible is that, if

(private respondent) was indeed thankful that it was able to purchase the property, it would not given (petitioner) any

option to purchase at all . . . 27

Based on the conduct of the petitioner and private respondent and even the terminology of the second option to

purchase, we rule that the intent and agreement between them was undoubtedly one of equitable mortgage and not of

sale.

Third Issue: Should Petitioner Be Ejected?

We answer in the negative. An action for unlawful detainer is grounded on Section 1, Rule 70 of the Rules of Court which

provides that:

. . . a landlord, vendor, vendee, or other person against whom the possession of any land or building is unlawfully

withheld after the expiration or termination of the right to hold possession, by virtue of any contract, express or implied,

or the legal representatives or assigns of any such landlord, vendor, vendee, or other person, may, at any time within

one (1) year after such unlawful deprivation or withholding of possession, bring an action in the proper inferior court

against the person or persons unlawfully withholding or depriving of possession, or any person or persons claiming

under them, for the restitution of such possession, together with damages and costs . . . .

Based on the previous discussion, there was no sale of the disputed property. Hence, it still belongs to petitioner's family

corporation, N. Domingo Realty & Development Corporation. Private respondent, being a mere mortgagee, has no right



to eject petitioner. Private respondent, as a creditor and mortgagee, " . . . cannot appropriate the things given by way of

pledge

or mortgage, or dispose of them. Any stipulation to the contrary is null and void." 28

Other Matters

Private respondent in his memorandum also contends that (1) petitioner is not the real party in interest and (2) the

petition should be dismissed for "raising/stating facts not so found by the Court of Appeals." These deserve scantconsideration. Petitioner was impleaded as party defendant in the ejectment suit by private respondent itself. Thus,

private respondent cannot question his standing as a party. As such party, petitioner should be allowed to raise defenses

which negate private respondent's right to the property in question. The second point is really academic. This ponencia

relies on the factual narration of the Court of Appeals and not on the "facts" supplied by petitioner.

WHEREFORE, the petition is hereby GRANTED. The challenged Decision of the Court of Appeals is REVERSED and SET

ASIDE. The decision of the Regional Trial Court of Quezon City ordering the dismissal of the complaint for ejectment is

REINSTATED and AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 170479 February 18, 2008



ANDRE T. ALMOCERA, petitioner,vs.JOHNNY ONG, respondent.

D E C I S I O N

CHICO-NAZARIO, J .:

Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure whichseeks to set aside the Decision1 of the Court of Appeals dated 18 July 2005 in CA-G.R. CV No. 75610affirming in toto the Decision2 of Branch 11 of the Regional Trial Court (RTC) of Cebu City in Civil Case No.CEB-23687 and its Resolution3 dated 16 November 2005 denying petitioner’s motion for reconsideration. TheRTC decision found petitioner Andre T. Almocera, Chairman and Chief Executive Officer of First Builder Multi-Purpose Cooperative (FBMC), solidarily liable with FMBC for damages.

Stripped of non-essentials, the respective versions of the parties have been summarized by the Court of Appeals as follows:

Plaintiff Johnny Ong tried to acquire from the defendants a "townhome" described as Unit No. 4 of Atrium Townhomes in Cebu City. As reflected in a Contract to Sell, the selling price of the unit

was P3,400,000.00 pesos, for a lot area of eighty-eight (88) square meters with a three-storey building.

Out of the purchase price, plaintiff was able to pay the amount of P1,060,000.00. Prior to the full

payment of this amount, plaintiff claims that defendants Andre Almocera and First Builders fraudulentlyconcealed the fact that before and at the time of the perfection of the aforesaid contract to sell, theproperty was already mortgaged to and encumbered with the Land Bank of the Philippines (LBP). Inaddition, the construction of the house has long been delayed and remains unfinished. On March 13,1999, Lot 4-a covered by TCT No. 148818, covering the unit was advertised in a local tabloid for publicauction for foreclosure of mortgage. It is the assertion of the plaintiff that had it not for the fraudulentconcealment of the mortgage and encumbrance by defendants, he would have not entered into thecontract to sell.

On the other hand, defendants assert that on March 20, 1995, First Builders Multi-purpose Coop. Inc.,

borrowed money in the amount of P500,000.00 from Tommy Ong, plaintiff’s brother. This amount was

used to finance the documentation requirements of the LBP for the funding of the Atrium Town Homes.This loan will be applied in payment of one (1) town house unit which Tommy Ong may eventuallypurchase from the project. When the project was under way, Tommy Ong wanted to buy anothertownhouse for his brother, Johnny Ong, plaintiff herein, which then, the amount of P150,000.00 was

given as additional partial payment. However, the particular unit was not yet identified. It was only onJanuary 10, 1997 that Tommy Ong identified Unit No. 4 plaintiff’s chosen unit and againtendered P350,000.00 as his third partial payment. When the contract to sell for Unit 4 was being

drafted, Tommy Ong requested that another contract to sell covering Unit 5 be made so as to giveJohnny Ong another option to choose whichever unit he might decide to have. When the constructionwas already in full blast, defendants were informed by Tommy Ong that their final choice was Unit 5. Itwas only upon knowing that the defendants will be selling Unit 4 to some other persons for P

4million

that plaintiff changed his choice from Unit 5 to Unit 4.

4

In trying to recover the amount he paid as down payment for the townhouse unit, respondent Johnny Ong fileda complaint for Damages before the RTC of Cebu City, docketed as Civil Case No. CEB-23687, againstdefendants Andre T. Almocera and FBMC alleging that defendants were guilty of fraudulent concealment andbreach of contract when they sold to him a townhouse unit without divulging that the same, at the time of theperfection of their contract, was already mortgaged with the Land Bank of the Philippines (LBP), with the lattercausing the foreclosure of the mortgage and the eventual sale of the townhouse unit to a third person.

In their Answer, defendants denied liability claiming that the foreclosure of the mortgage on the townhouse unitwas caused by the failure of complainant Johnny Ong to pay the balance of the price of said townhouse unit.

After the pre-trial conference was terminated, trial on the merits ensued. Respondent and his brother, ThomasY. Ong, took the witness stand. For defendants, petitioner testified.

In a Decision dated 20 May 2002, the RTC disposed of the case in this manner:

WHEREFORE, in view of all the foregoing premises, judgment is hereby rendered in this case in favorof the plaintiff and against the defendants:

(a) Ordering the defendants to solidarily pay to the plaintiff the sum of P1,060,000.00, together with a

legal interest thereon at 6% per annum from April 21, 1999 until its full payment before finality of the judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% per annumcomputed from the time when the judgment becomes final and executory until fully satisfied;

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(b) Ordering the defendants to solidarily pay to the plaintiff the sum of P100,000.00 as moral damages,

the sum of P50,000.00 as attorney’s fee and the sum of P15,619.80 as expenses of litigation; and

(c) Ordering the defendants to pay the cost of this suit.5

The trial court ruled against defendants for not acting in good faith and for not complying with their obligationsunder their contract with respondent. In the Contract to Sell6 involving Unit 4 of the Atrium Townhomes,defendants agreed to sell said townhouse to respondent for P3,400,000.00. The down payment

wasP1,000,000.00, while the balance of P2,400,000.00 was to be paid in full upon completion, delivery and

acceptance of the townhouse. Under the contract which was signed on 10 January 1997, defendants agreed tocomplete and convey to respondent the unit within six months from the signing thereof.

The trial court found that respondent was able to make a down payment or partial payment of P1,060,000.00

and that the defendants failed to complete the construction of, as well as deliver to respondent, the townhousewithin six months from the signing of the contract. Moreover, respondent was not informed by the defendantsat the time of the perfection of their contract that the subject townhouse was already mortgaged to LBP. Themortgage was foreclosed by the LBP and the townhouse was eventually sold at public auction. It said thatdefendants were guilty of fraud in their dealing with respondent because the mortgage was not disclosed torespondent when the contract was perfected. There was also non-compliance with their obligations under thecontract when they failed to complete and deliver the townhouse unit at the agreed time. On the part ofrespondent, the trial court declared he was justified in suspending further payments to the defendants and wasentitled to the return of the down payment.

Aggrieved, defendants appealed the decision to the Court of Appeals assigning the following as errors:

1. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF HAS A VALID CAUSE OF ACTIONFOR DAMAGES AGAINST DEFENDANT(S).

2. THE LOWER COURT ERRED IN HOLDING THAT DEFENDANT ANDRE T. ALMOCERA ISSOLIDARILY LIABLE WITH THE COOPERATIVE FOR THE DAMAGES TO THE PLAINTIFF.7

The Court of Appeals ruled that the defendants incurred delay when they failed to deliver the townhouse unit to

the respondent within six months from the signing of the contract to sell. It agreed with the finding of the trialcourt that the nonpayment of the balance of P2.4M by respondent to defendants was proper in light of such

delay and the fact that the property subject of the case was foreclosed and auctioned. It added that the trialcourt did not err in giving credence to respondent’s assertion that had he known beforehand that the unit wasused as collateral with the LBP, he would not have proceeded in buying the townhouse. Like the trial court, theCourt of Appeals gave no weight to defendants’ argument that had respondent paid the balance of thepurchase price of the townhouse, the mortgage could have been released. It explained:

We cannot find fault with the choice of plaintiff not to further dole out money for a property that in allevents, would never be his. Moreover, defendants could, if they were really desirous of satisfying theirobligation, demanded that plaintiff pay the outstanding balance based on their contract. This they hadnot done. We can fairly surmise that defendants could not comply with their obligation themselves,

because as testified to by Mr. Almocera, they already signified to LBP that they cannot pay theiroutstanding loan obligations resulting to the foreclosure of the townhouse.8

Moreover, as to the issue of petitioner’s solidary liability, it said that this issue was belatedly raised and cannotbe treated for the first time on appeal.

On 18 July 2005, the Court of Appeals denied the appeal and affirmed in toto the decision of the trial court. Thedispositive portion of the decision reads:

IN LIGHT OF ALL THE FOREGOING, this appeal is DENIED. The assailed decision of the RegionalTrial Court, Branch 11, Cebu City in Civil Case No. CEB-23687 is AFFIRMED in toto .9

In a Resolution dated 16 November 2005, the Court of Appeals denied defendants’ motion for reconsideration.

Petitioner is now before us pleading his case via a Petition for Review on Certiorari under Rule 45 of the 1997Rules of Civil Procedure. The petition raises the following issues:

I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT DEFENDANTHAS INCURRED DELAY.

II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING RESPONDENT’SREFUSAL TO PAY THE BALANCE OF THE PURCHASE PRICE.























III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT DEFENDANT ANDRE T. ALMOCERA IS SOLIDARILY LIABLE WITH THE DEFENDANT COOPERATIVE FORDAMAGES TO PLAINTIFF.10

It cannot be disputed that the contract entered into by the parties was a contract to sell. The contract wasdenominated as such and it contained the provision that the unit shall be conveyed by way of an AbsoluteDeed of Sale, together with the attendant documents of Ownership – the Transfer Certificate of Title andCertificate of Occupancy – and that the balance of the contract price shall be paid upon the completion anddelivery of the unit, as well as the acceptance thereof by respondent. All these clearly indicate that ownershipof the townhouse has not passed to respondent.

In Serrano v. Caguiat , 11 we explained:

A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor’sobligation to transfer title is subordinated to the happening of a future and uncertain event, so that if thesuspensive condition does not take place, the parties would stand as if the conditional obligation hadnever existed. The suspensive condition is commonly full payment of the purchase price.

The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. Asearly as 1951, in Sing Yee v. Santos [47 O.G. 6372 (1951)], we held that:

"x x x [a] distinction must be made between a contract of sale in which title passes to the buyerupon delivery of the thing sold and a contract to sell x x x where by agreement the ownership isreserved in the seller and is not to pass until the full payment of the purchase price is made. Inthe first case, non-payment of the price is a negative resolutory condition; in the second case,full payment is a positive suspensive condition. Being contraries, their effect in law cannot beidentical. In the first case, the vendor has lost and cannot recover the ownership of the land solduntil and unless the contract of sale is itself resolved and set aside. In the second case,however, the title remains in the vendor if the vendee does not comply with the conditionprecedent of making payment at the time specified in the contract."

In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the

buyer until full payment of the price.

The Contract to Sell entered into by the parties contains the following pertinent provisions:

4. TERMS OF PAYMENT:

4a. ONE MILLION PESOS (P1,000,000.00) is hereby acknowledged as Downpayment for the above-

mentioned Contract Price.

4b. The Balance, in the amount of TWO MILLION FOUR HUNDRED PESOS (P2,400,000.00) shall be

paid thru financing Institution facilitated by the SELLER, preferably Landbank of the Philippines (LBP).

Upon completion, delivery and acceptance of the BUYER of the Townhouse Unit, the BUYER shallhave paid the Contract Price in full to the SELLER.

x x x x

6. COMPLETION DATES OF THE TOWNHOUSE UNIT:

The unit shall be completed and conveyed by way of an Absolute Deed of Sale together with theattendant documents of Ownership in the name of the BUYER – the Transfer Certificate of Title andCertificate of Occupancy within a period of six (6) months from the signing of Contract to Sell.12

From the foregoing provisions, it is clear that petitioner and FBMC had the obligation to complete thetownhouse unit within six months from the signing of the contract. Upon compliance therewith, the obligation ofrespondent to pay the balance of P2,400,000.00 arises. Upon payment thereof, the townhouse shall be

delivered and conveyed to respondent upon the execution of the Absolute Deed of Sale and other relevantdocuments.

The evidence adduced shows that petitioner and FBMC failed to fulfill their obligation -- to complete and deliverthe townhouse within the six-month period. With petitioner and FBMC’s non-fulfillment of their obligation,respondent refused to pay the balance of the contract price. Respondent does not ask that ownership of thetownhouse be transferred to him, but merely asks that the amount or down payment he had made be returnedto him.

Article 1169 of the Civil Code reads:















Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judiciallyor 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 theestablishment 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 tocomply in a proper manner with what is incumbent upon him. From the moment one of the partiesfulfills his obligation, delay by the other begins.

The contract subject of this case contains reciprocal obligations which were to be fulfilled by the parties, i.e., tocomplete and deliver the townhouse within six months from the execution of the contract to sell on the part ofpetitioner and FBMC, and to pay the balance of the contract price upon completion and delivery of the

townhouse on the part of the respondent.

In the case at bar, the obligation of petitioner and FBMC which is to complete and deliver the townhouse unitwithin the prescribed period, is determinative of the respondent’s obligation to pay the balance of the contractprice. With their failure to fulfill their obligation as stipulated in the contract, they incurred delay and are liablefor damages.13 They cannot insist that respondent comply with his obligation. Where one of the parties to acontract did not perform the undertaking to which he was bound by the terms of the agreement to perform, heis not entitled to insist upon the performance of the other party.14

On the first assigned error, petitioner insists there was no delay when the townhouse unit was not completedwithin six months from the signing of the contract inasmuch as the mere lapse of the stipulated six (6) monthperiod is not by itself enough to constitute delay on his part and that of FBMC, since the law requires that there

must either be judicial or extrajudicial demand to fulfill an obligation so that the obligor may be declared indefault. He argues there was no evidence introduced showing that a prior demand was made by respondentbefore the original action was instituted in the trial court.

We do not agree.

Demand is not necessary in the instant case. Demand by the respondent would be useless because theimpossibility of complying with their (petitioner and FBMC) obligation was due to their fault. If only they paidtheir loans with the LBP, the mortgage on the subject townhouse would not have been foreclosed andthereafter sold to a third person.

Anent the second assigned error, petitioner argues that if there was any delay, the same was incurred by

respondent because he refused to pay the balance of the contract price.

We find his argument specious.

As above-discussed, the obligation of respondent to pay the balance of the contract price was conditioned onpetitioner and FBMC’s performance of their obligation. Considering that the latter did not comply with theirobligation to complete and deliver the townhouse unit within the period agreed upon, respondent could nothave incurred delay. For failure of one party to assume and perform the obligation imposed on him, the otherparty does not incur delay.15

Under the circumstances obtaining in this case, we find that respondent is justified in refusing to pay thebalance of the contract price. He was never in possession of the townhouse unit and he can no longer be itsowner since ownership thereof has been transferred to a third person who was not a party to the proceedingsbelow. It would simply be the height of inequity if we are to require respondent to pay the balance of thecontract price. To allow this would result in the unjust enrichment of petitioner and FBMC. The fundamentaldoctrine of unjust enrichment is the transfer of value without just cause or consideration. The elements of thisdoctrine which are present in this case are: enrichment on the part of the defendant; impoverishment on thepart of the plaintiff; and lack of cause. The main objective is to prevent one to enrich himself at the expense ofanother. It is commonly accepted that this doctrine simply means a person shall not be allowed to profit orenrich himself inequitably at another's expense.16Hence, to allow petitioner and FBMC keep the down paymentmade by respondent amounting to P1,060,000.00 would result in their unjust enrichment at the expense of the

respondent. Thus, said amount should be returned.

What is worse is the fact that petitioner and FBMC intentionally failed to inform respondent that the subjecttownhouse which he was going to purchase was already mortgaged to LBP at the time of the perfection of their


















contract. This deliberate withholding by petitioner and FBMC of the mortgage constitutes fraud and bad faith.The trial court had this say:

In the light of the foregoing environmental circumstances and milieu, therefore, it appears that thedefendants are guilty of fraud in dealing with the plaintiff. They performed voluntary and willful actswhich prevent the normal realization of the prestation, knowing the effects which naturally andnecessarily arise from such acts. Their acts import a dishonest purpose or some moral obliquity andconscious doing of a wrong. The said acts certainly gtive rise to liability for damages (8 Manresa 72;Borrell-Macia 26-27; 3 Camus 34; O’Leary v. Macondray & Company, 454 Phil. 812; Heredia v.Salinas, 10 Phil. 157). Article 1170 of the New Civil Code of the Philippines provides expressly that"those who in the performance of their obligations are guilty of fraud and those who in any mannercontravene the tenor thereof are liable for damages.17

On the last assigned error, petitioner contends that he should not be held solidarily liable with defendantFBMC, because the latter is a separate and distinct entity which is the seller of the subject townhouse. Heclaims that he, as Chairman and Chief Executive Officer of FBMC, cannot be held liable because hisrepresenting FBMC in its dealings is a corporate act for which only FBMC should be held liable.

This issue of piercing the veil of corporate fiction was never raised before the trial court. The same was raisedfor the first time before the Court of Appeals which ruled that it was too late in the day to raise the same. The

Court of Appeals declared:

In the case below, the pleadings and the evidence of the defendants are one and the same and neverhad it made to appear that Almocera is a person distinct and separate from the other defendant. In fine,we cannot treat this error for the first time on appeal. We cannot in good conscience, let the defendant

Almocera raise the issue of piercing the veil of corporate fiction just because of the adverse decisionagainst him. x x x.18

To allow petitioner to pursue such a defense would undermine basic considerations of due process. Points oflaw, theories, issues and arguments not brought to the attention of the trial court will not be and ought not to beconsidered by a reviewing court, as these cannot be raised for the first time on appeal. It would be unfair to theadverse party who would have no opportunity to present further evidence material to the new theory not

ventilated before the trial court.

19

As to the award of damages granted by the trial court, and affirmed by the Court of Appeals, we find the sameto be proper and reasonable under the circumstances.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 18 July 2005 in CA-G.R.CV No. 75610 is AFFIRMED. Costs against the petitioner.

SO ORDERED.















CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY, peti t ioners, vs .SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS, respondents.

D E C I S I O N

MENDOZA, J .:

This is a petition for review on certiorari of the decision[1] of the Court of Appeals in C.A. GR CV No. 42315 and

the order dated December 9, 1997 denying petitioners motion for reconsideration.

The following facts are not in dispute.

Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are bankinginstitutions duly organized and existing under Philippine laws. On or about June 15, 1983, a certain RodolfoGuansing obtained a loan in the amount of P90,000.00 from CDB, to secure which he mortgaged a parcel ofland situated at No. 63 Calavite Street, La Loma, Quezon City and covered by TCT No. 300809 registered inhis name. As Guansing defaulted in the payment of his loan, CDB foreclosed the mortgage. At the foreclosuresale held on March 15, 1984, the mortgaged property was sold to CDB as the highest bidder. Guansing failedto redeem, and on March 2, 1987, CDB consolidated title to the property in its name. TCT No. 300809 in thename of Guansing was cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB.

On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios Gatpandan,offered to purchase the property from CDB. The written Offer to Purchase, signed by Lim and Gatpandan,states in part:

We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, QuezonCity for P300,000.00 under the following terms and conditions:

(1) 10% Option Money;

(2) Balance payable in cash;

(3) Provided that the property shall be cleared of illegal occupants ortenants. Scjuris

Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option Money, forwhich she was issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However, after some timefollowing up the sale, Lim discovered that the subject property was originally registered in the name of PerfectoGuansing, father of mortgagor Rodolfo Guansing, under TCT No. 91148. Rodolfo succeeded in having theproperty registered in his name under TCT No. 300809, the same title he mortgaged to CDB and from whichthe latters title (TCT No. 355588) was derived. It appears, however, that the father, Perfecto, instituted CivilCase No. Q-39732 in the Regional Trial Court, Branch 83, Quezon City, for the cancellation of his sons title.On March 23, 1984, the trial court rendered a decision[2] restoring Perfectos previous title (TCT No. 91148) andcancelling TCT No. 300809 on the ground that the latter was fraudulently secured by Rodolfo. This decision

has since become final and executory.

Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company, FEBTC, ontheir ability to sell the subject property, Lim, joined by her husband, filed on August 29, 1989 an action forspecific performance and damages against petitioners in the Regional Trial Court, Branch 96, Quezon City,where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the complaint was amended byimpleading the Register of Deeds of Quezon City as an additional defendant.

On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1) there was aperfected contract of sale between Lim and CDB, contrary to the latters contention that the written offer topurchase and the payment of P30,000.00 were merely pre-conditions to the sale and still subject to theapproval of FEBTC; (2) performance by CDB of its obligation under the perfected contract of sale had becomeimpossible on account of the 1984 decision in Civil Case No. Q-39732 cancelling the title in the name ofmortgagor Rodolfo Guansing; (3) CDB and FEBTC were not exempt from liability despite the impossibility ofperformance, because they could not credibly disclaim knowledge of the cancellation of Rodolfo Guansingstitle without admitting their failure to discharge their duties to the public as reputable banking institutions; and(4) CDB and FEBTC are liable for damages for the prejudice caused against the Lims. [3] Based on theforegoing findings, the trial court ordered CDB and FEBTC to pay private respondents, jointly and severally,the amount of P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full payment. It alsoordered petitioners to pay private respondents, jointly and severally, the amounts of P250,000.00 as moraldamages, P50,000.00 as exemplary damages, P30,000.00 as attorneys fees, and the costs of the suit. [4]

Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in toto thedecision of the Regional Trial Court. Petitioners moved for reconsideration, but their motion was denied by theappellate court on December 9, 1997. Hence, this petition. Petitioners contend that - Jjlex

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1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC wereaware of the decision dated March 23, 1984 of the Regional Trial Court of Quezon City in CivilCase No. Q-39732.

2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit ofTHIRTY THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil Code.

3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages,exemplary damages, attorneys fees and costs of suit.

I.

At the outset, it is necessary to determine the legal relation, if any, of the parties.

Petitioners deny that a contract of sale was ever perfected between them and private respondent Lolita ChanLim. They contend that Lims letter-offer clearly states that the sum of P30,000.00 was given as option money,not as earnest money.[5] They thus conclude that the contract between CDB and Lim was merely an optioncontract, not a contract of sale.

The contention has no merit. Contracts are not defined by the parties thereto but by principles of law. [6] In

determining the nature of a contract, the courts are not bound by the name or title given to it by the contractingparties.[7] In the case at bar, the sum of P30,000.00, although denominated in the offer to purchase as "optionmoney," is actually in the nature of earnest money or down payment when considered with the other terms ofthe offer. In Carceler v. Court of Appeals,[8] we explained the nature of an option contract, viz . -

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

An option contract is therefore a contract separate from and preparatory to a contract of sale which, ifperfected, does not result in the perfection or consummation of the sale. Only when the option is exercisedmay a sale be perfected.

In this case, however, after the payment of the 10% option money, the Offer to Purchase provides for thepayment only of the balance of the purchase price, implying that the "option money" forms part of the purchaseprice. This is precisely the result of paying earnest money under Art. 1482 of the Civil Code. It is clear then thatthe parties in this case actually entered into a contract of sale, partially consummated as to the payment of theprice. Moreover, the following findings of the trial court based on the testimony of the witnesses establish thatCDB accepted Lims offer to purchase:

It is further to be noted that CDB and FEBTC already considered plaintiffs offer as good and nolonger subject to a final approval. In his testimony for the defendants on February 13, 1992,FEBTCs Leomar Guzman stated that he was then in the Acquired Assets Department of FEBTCwherein plaintiffs offer to purchase was endorsed thereto by Myoresco Abadilla, CDBs seniorvice-president, with a recommendation that the necessary petition for writ of possession be filedin the proper court; that the recommendation was in accord with one of the conditions of theoffer, i.e., the clearing of the property of illegal occupants or tenants (tsn, p. 12); that, incompliance with the request, a petition for writ of possession was thereafter filed on July 22,1988 (Exhs. 1 and 1-A); that the offer met the requirements of the banks; and that no rejectionof the offer was thereafter relayed to the plaintiffs (p. 17); which was not a normal procedure,and neither did the banks return the amount of P30,000.00 to the plaintiffs. [9]

Given CDBs acceptance of Lims offer to purchase, it appears that a contract of sale was perfected and,indeed, partially executed because of the partial payment of the purchase price. There is, however, a seriouslegal obstacle to such sale, rendering it impossible for CDB to perform its obligation as seller to deliver andtransfer ownership of the property. Acctmis

Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not have. Inapplying this precept to a contract of sale, a distinction must be kept in mind between the "perfection" and"consummation" stages of the contract.

