Republic of the Philippines SUPREME COURT Manila EN BANC

Cervantes is the president of Bormaheco, Inc., a dealer and importer of industrial and agricultural machinery. The entire lots are occupied by the building, machinery and equipment of Bormaheco, Inc. and are adjacent to the property of Villonco Realty Company situated at 219 Buendia Avenue. In the early part of February, 1964 there were negotiations for the sale of the said lots and the improvements thereon between Romeo Villonco of Villonco Realty Company "and Bormaheco, Inc., represented by its president, Francisco N. Cervantes, through the intervention of Edith Perez de Tagle, a real estate broker". In the course of the negotiations, the brothers Romeo Villonco and Teofilo Villonco conferred with Cervantes in his office to discuss the price and terms of the sale. Later, Cervantes "went to see Villonco for the same reason until some agreement" was arrived at. On a subsequent occasion, Cervantes, accompanied by Edith Perez de Tagle, discussed again the terms of the sale with Villonco. During the negotiations, Villonco Realty Company assumed that the lots belonged to Bormaheco, Inc. and that Cervantes was duly authorized to sell the same. Cervantes did not disclose to the broker and to Villonco Realty Company that the lots were conjugal properties of himself and his wife and that they were mortgaged to the DBP. Bormaheco, Inc., through Cervantes, made a written offer dated February 12, 1964, to Romeo Villonco for the sale of the property. The offer reads (Exh. B): BORMAHECO, INC. February 12,1964 Mr. Romeo Villonco Villonco Building Buendia Avenue Makati, Rizal. Dear Mr. Villonco: This is with reference to our telephone conversation this noon on the matter of the sale of our property located at Buendia Avenue, with a total area of 3,500 sq. m., under the following conditions:

G.R. No. L-26872 July 25, 1975 VILLONCO REALTY COMPANY, plaintiff-appellee and EDITH PEREZ DE TAGLE, intervenor-appellee, vs. BORMAHECO, INC., FRANCISCO N. CERVANTES and ROSARIO N. CERVANTES, defendants-appellants. Meer, Meer & Meer for plaintiffappellee. J. Villareal, Navarro and Associates for defendants-appellants. P. P. Gallardo and Associates for intervenor-appellee.

AQUINO, J.: This action was instituted by Villonco Realty Company against Bormaheco, Inc. and the spouses Francisco N. Cervantes and Rosario N. Cervantes for the specific performance of a supposed contract for the sale of land and the improvements thereon for one million four hundred thousand pesos. Edith Perez de Tagle, as agent, intervened in order to recover her commission. The lower court enforced the sale. Bormaheco, Inc. and the Cervantes spouses, as supposed vendors, appealed. This Court took cognizance of the appeal because the amount involved is more than P200,000 and the appeal was perfected before Republic Act No. 5440 took effect on September 9, 1968. The facts are as follows: Francisco N. Cervantes and his wife, Rosario P. Navarra-Cervantes, are the owners of lots 3, 15 and 16 located at 245 Buendia Avenue, Makati, Rizal with a total area of three thousand five hundred square meters (TCT Nos. 43530, 43531 and 43532, Exh. A, A-1 and A-2). The lots were mortgaged to the Development Bank of the Phil (DBP) on April 21, 1959 as security for a loan of P441,000. The mortgage debt was fully paid on July 10, 1969.

(1) That we are offering to sell to you the above property at the price of P400.00 per square meter; (2) That a deposit of P100,000.00 must be placed as earnest money on the purchase of the above property which will become part payment of the property in the event that the sale is consummated; (3) That this sale is to be consummated only after I shall have also consummated my purchase of another property located at Sta. Ana, Manila; (4) That if my negotiations with said property will not be consummated by reason beyond my control, I will return to you your deposit of P100,000 and the sale of my property to you will not also be consummated; and (5) That final negotiations on both properties can be definitely known after 45 days. If the above terms is (are) acceptable to your Board, please issue out the said earnest money in favor of Bormaheco, Inc., and deliver the same thru the bearer, Miss Edith Perez de Tagle. Very truly yours, SGD. FRANCISCO N. CERVANTES President The property mentioned in Bormaheco's letter was the land of the National Shipyards & Steel Corporation (Nassco), with an area of twenty thousand square meters, located at Punta, Sta. Ana, Manila. At the bidding held on January 17, 1964 that land was awarded to Bormaheco, Inc., the highest bidder, for the price of P552,000. The Nassco Board of Directors in its resolution of February 18, 1964 authorized the General Manager to sign the necessary contract (Exh. H).

On February 28, 1964, the Nassco Acting General Manager wrote a letter to the Economic Coordinator, requesting approval of that resolution. The Acting Economic Coordinator approved the resolution on March 24, 1964 (Exh. 1). In the meanwhile, Bormaheco, Inc. and Villonco Realty Company continued their negotiations for the sale of the Buendia Avenue property. Cervantes and Teofilo Villonco had a final conference on February 27, 1964. As a result of that conference Villonco Realty Company, through Teofilo Villonco, in its letter of March 4, 1964 made a revised counter- offer (Romeo Villonco's first counter-offer was dated February 24, 1964, Exh. C) for the purchase of the property. The counter-offer was accepted by Cervantes as shown in Exhibit D, which is quoted below: VILLONCO REALTY COMPANY V. R. C. Building 219 Buendia Avenue, Makati, Rizal, Philippines March 4, 1964 Mr. Francisco Cervantes. Bormaheco, Inc. 245 Buendia Avenue Makati, Rizal Dear Mr. Cervantes: In reference to the letter of Miss E. Perez de Tagle dated February 12th and 26, 1964 in respect to the terms and conditions on the purchase of your property located at Buendia Ave., Makati, Rizal, with a total area of 3,500 sq. meters., we hereby revise our offer, as follows: 1. That the price of the property shall be P400.00 per sq. m., including the improvements thereon; 2. That a deposit of P100,000.00 shall be given to you as earnest money which will become as part payment in the event the sale is consummated; 3. This sale shall be cancelled, only if your deal with another property in Sta. Ana shall not be consummated and in such case, the P100,000-00 earnest money will be returned to us with a 10% interest p.a. However, if our

deal with you is finalized, said P100,000.00 will become as part payment for the purchase of your property without interest: 4. The manner of payment shall be as follows: a. P100,000.00 earnest money and 650,000.00 as part of the down payment, or P750,000.00 as total down payment b. The balance is payable as follows: P100,000.00 after 3 months 125,000.00 -do212,500.00 -doP650,000.00 Total As regards to the other conditions which we have discussed during our last conference on February 27, 1964, the same shall be finalized upon preparation of the contract to sell.* If the above terms and conditions are acceptable to you, kindly sign your conformity hereunder. Enclosed is our check for ONE HUNDRED THOUSAND (P100,000.00) PESOS, MBTC Check No. 448314, as earnest money. Very truly yours, VILLONCO REALTY COMPANY (Sgd.) TEOFILO VILLONCO CONFORME: BORMAHECO, INC. (Sgd.) FRANCISCO CERVANTES That this sale shall be subject to favorable consummation of a property in Sta. Ana we are negotiating. (Sgd.) FRANCISCO CERVANTES The check for P100,000 (Exh. E) mentioned in the foregoing letter-contract was delivered by Edith Perez de Tagle to Bormaheco, Inc. on March 4, 1964 and was received by Cervantes. In the voucher-receipt evidencing the delivery the broker indicated in her handwriting that the earnest money was "subject to the terms and conditions embodied in Bormaheco's letter"

of February 12 and Villonco Realty Company's letter of March 4, 1964 (Exh. E-1; 14 tsn). Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six days after the signing of the contract of sale, Exhibit D, Cervantes returned the earnest money, with interest amounting to P694.24 (at ten percent per annum). Cervantes cited as an excuse the circumstance that "despite the lapse of 45 days from February 12, 1964 there is no certainty yet" for the acquisition of the Punta property (Exh. F; F-I and F-2). Villonco Realty Company refused to accept the letter and the checks of Bormaheco, Inc. Cervantes sent them by registered mail. When he rescinded the contract, he was already aware that the Punta lot had been awarded to Bormaheco, Inc. (25-26 tsn). Edith Perez de Tagle, the broker, in a letter to Cervantes dated March 31, 1964 articulated her shock and surprise at Bormaheco's turnabout. She reviewed the history of the deal and explained why Romeo Villonco could not agree to the rescission of the sale (Exh. G).** Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter, alleged that the forty-five day period had already expired and the sale to Bormaheco, Inc. of the Punta property had not been consummated. Cervantes said that his letter was a "manifestation that we are no longer interested to sell" the Buendia Avenue property to Villonco Realty Company (Annex I of Stipulation of Facts). The latter was furnished with a copy of that letter. In a letter dated April 7, 1964 Villonco Realty Company returned the two checks to Bormaheco, Inc., stating that the condition for the cancellation of the contract had not arisen and at the same time announcing that an action for breach of contract would be filed against Bormaheco, Inc. (Annex G of Stipulation of Facts).1wph1.t On that same date, April 7, 1964 Villonco Realty Company filed the complaint (dated April 6) for specific performance against Bormaheco, Inc. Also on that same date, April 7, at eight-forty-five in the morning, a notice oflis pendens was annotated on the titles of the said lots. Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded the defense that the perfection of the contract of sale was subject to the conditions (a) "that final acceptance or not shall be made after 45 days" (sic) and (b) that Bormaheco, Inc. "acquires the Sta. Ana property". On June 2, 1964 or during the pendency of this case, the Nassco Acting General Manager wrote to Bormaheco, Inc., advising it that the Board of Directors and the Economic Coordinator had approved the sale of the Punta

lot to Bormaheco, Inc. and requesting the latter to send its duly authorized representative to the Nassco for the signing of the deed of sale (Exh. 1). The deed of sale for the Punta land was executed on June 26, 1964. Bormaheco, Inc. was represented by Cervantes (Exh. J. See Bormaheco, Inc. vs. Abanes, L-28087, July 31, 1973, 52 SCRA 73). In view of the disclosure in Bormaheco's amended answer that the three lots were registered in the names of the Cervantes spouses and not in the name of Bormaheco, Inc., Villonco Realty Company on July 21, 1964 filed an amended complaint impleading the said spouses as defendants. Bormaheco, Inc. and the Cervantes spouses filed separate answers. As of January 15, 1965 Villonco Realty Company had paid to the Manufacturers' Bank & Trust Company the sum of P8,712.25 as interests on the overdraft line of P100,000 and the sum of P27.39 as interests daily on the same loan since January 16, 1965. (That overdraft line was later settled by Villonco Realty Company on a date not mentioned in its manifestation of February 19, 1975). Villonco Realty Company had obligated itself to pay the sum of P20,000 as attorney's fees to its lawyers. It claimed that it was damaged in the sum of P10,000 a month from March 24, 1964 when the award of the Punta lot to Bormaheco, Inc. was approved. On the other hand, Bormaheco, Inc. claimed that it had sustained damages of P200,000 annually due to the notice of lis pendens which had prevented it from constructing a multi-story building on the three lots. (Pars. 18 and 19, Stipulation of Facts).1wph1.t Miss Tagle testified that for her services Bormaheco, Inc., through Cervantes, obligated itself to pay her a three percent commission on the price of P1,400,000 or the amount of forty-two thousand pesos (14 tsn). After trial, the lower court rendered a decision ordering the Cervantes spouses to execute in favor of Bormaheco, Inc. a deed of conveyance for the three lots in question and directing Bormaheco, Inc. (a) to convey the same lots to Villonco Realty Company, (b) to pay the latter, as consequential damages, the sum of P10,000 monthly from March 24, 1964 up to the consummation of the sale, (c) to pay Edith Perez de Tagle the sum of P42,000 as broker's commission and (d) pay P20,000 as to attorney's fees (Civil Case No. 8109). Bormaheco, Inc. and the Cervantes spouses appealed. Their principal contentions are (a) that no contract of sale was perfected because Cervantes made a supposedly qualified acceptance of the revised offer contained in Exhibit D, which acceptance amounted to a counter-offer, and

because the condition that Bormaheco, inc. would acquire the Punta land within the forty-five-day period was not fulfilled; (2) that Bormaheco, Inc. cannot be compelled to sell the land which belongs to the Cervantes spouses and (3) that Francisco N. Cervantes did not bind the conjugal partnership and his wife when, as president of Bormaheco, Inc., he entered into negotiations with Villonco Realty Company regarding the said land. We hold that the appeal, except as to the issue of damages, is devoid of merit. "By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determining thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional" (Art. 1458, Civil Code). "The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts" (Art. 1475, Ibid.). "Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law" (Art. 1315, Civil Code). "Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer" (Art. 1319, Civil Code). "An acceptance may be express or implied" (Art. 1320, Civil Code). Bormaheco's acceptance of Villonco Realty Company's offer to purchase the Buendia Avenue property, as shown in Teofilo Villonco's letter dated March 4, 1964 (Exh. D), indubitably proves that there was a meeting of minds upon the subject matter and consideration of the sale. Therefore, on that date the sale was perfected. (Compare with McCullough vs. Aenlle & Co., 3 Phil. 285; Goyena vs. Tambunting, 1 Phil. 490). Not only that Bormaheco's acceptance of the part payment of one hundred ,thousand pesos shows that the sale was conditionally consummated or partly executed subject to the purchase by Bormaheco, Inc. of the Punta property. The nonconsummation of that purchase would be a negative resolutory condition (Taylor vs. Uy Tieng Piao, 43 Phil. 873). On February 18, 1964 Bormaheco's bid for the Punta property was already accepted by the Nassco which had authorized its General Manager to sign

the corresponding deed of sale. What was necessary only was the approval of the sale by the Economic Coordinator and a request for that approval was already pending in the office of that functionary on March 4, 1964. Bormaheco, Inc. and the Cervantes spouses contend that the sale was not perfected because Cervantes allegedly qualified his acceptance of Villonco's revised offer and, therefore, his acceptance amounted to a counter-offer which Villonco Realty Company should accept but no such acceptance was ever transmitted to Bormaheco, Inc. which, therefore, could withdraw its offer. That contention is not well-taken. It should be stressed that there is no evidence as to what changes were made by Cervantes in Villonco's revised offer. And there is no evidence that Villonco Realty Company did not assent to the supposed changes and that such assent was never made known to Cervantes. What the record reveals is that the broker, Miss Tagle, acted as intermediary between the parties. It is safe to assume that the alleged changes or qualifications made by Cervantes were approved by Villonco Realty Company and that such approval was duly communicated to Cervantes or Bormaheco, Inc. by the broker as shown by the fact that Villonco Realty Company paid, and Bormaheco, Inc. accepted, the sum of P100,000 as earnest money or down payment. That crucial fact implies that Cervantes was aware that Villonco Realty Company had accepted the modifications which he had made in Villonco's counter-offer. Had Villonco Realty Company not assented to those insertions and annotations, then it would have stopped payment on its check for P100,000. The fact that Villonco Realty Company allowed its check to be cashed by Bormaheco, Inc. signifies that the company was in conformity with the changes made by Cervantes and that Bormaheco, Inc. was aware of that conformity. Had those insertions not been binding, then Bormaheco, Inc. would not have paid interest at the rate of ten percent per annum, on the earnest money of P100,000. The truth is that the alleged changes or qualifications in the revised counter offer (Exh. D) are not material or are mere clarifications of what the parties had previously agreed upon. Thus, Cervantes' alleged insertion in his handwriting of the figure and the words "12th and" in Villonco's counter-offer is the same as the statement found in the voucher-receipt for the earnest money, which reads: "subject to the terms and conditions embodied in Bormaheco's letter of Feb. 12, 1964 and your letter of March 4, 1964" (Exh. E-1). Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of Villonco's revised counter-offer and substituted for it the word "another" so

that the original phrase, "Nassco's property in Sta. Ana", was made to read as "another property in Sta. Ana". That change is trivial. What Cervantes did was merely to adhere to the wording of paragraph 3 of Bormaheco's original offer (Exh. B) which mentions "another property located at Sta. Ana." His obvious purpose was to avoid jeopardizing his negotiation with the Nassco for the purchase of its Sta. Ana property by unduly publicizing it. It is noteworthy that Cervantes, in his letter to the broker dated April 6, 1964 (Annex 1) or after the Nassco property had been awarded to Bormaheco, Inc., alluded to the "Nassco property". At that time, there was no more need of concealing from the public that Bormaheco, Inc. was interested in the Nassco property. Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum) after the word "interest" in that same paragraph 3 of the revised counter-offer (Exh. D) could not be categorized as a major alteration of that counter-offer that prevented a meeting of the minds of the parties. It was understood that the parties had contemplated a rate of ten percent per annum since ten percent a month or semi-annually would be usurious. Appellants Bormaheco, Inc. and Cervantes further contend that Cervantes, in clarifying in the voucher for the earnest money of P100,000 that Bormaheco's acceptance thereof was subject to the terms and conditions embodied in Bormaheco's letter of February 12, 1964 and your (Villonco's) letter of March 4, 1964" made Bormaheco's acceptance "qualified and conditional". That contention is not correct. There is no incompatibility between Bormaheco's offer of February 12, 1964 (Exh. B) and Villonco's counteroffer of March 4, 1964 (Exh. D). The revised counter-offer merely amplified Bormaheco's original offer. The controlling fact is that there was agreement between the parties on the subject matter, the price and the mode of payment and that part of the price was paid. "Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract" (Art. 1482, Civil Code). "It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance. 'So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not, a contract is formed.' " (Stuart vs. Franklin Life Ins. Co., 165 Fed. 2nd 965, citing Sec. 79, Williston on Contracts).

Thus, it was held that the vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer (Stuart vs. Franklin Life Ins. Co., supra). The instant case is not governed by the rulings laid down in Beaumont vs. Prieto, 41 Phil. 670, 985, 63 L. Ed. 770, and Zayco vs. Serra, 44 Phil. 326. In those two cases the acceptance radically altered the offer and, consequently, there was no meeting of the minds of the parties. Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo Zayco his sugar central for P1,000,000 on condition that the price be paid in cash, or, if not paid in cash, the price would be payable within three years provided security is given for the payment of the balance within three years with interest. Zayco, instead of unconditionally accepting those terms, countered that he was going to make a down payment of P100,000, that Serra's mortgage obligation to the Philippine National Bank of P600,000 could be transferred to Zayco's account and that he (plaintiff) would give a bond to secure the payment of the balance of the price. It was held that the acceptance was conditional or was a counter-offer which had to be accepted by Serra. There was no such acceptance. Serra revoked his offer. Hence, there was no perfected contract. In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan Hacienda owned by Benito Legarda, who had empowered Valdes to sell it. Borck was given three months from December 4, 1911 to buy the hacienda for P307,000. On January 17, 1912 Borck wrote to Valdes, offering to purchase the hacienda for P307,000 payable on May 1, 1912. No reply was made to that letter. Borck wrote other letters modifying his proposal. Legarda refused to convey the property. It was held that Borck's January 17th letter plainly departed from the terms of the offer as to the time of payment and was a counter-offer which amounted to a rejection of Valdes' original offer. A subsequent unconditional acceptance could not revive that offer. The instant case is different from Laudico and Harden vs. Arias Rodriguez, 43 Phil. 270 where the written offer to sell was revoked by the offer or before the offeree's acceptance came to the offeror's knowledge. Appellants' next contention is that the contract was not perfected because the condition that Bormaheco, Inc. would acquire the Nassco land within forty-five days from February 12, 1964 or on or before March 28, 1964 was not fulfilled. This contention is tied up with the following letter of Bormaheco, Inc. (Exh. F):

BORMAHECO, INC. March 30, 1964 Villonco Realty Company V.R.C. Building 219 Buendia Ave., Makati, Rizal Gentlemen: We are returning herewith your earnest money together with interest thereon at 10% per annum. Please be informed that despite the lapse of the 45 days from February 12, 1964 there is no certainty yet for us to acquire a substitute property, hence the return of the earnest money as agreed upon. Very truly yours, SGD. FRANCISCO N. CERVANTES President Encl.: P.N.B. Check No. 112994 J P.N.B. Check No. 112996J That contention is predicated on the erroneous assumption that Bormaheco, Inc. was to acquire the Nassco land within forty-five days or on or before March 28, 1964. The trial court ruled that the forty-five-day period was merely an estimate or a forecast of how long it would take Bormaheco, Inc. to acquire the Nassco property and it was not "a condition or a deadline set for the defendant corporation to decide whether or not to go through with the sale of its Buendia property". The record does not support the theory of Bormaheco, Inc. and the Cervantes spouses that the forty-five-day period was the time within which (a) the Nassco property and two Pasong Tamo lots should be acquired, (b) when Cervantes would secure his wife's consent to the sale of the three lots and (c) when Bormaheco, Inc. had to decide what to do with the DBP encumbrance.

Cervantes in paragraph 3 of his offer of February 12, 1964 stated that the sale of the Buendia lots would be consummated after he had consummated the purchase of the Nassco property. Then, in paragraph 5 of the same offer he stated "that final negotiations on both properties can be definitely known after forty-five days" (See Exh. B). It is deducible from the tenor of those statements that the consummation of the sale of the Buendia lots to Villonco Realty Company was conditioned on Bormaheco's acquisition of the Nassco land. But it was not spelled out that such acquisition should be effected within forty-five days from February 12, 1964. Had it been Cervantes' intention that the forty-five days would be the period within which the Nassco land should be acquired by Bormaheco, then he would have specified that period in paragraph 3 of his offer so that paragraph would read in this wise: "That this sale is to be consummated only after I shall have consummated my purchase of another property located at Sta. Ana, Manila within forty-five days from the date hereof ." He could have also specified that period in his "conforme" to Villonco's counter-offer of March 4, 1964 (Exh. D) so that instead of merely stating "that this sale shall be subject to favorable consummation of a property in Sta. Ana we are negotiating" he could have said: "That this sale shall be subject to favorable consummation within forty-five days from February 12, 1964 of a property in Sta. Ana we are negotiating". No such specification was made. The term of forty-five days was not a part of the condition that the Nassco property should be acquired. It is clear that the statement "that final negotiations on both property can be definitely known after 45 days" does not and cannot mean that Bormaheco, Inc. should acquire the Nassco property withinforty-five days from February 12, 1964 as pretended by Cervantes. It is simply a surmise that after forty-five days (in fact when the forty-five day period should be computed is not clear) it would be known whether Bormaheco, Inc. would be able to acquire the Nassco property and whether it would be able to sell the Buendia property. That aforementioned paragraph 5 does not even specify how long after the forty-five days the outcome of the final negotiations would be known. It is interesting to note that in paragraph 6 of Bormaheco's answer to the amended complaint, which answer was verified by Cervantes, it was alleged that Cervantes accepted Villonco's revised counter-offer of March 4, 1964 subject to the condition that "the final negotiations (acceptance) will have to be made by defendant within 45 daysfrom said acceptance" (31 Record on Appeal). If that were so, then the consummation of Bormaheco's purchase of the Nassco property would be made within forty-five days from March 4, 1964. What makes Bormaheco's stand more confusing and untenable is that in its three answers it invariably articulated the incoherent and vague affirmative defense that its acceptance of Villonco's revised counter-offer was

conditioned on the circumstance "that final acceptance or not shall be made after 45 days" whatever that means. That affirmative defense is inconsistent with the other aforequoted incoherent statement in its third answer that "the final negotiations (acceptance) will have to be made by defendant within 45 days from said acceptance" (31 Record on Appeal).1wph1.t Thus, Bormaheco's three answers and paragraph 5 of his offer of February 12, 1964 do not sustain at all its theory that the Nassco property should be acquired on or before March 28, 1964. Its rescission or revocation of its acceptance cannot be anchored on that theory which, as articulated in its pleadings, is quite equivocal and unclear. It should be underscored that the condition that Bormaheco, Inc. should acquire the Nassco property was fulfilled. As admitted by the appellants, the Nassco property was conveyed to Bormaheco, Inc. on June 26, 1964. As early as January 17, 1964 the property was awarded to Bormaheco, Inc. as the highest bidder. On February 18, 1964 the Nassco Board authorized its General Manager to sell the property to Bormaheco, Inc. (Exh. H). The Economic Coordinator approved the award on March 24, 1964. It is reasonable to assume that had Cervantes been more assiduous in following up the transaction, the Nassco property could have been transferred to Bormaheco, Inc. on or before March 28, 1964, the supposed last day of the forty-five-day period. The appellants, in their fifth assignment of error, argue that Bormaheco, Inc. cannot be required to sell the three lots in question because they are conjugal properties of the Cervantes spouses. They aver that Cervantes in dealing with the Villonco brothers acted as president of Bormaheco, Inc. and not in his individual capacity and, therefore, he did not bind the conjugal partnership nor Mrs. Cervantes who was allegedly opposed to the sale. Those arguments are not sustainable. It should be remembered that Cervantes, in rescinding the contract of sale and in returning the earnest money, cited as an excuse the circumstance that there was no certainty in Bormaheco's acquisition of the Nassco property (Exh. F and Annex 1). He did not say that Mrs. Cervantes was opposed to the sale of the three lots. He did not tell Villonco Realty Company that he could not bind the conjugal partnership. In truth, he concealed the fact that the three lots were registered "in the name of FRANCISCO CERVANTES, Filipino, of legal age, married to Rosario P. Navarro, as owner thereof in fee simple". He certainly led the Villonco brothers to believe that as president of Bormaheco, Inc. he could dispose of the said lots. He inveigled the Villoncos into believing that he had untrammelled control of Bormaheco, Inc., that Bormaheco, Inc. owned the lots and that he was invested with adequate authority to sell the same.

Thus, in Bormaheco's offer of February 12, 1964, Cervantes first identified the three lots as "our property" which "we are offering to sell ..." (Opening paragraph and par. 1 of Exh. B). Whether the prounoun "we" refers to himself and his wife or to Bormaheco, Inc. is not clear. Then, in paragraphs 3 and 4 of the offer, he used the first person and said: "I shall have consummated my purchase" of the Nassco property; "... my negotiations with said property" and "I will return to you your deposit". Those expressions conveyed the impression and generated the belief that the Villoncos did not have to deal with Mrs. Cervantes nor with any other official of Bormaheco, Inc. The pleadings disclose that Bormaheco, Inc. and Cervantes deliberately and studiously avoided making the allegation that Cervantes was not authorized by his wife to sell the three lots or that he acted merely as president of Bormaheco, Inc. That defense was not interposed so as not to place Cervantes in the ridiculous position of having acted under false pretenses when he negotiated with the Villoncos for the sale of the three lots. Villonco Realty Company, in paragraph 2 of its original complaint, alleged that "on February 12, 1964, after some prior negotiations, the defendant (Bormaheco, Inc.) made a formal offer to sell to the plaintiff the property of the said defendant situated at the abovenamed address along Buendia Avenue, Makati, Rizal, under the terms of the letter-offer, a copy of which is hereto attached as Annex A hereof", now Exhibit B (2 Record on Appeal). That paragraph 2 was not, repeat, was not denied by Bormaheco, Inc. in its answer dated May 5, 1964. It did not traverse that paragraph 2. Hence, it was deemed admitted. However, it filed an amended answer dated May 25, 1964 wherein it denied that it was the owner of the three lots. It revealed that the three lots "belong and are registered in the names of the spouses Francisco N. Cervantes and Rosario N. Cervantes." The three answers of Bormaheco, Inc. contain the following affirmative defense: 13. That defendant's insistence to finally decide on the proposed sale of the land in question after 45 days had not only for its purpose the determination of its acquisition of the said Sta. Ana (Nassco) property during the said period, but also to negotiate with the actual and registered owner of the parcels of land covered by T.C.T. Nos. 43530, 43531 and 43532 in question which plaintiff was fully aware that the same were not in the name of the defendant (sic; Par. 18 of Answer to Amended Complaint, 10, 18 and 34, Record on Appeal).

In that affirmative defense, Bormaheco, Inc. pretended that it needed fortyfive days within which to acquire the Nassco property and "to negotiate" with the registered owner of the three lots. The absurdity of that pretension stands out in bold relief when it is borne in mind that the answers of Bormaheco, Inc. were verified by Cervantes and that the registered owner of the three lots is Cervantes himself. That affirmative defense means that Cervantes as president of Bormaheco, Inc. needed forty-five days in order to "negotiate" with himself (Cervantes). The incongruous stance of the Cervantes spouses is also patent in their answer to the amended complaint. In that answer they disclaimed knowledge or information of certain allegations which were well-known to Cervantes as president of Bormaheco, Inc. and which were admitted in Bormaheco's three answers that were verified by Cervantes. It is significant to note that Bormaheco, Inc. in its three answers, which were verified by Cervantes, never pleaded as an affirmative defense that Mrs. Cervantes opposed the sale of the three lots or that she did not authorize her husband to sell those lots. Likewise, it should be noted that in their separate answer the Cervantes spouses never pleaded as a defense that Mrs. Cervantes was opposed to the sale of three lots or that Cervantes could not bind the conjugal partnership. The appellants were at first hesitant to make it appear that Cervantes had committed the skullduggery of trying to sell property which he had no authority to alienate. It was only during the trial on May 17, 1965 that Cervantes declared on the witness stand that his wife was opposed to the sale of the three lots, a defense which, as already stated, was never interposed in the three answers of Bormaheco, Inc. and in the separate answer of the Cervantes spouses. That same viewpoint was adopted in defendants' motion for reconsideration dated November 20, 1965. But that defense must have been an afterthought or was evolved post litem motam since it was never disclosed in Cervantes' letter of rescission and in his letter to Miss Tagle (Exh. F and Annex 1). Moreover, Mrs. Cervantes did not testify at the trial to fortify that defense which had already been waived for not having been pleaded (See sec. 2, Rule 9, Rules of Court). Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and his wife and the fact that the three lots were entirely occupied by Bormaheco's building, machinery and equipment and were mortgaged to the DBP as security for its obligation, and considering that appellants' vague affirmative defenses do not include Mrs. Cervantes' alleged opposition to the sale, the plea that Cervantes had no authority to sell the lots strains the rivets of credibility (Cf. Papa and Delgado vs. Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21 Phil. 31).

"Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith" (Art. 1159, Civil Code). Inasmuch as the sale was perfected and even partly executed, Bormaheco, Inc., and the Cervantes spouses, as a matter of justice and good faith, are bound to comply with their contractual commitments. Parenthetically, it may be observed that much misunderstanding could have been avoided had the broker and the buyer taken the trouble of making some research in the Registry of Deeds and availing themselves of the services of a competent lawyer in drafting the contract to sell. Bormaheco, Inc. and the Cervantes spouses in their sixth assignment of error assail the trial court's award to Villonco Realty Company of consequential damage amounting to ten thousand pesos monthly from March 24, 1964 (when the Economic Coordinator approved the award of the Nassco property to Bormaheco, Inc.) up to the consummation of the sale. The award was based on paragraph 18 of the stipulation of facts wherein Villonco Realty Company "submits that the delay in the consummation of the sale" has caused it to suffer the aforementioned damages. The appellants contend that statement in the stipulation of facts simply means that Villonco Realty Company speculates that it has suffered damages but it does not mean that the parties have agreed that Villonco Realty Company is entitled to those damages. Appellants' contention is correct. As rightly observed by their counsel, the damages in question were not specifically pleaded and proven and were "clearly conjectural and speculative". However, appellants' view in their seventh assignment of error that the trial court erred in ordering Bormaheco, Inc. to pay Villonco Realty Company the sum of twenty thousand pesos as attorney's fees is not tenable. Under the facts of the case, it is evident that Bormaheco, Inc. acted in gross and evident bad faith in refusing to satisfy the valid and just demand of Villonco Realty Company for specific performance. It compelled Villonco Realty Company to incure expenses to protect its interest. Moreover, this is a case where it is just and equitable that the plaintiff should recover attorney's fees (Art. 2208, Civil Code). The appellants in their eighth assignment of error impugn the trial court's adjudication of forty-two thousand pesos as three percent broker's commission to Miss Tagle. They allege that there is no evidence that Bormaheco, Inc. engaged her services as a broker in the projected sale of the three lots and the improvements thereon. That allegation is refuted by paragraph 3 of the stipulation of facts and by the documentary evidence. It was stipulated that Miss Tagle intervened in the negotiations for the sale of

the three lots. Cervantes in his original offer of February 12, 1964 apprised Villonco Realty Company that the earnest money should be delivered to Miss Tagle, the bearer of the letter-offer. See also Exhibit G and Annex I of the stipulation of facts. We hold that the trial court did not err in adjudging that Bormaheco, Inc. should pay Miss Tagle her three percent commission. WHEREFORE, the trial court's decision is modified as follows: 1. Within ten (10) days from the date the defendants-appellants receive notice from the clerk of the lower court that the records of this case have been received from this Court, the spouses Francisco N. Cervantes and Rosario P. Navarra-Cervantes should execute a deed conveying to Bormaheco, Inc. their three lots covered by Transfer Certificate of Title Nos. 43530, 43531 and 43532 of the Registry of Deeds of Rizal. 2. Within five (5) days from the execution of such deed of conveyance, Bormaheco, Inc. should execute in favor of Villonco Realty Company, V. R. C. Building, 219 Buendia Avenue, Makati, Rizal a registerable deed of sale for the said three lots and all the improvements thereon, free from all lien and encumbrances, at the price of four hundred pesos per square meter, deducting from the total purchase price the sum of P100,000 previously paid by Villonco Realty Company to Bormaheco, Inc. 3. Upon the execution of such deed of sale, Villonco Realty Company is obligated to pay Bormaheco, Inc. the balance of the price in the sum of one million three hundred thousand pesos (P1,300,000). 4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty Company twenty thousand pesos (P20,000) as attorney's fees and (b) to pay Edith Perez de Tagle the sum of forty-two thousand pesos (P42,000) as commission. Costs against the defendants-appellants. SO ORDERED. Makalintal, C.J, Castro. Fernando, Makasiar, Antonio, Esguerra, Muoz Palma, Concepcion Jr. and Martin, JJ., concur. Teehankee, J., is on leave.

Separate Opinions

BARREDO, J., concurring: The comprehensive and well prepared opinion of Mr. Justice Aquino deserves concurrence and I do not hesitate to accord my assent to it. The only purpose of the following lines is to express my personal view regarding two basic points which I feel should be thoroughly emphasized. 1. I am not for giving the letter proposal of appellant Francisco Cervantes to Romeo Villonco of February 12, 1964, Exhibit B, any decisive importance. To my mind, it has no more legal significance than what is appears to be a mere unaccepted proposal. Accordingly, to my mind, paragraph (5) thereof to the effect that "final negotiations on both properties can be definitely known after 45 days" has no relevance in the disposition of this case, there being nothing in the record to show that the same was accepted by appellee. What to me is the actual contract between appellee and appellant Francisco Cervantes is the counter-offer signed by Teofilo Villonco and addressed to the latter of March 4, 1964, Exhibit D, which does not even make any reference to the above-mentioned proposal of Cervantes of February 12, 1964, even as it mentions specifically the letters of the agent, Miss E. Perez de Tagle, of February 12 and 26, 1964. The last paragraph of said Exhibit D reads thus: "If the above terms and conditions are acceptable to you, kindly sign your conformity hereunder. Enclosed is our check for One Hundred Thousand (P100,000) Pesos, M.B.T.C. Cheek No. 448314, as earnest money." And it is undisputed that Francisco Cervantes did affix his signature in the place indicated for his conformity, albeit under the typewritten words, Bormaheco, Inc. It is also a fact that on the same date, the stipulated P100,000 earnest money was received by Cervantes. It is true that in the voucher-receipt evidencing the delivery of the earnest money, the agent, Miss Tagle, indicated in her own handwriting that the same was "subject to the terms and conditions embodied in Bormaheco's letter of February 12, 1974 and Villonco Realty Company's letter of March 4, 1974," but it is my considered opinion that such reservation cannot be understood as comprehending reference to the above-quoted paragraph (5) of the proposal of February 12, for the simple reason that since the parties had in fact continued negotiating after February 12 until the final conference of February 27, Cervantes must be deemed as having intended his signing of his conformity to the letter of March 4 to be the formalization

of the "final negotiations" referred to in said paragraph (5), thereby rendering said provision of no further consequence. It should be noted that, to be sure, as said paragraph (5) was worded, the idea it conveyed was that Cervantes was just making a mere tentative offer which he would finalize only after 45 days, and so, when he signed Villonco's counter-offer of March 4 and accepted the P100,000 earnest money tendered therein, no other significance could be given to such acts than that they were meant to finalize and perfect the transaction in advance of the 45-day waiting period originally proposed by him. Indeed, in the addendum written and signed by Cervantes himself (not by the agent) to the March 4 letter, all that he stated was that "this sale shall be subject to favorable consummation of a property in Sta. Ana we are negotiating", and this was none other than the Nassco property which the Nassco Board authorized its manager on February 18, 1964 to sell to appellants who had won the award the day before. In other words, when Cervantes signed the space for his conformity to the terms of that letter of March 4, he already knew or must have known that the acquisition of the Nassco property was already an impending certainty and must have cared less about what had become an unnecessary waiting period, hence the omission of any mention thereof by him in his addendum. My conclusion, therefore, is that said acts of Cervantes of signing his conformity to Villonco's counter-offer of March 4 and accepting the P100,000 earnest money therein offered resulted in a completely perfected contract of sale between the parties per Article 1482 of the Civil Code, needing only the execution of the corresponding deed of sale for its consummation and subject solely to the negative resolutory condition that the "sale shall be cancelled, only if your (Cervantes') deal with another property in Sta. Ana (indisputably the Nassco transaction) shall not be consummated", without stipulating anymore a period for such consummation, since evidently, with the sale thereof having been authorized already by the Nassco Board on February 18, 1964, the Villoncos must have been made to understand or they did understand that such consummation was inexorably forthcoming. In fact, the Nassco Board already approved on March 3, 1964 not only the award but the actual sale of the property to appellants, and the Economic Coordinator gave his sanction thereto on March 24 following. Thus, as of March 3, one day before Cervantes accepted Villonco's counter-offer, nothing more was left to formalize the transaction with Nassco except that approval of the Economic Coordinator. I cannot believe that Cervantes did not have up-to-date information of the progress of his transactions with Nassco. Actually, from the legal standpoint, he was under obligation, if only in consequence of his offer of February 12 and his continuous conversations and negotiations with the Villoncos up to the signing of their agreement on March 4, to keep constant and close tract thereof in order that he might be able to inform the parties he was dealing with of the real status thereof, the finalization of the same being a material factor in the accomplishment of their common purpose.

Withal, equity would assume that he did what ought to have been done by him in taking ordinary care of his concerns, which he is presumed to have taken, according to Section 5 (d) of rule 131. Under these circumstances, I am amply persuaded that he must have been aware of the favorable actuations of the Nassco authorities all the while that he was dealing with appellee up to March 4, the day after the Nassco Board approved the sale. Accordingly, I hold that when he gave his conformity to the counter-offer of the Villoncos of March 4, he was already fully confident his transaction with Nassco would eventually materialize. What is worse is that assuming that the 45-day period invoked by him could be considered in this discussion, it would be inequitable to allow him to take advantage thereof in the light of the circumstances extant in the record. It cannot be denied that, as already stated, the Economic Coordinator approved the Nassco transaction on March 24, 1964. Anyone would know, and much more so Cervantes who was directly interested therein and must have been anxiously and even excitedly waiting for it, that that was the last requisite for the inevitable execution of the deed of sale in his favor. One has to be very naive and it would be contrary to the ordinary course of human experience and business practices for anyone to concede to appellants that when Cervantes wrote his letter to Villonco Realty Company of March 30, 1964 stating that "despite the lapse of 45 days from February 12, 1964, there is no certainty yet for us to acquire a substitute property", he did not even have the slightest inkling of the favorable action of the Economic Coordinator of March 24. The same or more may be said relative to his letter to Miss Tagle of as late as April 6, 1964 wherein he alleged that the forty-five day period had already expired and the sale to Bormaheco, Inc. of the Punta (Nassco) property had not been consummated as of then and that, therefore, his letter was a "manifestation that we are no longer interested to sell" the Buendia property to the Villoncos. I have no doubt whatsoever that the whole trouble here is that after Cervantes had already signed his conformity and received earnest money on March 4, he had a change of heart, perhaps dictated by reasons of better economic advantage, and banking on the idea, albeit erroneous, that he could utilize paragraph (5) of his letter of February 12 as a escape door through which he could squeeze out of the perfected contract with the Villoncos, he opted to actually back out and break with them thru his letters of March 30 to them and of April 6 to the agent, Miss Tagle. The Court would certainly be sanctioning a deliberate mala fide breach of a contract already definitely perfected were it to buy the theory of non-perfection appellants are lamely pressing on Us. No amount of rationalization can convince me that the Villoncos had agreed to any 45-day suspensive condition for the perfection of the agreement, but even on the remote assumption that they did, I would hold as I do hold that the purchase of the Nassco property by appellants was virtually consummated, from the viewpoint of the spirit and intent of the contract here in question, on March 24, 1964, when the Economic Coordinator approved the same and nothing

else remained to be done to formalize it except the actual execution of the deed of sale which in fact took place on June 26, 1964, hence, Cervantes had no more excuse for further delaying compliance with his agreement with the Villoncos. In other words, for all legal purposes, assuming hypothetically the plausibility of the theory of appellants about a 45-day waiting period, the negative resolutory condition arising from said theory became inoperative four days before said 45 days expired. After the approval of the sale by the Economic Coordinator, there was nothing anymore that could impede the formal conveyance of the Nassco property to appellants, other than their own desistance, and even that might have been legally controversial if Nassco insisted otherwise. Reading all the communications exchanged between the parties, the conclusion therefrom is inevitable that the 45-day period stipulation was inextricably tied up with appellants' being able to acquire the Nassco property. In other words, Cervantes merely wanted to be sure that they would get the Nassco property before proceeding with the sale of the Buendia property. To construe the 45-day stipulation as giving Cervantes the absolute right to disregard the Villoncos entirely until after the 45 days had expired is to render the whole of Cervantes' letter of February 12 as totally meaningless, legally non-existent and as deceitfully farcical. Consequently, the acquisition of the Nassco property having actually eventualized, it cannot lie in the lips of Cervantes to claim that he may not be compelled to proceed with the transaction. To view the situation otherwise is to condone resort to ambiguity as a means of deception and informality in contractual obligations, which in my opinion is contrary to the elementary requirements of candidness and honest dealing between responsible contracting parties, and in that sense offensive to public policy. 2. The contention of appellants that inasmuch as in actual fact the Buendia property contemplated in the contract is the conjugal property of Cervantes spouses and that since in dealing with the Villoncos, Cervantes acted as President of Bormaheco, Inc., the appellee cannot have any right to compel the conveyance to them thereof is in my view definitely puerile. It is predicated on duplicity and smacks of utter bad faith. I do not find in the evidence before Us adequate basis for accepting the suggestion that Francisco Cervantes acted for and in behalf of Bormaheco, Inc. in his dealing with the Villoncos. The mere fact that he signed his letter of February 12, 1964 over the title of President, there being no showing that he was duly authorized to make the offer therein contained in the name of the corporation, did not convert it into a corporate act. The language of the letter which is conspicuously sprinkled with the pronoun I used by Cervantes to refer to himself rather than exclusively the pronoun we does not so indicate. Besides, Cervantes is undisputably the registered owner with his wife of the property therein mentioned, and being evidently conscious, as he ought to have been of this fact, he knew his act would be ultra vires and void, if he were to act for the corporation. He was the manager of the conjugal partnership and he knew it was only in that capacity that he could in good faith give validity to his representation,

assuming the conformity of his wife. Unless Cervantes wants Us to hold that he deliberately negotiated with the Villoncos clothed in dubious garments of authority precisely to afford him the opportunity to repudiate at his convenience any agreement they may enter into with him. I am for holding as I do hold that Bormaheco, Inc. had nothing to do with the transaction here in controversy. In any event, if Cervantes may held to have acted for Bormaheco, Inc., in spite of the absence of evidence of any authority for him to do so, it must be because Bormaheco, Inc. is Cervantes himself, and there being no proof to the contrary, the corporate shield of Bormaheco, Inc. may be deemed pierced in order to prevent any further fraudulent implications in his actuations. Moreover, it may be observed that the March 4 letter of Teofilo Villonco was not addressed to Bormaheco, Inc. but to Francisco Cervantes and it does not even mention his being President of that corporation. Anent the requirement of consent of Mrs. Cervantes under Article 166 of the Civil Code, I consider any defense along this line as unavailing to the appellants in this case. As very ably discussed in the main opinion of Mr. Justice Aquino, the answer of the defendants, make no reference at all to any lack of such consent. And considering that the subsequent testimony of Cervantes to the effect that his wife opposed the transaction cannot cure such omission, if only because any husband in the circumstances revealed in the record is estopped from setting up such a defense (cf Riobo vs. Hontiveros, 21 Phil. 31; Papi vs. Montenegro, 54 Phil. 531; see Civil Law by Reyes & Puno, 1964 ed. p. 192), and that from her silence in her answer in this respect Mrs. Cervantes may either be presumed to have given her consent thereto or to have ratified the same (Montederamos vs. Ynonoy, 56 Phil. 457; Castaeda vs. Samson, 43 Phil. 751), it is obvious that the belated invocation of this defense now should be deemed in fact and in law as an unacceptable and ineffective afterthought. Besides, it appearing that the sale of the Buendia property was purposely to enable the spouses to acquire the Nassco property, I have grave doubts as to the application of Article 166 to the sale here in dispute. I believe that the disposition by a husband prohibited by the Code unless consented to by the wife refers to a transaction outrightly prejudicial to the partnership and cannot comprehend a sale made precisely for its benefit and causing no loss thereto beyond the ordinary risks of misjudgment of a manager acting in good faith. IN VIEW OF THE FOREGOING, I would not even require the formality of the serial execution of instruments by the Cervantes spouses and Bormaheco, Inc. In the view I have taken above, it would be legally feasible for the sale to the Villonco Realty Property to be made directly by the spouses. But I would not insist in the modification of the dispositive portion of the judgment, since the result would be the same anyway. Separate Opinions

BARREDO, J., concurring: The comprehensive and well prepared opinion of Mr. Justice Aquino deserves concurrence and I do not hesitate to accord my assent to it. The only purpose of the following lines is to express my personal view regarding two basic points which I feel should be thoroughly emphasized. 1. I am not for giving the letter proposal of appellant Francisco Cervantes to Romeo Villonco of February 12, 1964, Exhibit B, any decisive importance. To my mind, it has no more legal significance than what is appears to be a mere unaccepted proposal. Accordingly, to my mind, paragraph (5) thereof to the effect that "final negotiations on both properties can be definitely known after 45 days" has no relevance in the disposition of this case, there being nothing in the record to show that the same was accepted by appellee. What to me is the actual contract between appellee and appellant Francisco Cervantes is the counter-offer signed by Teofilo Villonco and addressed to the latter of March 4, 1964, Exhibit D, which does not even make any reference to the above-mentioned proposal of Cervantes of February 12, 1964, even as it mentions specifically the letters of the agent, Miss E. Perez de Tagle, of February 12 and 26, 1964. The last paragraph of said Exhibit D reads thus: "If the above terms and conditions are acceptable to you, kindly sign your conformity hereunder. Enclosed is our check for One Hundred Thousand (P100,000) Pesos, M.B.T.C. Cheek No. 448314, as earnest money." And it is undisputed that Francisco Cervantes did affix his signature in the place indicated for his conformity, albeit under the typewritten words, Bormaheco, Inc. It is also a fact that on the same date, the stipulated P100,000 earnest money was received by Cervantes. It is true that in the voucher-receipt evidencing the delivery of the earnest money, the agent, Miss Tagle, indicated in her own handwriting that the same was "subject to the terms and conditions embodied in Bormaheco's letter of February 12, 1974 and Villonco Realty Company's letter of March 4, 1974," but it is my considered opinion that such reservation cannot be understood as comprehending reference to the above-quoted paragraph (5) of the proposal of February 12, for the simple reason that since the parties had in fact continued negotiating after February 12 until the final conference of February 27, Cervantes must be deemed as having intended his signing of his conformity to the letter of March 4 to be the formalization of the "final negotiations" referred to in said paragraph (5), thereby rendering said provision of no further consequence. It should be noted that, to be sure, as said paragraph (5) was worded, the idea it conveyed was that Cervantes was just making a mere tentative offer which he would finalize only after 45 days, and so, when he signed Villonco's counter-offer of March 4 and accepted the P100,000 earnest money tendered therein, no other significance could be given to such acts than that they were meant to finalize and perfect the transaction in advance of the 45-day waiting period

originally proposed by him. Indeed, in the addendum written and signed by Cervantes himself (not by the agent) to the March 4 letter, all that he stated was that "this sale shall be subject to favorable consummation of a property in Sta. Ana we are negotiating", and this was none other than the Nassco property which the Nassco Board authorized its manager on February 18, 1964 to sell to appellants who had won the award the day before. In other words, when Cervantes signed the space for his conformity to the terms of that letter of March 4, he already knew or must have known that the acquisition of the Nassco property was already an impending certainty and must have cared less about what had become an unnecessary waiting period, hence the omission of any mention thereof by him in his addendum. My conclusion, therefore, is that said acts of Cervantes of signing his conformity to Villonco's counter-offer of March 4 and accepting the P100,000 earnest money therein offered resulted in a completely perfected contract of sale between the parties per Article 1482 of the Civil Code, needing only the execution of the corresponding deed of sale for its consummation and subject solely to the negative resolutory condition that the "sale shall be cancelled, only if your (Cervantes') deal with another property in Sta. Ana (indisputably the Nassco transaction) shall not be consummated", without stipulating anymore a period for such consummation, since evidently, with the sale thereof having been authorized already by the Nassco Board on February 18, 1964, the Villoncos must have been made to understand or they did understand that such consummation was inexorably forthcoming. In fact, the Nassco Board already approved on March 3, 1964 not only the award but the actual sale of the property to appellants, and the Economic Coordinator gave his sanction thereto on March 24 following. Thus, as of March 3, one day before Cervantes accepted Villonco's counter-offer, nothing more was left to formalize the transaction with Nassco except that approval of the Economic Coordinator. I cannot believe that Cervantes did not have up-to-date information of the progress of his transactions with Nassco. Actually, from the legal standpoint, he was under obligation, if only in consequence of his offer of February 12 and his continuous conversations and negotiations with the Villoncos up to the signing of their agreement on March 4, to keep constant and close tract thereof in order that he might be able to inform the parties he was dealing with of the real status thereof, the finalization of the same being a material factor in the accomplishment of their common purpose. Withal, equity would assume that he did what ought to have been done by him in taking ordinary care of his concerns, which he is presumed to have taken, according to Section 5 (d) of rule 131. Under these circumstances, I am amply persuaded that he must have been aware of the favorable actuations of the Nassco authorities all the while that he was dealing with appellee up to March 4, the day after the Nassco Board approved the sale. Accordingly, I hold that when he gave his conformity to the counter-offer of

the Villoncos of March 4, he was already fully confident his transaction with Nassco would eventually materialize. What is worse is that assuming that the 45-day period invoked by him could be considered in this discussion, it would be inequitable to allow him to take advantage thereof in the light of the circumstances extant in the record. It cannot be denied that, as already stated, the Economic Coordinator approved the Nassco transaction on March 24, 1964. Anyone would know, and much more so Cervantes who was directly interested therein and must have been anxiously and even excitedly waiting for it, that that was the last requisite for the inevitable execution of the deed of sale in his favor. One has to be very naive and it would be contrary to the ordinary course of human experience and business practices for anyone to concede to appellants that when Cervantes wrote his letter to Villonco Realty Company of March 30, 1964 stating that "despite the lapse of 45 days from February 12, 1964, there is no certainty yet for us to acquire a substitute property", he did not even have the slightest inkling of the favorable action of the Economic Coordinator of March 24. The same or more may be said relative to his letter to Miss Tagle of as late as April 6, 1964 wherein he alleged that the forty-five day period had already expired and the sale to Bormaheco, Inc. of the Punta (Nassco) property had not been consummated as of then and that, therefore, his letter was a "manifestation that we are no longer interested to sell" the Buendia property to the Villoncos. I have no doubt whatsoever that the whole trouble here is that after Cervantes had already signed his conformity and received earnest money on March 4, he had a change of heart, perhaps dictated by reasons of better economic advantage, and banking on the idea, albeit erroneous, that he could utilize paragraph (5) of his letter of February 12 as a escape door through which he could squeeze out of the perfected contract with the Villoncos, he opted to actually back out and break with them thru his letters of March 30 to them and of April 6 to the agent, Miss Tagle. The Court would certainly be sanctioning a deliberate mala fide breach of a contract already definitely perfected were it to buy the theory of non-perfection appellants are lamely pressing on Us. No amount of rationalization can convince me that the Villoncos had agreed to any 45-day suspensive condition for the perfection of the agreement, but even on the remote assumption that they did, I would hold as I do hold that the purchase of the Nassco property by appellants was virtually consummated, from the viewpoint of the spirit and intent of the contract here in question, on March 24, 1964, when the Economic Coordinator approved the same and nothing else remained to be done to formalize it except the actual execution of the deed of sale which in fact took place on June 26, 1964, hence, Cervantes had no more excuse for further delaying compliance with his agreement with the Villoncos. In other words, for all legal purposes, assuming hypothetically the plausibility of the theory of appellants about a 45-day waiting period, the negative resolutory condition arising from said theory became inoperative four days before said 45 days expired. After the

approval of the sale by the Economic Coordinator, there was nothing anymore that could impede the formal conveyance of the Nassco property to appellants, other than their own desistance, and even that might have been legally controversial if Nassco insisted otherwise. Reading all the communications exchanged between the parties, the conclusion therefrom is inevitable that the 45-day period stipulation was inextricably tied up with appellants' being able to acquire the Nassco property. In other words, Cervantes merely wanted to be sure that they would get the Nassco property before proceeding with the sale of the Buendia property. To construe the 45-day stipulation as giving Cervantes the absolute right to disregard the Villoncos entirely until after the 45 days had expired is to render the whole of Cervantes' letter of February 12 as totally meaningless, legally non-existent and as deceitfully farcical. Consequently, the acquisition of the Nassco property having actually eventualized, it cannot lie in the lips of Cervantes to claim that he may not be compelled to proceed with the transaction. To view the situation otherwise is to condone resort to ambiguity as a means of deception and informality in contractual obligations, which in my opinion is contrary to the elementary requirements of candidness and honest dealing between responsible contracting parties, and in that sense offensive to public policy. 2. The contention of appellants that inasmuch as in actual fact the Buendia property contemplated in the contract is the conjugal property of Cervantes spouses and that since in dealing with the Villoncos, Cervantes acted as President of Bormaheco, Inc., the appellee cannot have any right to compel the conveyance to them thereof is in my view definitely puerile. It is predicated on duplicity and smacks of utter bad faith. I do not find in the evidence before Us adequate basis for accepting the suggestion that Francisco Cervantes acted for and in behalf of Bormaheco, Inc. in his dealing with the Villoncos. The mere fact that he signed his letter of February 12, 1964 over the title of President, there being no showing that he was duly authorized to make the offer therein contained in the name of the corporation, did not convert it into a corporate act. The language of the letter which is conspicuously sprinkled with the pronoun I used by Cervantes to refer to himself rather than exclusively the pronoun we does not so indicate. Besides, Cervantes is undisputably the registered owner with his wife of the property therein mentioned, and being evidently conscious, as he ought to have been of this fact, he knew his act would be ultra vires and void, if he were to act for the corporation. He was the manager of the conjugal partnership and he knew it was only in that capacity that he could in good faith give validity to his representation, assuming the conformity of his wife. Unless Cervantes wants Us to hold that he deliberately negotiated with the Villoncos clothed in dubious garments of authority precisely to afford him the opportunity to repudiate at his convenience any agreement they may enter into with him. I am for holding as I do hold that Bormaheco, Inc. had nothing to do with the transaction here in controversy. In any event, if Cervantes may held to have acted for Bormaheco, Inc., in spite of the absence of evidence of any

authority for him to do so, it must be because Bormaheco, Inc. is Cervantes himself, and there being no proof to the contrary, the corporate shield of Bormaheco, Inc. may be deemed pierced in order to prevent any further fraudulent implications in his actuations. Moreover, it may be observed that the March 4 letter of Teofilo Villonco was not addressed to Bormaheco, Inc. but to Francisco Cervantes and it does not even mention his being President of that corporation. Anent the requirement of consent of Mrs. Cervantes under Article 166 of the Civil Code, I consider any defense along this line as unavailing to the appellants in this case. As very ably discussed in the main opinion of Mr. Justice Aquino, the answer of the defendants, make no reference at all to any lack of such consent. And considering that the subsequent testimony of Cervantes to the effect that his wife opposed the transaction cannot cure such omission, if only because any husband in the circumstances revealed in the record is estopped from setting up such a defense (cf Riobo vs. Hontiveros, 21 Phil. 31; Papi vs. Montenegro, 54 Phil. 531; see Civil Law by Reyes & Puno, 1964 ed. p. 192), and that from her silence in her answer in this respect Mrs. Cervantes may either be presumed to have given her consent thereto or to have ratified the same (Montederamos vs. Ynonoy, 56 Phil. 457; Castaeda vs. Samson, 43 Phil. 751), it is obvious that the belated invocation of this defense now should be deemed in fact and in law as an unacceptable and ineffective afterthought. Besides, it appearing that the sale of the Buendia property was purposely to enable the spouses to acquire the Nassco property, I have grave doubts as to the application of Article 166 to the sale here in dispute. I believe that the disposition by a husband prohibited by the Code unless consented to by the wife refers to a transaction outrightly prejudicial to the partnership and cannot comprehend a sale made precisely for its benefit and causing no loss thereto beyond the ordinary risks of misjudgment of a manager acting in good faith. IN VIEW OF THE FOREGOING, I would not even require the formality of the serial execution of instruments by the Cervantes spouses and Bormaheco, Inc. In the view I have taken above, it would be legally feasible for the sale to the Villonco Realty Property to be made directly by the spouses. But I would not insist in the modification of the dispositive portion of the judgment, since the result would be the same anyway. Footnotes

* Underscoring supplied. Note that, according to the defendants, Cervantes inserted "12th and" between the "February" and "26" in the second line of the foregoing letter, that in paragraph 3 of the terms and conditions he

crossed out "Nassco's" and wrote "another" and that he inserted "pa" after "interest" (p. 7, defendants-appellants' brief). There is no stipulation nor testimony on the alleged insertions. ** "March 31,1964 Mr. Francisco Cervantes President, BORMAHECO, INC. 245 Buendia Avenue Makati, Rizal Dear Mr. Cervantes: As your official and authorized representative on the sale of your property located at 245 Buendia Avenue, Makati, Rizal, with a total area of 3,500 square meters, at P400.00 per square meter or a total purchase cost of P1,400.000.00, in favor of Mr. Romeo Villonco of Villonco Realty Co., I was surprised and shocked at the news of your actions yesterday afternoon when you had a certain Mr. de Guzman bring to Mr. Romeo Villonco, your letter dated March 30th, 1964, together with 2 checks. One for P100.000.00 and another for P694.25 as 10% interest on the same. If you will recall, this deal on selling your property started way back in October 1963 when you ordered me to negotiate for you certain properties to buy in order that you could move to a bigger location than that at 245 Buendia Avenue which was becoming too small for your needs. You also authorized me to negotiate with my BUYERS, one of whom was the Villonco Brothers who owned the adjacent property, on the sale of your property. Plenty of conferences were held between you and me, and also between the Villoncos and me on the said property, specially after your Formal Bidding of the NASSCO PROPERTY, located at Punta. Sta. Ana, was made on January 17, 1964. After this made (sic) was made, you called me and had me offer your property at 245 Buendia Avenue to the

Villoncos. For this you made your formal offer as per your letter dated February 12, 1964. And that after there were many personal conferences made between you and the Villoncos either by phone and also personally at their office in my presence. After your Formal Offer of February 12, 1964, and the subsequent acceptance by the Villoncos of your offer, and the payment of the EARNEST MONEY of P100,000.00 which you accepted on March 4, 1964 and signed CONFORME to the LETTER CONTRACT of the same date, this deal become a close deal as the said Earnest Money becomes a part of the down payment on the property. The only stipulation mentioned in your Contractual Letter of March 4, 1964 which followed your letter of February 12, 1964, was that the said sale becomes ineffective only if the purchase of the property at Sta. Ana is not approved by the NASSCO or the OEC. However, from all my follow up on the matter at the NASSCO and the OEC, it appears that your bid on purchasing the said property at Sta. Ana has been approved by the NASSCO BOARD on March 3, 1964, and subsequently approved by the Office of the Economic Coordinator and signed by Mr. Adevoso on March 25,1964. This, therefore, removes the stipulation on your letter of Feb. 12, 1964 and thus effecting the consummation of this deal. Mr. Romeo Villonco has called me to his office and has returned to me your letter and the checks, as he is not agreeable to a cancellation of this deal with them on the purchase of your property at 245 Buendia Avenue, Makati, Rizal, for the following reasons: (1.) That this deal has been made after a Formal Written Offer from you after several lengthy verbal conferences between you, and which terms have been agreed upon; (2.) That after the Earnest Money had been received by you, I, as your official representative have followed the matter and have kept them informed on the progress of the deal with the NASSCO and the OEC, this being the only stipulation on the consummation of the deal; and as such made it necessary that the Villoncos mortgage several of their properties with the bank to have ready the Cash payment required by you as per your Contractual Letter of March 4, 1964;

(3.) That in all big business firms, the presence of a large amount of spot cash is always not present, thus it was necessary that the Villoncos raised this spot cash which was one of your requirements for this sale; (4.) That the Villoncos have put aside all other projects in favor of this deal, since the same requires a large amount of cash, not only for the payment of the land, but also for the cost of the new building to be erected; (5.) That the stipulation on the letters of February 12, 1964 and March 4, 1964 wherein the approval and consequent purchase of the lot at Sta. Ana, Manila has been removed by the approval of your bid purchase of the property of the NASSCO, at Punta, Sta. Ana which has been approved by the NASSCO BOARD on March 3, 1964 and the OEC on March 25, 1964; For all the above reasons, Mr. Romeo Villonco will not agree to your backing out of this deal or rescinding your Contractual Agreement with them for any other reason whatsoever. Trusting that you will see your way clear in all this, I am Very truly yours, (Sgd.) Edith Perez de Tagle (Typed) EDITH PEREZ DE TAGLE Realtor"

EN BANC

G.R. No. 109125 December 2, 1994 ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, vs. THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents. Antonio M. Albano for petitioners. Umali, Soriano & Associates for private respondent.

VITUG, J.: Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058. The antecedents are recited in good detail by the appellate court thusly: On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in reply to defendant's

Republic of the Philippines SUPREME COURT Manila

letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; that since defendants failed to specify the terms and conditions of the offer to sell and because of information received that defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them. Defendants filed their answer denying the material allegations of the complaint and interposing a special defense of lack of cause of action. After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court. The trial court found that defendants' offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the decision states: WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs summarily dismissing the complaint subject to the aforementioned condition that if the defendants subsequently decide to offer their property for sale for a purchase price of Eleven Million Pesos or lower, then the plaintiffs has the option to purchase the property or of first refusal, otherwise, defendants need not offer the property to the plaintiffs if the purchase price is higher than Eleven Million Pesos. SO ORDERED. Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV No. 21123. In a decision promulgated on

September 21, 1990 (penned by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with modification the lower court's judgment, holding: In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable. WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision gave the plaintiffs-appellants the right of first refusal only if the property is sold for a purchase price of Eleven Million pesos or lower; however, considering the mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos. No pronouncement as to costs. SO ORDERED. The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form and substances" (Annex H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and Development Corporation, subject to the following terms and conditions: 1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of which in full is hereby acknowledged, the VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs, executors, administrators or assigns, the above-described property with all the improvements found therein including all the rights and interest in the said property free from all liens and encumbrances of whatever nature, except the pending ejectment proceeding; 2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his favor and other expenses incidental to the sale of above-described property including capital gains tax and accrued real estate taxes. As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990. On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises. On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs. The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as

modified by the Court of Appeals in CA-G.R. CV No. 21123. On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows: Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly notified in today's consideration of the motion as evidenced by the rubber stamp and signatures upon the copy of the Motion for Execution. The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the Court of Appeals in its decision in CA G.R. CV21123, and elevated to the Supreme Court upon the petition for review and that the same was denied by the highest tribunal in its resolution dated May 6, 1991 in G.R. No. L-97276, had now become final and executory. As a consequence, there was an Entry of Judgment by the Supreme Court as of June 6, 1991, stating that the aforesaid modified decision had already become final and executory. It is the observation of the Court that this property in dispute was the subject of theNotice of Lis Pendens and that the modified decision of this Court promulgated by the Court of Appeals which had become final to the effect that should the defendants decide to offer the property for sale for a price of P11 Million or lower, and considering the mercurial and uncertain forces in our market economy today, the same right of first refusal to herein plaintiffs/appellants in the event that

the subject property is sold for a price in excess of Eleven Million pesos or more. WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer. All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty Corporation, is hereby set aside as having been executed in bad faith. SO ORDERED. On September 22, 1991 respondent Judge issued another order, the dispositive portion of which reads: WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the Deputy Sheriff Ramon Enriquez of this Court to implement said Writ of Execution ordering the defendants among others to comply with the aforesaid Order of this Court within a period of one (1) week from receipt of this Order and for defendants to execute the necessary Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to cancel and set aside the title already issued in favor of Buen Realty Corporation which was previously executed between the latter and defendants and to register the new title in favor of the aforesaid plaintiffs

Ang Yu Asuncion, Keh Tiong and Arthur Go. SO ORDERED. On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was issued. 1 On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without force and effect the above questioned orders of the court a quo. In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs. We affirm the decision of the appellate court. A not too recent development in real estate transactions is the adoption of such arrangements as the right of first refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental precepts that may find some relevance to this discussion. An obligation is a juridical necessity to give, to do or not to do ( Art. 1156, Civil Code). The obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor) subjects. Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above,

the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummationbegins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof. Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. 3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4 An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5 An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a

perfected contract ofoption. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz: Art. 1479. . . . An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. (1451a) 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 Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." (2) If the period has a separate consideration, a contract of "option" is 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 optionerofferor, 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 would require, among other things, 10 a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct. Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. 11 It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 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. 8741058 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. Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Mendoza, JJ., concur. Kapunan, J., took no part.