A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object ofthe contract and upon the price.[10] It is, therefore, not required that, at the perfection stage, the seller be theowner of the thing sold or even that such subject matter of the sale exists at that point in time. [11] Thus, under

Art. 1434 of the Civil Code, when a person sells or alienates a thing which, at that time, was not his, but later































acquires title thereto, such title passes by operation of law to the buyer or grantee. This is the same principlebehind the sale of "future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the time ofdelivery or consummation stage of the sale, it is required that the seller be the owner of the thing sold.Otherwise, he will not be able to comply with his obligation to transfer ownership to the buyer. It is at theconsummation stage where the principle of nemo dat quod non habet applies.

In Dignos v. Court of Appeals,[12] the subject contract of sale was held void as the sellers of the subject landwere no longer the owners of the same because of a prior sale. [13] Again, inNool v. Court of Appeals,[14] weruled that a contract of repurchase, in which the seller does not have any title to the property sold, is invalid:

We cannot sustain petitioners view. Article 1370 of the Civil Code is applicable only to valid andenforceable contracts. The Regional Trial Court and the Court of Appeals ruled that the principalcontract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D areboth void. This conclusion of the two lower courts appears to find support in Dignos v. Court of

Appeals, where the Court held:

"Be that as it may, it is evident that when petitioners sold said land to the Cabigasspouses, they were no longer owners of the same and the sale is null and void."

In the present case, it is clear that the sellers no longer had any title to the parcels of land at the

time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validityof Exhibit C, it is itself void. A void contract cannot give rise to a valid one. Verily, Article 1422 ofthe Civil Code provides that (a) contract which is the direct result of a previous illegal contract, isalso void and inexistent."

We should however add that Dignos did not cite its basis for ruling that a "sale is null and void"where the sellers "were no longer the owners" of the property. Such a situation (where thesellers were no longer owners) does not appear to be one of the void contracts enumerated in

Article 1409 of the Civil Code. Moreover, the Civil Code itself recognizes a sale where the goodsare to be acquired x x x by the seller after the perfection of the contract of sale, clearly implyingthat a sale is possible even if the seller was not the owner at the time of sale, provided heacquires title to the property later on. Misact

In the present case, however, it is likewise clear that the sellers can no longer deliver the objectof the sale to the buyers, as the buyers themselves have already acquired title and deliverythereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperativeand may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil Code: Those whichcontemplate an impossible service. Article 1459 of the Civil Code provides that "the vendor musthave a right to transfer the ownership thereof [subject of the sale] at the time it is delivered."Here, delivery of ownership is no longer possible. It has become impossible. [15]

In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must, therefore,be deemed a nullity for CDB did not have a valid title to the said property. To be sure, CDB never acquired avalid title to the property because the foreclosure sale, by virtue of which the property had been awarded to

CDB as highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed.

A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of the CivilCode, under which the mortgagor in default, the forced seller, becomes obliged to transfer the ownership of thething sold to the highest bidder who, in turn, is obliged to pay therefor the bid price in money or its equivalent.Being a sale, the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. Thisis the reason Art. 2085[16] of the Civil Code, in providing for the essential requisites of the contract of mortgageand pledge, requires, among other things, that the mortgagor or pledgor be the absolute owner of the thingpledged or mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in thepayment of the loan.

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged

property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are giveneffect by reason of public policy. This is the doctrine of "the mortgagee in good faith" based on the rule that allpersons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are notrequired to go beyond what appears on the face of the title.[17] The public interest in upholding theindefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any encumbrancethereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of thecertificate of title. Sdjad

This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make a detailedinvestigation of the history of the title of the property given as security before accepting a mortgage.

We are not convinced, however, that under the circumstances of this case, CDB can be considered a

mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation on the


























history of the mortgagors title, they cannot be excused from the duty of exercising the due diligence required ofbanking institutions. In Tomas v. Tomas,[18] we noted that it is standard practice for banks, before approving aloan, to send representatives to the premises of the land offered as collateral and to investigate who are thereal owners thereof, noting that banks are expected to exercise more care and prudence than privateindividuals in their dealings, even those involving registered lands, for their business is affected with publicinterest. We held thus:

We, indeed, find more weight and vigor in a doctrine which recognizes a better right for theinnocent original registered owner who obtained his certificate of title through perfectly legal andregular proceedings, than one who obtains his certificate from a totally void one, as to prevailover judicial pronouncements to the effect that one dealing with a registered land, such as apurchaser, is under no obligation to look beyond the certificate of title of the vendor, for in thelatter case, good faith has yet to be established by the vendee or transferee, being the mostessential condition, coupled with valuable consideration, to entitle him to respect for his newlyacquired title even as against the holder of an earlier and perfectly valid title. There might becircumstances apparent on the face of the certificate of title which could excite suspicion as toprompt inquiry, such as when the transfer is not by virtue of a voluntary act of the originalregistered owner, as in the instant case, where it was by means of a self-executed deed ofextra-judicial settlement, a fact which should be noted on the face of Eusebia Tomas certificateof title. Failing to make such inquiry would hardly be consistent with any pretense of good faith,which the appellant bank invokes to claim the right to be protected as a mortgagee, and for thereversal of the judgment rendered against it by the lower court. [19]

In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity of RodolfoGuansings title. It appears that Rodolfo Guansing obtained his fraudulent title by executing an Extra-JudicialSettlement of the Estate With Waiver where he made it appear that he and Perfecto Guansing were the onlysurviving heirs entitled to the property, and that Perfecto had waived all his rights thereto. This self -executeddeed should have placed CDB on guard against any possible defect in or question as to the mortgagors title.Moreover, the alleged ocular inspection repor t[20] by CDBs representative was never formally offered inevidence. Indeed, petitioners admit that they are aware that the subject land was being occupied by personsother than Rodolfo Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title ofRodolfo.[21] Sppedsc

II.

The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties was at faultfor the nullity of the contract. Both the trial court and the appellate court found petitioners guilty of fraud,because on June 16, 1988, when Lim was asked by CDB to pay the 10% option money, CDB already knewthat it was no longer the owner of the said property, its title having been cancelled.[22] Petitioners contend that:(1) such finding of the appellate court is founded entirely on speculation and conjecture; (2) neither CDB norFEBTC was a party in the case where the mortgagors title was cancelled; (3) CDB is not privy to any problemamong the Guansings; and (4) the final decision cancelling the mortgagors title was not annotated in the latterstitle.

As a rule, only questions of law may be raised in a petition for review, except in circumstances wherequestions of fact may be properly raised.[23] Here, while petitioners raise these factual issues, they have notsufficiently shown that the instant case falls under any of the exceptions to the above rule. We are thus boundby the findings of fact of the appellate court. In any case, we are convinced of petitioners negligence inapproving the mortgage application of Rodolfo Guansing.

III.

We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of the CivilCode provides:

If the act in which the unlawful or forbidden cause consists does not constitute a criminal

offense, the following rules shall be observed:

. . . .

(2).......When only one of the contracting parties is at fault, he cannot recoverwhat he has given by reason of the contract, or ask for the fulfillment of what hasbeen promised him. The other, who is not at fault, may demand the return ofwhat he has given without any obligation to comply with his promise.

Private respondents are thus entitled to recover the P30,000.00 option money paid by them. Moreover, sincethe filing of the action for damages against petitioners amounted to a demand by respondents for the return oftheir money, interest thereon at the legal rate should be computed from August 29, 1989, the date of filing of

Civil Case No. Q-89-2863, not June 17, 1988, when petitioners accepted the payment. This is in accord with



























our ruling in Castillo v. Abalayan[24] that in case of a void sale, the seller has no right whatsoever to keep themoney paid by virtue thereof and should refund it, with interest at the legal rate, computed from the date offiling of the complaint until fully paid. Indeed, Art. 1412(2) which provides that the non-guilty party "maydemand the return of what he has given" clearly implies that without such prior demand, the obligation to returnwhat was given does not become legally demandable. Sccalr

Considering CDBs negligence, we sustain the award of moral damages on the basis of Arts. 21 and 2219 ofthe Civil Code and our ruling in Tan v. Court of Appeal s[25] that moral damages may be recovered even if abanks negligence is not attended with malice and bad faith. We find, however, that the sum of P250,000.00awarded by the trial court is excessive. Moral damages are only intended to alleviate the moral sufferingundergone by private respondents, not to enrich them at the expense of the petitioners.[26] Accordingly, theaward of moral damages must be reduced to P50,000.00.

Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the Civil Code,is excessive and should be reduced to P30,000.00. The award of P30,000.00 attorneys fees based on Art.2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to P20,000.00.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to the award ofdamages as above stated.

SO ORDERED.2/29/0















G.R. No. L-11827 July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,vs.ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINAVIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants.

Alejo Mabanag for plaintiff-appellee.Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.

REYES, J.B.L., J .:

This appeal comes to us directly from the Court of First Instance because the claims involved aggregate morethan P200,000.00.

Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a representativecapacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the municipality of JosePanganiban, province of Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and appointed

plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with anyindividual or juridical person for the exploration and development of the mining claims aforementioned on aroyalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaitein turn executed a general assignment (Record on Appeal, pp. 17-19) conveying the development andexploitation of said mining claims into the Larap Iron Mines, a single proprietorship owned solely by andbelonging to him, on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon thedevelopment and exploitation of the mining claims in question, opening and paving roads within and outsidetheir boundaries, making other improvements and installing facilities therein for use in the development of themines, and in time extracted therefrom what he claim and estimated to be approximately 24,000 metric tons ofiron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to

exploit and develop the mining claims in question, and Gaite assented thereto subject to certain conditions. Asa result, a document entitled "Revocation of Power of Attorney and Contract" was executed on December 8,1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, plus 10% of theroyalties that Fonacier would receive from the mining claims, all his rights and interests on all the roads,improvements, and facilities in or outside said claims, the right to use the business name "Larap Iron Mines"and its goodwill, and all the records and documents relative to the mines. In the same document, Gaitetransferred to Fonacier all his rights and interests over the "24,000 tons of iron ore, more or less" that theformer had already extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00of which was paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of the firstletter of credit covering the first shipment of iron ores and of the f irst amount derived from the local sale

of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors ininterests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite asurety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated December 8, 1954with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its stockholders GeorgeKrakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1").Gaite testified, however, that when this bond was presented to him by Fonacier together with the "Revocationof Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit "A"unless another bond under written by a bonding company was put up by defendants to secure the payment ofthe P65,000.00 balance of their price of the iron ore in the stockpiles in the mining claims. Hence, a secondbond, also dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-

1", with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of thesurety company would attach only when there had been an actual sale of iron ore by the Larap Mines &Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability of said suretycompany would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation ofPower of Attorney and Contract", Exhibit "A", and made integral parts thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed andsigned the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier entered into a "Contract ofMining Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right todevelop, exploit, and explore the mining claims in question, together with the improvements therein and theuse of the name "Larap Iron Mines" and its good will, in consideration of certain royalties. Fonacier likewisetransferred, in the same document, the complete title to the approximately 24,000 tons of iron ore which he

acquired from Gaite, to the Larap & Smelting Co., in consideration for the signing by the company and itsstockholders of the surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).



Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety andInsurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the Larap Mines& Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid to Gaite by Fonacierand his sureties payment of said amount, on the theory that they had lost right to make use of the period giventhem when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when Fonacier and hissureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court ofFirst Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of theore, consequential damages, and attorney's fees.

All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaitewas subject to a condition that the amount of P65,000.00 would be payable out of the first letter of creditcovering the first shipment of iron ore and/or the first amount derived from the local sale of the iron ore by theLarap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron ore hadbeen made, hence the condition had not yet been fulfilled; and that consequently, the obligation was not yetdue and demandable. Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons ofiron ore sold to him by Gaite was actually delivered, and counterclaimed for more than P200,000.00 damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due anddemandable when the defendants failed to renew the surety bond underwritten by the Far Eastern Surety andInsurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were actually inexistence in the mining claims when these parties executed the "Revocation of Power of Attorney andContract", Exhibit "A."

On the first question, the lower court held that the obligation of the defendants to pay plaintiff the P65,000.00balance of the price of the approximately 24,000 tons of iron ore was one with a term: i.e., that it would be paidupon the sale of sufficient iron ore by defendants, such sale to be effected within one year or before December8, 1955; that the giving of security was a condition precedent to Gait's giving of credit to defendants; and thatas the latter failed to put up a good and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B")

which expired on December 8, 1955, the obligation became due and demandable under Article 1198 of theNew Civil Code.

As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000 tons of ironore at the mining claims in question at the time of the execution of the contract Exhibit "A."

Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly andseverally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus costs. Fromthis judgment, defendants jointly appealed to this Court.

During the pendency of this appeal, several incidental motions were presented for resolution: a motion todeclare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in contempt, filed by appellant

Fonacier, and two motions to dismiss the appeal as having become academic and a motion for new trial and/orto take judicial notice of certain documents, filed by appellee Gaite. The motion for contempt is unmeritor iousbecause the main allegation therein that the appellants Larap Mines & Smelting Co., Inc. and Krakower hadsold the iron ore here in question, which allegedly is "property in litigation", has not been substantiated; andeven if true, does not make these appellants guilty of contempt, because what is under litigation in this appealis appellee Gaite's right to the payment of the balance of the price of the ore, and not the iron ore itself. As forthe several motions presented by appellee Gaite, it is unnecessary to resolve these motions in view of theresults that we have reached in this case, which we shall hereafter discuss.

The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the

P65,000.00 (balance of the price of the iron ore in question)is one with a period or term and not one with asuspensive condition, and that the term expired on December 8, 1955; and

(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron ore soldby appellee Gaite to appellant Fonacier.

The first issue involves an interpretation of the following provision in the contract Exhibit "A":

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights andinterests over the 24,000 tons of iron ore, more or less, above-referred to together with all his rights andinterests to operate the mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS(P75,000.00) which the latter binds to pay as follows:



a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of the firstletter of credit covering the first shipment of iron ore made by the Larap Mines & Smelting Co., Inc., itsassigns, administrators, or successors in interest.

We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not acondition precedent (or suspensive) to the payment of the balance of P65,000.00, but was only a suspensiveperiod or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (asdistinguished from its demandability) is subordinated to the happening of a future and uncertain event; so thatif the suspensive condition does not take place, the parties would stand as if the conditional obligation hadnever existed. That the parties to the contract Exhibit "A" did not intend any such state of things to prevail issupported by several circumstances:

1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first shipment of ironores . . ." etc. There is no uncertainty that the payment will have to be made sooner or later; what isundetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, theexistence of the obligation to pay is recognized; only its maturity or demandability is deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of the parties assume acorrelative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay theprice),but each party anticipates performance by the other from the very start. While in a sale the obligation ofone party can be lawfully subordinated to an uncertain event, so that the other understands that he assumesthe risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei ), itis not in the usual course of business to do so; hence, the contingent character of the obligation must clearlyappear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing hisright over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. Thisis proved by the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upona bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by asurety company; and the fact that appellants did put up such bonds indicates that they admitted the definiteexistence of their obligation to pay the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore as acondition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale orshipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able topostpone payment indefinitely. The desireability of avoiding such a construction of the contract Exhibit "A"needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the parties indented asuspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the rules ofinterpretation would incline the scales in favor of "the greater reciprocity of interests", since sale is essentiallyonerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.

and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actuallyexisting, with only its maturity (due date) postponed or deferred, that if such obligation were viewed as non-existent or not binding until the ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not analeatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that theprevious sale or shipment of the ore was not a suspensive condition for the payment of the balance of theagreed price, but was intended merely to fix the future date of the payment.

This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have the right

to insist that Gaite should wait for the sale or shipment of the ore before receiving payment; or, in other words,whether or not they are entitled to take full advantage of the period granted them for making the payment.

We agree with the court below that the appellant have forfeited the right court below that the appellants haveforfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance ofP65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or else replace itwith an equivalent guarantee. The expiration of the bonding company's undertaking on December 8, 1955substantially reduced the security of the vendor's rights as creditor for the unpaid P65,000.00, a security thatGaite considered essential and upon which he had insisted when he executed the deed of sale of the ore toFonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code ofthe Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period:



(1) . . .

(2) When he does not furnish to the creditor the guaranties or securities which he has promised.

(3) When by his own acts he has impaired said guaranties or securities after their establishment, andwhen through fortuitous event they disappear, unless he immediately gives new ones equallysatisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired thesecurities given to the creditor (appellee Gaite), unless immediately renewed or replaced.

There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with fullknowledge that on its face it would automatically expire within one year was a waiver of its renewal after theexpiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gainbarely; and if there was any, it could be rationally explained only if the appellants had agreed to sell the oreand pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case thedefendants-appellants' obligation to pay became absolute after one year from the transfer of the ore toFonacier by virtue of the deed Exhibit "A.".

All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding payment

and instituting this action one year from and after the contract (Exhibit "A") was executed, either because theappellant debtors had impaired the securities originally given and thereby forfeited any further time withinwhich to pay; or because the term of payment was originally of no more than one year, and the balance ofP65,000.00 became due and payable thereafter.

Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron ore inthe stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had been a short-delivery asclaimed by appellants, they are entitled to the payment of damages, we must, at the outset, stress twothings:first , that this is a case of a sale of a specific mass of fungible goods for a single price or a lump sum,the quantity of "24,000 tons of iron ore, more or less," stated in the contract Exhibit "A," being a mere estimateby the parties of the total tonnage weight of the mass; and second , that the evidence shows that neither of theparties had actually measured of weighed the mass, so that they both tried to arrive at the total quantity by

making an estimate of the volume thereof in cubic meters and then multiplying it by the estimated weight perton of each cubic meter.

The sale between the parties is a sale of a specific mass or iron ore because no provision was made in theircontract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was theprice of P75,000,00 agreed upon by the parties based upon any such measurement.(see Art. 1480, secondpar., New Civil Code). The subject matter of the sale is, therefore, a determinate object, the mass, and not theactual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliverin good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is lessthan the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc.171 So. 872, applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite did notdeliver to appellants all the ore found in the stockpiles in the mining claims in questions; Gaite had, therefore,

complied with his promise to deliver, and appellants in turn are bound to pay the lump price.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite mass, butapproximately 24,000 tons of ore, so that any substantial difference in this quantity delivered would entitle thebuyers to recover damages for the short-delivery, was there really a short-delivery in this case?

We think not. As already stated, neither of the parties had actually measured or weighed the whole mass of orecubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims only upon anestimated number of cubic meters of ore multiplied by the average tonnage factor per cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that he sold toFonacier, while appellants contend that by actual measurement, their witness Cirpriano Manlañgit found the

total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubicmeter, the parties are again in disagreement, with appellants claiming the correct tonnage factor to be 2.18tons to a cubic meter, while appellee Gaite claims that the correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of iron ore inthis case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical Division of the Bureau ofMines, a government pensionado to the States and a mining engineering graduate of the Universities ofNevada and California, with almost 22 years of experience in the Bureau of Mines. This witness placed thetonnage factor of every cubic meter of iron ore at between 3 metric tons as minimum to 5 metric tons asmaximum. This estimate, in turn, closely corresponds to the average tonnage factor of 3.3 adopted in hiscorrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau ofMines to the mining claims involved at the request of appellant Krakower, precisely to make an official estimate

of the amount of iron ore in Gaite's stockpiles after the dispute arose.



Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by appellant'switness Cipriano Manlañgit is correct, if we multiply it by the average tonnage factor of 3.3 tons to a cubicmeter, the product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons made by appelleeGaite, considering that actual weighing of each unit of the mass was practically impossible, so that areasonable percentage of error should be allowed anyone making an estimate of the exact quantity in tonsfound in the mass. It must not be forgotten that the contract Exhibit "A" expressly stated the amount to be24,000 tons, more or less. (ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

There was, consequently, no short-delivery in this case as would entitle appellants to the payment of damages,nor could Gaite have been guilty of any fraud in making any misrepresentation to appellants as to the totalquantity of ore in the stockpiles of the mining claims in question, as charged by appellants, since Gaite'sestimate appears to be substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs againstappellants.



SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN, SPOUSES JUANITO EDRAand NORA JOAQUIN, SPOUSES RUFINO VALDOZ and EMMA JOAQUIN, and NATIVIDADJOAQUIN, peti t ioners, vs. COURT OF APPEALS, SPOUSES LEONARDO JOAQUIN andFELICIANA LANDRITO, SPOUSES FIDEL JOAQUIN and CONCHITA BERNARDO, SPOUSESTOMAS JOAQUIN and SOLEDAD ALCORAN, SPOUSES ARTEMIO JOAQUIN and SOCORROANGELES, SPOUSES ALEXANDER MENDOZA and CLARITA JOAQUIN, SPOUSES TELESFOROCARREON and FELICITAS JOAQUIN, SPOUSES DANILO VALDOZ and FE JOAQUIN, andSPOUSES GAVINO JOAQUIN and LEA ASIS, respondents .

D E C I S I O N

CARPIO, J .:

The Case

This is a petition for review on certiorar i [1] to annul the Decision[2] dated 26 June 1996 of the Court of Appeals in CA-G.R. CV No. 41996. The Court of Appeals affirmed the Decision[3]dated 18 February1993 rendered by Branch 65 of the Regional Trial Court of Makati (trial court) in Civil Case No. 89-5174. Thetrial court dismissed the case after it found that the parties executed the Deeds of Sale for valid consideration

and that the plaintiffs did not have a cause of action against the defendants.

The Facts

The Court of Appeals summarized the facts of the case as follows:

Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed

JOAQUIN. The married Joaquin children are joined in this action by their respective spouses.

Sought to be declared null and void ab initio are certain deeds of sale of real property executed by defendant parentsLeonardo Joaquin and Feliciana Landrito in favor of their co-defendant children and the corresponding certificates of title

issued in their names, to wit:

1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC) Psd-256395 executed on 11July 1978, in favor of defendant Felicitas Joaquin, for a consideration of P6,000.00 (Exh. C),pursuant to which TCT No. [36113/T-172] was issued in her name (Exh. C-1);

2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC) Psd-256394 executed on 7June 1979, in favor of defendant Clarita Joaquin, for a consideration of P1[2],000.00 (Exh. D),pursuant to which TCT No. S-109772 was issued in her name (Exh. D-1);

3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-256394 executed on 12

May 1988, in favor of defendant spouses Fidel Joaquin and Conchita Bernardo, for a considerationof P54,[3]00.00 (Exh. E), pursuant to which TCT No. 155329 was issued to them (Exh. E-1);

4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd-256394 executed on 12May 1988, in favor of defendant spouses Artemio Joaquin and Socorro Angeles, for aconsideration of P[54,3]00.00 (Exh. F), pursuant to which TCT No. 155330 was issued to them(Exh. F-1); and

5. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan (LRC) Psd-256395executed on 9 September 1988, in favor of Tomas Joaquin, for a consideration of P20,000.00(Exh. G), pursuant to which TCT No. 157203 was issued in her name (Exh. G-1).

[6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC) Psd-256395 executed on 7

October 1988, in favor of Gavino Joaquin, for a consideration of P25,000.00 (Exh. K), pursuant towhich TCT No. 157779 was issued in his name (Exh. K-1).]

In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title, plaintiffs, in their complaint,

aver:

- XX-

The deeds of sale, Annexes C, D, E, F, and G, [and K] are simulated as they are, are NULL AND VOID AB

INITIO because

a) Firstly, there was no actual valid consideration for the deeds of sale xxx over the properties in litis;

http://sc.judiciary.gov.ph/jurisprudence/2003/nov2003/126376.htm#_ftn1











b) Secondly, assuming that there was consideration in the sums reflected in the questioned deeds, the properties

are more than three-fold times more valuable than the measly sums appearing therein;

c) Thirdly, the deeds of sale do not reflect and express the true intent of the parties (vendors and vendees); and

d) Fourthly, the purported sale of the properties in litis was the result of a deliberate conspiracy designed to

unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime.

- XXI -

Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos. 36113/T-172, S-109772, 155329,155330, 157203 [and 157779] issued by the Registrar of Deeds over the properties in litisxxx are NULL AND VOID AB

INITIO.

Defendants, on the other hand aver (1) that plaintiffs do not have a cause of action against them as well as the requisite

standing and interest to assail their titles over the properties in litis; (2) that the sales were with sufficient considerationsand made by defendants parents voluntarily, in good faith, and with full knowledge of the consequences of their deeds of

sale; and (3) that the certificates of title were issued with sufficient factual and legal basis.[4] (Emphasis in the original)

The Ruling of the Trial Court

Before the trial, the trial court ordered the dismissal of the case against defendant spouses GavinoJoaquin and Lea Asis.[5] Instead of filing an Answer with their co-defendants, Gavino Joaquin and Lea Asisfiled a Motion to Dismiss.[6] In granting the dismissal to Gavino Joaquin and Lea Asis, the trial court noted thatcompulsory heirs have the right to a legitime but such right is contingent since said right commences only fromthe moment of death of the decedent pursuant to Article 777 of the Civil Code of the Philippines. [7]

After trial, the trial court ruled in favor of the defendants and dismissed the complaint. The trial courtstated:

In the first place, the testimony of the defendants, particularly that of the xxx father will show that the Deeds of Sale were

all executed for valuable consideration. This assertion must prevail over the negative allegation of plaintiffs.