Feliciano, J., is on leave.

Sps. Natino vs. IAC, 197 SCRA 323; Cronico vs. J.M. Tuason & Co., Inc., 78 SCRA 331). 11 See Article 1315 and 1318, Civil Code; Madrigal & Co. vs. Stevenson & Co., 15 Phil. 38; Salonga vs. Ferrales, 105 SCRA 359).

#Footnotes 1 Rollo, pp. 32-38. 2 Roque vs. Lapuz, 96 SCRA 741; Agustin vs. CA, 186 SCRA 375. 3 See People's Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777. 4 Delta Motor Corporation vs. Genuino, 170 SCRA 29. 5 See Art. 1459; Atkins, Kroll and Co., Inc. vs. Cua Hian Tek, 102 Phil. 948. 6 It is well to note that when the consideration given, for what otherwise would have been an option, partakes the nature in reality of a part payment of the purchase price (termed as "earnest money" and considered as an initial payment thereof), an actual contract of sale is deemed entered into and enforceable as such. 7 Enriquez de la Cavada vs. Diaz, 37 Phil. 982. 8 Atkins, Kroll & Co., Inc., vs. Cua Hian Tek, 102 Phil. 948. 9 Article 1319, Civil Code, provides: Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. (Emphasis supplied.) 10 It is also essential for an option to be binding that valuable consideration distinct from the price should be given (see Montilla vs. Court of Appeals, 161 SCRA 167;

12 Art. 19. 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. 13 The decision referred to reads: In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable. WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision, gave the plaintiffs 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.

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: Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 133638 April 15, 2005 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

PERPETUA VDA. DE APE, Petitioner, vs. THE HONORABLE COURT OF APPEALS and GENOROSA CAWIT VDA. DE LUMAYNO, Respondents. DECISION 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, all surnamed 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

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 his children 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 coowners. 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 of Deeds. 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 decision 22 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 actual

knowledge 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 the private 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 plaintiffsappellants' 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 (RP154 ([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 1623 of 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 illiteracy 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 by Justice 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 redemption period 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 coownership,45 once the property is subdivided and distributed among the coowners, 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 COURT (To Witness) Q that? A Q A Q To the place from where the sun rises, whose share was I do not know what [does] this "north" [mean].

The shares of Cornelia, Loreta, Encarnacion and Adela. How could you determine their own shares? They were residing in their respective assumed portions. 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 A Who is this son-in-law you mentioned? Narciso Ape.

ATTY. CAWIT (Continuing) Q You said that there were stakes to determine the hantalhantal 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.

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, to wit: 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

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 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 They just returned to us without paying the rentals.

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 A Mr. Witness, that receipt is in English, is it not? Yes, sir.

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 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 Q A Yes, sir. Where, in what place was this receipt signed? 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 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

Braulio Lumayno passed away on 14 October 1988 per Notice of Death of (Plaintiff) Braulio Lumayno and Motion for Substitution dated 21 February 1989 filed by counsel, Atty. Alexander J. Cawit; Records, Vol. I, pp. 27-29.
3 4

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-inlaw. 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.

Records, Vol. I, p. 5. Records, Vol. I, p. 3. Records, Vol. I, pp. 8-11. Id., p. 16.

Exhibits "Q," "T," " U," "W," " X," "Y," "Z," "AA," "CC," "DD," "EE," "FF," "GG," "HH," "II," "JJ," "KK," "LL," "TT," "XX," "YY," "ZZ," "AAA," "BBB," "CCC," and "DDD" for respondent.
8 9

Records, Vol. I, pp. 118-120. TSN, 7 March 1990, p. 51. Rollo, p. 47. Supra, note 10, p. 56; Exhibit "D" for respondent. Ibid.

10

11

12

13

Exhibits "NN," "NN-1," "NN-2," "NN-3," "OO," "OO-1," "OO-2," "OO-3," "PP," "PP-1," "PP-2," and "PP-3" for respondent.
14 15

TSN, 24 October 1990, p. 7. Id., p. 8. Id., p. 12. Ibid. Id., pp. 13-14. Id., pp. 14-15.

16

Footnotes
17

Penned by Associate Justice Artemon D. Luna with Associate Justices Godardo A. Jacinto and Roberto A. Barrios, concurring; Rollo, pp. 29-48.
1 2

18

19

Records, Vol. II, pp. 213-214.

20

21

TSN, 27 November 1991. Records, Vol. II, pp. 355-369.

39

G.R. No. 101522, 28 May 1993, 222 SCRA 736. G.R. No. L-38120, 27 June 1988, 162 SCRA 569.

22

40

Article 1350 of the Civil Code reads: "In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor."
23 24

Francisco v. Boiser, G.R. No. 137677, 31 May 2000, 332 SCRA 792, 800.
41

Uy v. Hon. Court of Appeals, G.R. No. 107439, 20 July 1995, 246 SCRA 711.
42

Supra, note 22, pp. 362-363; emphasis in the original. Ibid., p. 370. CA Rollo, p. 93. Rollo, pp. 47-48. Rollo, pp. 45-46.

Felices v. Colegado, G.R. No. L-23374, 30 September 1970, 35 SCRA 173.

43 44

25

Supra., note 40, p. 573.

26

Basa, et al. v. Hon. Adres C. Aguilar, et al., G.R. No. L-30994, 30 September 1982, 117 SCRA 128.
45

27

28

Hernandez v. Hon. Pedro C. Quitain, et al., G.R. No. L-48457, 29 November 1988, 168 SCRA 92, citing Caro v. Court of Appeals, G.R. No. L-46001, 25 March 1982, 113 SCRA 10.
46 47

Rollo, p. 204; citing Limketkai Sons Milling, Inc. v. Court of Appeals, G.R. No. 118509, 29 March 1996, 255 SCRA 626.
29 30

TSN, 24 October 1990, pp. 30-34. TSN, 25 July 1991, pp. 6-7. Records, Vol. II, p. 68.

G.R. No. 70569, 05 April 1988, 160 SCRA 672. Rollo, p. 158. G.R. No. L-15499, 28 February 1962, 4 SCRA 526. Id. at p. 533. G.R. No. L-21812, 29 April 1966, 16 SCRA 775. G.R. No. L-45164, 16 March 1987, 148 SCRA 507. Supra, note 30. G.R. No. 26855, 17 April 1989, 172 SCRA 201. G.R. No. 95256, 28 May 1991, 197 SCRA 606.

48

31

49

32

Caro v. Court of Appeals, G.R. No. L-46001, 25 March 1982, 113 SCRA 10, citing Hernandez v. Andal, et al., 78 Phil. 196 (1947).
50

33

34

Dela Cruz v. Cruz, et al., G.R. No. L-27759, 17 April 1970, 32 SCRA 307.
51

35

Katipunan v. Katipunan, Jr., G.R. No. 132415, 30 January 2002, 375 SCRA 200.
52 53

36

Article 1458 of the Civil Code. G.R. No. 125485, 13 September 2004. Id., pp. 6-7.

37

54

38

55

Cayabyab v. Intermediate Appellate Court, G.R. No. 75120, 28 April 1994, 232 SCRA 1.
56 57

TSN, 3 October 1990, pp. 10-13. Supra, note 56, p. 6.

58

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 134219 June 08, 2005

SPOUSES MARIO AND ELIZABETH TORCUATOR, petitioners, vs. SPOUSES REMEGIO AND GLORIA BERNABE and SPOUSES DIOSDADO and LOURDES SALVADOR,respondents. DECISION TINGA, J.: In the instant Petition ,1 spouses Mario and Elizabeth Torcuator assail the D E C I S I O N2 of the Court of Appeals in C.A.-G.R. CV No. 36427, which affirmed the trial courts dismissal of their complaint for specific performance,3and its Resolution4 which denied their motion for reconsideration. The facts as summarized by the Court of Appeals are as follows: The subject of this action is Lot 17, Block 5 of the Ayala Alabang Village, Muntinlupa, Metro-Manila, with an area of 569 square meters and covered by TCT No. S-79773. The lower court found that the above parcel of land was purchased by the spouses Diosdado and Lourdes Salvador (Salvadors,

for short) from the developers of Ayala Alabang subject, among others, to the following conditions:-"It is part of the condition of buying a lot in Ayala Alabang Village (a) that the lot buyer shall deposit with Ayala Corporation a cash bond (about P17,000.00 for the Salvadors) which shall be refunded to him if he builds a residence thereon within two (2) years of purchase, otherwise the deposit shall be forfeited, (b) architectural plans for any improvement shall be approved by Ayala Corporation, and (c) no lot may be resold by the buyer unless a residential house has been constructed thereon (Ayala Corporation keeps the Torrens Title in their [sic] possession). (p. 5, RTC Decision) Evidences on record further reveal that on December 18, 1980, the Salvadors sold the parcel of land to the spouses Remigio and Gloria Bernabe (Bernabes, for expediency). Given the above restrictions, the Salvadors concomitantly executed a special power of attorney authorizing the Bernabes to construct a residential house on the lot and to transfer the title of the property in their names. The Bernabes, on the other hand, without making any improvement, contracted to sell the parcel of land to the spouses Mario and Elizabeth Torcuator (Torcuators, for brevity) sometime in September of 1986. Then again, confronted by the Ayala Alabang restrictions, the parties agreed to cause the sale between the Salvadors and the Bernabes cancelled (Exhibit "D"), in favor of (a) a new deed of sale from the Salvadors directly to the Torcuators; (b) a new Irrevocable Special Power of Attorney (Exhibit F) executed by the Salvadors to the Torcuators in order for the latter to build a house on the land in question; and (c) an Irrevocable Special Power of Attorney (Exhibit E) from the Salvadors to the Bernabes authorizing the latter to sell, transfer and convey, with power of substitution, the subject lot. The Torcuators thereafter had the plans of their house prepared and offered to pay the Bernabes for the land upon delivery of the sale contract. For one reason or another, the deed of sale was never consummated nor was payment on the said sale ever effected. Subseuqently, the Bernabes sold the subject land to Leonardo Angeles, a brother-in-law (Exh. "7"). The document however is not notarized. As a result, the Torcuators commenced the instant action against the Bernabes and Salvadors for Specific Performance or Rescission with Damages. After trial, the court a quo rendered its decision, the decretal portion reads:--

"From all the foregoing disquisition, especially since the plaintiffs did not suffer any real damage (by January, 1987 they could have purchased another lot in Ayala Alabang, and the architectural plans they commissioned Arch. Selga to prepare could then be used by the plaintiffs), the complaint filed by the plaintiff spouses is dismissed. Since the plaintiff acted with sincerity and without delay in asserting what they believed to be their prerogatives, i.e., without any malice or desire to take advantage of another, the counter-claim interposed by the Bernabes against the Torcuator spouses is similarly dismissed. Makati, Metro-Manila, August 20, 1991.5 The Court of Appeals dismissed the appeal, ruling that the sale between the Bernabes and the Torcuators was tainted with serious irregularities and bad faith. The appellate court agreed with the trial courts conclusion that the parties entered into the contract with the intention of reneging on the stipulation disallowing the sale or transfer of vacant lots in Ayala Alabang Village. It also ruled that the parties deprived the government of taxes when they made it appear that the property was sold directly by the Salvadors to the Torcuators. Since there were actually two sales, i.e., the first sale between the Salvadors and the Bernabes and the second between the Bernabes and Torcuators, taxes should have been paid for both transfers.6 The Court of Appeals denied petitioners motion for reconsideration in its Resolution7 dated June 15, 1998. Petitioners then filed the instant petition, averring that the appellate court erred in dismissing their appeal on the strength of issues which were neither pleaded nor proved. The conditions allegedly imposed by Ayala Corporation on the sale of lots in Ayala Alabang Village were: "(a) that the lot-buyer shall deposit with Ayala Corporation a cash bond (about P17,000.00 for the Salvadors) which shall be refunded to him if he builds a residence thereon within two (2) years of purchase, otherwise the deposit shall be forfeited; (b) architectural plans for any improvement shall be approved by Ayala Corporation; and (c) no lot may be resold by the buyer unless a residential house has been constructed thereon (Ayala Corporation keeps the Torrens title in their (sic) possession.)"8 According to petitioners, the stipulation prohibiting the sale of vacant lots in Ayala Alabang Village, adverted to by the appellate court in its decision as evidence that the sale between the Bernabes and the Torcuators was tainted with serious irregularities, was never presented or offered in evidence by any of the parties. Without such stipulation having been presented, marked and offered in evidence, the trial court and the appellate court should not have considered the same.

The appellate court allegedly also erred in declaring that the contract of sale subject of the case is void, as it was intended to deprive the government of revenue since the matter of taxes was not even mentioned in the appealed decision of the trial court. Further, petitioners assert that the contract was a perfected contract of sale not a mere contract to sell. The trial court thus erred in declaring that the contract was void due only to petitioners failure to deliver the agreed consideration. Likewise, the fact that the contract calls for the payment of the agreed purchase price in United States Dollars does not result in the contract being void. The most that could be demanded, in accordance with jurisprudence, is to pay the obligation in Philippine currency. Petitioners also dispute the trial courts finding that they did not suffer any real damage as a result of the transaction. On the contrary, they claim that respondents refusal to transfer the property caused them actual and moral damages. Respondents filed their Comment/Opposition (To the Petition for Certiorari)9 dated November 4, 1998 countering that petitioners knew of the condition prohibiting the sale of vacant lots in Ayala Alabang Village as the same was annotated on the title of the property which was submitted and adopted by both parties as their evidence. The fact that the agreement required petitioners to construct a house in the name of the Salvadors shows that petitioners themselves knew of the condition and acknowledged its validity. As regards petitioners contention that the Court of Appeals should not have ruled on the matter of taxes due the government, respondents assert that the appellate court has the power to review the entire case to determine the validity of the judgment of the lower court. Thus, it may review even matters which were not raised on appeal. Respondents refer to the circumstances surrounding the transaction as proof that the parties entered into a mere contract to sell and not a contract of sale. Allegedly, the memorandum containing the agreement of the parties merely used the term "offer." The payment of the purchase price was ostensibly a condition sine qua non to the execution of the deed of sale in favor of petitioners, especially since the Bernabes came to the Philippines with the express purpose of selling the property and were leaving for the United States as soon as they were paid. Moreover, petitioners were required to construct a residential house on the property before it could be sold to them in accordance with the condition imposed by Ayala Corporation. Further, respondents maintain that the transaction was not consummated due to the fault of petitioners who failed not only to prepare the necessary

documentation but also to pay the purchase price for the property. They also argue that the special power of attorney executed by the Salvadors in favor of petitioners merely granted the latter the right to construct a residential house on the property in the name of the Salvadors. The original document was not even given to the Torcuators precisely because they have not paid the purchase price. Petitioners filed a Reply10 dated January 20, 1999 in reiteration of their arguments. In the Resolution11 dated February 10, 1999, the parties were required to file their respective memoranda. Accordingly, petitioners filed their Memorandum12 on April 19, 1999. On the other hand, in view of respondents disappearance without notice, the Court resolved to dispense with their memorandum.13 The trial court denied petitioners complaint on three (3) grounds, namely: (1) the alleged nullity of the contract between the parties as it violated Ayala Corporations condition that the construction of a house is a prerequisite to any sale of lots in Ayala Alabang Village; (2) non-payment of the purchase price; and (3) the nullity of the contract as it called for payment in United States Dollars. To these reasons, the Court of Appeals added a fourth basis for denying petitioners appeal and that is the alleged nullity of the agreement because it deprived the government of taxes. An analysis of the facts obtaining in this case leads us to affirm the assailed decisions although from a slightly different but related thrust. Let us begin by characterizing the agreement entered into by the parties, i.e., whether the agreement is a contract to sell as the trial court ruled, or a contract of sale as petitioners insist. The differences between a contract to sell and a contract of sale are wellsettled in jurisprudence. As early as 1951, we held that in a contract of sale, title passes to the buyer upon delivery of the thing sold, while in a contract to sell, ownership is reserved in the seller and is not to pass until the full payment of the purchase price is made. In the first case, nonpayment 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 be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until 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 condition precedent of making payment at the time specified in the contract. 14

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 or the fulfillment of some other conditions either of which is a future and uncertain event the non-happening of which is not a breach, casual or serious, but simply an event that prevents the obligation of the vendor to convey title from acquiring binding force.15 We have carefully examined the agreement between the parties and are far from persuaded that it was a contract of sale. Firstly, the agreement imposed upon petitioners the obligation to fully pay the agreed purchase price for the property. That ownership shall not pass to petitioners until they have fully paid the price is implicit in the agreement. Notably, respondent Remigio Bernabe testified, without objection on the part of petitioners, that he specifically informed petitioners that the transaction should be completed, i.e., that he should receive the full payment for the property, before he left for the United States on October 14, 1986.16 Moreover, the deed of sale would have been issued only upon full payment of the purchase price, among other things. Petitioner Mario Torcuator acknowledged this fact when he testified that the deed of sale and original special power of attorney were only to be delivered upon full payment of the purchase price.17 As correctly observed by the trial court, the Salvadors did not execute a deed of sale in favor of petitioners, and instead executed a special power of attorney authorizing the Bernabes to sell the property on their behalf, in order to afford the latter a measure of protection that would guarantee full payment of the purchase price before any deed of sale in favor of petitioners was executed. Remarkably, the records are bereft of any indication that petitioners ever attempted to tender payment or consign the purchase price as required by law. The Complaint18 filed by petitioners makes no mention at all of a tender of payment or consignation having been made, much less that petitioners are willing and ready to pay the purchase price. Petitioners averments to the effect that they have sufficient funds to pay for the property and have even applied for a telegraphic transfer from their bank account to the Bernabes bank account, uncoupled with actual tender and consignation, are utterly self- serving. The trial court correctly noted that petitioners should have consigned the amount due in court instead of merely sending respondents a letter expressing interest to push through with the transaction. Mere sending of a letter by the vendee expressing the intention to pay without the accompanying payment is not considered a valid tender of payment.

Consignation of the amount due in court is essential in order to extinguish the obligation to pay and oblige the vendor to convey title. 19 On this score, even assuming that the agreement was a contract of sale, respondents may not be compelled to deliver the property and execute the deed of absolute sale. In cases such as the one before us, which involve the performance of an obligation and not merely the exercise of a privilege or right, payment may be effected not by mere tender alone but by both tender and consignation. The rule is different in cases which involve an exercise of a right or privilege, such as in an option contract, legal redemption or sale with right to repurchase, wherein mere tender of payment would be sufficient to preserve the right or privilege. 20 Hence, absent a valid tender of payment and consignation, petitioners are deemed to have failed to discharge their obligation to pay. Secondly, the parties clearly intended the construction of a residential house on the property as another suspensive condition which had to be fulfilled. Ayala Corporation retained title to the property and the Salvador spouses were precluded from selling it unless a residence had been constructed thereon. The Ayala stipulation was a pervasive, albeit unwritten, condition in light of which the transaction in this case was negotiated. The parties undoubtedly understood that they had to contend with the Ayala stipulation which is why they resorted to the execution of a special power of attorney authorizing petitioners to construct a residential building on the property in the name of the Salvadors. Had the agreement been a contract of sale as petitioners would impress upon the Court, the special power of attorney would have been entirely unnecessary as petitioners would have had the right to compel the Salvadors to transfer ownership to them.21 Thirdly, there was neither actual nor constructive delivery of the property to petitioners. Apart from the fact that no public document evidencing the sale was executed, which would have been considered equivalent to delivery, petitioners did not take actual, physical possession of the property. The special power of attorney, which petitioners count on as evidence that they took possession of the property, can by no means be interpreted as delivery or conveyance of ownership over the property. Taken by itself, in fact, the special power of attorney can be interpreted as tied up with any number of property arrangements, such as a contract of lease or a joint venture. That is why respondents, especially the Salvadors, never intended to deliver the title to petitioners and conformably with that they executed only a special power of attorney. Indeed, continuously looming large as an essentiality in their judgment to dispose of their valuable property is the prior or contemporaneous receipt of the commensurate price therefor. This brings us to the application of the Statute of Frauds. Article 1403 of the Civil Code provides:

Art. 1403. The following contracts are unenforceable unless they are ratified: (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (e) An agreement for the leasing for a longer period than one year, or for the sale of real property or an interest therein; .... The term "Statute of Frauds" is descriptive of statutes which require certain classes of contracts, such as agreements for the sale of real property, to be in writing. It does not deprive the parties the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable. 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.22 The written note or memorandum, as contemplated by Article 1403 of the Civil Code, should embody the essentials of the contract.23 In the instant case, petitioners present as written evidence of the agreement the special power of attorney executed in their favor by the Salvadors and the summary of agreement24 allegedly initialed by respondent Remigio Bernabe. These documents do not suffice as notes or memoranda as contemplated by Article 1403 of the Civil Code. The special power of attorney does not contain the essential elements of the purported contract and, more tellingly, does not even refer to any agreement for the sale of the property. In any case, it was rendered virtually inoperable as a consequence of the Salvadors adamant refusal to part with their title to the property. The summary of agreement, on the other hand, is fatally deficient in the fundamentals and ambiguous in the rest of its terms. For one, it does not

mention when the alleged consideration should be paid and transfer of ownership effected. The document does not even refer to a particular property as the object thereof. For another, it is unclear whether the supposed purchase price is P600.00, P590.00 or P570.00/square meter. The other conditions, such as payment of documentary stamp taxes, capital gains tax and other registration expenses, are likewise uncertain. Conformably with Article 140525 of the Civil Code, however, respondents acceptance of the agreement foisted by petitioners on them is deemed to have arisen from their failure to object to the testimony of petitioner Mario Torcuator on the matter26 and their cross-examination of said petitioner thereon.27 Be that as it may, considering our ruling that the agreement was a contract to sell, respondents were not obliged to convey title to the property before the happening of two (2) suspensive conditions, namely: full payment of the purchase price and construction of a residence on the property. They were acting perfectly within their right when they considered the agreement cancelled after unsuccessfully demanding payment from petitioners. That said, the question of whether the transaction violated the Uniform Currency Act, Republic Act No. 529, is already moot. The contract having been cancelled, any resolution regarding the validity of the stipulation requiring payment of the purchase price in foreign currency would not serve any further purpose. Petitioners next insist that the condition requiring the construction of a house on any residential lot located in Ayala Alabang Village before it can be sold was never submitted in evidence and was never testified to by any of the witnesses presented during the trial. Hence, the trial court and the Court of Appeals should not have used this as basis for its denial of petitioners cause. This assertion, however, is completely untrue. While the Formal Offer of Evidence28 of petitioners, respondentsOffer of Exhibits,29 and the Formal Offer of Evidence (On Rebuttal)30 of petitioners make no mention of any stipulation prohibiting the sale of vacant lots in Ayala Alabang Village, respondents maintain that petitioners are fully aware of the prohibition as the conditions imposed by Ayala Corporation on the sale of Ayala Alabang lots are inscribed on the title of the property which was submitted in evidence by both parties. Despite petitioners remonstration that the inscriptions on the title are "hardly legible,"31 we are inclined to give credence to respondents account. It is quite implausible that a lawyer such as petitioner Mario Torcuator would not take the precaution of checking the original title of the property

with the Registry of Deeds to ascertain whether there are annotations therein that would prejudice his position. More importantly, petitioner Mario Torcuator himself testified on the existence of the condition prohibiting the sale of vacant lots in Ayala Alabang Village, viz: ATTY. J. DE DIOS, JR. Q -Mr. witness aside from this summary of agreement which has been marked as Exhibit "J" do you still have a document relating to his transaction between you and the defendant? A -Yes, sir, as I indicated in my earlier testimony there was supposed to be a letter addressed to Ayala Corporation which defendant Salvador should sign in order to request Ayala to deliver to me the TCT covering the lot subject of the transaction. Q -This letter that you are referring to do you still have a copy of that letter? A -Yes, sir. Q -I am showing to you a xerox copy of a letter addressed to Ayala Corporation and signed by Diosdado and Lourdes Salvador, can you please explain to this Court what is the relation of this document with what you are referring to executed by the defendant Diosdado Salvador and Lourdes Salvador addressed to Ayala Corporation? A -This is the letter of Mr. Salvador, sir, signed in my presence.

ATTY. J. DE DIOS, JR. - And which for purpose of identification, your Honor, may we request that this letter addressed to Ayala Corporation and signed by Diosdado Salvador and Lourdes Salvador be marked as Exhibit "K" for the plaintiff, your Honor. COURT - Mark it. ... ATTY. J. DE DIOS, JR. - Mr. Witness, this letter appears to be, does it contain any date? Can you tell this Court why this document does not contain the date? ATTY. A. MAGNO - Incompetent, your Honor, because he was not the one who made that document. COURT - Let him explain. ATTY. MAGNO - Yes, your Honor.

Q -Can you tell the Court where is the original of this document? ATTY. J. DE DIOS, JR. A -All of the original copies of that letter are with the defendant Bernabe, sir. Q -Can you tell the Court how did you come to have a xerox copy of this document? A -Yes, because as soon as the copies of the documents for the transaction were signed by Mrs. Salvador who was then in New York, they were sent by the spouses to the daughter of Mr. Salvador who in turn told me that all the originals are supposed to be delivered to Mr. Bernabe and I was given a xerox copy of the same. - Because, your Honor, there is a requirement by Ayala Corporation that no lot or property may be transferred until there is a complete building or structure built on the lot and so what I was supposed to get only from Mr. Salvador, aside from the deed of absolute sale, is merely a special power of attorney to authorize me to construct my house in the lot and upon completion of the house that is the time that I would be allowed by Ayala Corporation to transfer the property in my name. Therefore, the letter requesting Ayala Corporation to release the title in the name of Mr. Salvador to was deliberately undated because it would be only dated when I completed the house. 32 [Emphasis supplied]

The fact that petitioners agreed to construct a residential house on the property in the name of the Salvadors further proves that they knew that a direct sale to them of a vacant lot would contravene the condition imposed by Ayala Corporation on the original buyers of lots in Ayala Alabang Village. Hence, they agreed on the elaborate plan whereby the Salvador spouses, in whose names the property was registered, would execute a special power of attorney in favor of petitioners authorizing the latter to construct a residential house on the property in the name of the Salvadors. The records even indicate that the documents to effectuate this plan were prepared by petitioner Mario Torcuator himself. In his testimony, for instance, petitioner Mario Torcuator stated that: "[B]ased on our discussion, your Honor, from the P600 per square meter price, we agreed upon, they agreed to give me a rebate of 5% in the form of discount because there was a problem in the documentation which I tried to solve which are the papers in favor of Bernabe missing. I suggested to Mr. Bernabe that we prepare a new set of document which will be signed by Mr. Salvador as the previous owner and because of that I will be getting in effect a 5% discount as my commission."33 This was confirmed by respondent Remigio Bernabe: Q - Now, where there any documents presented to you during that occasion? A - Yes, sir. Q - By whom? A - Mr. Torcuator prepared some documents for me to sign. Q - And do you recall what was that documents? A - Yes, sir. Mr. Torcuator prepared a documents for cancellation of the deed of sale of Mr. Salvador to Remigio Bernabe, and cancellation also of the irrevocable power of attorney of Salvador to Bernabe, and power of attorney of Salvador authorizing Remigio Bernabe to sell the property and power of attorney of Salvador given to Mr. Torcuator.34 Petitioners therefore cannot feign ignorance of the condition imposed by Ayala Corporation.

We do not agree, however, with the trial court and appellate courts ruling that the transaction between the parties was void for being contrary to good customs and morals.35 In order to declare the agreement void for being contrary to good customs and morals, it must first be shown that the object, cause or purpose thereof contravenes the generally accepted principles of morality which have received some kind of social and practical confirmation.36 We are not inclined to rule that the transaction in this case offended good customs and morals. It should be emphasized that the proscription imposed by Ayala Corporation was on the resale of the property without a residential house having been constructed thereon. The condition did not require that the original lot buyer should himself construct a residential house on the property, only that the original buyer may not resell a vacant lot. In view of our finding that the agreement between the parties was a mere contract to sell, no violation of the condition may be inferred from the transaction as no transfer of ownership was made. In fact, the agreement in this case that petitioners will construct a residential house on the property in the name of the Salvadors (who retained ownership of the property until the fulfillment of the twin conditions of payment and construction of a residence) was actually in compliance with or obeisance to the condition. Finally, the issue of whether the agreement violated the law as it deprived the government of capital gains tax is wholly irrelevant. Capital gains taxes, after all, are only imposed on gains presumed to have been realized from sales, exchanges or dispositions of property. Having declared that the contract to sell in this case was aborted by petitioners failure to comply with the twin suspensive conditions of full payment and construction of a residence, the obligation to pay taxes never arose. Hence, any error the appellate court may have committed when it passed upon the issue of taxes despite the fact that no evidence on the matter was pleaded, adduced or proved is rather innocuous and does not warrant reversal of the decisions under review. WHEREFORE, the instant petition is DENIED. Costs against petitioners. SO ORDERED. Austria-Martinez, (Acting Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur. Puno, (Chairman), on official leave.

Footnotes
1

16

TSN, June 22, 1989, pp. 24-26. TSN, November 8, 1988, p. 81. RTC Records, pp. 1-5.

Rollo, pp. 13-42; Dated August 6, 1998.

17

Id. at 44-49. The Decision dated January 30, 1998 was penned by Associate Justice Conrado M. Vasquez, Jr. and concurred in by Associate Justices Fermin A. Martin, Jr. and Artemio G. Tuquero.
2

18

Decision, dated August 20, 1991 penned by Judge Salvador P. De Guzman, Jr., Regional Trial Court, Branch 142, Makati, Metro Manila; id. at 53-61.
3 4

San Lorenzo Development Corporation v. Court of Appeals, G.R. No. 124242, January 21, 2005 citingVda. De Zulueta, et al. v. Octaviano, 205 Phil. 247 (1983).
19 20

Adelfa Properties, Inc. v. Court of Appeals, 310 Phil. 623 (1995). Supra note 15.

Id. at 51; Dated June 15, 1998. Id. at 44-46. Id. at 44-49. Supra, note 4.

21

Rosencor Development Corporation v. Inquing, G.R. No. 140479, March 8, 2001, 354 SCRA 119.
22 23

Paredes v. Espino, 131 Phil. 94 (1968). RTC Records, pp. 73 and 147.

24

CA Records, pp. 36-37. Brief for the Appellants dated August 27, 1992.
8 9

Rollo, pp. 70-83. Id. at 85-99.

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them.
25 26

10

TSN, November 8, 1988, pp. 11-12. TSN, November 8, 1988, pp. 38-103. RTC Records, pp. 141-148. Id. at 167-168. Id. at 183-185. Rollo, p. 119. TSN, November 8, 1988, pp. 24-36. TSN, November 6, 1987, pp. 42-43.

11

Id. at 104.
27

12

Id. at 105-169.
28

13

Id. at 209.
29

Philippine National Bank v. Court of Appeals, 330 Phil. 1048 (1996), citing Bowe v. Court of Appeals 220 SCRA 158 (1993), Lim v. Court of Appeals, 182 SCRA 564 (1990) and Sing Yee v. Santos, 47 O.G. 6372 (1951). See also San Lorenzo Development Corporation v. Court of Appeals, G.R. No. 124242, January 21, 2005.
14 15

30

31

32

Ibid citing Jacinto v. Kaparaz, 209 SCRA 246 (1992).

33

34

TSN, June 22, 1989, pp. 14-16.

G.R. No. L-11827

July 31, 1961

Civil Code, Art. 1409. The following contracts are inexistent and void from the beginning:
35

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy. Cui v. Arellano University, No. L-15127, 112 Phil. 135 (1961) citing Manresa. See also Philippine American General Insurance Company, Inc. v. Mutuc, No. L-19632, November 13, 1974, 61 SCRA 22.
36

FERNANDO A. GAITE, plaintiff-appellee, vs. ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants. Alejo Mabanag for plaintiff-appellee. Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendantsappellants. REYES, J.B.L., J.: This appeal comes to us directly from the Court of First Instance because the claims involved aggregate more than P200,000.00. Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the municipality of Jose Panganiban, 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 any individual or juridical person for the exploration and development of the mining claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on Appeal, pp. 17-19) conveying the development and exploitation of said mining claims into the Larap Iron Mines, a single proprietorship owned solely by and belonging to him, on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of the mining claims in question, opening and paving roads within and outside their boundaries, making other improvements and installing facilities therein for use in the development of the mines, and in time extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron 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. As a 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 the royalties that Fonacier would receive from the mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside said

Republic of the Philippines SUPREME COURT Manila EN BANC

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, Gaite transferred to Fonacier all his rights and interests over the "24,000 tons of iron ore, more or less" that the former had already extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of 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 first letter of credit covering the first shipment of iron ores and of the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in interests. To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its stockholders George Krakower, 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 "Revocation of 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 of the P65,000.00 balance of their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, 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 the surety 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 surety company would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation of Power 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 and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question, together with the improvements therein and the use of the name "Larap Iron Mines" and its good will, in consideration of certain royalties. Fonacier likewise transferred, 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 its stockholders 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 and Insurance 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 Fonacier and his sureties payment of said amount, on the theory that they had lost right to make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the ore, consequential damages, and attorney's fees. All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first letter of credit covering the first shipment of iron ore and/or the first amount derived from the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and that consequently, the obligation was not yet due and demandable. Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron 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 and demandable when the defendants failed to renew the surety bond underwritten by the Far Eastern Surety and Insurance 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 in existence in the mining claims when these parties executed the "Revocation of Power of Attorney and Contract", Exhibit "A." On the first question, the lower court held that the obligation of the defendants to pay plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected within one year or before December 8, 1955; that the giving of security was a condition precedent to Gait's giving of credit to defendants; and that as 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 the New Civil Code. As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000 tons of iron ore 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 and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus costs. From this judgment, defendants jointly appealed to this Court. During the pendency of this appeal, several incidental motions were presented for resolution: a motion to declare 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/or to take judicial notice of certain documents, filed by appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein that the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly is "property in litigation", has not been substantiated; and even if true, does not make these appellants guilty of contempt, because what is under litigation in this appeal is appellee Gaite's right to the payment of the balance of the price of the ore, and not the iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary to resolve these motions in view of the results 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 a suspensive 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 sold by 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 and interests over the 24,000 tons of iron ore, more or less, above-referred to together with all his rights and interests 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 first letter of credit covering the first shipment of iron ore made by the Larap Mines & Smelting Co., Inc., its assigns, 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 a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. That the parties to the contract Exhibit "A" did not intend any such state of things to prevail is supported 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 iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence 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 a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price),but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by a surety company; and the fact that appellants did put up such bonds indicates that

they admitted the definite existence 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 a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone 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 a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the rules of interpretation would incline the scales in favor of "the greater reciprocity of interests", since sale is essentially onerous. 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 actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were viewed as nonexistent 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 an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the agreed 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 have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as creditor for the

unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the 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, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory. Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities 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 full knowledge that on its face it would automatically expire within one year was a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain barely; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier 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 the appellant debtors had impaired the securities originally given and thereby forfeited any further time within which to pay; or because the term of payment was originally of no more than one year, and the balance of P65,000.00 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 in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had been a short-delivery as claimed by appellants, they are entitled to the payment of damages, we must, at the outset, stress two things: 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 estimate by the parties of the total tonnage weight of the mass; and second, that the evidence shows that neither of the parties 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 per ton 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 their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by the parties based upon any such measurement.(see Art. 1480, second par., New Civil Code). The subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than 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 not deliver 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, but approximately 24,000 tons of ore, so that any substantial difference in this quantity delivered would entitle the buyers to recover damages for the short-delivery, was there really a shortdelivery in this case? We think not. As already stated, neither of the parties had actually measured or weighed the whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims only upon an estimated 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 to Fonacier, while appellants contend that by actual measurement, their witness Cirpriano Manlagit found the total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic meter, the parties are again in disagreement, with appellants claiming the correct tonnage factor to be 2.18 tons 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 in this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a government pensionado to the States and a mining engineering graduate of the Universities of Nevada and California, with almost 22 years of experience in the Bureau of Mines. This witness placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to the average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau of Mines 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's witness Cipriano Manlagit is correct, if we multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the mass was practically impossible, so that a reasonable percentage of error should be allowed anyone making an estimate of the exact quantity in tons found in the mass. It must not be forgotten that the contract Exhibit "A" expressly stated the amount to be 24,000 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 total quantity of ore in the stockpiles of the mining claims in question, as charged by appellants, since Gaite's estimate appears to be substantially correct. WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs against appellants. Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Dizon, De Leon and Natividad, JJ., concur.

Republic of the Philippines SUPREME COURT Manila

FIRST DIVISION G.R. No. 165420 June 30, 2005

Thereafter, Antonio requested Natividad to vacate the premises but the latter refused and claimed that Concepcion owned the property. Antonio thus filed an ejectment suit on April 1, 1999. Concepcion, represented by Natividad, also filed on May 4, 1999 a civil case for partition of real property and annulment of titles with damages. Antonio claimed that his wife, Eugenia, admitted that Concepcion offered to buy one third (1/3) of the property who gave her small amounts over several years which totaled P100,000.00 by 1987 and for which she signed a receipt. On January 9, 2001, the Regional Trial Court of Quezon City, Branch 85, rendered judgment4 in favor of Concepcion, the dispositive portion of which states: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants and ordering: 1. the subdivision of the subject property between the said plaintiff and defendants in equal shares with one-half of the property, including the portion occupied by the spouses Severino and Natividad Tuliao to be awarded to the plaintiff; 2. the cancellation of Transfer Certificates of Title Nos. N-155122, N-155123, N-155124 of the Registry of Deeds of Quezon City; 3. the defendants to pay to the plaintiff P50,000.00 as attorneys fees. SO ORDERED.5 The trial court upheld the sale between Eugenia and Concepcion. It ruled that the sale was consummated when both contracting parties complied with their respective obligations. Eugenia transferred possession by delivering the property to Concepcion who in turn paid the purchase price. It also declared that the transfer of the property did not violate the Statute of Frauds because a fully executed contract does not fall within its coverage. On appeal by the respondents, the Court of Appeals reversed the decision of the trial court, and declared the sale null and void. Applying Article 124 of the Family Code, the Court of Appeals ruled that since the subject property is conjugal, the written consent of Antonio must be obtained for the sale to be valid. It also ordered the spouses Padua to return the amount of P100,000.00 to petitioners plus interest.6

CONCEPCION R. AINZA, substituted by her legal heirs, DR. NATIVIDAD A. TULIAO, CORAZON A. JALECO and LILIA A. OLAYON, petitioners, vs. SPOUSES ANTONIO PADUA and EUGENIA PADUA, respondents. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari assails the February 24, 2004 decision of the Court of Appeals in CA-G.R. CV No. 70239,1 and its September 28, 2004 resolution, denying reconsideration thereof. 2 In her complaint for partition of real property, annulment of titles with damages,3 Concepcion Ainza (Concepcion) alleged that respondent-spouses Eugenia (Eugenia) and Antonio Padua (Antonio) owned a 216.40 sq. m. lot with an unfinished residential house located at No. 85-A Durian corner Pajo Sts., Barangay Quirino 2-C, Project 2, Quezon City, covered by Transfer Certificate of Title No. 271935. Sometime in April 1987, she bought one-half of an undivided portion of the property from her daughter, Eugenia and the latters husband, Antonio, for One Hundred Thousand Pesos (P100,000.00). No Deed of Absolute Sale was executed to evidence the transaction, but cash payment was received by the respondents, and ownership was transferred to Concepcion through physical delivery to her attorney-in-fact and daughter, Natividad Tuliao (Natividad). Concepcion authorized Natividad and the latters husband, Ceferino Tuliao (Ceferino) to occupy the premises, and make improvements on the unfinished building. Thereafter, Concepcion alleged that without her consent, respondents caused the subdivision of the property into three portions and registered it in their names under TCT Nos. N-155122, N-155123 and N-155124 in violation of the restrictions annotated at the back of the title. On the other hand, Antonio averred that he bought the property in 1980 and introduced improvements thereon. Between 1989 and 1990, he and his wife, Eugenia, allowed Natividad and Ceferino to occupy the premises temporarily. In 1994, they caused the subdivision of the property and three (3) separate titles were issued.

The sole issue for resolution in this petition for review is whether there was a valid contract of sale between Eugenia and Concepcion. A contract of sale is perfected by mere consent, upon a meeting of the minds on the offer and the acceptance thereof based on subject matter, price and terms of payment.7 In this case, there was a perfected contract of sale between Eugenia and Concepcion. The records show that Eugenia offered to sell a portion of the property to Concepcion, who accepted the offer and agreed to pay P100,000.00 as consideration. The contract of sale was consummated when both parties fully complied with their respective obligations. Eugenia delivered the property to Concepcion, who in turn, paid Eugenia the price of One Hundred Thousand Pesos (P100,000.00), as evidenced by the receipt which reads: RECEIPT Received the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00) as payment for the lot on 85-A Durian St., Project 2, Quezon City, from Mrs. Concepcion R. Ainza, on April, 1987. _______(Sgd.)______ Mrs.. Eugenia A. Padua8 The verbal contract of sale between Eugenia and Concepcion did not violate the provisions of the Statute of Frauds that a contract for the sale of real property shall be unenforceable unless the contract or some note or memorandum of the sale is in writing and subscribed by the party charged or his agent.9 When a verbal contract has been completed, executed or partially consummated, as in this case, its enforceability will not be barred by the Statute of Frauds, which applies only to an executory agreement.10 Thus, where one party has performed his obligation, oral evidence will be admitted to prove the agreement. 11 In the instant case, the oral contract of sale between Eugenia and Concepcion was evidenced by a receipt signed by Eugenia. Antonio also stated that his wife admitted to him that she sold the property to Concepcion. It is undisputed that the subject property was conjugal and sold by Eugenia in April 1987 or prior to the effectivity of the Family Code on August 3, 1988, Article 254 of which repealed Title V, Book I of the Civil Code provisions on the property relations between husband and wife. However,

Article 256 thereof limited its retroactive effect only to cases where it would not prejudice or impair vested or acquired rights in accordance with the Civil Code or other laws. In the case at bar, vested rights of Concepcion will be impaired or prejudiced by the application of the Family Code; hence, the provisions of the Civil Code should be applied. In Felipe v. Heirs of Aldon, et al.,12 the legal effect of a sale of conjugal properties by the wife without the consent of the husband was clarified, to wit: The legal ground which deserves attention is the legal effect of a sale of lands belonging to the conjugal partnership made by the wife without the consent of the husband. It is useful at this point to re-state some elementary rules: The husband is the administrator of the conjugal partnership. (Art. 165, Civil Code) Subject to certain exceptions, the husband cannot alienate or encumber any real property of the conjugal partnership without the wifes consent. (Art. 166, Idem.) And the wife cannot bind the conjugal partnership without the husbands consent, except in cases provided by law. (Art. 172, Idem.). In the instant case, Gimena, the wife, sold lands belonging to the conjugal partnership without the consent of the husband and the sale is not covered by the phrase "except in cases provided by law." The Court of Appeals described the sale as "invalid" a term which is imprecise when used in relation to contracts because the Civil Code uses specific names in designating defective contracts, namely: rescissible (Arts. 1380 et seq.), voidable(Arts. 1390 et seq.), unenforceable (Arts. 1403, et seq.), and void or inexistent (Arts. 1409 et seq.).1awphi1.zw+ The sale made by Gimena is certainly a defective contract but of what category? The answer: it is a voidable contract. According to Art. 1390 of the Civil Code, among the voidable contracts are "[T]hose where one of the parties is incapable of giving consent to the contract." (Par. 1.) In the instant case Gimena had no capacity to give consent to the contract of sale. The capacity to give consent belonged not even to the husband alone but to both spouses. The view that the contract made by Gimena is a voidable contract is supported by the legal provision that contracts entered by the husband without the consent of the wife when such consent is required, are annullable at her instance during the marriage and within ten years from the transaction questioned. (Art. 173, Civil Code).

Gimenas contract is not rescissible for in such a contract all the essential elements are untainted but Gimenas consent was tainted. Neither can the contract be classified as unenforceable because it does not fit any of those described in Art. 1403 of the Civil Code. And finally, the contract cannot be void or inexistent because it is not one of those mentioned in Art. 1409 of the Civil Code. By process of elimination, it must perforce be a voidable contract. The voidable contract of Gimena was subject to annulment by her husband only during the marriage because he was the victim who had an interest in the contract. Gimena, who was the party responsible for the defect, could not ask for its annulment. Their children could not likewise seek the annulment of the contract while the marriage subsisted because they merely had an inchoate right to the lands sold. (Emphasis supplied) The consent of both Eugenia and Antonio is necessary for the sale of the conjugal property to be valid. Antonios consent cannot be presumed.13 Except for the self-serving testimony of petitioner Natividad, there is no evidence that Antonio participated or consented to the sale of the conjugal property. Eugenia alone is incapable of giving consent to the contract. Therefore, in the absence of Antonios consent, the disposition made by Eugenia is voidable.14 The contract of sale between Eugenia and Concepcion being an oral contract, the action to annul the same must be commenced within six years from the time the right of action accrued.15 Eugenia sold the property in April 1987 hence Antonio should have asked the courts to annul the sale on or before April 1993. No action was commenced by Antonio to annul the sale, hence his right to seek its annulment was extinguished by prescription. Even assuming that the ten (10)-year prescriptive period under Art. 173 should apply, Antonio is still barred from instituting an action to annul the sale because since April 1987, more than ten (10) years had already lapsed without any such action being filed. In sum, the sale of the conjugal property by Eugenia without the consent of her husband is voidable. It is binding unless annulled. Antonio failed to exercise his right to ask for the annulment within the prescribed period, hence, he is now barred from questioning the validity of the sale between his wife and Concepcion. WHEREFORE, the petition is GRANTED. The decision dated February 24, 2004 of the Court of Appeals in CA-G.R. CV No. 70239 and its resolution dated September 28, 2004 are REVERSED and SET ASIDE. The decision dated January 9, 2001 of the Regional Trial Court of Quezon City, Branch 85, in Civil Case No. Q-99-37529, is REINSTATED.

SO ORDERED. Davide, Jr., C.J. (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur.

Footnotes Rollo, pp. 30-39; penned by Associate Justice Andres B. Reyes, Jr., with Associate Justices Buenaventura J. Guerrero and Regalado E. Maambong, concurring.
1 2

Rollo, p. 40. Id. at 44-51. Id. at 72-78. Penned by Judge Pedro M. Areola. Id. at 78. Id. at 39.

Alcantara-Daus v. De Leon, G.R. No. 149750, 16 June 2003, 404 SCRA 74, 79.
7 8

CA Rollo, p. 51.

Alfredo v. Borras, G.R. No. 144225, 17 June 2003, 404 SCRA 145, 158.
9

Cordial v. Miranda, G.R. No. 135495, 14 December 2000, 348 SCRA 158, 160.
10 11

Id. at 171. 205 Phil. 537, 541-542 (1983). Gavieres v. Administrators of Pea, 13 Phil. 449, 454 (1909). Art. 1390, par. 1, Civil Code.

12

13

14

15

Article 1145, Civil Code.

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (P1.1 million), Philippine currency, the receipt whereof is hereby acknowledged from [RESPONDENT] to the entire satisfaction of [PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a manner absolute and irrevocable, unto said [RESPONDENT], his heirs and assigns that certain real estate together with the buildings and other improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the following terms and conditions: 1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN THOUSAND FIVE HUNDRED (P415,000), [petitioner] shall execute and sign a deed of assumption of mortgage in favor of [respondent] without any further cost whatsoever; 2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED EIGHTY FOUR THOUSAND FIVE HUNDRED PESOS (P684,500) with REAL SAVINGS AND LOAN,4 Cainta, Rizal (emphasis supplied) xxx xxx xxx

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 170405 February 2, 2010

Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner, on the other hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and authorizing it to accept payment from respondent and release the certificates of title. Thereafter, respondent undertook repairs and made improvements on the properties.5 Respondent likewise informed RSLAI of her agreement with petitioner for her to assume petitioners outstanding loan. RSLAI required her to undergo credit investigation. Subsequently, respondent learned that petitioner again sold the same properties to one Leona Viloria after March 10, 1993 and changed the locks, rendering the keys he gave her useless. Respondent thus proceeded to RSLAI to inquire about the credit investigation. However, she was informed that petitioner had already paid the amount due and had taken back the certificates of title. Respondent persistently contacted petitioner but her efforts proved futile. On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity of the second sale and damages 6 against petitioner and Viloria in the Regional Trial Court (RTC) of Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the properties to her

RAYMUNDO S. DE LEON, Petitioner, vs. BENITA T. ONG.1 Respondent. DECISION CORONA, J.: On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and respondent executed a notarized deed of absolute sale with assumption of mortgage3 stating: xxx xxx xxx

on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus, petitioner fraudulently deprived her of the properties. Petitioner, on the other hand, insisted that respondent did not have a cause of action against him and consequently prayed for the dismissal of the complaint. He claimed that since the transaction was subject to a condition (i.e., that RSLAI approve the assumption of mortgage), they only entered into a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI, the condition did not arise. Consequently, the sale was not perfected and he could freely dispose of the properties. Furthermore, he made a counter-claim for damages as respondent filed the complaint allegedly with gross and evident bad faith. Because respondent was a licensed real estate broker, the RTC concluded that she knew that the validity of the sale was subject to a condition. The perfection of a contract of sale depended on RSLAIs approval of the assumption of mortgage. Since RSLAI did not allow respondent to assume petitioners obligation, the RTC held that the sale was never perfected. In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of action and ordered respondent to pay petitioner P100,000 moral damages, P20,000 attorneys fees and the cost of suit. Aggrieved, respondent appealed to the Court of Appeals (CA),8 asserting that the court a quo erred in dismissing the complaint. The CA found that the March 10, 2003 contract executed by the parties did not impose any condition on the sale and held that the parties entered into a contract of sale. Consequently, because petitioner no longer owned the properties when he sold them to Viloria, it declared the second sale void. Moreover, it found petitioner liable for moral and exemplary damages for fraudulently depriving respondent of the properties. In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and nullified the sale to Viloria. It likewise ordered respondent to reimburse petitioner P715,250 (or the amount he paid to RSLAI). Petitioner, on the other hand, was ordered to deliver the certificates of titles to respondent and pay her P50,000 moral damages andP15,000 exemplary damages. Petitioner moved for reconsideration but it was denied in a resolution dated November 11, 2005.10 Hence, this petition,11 with the sole issue being whether the parties entered into a contract of sale or a contract to sell. Petitioner insists that he entered into a contract to sell since the validity of the transaction was subject to a suspensive condition, that is , the approval by RSLAI of respondents assumption of mortgage. Because RSLAI did not

allow respondent to assume his (petitioners) obligation, the condition never materialized. Consequently, there was no sale. Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner already conveyed full ownership of the subject properties upon the execution of the deed. We modify the decision of the CA. Contract of Sale or Contract to Sell? The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled that it was a contract to sell while the CA held that it was a contract of sale. In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. Should the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or have the contract judicially resolved and set aside. The nonpayment of the price is therefore a negative resolutory condition. 12 On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the payment thereof, the seller can only sue for damages. 13 The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to respondent "in a manner absolute and irrevocable" for a sum of P1.1 million.14 With regard to the manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the execution of the deed, with the balance 15payable directly to RSLAI (on behalf of petitioner) within a reasonable time. 16 Nothing in said instrument implied that petitioner reserved ownership of the properties until the full payment of the purchase price.17 On the contrary, the terms and conditions of the deed only affected the manner of payment, not the immediate transfer of ownership (upon the execution of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said terms and conditions pertained to the performance of the contract, not the perfection thereof nor the transfer of ownership. Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to the buyer. 18In this regard, Article 1498 of the Civil Code19 provides that, as a rule, the execution of a notarized deed of sale is equivalent to the delivery of a thing sold.

In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent. Moreover, not only did petitioner turn over the keys to the properties to respondent, he also authorized RSLAI to receive payment from respondent and release his certificates of title to her. The totality of petitioners acts clearly indicates that he had unqualifiedly delivered and transferred ownership of the properties to respondent. Clearly, it was a contract of sale the parties entered into. Furthermore, even assuming arguendo that the agreement of the parties was subject to the condition that RSLAI had to approve the assumption of mortgage, the said condition was considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation and taking back the certificates of title without even notifying respondent. In this connection, Article 1186 of the Civil Code provides: Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Void Sale Or Double Sale? Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two separate occasions.20 However, the second sale was not void for the sole reason that petitioner had previously sold the same properties to respondent. On this account, the CA erred. This case involves a double sale as the disputed properties were sold validly on two separate occasions by the same seller to the two different buyers in good faith. Article 1544 of the Civil Code provides: Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (emphasis supplied)

This provision clearly states that the rules on double or multiple sales apply only to purchasers in good faith. Needless to say, it disqualifies any purchaser in bad faith. A purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or an interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of some other persons claim or interest in the property.21 The law requires, on the part of the buyer, lack of notice of a defect in the title of the seller and payment in full of the fair price at the time of the sale or prior to having notice of any defect in the sellers title. Was respondent a purchaser in good faith? Yes. Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI. According to her agreement with petitioner, respondent had the obligation to assume the balance of petitioners outstanding obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and of her assumption of petitioners obligation. However, because petitioner surreptitiously paid his outstanding obligation and took back her certificates of title, petitioner himself rendered respondents obligation to assume petitioners indebtedness to RSLAI impossible to perform. Article 1266 of the Civil Code provides: Article 1266. The debtor in obligations to do shall be released when the prestation become legally or physically impossible without the fault of the obligor. Since respondents obligation to assume petitioners outstanding balance with RSLAI became impossible without her fault, she was released from the said obligation. Moreover, because petitioner himself willfully prevented the condition vis--vis the payment of the remainder of the purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil Code. For purposes, therefore, of determining whether respondent was a purchaser in good faith, she is deemed to have fully complied with the condition of the payment of the remainder of the purchase price. Respondent was not aware of any interest in or a claim on the properties other than the mortgage to RSLAI which she undertook to assume. Moreover, Viloria bought the properties from petitioner after the latter sold them to respondent. Respondent was therefore a purchaser in good faith. Hence, the rules on double sale are applicable.

Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with the registrar of deeds, the one who took prior possession of the properties shall be the lawful owner thereof. In this instance, petitioner delivered the properties to respondent when he executed the notarized deed22 and handed over to respondent the keys to the properties. For this reason, respondent took actual possession and exercised control thereof by making repairs and improvements thereon. Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became the lawful owner of the properties. Nonetheless, while the condition as to the payment of the balance of the purchase price was deemed fulfilled, respondents obligation to pay it subsisted. Otherwise, she would be unjustly enriched at the expense of petitioner. Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This is because the provisions, terms and conditions of the contract constitute the law between the parties. Moreover, the deed itself provided that the assumption of mortgage "was without any further cost whatsoever." Petitioner, on the other hand, must deliver the certificates of title to respondent. We likewise affirm the award of damages. WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as respondent Benita T. Ong is ordered to pay petitioner Raymundo de Leon P684,500 representing the balance of the purchase price as provided in their March 10, 1993 agreement. Costs against petitioner. SO ORDERED. RENATO C. CORONA Associate Justice Chairperson WE CONCUR:

ANTONIO EDUARDO B. NACHURA Associate Justice

DIOSDADO M. PERALTA Associate Justice

ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Associate Justice Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes
*

Per Special Order No. 818 dated January 18, 2010.

The Court of Appeals was impleaded as respondent but was excluded pursuant to Section 4, Rule 45 of the Rules of Court.
1

Covered by TCT Nos. 226469, 226470 and 226471 registered in the name of petitioner.
2

ANTONIO T. CARPIO Associate Justice

PRESBITERO J. VELASCO, JR. Associate Justice

Rollo, pp. 55-56. There is a marked discrepancy between the total amount and the sum of the payments to be made by respondent (or P1,099,500).
3

The records of this case revealed that petitioners outstanding obligation to RSLAI amounted to P715,000 as of April 1, 1993.
4

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.
18

Respondent had the properties cleaned and landscaped. She likewise had the house (built thereon) painted and repaired.
5 6

Civil Code, Art. 1495 provides: Article 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale.

Docketed as Civil Case No. 93-2739. Penned by Judge Francisco A. Querubin. Id., pp. 129-151. Docketed as CA-G.R. CV No. 59748.
19

Civil Code, Art. 1498 provides: Article 1498. When a sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed. the contrary does not appear or cannot be clearly inferred. With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. (emphasis supplied)

Penned by Associate Justice Eugenio S. Labitoria and concurred in by Associate Justices Eliezer R. delos Santos and Arturo D. Brion (now a member of this Court) of the Third Division of the Court of Appeals.Rollo, pp. 30-34.
9 10

Id., pp. 46-47. Under Rule 45 of the Rules of Court.

11

Dijamco v. Court of Appeals. G.R. No. 113665, 7 October 2004, 440 SCRA 190, 197. See also J.B.L. Reyes, 5 Outline of Philippine Civil Law, 2-3 (1957).
12 13

See Delfin v. Lagon, G.R. No. 132262, 15 September 2006, 502 SCRA 24, 31.
20 21

Id. Supra note 3. Supra note 4.

Centeno v. Spouses Viray, 440 Phil. 881, 885 (2002). See Civil Code, Art. 1498.

14

22

15

Paragraph 2 of the deed did not prescribe a period within which respondent should settle petitioners obligation to RSLAI.
16 17

See Civil Code, Art. 1370 which provides: Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 19009 September 26, 1922

E.C. MCCULLOUGH & CO., plaintiff-appelle, vs. S. M. BERGER, defendant-appellant. Fisher & DeWitt for appellant. Perkins & Kincaid for appellee. STATEMENT For cause of action it is alleged that in the month of February, 1918, plaintiff and defendant and defendant entered into an agreement by which the defendant was to deliver plaintiff 501 bales of tobacco of New York City in good condition. That delivery was made and the plaintiff paid the full purchase price. That upon an examination later the tobacco was found to be in must condition, and its value was $12,000 less than it would have been if the tobacco had been in the condition which defendant agreed that it should be, as a result of which plaintiff claims damages for P12,000, United States currency, or P24,000, Philippine currency. That when the condition of the tobacco was discovered, plaintiff promptly notified the defendant, who ignored the protest. Wherefore, the plaintiff prays judgment for the amount of P24,000, Philippine currency, for costs and general relief. For answer, the defendant denies all the material allegation of the complaint, and, as a further and separate defense, alleges that on August 15, 1918, he was advised by the plaintiff that the latter was dissatisfied with the quality of the tobacco, and he made him a formal written offer to repurchase the tobacco at the original selling price with accrued interest, and that plaintiff rejected the offer. That defendant has been ready and willing at all reasonable times to accept the return of the tobacco and to return the amount of the purchase price with legal interest, and has a repeatedly tendered to the plaintiff such purchase price in exchange for the return of the tobacco, and that plaintiff had refused to return it. That any damages which plaintiff may have

suffered have been wholly due to his willful refusal to return and redeliver the tobacco. Upon such issues there was a stipulation of facts, and after trial the lower court rendered judgment against the defendant and in favor of the plaintiff for the sum of P11,867.98 or P23,735.96 with legal interest from January 6, 192, and costs, from which, after his motion for a new trial was overruled, the defendant appeals, claiming that the court erred: First, in finding that the tobacco was not in good condition when it arrived in New York; second, in holding that the plaintiff is entitled to maintain an action for breach of contract after having agreed with the defendant to rescind and to make restitution of the subject-matter and the price after a violation of the agreement; third in holding that the plaintiff, having elected to rescind and notified the defendant of such an election, may now refused it and affirm the same and recover from the alleged breach of warranty; fourth, in holding that this action should be maintained, no claim having been made for the alleged breach of warranty of quality within the statutory period; and, fifth, in overruling the defendant's motion for a new trial.

made contracts for sale subject to examination as to condition. The tobacco arrived in two shipments. The first of 213 bales on April 26, and the second of 288 bales on May 18, 1918, and it was at once placed in warehouses by plaintiff. With the exception of four or five bales, it appeared from an examination that the tobacco was well baled, and to all outward appearances was in good condition after the shipment. After it was placed in the warehouse, the tobacco itself was examined as to its condition and quality by the different buyers to whom the plaintiff had contracted to sell it, and after such physical inspection, they refused to accept it and complete their purchase because it was "musty." It appears that the plaintiff had sold 188 bales of the tobacco before its arrival in New York to a customer in Red Lion, Pennsylvania, to whom he shipped 75 bales of it after its arrival. This customer refused to receive any of the remaining bales which he had purchased, and the plaintiff was compelled to again reship it back to New York. Complying with his agreement, on May 21, 1918, the plaintiff paid the defendant's draft which he had previously accepted, thus completing his part of the contract with the defendant. On May 23, 1918, and as a result of physical inspection, the plaintiff cabled the defendant that the tobacco was unsatisfactory, and on June 13, he again cabled that there would likely be a loss. On June 28, 1918, the plaintiff wrote a letter to the defendant in which, among other things, he says: . . . The tobacco has a very strong ground smell and somewhat of a musty smell as though it had been mixed up with must tobacco. In other words, it appears like this tobacco assorted from bales which were mildewed and this is that part of the bale which was not mildewed. It does not seem possible that this odor, or musty smell, could have developed in transit as it seems perfectly clear that the tobacco was packed in that same condition. In all the bales which we have examined, which have been considerable, the tobacco seems to be perfectly dry. In view of that I can see nothing but every indication that the tobacco was originally a bad lot. In this letter he also advised the defendant that he was doing everything he could to sell the tobacco, and that he did not have any prospective buyer even at a loss of 25 per cent. August 9, 1918, the defendant acknowledge the receipt of the letter and cables, saying that he was "not in a position to lose between seventeen and twenty thousand pesos, and that he would consent to a reduction of four thousand pesos, if that was acceptable, and, if it was not, to have the bank pay back the amount of the draft with interest and take charge of the tobacco until the defendant would arrive in New York." The plaintiff did not receive this cable until August 21, when he cabled in reply that he would turn the tobacco over to the defendant, and that he "awaited telegraphic

JOHNS, J.: In February, 1918, the defendant met the plaintiff in the city of Manila and advised him that he had made a shipment of 501 bales of tobacco to new York City consigned to S. Lowenthal & Sons, who had refused to honor the draft which was drawn upon them. He asked the plaintiff whether he could use the tobacco provided it was "perfectly sound." At the plaintiff's request the defendant made and signed a writing as follows: Referring to the shipment of 501 bales of tobacco sold you consisting of 188 200-pound bales of scrap and 313 200-pound bales of booked tobacco, I beg to confirm my verbal conversation with you in stating that I guarantee the arrival of the tobacco in New York in good condition, subject, of course, to conditions arising after its departure from Manila, which contingencies are covered by adequate insurance. (Stipulation par. 1.) Upon the strength of this the plaintiff cabled his New York office to honor the defendant's draft, which was ninety days' sight for $33,109, and was the same draft and amount which had been refused by S. Lowenthal & Sons. The draft was honored by his New York office at plaintiff's request. The shipment consisted of 188 bales of "scrap," invoiced at 28 cents, gold, per pound, and 313 bales of "striped" and "booked" at 36 cents, gold, per pound, and was made c.i.f. New York. Before its arrival in New York the plaintiff had found purchasers for a large portion of it with whom he had

instruction in regard to it. That at least twenty dealers had passed on the tobacco." At that time the plaintiff had sold 66 bales of scattered samples from which, with the 75 bales sold to the Red Lion customer, he realized $9,031.71. September 5, 1918, the defendant wrote the New York Agency of the Philippine National Bank in which he said that the plaintiff had advised him that the tobacco on arrival was satisfactory, and that there would be a loss, and that the had assured its arrival at destination "in good condition." That he was taking it back. That the bank should pay plaintiff $33,109 plus interest upon delivery to it of the 501 bales. That "on no account should they agree to accept any shortage in the number of bales." October 18, 1918, without any knowledge of the defendant's instruction to the bank, the plaintiff wrote him that his proposition to take the tobacco back was satisfactory in which he said that he had not heard from the bank "at the time of writing with reference to taking back of the tobacco." October 30, 1918, the bank wrote the plaintiff that it would take back the identical 501 bales, and pay him the amount of the draft and interest. The plaintiff then wrote the bank a complete history of the transaction, and explained why the identical 501 bales could not be returned. That he had realized $9,031.71 from 141 bales of it which he had sold, for which he would account and return the balance of the tobacco which was then unsold and in the New York warehouse. The $9,031.71 was more than the actual agreed purchase price of the 141 bales. This offer was cabled to the defendant, who replied: The instructions given you in my letter dated September 5, 1918, will not be modified. The bank notified the plaintiff of the receipt of this cable, and in turn notified the plaintiff of the receipt of this cable, and in turn notified the plaintiff of the receipt of this cable, and in turn notified the defendant that the plaintiff would sell the tobacco at public auction, and then sue him for the balance of the purchase price, and later the plaintiff did sell the remainder of the tobacco upon which there was a net actual loss to him of $11,867.98, over and above all actual charges and expenses. Although at the time of the making of the contract between them the plaintiff and defendant were in Manila, the tobacco involved was on the high seas in transit to New York. From necessity the plaintiff could not see or examine it and would not know anything about its grade or quality, and, for that reason, insisted that the defendant should make and sign the writing above quoted in which he says:

I guarantee the arrival of the tobacco in New York in good condition, subject, of course to, to conditions arising after its departure from Manila, which contingencies are covered by adequate insurance. The trial court found and the testimony is conclusive that the tobacco did not arrive in New York "in good condition," and that , as a matter of fact, it was not "in good condition" when it left Manila. The plaintiff and defendant had known each other for about ten years, and had mutual confidence in each other, and were experienced business men. Defendant's draft of the tobacco had been dishonored. Plaintiff was willing to take the tobacco and honor the draft, with the proviso that the defendant would guarantee its arrival "in good condition." The evidence shows that in the whole transaction, the plaintiff acted in good faith and made an earnest effort to protect the defendant and minimized his loss. Defendant knew that in the very nature of things the plaintiff bought the tobacco for the purpose of resale, and that in the ordinary course of business, he would resell it. The record shows that he found purchasers for portions of it before its arrival in New York. The only reason why plaintiff's sales were not consummated was because the tobacco did not stand inspection and was not "in good condition" at the time of its arrival in New York. In other words, plaintiff bought and paid the defendant for tobacco which was not "in good condition," and bought it for the purpose of resale. In the very nature of things, the defendant knew that the plaintiff bought the tobacco for the purpose of resale, and he also knew that , if the tobacco was not "in good condition," it was not worth the amount of the purchase price which plaintiff paid. The defense cites and relies upon articles 336 and 342 of the Code of Commerce which are as follows: A purchaser who, at the time of receiving the merchandise, fully examines the vendor, alleging a defect in the quantity or quality of the merchandise. A purchaser shall have a right of action against a vendor for defects in the quantity or quality of merchandise receive in bales or packages, provided he brings his action within the four days following it receipt, and that the damage is not due to accident or to natural defect of the merchandise or to fraud. In such cases the purchaser may choose between the rescission of the contract or its fulfillment in accordance with what has been

agreed upon, but always with the payment of the damages he may have suffered by reason of the defects or faults. The vendor may avoid this claim by demanding when making the delivery that the merchandise be examined by the purchaser for his satisfaction with regard to the quantity and quality thereof. Article 342: A purchaser who has not made any claim based on the inherent defects in the article sold, within the thirty days following its delivery, shall lose all rights of action against the vendor for such defects. Whatever may be the rule as to sales which are completed within the jurisdiction of the Philippine Islands, those sections do not, and were never intended to, apply to a case founded upon the facts shown in the record. Although it is true that the contract between the plaintiff and the defendant was made in Manila, yet at the time it was made the tobacco was on the high seas, and under the contract, it was to be delivered "in good condition" in the City of New York, in consideration of which the plaintiff agreed to pay the draft. That is to say, the transaction was not complete until after the arrival of the tobacco in New York "in good condition," and the payment of the draft. It must be conceded that if, for any reason, the tobacco did not arrive in New York, the defendant could not recover upon the draft from the plaintiff. Hence, it must follow that the delivery of the tobacco at New York was a condition precedent which devolved upon the defendant to perform without which he would not have a cause of action against the plaintiff. It is true that the writing recites "the shipment of 501 bales of tobacco sold you." Yet, the fact remains that it was necessary to deliver the tobacco in New York to complete the sale. Contracts of this nature should be construed with reference to the surrounding conditions and the relative situation of the parties. At the time this contract was made both parties were in Manila, the tobacco was in transit to New York, and the defendant knew that the plaintiff entered into the contract for the purpose of a resale. Soon after the contract was made, the plaintiff left Manila and went to New York where, relying upon this contract with the defendant, he found purchasers for the tobacco on the assumption that it was "in good condition."