And then there is the argument that plaintiffs do not have a valid cause of action against defendants since there can be nolegitime to speak of prior to the death of their parents. The court finds this contention tenable. In determining the legitime,

the value of the property left at the death of the testator shall be considered (Art. 908 of the New Civil Code). Hence, the

legitime of a compulsory heir is computed as of the time of the death of the decedent. Plaintiffs therefore cannot claim an

impairment of their legitime while their parents live.

All the foregoing considered, this case is DISMISSED.

In order to preserve whatever is left of the ties that should bind families together, the counterclaim is likewise

DISMISSED.

No costs.

SO ORDERED.[8]

The Ruling of the Court of Appeals

The Court of Appeals affirmed the decision of the trial court. The appellate court ruled:

To the mind of the Court, appellants are skirting the real and decisive issue in this case, which is, whether xxx they have acause of action against appellees.

Upon this point, there is no question that plaintiffs-appellants, like their defendant brothers and sisters, are compulsoryheirs of defendant spouses, Leonardo Joaquin and Feliciana Landrito, who are their parents. However, their right to the

properties of their defendant parents, as compulsory heirs, is merely inchoate and vests only upon the latters death. While

still alive, defendant parents are free to dispose of their properties, provided that such dispositions are not made in fraud of

creditors.

Plaintiffs-appellants are definitely not parties to the deeds of sale in question. Neither do they claim to be creditors of theirdefendant parents. Consequently, they cannot be considered as real parties in interest to assail the validity of said deeds

either for gross inadequacy or lack of consideration or for failure to express the true intent of the parties. In point is the

ruling of the Supreme Court in Velarde, et al. vs. Paez, et al., 101 SCRA 376, thus:























The plaintiffs are not parties to the alleged deed of sale and are not principally or subsidiarily bound thereby; hence, they

have no legal capacity to challenge their validity.

Plaintiffs-appellants anchor their action on the supposed impairment of their legitime by the dispositions made by theirdefendant parents in favor of their defendant brothers and sisters. But, as correctly held by the court a quo, the legitime of

a compulsory heir is computed as of the time of the death of the decedent. Plaintiffs therefore cannot claim an impairment

of their legitime while their parents live.

With this posture taken by the Court, consideration of the errors assigned by plaintiffs-appellants is inconsequential.

WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against plaintiffs-appellants.

SO ORDERED.[9]

Hence, the instant petition.

Issues

Petitioners assign the following as errors of the Court of Appeals:1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE IN QUESTION

HAD NO VALID CONSIDERATION.

2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING THAT THEREWAS A CONSIDERATION, THE SAME IS GROSSLY INADEQUATE.

3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS OF SALE DO NOTEXPRESS THE TRUE INTENT OF THE PARTIES.

4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE WAS PART AND PARCEL OF A CONSPIRACY AIMED AT UNJUSTLY DEPRIVING THE REST OF THECHILDREN OF THE SPOUSES LEONARDO JOAQUIN AND FELICIANA LANDRITO OF THEIR

INTEREST OVER THE SUBJECT PROPERTIES.5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE A GOOD,

SUFFICIENT AND VALID CAUSE OF ACTION AGAINST THE PRIVATE RESPONDENTS. [10]

The Ruling of the Court

We find the petition without merit.

We will discuss petitioners legal interest over the properties subject of the Deeds of Sale before discussingthe issues on the purported lack of consideration and gross inadequacy of the prices of the Deeds of Sale.

Wheth er Petitioners have a legal interest over the pr opert ies subject of th e Deeds of Sale

Petitioners Complaint betrays their motive for filing this case. In their Complaint, petitioners asserted thatthe purported sale of the properties in litis was the result of a deliberate conspiracy designed to unjustlydeprive the rest of the compulsory heirs (plaintiffs herein) of their legitime. Petitioners strategy was to have theDeeds of Sale declared void so that ownership of the lots would eventually revert to their respondent parents. Iftheir parents die still owning the lots, petitioners and their respondent siblings will then co-own their parentsestate by hereditary succession.[11]

It is evident from the records that petitioners are interested in the properties subject of the Deeds of Sale,but they have failed to show any legal right to the properties. The trial and appellate courts should havedismissed the action for this reason alone. An action must be prosecuted in the name of the real party-in-interest.[12]

[T]he question as to real party-in-interest is whether he is the party who would be benefitted or injured by the judgment, or

the party entitled to the avails of the suit.

x x x

In actions for the annulment of contracts, such as this action, the real parties are those who are parties to the agreement or

are bound either principally or subsidiarily or are prejudiced in their rights with respect to one of the contracting parties



















and can show the detriment which would positively result to them from the contract even though they did not intervene in

it (Ibaez v. Hongkong & Shanghai Bank, 22 Phil. 572 [1912]) xxx.

These are parties with a present substantial interest, as distinguished from a mere expectancy or future, contingent,subordinate, or consequential interest. The phrase present substantial interest more concretely is meant such interest of a

party in the subject matter of the action as will entitle him, under the substantive law, to recover if the evidence issufficient, or that he has the legal title to demand and the defendant will be protected in a payment to or recovery by

him.[13]

Petitioners do not have any legal interest over the properties subject of the Deeds of Sale. As theappellate court stated, petitioners right to their parents properties is merely inchoate and vests only upon theirparents death. While still living, the parents of petitioners are free to dispose of their properties. In theiroverzealousness to safeguard their future legitime, petitioners forget that theoretically, the sale of the lots totheir siblings does not affect the value of their parents estate. While the sale of the lots reduced the estate,cash of equivalent value replaced the lots taken from the estate.

Wheth er the Deeds of Sale are void for lack of consideration

Petitioners assert that their respondent siblings did not actually pay the prices stated in the Deeds of Saleto their respondent father. Thus, petitioners ask the court to declare the Deeds of Sale void.

A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a contract ofsale becomes a binding and valid contract upon the meeting of the minds as to price. If there is a meeting ofthe minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or eventhe breach of that manner of payment. If the real price is not stated in the contract, then the contract of sale isvalid but subject to reformation. If there is no meeting of the minds of the parties as to the price, because theprice stipulated in the contract is simulated, then the contract is void. [14] Article 1471 of the Civil Code statesthat if the price in a contract of sale is simulated, the sale is void.

It is not the act of payment of price that determines the validity of a contract of sale. Payment of the pricehas nothing to do with the perfection of the contract. Payment of the price goes into the performance of thecontract. Failure to pay the consideration is different from lack of consideration. The former results in a right todemand the fulfillment or cancellation of the obligation under an existing valid contract while the latter preventsthe existence of a valid contract.[15]

Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. To provesimulation, petitioners presented Emma Joaquin Valdozs testimony stating that their father, respondentLeonardo Joaquin, told her that he would transfer a lot to her through a deed of sale without need for herpayment of the purchase price.[16] The trial court did not find the allegation of absolute simulation of pricecredible. Petitioners failure to prove absolute simulation of price is magnified by their lack of knowledge of theirrespondent siblings financial capacity to buy the questioned lots. [17] On the other hand, the Deeds of Salewhich petitioners presented as evidence plainly showed the cost of each lot sold. Not only did respondentsminds meet as to the purchase price, but the real price was also stated in the Deeds of Sale. As of the filing of

the complaint, respondent siblings have also fully paid the price to their respondent father .[18]

Wheth er the Deeds of Sale are void for gross inadequacy of price

Petitioners ask that assuming that there is consideration, the same is grossly inadequate as to invalidatethe Deeds of Sale.

Articles 1355 of the Civil Code states:

Art. 1355. Except in cases specified by law,lesion or inadequacy of cause shal l not invali date a contract ,

unless therehas been fraud, mistake or undue influence. (Emphasis supplied)

Article 1470 of the Civil Code further provides:

Art. 1470. Gross inadequacy of pr ice does not aff ect a contract of sale , except as may indicate a defect in the consent, orthat the parties really intended a donation or some other act or contract. (Emphasis supplied)

Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil Codewhich would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that the price beequal to the exact value of the subject matter of sale. All the respondents believed that they received thecommutative value of what they gave. As we stated inVales v. Villa :[19]































G.R. No. 133638 April 15, 2005

PERPETUA VDA. DE APE, Petitioner,

vs.

THE HONORABLE COURT OF APPEALS and GENOROSA CAWIT VDA. DE LUMAYNO, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 45886 entitled,

“Generosa Cawit de Lumayno, accompanied by her husband Braulio Lumayno v. Fortunato Ape, including his wife

Perpetua de Ape.”

The pertinent facts are as follows:

Cleopas Ape was the registered owner of a parcel of land particularly known as Lot No. 2319 of the Escalante Cadastre of

Negros Occidental and covered by Original Certificate of Title (OCT) No. RP 1379 (RP-154 [300]).2Upon Cleopas Ape’s

death sometime in 1950, the property passed on to his wife, Maria Ondoy, and their eleven (11) children, namely:

Fortunato, Cornelio, Bernalda, Bienvenido, Encarnacion, Loreta, Lourdes, Felicidad, Adela, Dominador, and Angelina, allsurnamed Ape.

On 15 March 1973, Generosa Cawit de Lumayno (private respondent herein), joined by her husband, Braulio,3instituted

a case for “Specific Performance of a Deed of Sale with Damages” against Fortunato and his wife Perpetua (petitioner

herein) before the then Court of First Instance of Negros Occidental. It was alleged in the complaint that on 11 April

1971, private respondent and Fortunato entered into a contract of sale of land under which for a consideration of

P5,000.00, Fortunato agreed to sell his share in Lot No. 2319 to private respondent. The agreement was contained in a

receipt prepared by private respondent’s son-in-law, Andres Flores, at her behest. Said receipt was attached to the

complaint as Annex “A” thereof and later marked as Exhibit “G” for private respondent. The receipt states:

April 11, 1971

TO WHOM IT MAY CONCERN:

This date received from Mrs. Generosa Cawit de Lumayno the sum of THIRTY PESOS ONLY as Advance Payment of my

share in Land Purchased, for FIVE THOUSAND PESOS – LOT #2319.

(Signed)

FORTUNATO APE

P30.00 WITNESS:

(Illegible)4

As private respondent wanted to register the claimed sale transaction, she supposedly demanded that Fortunato

execute the corresponding deed of sale and to receive the balance of the consideration. However, Fortunato

unjustifiably refused to heed her demands. Private respondent, therefore, prayed that Fortunato be ordered to execute

and deliver to her “a sufficient and registrable deed of sale involving his one-eleventh (1/11) share or participation in Lot

No. 2319 of the Escalante Cadastre; to pay P5,000.00 in damages; P500.00 reimbursement for litigation expenses as well

as additional P500.00 for every appeal made; P2,000.00 for attorney’s fees; and to pay the costs.5

Fortunato and petitioner denied the material allegations of the complaint and claimed that Fortunato never sold his

share in Lot No. 2319 to private respondent and that his signature appearing on the purported receipt was forged. By

way of counterclaim, the defendants below maintained having entered into a contract of lease with respondent

involving Fortunato’s portion of Lot No. 2319. This purported lease contract commenced in 1960 and was supposed to

last until 1965 with an option for another five (5) years. The annual lease rental was P100.00 which private respondent

and her husband allegedly paid on installment basis. Fortunato and petitioner also assailed private respondent and her

husband’s continued possession of the rest of Lot No. 2319 alleging that in the event they had acquired the shares of

Fortunato’s co-owners by way of sale, he was invoking his right to redeem the same. Finally, Fortunato and petitioner



prayed that the lease contract between them and respondent be ordered annulled; and that respondent be ordered to

pay them attorney’s fees; moral damages; and exemplary damages.6

In their reply,7 the private respondent and her husband alleged that they had purchased from Fortunato’s co-owners, as

evidenced by various written instruments,8 their respective portions of Lot No. 2319. By virtue of these sales, they

insisted that Fortunato was no longer a co-owner of Lot No. 2319 thus, his right of redemption no longer existed.

Prior to the resolution of this case at the trial court level, Fortunato died and was substituted in this action by hischildren named Salodada, Clarita, Narciso, Romeo, Rodrigo, Marieta, Fortunato, Jr., and Salvador, all surnamed Ape.9

During the trial, private respondent testified that she and her husband acquired the various portions of Lot No. 2319

belonging to Fortunato’s co-owners. Thereafter, her husband caused the annotation of an adverse claim on the

certificate of title of Lot No. 2319.10 The annotation states:

Entry No. 123539 – Adverse claim filed by Braulio Lumayno. – Notice of adverse claim filed by Braulio Lumayno affecting

the lot described in this title to the extent of 77511.93 square meters, more or less, the aggregate area of shares sold to

him on the basis of (alleged) sales in his possession. Doc. No. 157, Page No. 33, Book No. XI, Series of 1967 of Alexander

Cawit of Escalante, Neg. Occ. Date of instrument. – June 22, 1967 at 8:30 a.m. (SGD) FEDENCIORRAZ, Actg. Register ofDeeds.11

In addition, private respondent claimed that after the acquisition of those shares, she and her husband had the whole

Lot No. 2319 surveyed by a certain Oscar Mascada who came up with a technical description of said piece of land.12

Significantly, private respondent alleged that Fortunato was present when the survey was conducted.13

Also presented as evidence for private respondent were pictures taken of some parts of Lot No. 2319 purportedly

showing the land belonging to Fortunato being bounded by a row of banana plants thereby separating it from the rest of

Lot No. 2319.14

As regards the circumstances surrounding the sale of Fortunato’s portion of the land, private respondent testified that

Fortunato went to her store at the time when their lease contract was about to expire. He allegedly demanded the

rental payment for his land but as she was no longer interested in renewing their lease agreement, they agreed instead

to enter into a contract of sale which Fortunato acceded to provided private respondent bought his portion of Lot No.

2319 for P5,000.00. Thereafter, she asked her son-in-law Flores to prepare the aforementioned receipt. Flores read the

document to Fortunato and asked the latter whether he had any objection thereto. Fortunato then went on to affix his

signature on the receipt.

For her part, petitioner insisted that the entire Lot No. 2319 had not yet been formally subdivided;15 that on 11 April

1971 she and her husband went to private respondent’s house to collect past rentals for their land then leased by the

former, however, they managed to collect only thirty pesos;16 that private respondent made her (petitioner’s) husband

sign a receipt acknowledging the receipt of said amount of money;17 and that the contents of said receipt were never

explained to them.18 She also stated in her testimony that her husband was an illiterate and only learned how to write

his name in order to be employed in a sugar central.19 As for private respondent’s purchase of the shares owned by

Fortunato’s co-owners, petitioner maintained that neither she nor her husband received any notice regarding those

sales transactions.20 The testimony of petitioner was later on corroborated by her daughter-in-law, Marietta Ape

Dino.21

After due trial, the court a quo rendered a decision22 dismissing both the complaint and the counterclaim. The trial

court likewise ordered that deeds or documents representing the sales of the shares previously owned by Fortunato’s

co-owners be registered and annotated on the existing certificate of title of Lot No. 2319. According to the trial court,

private respondent failed to prove that she had actually paid the purchase price of P5,000.00 to Fortunato and

petitioner. Applying, therefore, the provision of Article 1350 of the Civil Code,23 the trial court concluded that private

respondent did not have the right to demand the delivery to her of the registrable deed of sale over Fortunato’s portion

of the Lot No. 2319.

The trial court also rejected Fortunato and petitioner’s claim that they had the right of redemption over the shares

previously sold to private respondent and the latter’s husband, reasoning as follows:



Defendants in their counterclaim invoke their right of legal redemption under Article 1623 of the New Civil Code in view

of the alleged sale of the undivided portions of the lot in question by their co-heirs and co-owners as claimed by the

plaintiffs in their complaint. They have been informed by the plaintiff about said sales upon the filing of the complaint in

the instant case as far back as March 14, 1973. Defendant themselves presented as their very own exhibits copies of the

respective deeds of sale or conveyance by their said co-heirs and co-owners in favor of the plaintiffs or their

predecessors-in-interest way back on January 2, 1992 when they formally offered their exhibits in the instant case;

meaning, they themselves acquired possession of said documentary exhibits even before they formally offered them in

evidence. Under Art. 1623 of the New Civil Code, defendants have only THIRTY (30) DAYS counted from their actualknowledge of the exact terms and conditions of the deeds of sale or conveyance of their co-heirs’ and co-owners’ share

within which to exercise their right of legal redemption.24

Within the reglementary period, both parties filed their respective notices of appeal before the trial court with

petitioner and her children taking exception to the finding of the trial court that the period within which they could

invoke their right of redemption had already lapsed.25 For her part, private respondent raised as errors the trial court’s

ruling that there was no contract of sale between herself and Fortunato and the dismissal of their complaint for specific

performance.26

The Court of Appeals, in the decision now assailed before us, reversed and set aside the trial court’s dismissal of theprivate respondent’s complaint but upheld the portion of the court a quo’s decision ordering the dismissal of petitioner

and her children’s counterclaim. The dispositive portion of the appellate court’s decision reads:

WHEREFORE, the decision dated March 11, 1994, is hereby REVERSED and SET ASIDE insofar as the dismissal of

plaintiffs-appellants’ complaint is concerned, and another one is entered ordering the defendant-appellant Fortunato

Ape and/or his wife Perpetua de Ape and successors-in-interest to execute in favor of plaintiff-appellant Generosa Cawit

de Lumayno a Deed of Absolute Sale involving the one-eleventh (1/11) share or participation of Fortunato Ape in Lot No.

2319, Escalante Cadastre, containing an area of 12,527.19 square meters, more or less, within (30) days from finality of

this decision, and in case of non-compliance with this Order, that the Clerk of Court of said court is ordered to execute

the deed on behalf of the vendor. The decision is AFFIRMED insofar as the dismissal of defendants-appellants’counterclaim is concerned.

Without pronouncement as to costs.27

The Court of Appeals upheld private respondent’s position that Exhibit “G” had all the earmarks of a valid contract of

sale, thus:

Exhibit G is the best proof that the P5,000.00 representing the purchase price of the 1/11th share of Fortunato Ape was

not paid by the vendee on April 11, 1971, and/or up to the present, but that does not affect the binding force and effect

of the document. The vendee having paid the vendor an advance payment of the agreed purchase price of the property,

what the vendor can exact from the vendee is full payment upon his execution of the final deed of sale. As is shown, the

vendee precisely instituted this action to compel the vendor Fortunato Ape to execute the final document, after she was

informed that he would execute the same upon arrival of his daughter “Bala” from Mindanao, but afterwards failed to

live up to his contractual obligation (TSN, pp. 11-13, June 10, 1992).

It is not right for the trial court to expect plaintiff-appellant to pay the balance of the purchase price before the final

deed is executed, or for her to deposit the equivalent amount in court in the form of consignation. Consignation comes

into fore in the case of a creditor to whom tender of payment has been made and refuses without just cause to accept it

(Arts. 1256 and 1252, N.C.C.; Querino vs. Pelarca, 29 SCRA 1). As vendee, plaintiff-appellant Generosa Cawit de

Lumayno does not fall within the purview of a debtor.

We, therefore, find and so hold that the trial court should have found that exhibit G bears all the earmarks of a private

deed of sale which is valid, binding and enforceable between the parties, and that as a consequence of the failure and

refusal on the part of the vendor Fortunato Ape to live up to his contractual obligation, he and/or his heirs and

successors-in-interest can be compelled to execute in favor of, and to deliver to the vendee, plaintiff-appellant Generosa

Cawit de Lumayno a registerable deed of absolute sale involving his one-eleventh (1/11th) share or participation in Lot

No. 2319, Escalante Cadastre, containing an area of 12,527.19 square meters, more or less, within 30 days from finality

of this decision, and, in case of non-compliance within said period, this Court appoints the Clerk of Court of the trial

court to execute on behalf of the vendor the said document.28



The Court of Appeals, however, affirmed the trial court’s ruling on the issue of petitioner and her children’s right of

redemption. It ruled that Fortunato’s receipt of the Second Owner’s Duplicate of OCT (RP) 1379 (RP-154 ([300]),

containing the adverse claim of private respondent and her husband, constituted a sufficient compliance with the

written notice requirement of Article 1623 of the Civil Code and the period of redemption under this provision had long

lapsed.

Aggrieved by the decision of the appellate court, petitioner is now before us raising, essentially, the following issues:

whether Fortunato was furnished with a written notice of sale of the shares of his co-owners as required by Article 1623of the Civil Code; and whether the receipt signed by Fortunato proves the existence of a contract of sale between him

and private respondent.

In her memorandum, petitioner claimed that the Court of Appeals erred in sustaining the court a quo’s pronouncement

that she could no longer redeem the portion of Lot No. 2319 already acquired by private respondent for no written

notice of said sales was furnished them. According to her, the Court of Appeals unduly expanded the scope of the law

by equating Fortunato’s receipt of Second Owner’s Duplicate of OCT (RP) 1379 (RP-154 ([300]) with the written notice

requirement of Article 1623. In addition, she argued that Exhibit “G” could not possibly be a contract of sale of

Fortunato’s share in Lot No. 2319 as said document does not contain “(a) definite agreement on the manner of payment

of the price.”29 Even assuming that Exhibit “G” is, indeed, a contract of sale between private respondent and Fortunato,the latter did not have the obligation to deliver to private respondent a registrable deed of sale in view of private

respondent’s own failure to pay the full purchase price of Fortunato’s portion of Lot No. 2319. Petitioner is also of the

view that, at most, Exhibit “G” merely contained a unilateral promise to sell which private respondent could not enforce

in the absence of a consideration distinct from the purchase price of the land. Further, petitioner reiterated her claim

that due to the ill iteracy of her husband, it was incumbent upon private respondent to show that the contents of Exhibit

“G” were fully explained to him. Finally, petitioner pointed out that the Court of Appeals erred when it took into

consideration the same exhibit despite the fact that only its photocopy was presented before the court.

On the other hand, private respondent argued that the annotation on the second owner’s certificate over Lot No. 2319

constituted constructive notice to the whole world of private respondent’s claim over the majority of said parcel of land.Relying on our decision in the case of Cabrera v. Villanueva,30 private respondent insisted that when Fortunato received

a copy of the second owner’s certificate, he became fully aware of the contracts of sale entered into between his co-

owners on one hand and private respondent and her deceased husband on the other.

Private respondent also averred that “although (Lot No. 2319) was not actually partitioned in a survey after the death of

Cleopas Ape, the land was partitioned in a ‘hantal-hantal‘ manner by the heirs. Each took and possessed specific portion

or premises as his/her share in land, farmed their respective portion or premises, and improved them, each heir limiting

his/her improvement within the portion or premises which were his/her respective share.”31Thus, when private

respondent and her husband purchased the other parts of Lot No. 2319, it was no longer undivided as petitioner claims.

The petition is partly meritorious.

Article 1623 of the Civil Code provides:

The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing

by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry

of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible

redemptioners.

Despite the plain language of the law, this Court has, over the years, been tasked to interpret the “written notice

requirement” of the above-quoted provision. In the case Butte v. Manuel Uy & Sons, Inc.,32 we declared that –

In considering whether or not the offer to redeem was timely, we think that the notice given by the vendee (buyer)

should not be taken into account. The text of Article 1623 clearly and expressly prescribes that the thirty days for

making the redemption are to be counted from notice in writing by the vendor. Under the old law (Civ. Code of 1889,

Art. 1524), it was immaterial who gave the notice; so long as the redeeming co-owner learned of the alienation in favor

of the stranger, the redemption period began to run. It is thus apparent that the Philippine legislature in Article 1623

deliberately selected a particular method of giving notice, and that method must be deemed exclusive. (39 Am. Jur.,

237; Payne vs. State, 12 S.W. 2(d) 528). As ruled in Wampler vs. Lecompte, 150 Atl. 458 (affd. in 75 Law Ed. [U.S.] 275) –



why these provisions were inserted in the statute we are not informed, but we may assume until the contrary is shown,

that a state of facts in respect thereto existed, which warranted the legislature in so legislating.

The reasons for requiring that the notice should be given by the seller, and not by the buyer, are easily divined. The

seller of an undivided interest is in the best position to know who are his co-owners that under the law must be notified

of the sale. Also, the notice by the seller removes all doubts as to fact of the sale, its perfection; and its validity, the

notice being a reaffirmation thereof, so that the party notified need not entertain doubt that the seller may still contest

the alienation. This assurance would not exist if the notice should be given by the buyer.33

The interpretation was somehow modified in the case of De Conejero, et al. v. Court of Appeals, et al.34 wherein it was

pointed out that Article 1623 “does not prescribe a particular form of notice, nor any distinctive method for notifying

the redemptioner” thus, as long as the redemptioner was notified in writing of the sale and the particulars thereof, the

redemption period starts to run. This view was reiterated in Etcuban v. The Honorable Court of Appeals, et al.,35

Cabrera v. Villanueva,36 Garcia, et al. v. Calaliman, et al.,37 Distrito, et al. v. The Honorable Court of Appeals, et al.,38

and Mariano, et al. v. Hon. Court of Appeals, et al.39

However, in the case of Salatandol v. Retes,40 wherein the plaintiffs were not furnished any written notice of sale or a

copy thereof by the vendor, this Court again referred to the principle enunciated in the case of Butte. As observed byJustice Vicente Mendoza, such reversion is only sound, thus:

… Art. 1623 of the Civil Code is clear in requiring that the written notification should come from the vendor or

prospective vendor, not from any other person. There is, therefore, no room for construction. Indeed, the principal

difference between Art. 1524 of the former Civil Code and Art. 1623 of the present one is that the former did not specify

who must give the notice, whereas the present one expressly says the notice must be given by the vendor. Effect must

be given to this change in statutory language.41

In this case, the records are bereft of any indication that Fortunato was given any written notice of prospective or

consummated sale of the portions of Lot No. 2319 by the vendors or would-be vendors. The thirty (30)-day redemptionperiod under the law, therefore, has not commenced to run.