Although the word "sold" is used in the written contract, the transaction shows that the sale was not complete until the arrival of the goods in New York. The case of Middleton vs. Ballingall (1 Cal., 446), is somewhat in point, in which the court says: I think that the fair construction to be put upon the contract is, that on the arrival of the ship containing the goods, the defendants should deliver them, and the plaintiffs should pay the contract price. And the authorities hold that the arrival of the goods, in such case, is a condition precedent, which must be shown to have taken place before either party can bring suit. In the instant case, the contract was at least executory as to the delivery of the tobacco in New York. Cyc., vol. 35, pp. 274, 275 and 276, says: In order to pass the title to goods as against the seller or those claiming under him there must be a valid existing and completed contract of sale. Under a complete contract of sale the property in the goods passes at once from the seller to the buyer, at the place where the contract becomes complete, and for this reason the agreement is frequently called an executed contract. The sale is, however, an executory contract, if the seller merely promises to transfer the property at some future day, or the agreement contemplates the performance of some act or condition necessary to complete the transfer. Under such a contract until the act is performed or the condition fulfilled which is necessary to convert the executory into an executed contract, no title passes to the buyer as against the seller or persons claiming under him. While certain terms and expressions standing alone import an executed or executory contract, they are by no means conclusive but must be construed with reference to other provisions of the contract and according to what appears to have been the real intention of the parties, and so a mere recital in the writing evidencing the contract that the article is "sold" or that the buyer has "purchased" it does not necessarily make the contract executed; while on the other hand a recital that the seller "agrees to sell" is not conclusive that the title was not intended to pass immediately. The trial court found and the evidence sustains the finding that that plaintiff acted in good faith. The contract was made in February, 1918 the draft was payable ninety days after date; the first shipment of 213 bales arrived on April 26, and the second of 288 bales on May 18, and the plaintiff the draft on May 21 1918, and the transaction between the parties then became

complete. On May 23, he cabled the defendant that the tobacco was unsatisfactory. On June 13, he cabled that there would be a loss. On June 28, he wrote the letter above quoted. September 5, the defendant wrote the New York Agency of the Philippine National Bank that he would take the tobacco back on condition that there was not any shortage in the number of bales. During all of this time, the defendant had the use of plaintiff's money. It is true that the defendant offered to take the tobacco back and refund the money, but this offer was not actually made to the plaintiff until October , and was upon the condition that the full amount of the 501 bales should be returned, which was an impossible condition for the plaintiff to perform. But the plaintiff did offer to account to the defendant for the tobacco which he had sold and to return all of the unsold tobacco which was then in his warehouse, and the defendant declined the offer. As a business man, he knew that the plaintiff has then purchased the tobacco for the purpose of a resale, and that the tobacco had arrived at New York about five months before the offer was made, and he also knew that the plaintiff was using every effort to sell it and convert it into money, and that he would sell the whole or any part of it if a purchaser could be found at a reasonable price. At the time the defendant's offer was communicated to the plaintiff by the bank the plaintiff in turn offered to account to the defendant for the entire proceeds of the 141 bales which he had already sold, and to deliver to him all of the unsold tobacco. This was all that the plaintiff could do under the existing conditions. The fact that the defendant did not accept this offer is strong evidence that he was seeking an undue advantage, and that his offer to plaintiff was not made in good faith. The second shipment arrived in New York on May 18, and the plaintiff could not be expected to take any final action until the las shipment arrived. On learning the true condition of the tobacco, the plaintiff cabled the defendant on May 23 that it was unsatisfactory, and again on June 13, that there would be a substantial loss, which was followed by the letter of June 28th above quoted. The defects in the tobacco were inherent and could not be ascertained without opening the bales and making a physical examination. When this was done, the plaintiff promptly cabled the defendant that the tobacco was not satisfactory. In the nature of things, the plaintiff could not then render the defendant a statement of the amount of this claim. By the terms of the contract, the defendant guaranteed the arrival of the tobacco in New York "in good condition." Plaintiff's first cable sent ten days after the arrival of the tobacco advised the defendant that it was unsatisfactory, and the second, twenty-six days after its arrival, advised him that there would be a loss. Appellant's attorneys have submitted a very able and adroit brief in which they severely criticize the evidence on the part of the plaintiff. Upon all of

the material questions of fact, the trial court found for the plaintiff, and, in our opinion, the evidence sustains the findings. It must be remembered that during all these times there was about ten thousand miles of ocean between them. The plaintiff had parted with his money and honored the draft, expecting to sell the tobacco and get his money back with a profit. The testimony is conclusive that the plaintiff in good faith tried to sell the tobacco, and that he sold the 141 bales at the best obtainable price; that the only reason why he did not sell the remainder was because the tobacco was not "in good condition;" and that when he first knew that it was not "in good condition," he promptly cabled that defendant that it was unsatisfactory. As we construe the record, after the tobacco was inspected, the plaintiff promptly advised the defendant that it was unsatisfactory, and that he would have to sustain a loss, and in goo faith undertook to protect the defendant and to minimize the loss, and plaintiff's claim is not barred by the provisions of either article 336 or 342 of the Code of Commerce. The judgment is affirmed, with costs. So ordered. Araullo, C.J., Johnson, Malcolm, Avancea, Villamor, Ostrand and Romualdez, JJ., concur.

Separate Opinions STREET, J., concurring: I concur in the conclusion reached in this case and in accord with most that is said in the opinion. But in the view I take of the case, it ought not to be said that the sale was not complete until the arrival of the tobacco in New York. In view of the express guaranty given by the defendant to the effect that the tobacco would arrive in good condition, barring certain contingencies, and it having been clearly proved that the tobacco was not in good condition upon arrival there, a right of action accrued to the plaintiff to be indemnified to the extent allowed, and this independently of article 342 of

the Code of Commerce. But, even supposing this provision to be applicable, claim was made within thirty days after complete delivery had been effected. The maneuvers of the defendant relative to taking back the tobacco on terms which he must have believed would be impossible of fulfillment were ruse to gain an advantage in the impending legal controversy; and the contention that there was a rescission, or accepted offer or rescission, is untenable.

Republic of the Philippines SUPREME COURT Manila

EN BANC G.R. No. L-17441 July 31, 1962

Laura A. Roxas is ordered to return to defendants Celso Borja and Nelia Alanguilan the amount of P1,684.00 which she received as additional purchase price for the land in controversy. All defendants are jointly and severally ordered to pay the costs. The complaint alleged, in substance, that on December 13, 1954, Laura A. Roxas sold to appellants for the sum of P850.00 a parcel of unregistered coconut land with an area of 16,965 square meters and with 393 coconut trees, situated in Barrio San Diego, San Pablo, Laguna, subject to the condition, inter alia, that the vendor could repurchase it for the same amount within five years, but not earlier than three years, from the date of the sale, which was evidenced by a public document attached to the complaint as Annex A; that from November 26, 1955 to July 5, 1957, Roxas had received from appellees several sums of money amounting to P770.00, their agreement being that after December 13, 1957, Roxas would sell the same property, by absolute sale, to appellees for the total sum of P2,000.00, the aforesaid sum of P770.00 to be considered as initial or advance payment on the purchase price; that out of the balance of P1,230.00, appellees would use the sum of P850.00 to repurchase the property from appellants after December 13, 1954 but within the five years stipulated for the exercise of Roxas' right to repurchase; that on October 22, 1957, pursuant to Roxas' request made on July 23, 1957, appellees sent her a check for the sum of P320.00 "in full payment of the P2,000.00 consideration for the deed of absolute sale" and thereafter they informed appellants of their readiness to repurchase the property; that on November 29, 1957 Roxas sent them back the check just referred to with the request that they endorse the same to appellants when they made the repurchase, because it appeared that, aside from the P850.00 consideration of the pacto de retrosale, Roxas had received additional sums from appellants; that again, after December 13, 1957, appellees made representations to appellants that they were ready to make the repurchase, as well as to Roxas for the latter to be ready to execute the corresponding deed of absolute sale in their favor after they had made the repurchase; that notwithstanding these demand and representations, Roxas and appellants had deliberately failed to execute the corresponding deed of absolute sale and deed of resale already mentioned. On January 8, 1958 appellants filed a motion to dismiss the complaint upon the ground that appellees had no cause of action against them because their contract was not them but with Laura A. Roxas. After due hearing, lower court sustained the motion and dismissed the complaint because, according to the same, "there exists no written contract of assignment of rights executed by Laura A. Roxas in favor of the herein plaintiffs concerning property which said Laura A. Roxas sold to her co-defendants under a deed of pacto de retro sale, and that the purpose of the present action is precisely to compel Laura A. Roxas to execute the corresponding deed of assignment."

WELGO DICHOSO, ET AL., plaintiffs-appellees, vs. LAURA ROXAS, ET AL., defendants, CELSO BORJA and NELIA ALANGUILAN, defendants-appellants. Zosimo D. Tanalega for plaintiffs-appellees. Manuel A. Alvero for defendant Laura A. Roxas. Brion, Baldo, Chozas and Alcantara for defendants-appellants. DIZON, J.: Appeal from the following decision of the Court of First Instance of Laguna: WHEREFORE, the Court renders judgment ordering the plaintiffs to deposit with the Clerk of this Court for the account of defendant Laura A. Roxas the amount of P320.00 and, upon the deposit of the said amount, defendant Laura A. Roxas is ordered to execute a document transferring her rights, title and interest in the land in controversy to plaintiffs Welgo Dichoso and Emilia Hernandez within five (5) days from such deposit. In the event that Laura A. Roxas fails to execute the document within the aforementioned period, the same shall executed by the Clerk of Court in her behalf. Defendants Celso Borja and Nelia Alanguilan are order to execute a deed of re-sale of the land in controversy and the improvements thereon in favor of plaintiffs Welgo Dichoso and Emilia Hernandez within five (5) days after the document transfer has been executed by or on behalf of Laura A. Roxas. If defendants Celso Borja and Nelia Alanguilan fail to do so, the Clerk of Court shall execute the document in their behalf. At any time after the execution of the deed of re-sale, defendants Celso Borja and Nelia Alanguilan may withdraw from the People's Bank and Trust Company of San Pablo City the amount of P850.00 which had been deposited by plaintiff Welgo Dichoso as repurchase price and the People's Bank & Tru Company is ordered to deliver the said amount to the aforementioned defendants. The Court considers defendants Celso Borja and Nelia Alanguilan as possessors in good faith and are not required account for the fruits that they have received from the Ian it controversy up to the time this decision becomes final.

However, on July 31, 1958, over appellants' objection, the lower court admitted the amended complaint previously filed by appellees. The principal amendment introduced consisted in the allegation that on July 5, 1957, for sum of P770.00, Laura A. Roxas had ceded to appellees her right to repurchase the property from appellants; that on November 29, 1957, Roxas had "ordered and author the said plaintiffs spouses to repurchase the said parcel land from the defendants vendee-a-retro after the 3 years period, which would terminate on December 13, 1957," and that on December 13, 1957, appellees tendered to appellants the required sum with which to effect the repurchase, but that the latter refused to accept the same, thus compelling appellees to consign the amount with the Office of Clerk, Court of First Instance of Laguna. Upon petition of appellants, the lower court on August 18, 1958, ordered appellees to furnish, and the latter furnished appellants, with a copy of the alleged deed of assignment dated July 8, 1958, referred to in paragraph 4 of the amended complaint, which deed reads as follows: TALASTASIN NG SINO MAN: Tinangap ko ngayong Julio 5, 1957 ang halagang Pit Dean at Pitong Pong (P770.00) peso cuartang pang kasal yan sa magasawa ni Welgo Dichoso at Emilia Hernandez, lang paunang bayad sa isang puesto kong lupa humigit kumulang sa apat na raang tanim na niog. Ang aming pinagkasondoan pag dating ng dalagang wang libong (P2,000.00) pesong pagkakautang pate tobos walong daan at limang pong (P850.00) peso sa pagka pag na mabibiling muli o sanla) sa magasawa ni Celso Borja Nelia Alanguilan ay mag gagawaan ng documento o kasulatan bilihang toloyan o bintarial absoluta sa halagang dalawang libong (P2,000.00) peso na nasabe sa itaas nito. Ang nasabing lupa ay nakatayo sa Salang lupa kung tawagin Bo. San Diego sakop ng Ciudad ng San Pablo. Sa katonayan na hinde ako sisira sa pinagusapan ay lumagda ako ng pangalan at apellido na kaharap ang isang testigo. (Lgda.) Cosme Punto (Lgda.) Laura A. Roxas A motion to dismiss the amended complaint was denied by the lower court for the reason that the grounds relied upon therein did not appear to be indubitable and their consideration was deferred until after trial on the merits. Thereafter appellants filed their answer in which, after making

specific denial of some facts averred in the amended complaint, they alleged the following affirmative defenses: 1. That the alleged transfer of right to repurchase supposedly executed by defendant Laura A. Roxas in favor of plaintiffs herein is not in any manner a transfer of right to repurchase but at most a receipt of indebtedness; 2. That even assuming although not admitting that there was a transfer of right to repurchase made by the defendant Laura A. Roxas in favor of the plaintiffs regarding the property in question, yet said right to repurchase could not be exercised by the plaintiffs considering that before December 13, 1957 arrived, the period within which the repurchase might be made, said land in question had already become the absolute and exclusive property of the answering defendants herein. 3. That defendants spouses in the exercise of the rights of dominion over the property, had since December 13, 1957 harvested and are harvesting the fruits to date; and paid the taxes therefor; and had attended to the disposition of the pro. proceeds therefrom; 4. That whatever alleged agreement may have been entered into between plaintiffs and defendant Laura Roxas cannot in any way affect third persons like defendants spouses Celso Boria and Nelia Alanguilan, unless the same is in a public document; 5. That even assuming, although not admitting, that the Plaintiffs tendered into the answering defendants the repurchase price of the land in question on or immediately after December 13, 1947, yet the answering defendants have all the reasons and are justified in refusing to accept the said repurchase price considering that before said date of December 13, 1957, answering defendants were already the absolute and exclusive owners of the land in question, subject to no other conditions. As counterclaim, appellants alleged in their answer following facts: 1. That the answering defendants incorporate and part hereof paragraph 1 of the plaintiffs' amended complaint; 2. That before this case was filed, plaintiffs knew f well that the property in question is already owned absolute by answering defendants; and which therefore, cannot be subject of repurchase anymore;

3. That plaintiff Welgo Dichoso was the agent who responsible for the consummation of the sale with right to purchase as a matter of fact he was the witness to the s document; 4. That a parcel of land abutting this parcel in quest was likewise offered by plaintiff Welgo Dichoso to defend spouses who acceded to buy the same on the representation the former Dichoso that inasmuch as answering defendant are now the owners of the land in question, this smaller if united with the bigger piece of property here in quest would not only enhance agriculture but would afford t greater benefits as to two parcels are adjoining to each other. 5. Defendants spouses would not have bought the p property in question if not for the assurance of Welgo Dichoso t co- defendant would sooner or later sell same to them by of absolute sale; 6. That in filing this case, plaintiffs have acted w evident bad faith, considering that this case was only intended to harass answering defendants who are his first cousins a therefore ore must be required to pay answering defendants amount of P500.00 as exemplary damages; 7. That because of the unwarranted and unjustified filing this case, the answering defendants suffered damages in amount of P500.00 and will continue to suffer the same by of litigation expenses; and at the same time were compel to retain the services of counsel and are obliged to pay amount of P1,000.00 in the concept of attorney's fees, On September 19, 1958, appellees filed a reply in which they alleged, inter alia, that when they offered to repurchase the property from appellants, on behalf of La A. Roxas, appellants had not become absolute and exclusive owners of the property in question; that after the offer to repurchase made on December 13, 1957, appellate became possessors in bad faith and were in duty bound to account for the fruits of the property; that although the agreement between appellees, on the ore hand, a Roxas, on the other, was not contained in a public instrument appellants were bound by it because they knew the agreement. Appellees also denied the facts alleged in the counterclaim. On April 1, 1959, appellees filed a supplementary complaint wherein, on the claim that after July 23, 1958 the price of coconuts had considerably gone up, they prayed that the judgment for damages they sought in the amended complaint be increased in amount accordingly.

After trial upon the issues stated above, the lower court rendered the appealed judgment, from which the Borja spouses appealed claiming that the court committed the following errors: 1. In not finding defendant-appellants Celso Boria and Nelia Alanguilan as the true, lawful and absolute owners of the land in question, their title thereto being evidenced by public and private documents coupled by possession in good faith and for value. 2. In not finding appellants Celso Borja and Nelia Alanguilan possessors as absolute owners from December 8, 1957, the date of the execution of the deed of absolute sale (Exh. "7") in their favor. 3. In not giving weight to the deed of confirmation (Exh. "8"), a public document executed to cure defects in proof only. 4. In construing Exhibit "I" (a private document) as a document of sale and in extending its effects to third parties (appellants) who are total strangers to it. 5. In not sustaining the plea of res judicata by the defendantappellants. The pertinent portions of the decision appealed from are the following: It appears from the evidence that Laura A. Roxas had sold her rights to the land in controversy to two (2) different parties. The first one was on July 5, 1957, in favor of the plaintiffs Welgo Dichoso and Emilia Hernandez (Exh. "I"), and the second one allegedly on December 8, 1957 in favor of defendants Celso Borja and Nelia Alanguilan (Exh. "7"). The principal question to be determined is which of these two documents shall prevail. Both the documents in favor of the plaintiffs Exh. "I" and that in favor of the defendants Exh. "7" are private documents same not having been acknowledged before a Notary Public. The Court is of the opinion that the document in favor of the plaintiffs being of an earlier date than the document in favor of the defendants shall prevail in accordance with the provisions of paragraph 3 of Article 1544 of the Civil Code of the Philippines which read as follows: 'If the same thing should have been sold to different vendees, the ownership shall be transferred to the person

who may have first taken possession thereof in good faith, if it should be movable property. 'Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (Emphasis supplied) While it may be true that the defendants were in possession of the land in controversy at the time Laura A. Roxas executed the deed of sale in favor of the plaintiffs, such possession was merely that of a "vendee a retro" and not as vendee in an absolute sale. It has also been held that with reference to unregistered lands, an earlier instrument, be it a sale or a mortgage, shall prevail over a later one, and the registration of any one of them is immaterial (Nisce vs. Milo, G.R. No. 42546, Jan. 1936; Nota vs. Concepcion, 56 Phil. 712, cited in Noblejas, Land Titles and Deeds, 1955 ed., p. 207). The deed of confirmation of sale executed by Laura A. Roxas in favor of defendants Celso Borja and Nelia Alanguilan on September 5, 1958, Exhibits "8", cannot in any manner prejudice the rights of the plaintiffs because the said deed of confirmation was made more than nine (9) months after this case was filed. If the execution of the said deed of confirmation. It also proves the joint efforts of all the "I" executed by Laura A. Roxas in plaintiffs' favor. It is obvious that, in deciding the case, the lower court failed to give due weight to the private document Exhibit 7 (deed of absolute sale) executed by Laura A. Roxas in favor of appellants on December 8, 1957 in effect superseding the pacto de retro sale mentioned heretofore for a total consideration of P1,684.00, of which the amount of P850.00 paid as consideration for the pacto de retro sale was considered as a part. There is no dispute at all as to the genuineness of this private deed of absolute sale nor as to its execution on December 8, 1957. that is, five days prior to December 13, 1957, when. according to appellees themselves, they made the first attempt to repurchase the property in question, and on which occasion appellants refused to allow the repurchase "because Laura A. Roxas was not with them", according to the lower court. After December 8, 1957, appellants' rights were no longer based on the superseded pacto de retro sale but on the aforesaid deed of absolute sale which was a perfectly valid contract as between the parties. In plain words, after that date Laura A. Roxas no longer had any right to repurchase the property. Upon the other hand, appellees' contention that appellants were aware of their agreement with Laura A. Roxas has not been sufficiently

substantiated. Appellees' own evidence shows that appellants became aware of their claim to the property when they tried, for the first time, to exercise the right to repurchase on December 18, 1957 five days after the deed of absolute sale in favor of said appellants. After a careful consideration of the issues and the evidence, we believe that the lower court also erred in considering Exhibit I, executed on July 5, 1957, as a deed of sale of the land in question in favor of appellees. In the first place, the phraseology employed therein shows that the contract between the parties was a mere promise to sell, on the part of Roxas, because the latter merely promised to execute a deed of absolute sale upon appellees complaining payment to her of the total sum of P2,000.00, of which the P850.00 to be paid to appellants for the repurchase of the property would be an integral part. This repurchase had not yet been made on July 5, 1957, when this Exhibit I was executed. In the second place, an that date all that Roxas could possibly sell or convey in relation to the property in question was her right to repurchase the same from appellants. Consequently, the best consideration that could be given to the private document Exhibit I is that it was an assignment by Roxas to appellees of her right to repurchase of which according to the evidence appellants had no knowledge until December 13, 1957 when appellees attempted to make the repurchase. Such being its condition, it could not possibly give rise to the case of one and the same property having been sold to two different purchasers. The salt in favor of appellants was of the property itself, while the one in favor of appellees, if not a mere promise to assign, was at most an actual assignment of the right to repurchase the same property. The provisions of paragraph 3, Article 1544 of the Civil Code of the Philippines do not, therefore, apply. Having arrived at the above conclusions, we are constrained to hold that, upon the facts of the case, appellees are not entitled to the reliefs sought in their amended complaint and that whatever remedy they have is exclusively against Laura A. Roxas to recover from her, among other things, what they paid as consideration for the execution of the private document Exhibit I. WHEREFORE, the decision appealed from is reversed, with the result that this case is dismissed, with costs, reserving to appellees, however, the right to file a separate action against Laura A. Roxas to enforce whatever rights they may have against her in consonance with this decision. Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Regala and Makalintal, JJ., concur. Padilla, J., took no part.

Ross, Salcedo, Del Rosario, Bito and Misa for plaintiff-appellee. C. R. Tiongson and L. V. Simbulan and Araneta, Mendoza and Papa for defendant Myers Building Co., Inc. Ambrosio Padilla Law Offices for defendant-appellant Maritima Building Co., Inc.

REYES, J.B.L., J.:p Direct appeal (prior to the effectivity of Republic Act 5440) by Maritime Building Co., Inc. from a decision of the Court of First Instance of Manila (in its Civil Case No. 47319), the dispositive part of which provides as follows: FOR ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered declaring that the Myers Building Co., Inc. is entitled to receive the rentals which the plaintiff has been paying, including those already deposited in Court, thereby relieving the plaintiff of any obligation to pay the same to any other party, and ordering the Maritime Building Co., Inc. to pay the commission fees paid by the Myers Building Co., Inc. to the Clerk of this Court, plus the sum of P3,000.00 as and for attorney's fees. On the cross-claim by the Myers Building Co., Inc., the Maritima Building Co., Inc. is hereby ordered to pay the Myers Building Co., Inc. the sum of P10,000.00 damages, plus the sum of P30,000.00, representing rentals wrongfully collected by it from the plaintiff corresponding to the months of March, April and May, 1961 and the costs hereof. The antecedents of the litigation are summarized in the appealed judgment thus: This is an action for interpleading. It appears that on April 30, 1949, in the City of Manila, the defendant Myers Building Co., Inc., owner of three parcels of land in the City of Manila, together with the improvements thereon, entered into a contract entitled "Deed of Conditional Sale" in favor of Bary Building Co.,

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-25885 January 31, 1972 LUZON BROKERAGE CO., INC., plaintiff-appellee, vs. MARITIME BUILDING CO., INC., and MYERS BUILDING CO., INC., defendants, MARITIME BUILDING CO., INC., defendant-appellant.

Inc., later known as Maritime Building Co., Inc., whereby the former sold the same to the latter for P1,000,000.00, Philippine currency. P50,000.00 of this price was paid upon the execution of the said contract and the parties agreed that the balance of P950,000.00 was to be paid in monthly installments at the rate of P10,000.00 with interest of 5% per annum until the same was fully paid. In Par. (O), they agreed that in case of failure on the part of the vendee to pay any of the installments due and payable, the contract shall be annulled at the option of the vendor and all payments already made by vendee shall be forfeited and the vendor shall have right to reenter the property and take possession thereof. Later, the monthly installment of P10,000.00 abovestipulated with 5% interest per annum was amended or decreased to P5,000.00 per month and the interest was raised to 5-1/2% per annum. The monthly installments under the contract was regularly paid by the Bary Building Co., Inc. and/or the Maritime Co., Inc. until the end of February, 1961. It failed to pay the monthly installment corresponding to the month of March 1961, for which the Vice-President, George Schedler, of the Maritime Building Co., Inc., wrote a letter to the President of Myers, Mr. C. Parsons, requesting for a moratorium on the monthly payment of the installments until the end of the year 1961, for the reason that the said company was encountering difficulties in connection with the operation of the warehouse business. However, Mr. C. Parsons, in behalf of the Myers Estate, answered that the monthly payments due were not payable to the Myers Estate but to the Myers Building Co., Inc., and that the Board of Directors of the Myers Co., Inc. refused to grant the request for moratorium for suspension of payments under any condition. Notwithstanding the denial of this request for moratorium by the Myers Board of Directors the Maritime Building Co., Inc. failed to pay the monthly installments corresponding to the months of March, April and May, 1961. Whereupon, on May 16, 1961, the Myers Building Co., Inc. made a demand upon the Maritime Building Co., Inc., for the payment of the installments that had become due and payable, which letter, however, was returned unclaimed.

Then, on June 5, 1961, the Myers Building Co., Inc. wrote the Maritime Building Co., Inc. another letter advising it of the cancellation of the Deed of Conditional Sale entered into between them and demanding the return of the possession of the properties and holding the Maritime Building Co., Inc. liable for use and occupation of the said properties at P10,000.00 monthly. In the meantime, the Myers Building Co., Inc. demanded upon the Luzon Brokerage Co., Inc. to whom the Maritime Building Co., Inc. leased the properties, the payment of monthly rentals of P10,000.00 and the surrender of the same to it. As a consequence, the Luzon Brokerage Co., Inc. found itself in a payment to the wrong party, filed this action for interpleader against the Maritime Building Co., Inc. After the filing of this action, the Myers Building Co., Inc. in its answer filed a cross-claim against the Maritime Building Co., Inc. praying for the confirmation of its right to cancel the said contract. In the meantime, the contract between the Maritime Building Co., Inc. and the Luzon Brokerage Co., Inc. was extended by mutual agreement for a period of four (4) more years, from April, 1964 to March 31, 1968. The Maritime Building Co., Inc. now contends (1) that the Myers Building Co., Inc. cannot cancel the contract entered into by them for the conditional sale of the properties in question extrajudicially and (2) that it had not failed to pay the monthly installments due under the contract and, therefore, is not guilty of having violated the same. It should be further elucidated that the suspension by the appellant Maritime Building Co., Inc. (hereinafter called Maritime) of the payment of installments due from it to appellee Myers Building Co., Inc. (hereinafter designated as Myers Corporation) arose from an award of backwages made by the Court of Industrial Relations in favor of members of Luzon Labor Union who served the Fil-American forces in Bataan in early 1942 at the instance of the employer Luzon Brokerage Co. and for which F. H. Myers, former majority stockholder of the Luzon Brokerage Co., had allegedly promised to indemnify E. M. Schedler (who controlled Maritime) when the latter purchased Myers' stock in the Brokerage Company. Schedler contended that he was being sued for the backpay award of some P325,000, when it was a liability of Myers, or of the latter's estate upon his death. In his letter to Myers Corporation (Exhibit "11", Maritime) dated 7

April 1961 (two months and ten days before the initial complaint in the case at bar), Schedler claimed the following: At all times when the F. H. Myers Estate was open in the Philippine Islands and open in San Francisco, the Myers Estate or heirs assumed the defense of the Labor Union claims and led us to believe that they would indemnify us therefrom. Recently, however, for the first time, and after both the Philippine and San Francisco F. H. Myers Estates were closed, we have been notified that the F. H. Myers indemnity on the Labor Union case will not be honored, and in fact Mrs. Schedler and I have been sued in the Philippines by my successor in interest, Mr. Wentholt, and have been put to considerable expense. You are advised that my wife and I, as the owners of the Maritime Building Company, intend to withhold any further payments to Myers Building Company or Estate, in order that we can preserve those funds and assets to set off against the potential liability to which I am now exposed by the failure of the Myers heirs to honor the indemnity agreement pertaining to the Labor claims. The trial court found the position of Schedler indefensible, and that Maritime, by its failure to pay, committed a breach of the sale contract; that Myers Company, from and after the breach, became entitled to terminate the contract, to forfeit the installments paid, as well as to repossess, and collect the rentals of, the building from its lessee, Luzon Brokerage Co., in view of the terms of the conditional contract of sale stipulating that: (d) It is hereby agreed, covenanted and stipulated by and between the parties hereto that the Vendor will execute and deliver to the Vendee a definite or absolute deed of sale upon the full payment by the vendee of the unpaid balance of the purchase price hereinabove stipulated; that should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall automatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there be free to enter into the premises, take possession thereof or sell the properties to any other party.

xxx xxx xxx (o) In case the Vendee fails to make payment or payments, or any part thereof, as herein provided, or fails to perform any of the covenants or agreements hereof, this contract shall, at the option of the Vendor, be annulled and, in such event, all payments made by the Vendee to the Vendor by virtue of this contract shall be forfeited and retained by the Vendor in full satisfaction of the liquidated damages by said Vendor sustained; and the said Vendor shall have the right to forthwith re-enter, and take possession of, the premises subject-matter of this contract. "The remedy of forfeiture stated in the next-preceding paragraph shall not be exclusive of any other remedy, but the Vendor shall have every other remedy granted it by virtue of this contract, by law, and by equity." From the judgment of the court below, the dispositive portion whereof has been transcribed at the start of this opinion, Myers duly appealed to this Court. The main issue posed by appellant is that there has been no breach of contract by Maritime; and assuming that there was one, that the appellee Myers was not entitled to rescind or resolve the contract without recoursing to judicial process. It is difficult to understand how appellant Maritime can seriously contend that its failure or refusal to pay the P5,000 monthly installments corresponding to the months of March, April and May, 1961 did not constitute a breach of contract with Myers, when said agreement (transcribed in the Record on Appeal, pages 59-71) expressly stipulated that the balance of the purchase price (P950,000) shall be paid at the rate of Ten Thousand Pesos (P10,000) monthly on or before the 10th day of each month with interest at 5% per annum, this amount to be first applied on the interest, and the balance paid to the principal thereof; and the failure to pay any installment or interest when due shallipso facto cause the whole unpaid balance of the principal and interest to be and become immediately due and payable. (Contract, paragraph b; Record on Appeal, page 63)

Contrary to appellant Maritime's averments, the default was not made in good faith. The text of the letter to Myers (Exhibit "11", Maritime), heretofore quoted, leaves no doubt that the non-payment of the installments was the result of a deliberate course of action on the part of appellant, designed to coerce the appellee Myers Corporation into answering for an alleged promise of the late F. H. MYERS to indemnify E. W. Schedler, the controlling stock-holder of appellant, for any payments to be made to the members of the Luzon Labor Union. This is apparent also from appellant's letter to his counsel (Exhibit "12", Maritime): ... I do not wish to deposit pesos representing the months of March, April and May, since the Myers refusal to honor the indemnity concerning the labor claims has caused me to disburse (sic) roughly $10,000.00 to date in fees, cost and travel expenses. However, if the Myers people will deposit in trust with Mr. C. Parsons 25,000 pesos to cover my costs to date, I will then deposit with Mr. Parsons, in trust, 15,000 pesos for March, April and May and will also post a monthly deposit of 5,000 pesos until the dispute is settled. The dispute won't be settled in my mind, unless and until: a) The Myers people indemnify me fully the labor cases; b) The labor cases are terminated favorably to Luzon Brokerage and no liability exists; c) The Myers people pay any judgment entered on the labor cases thereby releasing me; or d) It is finally determined either in San Francisco or in the Philippines by a court that the Myers heirs must honor the indemnity which Mr. F. H. Myers promised when I purchased Luzon Brokerage Company. Yet appellant Maritime (assuming that it had validly acquired the claims of its president and controlling stockholder, E. M. Schedler) could not ignore the fact that whatever obligation F. H. Myers or his estate had assumed in favor of Schedler with respect to the Luzon Brokerage labor case was not, and could not have been, an obligation of appellee corporation (Myers Building Company). No proof exists that the board of directors of the Myers Corporation had agreed to assume responsibility for the debts (if any) that the late Myers or his heirs had incurred in favor of Schedler. Not only this, but it is apparent from the letters quoted heretofore that Schedler had allowed the estate proceedings of the late F. M. Myers to close without providing for any contingent liability in Schedler's favor; so that by offsetting the alleged debt of Myers to him, against the balance of the price

due under the "Deed of Conditional Sale", appellant Maritime was in fact attempting to burden the Myers Building Company with an uncollectible debt, since enforcement thereof against the estate of F. H. Myers was already barred. Under the circumstances, the action of Maritime in suspending payments to Myers Corporation was a breach of contract tainted with fraud or malice (dolo), as distinguished from mere negligence (culpa), "dolo" being succinctly defined as a "conscious and intentional design to evade the normal fulfillment of existing obligations" (Capistrano, Civil Code of the Philippines, Vol. 3, page 38), and therefore incompatible with good faith (Castan, Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1, page 116). Maritime having acted in bad faith, it was not entitled to ask the court to give it further time to make payment and thereby erase the default or breach that it had deliberately incurred. Thus the lower court committed no error in refusing to extend the periods for payment. To do otherwise would be to sanction a deliberate and reiterated infringement of the contractual obligations incurred by Maritime, an attitude repugnant to the stability and obligatory force of contracts. From another point of view, it is irrelevant whether appellant Maritime's infringement of its contract was casual or serious, for as pointed out by this Court in Manuel vs. Rodriguez, 109 Phil. 1, at page 10 The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the contract as there was only a "casual breach" is likewise untenable. In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment of the price, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case. But it is argued for Maritime that even if it had really violated the Contract of Conditional Sale with Myers, the latter could not extrajudicially rescind or resolve the contract, but must first recourse to the courts. While recognizing that paragraph (d) of the deed of conditional sale expressly provides inter alia

that should the Vendee fail to pay any of the monthly installments when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shallautomatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof shall be considered as rentals.. (Emphasis supplied) herein appellant Maritime avers that paragraph (e) of the deed contemplates that a suit should be brought in court for a judicial declaration of rescission. The paragraph relied upon by Maritime is couched in the following, terms: (e) It is also hereby agreed, covenanted and stipulated by and between the parties hereto that should the Vendor rescind this Deed of Conditional Sale, for any of the reasons stipulated in the preceding paragraph, the Vendee by these presents obligates itself to peacefully deliver the properties subject of this contract to the Vendor, and in the event that the Vendee refuses to peacefully deliver the possession of the properties subject of this contract to the Vendor in case of rescission, and a suit should be brought in court by the Vendor to seek judicial declaration of rescission and take possession of the properties subject of this contract, the Vendee hereby obligates itself to pay all the expenses to be incurred by reason of such suit and in addition obligates itself to pay the sum of P10,000.00, in concept of damages, penalty and attorney's fees. Correlation of this paragraph (e) with the preceding paragraph (d) of the Deed of Conditional Sale (quoted in page 5 of this opinion) reveals no incompatibility between the two; and the suit to "be brought in Court by the Vendor to seek judicial declaration of rescission" is provided for by paragraph(e) only in the eventuality that, notwithstanding the automatic annulment of the deed under paragraph (d), the Vendee "refuses to peacefully deliver the possession of the properties subject of this contract". The step contemplated is logical since the Vendor can not, by himself, dispossess the Vendee manu militari, if the latter should refuse to vacate despite the violation of the contract, since no party can take the law in his own hands. But the bringing of such an action in no way contradicts or restricts the automatic termination of the contract in case the Vendee (i.e., appellant Maritime) should not comply with the agreement. Anyway, this Court has repeatedly held that

Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions" (Lopez vs. Commissioner of Customs, L-28235, 30 January 1971, 37 SCRA 327, 334,, and cases cited therein). 1 (Emphasis supplied.) Resort to judicial action for rescission is obviously not contemplated.... The validity of the stipulation can not be seriously disputed. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this Court. (Ponce Enrile vs. Court of Appeals, L-27549, 30 Sept. 1969; 29 SCRA 504). The obvious remedy of the party opposing the rescission for any reason being to file the corresponding action to question the rescission and enforce the agreement, as indicated in our decision in University of the Philippines vs. Walfrido de los Angeles , L-28602, 29 September 1970, 35 SCRA 107. Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission

is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203). Maritime likewise invokes Article 1592 of the Civil Code of the Philippines as entitling it to pay despite its default: ART. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. Assuming arguendo that Article 1592 is applicable, the cross-claim filed by Myers against Maritime in the court below constituted a judicial demand for rescission that satisfies the requirements of said article. But even if it were not so, appellant overlooks that its contract with appellee Myers is not the ordinary sale envisaged by Article 1592, transferring ownership simultaneously with the delivery of the real property sold, but one in which the vendor retained ownership of the immovable object of the sale, merely undertaking to convey it provided the buyer strictly complied with the terms of the contract (see paragraph [d], ante, page 5). In suing to recover possession of the building from Maritime, appellee Myers is not after the resolution or setting aside of the contract and the restoration of the parties to the status quo ante, as contemplated by Article 1592, but precisely enforcing the provisions of the agreement that it is no longer obligated to part with the ownership or possession of the property because Maritime failed to comply with the specified condition precedent, which is to pay the installments as they fell due. The distinction between contracts of sale and contract to sell with reserved title has been recognized by this Court in repeated decisions 2 upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where such rights are expressly provided for, as in the case at bar. Maritime's appeal that it would be iniquituous that it should be compelled to forfeit the P973,000 already paid to Myers, as a result of its failure to make good a balance of only P319,300.65, payable at P5,000 monthly, becomes unimpressive when it is considered that while obligated to pay the price of one million pesos at P5,000 monthly, plus interest, Maritime, on the

other hand, had leased the building to Luzon Brokerage, Inc. since 1949; and Luzon paid P13,000 a month rent, from September, 1951 to August 1956, and thereafter until 1961, at P10,000 a month, thus paying a total of around one and a half million pesos in rentals to Maritime. Even adding to Maritime's losses of P973,000 the P10,000 damages and P3,000 attorneys' fees awarded by the trial court, it is undeniable that appellant Maritime has come out of the entire transaction still at a profit to itself. There remains the procedural objection raised by appellant Maritime to this interpleader action filed by the Luzon Brokerage Co., the lessee of the building conditionally sold by Myers to Maritime. It should be recalled that when Maritime defaulted in its payments to Myers, and the latter notified the former that it was cancelling the contract of conditional sale, Myers also notified Luzon Brokerage, Maritime's lessee of the building, of the cancellation of the sale, and demanded that Luzon should pay to Myers the rentals of the building beginning from June, 1961, under penalty of ejectment (Record on Appeal, pages 14-15). In doubt as to who was entitled to the rentals, Luzon filed this action for interpleader against Myers and Maritime, and deposited the rentals in court as they fell due. The appellant Maritime moved to dismiss on the ground that (a) Luzon could not entertain doubts as to whom the rentals should be paid since Luzon had leased the building from Maritime since 1949, renewing the contract from time to time, and Myers had no right to cancel the lease; and (b) that Luzon was not a disinterested party, since it tended to favor appellee Myers. The court below overruled Maritime's objections and We see no plausible reason to overturn the order. While Myers was not a party to the lease, its cancellation of the conditional sale of the premises to Maritime, Luzon's lessor, could not but raise reasonable doubts as to the continuation of the lease, for the termination of the lessor's right of possession of the premises necessarily ended its right to the rentals falling due thereafter. The preceding portion of our opinion is conclusive that Luzon's doubts were grounded under the law and the jurisprudence of this Court. No adequate proof exists that Luzon was favoring any one of the contending parties. It was interested in being protected against prejudice deriving from the result of the controversy, regardless of who should win. For the purpose it was simpler for Luzon to compel the disputants to litigate between themselves, rather than chance being sued by Myers, and later being compelled to proceed against Maritime to recoup its losses. In any event, Maritime ultimately confirmed the act of Luzon in suing for interpleader, by agreeing to renew Luzon's lease in 1963 during the pendency of the present action, and authorizing Luzon to continue depositing the rentals in court "until otherwise directed by a court of competent jurisdiction" (Exhibit "18-Maritime"). The procedural objection has thus become moot. PREMISES CONSIDERED, the appealed decision should be, and hereby is, affirmed, and appellant Maritime Building Co., as well as appellee Luzon

Brokerage Co., are further ordered to surrender the premises to the appellee Myers Building Co. Costs against appellant. Concepcion, C.J., Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor and Makasiar, JJ., concur. Fernando, J., took no part.

Footnotes 1 Ponce Enrile vs. Court of Appeals, L-27549, 30 September 1969; Froilan vs. Pan Oriental Shipping Co., L11897, 31 October 1964; De la Rama Steamship Co., Inc. vs. Tan, L-8784, 21 May 1956; Taylor vs. Uy Teng Piao, 43 Phil. 873; University of the Philippines vs. Judge de los Angeles, L-28602, 29 September 1970. 2 Manila Racing Club vs. Manila Jockey Club, 69 Phil. 57; Caridad Estates vs. Santero, 71 Phil. 114; Miranda vs. Caridad Estates, L-2077, 3 October 1950; Jocson v. Capitol Subdivision, L-6573, 28 February 1955; Manuel vs. Rodriguez, 109 Phil. 1. See also Sing Yee Cuan, Inc. vs. Santos (C. App.) 47 OG 6372.

Republic of the Philippines SUPREME COURT THIRD DIVISION

G.R. No. 156171 April 22, 2005 Spouses RICARDO and FERMA PORTIC, Petitioners, vs. ANASTACIA CRISTOBAL, Respondent, DECISION PANGANIBAN, J.: An agreement in which ownership is reserved in the vendor and is not to pass to the vendee until full payment of the purchase price is known as a contract to sell. The absence of full payment suspends the vendors obligation to convey title. This principle holds true between the parties, even if the sale has already been registered. Registration does not vest, but merely serves as evidence of, title to a particular property. Our land registration laws do not give title holders any better ownership than what they actually had prior to registration. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the January 29, 2002 Decision2 and the November 18, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 66393. The assailed Decision disposed as follows: "WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE. A new one is hereby entered ORDERING defendant-appellant to pay the unpaid balance of P55,000.00 plus legal interest of 6% per annum counted from the filing of this case. The ownership of defendant-appellant over the subject property is hereby confirmed. "No pronouncement as to costs."4 In the challenged Resolution,5 the CA denied petitioners Motion for Partial Reconsideration. The Facts The facts were summarized by the appellate court as follows: "Spouses Clodualdo Alcantara and Candelaria Edrosalam were the original registered owners of a parcel of land with three-door apartment, located at

No. 9, 1st Street BBB, Marulas, Valenzuela City. Transfer Certificate of Title No. T-71316 was issued in the names of spouses Clodualdo Alcantara and Candelaria Edrosalam. "On October 2, 1968, spouses Clodualdo Alcantara and Candelaria Edrosalam sold the subject property in favor of [petitioners] with the condition that the latter shall assume the mortgage executed over the subject property by spouses Clodualdo Alcantara and Candelaria Edrosalam in favor of the Social Security System. "[Petitioners] defaulted in the payment of the monthly amortizations due on the mortgage. The Social Security System foreclosed the mortgage and sold the subject property at public auction with the Social Security System as the highest bidder. "On May 22, 1984, before the expiration of the redemption period, [petitioners] sold the subject property in favor of [respondent] in consideration of P200,025.89. Among others, the parties agreed that [respondent] shall pay the sum of P45,025.89 as down payment and the balance of P155,000.00 shall be paid on or before May 22, 1985. The parties further agreed that in case [respondent] should fail to comply with the conditions, the sale shall be considered void and [petitioners] shall reimburse [respondent] of whatever amount already paid. "On the same date, [petitioners] and [respondent] executed a Deed of Sale with Assumption of Mortgage whereby [petitioners] sold the subject property in favor of [respondent] in consideration of P80,000.00, P45,000.00 thereof shall be paid to the Social Security System. "On July 30, 1984, spouses Clodualdo Alcantara and Candelaria Edrosalam, the original owners of the subject property, sold the subject property in favor of [respondent] for P50,000.00. "On the same date, [respondent] executed a Deed of Mortgage whereby [respondent] constituted a mortgage over the subject property to secure a P150,000.00 indebtedness in favor of [petitioners]. "[Respondent] paid the indebtedness due over the subject property to the Social Security System. "On August 6, 1984, Transfer Certificate of Title No. T-71316 in the names of spouses Clodualdo Alcantara and Candelaria Edrosalam was cancelled and in lieu thereof Transfer Certificate of Title No. T-113299 was issued in the name of [respondent].

"On May 20, 1996, [petitioners] demanded from [respondent] the alleged unpaid balance of P55,000.00. [Respondent] refused to pay. "On June 6, 1996, [petitioners] filed this instant civil case against [respondent] to remove the cloud created by the issuance of TCT No. T113299 in favor of [respondent]. [Petitioners] claimed that they sold the subject property to [respondent] on the condition that [respondent] shall pay the balance on or before May 22, 1985; that in case of failure to pay, the sale shall be considered void and [petitioners] shall reimburse [respondent] of the amounts already paid; that [respondent] failed to fully pay the purchase price within the period; that on account of this failure, the sale of the subject property by [petitioners] to [respondent] is void; that in spite of this failure, [respondent] required [petitioners] to sign a lease contract over the apartment which [petitioners] occupy; that [respondent] should be required to reconvey back the title to the subject property to [petitioners]. "[Respondent] on her part claimed that her title over the subject property is already indefeasible; that the true agreement of the parties is that embodied in the Deed of Absolute Sale with Assumption of Mortgage; that [respondent] had fully paid the purchase price; that [respondent] is the true owner of the subject property; that [petitioners] claim is already barred by laches."6 After trial, the Regional Trial Court (RTC) of Valenzuela City rendered this judgment in favor of petitioners: "WHEREFORE, premises considered, this Court hereby adjudicates on this case as follows: 1.) The Court hereby orders the quieting of title or removal of cloud over the [petitioners] parcel of land and three (3) door apartment now covered by Transfer Certificate of Title No. T-113299 of the Registry of Deeds for Caloocan City and Tax Declaration Nos. C-018-00235 & C-031-012077 respectively, of Valenzuela City; 2.) The Court hereby orders the [respondent] to reconvey in favor of the [petitioners] the parcel of land and three (3) door apartment now covered by Transfer Certificate of Title No. T-113299 of the Registry of Deeds of Caloocan City after reimbursement by the [petitioners] of the amount actually paid by the [respondent] in the total amount of P145,025.89; 3.) The Court hereby DENIES damages as claimed by both parties." 7

The Court of Appeals opined that the first Memorandum of Agreement (MOA) embodied the real agreement between the parties, and that the subsequent Deeds were executed merely to secure their respective rights over the property.8 The MOA stated that Cristobal had not fully paid the purchase price. Although this statement might have given rise to a cause of action to annul the Deed of Sale, prescription already set in because the case had been filed beyond the ten-year reglementary period,9 as observed by the CA. Nonetheless, in conformity with the principle of unjust enrichment, the appellate court ordered respondent to pay petitioners the remaining balance of the purchase price.10 In their Motion for Partial Reconsideration, petitioners contended that their action was not one for the enforcement of a written contract, but one for the quieting of title -- an action that was imprescriptible as long as they remained in possession of the premises.11 The CA held, however, that the agreement between the parties was valid, and that respondents title to the property was amply supported by the evidence. 12 Therefore, their action for the quieting of title would not prosper, because they failed to show the invalidity of the cloud on their title. Hence, this Petition.13 The Issue In its Memorandum, petitioners raise the following issues for our consideration: "(1) Whether or not the [petitioners] cause of action is for quieting of title. "(2) Whether or not the [petitioners] cause of action has prescribed." 14 The main issue revolves around the characterization of the parties agreement and the viability of petitioners cause of action. This Courts Ruling The Petition has merit. Main Issue: Nature of the Action: Quieting of Title or

Ruling of the Court of Appeals Enforcement of a Written Contract

Petitioners argue that the action they filed in the RTC was for the quieting of title. Respondents demand that they desist from entering into new lease agreements with the tenants of the property allegedly attests to the fact of their possession of the subject premises. 15 Further, they point to the existence of Civil Case No. 7446, an action for unlawful detainer that respondent filed against them,16 as further proof of that fact. Being in continuous possession of the property, they argue that their action for the quieting of title has not prescribed.17 On the other hand, respondent joins the appellate court in characterizing the action petitioners filed in the RTC as one for the enforcement of the MOA. Being based on a written instrument, such action has already prescribed, respondent claims.18 She adds that petitioners could not have been in continuous possession of the subject property because, under a duly notarized lease agreement, they have been paying her a monthly rental fee of P500, which was later increased to P800. Two questions need to be answered to resolve the present case; namely, (1) whether Cristobals title to the property is valid; and (2) whether the Portics are in possession of the premises, a fact that would render the action for quieting of title imprescriptible. Validity of Title The CA held that the action for the quieting of title could not prosper, because Cristobals title to the property was amply supported by evidence. Article 476 of the Civil Code provides as follows: "Whenever there is a cloud on title to real property or any interest therein, by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial to said title, an action may be brought to remove such cloud or to quiet the title. "An action may also be brought to prevent a cloud from being cast upon title to real property or any interest therein." Suits to quiet title are characterized as proceedings quasi in rem.19 Technically, they are neither in rem nor in personam. In an action quasi in rem, an individual is named as defendant.20 However, unlike suits in rem, a quasi in rem judgment is conclusive only between the parties.21

Generally, the registered owner of a property is the proper party to bring an action to quiet title. However, it has been held that this remedy may also be availed of by a person other than the registered owner because, in the Article reproduced above, "title" does not necessarily refer to the original or transfer certificate of title.22 Thus, lack of an actual certificate of title to a property does not necessarily bar an action to quiet title. As will be shown later, petitioners have not turned over and have thus retained their title to the property. On the other hand, the claim of respondent cannot be sustained. The transfer of ownership of the premises in her favor was subject to the suspensive condition stipulated by the parties in paragraph 3 of the MOA, which states as follows: "3. That while the balance of P155,000.00 has not yet been fully paid the FIRST PARTY OWNERS shall retain the ownership of the above described parcel of land together with its improvements but the SECOND PARTY BUYER shall have the right to collect the monthly rentals due on the first door (13-A) of the said apartment;" 23 The above-cited provision characterizes the agreement between the parties as a contract to sell, not a contract of sale. Ownership is retained by the vendors, the Portics; it will not be passed to the vendee, the Cristobals, until the full payment of the purchase price. Such payment is a positive suspensive condition, and failure to comply with it is not a breach of obligation; it is merely an event that prevents the effectivity of the obligation of the vendor to convey the title. 24 In short, until the full price is paid, the vendor retains ownership. The mere issuance of the Certificate of Title in favor of Cristobal did not vest ownership in her. Neither did it validate the alleged absolute purchase of the lot. Time and time again, this Court has stressed that registration does not vest, but merely serves as evidence of, title. Our land registration laws do not give the holders any better title than that which they actually have prior to registration. 25 Under Article 1544 of the Civil Code, mere registration is not enough to acquire a new title. Good faith must concur.26 Clearly, respondent has not yet fully paid the purchase price. Hence, as long as it remains unpaid, she cannot feign good faith. She is also precluded from asserting ownership against petitioners. The appellate courts finding that she had a valid title to the property must, therefore, be set aside. Continuous Possession

The issue of whether the Portics have been in actual, continuous possession of the premises is necessarily a question of fact. Well-entrenched is the rule that findings of fact of the Court of Appeals, when supported by substantial evidence, are final and conclusive and may not be reviewed on appeal.27 This Court finds no cogent reason to disturb the CAs findings sustaining those of the trial court, which held that petitioners had been in continuous possession of the premises. For this reason, the action to quiet title has not prescribed. WHEREFORE, the Petition is GRANTED. The challenged Decision and Resolution of the Court of Appeals areREVERSED and SET ASIDE. The Decision of the RTC of Valenzuela City in Civil Case No. 4935-V-96, dated September 23, 1999, is hereby REINSTATED. No pronouncement as to costs. SO ORDERED. ARTEMIO V. PANGANIBAN Associate Justice Chairman, Third Division W E C O N C U R: ANGELINA SANDOVAL-GUTIERREZ Associate Justice

Chairman, Third Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. HILARIO G. DAVIDE, JR. Chief Justice

Footnotes
1

Rollo, pp. 8-24.

Id., pp. 51-66. Penned by Justice Eugenio S. Labitoria (Division chairman), with the concurrence of Justices Teodoro P. Regino and Rebecca de Guia-Salvador (members).
2 3

Id., pp. 73-75. Assailed CA Decision, p. 16; rollo, p. 66. CA Resolution, p. 3; rollo, p. 75. Assailed CA Decision, pp. 4-6; rollo, pp. 54-56.

CONCHITA CARPIO MORALES Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Associate Justice

Penned by Judge Jaime F. Bautista, RTC of Valenzuela City (Branch 75); rollo, p. 50.
7 8

Assailed CA Decision, p. 13; rollo, p. 63. Id., pp. 15 & 65. Ibid.

10

11

Assailed Resolution, p. 2; rollo, p. 74. Id., pp. 3 & 75.

12

Solid State Multi-Products Corp. v. Court of Appeals, 196 SCRA 630, May 6, 1991; De Guzman Jr. v. Court of Appeals, 156 SCRA 701, December 21, 1987.
25

The case was deemed submitted for decision on February 16, 2004, upon this Courts receipt of Petitioners Memorandum, signed by Atty. Danilo F. Villarica. Respondents Memorandum, signed by Atty. Alejandro R. Abesamis, was received by this Court on February 6, 2004.
13

Vda. de Jomoc v. Court of Appeals, 200 SCRA 74, 79, August 2, 1991 (citing Bergado v. Court of Appeals, 173 SCRA 497, May 19, 1989; Concepcion v. Court of Appeals, 193 SCRA 586, February 6, 1991).
26

Petitioners Memorandum, p. 8; rollo, p. 170. Original in upper case.

14 15

Mallari v. Court of Appeals, 265 SCRA 456, December 9, 1996; Suplico v. Court of Appeals, 257 SCRA 397, June 17, 1996; De la Cruz v. Court of Appeals, 265 SCRA 299, December 4, 1996; Limketkai Sons Milling, Inc. v. Court of Appeals, 255 SCRA 626, March 29, 1996.
27

Id., pp. 13 & 175. Id., pp. 14 & 176. Ibid. Respondents Memorandum, p. 11; rollo, p. 155.

16

17

18

Realty Sales Enterprise, Inc. v. IAC, 154 SCRA 328, 348, September 28, 1987.
19

Asiavest Limited v. Court of Appeals, 296 SCRA 539, September 25, 1998.
20 21

Valmonte v. Court of Appeals, 252 SCRA 92, January 22, 1996.

Chacon Enterprises v. Court of Appeals , 124 SCRA 784, September 29, 1983; Mamadsual v. Moson, 190 SCRA 82, 89, September 27, 1990.
22 23

Assailed CA Decision, p. 7; rollo, p. 57.

Dawson v. Register of Deeds of Quezon City , 295 SCRA 733, 741-742, September 22, 1998; Salazar v. Court of Appeals, 258 SCRA 317, 325, July 5, 1996 (citing Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 46 SCRA 381, 387, August 18, 1972; Jacinto v. Kaparaz, 209 SCRA 246, 254, May 22, 1992;Visayan Sawmill Co., Inc. v. Court of Appeals, 219 SCRA 378, 389, March 3, 1993; Pingol v. Court of Appeals, 226 SCRA 118, 126, September 6, 1993).
24

CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 53117 affirming the Decision 2 of the Regional Trial Court (RTC) of San Carlos City, Negros Occidental, which ordered the dismissal of the petitioners complaint for recovery of possession and damages. The Antecedents Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of land identified as Lot No. 124 of the San Carlos City, Negros Occidental Cadastre, with an area of 1,729 square meters and covered by Transfer Certificate of Title (TCT) No. 1453-R (T-29937)-38.3 Over time, Gertrudis and two other co-owners sold each of their one-seventh (1/7) shares, or a total area of 741 square meters, to Jesus Mascuana. The latter then sold a portion of his 140-square-meter undivided share of the property to Diosdado Sumilhig. Mascuana later sold an additional 160-square-meter portion to Sumilhig on April 7, 1961. However, the parties agreed to revoke the said deed of sale and, in lieu thereof, executed a Deed of Absolute Sale on August 12, 1961. In the said deed, Mascuana, as vendor, sold an undivided 469-square-meter portion of the property for P4,690.00, with P3,690.00 as down payment, and under the following terms of payment: That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared.4 On December 31, 1961, Mascuana and Jose G. Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate, 5 in which Estabillo deeded to Mascuana a portion of his property abutting that of Sumilhig on the southeast. In the meantime, a survey was conducted for the co-owners of Lot No. 124 on July 9, 1962. The subdivision plan of the said lot was approved by the Director of Lands on August 2, 1962. The portion of the property deeded to Sumilhig was identified in the said plan as Lot No. 124-B.6 Meanwhile, Mascuana died intestate on April 20, 1965 and was survived by his heirs, Eva M. Ellisin, Renee Hewlett, Carmen Vda. de Opea, Marilou Dy and Jose Ma. R. Mascuana.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 158646 June 23, 2005

HEIRS OF JESUS M. MASCUANA, represented by JOSE MA. R. MASCUANA, petitioners, vs. COURT OF APPEALS, AQUILINO BARTE, and SPOUSES RODOLFO and CORAZON LAYUMAS, respondents. DECISION

On April 24, 1968, Sumilhig executed a Deed of Sale of Real Property 7 on a portion of Lot No. 124-B with an area of 469 square meters and the improvements thereon, in favor of Corazon Layumas, the wife of Judge Rodolfo Layumas, for the price of P11,000.00. The spouses Layumas then had the property subdivided into two lots: Lot No. 124-B-2 with an area of 71 square meters under the name of Jesus Mascuana, and Lot No. 124-B1, with an area of 469 square meters under their names.8 The spouses Layumas took possession of the property and caused the cutting of tall grasses thereon. Upon the plea of a religious organization, they allowed a chapel to be constructed on a portion of the property. 9 In January 1985, the spouses Layumas allowed Aquilino Barte to stay on a portion of the property to ward off squatters.10 Barte and his kin, Rostom Barte, then had their houses constructed on the property. On October 1, 1985, the spouses Layumas received a Letter 11 from the counsel of Renee Tedrew, offering to buy their share of the property for US$1,000.00. For her part, Corazon Layumas wrote Pepito Mascuana, offering to pay the amount of P1,000.00, the balance of the purchase price of the property under the deed of absolute sale executed by Mascuana and Sumilhig on August 12, 1961.12 However, the addressee refused to receive the mail matter. 13 Unknown to the spouses Layumas, TCT No. 898614 was issued over Lot No. 124-B in the name of Jesus Mascuana on March 17, 1986. On November 17, 1986, the heirs of Mascuana filed a Complaint 15 for recovery of possession of Lot No. 124-B and damages with a writ of preliminary injunction, alleging that they owned the subject lot by virtue of successional rights from their deceased father. They averred that Barte surreptitiously entered the premises, fenced the area and constructed a house thereon without their consent. Attached as annexes to the complaint were TCT No. 8986 and a certification 16 from the Office of the City Treasurer, Land Tax Division, vouching that the property in question was owned by the petitioners and that they had paid the taxes thereon until 1992. In his answer to the complaint, Barte admitted having occupied a portion of Lot No. 124-B, but claimed that he secured the permission of Rodolfo Layumas, the owner of the subject property. He added that he did not fence the property, and that the petitioners did not use the same as a passageway in going to Broce Street from their house. Barte raised the following special defenses: (a) the petitioners were estopped from asserting ownership over the lot in question because they did not object when he occupied the said portion of the lot; (b) neither did the petitioners protest when a church was built on the property, or when residential houses were constructed thereon; (c) the petitioners still asked Barte and the other occupants whether they had notified Rodolfo Layumas of the constructions on the property; and (d) the heirs of Mascuana, through the lawyer of Mrs.