Despite this, however, we still rule that petitioner could no longer invoke her right to redeem from private respondent

for the exercise of this right “presupposes the existence of a co-ownership at the time the conveyance is made by a co-

owner and when it is demanded by the other co-owner or co-owners.”42 The regime of co-ownership exists when

ownership of an undivided thing or right belongs to different persons.43 By the nature of a co-ownership, a co-owner

cannot point to specific portion of the property owned in common as his own because his share therein remains

intangible.44 As legal redemption is intended to minimize co-ownership,45 once the property is subdivided and

distributed among the co-owners, the community ceases to exist and there is no more reason to sustain any right of

legal redemption.46

In this case, records reveal that although Lot No. 2319 has not yet been formally subdivided, still, the particular portions

belonging to the heirs of Cleopas Ape had already been ascertained and they in fact took possession of their respective

parts. This can be deduced from the testimony of petitioner herself, thus:

Q When the plaintiffs leased the share of your husband, were there any metes and bounds?

A It was not formally subdivided. We have only a definite portion. (hantal-hantal)

Q This hantal-hantal of your husband, was it also separate and distinct from the hantal-hantal or the share of the

brothers and sisters of your husband?

A Well, this property in question is a common property.

Q To the north, whose share was that which is adjacent to your husband’s assumed partition?

A I do not know what [does] this “north” [mean].

COURT



(To Witness)

Q To the place from where the sun rises, whose share was that?

A The shares of Cornelia, Loreta, Encarnacion and Adela.

Q How could you determine their own shares?

A They were residing in their respective assumed portions.

Q How about determining their respective boundaries?

A It could be determined by stakes and partly a row of banana plantations planted by my son-in-law.

Q Who is this son-in-law you mentioned?

A Narciso Ape.

ATTY. CAWIT

(Continuing)

Q You said that there were stakes to determine the hantal-hantal of your husband and the hantal-hantal of the

other heirs, did I get you right?

ATTY. TAN

Admitted, Your Honor.

…

ATTY. CAWIT

Q Mrs. Ape, in 1960, Cleopas Ape was already dead, is that correct?

A Certainly, since he died in 1950.

Q By the manifestation of your counsel that the entire land (13 hectares) of your father-in-law, Cleopas Ape, was

leased to Generosa Lumayno, is this correct?

A No, it is only the assumed portion of my husband [which] was leased to Generosa Lumayno.

Q For clarification, it was only the share of your husband [which] was leased to Generosa Cawit Lumayno?

A Yes.47

ATTY. CAWIT

Q My question: is that portion which you said was leased by your husband to the Lumayno[s] and which was

included to the lease by your mother-in-law to the Lumayno[s], when the Lumayno[s] returned your husband[‘s] share,

was that the same premises that your husband leased to the Lumayno[s]?

A The same.

Q In re-possessing this portion of the land corresponding to the share of your husband, did your husband demand

that they should re-possess the land from the Lumayno[s] or did the Lumayno[s] return them to your husband

voluntarily?



A They just returned to us without paying the rentals.

COURT

Q Was the return the result of your husband’s request or just voluntarily they returned it to your husband?

A No, sir, it was just returned voluntarily, and they abandoned the area but my husband continued farming.48

Similarly telling of the partition is the stipulation of the parties during the pre-trial wherein it was admitted that Lot No.

2319 had not been subdivided nevertheless, “Fortunato Ape had possessed a specific portion of the land ostensibly

corresponding to his share.”49

From the foregoing, it is evident that the partition of Lot No. 2319 had already been effected by the heirs of Cleopas

Ape. Although the partition might have been informal is of no moment for even an oral agreement of partition is valid

and binding upon the parties.50 Likewise, the fact that the respective shares of Cleopas Ape’s heirs are still embraced in

one and the same certificate of title and have not been technically apportioned does not make said portions less

determinable and identifiable from one another nor does it, in any way, diminish the dominion of their respective

owners.51

Turning now to the second issue of the existence of a contract of sale, we rule that the records of this case betray the

stance of private respondent that Fortunato Ape entered into such an agreement with her.

A contract of sale is a consensual contract, thus, it is perfected by mere consent of the parties. It is born from the

moment there is a meeting of minds upon the thing which is the object of the sale and upon the price.52 Upon its

perfection, the parties may reciprocally demand performance, that is, the vendee may compel the transfer of the

ownership and to deliver the object of the sale while the vendor may demand the vendee to pay the thing sold.53For

there to be a perfected contract of sale, however, the following elements must be present: consent, object, and price in

money or its equivalent. In the case of Leonardo v. Court of Appeals, et al.,54 we explained the element of consent, towit:

The essence of consent is the agreement of the parties on the terms of the contract, the acceptance by one of the offer

made by the other. It is the concurrence of the minds of the parties on the object and the cause which constitutes the

contract. The area of agreement must extend to all points that the parties deem material or there is no consent at all.

To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an exact notion of the matter

to which it refers; (b) it should be free and (c) it should be spontaneous. Intelligence in consent is vitiated by error;

freedom by violence, intimidation or undue influence; spontaneity by fraud.55

In this jurisdiction, the general rule is that he who alleges fraud or mistake in a transaction must substantiate his

allegation as the presumption is that a person takes ordinary care for his concerns and that private dealings have been

entered into fairly and regularly.56 The exception to this rule is provided for under Article 1332 of the Civil Code which

provides that “[w]hen one of the parties is unable to read, or if the contract is in a language not understood by him, and

mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully

explained to the former.”

In this case, as private respondent is the one seeking to enforce the claimed contract of sale, she bears the burden of

proving that the terms of the agreement were fully explained to Fortunato Ape who was an illiterate. This she failed to

do. While she claimed in her testimony that the contents of the receipt were made clear to Fortunato, such allegation

was debunked by Andres Flores himself when the latter took the witness stand. According to Flores:

ATTY. TAN

Q Mr. Witness, that receipt is in English, is it not?

A Yes, sir.

Q When you prepared that receipt, were you aware that Fortunato Ape doesn’t know how to read and write

English?



A Yes, sir, I know.

Q Mr. Witness, you said you were present at the time of the signing of that alleged receipt of P30.00, correct?

A Yes, sir.

Q Where, in what place was this receipt signed?

A At the store.

Q At the time of the signing of this receipt, were there other person[s] present aside from you, your mother-in-law

and Fortunato Ape?

A In the store, yes, sir.

Q When you signed that document of course you acted as witness upon request of your mother-in-law?

A No, this portion, I was the one who prepared that document.

Q Without asking of (sic) your mother-in-law, you prepared that document or it was your mother-in-law who

requested you to prepare that document and acted as witness?

A She requested me to prepare but does not instructed (sic) me to act as witness. It was our opinion that whenever

I prepared the document, I signed it as a witness.

Q Did it not occur to you to ask other witness to act on the side of Fortunato Ape who did not know how to read

and write English?

A It occurred to me.

Q But you did not bother to request a person who is not related to your mother-in-law, considering that Fortunato

Ape did not know how to read and write English?

A The one who represented Fortunato Ape doesn’t know also how to read and write English. One a maid.

Q You mentioned that there [was another] person inside the store, under your previous statement, when the

document was signed, there [was another] person in the store aside from you, your mother-in-law and Fortunato Ape, is

not true?

A That is true, there is one person, but that person doesn’t know how to read also.

…

Q Of course, Mr. Witness, since it occurred to you that there was need for other witness to sign that document for

Fortunato Ape, is it not a fact that the Municipal Building is very near your house?

A Quite (near).

Q But you could readily proceed to the Municipal Building and request one who is knowledgeable in English to act

as witness?

A I think there is no need for that small receipt. So I don’t bother myself to go.

Q You did not consider that receipt very important because you said that small receipt?

A Yes, I know.57



As can be gleaned from Flores’s testimony, while he was very much aware of Fortunato’s inability to read and write in

the English language, he did not bother to fully explain to the latter the substance of the receipt (Exhibit “G”). He even

dismissed the idea of asking somebody else to assist Fortunato considering that a measly sum of thirty pesos was

involved. Evidently, it did not occur to Flores that the document he himself prepared pertains to the transfer altogether

of Fortunato’s property to his mother-in-law. It is precisely in situations such as this when the wisdom of Article 1332 of

the Civil Code readily becomes apparent which is “to protect a party to a contract disadvantaged by illiteracy, ignorance,

mental weakness or some other handicap.”58

In sum, we hold that petitioner is no longer entitled to the right of redemption under Article 1632 of the Civil Code as Lot

No. 2319 had long been partitioned among its co-owners. This Court likewise annuls the contract of sale between

Fortunato and private respondent on the ground of vitiated consent.

WHEREFORE, premises considered, the decision dated 25 March 1998 of the Court of Appeals is hereby REVERSED and

SET ASIDE and the decision dated 11 March 1994 of the Regional Trial Court, Branch 58, San Carlos City, Negros

Occidental, dismissing both the complaint and the counterclaim, is hereby REINSTATED. No costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.



BIAN STEEL CORPORATION, peti t ioner , vs. HON. COURT OF APPEALS, MYLENE C. GARCIA andMYLA C. GARCIA, respondents .

MYLENE C. GARCIA and MYLA C. GARCIA, peti t ioners , vs. HON. ENRICO A. LANZANAS, PresidingJudge, RTC, Branch 7, Manila and RUFO J. BERNARDO, Sheriff-In-Charge, for the Ex-OfficioSheriff of Manila, respondents .

D E C I S I O N

CORONA, J .:

Before us are two consolidated petitions: (1) G.R. No. 142013, a special civil action for certiorari andmandamus seeking to annul and set aside the Resolutions [1] of the Court of Appeals dated October 21, 1999and January 31, 2000, denying petitioner Bian Steel Corporations motion for intervention and motion forreconsideration, and (2) G.R. No. 148430, seeking to set aside the decision [2] and resolution of the Court of

Appeals dated February 10, 2000 and May 31, 2001, respectively, dismissing the petition of petitioners MyleneC. Garcia and Myla C. Garcia for violating the rules on forum-shopping.

Stripped of the non-essentials, the facts of the case are as follows:

On July 22, 1998, Bian Steel Corporation (BSC) filed with the Regional Trial Court of Manila a complaintagainst Joenas Metal Corporation and spouses Ng Ley Huat and Leticia Dy Ng (the spouses Ng) for collection

of a sum of money with damages, docketed as Civil Case No. 98-89831.On July 24, 1998, the trial cour t[3] issued a Writ of Preliminary Attachment after BSC filed an attachment

bond. Pursuant thereto, on July 27, 1998, the sheriff of Branch 7 of the RTC of Manila, Manuelito P. Viloria,levied on the property registered in the names of the spouses Ng and covered by TCT No. 11387 of theRegistry of Deeds of Quezon City. This property under preliminary attachment was in fact mortgaged to the FarEast Bank and Trust Company (FEBTC), now Bank of the Philippine Islands (BPI), and consisted of a 268-square-meter lot located at 14 Tulip Road, Gardenville Town and Country Homes, Congressional Avenue,Project 8, Quezon City.

On August 5, 1998, a sheriffs return was filed by Viloria, stating that, as of that date, summons was notserved upon the defendant spouses Ng because they could not be located. BSC caused the filing of a motionto serve the summons by publication which was granted. Summons by publication thereafter ensued.

In the meantime, defendant-spouses Ng sold the property to petitioners (in G.R. No. 148430) Mylene andMyla Garcia by means of a deed of sale dated June 29, 1998. Said transaction was registered only about amonth-and-a-half later, on August 12, 1998, after the mortgagee FEBTC gave its approval to the sale. On

August 19, 1998, TCT No. 11387 in the name of the spouses Ng was cancelled and, in lieu thereof, TCT No.194226 in the names of Mylene and Myla Garcia was issued. The annotation of the preliminary attachmentmade earlier on July 27, 1998 by sheriff Viloria on the old title, TCT No. 11387, was transferred to TCT No.194226.

On August 28, 1998, the Garcias filed a complaint-in-intervention in Civil Case No. 98-89831 pending atBranch 7 of the Manila RTC, alleging that they were the registered owners of the property covered by TCT No.194226 which was the subject of BSCs writ of preliminary attachment. Said complaint-in-intervention wasdenied by the trial court for lack of merit.

On April 14, 1999, the trial court rendered judgment by default in favor of BSC, the dispositive portion ofwhich was:

WHEREFORE, decision is hereby rendered in favor of plaintiff Bian Steel Corporation, and against defendants Joenas

Metal Corporation, Ng Ley Huat and Leticia Dy Ng, ordering the latter to jointly and severally:

1. pay the plaintiff the amount of FIVE MILLION EIGHT HUNDRED FIFTY SIX THOUSAND PESOS

(P5,856,000.00) as actual damages;

2. pay the plaintiff the amount of ONE MILLION PESOS (P1,000,000.00) as and for consequential damages;

3. pay the plaintiff the amount equivalent to 25% of the total amount due the plaintiff from the defendant as and forattorneys fees; and

4. to pay the costs of suit.

SO ORDERED.[4]

On June 14, 1999, a Notice of Sale of Execution on Real Property was issued by respondent sheriff RufoJ. Bernardo. It scheduled the public auction of the property on July 7, 1999.

Meanwhile, on February 18, 1999, in view of the dismissal of their complaint-in-intervention, the Garciasfiled an action against BSC, sheriff Manuelito P. Viloria, the Register of Deeds of Quezon City and FEBTC

(now BPI) for cancellation of the notice of levy annotated on TCT No. 194226 before Branch 98 of the RegionalTrial Court of Quezon City,[5] docketed as Civil Case No. 99-36804. The Garcias claimed that they were the

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registered owners of the property in dispute, having acquired the same on June 29, 1998 by means of a deedof sale with assumption of mortgage from spouses Ng Ley Huat and Leticia Dy Ng.

In said case in the Quezon City RTC, the Garcias were able to secure a temporary restraining orderenjoining sheriff Rufo J. Bernardo or any person acting in his behalf from continuing with the public auctionsale of the subject property initially scheduled on July 7, 1999. This TRO was disregarded by the Manila RTC.

Acting on the ex-parte manifestation with motion to proceed with the execution sale filed by BSC, JudgeEnrico Lanzanas of Branch 7, RTC, Manila affirmed, on July 8, 1999, his previous order and directed the publicauction of the attached property, unless otherwise enjoined by the Court of Appeals or this Court. Thereafter,the public auction was rescheduled from July 7, 1999 to August 6, 1999.

On August 4, 1999, the Garcias filed another case with the Court of Appeals for the issuance of a writ ofpreliminary injunction with prayer for temporary restraining order which sought to perpetually enjoin JudgeLanzanas and sheriff Bernardo from proceeding with the public auction on August 6, 1999. Their petition didnot implead BSC as private respondent.

In a resolution dated August 5, 1999, the Third Division of the Court of Appeals [6] temporarily restrainedpublic respondents Judge Lanzanas and Bernardo from proceeding with the public auction of the subjectproperty. Hence, the scheduled public sale on August 6, 1999 did not transpire. This prompted petitioner BSCto file a motion for intervention on August 16, 1999, praying that it be allowed to intervene and be heard in thecase as private respondent, and to comment and oppose the petition filed by the Garcias. Likewise, saidmotion sought to oppose the prayer for preliminary injunction with urgent request for the issuance of thetemporary restraining order.

On October 21, 1999, the First Division of the Court of Appeals, in its resolution, [7] denied BSCs motion forintervention on the ground that its rights could be protected in a separate proceeding, particularly in thecancellation case filed by the Garcias. BSC's motion for reconsideration was likewise denied on January 31,2000. Thus, on March 13, 2000, BSC filed with this Court a special civil action for certiorari and mandamus,docketed as G.R. No. 142013, seeking to annul and set aside the Resolutions of the Court of Appeals datedOctober 21, 1999 and January 31, 2000. BSC is invoking the following issues:

I

THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION IN DENYING PETITIONERS MOTION FORINTERVENTION FOR BEING IMPROPER AS INTERVENORS RIGHTS MAY BE PROTECTED IN A SEPARATEPROCEEDING IN CIVIL CASE NO. 99-36804 OF THE RTC, BRANCH 98, QUEZON CITY, FOR CANCELLATION

OF THE NOTICE OF LEVY ANNOTATED ON TCT NO. 194226.

II

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNT TOLACK OR EXCESS OF JURISDICTION IN HOLDING THAT TO ENTERTAIN PETITIONERS INTERVENTION

WOULD NECESSARY (SIC) PRE-EMPT THE ADJUDICATION OF ISSUES IN CIVIL CASE NO. 99-36804BECAUSE EVIDENCE AND COUNTER-EVIDENCE WILL BE PRODUCED BY THE PARTIES IN THEINJUNCTION SUIT, AND THIS WILL UNDULY DELAY OR PREJUDICE THE ADJUDICATION OF THE RIGHTS

OF THE PRINCIPAL PARTIES.

III

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNT TO

LACK OR EXCESS OF JURISDICTION IN RULING THAT THE ALLOWANCE OR DISALLOWANCE OF AMOTION TO INTERVENE IS ADDRESSED TO THE SOUND DISCRETION OF THE COURT, OVERLOOKING

THE FACT THAT IN THE INSTANT CASE, THE APPELLATE COURT DID NOT EXERCISE WISELY ITS

SOUND DISCRETION WHEN IT DENIED PETITIONERS MOTION FOR INTERVENTION.

Similarly, the Fifteenth Division of the Court of Appeals, in its decision [8] dated February 10, 2000,dismissed the petition of the Garcias for violating the rules on forum-shopping. It denied their motion for

reconsideration on May 31, 2001.

The Garcias thus filed with this Court a petition for review on certiorari, docketed as G.R. No. 148430,seeking to set aside the February 10, 2000 decision of the Court of Appeals as well as its resolution dated May31, 2001 denying their motion for reconsideration, raising the following errors:

I

WHETHER OR NOT PETITIONERS WERE GUILTY OF VIOLATING THE RULES ON FORUM-SHOPPING.

II

WHETHER OR NOT PETITIONERS ARE ENTITLED TO THE ISSUANCE OF A WRIT OF INJUNCTION.













Subsequently, G.R. No. 142013 and G.R. No. 148430 were consolidated pursuant to this Court'sResolution dated February 27, 2002.

In the meantime, on August 4, 2001, the Garcias were again served by the sheriff of the Manila RTC witha notice of sale of execution of the disputed property scheduled for August 7, 2001. Because no TRO wasissued by this Court, the public auction ordered by the Manila RTC was held as scheduled and the propertywas awarded to BSC as the highest bidder.

On August 15, 2001, a little too late, this Cour t [9] issued the TRO sought by the Garcias in a resolutionwhich partially stated that:

Acting on the Petitioners Urgent Motion for the Issuance of a temporary restraining order and/or writ of preliminaryinjunction dated August 6, 2001, praying that public respondents be enjoined from proceeding with the conduct of the

public auction sale involving Petitioners property, registered under TCT No. 194226 of the Registry of Deeds of Quezon

City, the Court Resolved to ISSUE the TEMPORARY RESTRAINING ORDER prayed for, effective immediately until

further orders from this Court.[10]

A year after the public auction, on August 6, 2002, the Garcias, fearful of the impending consolidation oftitle in favor of BSC, filed before this Court an urgent ex-parte motion for the issuance of an order maintainingthe status quo ante. They wanted to prevent the consolidation of the title and possession by BSC until suchtime as the rights and interests of both sets of petitioners in the two cases before us shall have been

determined and finally resolved. Acting on the said motion, on August 9, 2002, the Cour t [11] resolved to grant the motion and directed the

parties to maintain the status quo as of August 6, 2002.

Going over the merits of the petitions, the Court deems it essential to resolve two pivotal issues: (1) who,between BSC and the Garcias, has a better right to the disputed property, and (2) whether the Garcias violatedthe rule against forum- shopping.

It should be noted that, at the time of the attachment of the property on July 27, 1998, the spouses Ngwere still the registered owners of said property. It should also be observed that the preliminary attachment infavor of petitioner BSC was annotated and recorded in the Registry of Deeds of Quezon City on July 27, 1998in accordance with the provisions of the Property Registration Decree (PD 1529). This annotation produced allthe effects which the law gives to its registration or inscription. [12]

This Court has always held that attachment is a proceeding in rem. It is against the particular property,enforceable against the whole world. The attaching creditor acquires a specific lien on the attached propertywhich ripens into a judgment against the res when the order of sale is made. Such a proceeding in effectmeans that the property attached is an indebted thing and a virtual condemnation of it to pay the ownersdebt.[13] This doctrine was validated by this Court in the more recent case of Republic vs. Saludares[14]:

xxx.

The law does not provide the length of time an attachment lien shall continue after the rendition of the judgment, and itmust therefore necessarily continue until the debt is paid, or sale is had under execution issued on the judgment, or until

the judgment is satisfied, or the attachment discharged or vacated in some manner provided by law. Thus, if the property

attached is subsequently sold, the purchaser of the attached property acquires it subject to an attachment legallyand validly levied thereon.

xxx.

In the instant case, the records reveal that the levy on attachment covering the subject property wasannotated on TCT No. 11387 on July 27, 1998. The deed of sale executed on June 29, 1998 in favor of theGarcias was approved by FEBTC only on August 12, 1998 which was also the date when the sale wasregistered. From the foregoing, it can be seen that, when the Garcias purchased the property in question, itwas already under a duly registered preliminary attachment. In other words, there was already notice to saidpurchasers (and the whole world) of the impending acquisition by BSC, as the judgment creditor, of a legal lienon the title of the Ng spouses as judgment debtors in case BSC won its case in the Manila RTC.

The Garcias claim they acquired the subject property by means of a deed of sale with assumption ofmortgage dated June 29, 1998, meaning, they purchased the property ahead of the inscription of the levy onattachment thereon on July 27, 1998. But, even if consensual, not all contracts of sale became automaticallyand immediately effective.[15] In Ramos vs. Court of Appeal s[16] we held:

In sales with assumption of mortgage, the assumption of mortgage is a condition precedent to the sellers consent and

therefore, without approval of the mortgagee, the sale is not perfected.

Apart therefrom, notwithstanding the approval of the sale by mortgagee FEBTC (BPI), there was yet anotherstep the Garcias had to take and it was the registration of the sale from the Ngs to them. Insofar as thirdpersons are concerned, what validly transfers or conveys a person's interest in real property is the registration

of the deed.[17]
















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Thus, when the Garcias bought the property on June 29, 1998, it was, at that point, no more than a privatetransaction between them and the Ngs. It needed to be registered before it could become binding on allthird parties, including BSC. It turned out that the Garcias registered it only on August 12, 1998, after FEBTC(now BPI) approved the sale. It was too late by then because, on July 27, 1998, the levy in favor of BSC,pursuant to the preliminary attachment ordered by the Manila RTC, had already been annotated on the originaltitle on file with the Registry of Deeds. This registration of levy (or notice, in laymans language) now becamebinding on the whole world, including the Garcias. The rights which had already accrued in favor of BSC byvirtue of the levy on attachment over the property were never adversely affected by the unregistered transferfrom the spouses Ng to the Garcias.

We sympathize with the Garcias but, had they only bothered to check first with the Register of Deeds ofQuezon City before buying the property as a prudent buyer would have done they would have seen thewarning about BSCs superior rights over it. This alone should have been sufficient reason for them to back outof the deal.

It is doctrinal that a levy on attachment, duly registered, has preference over a prior unregistered sale and,even if the prior unregistered sale is subsequently registered before the sale on execution but after the levy ismade, the validity of the execution sale should be upheld because it retroacts to the date of levy. The priorityenjoyed by the levy on attachment extends, with full force and effect, to the buyer at the auction saleconducted by virtue of such levy.[18] The sale between the spouses Ng and the Garcias was undoubtedly avalid transaction between them. However, in view of the prior levy on attachment on the same property, theGarcias took the property subject to the attachment. The Garcias, in buying registered land, stood exactly inthe shoes of their vendors, the Ngs, and their title ipso facto became subject to the incidents or results of thepending litigation[19] between the Ngs and BSC.

Even the alleged lack of actual and personal knowledge of the existence of the levy on attachment overthe subject property by the Garcias cannot be sustained by this Court on the ground that one who deals withregistered land is charged with notice of the burdens on the property which are duly noted on the certificate oftitle. On this specific point, we are concerned not with actual or personal knowledge but constructive noticethrough registration in the Registry of Deeds. Otherwise stated, what we should fol low is the annotation (or lackthereof) on the original title on file with the Registry of Deeds, not on the duplicate title in the hands of theprivate parties.