Renee M. Tedrew, even wrote a letter 17 to Rodolfo Layumas on October 1, 1985, expressing her willingness to buy the subject property for US$1,000.00. On April 8, 1991, the spouses Layumas filed a Motion for Leave to Intervene,18 alleging therein that they had a legal interest in Lot No. 124-B1 as its buyers from Sumilhig, who in turn purchased the same from Mascuana. In their answer in intervention,19 the spouses Layumas alleged that they were the true owners of the subject property and that they had wanted to pay the taxes thereon, but the Land Tax clerk refused to receive their payments on account that the petitioners had already made such payment. The spouses Layumas further maintained that the petitioners had no cause of action against Barte, as they had authorized him to occupy a portion of Lot No. 124-B-1. The spouses Layumas also averred that the petitioners were estopped from denying their right of ownership and possession of the subject lot, as one of them had even offered to repurchase a portion of Lot No. 124-B via letter. The said spouses interposed a counterclaim for damages, claiming ownership over the property, and prayed, thus: WHEREFORE, it is most respectfully prayed that this HONORABLE COURT render judgment in favor of the Intervenors and the defendant Aquilino Barte, ordering: 1. That the complaint against Aquilino Barte be dismissed with costs against the plaintiff; 2. That the Intervenors spouses Judge Rodolfo S. Layumas and Corazon A. Layumas be declared as the legal and true owners of Lot 124-B; 3. That the plaintiffs should deliver immediately to the Intervenors, TCT No. 8986 which is in their possession; 4. That the plaintiffs be made to pay to the Intervenors the sum of THIRTY THOUSAND (P30,000.00) PESOS moral damages; TEN THOUSAND (P10,000.00) PESOS attorneys fees plus THREE HUNDRED (P300.00) PESOS as appearance fee per hearing. Intervenors pray for such other relief and remedies as may be deemed by this Honorable Court as just and equitable in the premises. At the trial, intervenor Rodolfo Layumas testified that he and his wife bought the subject property in 1968, and that nobody objected to their possession of the land, including the petitioners. In 1970, a religious organization asked his permission to construct a chapel on the disputed lot;

he allowed the construction since the same would be used for the fiesta. He further declared that part of the chapel still stood on the property. In 1985, a fire razed the towns public market, thereby dislocating numerous people. Barte was one of the fire victims, who also happened to be a good friend and political supporter of Rodolfo. Out of goodwill, Barte was allowed to occupy a portion of the said lot, along with some other fire victims. Rodolfo clarified that the others were to stay there only on a temporary basis, but admitted that Bartes children also stayed in the subject property. 20 Rodolfo Layumas further narrated that in 1987, Corazon wrote one of the petitioners-heirs, Pepito Mascuana, requesting that the title of the lot be transferred in Sumilhigs name so that they could likewise arrange for the conveyance of the title in their names. Pepito failed to claim the letter, and thereafter, filed a case of ejectment against Barte and Rodolfo Layumas brother-in-law, Pepito Antonio. The case, the witness added, was dismissed as against the two parties. Offered in evidence were the following: a Sworn Statement on the Current and Fair Market Value of the Real Property issued in 1973 as required by Presidential Decree No. 76, and tax receipts. 21 Rodolfo Layumas admitted on cross-examination that at the time they bought the property from Sumilhig, the title was still in the possession of the Wuthrich family. He added that he filed an adverse claim before the Register of Deeds of San Carlos City, Negros Occidental, on Lot No. 124-B in January 1986, or after the case had already been filed in court. Lastly, the witness deposed that he did not fence the property after buying the same, but that his brother-in-law constructed a coco-lumber yard thereon upon his authority.22 On January 30, 1996, the trial court rendered judgment in favor of Barte and the spouses Layumas. The fallo of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of Intervenors-counterclaimants and defendant and against plaintiffscounterclaim defendants ordering as follows: 1. The dismissal of the plaintiffs complaint with costs against them; 2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge Rodolfo S. Layumas and Corazon A. Layumas: (a) P10,000.00 for attorneys fees; and (b) P30,000.00 as moral damages;

3. The plaintiffs, as counterclaim defendants, to comply with the above-stated obligation of their late father, Mr. Jesus Mascuana, under the Deed of Absolute Sale, Exh. "3", pp. 92-93, Exp., thru plaintiff Mr. Jose Mascuana, including the desegragation (sic) survey to desegregate the 469-square-meter portion of said Lot No. 124-B, San Carlos Cadastre, this province, sold to the late Diosdado Sumilhig, if the same has not yet been done despite what has been said herein earlier to said effect, and the execution of the Final Deed of Sale in their capacity as the heirs and successors-in-interest of the late Mr. Jesus Mascuana, thru Mr. Jose Mascuana, covering the 469-square-meter desegregated portion of said Lot No. 124-B, within sixty (60) days counted from the finality of this Decision, in favor of the Intervenors-spouses, after which the said Intervenors-spouses shall pay them, thru Mr. Jose Mascuana, the P1,000.00 balance due to them as successors-in-interest of the late Mr. Jesus Mascuana; 4. In case plaintiffs fail to comply with what are herein ordered for them to do, the Clerk of Court V of this Court to do all that they were to do as herein ordered in the text and dispositive portion hereof, at the expense of Intervenors spouses to be later reimbursed by plaintiffs, including the desegragation (sic) survey of said 469-square-meter portion of said Lot [No.] 124-B, San Carlos Cadastre, Negros Occidental, if the same has not yet been done and the execution of the Final Deed of Sale on behalf of all the plaintiffs as heirs and successors-in-interest of the late Mr. Jesus Mascuana covering the said desegregated portion of 469 square meters of the aforesaid lot, in favor of Intervenors spouses, to the end that separate title therefor may be issued in their names, after they shall have paid the P1,000.00 balance due plaintiffs under said Deed of Absolute Sale, Exh. "3." SO ORDERED.23 Forthwith, the petitioners appealed the case to the CA, raising the following issues of fact and law: a. Whether or not the contract of alienation of Lot No. 124-B in favor of Diosdado Sumilhig in 1961 was a contract to sell or a contract of sale; b. Whether or not Diosdado Sumilhig had any right to sell Lot No. 124-B in favor of intervenor Corazon Layumas in 1968.24 On May 5, 2003, the CA affirmed the decision of the trial court. It ruled that the contract between the petitioners father and Sumilhig was one of sale. Foremost, the CA explained, the contract was denominated as a "Deed of

Absolute Sale." The stipulations in the contract likewise revealed the clear intention on the part of the vendor (Mascuana) to alienate the property in favor of the vendee (Sumilhig). In three various documents, the late Mascuana even made declarations that Sumilhig was already the owner of the disputed land. The CA added that the admission may be given in evidence against Mascuana and his predecessors-in-interest under Section 26, Rule 130 of the Revised Rules on Evidence. As to the argument that the contract between Mascuana and Sumilhig was not effective because it was subject to a suspensive condition that did not occur, the CA ruled that the condition referred to by the petitioners refers only to the payment of the balance of the purchase price and not to the effectivity of the contract.1avvphi1.zw+ As to the petitioners contention that even if the contract were one of sale, ownership cannot be transferred to Sumilhig because Mascuana was not yet the owner of the lot at the time of the alleged sale, the appellate court ruled that the registration of the land to be sold is not a prerequisite to a contract of sale. The Present Petition Aggrieved, the petitioners filed the instant petition for review on certiorari with this Court, where the following lone legal issue was raised: WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUANA IN FAVOR OF DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE?25 We note that the original action of the petitioners against Aquilino Barte was one for recovery of possession of Lot No. 124-B. With the intervention of the respondents Rodolfo and Corazon Layumas who claimed ownership over the property, and the acquiescence of the parties, evidence was adduced to prove who, between the petitioners (as plaintiffs) and the respondents (as defendants-intervenors) were the lawful owners of the subject property and entitled to its possession. The petitioners resolutely contend that the Deed of Absolute Sale dated August 12, 1961 between their father and Sumilhig was a mere contract to sell because at the time of the said sale, the late Mascuana was not yet the registered owner of Lot No. 124 or any of its portions. They assert that Sumilhig could not have acquired any rights over the lot due to the fact that a person can only sell what he owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer legally. Finally, the petitioners insist that the document in controversy was subject to a suspensive condition, not a resolutory condition, which is a typical attribute of a contract of sale.

The petition is denied for lack of merit. The issues raised by the petitioners in this case are factual, and under Rule 45 of the Rules of Court, only questions of law may be raised in this Court, the reason being that this Court is not a trier of facts. It is not to re-examine the evidence on record and to calibrate the same. Moreover, the findings and conclusions of the trial court as affirmed by the CA are conclusive on the Court, absent of any evidence that the trial court, as well as the CA ignored, misinterpreted and misconstrued facts and circumstances of substance which, if considered, would alter or reverse the outcome of the case.26 We have reviewed the records and find no justification for a reversal or even a modification of the assailed decision of the CA. Even on the merits of the petition, the Court finds that the decision of the trial court as well as the ruling of the CA are based on the evidence on record and the applicable law. The petitioners reiterated their pose that the deed of absolute sale over the property executed by their father, Jesus Mascuana, as vendor, and Diosdado Sumilhig as vendee, was a contract to sell and not a contract of sale. They assert that on its face, the contract appears to be a contract to sell, because the payment of the P1,000.00 balance of the purchase price was subject to a suspensive condition: the survey of the property, the segregation of the portion thereof subject of the sale, and the completion of the documents necessary for the issuance of a Torrens title over the property to and in the name of Sumilhig who was the vendee. The petitioners assert that Sumilhig never paid the aforesaid amount to the vendor; hence, the obligation of the latter and his predecessors-in-interest (herein petitioners) to execute a final deed of sale never arose. As such, they aver, title to the property remained reserved in the vendor and his heirs even after his death. There was no need for the vendor to rescind the deed or collect the said amount of P1,000.00 under Article 1191 of the New Civil Code because such a remedy applies only to contracts of sale. The petitioners insist that Sumilhig never acquired title over the property; he could not have transferred any title to the respondents. Sumilhig could not have transferred that which he did not own. The petitioners contention has no factual and legal bases. The deed of absolute sale executed by Jesus Mascuana and Sumilhig, provides, thus: That the VENDOR is the true and absolute owner of a parcel of land known as Lot No. 124 of the Cadastral Survey of San Carlos, situated at Broce

Street and is free from liens and encumbrances, and covered by O.C.T. No. T-299[3]7 (R-1453) of Reg. of Deeds, Negros Occ. That for and in consideration of the sum of FOUR THOUSAND SIX HUNDRED NINETY PESOS (P4,690.00), Philippine Currency, to be paid by the VENDEE in the manner hereinafter stated, the VENDOR does hereby sell, transfer, cede and convey, a portion of the above-described property containing an area of 469 square meters, the sketch of which can be found at the back of this document and having a frontage at Broce Street of around 14 meters, and from the Broce Street to the interior on its Southwest side with a length of 30.9 meters, with a length of 24.8 meters on its Northeast side where it turned to the right with a length of 2.8 meters and continuing to Northwest with a length of 6.72 meters, the backyard dimension is 17.5 meters to the Northwest, unto the VENDEE, his heirs and assigns, by way of Absolute Sale, upon the receipt of the down payment of THREE THOUSAND SIX HUNDRED NINETY PESOS (P3,690.00), which is hereby acknowledged by the VENDOR as received by him.lawphil.net That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared. The evidence on record shows that during the lifetime of vendor Jesus Mascuana, and even after his death, his heirs, the petitioners herein, unequivocably declared that Diosdado Sumilhig was the owner of the property subject of this case, and that the respondents acquired title over the property, having purchased the same via a deed of absolute sale from Diosdado Sumilhig. Thus, on December 31, 1961, Jesus Mascuana and Jose Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate, in which both parties declared that they were co-owners of portions of Lot No. 124 abutted by the property owned by Diosdado Sumilhig.27 In the subdivision plan of Lot No. 124, signed by Ricardo Quilop, Private Land Surveyor, following his survey of Lot No. 124 on July 9, 1962 for and in behalf of Jesus Mascuana, et al., it appears that Lot No. 124-B with an area of 540 square meters belonged to Diosdado Sumilhig,28 which is abutted by Lot No. 124-C, owned by Jesus Mascuana. On October 1, 1985, long after the death of Jesus Mascuana, one of his heirs, petitioner Renee Tedrew, through counsel, wrote respondent Rodolfo Layumas offering to buy the property occupied by his overseer Aquilino Barte for US$1,000.00:

ATTY. RODOLFO S. LAYUMAS San Carlos City Negros Occidental Dear Atty. Layumas: This has reference to the lot located at Broce Street, portions of which are presently occupied by Mr. Barte. Mrs. Renee Tedrew (nee Agapuyan), who is now in the United States, would like to offer the amount of $1,000.00 to buy your share of the said lot. If you are amenable, kindly inform the undersigned for him to communicate [with] Mrs. Tedrew in California. Very truly yours, (Sgd.) SAMUEL SM LEZAMA29 It was only after the respondents rejected the proposal of petitioner Renee Tedrew that the petitioners secured title over the property on March 17, 1986 in the name of Jesus Mascuana (already deceased at the time), canceling TCT No. 967 issued on July 6, 1962 under the name of Jesus Mascuana, who appears to be a co-owner of Lot No. 124 with an undivided two-seventh (2/7) portion thereof.30 While it is true that Jesus Mascuana executed the deed of absolute sale over the property on August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, and that it was only on July 6, 1962 that TCT No. 967 was issued in his name as one of the co-owners of Lot No. 124, Diosdado Sumilhig and the respondents nevertheless acquired ownership over the property. The deed of sale executed by Jesus Mascuana in favor of Diosdado Sumilhig on August 12, 1961 was a perfected contract of sale over the property. It is settled that a perfected contract of sale cannot be challenged on the ground of the non-transfer of ownership of the property sold at that time of the perfection of the contract, since it is consummated upon delivery of the property to the vendee. It is through tradition or delivery that the buyer acquires ownership of the property sold. As provided in Article 1458 of the New Civil Code, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing which is the object of the contract, unless the contrary appears or can be inferred. The record of the sale with the Register of Deeds and the issuance of the certificate of title in the name of the buyer over the property merely bind third parties to the sale. As between the seller and the buyer, the transfer of ownership takes effect upon the

execution of a public instrument covering the real property. 31 Long before the petitioners secured a Torrens title over the property, the respondents had been in actual possession of the property and had designated Barte as their overseer. Article 1458 of the New Civil Code provides: 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. Thus, there are three essential elements of sale, 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. 32 In this case, there was a meeting of the minds between the vendor and the vendee, when the vendor undertook to deliver and transfer ownership over the property covered by the deed of absolute sale to the vendee for the price of P4,690.00 of which P3,690.00 was paid by the vendee to the vendor as down payment. The vendor undertook to have the property sold, surveyed and segregated and a separate title therefor issued in the name of the vendee, upon which the latter would be obliged to pay the balance of P1,000.00. There was no stipulation in the deed that the title to the property remained with the vendor, or that the right to unilaterally resolve the contract upon the buyers failure to pay within a fixed period was given to such vendor. Patently, the contract executed by the parties is a deed of sale and not a contract to sell. As the Court ruled in a recent case: In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g. by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. 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) Thus, in one case, when the sellers declared in a "Receipt of Down Payment" that they received an amount as purchase price for a house and lot without any reservation of title until full payment of the entire purchase price, the implication was that they sold their property. In Peoples Industrial and Commercial Corporation v. Court of Appeals, it was stated: A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Applying these principles to this case, it cannot be gainsaid that the contract of sale between the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to respondent. Thus, Art. 1477 provides that the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.33 The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the vendee as soon as the property sold shall have been surveyed in the name of the vendee and all papers pertinent and necessary to the issuance of a separate certificate of title in the name of the vendee shall have been prepared is not a condition which prevented the efficacy of the contract of sale. It merely provides the manner by which the total purchase price of the property is to be paid. The condition did not prevent the contract from being in full force and effect: The stipulation that the "payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale" is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to be computed and the time within which the same is to be paid. But it does not affect in any manner the effectivity of the contract. 34 In a contract to sell, ownership is retained by a seller and is not to be transferred to the vendee until full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation from acquiring binding force.35

It bears stressing that in a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligation created under the transaction. 36 A seller cannot unilaterally and extrajudicially rescind a contract of sale unless there is an express stipulation authorizing it. In such case, the vendor may file an action for specific performance or judicial rescission. 37 Article 1169 of the New Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him; from the moment one of the parties fulfills his obligation, delay by the other begins. In this case, the vendor (Jesus Mascuana) failed to comply with his obligation of segregating Lot No. 124-B and the issuance of a Torrens title over the property in favor of the vendee, or the latters successors-ininterest, the respondents herein. Worse, petitioner Jose Mascuana was able to secure title over the property under the name of his deceased father. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners. SO ORDERED. Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

Exhibit "2," Id. at 208. Exhibit "10," Id. at 219. Id., TSN, 19 April 1994, pp. 23-24. Exhibits "1" and "10," Id. at 207 and 219. Exhibit "4," Id. at 212. Exhibit "5-A," Id. at 214. Id. Exhibit "A," Records, p. 183. Records, p. 1. Id. at 7. Records, p. 26. Id. at 86. Id. at 88. TSN, 19 August 1994, pp. 16, 23-25. Id. at 32-37. Id. at 46, 49-51. Records, pp. 376-377. CA Rollo, p. 46. Rollo, p. 15.

10

11

12

13

14

15

16

17

18

19

Footnotes
20

Penned by Associate Justice Rosmari D. Carandang, with Associate Justices Conrado M. Vasquez, Jr. and Mercedes GozoDadole, concurring.
1 2

21

Penned by Judge Abraham D. Caa. Exhibit "L," Records, p. 253. Records, p. 210. Exhibit "17," Records, p. 287. Exhibit "19," Id. at 289.

22

23

24

25

See Morales v. Court of Appeals, G.R. No. 91003, 23 May 1991, 197 SCRA 391; Universal Motors Corporation v. Court of Appeals,
26

G.R. No. 47432, 27 January 1992, 205 SCRA 448; and Arroyo v. Court of Appeals, G.R. No. 96602 and G.R. No. 96715, 19 November 1991, 203 SCRA 750.
27

Exhibits "17-A" and "17-C,." Records, p. 287. Exhibits "19" and "19-A," Id. at 289. Exhibit "1," Records, p. 212. Exhibit "N," Id. at 257. Art. 1458, New Civil Code.

28

29

30

31

Heirs of Juan San Andres v. Rodriguez, G.R. No. 135634, 31 May 2000, 332 SCRA 769.
32 33

Ibid. Id..

34

Heirs of Pedro Escanlar v. Court of Appeals, G.R. No. 119777, 23 October 1997, 281 SCRA 176.
35 36

Ibid.

Benito v. Saquitan-Ruiz, G.R. No. 149906, 26 December 2002, 394 SCRA 250.
37

Republic of the Philippines SUPREME COURT SECOND DIVISION G.R. No. 142411 October 14, 2005

WINIFREDA URSAL, Petitioner, vs. COURT OF APPEALS, THE RURAL BANK OF LARENA (SIQUIJOR), INC. and SPOUSES JESUS MONESET and CRISTITA MONESET, Respondents. DECISION AUSTRIA-MARTINEZ, J.: Before us is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision1 of the Court of Appeals (CA) dated June 28, 1999 and the Resolution dated January 31, 2000 denying petitioners motion for reconsideration.2 These are the facts: The spouses Jesus and Cristita Moneset (Monesets) are the registered owners of a 333-square meter land together with a house thereon situated at Sitio Laguna, Basak, Cebu City covered by Transfer Certificate of Title No. 78374.3 On January 9, 1985, they executed a "Contract to Sell Lot & House" in favor of petitioner Winifreda Ursal (Ursal), with the following terms and conditions: That the VENDOR (Cristita R. Moneset) offers to SELL and the VENDEE accepts to BUY at the agreed lump sum price of P130,000.00 payable on the installment basis as follows: 1. That on the date of the signing of this agreement, the VENDEE will tender an earnest money or downpayment ofP50,000.00 to the VENDOR, and by these presents, the latter hereby acknowledges receipt of said amount from the former; 2. That the balance of the selling price of P80,000.00 shall be paid by the VENDEE to the VENDOR in equal monthly installments of P3,000.00 starting the month of February, 1985, until said balance of the selling price shall be fully paid; 3. That if the VENDEE shall fail or in default to pay six (6) monthly installments to the VENDOR the herein agreement is deemed cancelled, terminated and/or rescinded and in such event, the VENDEE (sic) binds to refund to the VENDOR (sic) the deposit of P50,000.00 and with the latters

(sic) obligation to pay the former (sic) as a corresponding refund for cost of improvements made in the premises by VENDEE; 4. That on the date of receipt of the downpayment of P50,000.00 by the VENDOR, it is mutually agreed for VENDEE to occupy and take physical possession of the premises as well as for the latter (VENDEE) to keep and hold in possession the corresponding transfer certificate of title No. ______ of the land in question which is the subject of this agreement; 5. That on the date of final payment by the VENDEE to the VENDOR, the latter shall execute at her expense the corresponding document of DEED OF ABSOLUTE SALE for the former as well as the payment of realty clearances, BIR Capital Gain Tax, sales tax or transfer fees and attorneys fees; that, for the issuance of title in VENDEEs name shall be the exclusive account of said VENDEE.4 Petitioner paid the down payment and took possession of the property. She immediately built a concrete perimeter fence and an artesian well, and planted fruit bearing trees and flowering plants thereon which all amounted toP50,000.00. After paying six monthly installments, petitioner stopped paying due to the Monesets failure to deliver to her the transfer certificate of title of the property as per their agreement; and because of the failure of the Monesets to turn over said title, petitioner failed to have the contract of sale annotated thereon.5 Unknown to petitioner, the Monesets executed on November 5, 1985 an absolute deed of sale in favor of Dr. Rafael Canora, Jr. over the said property for P14,000.00.6 On September 15, 1986, the Monesets executed another sale, this time with pacto de retro with Restituto Bundalo.7 On the same day, Bundalo, as attorney-in-fact of the Monesets, executed a real estate mortgage over said property with Rural Bank of Larena (hereafter Bank) located in Siquijor for the amount of P100,000.00.8 The special power of attorney made by the Monesets in favor of Bundalo as well as the real estate mortgage was then annotated on the title on September 16, 1986.9 For the failure of the Monesets to pay the loan, the Bank served a notice of extrajudicial foreclosure dated January 27, 1988 on Bundalo. 10 On September 30, 1989, Ursal filed an action for declaration of noneffectivity of mortgage and damages against the Monesets, Bundalo and the Bank. She claimed that the defendants committed fraud and/or bad faith in mortgaging the property she earlier bought from the Monesets with a bank located in another island, Siquijor; and the Bank acted in bad faith since it granted the real estate mortgage in spite of its knowledge that the property was in the possession of petitioner. 11 The Monesets answered that it was Ursal who stopped paying the agreed monthly installments in breach of their agreement. 12 The Bank, on the other

hand, averred that the title of the property was in the name of "Cristita Radaza Moneset married to Jesus Moneset" and did not show any legal infirmity.13 Bundalo, meanwhile, was not served summons because he could no longer be found at his given address.14 Trial on the merits proceeded. Thereafter, the Regional Trial Court of Cebu City, Branch 24, rendered its decision finding that Ursal is more credible than the Monesets and that the Monesets are liable for damages for fraud and breach of the contract to sell: The evidence of [Ursal] show that she was the first to acquire a substantial interest over the lot and house by virtue of the execution of the Contract to Sell (Exh. "A"). After the execution of Exh. "A" plaintiff took possession of the questioned lot and houseafter she made a downpayment of P50,000.00. [S]he paid the installments for six (6) months without fail. [However] plaintiff (stopped) paying the installment because defendant spouses failed to give her the Transfer Certificate of Title over the lot and house despite repeated demands. It is evident then that the first to violate the conditions of Exh. "A" were the defendants Spouses Moneset. This is the reason why plaintiff was not able to annotate Exh. "A" on the TCT. The evidence of plaintiff show that there was no intention on her part to discontinue paying the installments. In a reciprocal obligation, one cannot be compelled to do if the other party fails to do his part (Art. 1169, New Civil Code). The acts of defendant Spouses Moneset in selling again the lot and house in question to Dr. Canora by executing a Deed of Absolute Sale; in selling the same on pacto de retro to defendant Bundalo; and in mortgaging the same to defendant Rural Bank of Larena are plainly and clearly fraudulent because they were done while Exh. "A" was still existing and the transaction was done without notice to the plaintiff. As provided in Art. 1170 of the New Civil Code, those who are guilty of fraud in the performance of their obligation --- and those who in any manner contravene the tenor thereof, are liable for damages. Another ground for liability under this article is when there is fraud/deceit. In the instant case, there was fraud/deceit on the part of the defendant spouses Moneset when they executed the Deed of Sale to Dr. Canora; the Deed of Sale with Pacto de Retro to Bundalo and the Special Power of Attorney for Bundalo to execute for and in their behalf the Real Estate

Mortgage with the Rural Bank of Larena knowing fully well that the Contract to Sell house and lot, Exh. "A" was still existing notwithstanding their violation to the provisions thereto. It is therefore crystal clear that defendant spouses Moneset are liable for damages.15 As to the real estate mortgage, the trial court held that the same was valid and the Bank was not under any obligation to look beyond the title, although the present controversy could have been avoided had the Bank been more astute in ascertaining the nature of petitioners possession of the property, thus: The Real Estate Mortgage and the Foreclosure Proceedings cannot be considered null and void in the sense that per se the formalities required by law were complied with except for the fact that behind their execution there was fraud, deceit and bad faith on the part of defendant spouses Moneset and Bundalo. The defendant Rural Bank of Larena for its part could have avoided this situation if the bank appraiser who made the ocular inspection of the subject house and lot went deeper and investigated further when he learned that the owner is not the actual occupant. He was however told by Moneset that the actual occupant was only a lessee. Banking on this information that the actual occupant was only a lessee with no other right over and above such, the bank approved a loan of P100,000.00 in favor of Moneset through Bundalo their attorney-in-fact. Likewise the Rural Bank of Larena had the right to rely on what appeared on the certificate of title of the Monesets and it was under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of the certificate. The approval of the P100,000.00 loan from the Rural Bank of Larena was made possible through the deception and bad faith of defendant spouses Moneset and Bundalo but the pertinent documents were per se in order. The court is of the honest belief that the case against the defendant bank be dismissed for lack of merit. The court however believes that for reasons of equity the bank should give the plaintiff Ursal the preferential right to redeem the subject house and lot.16 The trial court then disposed of the case as follows: Wherefore premises considered, judgment is hereby rendered in favor of the defendant Rural Bank of Larena dismissing the complaint against it for lack of merit and against the defendant spouses Moneset ordering them to:

1. reimburse to plaintiff Ursal the following: a.) downpayment of P50,000.00 b.) monthly installments for six months at P3,000.00 per month --- P18,000.00 c.) expenses improvements P61, 676.52 2. pay to plaintiff the following: a.) moral damages ----------------- P30,000.00 b.) exemplary damages ----------- P20,000.00 c.) litigation expenses------------- P 5,000.00 d.) attorneys fees ----------------- P10,000.00 e.) costs 3. order the defendant Rural Bank of Larena to give the plaintiff the preferential right to redeem the subject house and lot. SO ORDERED.17 Both Ursal and the Monesets appealed the decision to the CA. Ursal alleged that the Bank was guilty of bad faith for not investigating the presence of Ursal on the property in question, while the Monesets claimed that the trial court erred in giving preferential right to Ursal to redeem the property and in ordering them to pay damages.18 The CA affirmed in toto the decision of the trial court. It held that the Bank did not have prior knowledge of the contract to sell the house and lot and the Monesets acted fraudulently thus they cannot be given preferential right to redeem the property and were therefore correctly ordered to pay damages.19 The Monesets filed a motion for reconsideration which was denied outright for having been filed out of time.20Ursals motion for reconsideration was denied by the CA on January 31, 2000 for lack of merit. 21

Hence, the present petition raising the sole error: "That with grave abuse of discretion amounting to excess of jurisdiction, the Honorable Court of Appeals erred in rendering a decision and Resolution NOT in accordance with law and the applicable rulings of the Supreme Court." 22 Petitioner claims that: the Bank was duly informed through its appraiser that the house and lot to be mortgaged by Monesets were in the possession of a lessee; the Bank should have taken this as a cue to investigate further the Monesets right over the same; the case of Embrado vs. Court of Appeals (233 SCRA 335) held that where a purchaser neglects to make the necessary inquiry and closes his eyes to facts which should put a reasonable man on his guard to the possibility of the existence of a defect in his vendors title, he cannot claim that he is a purchaser in good faith; Sec. 50 of Act 496 provides that where a party has knowledge of a prior existing interest which is unregistered at the time he acquired the land, his knowledge of that prior unregistered interest has the effect of registration as to him and the Torrens system cannot be used as a shield against fraud; following Art. 2176 of the Civil Code, respondent Bank is obliged to pay for the damage done.23 Petitioner then prayed that the Deed of Real Estate Mortgage be declared as non-effective and non-enforceable as far as petitioner is concerned; that she be declared as the absolute owner of the house and lot in question; that the Monesets be ordered to execute a deed of absolute sale covering the subject property; and that the Bank be ordered to direct the collection or payment of the loan of P100,000.00 plus interest from the Monesets for they were the ones who received and enjoyed the said loan. 24 On the other hand, respondent Bank in its Comment argues that: its interest in the property was only that of mortgagee and not a purchaser thus its interest is limited only to ascertaining that the mortgagor is the registered owner; the case cited is inapplicable at bar since it involves the purchase of real property; Ursal was purportedly only a lessee of the property, thus as mortgagor who is not entitled to possess the mortgaged property, they no longer considered the lease in the processing and approval of the loan; Sec. 50 of Act No. 496 is also inapplicable since the alleged prior existing interest was only that of a lessee; in any case, it was the Monesets who lied to the Bank anent the real nature of the encumbrance, thus, it is the Monesets who are guilty of fraud and not the Bank.25 In her "Rejoinder,"26 petitioner argued that: under the law on mortgage, the mortgagor must be the owner of the property he offers as security of his loan; the mortgagee like herein Bank which neglects to verify the ownership of the property offered as security of the loan runs the risk of his

folly; the Banks negligence is not excusable because an adverse claim and notice of lis pendens were already annotated on the certificate of title when the mortgage was constituted or when the deed of real estate mortgage was annotated; it would be unfair to put the blame on petitioner who was innocent of the transaction; the trial court found that the Bank even provided its appraiser the amount of P15,000.00 to redeem the pacto de retro sale allegedly executed in favor of Dr. Canora; this should have aroused the Banks suspicion and prompted it to investigate further the property; the trial court recognized the bad faith committed by the Monesets and ordered them to pay the sum of P126,676.52 in damages but exonerated the Bank who is equally guilty of bad faith; the Monesets cannot pay the damages as they have no money and property thus if the decision of the trial court as affirmed by the CA is to be enforced, they will only be holding an empty bag while the Bank which is equally guilty will go free; what would be fair is to let the two respondents bear jointly and severally the consequences of their transaction and let the innocent petitioner ultimately own the house and lot in question.27 The petitioner, in her Memorandum dated July 31, 2005, raised the issues of: "(1) Whether or not the document captioned: Contract to Sell Lot and House (Exh. A) is valid and binding so much so that the herein Petitioner who is the Vendee is the lawful and true owner of the lot and house in question; (2) Whether or not the herein respondents spouses Jesus Moneset and Cristita Moneset who were the vendors and/or mortgagors together with respondent Restituto Bundalo were conniving and acting in bad faith; and (3) Whether or not respondent Rural Bank of Larena measured up to the strict requirement of making a thorough investigation of the property offered as collateral before granting a loan and be considered as innocent mortgagee and entitled to the protection of the law." 28 Petitioner reiterated her arguments in support of the first and third issues raised in the Memorandum while she merely adopted the CA findings in support of the second issue, i.e., when the Monesets encumbered the Transfer Certificate of Title (TCT) to Dr. Canora and thereafter to Bundalo, they committed bad faith or fraud since the contract to sell with Ursal was still valid and subsisting.29 Respondent Bank, in its Memorandum dated July 20, 2005, reiterated the arguments it made in its Comment that: the case cited by petitioner requiring extra ordinary diligence is inapplicable in this case since what is involved here is mortgage and not sale; as mortgagee, its interest is limited only to determining whether the mortgagor is the registered owner of the property whose certificate of title showed that there were no existing encumbrances thereon; and even with unregistered encumbrances, the Bank has priority by the registration of the loan documents.30 No memorandum is filed by respondent Monesets.