When a conveyance has been properly recorded, such record is constructive notice of its contents and allinterests, legal and equitable, included therein. Under the rule on notice, it is presumed that the purchaser hasexamined every instrument on record affecting the title. Such presumption is irrefutable and cannot beovercome by any claim of innocence or good faith.Therefore, such presumption cannot be defeated by proof oflack of knowledge of what the public record contains any more than one may be permitted to show that he wasignorant of the provisions of the law. The rule that all persons must take notice of the facts which the publicrecord contains is a rule of law. The rule must be absolute. Any variation would lead to endless confusion anduseless litigation.[20] Otherwise, the very purpose and object of the law requiring public registration would be fornaught.

Pertinent to the matter at hand is Article 1544 of the New Civil Code which provides:

If the same thing should have been sold to different vendees, x x x should it be immovable property, the ownership

shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property . x x x

Because of the principle of constructive notice to the whole world, one who deals with registered propertywhich is the subject of an annotated levy on attachment cannot invoke the rights of a purchaser in goodfaith. As between two purchasers, the one who registers the sale in his favor has a preferred right over theother who has not registered his title even if the latter is in actual possession of the immovableproperty.[21] And, as between two purchasers who both registered the respective sales in their favor, the onewho registered his sale ahead of the other would have better rights than the other who registered later.

Applying said provision of the law and settled jurisprudence to the instant case, when the disputedproperty was consequently sold on execution to BSC, this auction sale retroacted to the date of inscription ofBSC's notice of attachment on July 27, 1998. The earlier registration thus gave BSC superior and preferentialrights over the attached property as against the Garcias [22] who registered their purchase of the property at a

later date. Notably, the Garcias were not purchasers for value in view of the fact that they acquired the propertyin payment of the loan earlier obtained from them by the Spouses Ng. [23]

All told, the purchaser of a property subject to an attachment legally and validly levied thereon is merelysubrogated to the rights of the vendor and acquires the property subject to the rights of the attachmentcreditor. An attaching creditor who registers the order of attachment and the sale by public auction of theproperty to him as the highest bidder acquires a superior title to the property as against a vendee whopreviously bought the same property from the registered owner but who failed to register his deed of sale. [24]

Petitioners Garcias failed to show that BSC acted in bad faith which would have impelled this Court to ruleotherwise.

The foregoing considerations show that the Garcias are not entitled to the issuance of a writ of preliminaryinjunction from this Court. For the issuance of the writ to be proper, it must be shown that the invasion of the

right sought to be protected is material and substantial, that the right of the Garcias is clear and unmistakable





























and that there is an urgent and paramount necessity for the writ to prevent serious damage. [25] Suchrequirements are all wanting in the case at bar. Thus, in view of the clear and unmistakable absence of anylegal basis for the issuance thereof, the same must be denied.

On the second question whether the Garcias violated the rule against forum-shopping we answer in theaffirmative.

The Court of Appeals, in dismissing the Garcias' petition on the ground of forum-shopping, explained:

A party is guilty of forum-shopping where he repetitively availed of several judicial remedies in different courts,simultaneously or successively, all substantially founded on the same transactions and the same essential facts and

circumstances, and all raising substantially the same issues either pending in, or already resolved adversely by some other

court (Gatmaytan vs. Court of Appeals, 267 SCRA 487).

The test to determine whether a party violated the rule against forum-shopping is where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in another (Solid Homes, Inc. vs. Court of

Appeals, 271 SCRA 157).

What is truly important to consider in determining whether forum-shopping exists or not is the vexation caused the courts

and parties-litigants by a party who asks different courts and/or administrative agencies to rule on the same or related

causes and/or grant the same or substantially the same reliefs, in the process creating possibility of conflicting decisions

being rendered by the different fora upon the same issues (Golangco vs. Court of Appeals, 283 SCRA 493).

The above jurisprudence instructs us the various indicia of forum-shopping. The more important of these are: when the

final judgment in one case will amount to res judicata in another, or where the cases filed are substantially founded on the

same transactions and the same essential facts and circumstances, or raising substantially the same issues, or moreimportantly, where there exists the possibility of conflicting decisions being rendered by different fora upon the same

issues.

If we take a look closely on the instant Petition for Injunction, forum-shopping is evident. In Civil Case No. 99-36804

raffled to Branch 98 of RTC- Quezon City, petitioners therein prayed for the cancellation of the notice of levy in theirtitle. They are claiming that the controverted property is owned by them such that the respondent therein has no right tolevy on their property, petitioners not being the respondents debtor. In the present petition, petitioners seek that the

scheduled auction sale of the same property be perpetually enjoined, claiming that the property is owned by them and thatthe same is erroneously made to answer for liability not owing by them. Ultimately, the two actions involve the same

essential facts and circumstances, and are raising the same issues.

x x x The propriety of the issuance of injunction would depend on the finding that the petitioners have a clear legal right

over the property - a right in esse or the existence of a right to be protected. Thus, this court must make a categorical

finding of fact. This very same issue of fact who as between the two contending parties have a better right to the propertyis the very issue presented before the RTC of Quezon City. Clearly therefore, this Court and that of RTC Quezon City arecalled upon to decide on the same issues based on the same essential facts and circumstances. Hence, the possibility of

these two courts rendering or coming up with different or conflicting decisions is very much real. Needless to say, the

decision in one case would constitute res judicata in the other. The instant petition for injunction obviously violates the

rule on forum-shopping.

We agree with the Court of Appeals.

As clearly demonstrated, the willful attempt by the Garcias to obtain a preliminary injunction in anothercourt (the Court of Appeals) after they filed a case seeking the same relief from the original court (the QuezonCity RTC) constitutes grave abuse of the judicial process. Such contemptuous act is penalized by the summarydismissal of both actions as mandated by paragraph 17 of the Interim Rules and Guidelines issued by thisCourt on January 11, 1983 and Supreme Court Circular No. 28-91, to wit:

x x x

SUBJECT: ADDITIONAL REQUISITES FOR PETITIONS FILED WITH THE SUPREME COURT AND THE

COURT OF APPEALS TO PREVENT FORUM-SHOPPING OR MULTIPLE FILING OF PETITIONS ANDCOMPLAINTS.

The attention of the Court has been called to the filing of multiple petitions and complaints involving the same issues in

the Supreme Court, the Court of Appeals or different Divisions thereof, or any other tribunal or agency, with the result

that said tribunals or agency have to resolve the same issues.

x x x.

3. Penalties.

(a) Any violation of this Circular shall be a cause for the summary dismissal of the multiple petition or complaint;







x x x.

In Bugnay Construction & Development Corporation vs. Laron, [26] we declared:

Forum-shopping, an act of malpractice, is proscribed and condemned as trifling with the courts and abusing their processes. It is improper conduct that degrades the administration of justice. The rule has been formalized in Paragraph 17of the Interim Rules and Guidelines issued by this Court of January 11, 1983, in connection with the implementation of

the Judiciary Reorganization Act x x x. The Rule ordains that (a) violation of the rule shall constitute a contempt of court

and shall be a cause for the summary dismissal of both petitions, without prejudice to the taking of appropriate action

against the counsel or party concerned.

The rule against forum-shopping has been further strengthened by the issuance of Supreme Court Administrative Circular No. 04-94. Said circular formally established the rule that the deliberate filing of multiplecomplaints to obtain favorable action constitutes forum-shopping and shall be a ground for summary dismissalthereof.

Accordingly, the Garcias cannot pursue simultaneous remedies in two different fora. This is a practicewhich degrades the judicial process, messes up the orderly rules of procedure and is vexatious and unfair tothe other party in the case.

We rule therefore that the execution sale in favor of BSC was superior to the sale of the same property by

the Ngs to the Garcias on August 12, 1998. The right of petitioner BSC to the ownership and possession of theproperty, the surrender of the owner's duplicate copy of TCT No. 194226 covering the subject property forinscription of the certificate of sale, the cancellation of TCT No. 194226 and the issuance of a new title in favorof BSC, is affirmed without prejudice to the right of the Garcias to seek reimbursement from the spouses Ng.

In view of our disposition of the first issue resulting in the denial of the Garcias petition, the petition of BSCpraying that it be allowed to intervene therein has been rendered moot. The Court thus finds it unnecessary todiscuss it.

WHEREFORE, the petitions are DENIED. The Resolution dated August 9, 2002 issued by this Courtdirecting the parties to maintain the status quo as of August 6, 2002 is hereby lifted and set aside. The Registryof Deeds of Quezon City is hereby ordered to cancel TCT No. 194226 in the names of Myla and Mylene Garciaand issue a new title in favor of BSC without further delay.

SO ORDERED.







G.R. No. 156437 March 1, 2004

NATIONAL HOUSING AUTHORITY, petitioner,

vs.

GRACE BAPTIST CHURCH and the COURT OF APPEALS, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, seeking to reverse the Decision of the Court of Appeals

dated February 26, 2001,1 and its Resolution dated November 8, 2002,2 which modified the decision of the Regional

Trial Court of Quezon City, Branch 90, dated February 25, 1997.3

On June 13, 1986, respondent Grace Baptist Church (hereinafter, the Church) wrote a letter to petitioner National

Housing Authority (NHA), manifesting its interest in acquiring Lots 4 and 17 of the General Mariano Alvarez

Resettlement Project in Cavite.4 In its letter-reply dated July 9, 1986, petitioner informed respondent:

In reference to your request letter dated 13 June 1986, regarding your application for Lots 4 and 17, Block C-3-CL, we are

glad to inform you that your request was granted and you may now visit our Project Office at General Mariano Alvarez

for processing of your application to purchase said lots.

We hereby advise you also that prior to approval of such application and in accordance with our existing policies and

guidelines, your other accounts with us shall be maintained in good standing.5

Respondent entered into possession of the lots and introduced improvements thereon.6

On February 22, 1991, the NHA’s Board of Directors passed Resolution No. 2126, approving the sale of the subject lots torespondent Church at the price of P700.00 per square meter, or a total price of P430,500.00.7 The Church was duly

informed of this Resolution through a letter sent by the NHA.8

On April 8, 1991, the Church tendered to the NHA a manager’s check in the amount of P55,350.00, purportedly in full

payment of the subject properties.9 The Church insisted that this was the price quoted to them by the NHA Field Office,

as shown by an unsigned piece of paper with a handwritten computation scribbled thereon.10 Petitioner NHA returned

the check, stating that the amount was insufficient considering that the price of the properties have changed. The

Church made several demands on the NHA to accept their tender of payment, but the latter refused. Thus, the Church

instituted a complaint for specific performance and damages against the NHA with the Regional Trial Court of Quezon

City,11 where it was docketed as Civil Case No. Q-91-9148.

On February 25, 1997, the trial court rendered its decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to reimburse to the plaintiff the amount of P4,290.00 representing the overpayment made

for Lots 1, 2, 3, 18, 19 and 20;

2. Declaring that there was no perfected contract of sale with respect to Lots 4 and 17 and ordering the plaintiff to

return possession of the property to the defendant and to pay the latter reasonable rental for the use of the property at

P200.00 per month computed from the time it took possession thereof until finally vacated. Costs against defendant.

SO ORDERED.12

On appeal, the Court of Appeals, affirmed the trial court’s finding that there was indeed no contract of sale between the

parties. However, petitioner was ordered to execute the sale of the lots to Grace Baptist Church at the price of P700.00

per square meter, with 6% interest per annum from March 1991. The dispositive portion of the Court of Appeals’

decision, dated February 26, 2001, reads:



WHEREFORE, the appealed Decision is hereby AFFIRMED with the MODIFICATION that defendant-appellee NHA is

hereby ordered to sell to plaintiff-appellant Grace Baptist Church Lots 4 and 17 at the price of P700.00 per square meter,

or a total cost P430,000.00 with 6% interest per annum from March, 1991 until full payment in cash.

SO ORDERED.13

The appellate court ruled that the NHA’s Resolution No. 2126, which earlier approved the sale of the subject lots to

Grace Baptist Church at the price of P700.00 per square meter, has not been revoked at any time and was therefore stillin effect. As a result, the NHA was estopped from fixing a different price for the subject properties. Considering further

that the Church had been occupying the subject lots and even introduced improvements thereon, the Court of Appeals

ruled that, in the interest of equity, it should be allowed to purchase the subject properties.14

Petitioner NHA filed a Motion for Reconsideration which was denied in a Resolution dated November 8, 2002. Hence,

the instant petition for review on the sole issue of: Can the NHA be compelled to sell the subject lots to Grace Baptist

Church in the absence of any perfected contract of sale between the parties?

Petitioner submits that the Court cannot compel it to sell the subject property to Grace Baptist Church without violating

its freedom to contract.15 Moreover, it contends that equity should be applied only in the absence of any law governingthe relationship between the parties, and that the law on sales and the law on contracts in general apply to the present

case.16

We find merit in petitioner’s submission.

Petitioner NHA is not estopped from selling the subject lots at a price equal to their fair market value, even if it failed to

expressly revoke Resolution No. 2126. It is, after all, hornbook law that the principle of estoppel does not operate

against the Government for the act of its agents,17 or, as in this case, their inaction.

On the application of equity, it appears that the crux of the controversy involves the characterization of equity in thecontext of contract law. Preliminarily, we reiterate that this Court, while aware of its equity jurisdiction, is first and

foremost, a court of law. While equity might tilt on the side of one party, the same cannot be enforced so as to overrule

positive provisions of law in favor of the other.18 Thus, before we can pass upon the propriety of an application of

equitable principles in the case at bar, we must first determine whether or not positive provisions of law govern.

It is a fundamental rule that contracts, once perfected, bind both contracting parties, and obligations arising therefrom

have the force of law between the parties and should be complied with in good faith.19 However, it must be understood

that contracts are not the only source of law that govern the rights and obligations between the parties. More

specifically, no contractual stipulation may contradict law, morals, good customs, public order or public policy.20 Verily,

the mere inexistence of a contract, which would ordinarily serve as the law between the parties, does not automatically

authorize disposing of a controversy based on equitable principles alone. Notwithstanding the absence of a perfected

contract between the parties, their relationship may be governed by other existing laws which provide for their

reciprocal rights and obligations.

It must be remembered that contracts in which the Government is a party are subject to the same rules of contract law

which govern the validity and sufficiency of contract between individuals. All the essential elements and characteristics

of a contract in general must be present in order to create a binding and enforceable Government contract.21

It appearing that there is no dispute that this case involves an unperfected contract, the Civil Law principles governing

contracts should apply. In Vda. de Urbano v. Government Service Insurance System,22 it was ruled that a qualified

acceptance constitutes a counter-offer as expressly stated by Article 1319 of the Civil Code. In said case, petitioners

offered to redeem mortgaged property and requested for an extension of the period of redemption. However, the offer

was not accepted by the GSIS. Instead, it made a counter-offer, which petitioners did not accept. Petitioners again offer

to pay the redemption price on staggered basis. In deciding said case, it was held that when there is absolutely no

acceptance of an offer or if the offer is expressly rejected, there is no meeting of the minds. Since petitioners’ offer was

denied twice by GSIS, it was held that there was clearly no meeting of the minds and, thus, no perfected contract. All

that is established was a counter-offer.23

In the case at bar, the offer of the NHA to sell the subject property, as embodied in Resolution No. 2126, was similarly

not accepted by the respondent.24 Thus, the alleged contract involved in this case should be more accurately



denominated as inexistent. There being no concurrence of the offer and acceptance, it did not pass the stage of

generation to the point of perfection.25 As such, it is without force and effect from the very beginning or from its

incipiency, as if it had never been entered into, and hence, cannot be validated either by lapse of time or ratification.26

Equity can not give validity to a void contract,27 and this rule should apply with equal force to inexistent contracts.

We note from the records, however, that the Church, despite knowledge that its intended contract of sale with the NHA

had not been perfected, proceeded to introduce improvements on the disputed land. On the other hand, the NHA

knowingly granted the Church temporary use of the subject properties and did not prevent the Church from makingimprovements thereon. Thus, the Church and the NHA, who both acted in bad faith, shall be treated as if they were both

in good faith.28 In this connection, Article 448 of the Civil Code provides:

The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to

appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and

548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent.

However, the builder or planter cannot be obliged to buy the land and if its value is considerably more than that of the

building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the

building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of

disagreement, the court shall fix the terms thereof.

Pursuant to our ruling in Depra v. Dumlao,29 there is a need to remand this case to the trial court, which shall conduct

the appropriate proceedings to assess the respective values of the improvements and of the land, as well as the

amounts of reasonable rentals and indemnity, fix the terms of the lease if the parties so agree, and to determine other

matters necessary for the proper application of Article 448, in relation to Articles 546 and 548, of the Civil Code.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The Court of Appeals’ Decision dated February 26, 2001

and Resolution dated November 8, 2002 are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of

Quezon City-Branch 90, dated February 25, 1997, is REINSTATED. This case is REMANDED to the Regional Trial Court of

Quezon City, Branch 90, for further proceedings consistent with Articles 448 and 546 of the Civil Code.

No costs.

SO ORDERED.



BOSTON BANK OF THE G. R. No. 158149

PHILIPPINES, (formerly BANK

OF COMMERCE),

Petitioner, Present:

PANGANIBAN, J., Chairperson,

YNARES-SANTIAGO,

AUSTRIA-MARTINEZ,

- versus - CALLEJO, SR., andCHICO-NAZARIO, JJ.

PERLA P. MANALO and CARLOS

MANALO, JR.,

Promulgated:

Respondents. February 9, 2006

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 47458

affirming, on appeal, the Decision[2] of the Regional Trial Court (RTC) of Quezon City, Branch 98, in Civil Case No. Q-89-

3905.

The Antecedents

The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known as the Xavierville Estate

Subdivision, with an area of 42 hectares. XEI caused the subdivision of the property into residential lots, which was then

offered for sale to individual lot buyers.[3]

On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and The Overseas Bank of Manila

(OBM), as vendee, executed a Deed of Sale of Real Estate over some residential lots in the subdivision, including Lot 1,

Block 2, with an area of 907.5 square meters, and Lot 2, Block 2, with an area of 832.80 square meters. The transaction

was subject to the approval of the Board of Directors of OBM, and was covered by real estate mortgages in favor of the

Philippine National Bank as security for its account amounting to P5,187,000.00, and the Central Bank of the Philippines

as security for advances amounting to P22,185,193.74.[4] Nevertheless, XEI continued selling the residential lots in the

subdivision as agent of OBM.[5]

Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr. Carlos Manalo, Jr. who was in

business of drilling deep water wells and installing pumps under the business name Hurricane Commercial, Inc. For

P34,887.66, Manalo, Jr. installed a water pump at Ramos residence at the corner of Aurora Boulevard and Katipunan

Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot in the Xavierville subdivision,

and offered as part of the downpayment the P34,887.66 Ramos owed him. XEI, through Ramos, agreed. In a letter dated

February 8, 1972, Ramos requested Manalo, Jr. to choose which lots he wanted to buy so that the price of the lots and

the terms of payment could be fixed and incorporated in the conditional sale.[6] Manalo, Jr. met with Ramos and

informed him that he and his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3 square meters.

In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the lots. He also pegged the price

of the lots at P200.00 per square meter, or a total of P348,060.00, with a 20% down payment of the purchase price

amounting to P69,612.00 less the P34,887.66 owing from Ramos, payable on or before December 31, 1972; the

corresponding Contract of Conditional Sale would then be signed on or before the same date, but if the selling

operations of XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and the

spouses would sign the aforesaid contract within five (5) days from receipt of the notice of resumption of such selling



operations. It was also stated in the letter that, in the meantime, the spouses may introduce improvements thereon

subject to the rules and regulations imposed by XEI in the subdivision. Perla Manalo conformed to the letter

agreement.[7]

The spouses Manalo took possession of the property on September 2, 1972, constructed a house thereon, and installed

a fence around the perimeter of the lots.

In the meantime, many of the lot buyers refused to pay their monthly installments until they were assured that theywould be issued Torrens titles over the lots they had purchased.[8] The spouses Manalo were notified of the resumption

of the selling operations of XEI.[9] However, they did not pay the balance of the downpayment on the lots because

Ramos failed to prepare a contract of conditional sale and transmit the same to Manalo for their signature. On August

14, 1973, Perla Manalo went to the XEI office and requested that the payment of the amount representing the balance

of the downpayment be deferred, which, however, XEI rejected. On August 10,

1973, XEI furnished her with a statement of their account as of July 31, 1973, showing that they had a balance of

P34,724.34 on the downpayment of the two lots after deducting the account of Ramos, plus P3,819.68[10] interest

thereon from September 1, 1972 to July 31, 1973, and that the interests on the unpaid balance of the purchase price of

P278,448.00 from September 1, 1972 to July 31, 1973 amounted to P30,629.28.[11] The spouses were informed that

they were being billed for said unpaid interests.[12]

On January 25, 1974, the spouses Manalo received another statement of account from XEI, inclusive of interests on the

purchase price of the lots.[13] In a letter dated April 6, 1974 to XEI, Manalo, Jr. stated they had not yet received the

notice of resumption of Leis selling operations, and that there had been no arrangement on the payment of interests;

hence, they should not be charged with interest on the balance of the downpayment on the property.[14] Further, they

demanded that a deed of conditional sale over the two lots be transmitted to them for their signatures. However, XEI

ignored the demands. Consequently, the spouses refused to pay the balance of the downpayment of the purchase

price.[15]

Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his house. In a letter dated June 17,1976, XEI informed Manalo, Jr. that business signs were not allowed along the sidewalk. It demanded that he remove

the same, on the ground, among others, that the sidewalk was not part of the land which he had purchased on

installment basis from XEI.[16] Manalo, Jr. did not respond. XEI reiterated its demand on September 15, 1977.[17]

Subsequently, XEI turned over its selling operations to OBM, including the receivables for lots already contracted and

those yet to be sold.[18] On December 8, 1977, OBM warned Manalo, Jr., that putting up of a business sign is specifically

prohibited by their contract of conditional sale and that his failure to comply with its demand would impel it to avail of

the remedies as provided in their contract of conditional sale.[19]

Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of Title (TCT) No. T-265822 over Lot

1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in favor of the OBM.[20] The lien in favor of the Central Bank of the

Philippines was annotated at the dorsal portion of said title, which was later cancelled on August 4, 1980.[21]

Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from OBM. CBM wrote Edilberto Ng,

the president of Xavierville Homeowners Association that, as of January 31, 1983, Manalo, Jr. was one of the lot buyers

in the subdivision.[22] CBM reiterated in its letter to Ng that, as of January 24, 1984, Manalo was a homeowner in the

subdivision.[23]

In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going construction on the property

since it (CBM) was the owner of the lot and she had no permission for such construction.[24] She agreed to have a

conference meeting with CBM officers where she informed them that her husband had a contract with OBM, through

XEI, to purchase the property. When asked to prove her claim, she promised to send the documents to CBM. However,

she failed to do so.[25] On September 5, 1986, CBM reiterated its demand that it be furnished with the documents

promised,[26] but Perla Manalo did not respond.

On July 27, 1987, CBM filed a complaint[27] for unlawful detainer against the spouses with the Metropolitan Trial Court

of Quezon City. The case was docketed as Civil Case No. 51618. CBM claimed that the spouses had been unlawfully

occupying the property without its consent and that despite its demands, they refused to vacate the property. The latter

alleged that they, as vendors, and XEI, as vendee, had a contract of sale over the lots which had not yet been

rescinded.[28]



While the case was pending, the spouses Manalo wrote CBM to offer an amicable settlement, promising to abide by the

purchase price of the property (P313,172.34), per agreement with XEI, through Ramos. However, on July 28, 1988, CBM

wrote the spouses, through counsel, proposing that the price of P1,500.00 per square meter of the property was a

reasonable starting point for negotiation of the settlement.[29] The spouses rejected the counter proposal,[30]

emphasizing that they would abide by their original agreement with XEI. CBM moved to withdraw its complaint[31]

because of the issues raised.[32]

In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM filed its complaint against the

spouses Manalo, the latter filed a complaint for specific performance and damages against the bank before the Regional

Trial Court (RTC) of Quezon City on October 31, 1989.

The plaintiffs alleged therein that they had always been ready, able and willing to pay the installments on the lots sold to

them by the defendants remote predecessor-in-interest, as might be or stipulated in the contract of sale, but no

contract was forthcoming; they constructed their house worth P2,000,000.00 on the property in good faith; Manalo, Jr.,

informed the defendant, through its counsel, on October 15, 1988 that he would abide by the terms and conditions of

his original agreement with the defendants predecessor-in-interest; during the hearing of the ejectment case on

October 16, 1988, they offered to pay P313,172.34 representing the balance on the purchase price of said lots; suchtender of payment was rejected, so that the subject lots could be sold at considerably higher prices to third parties.

Plaintiffs further alleged that upon payment of the P313,172.34, they were entitled to the execution and delivery of a

Deed of Absolute Sale covering the subject lots, sufficient in form and substance to transfer title thereto free and clear

of any and all liens and encumbrances of whatever kind and nature.[33] The plaintiffs prayed that, after due hearing,

judgment be rendered in their favor, to wit:

WHEREFORE, it is respectfully prayed that after due hearing:

(a) The defendant should be ordered to execute and deliver a Deed of Absolute Sale over subject lots in favor of theplaintiffs after payment of the sum of P313,172.34, sufficient in form and substance to transfer to them titles thereto

free and clear of any and all liens and encumbrances of whatever kind or nature;

(b) The defendant should be held liable for moral and exemplary damages in the amounts of P300,000.00 and

P30,000.00, respectively, for not promptly executing and delivering to plaintiff the necessary Contract of Sale,

notwithstanding repeated demands therefor and for having been constrained to engage the services of undersigned

counsel for which they agreed to pay attorneys fees in the sum of P50,000.00 to enforce their rights in the premises and

appearance fee of P500.00;

(c) And for such other and further relief as may be just and equitable in the premises.[34]

In its Answer to the complaint, the defendant interposed the following affirmative defenses: (a) plaintiffs had no cause

of action against it because the August 22, 1972 letter agreement between XEI and the plaintiffs was not binding on it;

and (b) it had no record of any contract to sell executed by it or its predecessor, or of any statement of accounts from its

predecessors, or records of payments of the plaintiffs or of any documents which entitled them to the possession of the

lots.[35] The defendant, likewise, interposed counterclaims for damages and attorneys fees and prayed for the eviction

of the plaintiffs from the property.[36]

Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an amicable settlement of the case

by paying P942,648.70, representing the balance of the purchase price of the two lots based on the current market

value.[37] However, the defendant rejected the same and insisted that for the smaller lot, they pay P4,500,000.00, the

current market value of the property.[38] The defendant insisted that it owned the property since there was no contract

or agreement between it and the plaintiffs relative thereto.

During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional Sale executed between XEI and

Alberto Soller;[39] Alfredo Aguila,[40] and Dra. Elena Santos-Roque[41] to prove that XEI continued selling residential

lots in the subdivision as agent of OBM after the latter had acquired the said lots.



For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI proposed to sell the two lots

subject to two suspensive conditions: the payment of the balance of the downpayment of the property, and the

execution of the corresponding contract of conditional sale. Since plaintiffs failed to pay, OBM consequently refused to

execute the corresponding contract of conditional sale and forfeited the P34,877.66 downpayment for the two lots, but

did not notify them of said forfeiture.[42] It alleged that OBM considered the lots unsold because the titles thereto bore

no annotation that they had been sold under a contract of conditional sale, and the plaintiffs were not notified of XEIs

resumption of its selling operations.

On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the defendant. The fallo of the decision

reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant

(a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1 and 2, Block 2 of the Xavierville Estate

Subdivision after payment of the sum of P942,978.70 sufficient in form and substance to transfer to them titles thereto

free from any and all liens and encumbrances of whatever kind and nature.

(b) Ordering the defendant to pay moral and exemplary damages in the amount of P150,000.00; and

(c) To pay attorneys fees in the sum of P50,000.00 and to pay the costs.

SO ORDERED.[43]

The trial court ruled that under the August 22, 1972 letter agreement of XEI and the plaintiffs, the parties had a

complete contract to sell over the lots, and that they had already partially consummated the same. It declared that the

failure of the defendant to notify the plaintiffs of the resumption of its selling operations and to execute a deed of

conditional sale did not prevent the defendants obligation to convey titles to the lots from acquiring binding effect.Consequently, the plaintiffs had a cause of action to compel the defendant to execute a deed of sale over the lots in

their favor.

Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a) not concluding that the letter of

XEI to the spouses Manalo, was at most a mere contract to sell subject to suspensive conditions, i.e., the payment of the

balance of the downpayment on the property and the execution of a deed of conditional sale (which were not complied

with); and (b) in awarding moral and exemplary damages to the spouses Manalo despite the absence of testimony

providing facts to justify such awards.[44]

On September 30, 2002, the CA rendered a decision affirming that of the RTC with modification. The fallo reads:

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS that (a) the figure P942,978.70 appearing [in]

par. (a) of the dispositive portion thereof is changed to P313,172.34 plus interest thereon at the rate of 12% per annum

from September 1, 1972 until fully paid and (b) the award of moral and exemplary damages and attorneys fees in favor

of plaintiffs-appellees is DELETED.

SO ORDERED.[45]

The appellate court sustained the ruling of the RTC that the appellant and the appellees had executed a Contract to Sell

over the two lots but declared that the balance of the purchase price of the property amounting to P278,448.00 was

payable in fixed amounts, inclusive of pre-computed interests, from delivery of the possession of the property to the

appellees on a monthly basis for 120 months, based on the deeds of conditional sale executed by XEI in favor of other lot

buyers.[46] The CA also declared that, while XEI must have resumed its selling operations before the end of 1972 and

the downpayment on the property remained unpaid as of December 31, 1972, absent a written notice of cancellation of

the contract to sell from the bank or notarial demand therefor as required by Republic Act No. 6552, the spouses had, at

the very least, a 60-day grace period from January 1, 1973 within which to pay the same.

Boston Bank filed a motion for the reconsideration of the decision alleging that there was no perfected contract to sell

the two lots, as there was no agreement between XEI and the respondents on the manner of payment as well as the



other terms and conditions of the sale. It further averred that its claim for recovery of possession of the aforesaid lots in

its Memorandum dated February 28, 1994 filed before the trial court constituted a judicial demand for rescission that

satisfied the requirements of the New Civil Code. However, the appellate court denied the motion.

Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the CA rulings. It maintains that,

as held by the CA, the records do not reflect any schedule of payment of the 80% balance of the purchase price, or

P278,448.00. Petitioner insists that unless the parties had agreed on the manner of payment of the principal amount,

including the other terms and conditions of the contract, there would be no existing contract of sale or contract tosell.[47] Petitioner avers that the letter agreement to respondent spouses dated August 22, 1972 merely confirmed their

reservation for the purchase of Lot Nos. 1 and 2, consisting of 1,740.3 square meters, more or less, at the price of

P200.00 per square meter (or P348,060.00), the amount of the downpayment thereon and the application of the

P34,887.00 due from Ramos as part of such downpayment.

Petitioner asserts that there is no factual basis for the CA ruling that the terms and conditions relating to the payment of

the balance of the purchase price of the property (as agreed upon by XEI and other lot buyers in the same subdivision)

were also applicable to the contract entered into between the petitioner and the respondents. It insists that such a

ruling is contrary to law, as it is tantamount to compelling the parties to agree to something that was not even

discussed, thus, violating their freedom to contract. Besides, the situation of the respondents cannot be equated withthose of the other lot buyers, as, for one thing, the respondents made a partial payment on the downpayment for the

two lots even before the execution of any contract of conditional sale.

Petitioner posits that, even on the assumption that there was a perfected contract to sell between the parties,

nevertheless, it cannot be compelled to convey the property to the respondents because the latter failed to pay the

balance of the downpayment of the property, as well as the balance of 80% of the purchase price, thus resulting in the

extinction of its obligation to convey title to the lots to the respondents.

Another egregious error of the CA, petitioner avers, is the application of Republic Act No. 6552. It insists that such law

applies only to a perfected agreement or perfected contract to sell, not in this case where the downpayment on thepurchase price of the property was not completely paid, and no installment payments were made by the buyers.

Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the respondents of cancellation or

rescission of the contract to sell, or notarial demand therefor. Petitioner insists that its August 5, 1986 letter requiring

respondents to vacate the property and its complaint for ejectment in Civil Case No. 51618 filed in the Metropolitan Trial

Court amounted to the requisite demand for a rescission of the contract to sell. Moreover, the action of the respondents

below was barred by laches because despite demands, they failed to pay the balance of the purchase price of the lots

(let alone the downpayment) for a considerable number of years.

For their part, respondents assert that as long as there is a meeting of the minds of the parties to a contract of sale as to

the price, the contract is valid despite the parties failure to agree on the manner of payment. In such a situation, the

balance of the purchase price would be payable on demand, conformably to Article 1169 of the New Civil Code. They

insist that the law does not require a party to agree on the manner of payment of the purchase price as a prerequisite to

a valid contract to sell. The respondents cite the ruling of this Court in Buenaventura v. Court of Appeals[48] to support

their submission.

They argue that even if the manner and timeline for the payment of the balance of the purchase price of the property is

an essential requisite of a contract to sell, nevertheless, as shown by their letter agreement of August 22, 1972 with the

OBM, through XEI and the other letters to them, an agreement was reached as to the manner of payment of the balance

of the purchase price. They point out that such letters referred to the terms of the

terms of the deeds of conditional sale executed by XEI in favor of the other lot buyers in the subdivision, which

contained uniform terms of 120 equal monthly installments (excluding the downpayment, but inclusive of pre-computed

interests). The respondents assert that XEI was a real estate broker and knew that the contracts involving residential lots

in the subdivision contained uniform terms as to the manner and timeline of the payment of the purchase price of said

lots.

Respondents further posit that the terms and conditions to be incorporated in the corresponding contract of conditional

sale to be executed by the parties would be the same as those contained in the contracts of conditional sale executed by

lot buyers in the subdivision. After all, they maintain, the contents of the corresponding contract of conditional sale

referred to in the August 22, 1972 letter agreement envisaged those contained in the contracts of conditional sale that



XEI and other lot buyers executed. Respondents cite the ruling of this Court in Mitsui Bussan Kaisha v. Manila E.R.R. & L.

Co.[49]

The respondents aver that the issues raised by the petitioner are factual, inappropriate in a petition for review on

certiorari under Rule 45 of the Rules of Court. They assert that petitioner adopted a theory in litigating the case in the

trial court, but changed the same on appeal before the CA, and again in this Court. They argue that the petitioner is

estopped from adopting a new theory contrary to those it had adopted in the trial and appellate courts. Moreover, the

existence of a contract of conditional sale was admitted in the letters of XEI and OBM. They aver that they becameowners of the lots upon delivery to them by XEI.

The issues for resolution are the following: (1) whether the factual issues raised by the petitioner are proper; (2)

whether petitioner or its predecessors-in-interest, the XEI or the OBM, as seller, and the respondents, as buyers, forged

a perfect contract to sell over the property; (3) whether

petitioner is estopped from contending that no such contract was forged by the parties; and (4) whether respondents

has a cause of action against the petitioner for specific performance.

The rule is that before this Court, only legal issues may be raised in a petition for review on certiorari. The reason is that

this Court is not a trier of facts, and is not to review and calibrate the evidence on record. Moreover, the findings of factsof the trial court, as affirmed on appeal by the Court of Appeals, are conclusive on this Court unless the case falls under

any of the following exceptions:

(1) when the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2) when the inference

made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the

judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of

Appeals, in making its findings went beyond the issues of the case and the same is contrary to the admissions of both

appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are

conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as

well as in the petitioners main and reply briefs are not disputed by the respondents; and (10) when the findings of factof the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on

record.[50]

We have reviewed the records and we find that, indeed, the ruling of the appellate court dismissing petitioners appeal is

contrary to law and is not supported by evidence. A careful examination of the factual backdrop of the case, as well as

the antecedental proceedings constrains us to hold that petitioner is not barred from asserting that XEI or OBM, on one

hand, and the respondents, on the other, failed to forge a perfected contract to sell the subject lots.

It must be stressed that the Court may consider an issue not raised during the trial when there is plain error.[51]

Although a factual issue was not raised in the trial court, such issue may still be considered and resolved by the Court in

the interest of substantial justice, if it finds that to do so is necessary to arrive at a just decision,[52] or when an issue is

closely related to an issue raised in the trial court and the Court of Appeals and is necessary for a just and complete

resolution of the case.[53] When the trial court decides a case in favor of a party on certain grounds, the Court may base

its decision upon some other points, which the trial court or appellate court ignored or erroneously decided in favor of a

party.[54]

In this case, the issue of whether XEI had agreed to allow the respondents to pay the purchase price of the property was

raised by the parties. The trial court ruled that the parties had perfected a contract to sell, as against petitioners claim

that no such contract existed. However, in resolving the issue of whether the petitioner was obliged to sell the property

to the respondents, while the CA declared that XEI or OBM and the respondents failed to agree on the schedule of

payment of the balance of the purchase price of the property, it ruled that XEI and the respondents had forged a

contract to sell; hence, petitioner is entitled to ventilate the issue before this Court.

We agree with petitioners contention that, for a perfected contract of sale or contract to sell to exist in law, there must

be an agreement of the parties, not only on the price of the property sold, but also on the manner the price is to be paid

by the vendee.

Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional, one of the contracting

parties obliges 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. A contract of sale is perfected at the moment there is a meeting of the minds



upon the thing which is the object of the contract and the price. From the averment of perfection, the parties are bound,

not only to the fulfillment of what has been

expressly stipulated, but also to all the consequences which, according to their nature, may be in keeping with good

faith, usage and law.[55] On the other hand, when the contract of sale or to sell is not perfected, it cannot, as an

independent source of obligation, serve as a binding juridical relation between the parties.[56]

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 abinding 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.[57]

It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of

payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. This is

so because the agreement as to the manner of payment goes into the price, such that a disagreement on the manner of

payment is tantamount to a failure to agree on the price.[58]

In a contract to sell property by installments, it is not enough that the parties agree on the price as well as the amount of

downpayment. The parties must, likewise, agree on the manner of payment of the balance of the purchase price and onthe other terms and conditions relative to the sale. Even if the buyer makes a downpayment or portion thereof, such

payment cannot be considered as sufficient proof of the perfection of any purchase and sale between the parties.

Indeed, this Court ruled in Velasco v. Court of Appeals[59] that:

It is not difficult to glean from the aforequoted averments that the petitioners themselves admit that they and the

respondent still had to meet and agree on how and when the down-payment and the installment payments were to be

paid. Such being the situation, it cannot, therefore, be said that a definite and firm sales agreement between the parties

had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite agreement on

the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable

contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000.00 as part ofthe downpayment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and

sale agreement between the parties herein under article 1482 of the New Civil Code, as the petitioners themselves

admit that some essential matter the terms of payment still had to be mutually covenanted.[60]

We agree with the contention of the petitioner that, as held by the CA, there is no showing, in the records, of the

schedule of payment of the balance of the purchase price on the property amounting to P278,448.00. We have

meticulously reviewed the records, including Ramos February 8, 1972 and August 22, 1972 letters to respondents,[61]

and find that said parties confined themselves to agreeing on the price of the property (P348,060.00), the 20%

downpayment of the purchase price (P69,612.00), and credited respondents for the P34,887.00 owing from Ramos as

part of the 20% downpayment. The timeline for the payment of the balance of the downpayment (P34,724.34) was also

agreed upon, that is, on or before XEI resumed its selling operations, on or before December 31, 1972, or within five (5)

days from written notice of such resumption of selling operations. The parties had also agreed to incorporate all the

terms and conditions relating to the sale, inclusive of the terms of payment of the balance of the purchase price and the

other substantial terms and conditions in the corresponding contract of conditional sale, to be later signed by the

parties, simultaneously with respondents settlement of the balance of the downpayment.

The February 8, 1972 letter of XEI reads:

Mr. Carlos T. Manalo, Jr.

Hurricane Rotary Well Drilling

Rizal Avenue Ext.,Caloocan City

Dear Mr. Manalo:

We agree with your verbal offer to exchange the proceeds of your contract with us to form as a down payment for a lot

in our Xavierville Estate Subdivision.

Please let us know your choice lot so that we can fix the price and terms of payment in our conditional sale.

Sincerely yours,



XAVIERVILLE ESTATE, INC.

(Signed)

EMERITO B. RAMOS, JR.

President

CONFORME:

(Signed)

CARLOS T. MANALO, JR.

Hurricane Rotary Well Drilling[62]

The August 22, 1972 letter agreement of XEI and the respondents reads:

Mrs. Perla P. Manalo

1548 Rizal Avenue Extension

Caloocan City

Dear Mrs. Manalo:

This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidation-subdivision plan as amended,

consisting of 1,740.3 square meters more or less, at the price of P200.00 per square meter or a total price of

P348,060.00.

It is agreed that as soon as we resume selling operations, you must pay a down payment of 20% of the purchase price of

the said lots and sign the corresponding Contract of Conditional Sale, on or before December 31, 1972, provided,

however, that if we resume selling after December 31, 1972, then you must pay the aforementioned down payment andsign the aforesaid contract within five (5) days from your receipt of our notice of resumption of selling operations.

In the meanwhile, you may introduce such improvements on the said lots as you may desire, subject to the rules and

regulations of the subdivision.

If the above terms and conditions are acceptable to you, please signify your conformity by signing on the space herein

below provided.

Thank you.

Very truly yours,

XAVIERVILLE ESTATE, INC. CONFORME:

By:

(Signed) (Signed)

EMERITO B. RAMOS, JR. PERLA P. MANALO

President Buyer[63]

Based on these two letters, the determination of the terms of payment of the P278,448.00 had yet to be agreed upon

on or before December 31, 1972, or even afterwards, when the parties sign the corresponding contract of conditional

sale.

Jurisprudence is that if a material element of a contemplated contract is left for future negotiations, the same is too

indefinite to be enforceable.[64] And when an essential element of a contract is reserved for future agreement of the

parties, no legal obligation arises until such future agreement is concluded.[65]

So long as an essential element entering into the proposed obligation of either of the parties remains to be determined

by an agreement which they are to make, the contract is incomplete and unenforceable.[66] The reason is that such a

contract is lacking in the necessary qualities of definiteness, certainty and mutuality.[67]



There is no evidence on record to prove that XEI or OBM and the respondents had agreed, after December 31, 1972, on

the terms of payment of the balance of the purchase price of the property and the other substantial terms and

conditions relative to the sale. Indeed, the parties are in agreement that there had been no contract of conditional sale

ever executed by XEI, OBM or petitioner, as vendor, and the respondents, as vendees.[68]

The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case because the issue of the manner

of payment of the purchase price of the property was not raised therein.

We reject the submission of respondents that they and Ramos had intended to incorporate the terms of payment

contained in the three contracts of conditional sale executed by XEI and other lot buyers in the corresponding contract

of conditional sale, which would later be signed by them.[69] We have meticulously reviewed the respondents

complaint and find no such allegation therein.[70] Indeed, respondents merely alleged in their complaint that they were

bound to pay the balance of the purchase price of the property in installments. When respondent Manalo, Jr. testified,

he was never asked, on direct examination or even on cross-examination, whether the terms of payment of the balance

of the purchase price of the lots under the contracts of conditional sale executed by XEI and other lot buyers would form

part of the corresponding contract of conditional sale to be signed by them simultaneously with the payment of the

balance of the downpayment on the purchase price.

We note that, in its letter to the respondents dated June 17, 1976, or almost three years from the execution by the

parties of their August 22, 1972 letter agreement, XEI stated, in part, that respondents had purchased the property on

installment basis.[71] However, in the said letter, XEI failed to state a specific amount for each installment, and whether

such payments were to be made monthly, semi-annually, or annually. Also, respondents, as plaintiffs below, failed to

adduce a shred of evidence to prove that they were obliged to pay the P278,448.00 monthly, semi-annually or annually.

The allegation that the payment of the P278,448.00 was to be paid in installments is, thus, vague and indefinite. Case

law is that, for a contract to be enforceable, its terms must be certain and explicit, not vague or indefinite.[72]

There is no factual and legal basis for the CA ruling that, based on the terms of payment of the balance of the purchaseprice of the lots under the contracts of conditional sale executed by XEI and the other lot buyers, respondents were

obliged to pay the P278,448.00 with pre-computed interest of 12% per annum in 120-month installments. As gleaned

from the ruling of the appellate court, it failed to justify its use of the terms of payment under the three contracts of

conditional sale as basis for such ruling, to wit:

On the other hand, the records do not disclose the schedule of payment of the purchase price, net of the downpayment.

Considering, however, the Contracts of Conditional Sale (Exhs. N, O and P) entered into by XEI with other lot buyers, it

would appear that the subdivision lots sold by XEI, under contracts to sell, were payable in 120 equal monthly

installments (exclusive of the downpayment but including pre-computed interests) commencing on delivery of the lot to

the buyer.[73]

By its ruling, the CA unilaterally supplied an essential element to the letter agreement of XEI and the respondents.

Courts should not undertake to make a contract for the parties, nor can it enforce one, the terms of which are in

doubt.[74] Indeed, the Court emphasized in Chua v. Court of Appeals[75] that it is not the province of a court to alter a

contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one

which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material

stipulations or read into contract words which it does not contain.

Respondents, as plaintiffs below, failed to allege in their complaint that the terms of payment of the P278,448.00 to be

incorporated in the corresponding contract of conditional sale were those contained in the contracts of conditional sale

executed by XEI and Soller, Aguila and Roque.[76] They likewise failed to prove such allegation in this Court.

The bare fact that other lot buyers were allowed to pay the balance of the purchase price of lots purchased by them in

120 or 180 monthly installments does not constitute evidence that XEI also agreed to give the respondents the same

mode and timeline of payment of the P278,448.00.

Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain thing at one time is not

admissible to prove that he did the same or similar thing at another time, although such evidence may be received to

prove habit, usage, pattern of conduct or the intent of the parties.



Similar acts as evidence. Evidence that one did or did not do a certain thing at one time is not admissible to prove that

he did or did not do the same or a similar thing at another time; but it may be received to prove a specific intent or

knowledge, identity, plan, system, scheme, habit, custom or usage, and the like.

However, respondents failed to allege and prove, in the trial court, that, as a matter of business usage, habit or pattern

of conduct, XEI granted all lot buyers the right to pay the balance of the purchase price in installments of 120 months of

fixed amounts with pre-computed interests, and that XEI and the respondents had intended to adopt such terms ofpayment relative to the sale of the two lots in question. Indeed, respondents adduced in evidence the three contracts of

conditional sale executed by XEI and other lot buyers merely to prove that XEI continued to sell lots in the subdivision as

sales agent of OBM after it acquired said lots, not to prove usage, habit or pattern of conduct on the part of XEI to

require all lot buyers in the subdivision to pay the balance of the purchase price of said lots in 120 months. It further

failed to prive that the trial court admitted the said deeds[77] as part of the testimony of respondent Manalo, Jr.[78]

Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must contend with the caveat

that, before they admit evidence of usage, of habit or pattern of conduct, the offering party must establish the degree of

specificity and frequency of uniform response that ensures more than a mere tendency to act in a given manner but

rather, conduct that is semi-automatic in nature. The offering party must allege and prove specific, repetitive conduct

that might constitute evidence of habit. The examples offered in evidence to prove habit, or pattern of evidence must benumerous enough to base on inference of systematic conduct. Mere similarity of contracts does not present the kind of

sufficiently similar circumstances to outweigh the danger of prejudice and confusion.

In determining whether the examples are numerous enough, and sufficiently regular, the key criteria are adequacy of

sampling and uniformity of response. After all, habit means a course of behavior of a person regularly represented in like

circumstances.[79] It is only when examples offered to establish pattern of conduct or habit are numerous enough to

lose an inference of systematic conduct that examples are admissible. The key criteria are adequacy of sampling and

uniformity of response or ratio of reaction to situations.[80]

There are cases where the course of dealings to be followed is defined by the usage of a particular trade or market orprofession. As expostulated by Justice Benjamin Cardozo of the United States Supreme Court: Life casts the moulds of

conduct, which will someday become fixed as law. Law preserves the moulds which have taken form and shape from

life.[81] Usage furnishes a standard for the measurement of many of the rights and acts of men.[82] It is also well-settled

that parties who contract on a subject matter concerning which known usage prevail, incorporate such usage by

implication into their agreement, if nothing is said to be contrary.[83]

However, the respondents inexplicably failed to adduce sufficient competent evidence to prove usage, habit or pattern

of conduct of XEI to justify the use of the terms of payment in the contracts of the other lot buyers, and thus grant

respondents the right to pay the P278,448.00 in 120 months, presumably because of respondents belief that the

manner of payment of the said amount is not an essential element of a contract to sell. There is no evidence that XEI or

OBM and all the lot buyers in the subdivision, including lot buyers who pay part of the downpayment of the property

purchased by them in the form of service, had executed contracts of conditional sale containing uniform terms and

conditions. Moreover, under the terms of the contracts of conditional sale executed by XEI and three lot buyers in the

subdivision, XEI agreed to grant 120 months within which to pay the balance of the purchase price to two of them, but

granted one 180 months to do so.[84] There is no evidence on record that XEI granted the same right to buyers of two

or more lots.

Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may be considered certain if it be so

with reference to another thing certain. It is sufficient if it can be determined by the stipulations of the contract made by

the parties thereto[85] or by reference to an agreement incorporated in the contract of sale or contract to sell or if it is

capable of being ascertained with certainty in said contract;[86] or if the contract contains express or implied provisions

by which it may be rendered certain;[87] or if it provides some method or criterion by which it can be definitely

ascertained.[88] As this Court held in Villaraza v. Court of Appeals,[89] the price is considered certain if, by its terms, the

contract furnishes a basis or measure for ascertaining the amount agreed upon.

We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no direct or implied reference

to the manner and schedule of payment of the balance of the purchase price of the lots covered by the deeds of

conditional sale executed by XEI and that of the other lot buyers[90] as basis for or mode of determination of the

schedule of the payment by the respondents of the P278,448.00.



The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light Company[91] is not applicable in this

case because the basic price fixed in the contract was P9.45 per long ton, but it was stipulated that the price was subject

to modification in proportion to variations in calories and ash content, and not otherwise. In this case, the parties did

not fix in their letters-agreement, any method or mode of determining the terms of payment of the balance of the

purchase price of the property amounting to P278,448.00.

It bears stressing that the respondents failed and refused to pay the balance of the downpayment and of the purchase

price of the property amounting to P278,448.00 despite notice to them of the resumption by XEI of its sellingoperations. The respondents enjoyed possession of the property without paying a centavo. On the other hand, XEI and

OBM failed and refused to transmit a contract of conditional sale to the respondents. The respondents could have at

least consigned the balance of the downpayment after notice of the resumption of the selling operations of XEI and filed

an action to compel XEI or OBM to transmit to them the said contract; however, they failed to do so.

As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected contract to sell the two lots;

hence, respondents have no cause of action for specific performance against petitioner. Republic Act No. 6552 applies

only to a perfected contract to sell and not to a contract with no binding and enforceable effect.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.47458 is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City, Branch 98 is ordered to dismiss the

complaint. Costs against the respondents.

SO ORDERED.



G.R. No. 128120 October 20, 2004

SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL SANTOS, BETH FLORES, LAMBRTO DE

LA EVA, GLORIA REYES, RODRIGO ORTIZ, NICANOR ESCALANTE, PETER HODGSON, SAMUEL PARTOSA, HERMINDA

ASUNCION, JUANITO HERRERA, JACOBUS NICOLAAS, JOSEPH PEKELHARING (now Representing himself without court

sanction as "JOOST PEKELHARING)," MASSIMO ROSSI and ED ENRIQUEZ, petitioners,

vs.

COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION and ANTONIO K. LITONJUA, respondents.

D E C I S I O N

TINGA, J.:

Petitioners seek a reversal of the twin Orders1 of the Court of Appeals dated 15 November 19962 and 31 January 1997,3

in CA-G.R. CV No. 35886, entitled "ALS Management et al., v. Swedish Match, AB et al." The appellate court overturned

the trial court’s Order4 dismissing the respondents’ complaint for specific performance and remanded the case to the

trial court for further proceedings.

Swedish Match AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not doing business in the

Philippines. SMAB, however, had three subsidiary corporations in the Philippines, all organized under Philippine laws, to

wit: Phimco Industries, Inc. (Phimco), Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc.

Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of Sweden and the latter’s

worldwide match, lighter and shaving products operation to Eemland Management Services, now known as Swedish

Match NV of Netherlands, (SMNV), a corporation organized and existing under the laws of Netherlands. STORA,

however, retained for itself the packaging business.

SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself the shaving business.SMNV adopted a two-pronged strategy, the first being to sell its shares in Phimco Industries, Inc. and a match company

in Brazil, which proposed sale would stave-off defaults in the loan covenants of SMNV with its syndicate of lenders. The

other move was to sell at once or in one package all the SMNV companies worldwide which were engaged in match and

lighter operations thru a global deal (hereinafter, global deal).

Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)—the management company of the

Swedish Match group—was commissioned and granted full powers to negotiate by SMNV, with the resulting

transaction, however, made subject to final approval by the board. Enriquez was held under strict instructions that the

sale of Phimco shares should be executed on or before 30 June 1990, in view of the tight loan covenants of SMNV.

Enriquez came to the Philippines in November 1989 and informed the Philippine financial and business circles that the

Phimco shares were for sale.

Several interested parties tendered offers to acquire the Phimco shares, among whom were the AFP Retirement and

Separation Benefits System, herein respondent ALS Management & Development Corporation and respondent Antonio

Litonjua (Litonjua), the president and general manager of ALS.

In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the latter’s shares in Phimco

and all of Phimco’s shares in Provident Tree Farm, Inc. and OTT/Louie (Phils.), Inc. for the sum of P750,000,000.00.5

Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1 December 1989, thanked

respondents for their interest in the Phimco shares. Rossi informed respondents that their price offer was below their

expectations but urged them to undertake a comprehensive review and analysis of the value and profit potentials of the

Phimco shares, with the assurance that respondents would enjoy a certain priority although several parties had

indicated their interest to buy the shares.6

Thereafter, an exchange of correspondence ensued between petitioners and respondents regarding the projected sale

of the Phimco shares. In his letter dated 21 May 1990, Litonjua offered to buy the disputed shares, excluding the lighter

division for US$30.6 million, which per another letter of the same date was increased to US$36 million.7 Litonjua

stressed that the bid amount could be adjusted subject to availability of additional information and audit verification of

the company finances.



Responding to Litonjua’s offer, Rossi sent his letter dated 11 June 1990 , informing the former that ALS should undertake

a due diligence process or pre-acquisition audit and review of the draft contract for the Match and Forestry activities of

Phimco at ALS’ convenience. However, Rossi made it clear that at the completion of the due diligence process, ALS

should submit its final offer in US dollar terms not later than 30 June 1990, for the shares of SMAB corresponding to

ninety-six percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in case the "global deal"

presently under negotiation for the Swedish Match Lights Group would materialize, SMAB would reimburse up to

US$20,000.00 of ALS’ costs related to the due diligence process.8

Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in SMAB’s approach to the

bidding process. He pointed out that in their 4 June 1990 meeting, he was advised that one final bidder would be

selected from among the four contending groups as of that date and that the decision would be made by 6 June 1990.

He criticized SMAB’s decision to accept a new bidder who was not among those who participated in the 25 May 1990

bidding. He informed Rossi that it may not be possible for them to submit their final bid on 30 June 1990, citing the

advice to him of the auditing firm that the financial statements would not be completed until the end of July. Litonjua

added that he would indicate in their final offer more specific details of the payment mechanics and consider the

possibility of signing a conditional sale at that time.9

Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that they would be unable to

submit the final offer by 30 June 1990, considering that the acquisition audit of Phimco and the review of the draft

agreements had not yet been completed. He said, however, that they would be able to finalize their bid on 17 July 1990

and that in case their bid would turn out better than any other proponent, they would remit payment within ten (10)

days from the execution of the contracts.10

Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other parties in view of Litonjua’s

failure to make a firm commitment for the shares of Swedish Match in Phimco by 30 June 1990.11

In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a conditional contract with a localgroup for the disposal of Phimco. He told Litonjua that his bid would no longer be considered unless the local group

would fail to consummate the transaction on or before 15 September1990.12

Apparently irked by SMAB’s decision to junk his bid, Litonjua promptly responded by letter dated 4 July 1990. Contrary

to his prior manifestations, he asserted that, for all intents and purposes, the US$36 million bid which he submitted on

21 May 1990 was their final bid based on the financial statements for the year 1989. He pointed out that they submitted

the best bid and they were already finalizing the terms of the sale. He stressed that they were firmly committed to their

bid of US$36 million and if ever there would be adjustments in the bid amount, the adjustments were brought about by

SMAB’s subsequent disclosures and validated accounts, such as the aspect that only ninety-six percent (96%) of Phimco

shares was actually being sold and not one-hundred percent (100%).13

More than two months from receipt of Litonjua’s last letter, Enriquez sent a fax communication to the former, advising

him that the proposed sale of SMAB’s shares in Phimco with local buyers did not materialize. Enriquez then invited

Litonjua to resume negotiations with SMAB for the sale of Phimco shares. He indicated that SMAB would be prepared to

negotiate with ALS on an exclusive basis for a period of fifteen (15) days from 26 September 1990 subject to the terms

contained in the letter. Additionally, Enriquez clarified that if the sale would not be completed at the end of the fifteen

(15)-day period, SMAB would enter into negotiations with other buyers.14

Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms and conditions for the

sale of the Phimco shares. He emphasized that the new offer constituted an attempt to reopen the already perfected

contract of sale of the shares in his favor. He intimated that he could not accept the new terms and conditions contained

therein.15

On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of Pasig a complaint for

specific performance with damages, with a prayer for the issuance of a writ of preliminary injunction, against

defendants, now petitioners. The individual defendants were sued in their respective capacities as officers of the

corporations or entities involved in the aborted transaction.

Aside from the averments related to their principal cause of action for specific performance, respondents alleged that

the Phimco management, in utter bad faith, induced SMAB to violate its contract with respondents. They contended



that the Phimco management took an interest in acquiring for itself the Phimco shares and that petitioners conspired to

thwart the closing of such sale by interposing various obstacles to the completion of the acquisition audit.16

Respondents claimed that the Phimco management maliciously and deliberately delayed the delivery of documents to

Laya Manabat Salgado & Co. which prevented them from completing the acquisition audit in time for the deadline on 30

June 1990 set by petitioners.17 Respondents added that SMAB’s refusal to consummate the perfected sale of the

Phimco shares amounted to an abuse of right and constituted conduct which is contrary to law, morals, good customs

and public policy.18

Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares, or otherwise

implementing the sale or transfer thereof, in favor of any person or entity other than respondents, and that any such

sale to third parties be annulled and set aside. Respondents also asked that petitioners be ordered to execute all

documents or instruments and perform all acts necessary to consummate the sales agreement in their favor.

Traversing the complaint, petitioners alleged that respondents have no cause of action, contending that no perfected

contract, whether verbal or written, existed between them. Petitioners added that respondents’ cause of action, if any,

was barred by the Statute of Frauds since there was no written instrument or document evidencing the alleged sale of

the Phimco shares to respondents.

Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of Frauds, which the trial court

granted. Both parties agreed to adopt as their evidence in support of or against the motion to dismiss, as the case may

be, the evidence which they adduced in support of their respective positions on the writ of preliminary injunction

incident.

In its Order dated 17 April 1991, the RTC dismissed respondents’ complaint.19 It ruled that there was no perfected

contract of sale between petitioners and respondents. The court a quo said that the letter dated 11 June 1990, relied

upon by respondents, showed that petitioners did not accept the bid offer of respondents as the letter was a mere

invitation for respondents to conduct a due diligence process or pre-acquisition audit of Phimco’s match and forestry

operations to enable them to submit their final offer on 30 June 1990. Assuming that respondent’s bid was favored byan oral acceptance made in private by officers of SMAB, the trial court noted, such acceptance was merely preparatory

to a formal acceptance by the SMAB—the acceptance that would eventually lead to the execution and signing of the

contract of sale. Moreover, the court noted that respondents failed to submit their final bid on the deadline set by

petitioners.

Respondents appealed to the Court of Appeals, assigning the following errors:

A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT ERRED PROCEDURALLY IN MOTU PROPIO

(sic) DISMISSING THE COMPLAINT IN ITS ENTIRETY FOR "LACK OF A VALID CAUSE OF ACTION" WITHOUT THE BENEFIT OF

A FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS.

B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS’ CAUSE OF ACTION BASED ON TORT WHICH, HAVING

BEEN SUFFICIENTLY PLEADED, INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL.

C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS’ CAUSE OF ACTION BASED ON PROMISSORY

ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY PLEADED, WARRANTED A FULL-BLOWN TRIAL, INDEPENDENTLY FOR THE

OTHER CAUSES OF ACTION.

D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO FAVOR DEFENDANTS-APPELLEES BY

MAKING UNFOUNDED FINDINGS, ALL IN VIOLATION OF PLAINTIFFS-APPELLANTS’ RIGHT TO DUE PROCESS.20

After assessing the respective arguments of the parties, the Court of Appeals reversed the trial court’s decision. It ruled

that the series of written communications between petitioners and respondents collectively constitute a sufficient

memorandum of their agreement under Article 1403 of the Civil Code; thus, respondents’ complaint should not have

been dismissed on the ground that it was unenforceable under the Statute of Frauds. The appellate court opined that

any document or writing, whether formal or informal, written either for the purpose of furnishing evidence of the

contract or for another purpose which satisfies all the Statute’s requirements as to contents and signature would be



sufficient; and, that two or more writings properly connected could be considered together. The appellate court

concluded that the letters exchanged by and between the parties, taken together, were sufficient to establish that an

agreement to sell the disputed shares to respondents was reached.

The Court of Appeals clarified, however, that by reversing the appealed decision it was not thereby declaring that

respondents are entitled to the reliefs prayed for in their complaint, but only that the case should not have been

dismissed on the ground of unenforceability under the Statute of Frauds. It ordered the remand of the case to the trial

court for further proceedings.

Hence, this petition.

Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds requires not just the

existence of any note or memorandum but that such note or memorandum should evidence an agreement to sell; and,

that in this case, there was no word, phrase, or statement in the letters exchanged between the two parties to show or

even imply that an agreement had been reached for the sale of the shares to respondent.

Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were merely tentative and

still subject to further negotiations between him and the seller. They point out that there was no meeting of the mindson the essential terms and conditions of the sale because SMAB did not accept respondents’ offer that consideration

would be paid in Philippine pesos. Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at

the same time stating that the broad terms and conditions described in their meeting were inadequate for them to

make a response at that time so much so that he would have to await the corresponding specifics. Petitioners argue that

the foregoing circumstances prove that they failed to reach an agreement on the sale of the Phimco shares.

In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute of Frauds does not

apply to the instant case. Respondents assert that the sale of the subject shares to them was perfected as shown by the

following circumstances, namely: petitioners assured them that should they increase their bid, the sale would be

awarded to them and that they did in fact increase their previous bid of US$30.6 million to US$36 million; petitionersorally accepted their revised offer and the acceptance was relayed to them by Rene Dizon; petitioners directed them to

proceed with the acquisition audit and to submit a comfort letter from the United Coconut Planters’ Bank (UCPB);

petitioner corporation confirmed its previous verbal acceptance of their offer in a letter dated 11 June 1990; with the

prior approval of petitioners, respondents engaged the services of Laya, Manabat, Salgado & Co., an independent

auditing firm, to immediately proceed with the acquisition audit; and, petitioner corporation reiterated its commitment

to be bound by the result of the acquisition audit and

promised to reimburse respondents’ cost to the extent of US$20,000.00. All these incidents, according to respondents,

overwhelmingly prove that the contract of sale of the Phimco shares was perfected.

Further, respondents argued that there was partial performance of the perfected contract on their part. They alleged

that with the prior approval of petitioners, they engaged the services of Laya, Manabat, Salgado & Co. to conduct the

acquisition audit. They averred that petitioners agreed to be bound by the results of the audit and offered to reimburse

the costs thereof to the extent of US$20,000.00. Respondents added that in compliance with their obligations under the

contract, they have submitted a comfort letter from UCPB to show petitioners that the bank was willing to finance the

acquisition of the Phimco shares.21

The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial court’s decision

dismissing the complaint for being unenforceable under the Statute of Frauds; and (2) whether there was a perfected

contract of sale between petitioners and respondents with respect to the Phimco shares.

The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code22 requires certain contracts

enumerated therein to be evidenced by some note or memorandum in order to be enforceable. The term "Statute of

Frauds" is descriptive of statutes which require certain classes of contracts to be in writing. The 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.23 Evidence of the agreement cannot be received without the writing

or a secondary evidence of its contents.



The Statute, however, simply provides the method by which the contracts enumerated therein may be proved but does

not declare them invalid because they are not reduced to writing. By law, contracts are obligatory in whatever form they

may have been entered into, provided all the essential requisites for their validity are present. However, when the law

requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a

certain way, that requirement is absolute and indispensable.24 Consequently, the effect of non-compliance with the

requirement of the Statute is simply that no action can be enforced unless the requirement is complied with.25 Clearly,

the form required is for evidentiary purposes only. Hence, if the parties permit a contract to be proved, without any

objection, it is then just as binding as if the Statute has been complied with.26

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.27

However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot rest partly in writing

and partly in parol. The note or memorandum must contain the names of the parties, the terms and conditions of the

contract, and a description of the property sufficient to render it capable of identification.28 Such note or memorandum

must contain the essential elements of the contract expressed with certainty that may be ascertained from the note or

memorandum itself, or some other writing to which it refers or within which it is connected, without resorting to parolevidence.29

Contrary to the Court of Appeals’ conclusion, the exchange of correspondence between the parties hardly constitutes

the note or memorandum within the context of Article 1403 of the Civil Code. Rossi’s letter dated 11 June 1990, heavily

relied upon by respondents, is not complete in itself. First, it does not indicate at what price the shares were being sold.

In paragraph (5) of the letter, respondents were supposed to submit their final offer in U.S. dollar terms, at that after the

completion of the due diligence process. The paragraph undoubtedly proves that there was as yet no definite agreement

as to the price. Second, the letter does not state the mode of payment of the price. In fact, Litonjua was supposed to

indicate in his final offer how and where payment for the shares was planned to be made.30

Evidently, the trial court’s dismissal of the complaint on the ground of unenforceability under the Statute of Frauds is

warranted.31

Even if we were to consider the letters between the parties as a sufficient memorandum for purposes of taking the case

out of the operation of the Statute the action for specific performance would still fail.

A contract is defined as a juridical convention manifested in legal form, by virtue of which one or more persons bind

themselves in favor of another, or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.32

There can be no contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain

which is the subject matter of the contract; (c) cause of the obligation which is established.33 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.34

Specifically, in the case of a contract of sale, required is the concurrence of three elements, to wit: (a) consent or

meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) determinate subject matter,

and (c) price certain in money or its equivalent.35 Such contract is born from the moment there is a meeting of minds

upon the thing which is the object of the contract and upon the price.36

In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation.

Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at

the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the

essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in

the contract, culminating in the extinguishment thereof.37

A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and pave the way for the

celebration of a future contract. An imperfect promise (policitacion), on the other hand, is a mere unaccepted offer.38

Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as

proposals. At any time prior to the perfection of the contract, either negotiating party may stop the negotiation.39 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.40



An offer would require, among other things, a clear certainty on both the object and the cause or consideration of the

envisioned contract. Consent in a contract of sale should be 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.41

Quite obviously, Litonjua’s letter dated 21 May 1990, proposing the acquisition of the Phimco shares for US$36 million

was merely an offer. This offer, however, in Litonjua’s own words, "is understood to be subject to adjustment on thebasis of an audit of the assets, liabilities and net worth of Phimco and its subsidiaries and on the final negotiation

between ourselves."42

Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not.

Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by 30 June 1990.43 With

indubitable inconsistency, respondents later claimed that for all intents and purposes, the US$36 million was their final

bid. If this were so, it would be inane for Litonjua to state, as he did, in his letter dated 28 June 1990 that they would be

in a position to submit their final bid only on 17 July 1990. The lack of a definite offer on the part of respondents could

not possibly serve as the basis of their claim that the sale of the Phimco shares in their favor was perfected, for oneessential element of a contract of sale was obviously wanting—the price certain in money or its equivalent. The price

must be certain, otherwise there is no true consent between the parties.44 There can be no sale without a price.45

Quite recently, this Court reiterated the long-standing doctrine that the manner of payment of the purchase price is an

essential element before a valid and binding contract of sale can exist since the agreement on the manner of payment

goes into the price such that a

disagreement on the manner of payment is tantamount to a failure to agree on the price.46

Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a mere offer in the

absence of evidence of its acceptance. To produce a contract, there must be acceptance, which may be express orimplied, but it must not qualify the terms of the offer.47 The acceptance of an offer must be unqualified and absolute to

perfect the contract.48 In other words, it must be identical in all respects with that of the offer so as to produce consent

or meeting of the minds.49

Respondents’ attempt to prove the alleged verbal acceptance of their US$36 million bid becomes futile in the face of the

overwhelming evidence on record that there was in the first place no meeting of the minds with respect to the price. It is

dramatically clear that the US$36 million was not the actual price agreed upon but merely a preliminary offer which was

subject to adjustment after the conclusion of the audit of the company finances. Respondents’ failure to submit their

final bid on the deadline set by petitioners prevented the perfection of the contract of sale. It was not perfected due to

the absence of one essential element which was the price certain in money or its equivalent.

At any rate, from the procedural stand point, the continuing objections raised by petitioners to the admission of parol

evidence50 on the alleged verbal acceptance of the offer rendered any evidence of acceptance inadmissible.

Respondents’ plea of partial performance should likewise fail. The acquisition audit and submission of a comfort letter,

even if considered together, failed to prove the perfection of the contract. Quite the contrary, they indicated that the

sale was far from concluded. Respondents conducted the audit as part of the due diligence process to help them arrive

at and make their final offer. On the other hand, the submission of the comfort letter was merely a guarantee that

respondents had the financial capacity to pay the price in the event that their bid was accepted by petitioners.

The Statute of Frauds is applicable only to contracts which are executory and not to those which have been

consummated either totally or partially.51 If a contract has been totally or partially performed, the exclusion of parol

evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits already derived by

him from the transaction in litigation, and at the same time, evade the obligations, responsibilities or liabilities assumed

or contracted by him thereby.52 This rule, however, is predicated on the fact of ratification of the contract within the

meaning of Article 1405 of the Civil Code either (1) by failure to object to the presentation of oral evidence to prove the

same, or (2) by the acceptance of benefits under them. In the instant case, respondents failed to prove that there was

partial performance of the contract within the purview of the Statute.



Respondents insist that even on the assumption that the Statute of Frauds is applicable in this case, the trial court erred

in dismissing the complaint altogether. They point out that the complaint presents several causes of action.

A close examination of the complaint reveals that it alleges two distinct causes of action, the first is for specific

performance53 premised on the existence of the contract of sale, while the other is solely for damages, predicated on

the purported dilatory maneuvers executed by the Phimco management.54

With respect to the first cause of action for specific performance, apart f rom petitioners’ alleged refusal to honor thecontract of sale—which has never been perfected in the first place—respondents made a number of averments in their

complaint all in support of said cause of action. Respondents

claimed that petitioners were guilty of promissory estoppel,55 warranty breaches56 and tortious conduct57 in refusing

to honor the alleged contract of sale. These averments are predicated on or at least interwoven with the existence or

perfection of the contract of sale. As there was no such perfected contract, the trial court properly rejected the

averments in conjunction with the dismissal of the complaint for specific performance.

However, respondents’ second cause of action due to the alleged malicious and deliberate delay of the Phi mco

management in the delivery of documents necessary for the completion of the audit on time, not being based on theexistence of the contract of sale, could stand independently of the action for specific performance and should not be

deemed barred by the dismissal of the cause of action predicated on the failed contract. If substantiated, this cause of

action would entitle respondents to the recovery of damages against the officers of the corporation responsible for the

acts complained of.

Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents an opportunity to

substantiate their allegations with respect to its cause of action for damages against the officers of Phimco based on the

latter’s alleged self -serving dilatory maneuvers.

WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby MODIFIED insofar as it declared theagreement between the parties enforceable under the

Statute of Frauds. The complaint before the trial court is ordered DISMISSED insofar as the cause of action for specific

performance is concerned. The case is ordered REMANDED to the trial court for further proceedings with respect to the

cause of action for damages as above specified.

SO ORDERED.



G.R. No. 138113 October 17, 2000

EMILIO BUGATTI, petitioner,

vs.

COURT OF APPEALS and SPOUSES BEN BAGUILAT and MARIA BAGUILAT, respondents.

D E C I S I O N

GONZAGA-REYES, J.:

Before us is a petition for review on certiorari of the August 7, 1998 Decision of the Court of Appeals in CA-G.R. CV No.

48900, reversing the July 15, 1994 Decision of the Regional Trial Court in Civil Case No. 348.

The present case traces its origins to an action for recovery of possession and damages filed by respondents Ben and

Maria Baguilat on July 11, 1989, with the Regional Trial Court of Lagawe, Ifugao against petitioner Emilio Bugatti.1 In

their complaint, respondents alleged that they are the owners of a parcel of land situated in Lagawa, Ifugao and that

sometime in December, 1987, petitioner offered to lease their land. According to respondents, they discussed the terms

and conditions of the lease with petitioner, particularly that petitioner will lease a portion of respondents’ land for aperiod of nine (9) years in return for a monthly rental of P500.00; that petitioner will construct a building on such land,

the cost of which shall not exceed P40,000.00; that respondents shall reimburse petitioner for the cost of the building by

applying the rentals thereto; that after petitioner is fully reimbursed for the costs of construction in the amount of

P40,000.00, he shall continue to pay the monthly rental of P500.00 for the duration of the lease; that upon the

termination of the lease, the building shall belong to respondents. It was agreed by petitioner and respondents that the

aforesaid terms and conditions should be included in a written contract of lease to be prepared by petitioner and

presented to respondents for their approval. However, even before preparing the contract of lease, petitioner occupied

respondents’ land and began construction on January 18, 1988. Immediately objecting to the construction, respondent

Maria Baguilat demanded that the contract of lease should first be signed. However, petitioner assured respondents

that he was preparing the contract. Sometime in March, 1988, petitioner finally presented the lease contract torespondents but it did not contain the terms and conditions previously agreed upon. Respondents insisted that

petitioner re-draft the contract in accordance with their discussions. The revised document, presented to respondents

sometime in April, 1988, contained counter-proposals. Respondents refused to accede to such counter-proposals.

Despite the fact that no contract was signed by the parties, petitioner continued to occupy respondents’ land.

In an effort to resolve their differences, respondents resorted to extrajudicial measures, such as asking the Barangay

Captain to mediate in the hopes of arriving at an amicable settlement. However, petitioner was not receptive and he

walked out of the proceedings before the Barangay Captain. Respondents then sent petitioner a demand letter dated

November 23, 1988, asking him to vacate their property. Again, petitioner did not heed respondents’ demands.

Subsequent efforts of respondents to resolve the conflict proved equally futile. Eventually, respondents obtained the

services of counsel - Atty. Evelyn S. Dunuan, who sent petitioner a letter asking him to desist from introducing any

further improvements upon respondents’ property. Upon obtaining a certification from the Barangay Captain,

respondents filed the present case with the Regional Trial Court for recovery of the land in question and damages.2

Contrary to respondents’ contentions, petitioner asserts that the lease contract which he prepared in fact embodied the

terms and conditions agreed upon, except for the cost of the building. Petitioner claimed that respondents had agreed

to the following terms - to lease their entire property to him for a period of nine (9) years at a monthly rental of P500.00;

that petitioner would construct a building of strong materials on respondents’ property, without any limit as to the cost

of construction; that it was later on decided by the parties to extend the period of the lease since the cost of the building

had exceeded the total amount of rentals for the nine year period; that the new lease period would begin from the

opening of petitioner’s business, and would continue at least until the recovery by petitioner of the full amount incurred

by him in the construction of the building; that petitioner will only pay rentals when he has been fully reimbursed for

construction costs; and finally, that upon the expiration of the lease contract, respondents would own the building.

Petitioner claims that when he first submitted a draft of the lease contract to respondent Maria Baguilat, she did not

voice out any objection thereto. About two weeks later, Maria Baguilat told petitioner that she had lost the draft.

Petitioner then submitted a second draft, but respondents refused to accept it because it did not conform to the terms

and conditions agreed upon. Petitioner told respondents to wait until the building was completely finished before he

submitted another draft of the lease contract so that the price of the building could be incorporated therein.



Petitioner claims that respondents did not object to the fact that he had started construction before the signing of the

lease contract. On the contrary, petitioner alleges that he felt that respondents had agreed to his proposals and that

they had actually given him verbal permission to begin erecting the building. According to petitioner, respondents did

not express their disapproval of the ongoing construction during any of their several visits to the construction site. He

claims that Ben Baguilat even assisted him in the levelling of the construction area; that Maria Baguilat made

suggestions as to the kind of materials that might be used; and that when petitioner informed Maria Baguilat that he

had already spent more than P90,000.00 for the construction, she advised him to keep all his receipts in order to serve

as a basis for the computation of the total costs of the building. Petitioner further claims that when the building wascompleted in June, 1988, respondent Ben Baguilat invited him and his wife to their house for the drafting of the

contract. However, when petitioner told respondents that his expenses had reached P120,000.00, they pretended to be

shocked and refused to sign the lease contract.3

The trial court4 held that no contract of lease was perfected between the parties since the element of consent was

missing. The drafting of the contract - a task entrusted to petitioner - was deemed by respondents as a condition

precedent to the perfection of the lease contract and consequently, to any construction activity upon their land.

Although petitioner submitted two drafts , they did not contain the terms and conditions spoken of by the parties during

their negotiations and were accordingly rejected by respondents. However, despite the absence of a perfected contract

and in total disregard of respondents’ repeated objections, petitioner occupied respondents’ land and commencedconstruction thereon, making him a builder in bad faith. The decretal portion of the trial court’s decision provides -

WHEREFORE, premises considered, the Court hereby render[s] judgment ordering the defendant as follows, to wit:

1) To vacate the plaintiff’s land including the building thereon which is forfeited to the plaintiffs by virtue of this

decision;

2) To pay plaintiffs the sum of Twenty One Thousand (P21,000.00) Pesos by way of damages representing the estimated

cost of the building, and the reasonable compensation f or the unjustified occupation and use by defendant of plaintiffs’

land for a period of more than six (6) years;

3) To pay plaintiffs the sum of Fourteen Thousand (P14,000.00) Pesos as attorney’s fees, and

4) To pay the cost.

No pronouncement as to moral and exemplary damages as no evidence was introduced to prove the same.

SO ORDERED.5

Reversing the trial court’s decision, the Court of Appeals6 sustained the view that there was in fact a perfected contract

of lease between the parties, which was for a period of nine years, beginning on January, 1988.7 Accordingly, the

appellate court held that petitioner was in good faith when he acquired possession of the land and started construction

thereon, and that he is entitled to reimbursement for the value of the improvements introduced upon the subject

property, pursuant to article 1678 of the Civil Code and principles of equity.8 However, since the lease terminated on

January, 1997, petitioner must vacate the property. The decretal portion of the assailed decision states -

WHEREFORE, in view of the foregoing, the decision dated July 15, 1994 of the Regional Trial Court in Lagawe, Ifugao

(Branch 14) in Civil Case No. 348 is hereby REVERSED and SET ASIDE. The defendant-appellant and all persons claiming

rights under him are hereby ordered to immediately vacate the subject property and surrender the possession thereof

to the plaintiffs-appellees, and to pay to them (plaintiffs-appellees) rentals in arrears in accordance with the fair rental

value or reasonable compensation for the use and occupation of the property, which monthly sum should be computed

from January, 1988 until he has completely vacated the subject property. On the other hand, the plaintiffs-appellees are

ordered to pay the value of the improvement introduced by the defendant-appellant. Further, the awards of attorney’s

fees and costs are hereby DELETED. Consequently, let this case be REMANDED to the Regional Trial Court for the

determination of the current market value of the improvements made by the defendant-appellant on the subject

property, in accordance with Article 1678 of the New Civil Code, and the fair rental value thereof. No pronouncement as

to costs.

SO ORDERED.9



Petitioner contends that the Court of Appeals varied the terms of his contract with respondents. In his Memorandum,

petitioner summarizes the errors committed by the appellate court and asserts the terms which should have been

enforced instead, as follows -

The appellate court correctly reversed and set aside the decision of the trial court finding for the private respondents as

contrary to facts and applicable laws, but committed the error, with due respect, of fixing an [sic] entirely new terms and

conditions and imposed the same on the parties, such as:

a) for the petitioner to vacate the premises. But the lease, which was upheld by the appellate court, has not yet expired

or terminated;

b) to pay rental or compensation for the petitioner’s use of the property to be computed from January, 1988 until

petitioner vacated the property. There is no question as to payment of rentals [,] the parties having agreed [to] the sum

of P500.00 a month to be deducted from the P120,000 petitioner spent in constructing the building until exhausted, not

to be computed form the year January, 1988, but to commence on the date of the completion of the building and start

of petitioner’s business thereat.

c) the appellate court also ordered the private respondents to pay the value of the building to the petitioner, to to [sic]this effect, ordered the case remanded back to the trial court to determine the value of the building or improvement.

The agreement of the parties is for the building to be owned by the private respondents after the P120,000 cost of the

building is exhausted by the deduction of P500.00 as monthly rental.

x x x x x x x x x

In lieu thereof, it is respectfully prayed that the petitioner and the private respondents be ordered to comply faithfully

and in good faith to the terms and conditions of their lease - the petitioner to erect a building on the leased property

and completed by him at a cost of P120,000 in March, 1988. Of this amount, the P500.00 monthly rental deducted until

exhausted, also to start March, 1988 [-] date petitioner commenced his business thereat. After exhaustion of theP120,000 by way of monthly rentals, private respondents become owners of the building - which are clear and not

contrary to law, morals, good customs, public order, and public policy. Lease expires in March, 2008 therefor.10

The threshold issue in the present case is whether or not a contract of lease had been perfected. After receiving the

testimonial and documentary evidence of both parties, the trial court concluded that no contract of lease existed and

ruled in favor of respondents herein. The court explained its decision in this wise -

The Court after a careful evaluation of the foregoing portion of plaintiffs’ testimony cannot give its imprimatur to the

conclusion reached by defendant to the effect that plaintiffs allowed the defendant to enter into a portion of the land in

question and construct a building thereon, for such a conclusion is gratuitous as it does not portray the true intention of

the plaintiffs as alluded to by the defendant. A cursory reading of the testimony under consideration indubitably show in

its clear and unmistakable terms that it is not a blanket authority or permission for defendant to enter the premises of

the land in question, but is subject to proviso or terms and conditions to be embodied in writing in the lease contract,

which terms and conditions are elsewhere stated earlier in plaintiffs’ evidence. In this regard, it is worthy and interesting

to note, that at the inception of the work done by the defendant on the land in question by levell ing a portion of it,

plaintiffs immediately protested and repeatedly demanded the defendant who assumed to prepare the contract

embodying the terms and conditions originally agreed upon for their approval before defendant will start on the

construction, which never happened due to the dilatory tactics employed by the defendant, a circumstance which belied

defendant’s contention that plaintiffs allowed defendant to occupy the land and construct a building thereon even

before the approval of the lease contract, which to the mind of this Court, is an orchestrated scheme to dispossess the

plaintiffs of their land as evidenced by defendant’s maneuvers in successfully delaying by dubious means the finalization

of a contract of lease embodying the true terms and conditions agreed upon by the parties, furthermore, defendant

instead of preparing the supposed lease contract, and after gaining entry on the land in question and had constructed a

building thereon, made counter-proposals which were rejected by plaintiffs.

x x x x x x x x x

With the foregoing as a background, the Court ... is of the considered view, that no contract of lease was perfected

and/or consumated [sic] between the parties, ... all that was actually done was a negotiation of an intended lease

contract which did not actually materialize due to gross violation committed by the defendant of the terms and



conditions set or laid down by the plaintiffs in the course of the negotiation for which reason plaintiffs refused to sign

the draft prepared by the defendant. On the issue of perfection, and/or consummation of the alleged contract of lease,

the evidence on record speaks loud and clear that in the course of the negotiation defendant volunteered to prepare

and deliver to plaintiffs [the contract of lease] for their approval, but instead of preparing the intended contract of lease

incorporating the terms and conditions agreed upon, the defendant started the construction of a building on plaintiffs’

land in January, 1988, whereupon plaintiff Maria Baguilat immediately protested to defendant demanding that the

contract of lease over the property should first be signed by the parties before defendant starts any construction work

on the land in question, which was adamantly ignored by the defendant. The fact that defendant deliberately failed toprepare and finalize the supposed contract, and instead presented counter-proposals in Exhibit "B" constitute in legal

contemplation a unilateral abandonment and/or rejection by the defendant of the terms and conditions originally

agreed upon, without valid or legal ground which is indicia of his bad faith. xxx 11

x x x x x x x x x

Even assuming arguendo, that the proposal or offer made by the defendant to construct a building on the land in

question where he will later on conduct his business was allowed or permitted by the plaintiffs during the negotiation

stage between the parties as the defendant wanted to impress this Court, yet the bare fact as borne out by the evidence

remains, that the supposed permission extended to defendant is subject to the condition that the defendant should firstprepare and present to the plaintiffs the contract of lease embodying the terms and conditions as proposed for the

approval of the plaintiffs, which is clearly a condition precedent to be complied with by the defendant. Hence, the

acceptance on the part of the plaintiffs to the offer made by the defendant to lease the property in question is not

unqualified and absolute, and a qualified acceptance by express provision of Article 1319 of the New Civil Code

constitutes a counter-offer. Incidentally, it has to be stressed that defendant instead of complying with the qualified

counter-offer of the plaintiffs, defendant made a counter-proposal (Exhibits "B" and "B-1"), which contained the

following, to wit:

1. Extension of period or

2. Buy the lot upon which it stands (referring to the building), or

3. Apply the remaining balance to the adjacent vacant lot, and emphasized in said exhibit, the provision of Articles 445,

447, 448, 453, and 454 of the New Civil Code.12

x x x x x x x x x

After a thorough and careful study of the records, the Court finds that the trial court was correct in ruling that no

contract of lease was perfected and accordingly, hold that the appellate court committed reversible error in ruling to the

contrary.

At the outset, it should be stated that the factual findings of the Court of Appeals are usually binding on the Supreme

Court unless there is a showing that: (1) the conclusion is a finding grounded on speculations, surmises or conjectures;

(2) the inference is manifestly mistaken, absurd and impossible; (3) where there is a grave abuse of discretion; (4) when

the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; and (6) when the

Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admission of

both parties.13 We find that the assailed ruling of the appellate court is not borne out by the evidence presented in this

case. In support of its conclusion that a contract of lease was perfected, the appellate court offered a lengthy

ratiocination based merely on its own interpretation of the transcripts. However, it is a well established principle that

the evaluation of the testimonies of witnesses by the trial court is entitled to the highest respect because such court has

the direct opportunity to observe the witnesses - their demeanor and manner of testifying - and thus, are in a better

position to assess their credibility.14

Now, to the merits of the case. We agree with the trial court that when the parties met sometime in the latter part of

December, 1997 and in the first week of 1998 in order to discuss the terms and conditions of the lease, they were

merely negotiating. A contract undergoes three distinct stages - preparation or negotiation, its perfection, and finally, its

consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the

contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when

the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract

wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment



thereof.15 From the testimonies of respondent Maria Baguilat and petitioner it could clearly be inferred that it was their

intention that such terms and conditions were to be embodied in a lease contract to be prepared by the latter and

presented to respondents for their approval before either party could be considered bound by the same. On direct

examination, Maria Baguilat testified as follows -

ATTY. DUNUAN: (to the witness)

You mentioned that the defendant came to ask you to permit him to lease your property located at herein Lagawe?

A: Yes, Ma’m.

Q: When did he come to ask your permission?

A: Late December, 1987

Q: Where did he come to ask your permission?

A: He came to our residence.

Q: Who were present at the time he came to ask your permission?

A: My husband and myself were present.

Q: And what exactly what did the defendant ask from you?

A: When he came, he ask[ed] if we were the owner[s] of the lot located just beside the public highway and we said

"yes".

Q: What happened next after you informed him that you own the lot just beside the public highway?

A: Immediately he was asking or pleading if he could construct a little hut there for them to sell;

Q: What did your husband reply to such request?

A: We did not give him a definite yes or no. We said we will see first.

Q: What happen after that?

A: After a week, he came back asking for our final decision.

Q: This time what did you say to the request[?]

A: Because we decided with my husband, because of our relationship by affinity and because we did not like that they’ll

have a bad comment on us, we decided that we’ll permit him.

Q: What did you tell him?

A: We said to him that "you can construct a small hut but we are going to set some terms and conditions to be followed:

and he said "yes".

Q: When you said that you will allow him the defendant to construct in the land but you will set some terms and

conditions, what did you do after that?

A: When we permitted him, we discussed some terms and conditions and he acted as the secretary; he wrote down the

terms and conditions we wanted to be embodied in the contruct [sic].16

Upon cross-examination, Maria Baguilat repeatedly emphasized that she and her husband did not give petitioner

permission to occupy their property and to start construction thereon until after the written lease contract had met with



their approval. As proof of this, when petitioner started constructing upon respondents’ land before presenting the

written contract to the latter, Maria Baguilat repeatedly made known her objections to petitioner. She testified thus -

A: We made the agreement first week of January and we advised him to type it within the first week of that month,

January, 1988.

Q: Within the second week of January, 1988, he already went to occupy a portion of your land?

A: Yes.

Q: Before he went to occupy a portion of your land, according to your testimony, he asked permission from you to

occupy that portion of your land?

A: That was verbal, when he came to ask permission.

Q: That permission was given after you gave him permission to prepare the lease agreement or simultaneously?

A: At the same time.

Q: So you gave him the authority to prepare the lease agreement at the same time the permission that he was going to

occupy that portion, you gave him the permission to occupy the land?

A: After. We are supposed to sign the contract before he start.

Q: That was your intention but earlier, you testified that simultaneously you allowed him to occupy a portion of you

land?

A: Yes. Allowed him.

COURT: (to the witness)

Q: After the first negotiation allowing him to get that paper for typing, did he come to you after that to ask permission to

occupy a portion of your land?

A: After the drafting of the lease contract, he did not come back but he started the work.

Q: You mean to impress the Court that even though there was no contract, he just went there to occupy a portion of

your property without your permission?

A: Yes.

ATTY. LUMASE:

You stated that he did not come back for permission. You mean there was a first permission?

A: At the time we made the agreement and he jot it down and he said he will type it, that was the time that we said that

you may occupy but we have to sign the lease agreement.

Q: So at the time he voluntarily offered his services to prepare the lease agreement, he asked you that in the meantime

he will occupy that portion of your land and you permitted him?

A: No, we did not but what he told us is: "I’m going to type this and bring it to you for your signature," no more.

COURT:

Q: You mean to imply to the Court that you did not give him authority yet to occupy the land in question before the

signing of the contract but what you wanted to be done is for you to sign the contract before occupying the premises?



A: Yes.

ATTY. LUMASE:

Q: Now, before he brought the typewritten contract, you became aware that he occupied a portion of your land?

A: Yes.

Q: You became aware that he occupied the land because you allowed him?

A: We did not allow. I went to tell him to stop levelling.

Q: You stated that at the time you permitted him to draft the lease agreement, you permitted him to occupy, now which

is which?

A: There was no permission that he was going to start work before the signing of the contract.

Q: So what you said a while ago that you permitted him was not correct. May we go over the transcript. Did you permithim or not?

COURT: (to the witness)

Q: Did you allow him to occupy before the signing?

A: We did not allow him to start. We allowed him after the contract but before the contract was signed, he started.

ATY. LUMASE:

Q: How did you come to know that he started? How?

A: I saw him already levelling the lot.

Q: And that was the first day when he started to level when you saw him?

A: No, there was a little part levelled.

Q: You and your husband went there and saw him levelling?

A: Yes.

Q: Aside from defendant, how many were helping, working with them?

A: There were two.

Q: After you saw them levelling, you returned to your house?

A: I told Emilio already, "Why did you start the leveling when there was no contract signed by us?"

Q: But nevertheless, he started to occupy and made levellings?

A: Yes, he continued despite my protest.

Q: So what you did was to make a verbal protest to stop him?

A: Yes.

Q: Until after the levelling, you saw that construction materials were brought to the area?



A: Yes.

Q: After you saw the materials, you saw that a building started to rise?

A: Yes.

Q: All the while you did not make objections?

A: I was the one always going to him but he still continued the construction.

Q: So you did not come with a desistance, you did not come to Court to stop him?

A: I did not. I’m always going to him telling him" please stop the construction" but I did not think of going to Court.

Q: From the time you saw him levelling and until a building was put up, how many months passed?

A: That was January-February and early part of March.

Q: And the building was first put up on what month?

A: Early part of March.

Q: When the building was constructed, you saw him occupy it, is it not?

A: I saw them staying there.

Q: So from January to March, the contract was not yet prepared by him and you did nothing to have the contract be

executed as construction of the building took place?

A: I always go to him.

Q: Aside from going to him, you did nothing more?

A: There was a time I went to a policeman to ask him to stop the construction of Bugatti and he said, "I do not have the

order to stop him." I do not know there was supposed to be an order before a policeman could go there, and kept quiet.

Q: Now, what you did was go to the site and notice the construction and return home. How many times did that

happen?

A: Many times.17

[Underscoring supplied]

Aside from their verbal objections, respondents sent petitioner two demand letters. The first one, dated November 23,

1988 and signed and received by petitioner on December 13, 1988, asked him to vacate the property.18 A second letter

dated April 3, 1989 and received by petitioner on the same day demanded that petitioner terminate all construction

work upon respondents’ property.19 Respondents’ vehement protests against petitioner’s construction activities are

irreconcilable with the appellate court’s finding that the parties had entered into a lease contract. If respondents had

considered themselves bound by their discussions with petitioner, the former would not have cause to object to the

construction activities upon their land because such would have been in accordance with the alleged terms of the lease.

In this regard, neither could petitioner unequivocally declare that respondents’ allowed him to commence construction

prior to the drafting of the contract of lease. He stated that -

Q: According to the testimony of Mrs. Maria Baguilat, she said she did not allow you to occupy the land. What can you

say to that?

A: I do not know of such disallowance.



Q: What is the truth?

A: I feel there was concurrence to my proposal. In fact and in truth the husband joined in the earth moving.

Q: That permission to occupy or construct on their land, was it in writing?

A: Verbal.

Q: Who between the plaintiffs communicated to you and permitted you to start occupying their land?

A: I suppose both of them.20

In a contract of lease, one of the parties binds himself to give to another the enjoyment or use of a thing for a price

certain, and for a period which may be definite or indefinite.21 Being a consensual contract, a lease is perfected at the

moment there is a meeting of the minds upon the thing and the cause or consideration which are to constitute the

contract.22 The area of agreement must extend to all points that the parties deem material.23

In the case at bar, there is a great degree of divergence between the parties as to the terms of the lease. RespondentMaria Baguilat testified that she and her husband were amenable to leasing out only a portion of their property for a

period of nine years to start in January, 1988. A monthly rental of P500.00 was to be set off against the construction

costs incurred by petitioner, which costs the parties had agreed to limit to P40,000.00. At the end of the nine year

period, ownership and possession of the building would be transferred to respondents.24

Meanwhile, petitioner claimed that the agreement with respondents covered the lease of the entire lot, to begin on the

date petitioner opened for business thereon. According to petitioner, the lease was initially intended to last for a period

of nine years, however, the same was subsequently extended for an indefinite period - up until he is fully reimbursed for

the full amount incurred in constructing the building (by virtue of the setting-off of the monthly rental of P500.00

against such expenses). Petitioner insists that during his discussions with respondents no mention was made of anylimits upon his construction costs.25

The extensive degree of ambiguity, insofar as the terms of the intended contract were concerned, particularly with

regard to the area to be leased and the amount to be spent on the building to be constructed by him, was revealed by

the uncertain and evasive statements of petitioner during direct examination -

Q: By the way, you are going to lease their lot. Is that the entire lot?

A: What is in my mind is the entire lot.

Q: Did you communicate your desire to lease their lot?

A: Yes.

Q: What was their response?

A: Positive.

Q: When you said positive, what do you mean?

A: Yes.

Q: Who between the plaintiffs, Ben Baguilat and Maria Baguilat, did you communicate your desire about their lot?

A: Both of them.

Q: You said while ago, they answered yes. Did the two of them answered [sic] in the affirmative or only one of them?

A: Not exactly saying yes but the very good things that led to the drafting since both of them were receptive, their

answers were inclined- we will enter into that.



Q: In other words, they are amenable to lease their lot to you?

A: Yes.

Q: For how much monthly rental?

A: 500 a month.

Q: For how many months or years?

A: Nine years but the nine years later on was amended because the cost of the building was assessed after it was

finished and it exceeded the suppose rentals paid for nine years.

Q: Because it was amended, how long as to the lease of the lot?

A: Until, subject to the actual amount of expenses is fully paid.

Q: Do you recall when the lease started to consummate?

A: On the actual start of business, that was the agreement.

x x x x x x x x x

Q: According to the testimony of Mrs. Maria Baguilat, she confirms nine years, rentals of P500.00 but according to her,

she said what they wanted to lease to you was only a portion of the lot. What can you say to that?

A: I am not aware of that.

Q: What was exactly your agreement with regards to the area of the lot?

A: We have not agreed on the area. I was referring to the lot which is .5 by 20 meters.

x x x x x x x x x

ATTY LUMASE continuing:

Q: How about the plaintiffs, did they state to you also any particular area they are interested to lease to you?

A: None. No drawing plan.

Q: According to Maria Baguilat, she said that the amount of the materials to be used in the construction should not

exceed P40,000.00. What can you say to that?

A: I am not aware.

Q: You want to impress the Honorable Court, the plaintiffs did not tell you that?

A: Yes, sir.

Q: With respect to the amount to be spent in the construction of the improvements on the lease area, what is the

particular agreement you had with the plaintiffs regarding the amount?

A: Originally, it was not touch [sic] in the oral agreement. It was only later on when the construction was being finished. I

ran out of money and I tried to borrow from them. I understand I told her I spent that much.26

That the area of the property to be leased to petitioner and the amount of the construction costs, which would

ultimately determine the period of the lease, remained indeterminate only bolsters the trial court’s conclusion that



there has been no meeting of minds between the parties insofar as the essential conditions of the proposed contract are

concerned. It is difficult to believe that respondents would give petitioner unbridled discretion in determining such

important matters.

It is worth noting that petitioner actually admitted that he made counter-proposals to respondents. Sometime in March,

1988, the first draft of the lease contract was presented by petitioner to respondents and promptly rejected by the

latter since it did not embody the terms and conditions as discussed by the parties. Respondents asked petitioner to

revise the draft so as to conform to their discussions; however, instead of re-writing the document, petitioner came upwith counter-proposals (Exhibit B).27 Petitioner’s acceptance obviously varied the terms of respondents’ offer, thus

giving rise to a counter-offer. This only proves that the element of consent is wanting, there having been no concurrence

of offer and acceptance with respect to the material points of the intended lease.

In retrospect, petitioner’s improper intentions have become evident. During negotiations, petitioner led respondents to

believe that he was amenable to their terms, but in truth, as clearly shown by the first draft he prepared (Exhibit A) and

his counter-proposals (Exhibit B), he harbored his own very different ideas regarding the essential terms and conditions

of the proposed lease. Although he was well aware that respondents were withholding their assent to the lease until

such time that the contract containing all the material terms and conditions previously discussed by the parties had

been drafted by petitioner and presented to them for their approval, petitioner occupied respondents’ property andbegan construction as early as January, 1988. By commencing construction of the building so soon after the negotiations

of the parties and before submitting the promised draft to respondents, petitioner wanted to ensure that respondents

would no longer be able to back out of the proposed contract.

Petitioner is undoubtedly a builder in bad faith for despite the absence of a perfected contract of lease and in utter

disregard of respondents’ numerous protests, he continued his construction activities upon respondents’ land. Under

articles 44928 and 45029 of the Civil Code, respondents have the following options: (1) to appropriate what petitioner

has built, without any obligation to pay indemnity; (2) to ask petitioner to remove what he has built; or (3) to compel

petitioner to pay the value of the land.30 In addition, respondents are entitled to damages,31 which shall be equivalent

to the fair rental value of the land beginning from January, 1988 until respondents recover possession thereof. This caseshall be remanded to the trial court for the determination of the proper amount of rentals.

WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals promulgated on August 7, 1998 is

hereby SET ASIDE.

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 August1991 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 premisesand 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 thefollowing 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 favorof 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 stillabsolute 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 1319 9 of the same Code. An option or an offer wouldrequire, 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, norwould 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 19 12 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.

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 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.

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