The crux of petitioners contention is that the Bank failed to look beyond the transfer certificate of title of the property for which it must be held liable. We agree. Banks cannot merely rely on certificates of title in ascertaining the status of mortgaged properties; as their business is impressed with public interest, they are expected to exercise more care and prudence in their dealings than private individuals.31 Indeed, the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.32 As enunciated in Cruz vs. Bancom:33 Respondent is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.34 Our agreement with petitioner on this point of law, notwithstanding, we are constrained to refrain from granting the prayers of her petition, to wit: that the Deed of Real Estate Mortgage be declared as non-effective and nonenforceable as far as petitioner is concerned; that she be declared as the absolute owner of the house and lot in question; that the Monesets be ordered to execute a deed of absolute sale covering the subject property; and that the Bank be ordered to direct the collection or payment of the loan of P100,000.00 plus interest from the Monesets for they were the ones who received and enjoyed the said loan.35 The reason is that, the contract between petitioner and the Monesets being one of "Contract to Sell Lot and House," petitioner, under the circumstances, never acquired ownership over the property and her rights were limited to demand for specific performance from the Monesets, which at this juncture however is no longer feasible as the property had already been sold to other persons. A contract to sell is a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. 36 In such contract, the prospective seller expressly reserves the transfer of title to the prospective buyer, until the happening of an event, which in this

case is the full payment of the purchase price. What the seller agrees or obligates himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. Stated differently, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.37 It is different from contracts of sale, since ownership in contracts to sell is reserved by the vendor and is not to pass to the vendee until full payment of the purchase price, while in contracts of sale, title to the property passess to the vendee upon the delivery of the thing sold. In contracts of sale the vendor loses ownership over the property and cannot recover it unless and until the contract is resolved or rescinded, while in contracts to sell, title is retained by the vendor until full payment of the price.38 In contracts to sell, full payment is a positive suspensive condition while in contracts of sale, non-payment is a negative resolutory condition. 39 A contract to sell may further be distinguished from a conditional contract of sale, in that, the fulfillment of the suspensive condition, which is the full payment of the purchase price, will not automatically transfer ownership to the buyer although the property may have been previously delivered to him. The prospective vendor still has to convey title to the prospective buyer by entering into a contract of absolute sale. While in a conditional contract of sale, the fulfillment of the suspensive condition renders the sale absolute and affects the sellers title thereto such that if there was previous delivery of the property, the sellers ownership or title to the property is automatically transferred to the buyer. 40 Indeed, in contracts to sell the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition, that is, the full payment of the purchase price by the buyer. It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the ownership of the thing sold to the buyer. Prior to the existence of the contract of sale, the seller is not obligated to transfer the ownership to the buyer, even if there is a contract to sell between them. 41 In this case, the parties not only titled their contract as "Contract to Sell Lot and House" but specified in their agreement that the vendor shall only execute a deed of absolute sale on the date of the final payment by vendee.42 Such provision signifies that the parties truly intended their contract to be that of contract to sell.43 Since the contract in this case is a contract to sell, the ownership of the property remained with the Monesets even after petitioner has paid the down payment and took possession of the property. In Flancia vs. Court of

Appeals,44where the vendee in the contract to sell also took possession of the property, this Court held that the subsequent mortgage constituted by the owner over said property in favor of another person was valid since the vendee retained absolute ownership over the property.45 At most, the vendee in the contract to sell was entitled only to damages.46 Petitioner attributes her decision to stop paying installments to the failure of the Monesets to comply with their agreement to deliver the transfer certificate of title after the down payment of P50,000.00. On this point, the trial court was correct in holding that for such failure, the Monesets are liable to pay damages pursuant to Art. 1169 of the Civil Code on reciprocal obligations.47 The vendors breach of the contract, notwithstanding, ownership still remained with the Monesets and petitioner cannot justify her failure to complete the payment. In Pangilinan vs. Court of Appeals,48 the vendees contended that their failure to pay the balance of the total contract price was because the vendor reneged on its obligation to improve the subdivision and its facilities. In said case, the Court held that the vendees were barred by laches from asking for specific performance eight years from the date of last installment. The Court held that: (the vendees) instead of being vigilant and diligent in asserting their rights over the subject property had failed to assert their rights when the law requires them to act. Laches or "stale demands" is based upon grounds of public policy which requires, for the peace of society, the discouragement of stale claims and unlike the statute of limitations, is not a mere question of time but is principally a question of the inequity or unfairness of permitting a right or claim to be enforced or asserted. The legal adage finds application in the case at bar. Tempus enim modus tollendi obligations et actiones, quia tempus currit contra desides et sui juris contemptoresFor time is a means of dissipating obligations and actions, because time runs against the slothful and careless of their own rights."49 In this case, petitioner instituted an action for "Declaration of NonEffectivity of Mortgage with Damages" four yearsfrom the date of her last installment and only as a reaction to the foreclosure proceedings instituted by respondent Bank. After the Monesets failed to deliver the TCT, petitioner merely stopped paying installments and did not institute an action for specific performance, neither did she consign payment of the remaining balance as proof of her willingness and readiness to comply with her part of the obligation. As we held in San Lorenzo Development Corp. vs. Court of Appeals,50 the perfected contract to sell imposed on the vendee the

obligation to pay the balance of the purchase price. There being an obligation to pay the price, the vendee should have made the proper tender of payment and consignation of the price in court as required by law. Consignation of the amounts due in court is essential in order to extinguish the vendees obligation to pay the balance of the purchase price.51Since there is no indication in the records that petitioner even attempted to make the proper consignation of the amounts due, the obligation on the part of the Monesets to transfer ownership never acquired obligatory force. In other words, petitioner did not acquire ownership over the subject property as she did not pay in full the equal price of the contract to sell. Further, the Monesets breach did not entitle petitioner to any preferential treatment over the property especially when such property has been sold to other persons. As explained in Coronel vs. Court of Appeals:52 In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-sellers title per se, but the latter, of course, may be sued for damages by the intending buyer.53 (Emphasis supplied) In this case, the lower courts found that the property was sold to Dr. Canora and then to Bundalo who in turn acted as attorney-in-fact for the Monesets in mortgaging the property to respondent Bank. The trial court and the CA erred in giving petitioner the preferential right to redeem the property as such would prejudice the rights of the subsequent buyers who were not parties in the proceedings below. While the matter of giving petitioner preferential right to redeem the property was not put in issue before us, in the exercise of our discretionary power to correct manifest and palpable error, we deem it proper to delete said portion of the decision for being erroneous.54 Petitioners rights were limited to asking for specific performance and damages from the Monesets. Specific performance, however, is no longer feasible at this point as explained above. This being the case, it follows that petitioner never had any cause of action against respondent Bank. Having no cause of action against the bank and not being an owner of the subject property, petitioner is not entitled to redeem the subject property.

Petitioner had lost her right to demand specific performance when the Monesets executed a Deed of Absolute Sale in favor of Dr. Canora. Contrary to what she claims, petitioner had no vested right over the property. Indeed, it is the Monesets who first breached their obligation towards petitioner and are guilty of fraud against her. It cannot be denied however that petitioner is also not without fault. She sat on her rights and never consigned the full amount of the property. She therefore cannot ask to be declared the owner of the property, this late, especially since the same has already passed hands several times, neither can she question the mortgage constituted on the property years after title has already passed to another person by virtue of a deed of absolute sale. At this point, let it be stated that the courts below and even this Court have no jurisdiction to resolve the issue whether there was bad faith among the Monesets, Canora and Bundalo. Canora was never impleaded. Bundalo has not been served with summons. WHEREFORE, the petition is DENIED. The decision of the Regional Trial Court of Cebu City, Branch 24, promulgated on February 5, 1993 and the decision of the Court of Appeals dated June 28, 1999 are herebyAFFIRMED. However, in the higher interest of substantial justice, the Court MODIFIES the same to the effect that the portion ordering the Rural Bank of Larena (Siquijor), Inc. to give petitioner the preferential right to redeem the house and lot covered by Transfer Certificate of Title No. 78374 is DELETED for lack of legal basis. No costs. SO ORDERED. MA. ALICIA AUSTRIA-MARTINEZ Associate Justice WE CONCUR: REYNATO S. PUNO Associate Justice Chairman (No part)

ROMEO J. CALLEJO, SR. Associate Justice MINITA V. CHICO-NAZARIO Associate Justice ATTESTATION

DANTE O. TINGA Associate Justice

Records, p. 27, Exh. "C." Records, p. 9. Rollo, pp. 24-27, CA Decision. Records, p. 70, Exh. "2-Moneset." Id., p. 71, Exh. "1-Moneset." Id., p. 184, Exh. "5." Id., p. 27, Exh. "C." Id., p. 73. Id., pp. 1-4. Id., pp. 28-30, Monesets Answer. Id., pp. 21-22, Rural Bank of Larenas Answer. Rollo, p. 24, CA Decision. Records, pp. 232-234. Id., p. 234. Records, p. 235. Rollo, pp. 28-29, CA Decision. Id., pp. 29-32, CA Decision. CA Rollo, p. 112. Rollo, p. 37. Id., p. 16.

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Associate Justice Chairman, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. HILARIO G. DAVIDE, JR. Chief Justice

10

11

12

13

14

15

16

17

18

19

Footnotes
20

Penned by Associate Justice Mariano M. Umali (now retired) and concurred in by Associate Justices Quirino D. Abad Santos, Jr. (now retired) and Romeo J. Callejo, Sr. (now Associate Justice of the Supreme Court); Rollo pp. 23-32.
1 2

21

22

Rollo, p. 37.

23

Id., pp. 16-18.

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done, such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
24

Philippine National Bank vs. Court of Appeals, G.R. No. 119580, September 26, 1996, 262 SCRA 464, 479, citing Sing Yee vs. Santos, 47 O.G. 6372 (1951).
39 40

Coronel vs. Court of Appeals, supra, p. 28.

Id., pp. 18-19. Id., pp. 42-43. Should be a "Reply." Rollo, pp. 46-47. Id., p. 66. Id., pp. 66-72. Id., p. 56.

Chua vs. Court of Appeals, G.R. No. 119255, April 9, 2003, 401 SCRA 54, 66, citing Salazar vs. Court of Appeals, G.R. No. 118203, July 5, 1996, 258 SCRA 317.
41 42

25

Records, p. 9.

26

27

Lacanilao vs. Court of Appeals, G.R. No. 121200, September 26, 1996, 262 SCRA 486, 490; Adelfa Properties Inc. vs. Court of Appeals, G.R. No. 111238, January 25, 1995, 240 SCRA 565, 577578.
43 44

28

G.R. No. 146997, April 26, 2005. Ibid. Ibid.; Coronel vs. Court of Appeals, supra, p. 28. Art. 1169. --

29

45

30

46

Consolidated Rural Bank (Cagayan Valley) vs. Court of Appeals, G.R. No. 132161, January 17, 2005, 448 SCRA 347, 367.
31

47

Rural Bank of Campostela vs. Court of Appeals, G.R. No. 122801, April 8, 1997, 271 SCRA 76, 88.
32 33

G.R. No. 147788, March 19, 2002, 379 SCRA 490. Id., p. 505. Rollo, pp. 18-19.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins; see also Leao vs. Court of Appeals, G.R. No. 129018, November 15, 2001, 369 SCRA 36, 45-46.
48

34

G.R. No. 83588, September 29, 1997, 279 SCRA 590.

35

Coronel vs. Court of Appeals, G.R. No. 103577, October 7, 1996, 263 SCRA 15, 27.
36 37

Pangilinan vs. Court of Appeals, G.R. No. 83588, September 29, 1997, 279 SCRA 590, 601.
49 50

G.R. No. 124242, January 21, 2005, 449 SCRA 99. Ibid. G.R. No. 103577, October 7, 1996, 263 SCRA 15.

Id., p. 26. Flancia vs. Court of Appeals, G.R. No. 146997, April 26, 2005.

51

38

52

53

Ibid., p. 28. Mendoza vs. Bautista, G.R. No, 143666, March 18, 2005.

Republic of the Philippines SUPREME COURT THIRD DIVISION G.R. No. 123672 December 14, 2005 FERNANDO CARRASCOSO, JR., Petitioner, vs. THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other Stockholders of El Dorado Plantation, Inc. and EL DORADO PLANTATION, INC., represented by one of its minority stockholders, Lauro P. Leviste, Respondents x---------------------------------------x G.R. No. 164489 PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Petitioner, vs. LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other Stockholders of El Dorado Plantation, Inc., EL DORADO PLANTATION, INC., represented by Minority Stockholder, Lauro P. Leviste, and FERNANDO CARRASCOSO, JR., Respondents. DECISION CARPIO MORALES, J.: El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land (the property) with an area of approximately 1,825 hectares covered by Transfer Certificate of Title (TCT) No. T-93 1 situated in Sablayan, Occidental Mindoro. On February 15, 1972, at a special meeting of El Dorados Board of Directors, a Resolution2 was passed authorizing Feliciano Leviste, then President of El Dorado, to negotiate the sale of the property and sign all documents and contracts bearing thereon. On March 23, 1972, by a Deed of Sale of Real Property, 3 El Dorado, through Feliciano Leviste, sold the property to Fernando O. Carrascoso, Jr. (Carrascoso).

54

The pertinent provisions of the Deed of Sale read: NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT HUNDRED THOUSAND (1,800,000.00) PESOS, Philippine Currency, the Vendor hereby sells, cedes, and transfer (sic) unto the herein VENDEE, his heirs, successors and assigns, the above-described property subject to the following terms and consitions (sic): 1. Of the said sum of P1,800,000.00 which constitutes the full consideration of this sale, P290,000.00 shall be paid, as it is hereby paid, to the Philippines (sic) National Bank, thereby effecting the release and cancellation fo (sic) the present mortgage over the above-described property. 2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE to the VENDOR, receipt of which amount is hereby acknowledged by the VENDOR. 3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of 10% per annum shall be paid by the VENDEE to the VENDOR within a period of three (3) years, as follows: (a) One (1) year from the date of the signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE HUNDRED NINETEEN THOUSAND EIGHT HUNDRED THIRTY THREE & 33/100 (P519,833.33) PESOS. (b) Two (2) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE HUNDRED NINETTEN (sic) THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS. (c) Three (3) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE Hundred NINETEEN THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS. 4. The title of the property, subject of this agreement, shall pass and be transferred to the VENDEE who shall have full authority to register the same and obtain the corresponding transfer certificate of title in his name. xxx 6. THE VENDOR certifies and warrants that the property above-described is not being cultivated by any tenant and is therefore not covered by the provisions of the Land Reform Code. If, therefore, the VENDEE becomes

liable under the said law, the VENDOR shall reimburse the VENDEE for all expenses and damages he may incur thereon.4 (Underscoring supplied) From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay the full amount of the purchase price on March 23, 1975. On even date, the Board of Directors of El Dorado passed a Resolution reading: "RESOLVED that by reason of the sale of that parcel of land covered by TCT No. T-93 to Dr. FERNANDO O. CARRASCOSO, JR., the corporation interposes no objection to the property being mortgage (sic) by Dr. FERNANDO O. CARRASCOSO, JR. to any bank of his choice as long as the balance on the Deed of Sale shall be recognized by Dr. FERNANDO O. CARRASCOSO, JR.; "RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim on the property to be subordinated to any mortgage that may be constituted by Dr. FERNANDO O. CARRASCOSO, JR.; "RESOLVED, FINALLY, that in case of any mortgage on the property, the corporation waives the preference of any vendors lien on the property."5 (Emphasis and underscoring supplied) Feliciano Leviste also executed the following affidavit on the same day: 1. That by reason of the sale of that parcel of land covered by Transfer Certificate of Title T-93 as evidenced by the Deed of Sale attached hereto as Annex "A" and made an integral part hereof, the El Dorado Plantation, Inc. has no objection to the aforementioned property being mortgaged by Dr. Fernando O. Carrascoso, Jr. to any bank of his choice, as long as the payment of the balance due the El Dorado Plantation, Inc. under the Deed of Sale, Annex "A" hereof, shall be recognized by the vendee therein, Dr. Fernando O. Carrascoso, Jr. though subordinated to the preferred claim of the mortgagee bank. 2. That in case of any mortgage on the property, the vendor hereby waives the preference of any vendors lien on the property, subject matter of the deed of sale. 3. That this affidavit is being executed to avoid any question on the authority of Dr. Fernando O. Carrascoso, Jr. to mortgage the property subject of the Deed of Sale, Annex "A" hereof, where the purchase price provided therein has not been fully paid.

4. That this affidavit has been executed pursuant to a board resolution of El Dorado Plantation, Inc.6 (Emphasis and underscoring supplied) On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate Mortgage7 over the property in favor of Home Savings Bank (HSB) to secure a loan in the amount of P1,000,000.00. Of this amount, P290,000.00 was paid to Philippine National Bank to release the mortgage priorly constituted on the property and P210,000.00 was paid to El Dorado pursuant to above-quoted paragraph Nos. 1 and 2 of the terms and conditions of the Deed of Sale.8 The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El Dorados TCT No. T-93 as Entry No. 15240 9 on April 5, 1972. On even date, TCT No. T-93 covering the property was cancelled and TCT No. T-605510 was in its stead issued by the Registry of Deeds of Occidental Mindoro in the name of Carrascoso on which the real estate mortgage in favor of HSB was annotated as Entry No. 15242.11 On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an additional three year loan of P70,000.00 as requested by the spouses Carrascoso.12 The Amendment of Real Estate Mortgage was also annotated on TCT No. T-6055 as Entry No. 15486 on May 24, 1972.13 The 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed without him having complied therewith. In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Company (PLDT), through its President Ramon Cojuangco, executed an Agreement to Buy and Sell14 whereby the former agreed to sell 1,000 hectares of the property to the latter at a consideration of P3,000.00 per hectare or a total ofP3,000,000.00. The July 11, 1975 Agreement to Buy and Sell was not registered and annotated on Carrascosos TCT No. T-6055. Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of El Dorado, through his counsel, Atty. Benjamin Aquino, by letter 15 dated December 27, 1976, called the attention of the Board to Carrascosos failure to pay the balance of the purchase price of the property amounting to P1,300,000.00. And Lauros lawyer manifested that: Because of the default for a long time of Mr. Carrascoso to pay the balance of the consideration of the sale, Don Lauro Leviste, in his behalf and in behalf of the other shareholders similarly situated like him, want a rescission of the sale made by the El Dorado Plantation, Inc. to Mr.

Carrascoso. He desires that the Board of Directors take the corresponding action for rescission.16 Lauros desire to rescind the sale was reiterated in two other letters17 addressed to the Board dated January 20, 1977 and March 3, 1977. Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 197718 to Carrascoso informing him that in view of his failure to pay the balance of the purchase price of the property, El Dorado was seeking the rescission of the March 23, 1972 Deed of Sale of Real Property. The pertinent portions of the letter read: xxx I regret to inform you that the balance of P1,300,000.00 and the interest thereon have long been due and payable, although you have mortgaged said property with the Home Savings Bank for P1,000,000.00 on March 24, 1972, which was subsequently increased to P1,070,000.00 on May 18, 1972. You very well know that the El Dorado Plantation, Inc., is a close family corporation, owned exclusively by the members of the Leviste family and I am one of the co-owners of the land. As nothing appears to have been done on your part after our numerous requests for payment of the said amount of P1,300,000.00 and the interest of 10% per annum due thereon, please be advised that we would like to rescind the contract of sale of the land.19(Underscoring supplied) Jose Leviste, by letter20 dated March 10, 1977, informed Lauros counsel Atty. Aquino of his (Joses) February 21, 1977 letter to Carrascoso, he lamenting that "Carrascoso has not deemed it fit to give [his] letter the courtesy of a reply" and advis[ing] that some of the Directors of [El Dorado] could not see their way clear in complying with the demands of your client [Lauro] and have failed to reach a consensus to bring the corresponding action for rescission of the contract against . . . Carrascoso." 21 Lauro and El Dorado finally filed on March 15, 1977 a complaint22 for rescission of the March 23, 1972 Deed of Sale of Real Property between El Dorado and Carrascoso with damages before the Court of First Instance (CFI) of Occidental Mindoro, docketed as Civil Case No. R-226. Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name of Carrascoso and the revival of TCT No. T-93 in the name of El Dorado, free from any liens and encumbrances. Furthermore, the two

prayed for the issuance of an order for Carrascoso to: (1) reconvey the property to El Dorado upon return to him ofP500,000.00, (2) secure a discharge of the real estate mortgage constituted on the property from HSB, (3) submit an accounting of the fruits of the property from March 23, 1972 up to the return of possession of the land to El Dorado, (4) turn over said fruits or the equivalent value thereof to El Dorado and (5) pay the amount ofP100,000.00 for attorneys fees and other damages. 23 Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT No. T-6055 a Notice of Lis Pendens, inscribed as Entry No. 39737.24 In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed of Absolute Sale25over the 1,000 hectare portion of the property subject of their July 11, 1975 Agreement to Buy and Sell. The pertinent portions of the Deed are as follows: WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and Sell on July 11, 1975, which is made a part hereof by reference; WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed of Absolute Sale referred to in the aforementioned agreement to Buy and Sell; WHEREFORE, for and in consideration of the foregoing premises and the terms hereunder stated, the VENDOR and the VENDEE have agreed as follows: 1. For and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00), Philippine currency, of which ONE HUNDRED TWENTY THOUSAND PESOS P120,000.00 have (sic) already been received by the VENDOR, the VENDOR hereby sells, transfers and conveys unto the VENDEE one thousand hectares (1,000 has.) of his parcel of land covered by T.C.T. No. T-6055 of the Registry of Deeds of Mindoro, delineated as Lot No. 3-B-1 in the subdivision survey plan xxx 2. The VENDEE shall pay to the VENDOR upon the signing of this agreement, the sum of TWO MILLION FIVE HUNDRED THOUSAND PESOS (P2,500,000.00) in the following manner: a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS (P2,300,000.00) to Home Savings Bank in full payment of the VENDORs mortgaged obligation therewith; b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;

The remaining balance of the purchase price in the sum of THREE HUNDRED EIGHTY THOUSAND PESOS (P380,000.00), less such expenses which may be advanced by the VENDEE but which are for the account of the VENDOR under Paragraph 6 of the Agreement to Buy and Sell, shall be paid by the VENDEE to the VENDORupon issuance of title to the VENDEE.26 (Underscoring supplied) In turn, PLDT, by Deed of Absolute Sale27 dated May 30, 1977, conveyed the aforesaid 1,000 hectare portion of the property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a consideration of P3,000,000.00, the amount of P2,620,000.00 of which was payable to PLDT upon signing of said Deed, and P380,000.00 to Carrascoso upon issuance of title to PLDTAC. In the meantime, on October 19, 1977, the El Dorado Board of Directors, by a special meeting,28 adopted and approved a Resolution ratifying and conferring "the prosecution of Civil Case No. R-226 of the Court of First Instance of Occidental Mindoro, entitled Lauro P. Leviste vs. Fernando Carascoso (sic), etc. initiated by stockholder Mr. Lauro P. Leviste." 29 In his Answer with Compulsory Counterclaim, 30 Carrascoso alleged that: (1) he had not paid his remainingP1,300,000.00 obligation under the March 23, 1972 Deed of Sale of Real Property in view of the extensions of time to comply therewith granted him by El Dorado; (2) the complaint suffered from fatal defects, there being no showing of compliance with the condition precedent of exhaustion of intra-corporate remedies and the requirement that a derivative suit instituted by a complaining stockholder be verified under oath; (3) El Dorado committed a gross misrepresentation when it warranted that the property was not being cultivated by any tenant to take it out of the coverage of the Land Reform Code; and (4) he suffered damages due to the premature filing of the complaint for which Lauro and El Dorado must be held liable. On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute Sale and the respective Articles of Incorporation of PLDT and PLDTAC were annotated on TCT No. T-6055 as Entry Nos. 24770,31 42774,324276933 and 24772,34 respectively. On even date, Carrascosos TCT No. T-6055 was cancelled and TCT No. T-12480 35 covering the 1,000 hectare portion of the property was issued in the name of PLDTAC. The March 15, 1977 Notice of Lis Pendens was carried over to TCT No. T-12480. On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention36 which was granted by the trial court by Order37 of September 7, 1978.

PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim and Crossclaim 38against Carrascoso on November 13, 1978, alleging that: (1) when Carrascoso executed the April 6, 1977 Deed of Absolute Sale in favor of PLDT, PLDT was not aware of any litigation involving the 1,000 hectare portion of the property or of any flaw in his title, (2) PLDT is a purchaser in good faith and for value; (3) when PLDT executed the May 30, 1977 Deed of Absolute Sale in favor of PLDTAC, they had no knowledge of any pending litigation over the property and neither were they aware that a notice of lis pendens had been annotated on Carrascosos title; and (4) Lauro and El Dorado knew of the sale by Carrascoso to PLDT and PLDTs actual possession of the 1,000 hectare portion of the property since June 30, 1975 and of its exercise of exclusive rights of ownership thereon through agricultural development. 39 By Decision40 of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro Regional Trial Court to which the CFI has been renamed, dismissed the complaint on the ground of prematurity, disposing as follows, quotedverbatim: WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered: 1. Dismissing the plaintiffs complaint against the defendant on the ground of prematurity; 2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as actual and compensatory damages, as well as the sum of P100,000.00 as and for attorneys fees; provided, however, that the aforesaid amounts must first be set off from the latters unpaid balance to the former; 3. Dismissing the defendants-intervenors counterclaim and cross-claim; and 4. Ordering the plaintiffs to pay to (sic) the costs of suit. SO ORDERED.41 (Underscoring supplied) Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals. By Decision42 of January 31, 1996, the appellate court reversed the decision of the trial court, disposing as follows, quoted verbatim:

WHEREFORE, not being meritorious, PLDTs/PLDTACs appeal is hereby DISMISSED and finding El Dorados appeal to be impressed with merit, We REVERSE the appealed Decision and render the following judgment: 1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No. T-12480 (Exhibit Q) is cancelled while TCT No. T-93 (Exhibit A), is reactivated. 2. Fernando Carrascoso, Jr. is commanded to: 2.1. return the possession of the 825 [hectare-] remaining portion of the land to El Dorado Plantation, Inc. without prejudice to the landholdings of legitimate tenants thereon; 2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March 23, 1972 to July 11, 1975, and of the 825-hectare-remaining portion minus the tenants landholdings, from July 11, 1975 up to its delivery to El Dorado Plantation, Inc. including whatever he may have received from the tenants if any by way of compensation under the Operation Land Transfer or under any other pertinent agrarian law; 2.3 Pay El Dorado Plantation, Inc. an attorneys fee of P20,000.00 and litigation expenses of P30,000.00; 2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural Corporation P3,000,000.00 plus legal interest from April 6, 1977 until fully paid; 3. PLDT Agricultural Corporation is ordered to surrender the possession of the 1000-hectare Farm to El Dorado Plantation, Inc.; 4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando Carrascoso, Jr. plus legal interest from March 23, 1972 until fully paid. The performance of this obligation will however await the full compliance by Fernando Carrascoso, Jr. of his obligation to account for and deliver the net fruits of the land mentioned above to El Dorado Plantation, Inc. 5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic) the court a quo a full accounting of the fruits of the land during the period mentioned above for the latters approval, after which the net fruits shall be delivered to El Dorado, Plantation, Inc. 6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural Corporation in writing within ten (10)

days after finality of this decision regarding the exercise of its option under Art. 448 of the Civil Code. SO ORDERED.43 (Underscoring supplied) PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideration44 of the January 31, 1996 CA Decision, while Carrascoso went up this Court by filing on March 25, 1996 a petition for review,45 docketed as G.R. No. 123672, assailing the January 31, 1996 CA Decision and seeking the reinstatement of the January 28, 1991 Decision of the trial court except with respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000 hectare portion of the property was subject to the notice of lis pendens. Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of Party46 was filed praying that his heirs, represented by Conrad C. Leviste, be substituted as respondents. The Motion was granted by Resolution47 of July 10, 1996. PLDT and PLDTAC filed their Comment to Carrascosos petition and prayed that judgment be rendered finding them to be purchasers in good faith to thus entitle them to possession and ownership of the 1,000 hectare portion of the property, together with all the improvements they built thereon. Reiterating that they were not purchasers pendente lite, they averred that El Dorado and Lauro had actual knowledge of their interests in the said portion of the property prior to the annotation of the notice of lis pendens to thereby render said notice ineffective.
48

Court, by Resolution52 of June 30, 2003, directed the appellate court to resolve the same. By Resolution53 of July 8, 2004, the CA denied PLDT and PLDTACs Motion for Reconsideration for lack of merit. PLDT54 thereupon filed on September 2, 2004 a petition for review 55 before this Court, docketed as G.R. No. 164489, seeking to reverse and set aside the January 31, 1996 Decision and the July 8, 2004 Resolution of the appellate court. It prayed that judgment be rendered upholding its right, interest and title to the 1,000 hectare portion of the property and that it and its successors-in-interest be declared owners and legal possessors thereof, together with all improvements built, sown and planted thereon. By Resolution56 of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No. 123672. In his petition, Carrascoso faults the CA as follows: I THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A MISTAKE OF LAW IN NOT DECLARING THAT THE ACTION FOR RESCISSION WAS PREMATURELY FILED. II THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A MISTAKE OF LAW IN DISREGARDING THE CRUCIAL SIGNIFICANCE OF THE WARRANTY OF NON-TENANCY EXPRESSLY STIPULATED IN THE CONTRACT OF SALE. III THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN REVERSING THE DECISION OF THE TRIAL COURT. 57 (Underscoring supplied) PLDT, on the other hand, faults the CA as follows: I THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND PLTAC (sic) TOOK THEIR RIGHT, INTEREST AND

El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their Comment49 to Carrascosos petition, praying that it be dismissed for lack of merit and that paragraph 6 of the dispositive portion of the January 31, 1996 CA Decision be modified to read as follows: 6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural Corporation in writing within ten (10) days after finality of this decision regarding the exercise of its option under Arts. 449 and 450 of the Civil Code, without right to indemnity on the part of the latter should the former decide to keep the improvements under Article 449.50 (Underscoring supplied) Carrascoso filed on November 13, 1996 his Reply51 to the Comment of El Dorado and the heirs of Lauro. In the meantime, as the February 22, 1996 Motion for Reconsideration filed by PLDT and PLDTAC of the CA decision had remained unresolved, this

TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE PROTECTION ACCORDED THEM UNDER ARTICLES 1181 AND 1187 OF THE NEW CIVIL CODE. II THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND PLDTAC TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE LEGAL PRINCIPLE THAT RESPONDENTS EL DORADO ET AL.s PRIOR, ACTUAL KNOWLEDGE OF PETITIONER PLDTS AGREEMENT TO BUY AND SELL WITH RESPONDENT CARRASCOSO RESULTING IN THE DELIVERY TO, AND POSSESSION, OCCUPATION AND DEVELOPMENT BY, SAID PETITIONER OF THE FARM, IS EQUIVALENT TO REGISTRATION OF SUCH RIGHT, INTEREST AND TITLE AND, THEREFORE, A PRIOR REGISTRATION NOT AFFECTED BY THE LATER NOTICE OF LIS PENDENS.58(Underscoring supplied) Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of Feliciano Leviste, both dated March 23, 1972, no objection was interposed to his mortgaging of the property to any bank provided that the balance of the purchase price of the property under the March 23, 1972 Deed of Sale of Real Property is recognized, hence, El Dorado could collect the unpaid balance of P1,300,000.00 only after the mortgage in favor of HSB is paid in full; and the filing of the complaint for rescission with damages on March 15, 1977 was premature as he fully paid his obligation to HSB only on April 5, 1977 as evidenced by the Cancellation of Mortgage59 signed by HSB President Gregorio B. Licaros. Carrascoso further posits that extensions of the period to pay El Dorado were verbally accorded him by El Dorados directors and officers, particularly Jose and Angel Leviste. Article 1191 of the Civil Code provides: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other.60 They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.61 The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party who violates the reciprocity between them.62 A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent.63 The non-payment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a time existed, and discharges the obligations created thereunder.64 Such failure to pay the price in the manner prescribed by the contract of sale entitles the unpaid seller to sue for collection or to rescind the contract. 65 In the case at bar, El Dorado already performed its obligation through the execution of the March 23, 1972 Deed of Sale of Real Property which effectively transferred ownership of the property to Carrascoso. The latter, on the other hand, failed to perform his correlative obligation of paying in full the contract price in the manner and within the period agreed upon. The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the purchase price of the property amounting to P1,300,000.00 plus interest thereon at the rate of 10% per annum within a period of three (3) years from the signing of the contract on March 23, 1972. When Jose Leviste informed him that El Dorado was seeking rescission of the contract by letter of February 21, 1977, the period given to him within which to fully satisfy his obligation had long lapsed. The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to Carrascosos mortgaging of the property to any bank did not have the effect of suspending the period to fully pay the purchase price, as expressly stipulated in the Deed, pending full payment of any mortgage obligation of Carrascoso. As the CA correctly found:

The adverted resolution (Exhibit 2) does not say that the obligation of Carrascoso to pay the balance was extended. Neither can We see in it anything that can logically infer said accommodation. A partially unpaid seller can agree to the buyers mortgaging the subject of the sale without changing the time fixed for the payment of the balance of the price. The two agreements are not incompatible with each other such that when one is to be implemented, the other has to be suspended. In the case at bench, there was no impediment for Carrascoso to pay the balance of the price after mortgaging the land. Also, El Dorados subordinating its "preferred claim" or waiving its superior "vendors lien" over the land in favor of the mortgagee of said property only means that in a situation where the unpaid price of the Land and loan secured by the mortgage over the Land both become due and demandable, the mortgagee shall have precedence in going after the Land for the satisfaction of the loan. Such accommodations do not necessarily imply the modification of the period fixed in the contract of sale for the payment by Carrascoso of the balance. The palpable purpose of El Dorado in not raising any objection to Carrascosos mortgaging the land was to eliminate any legal impediment to such a contract. That was so succinctly expressed in the Affidavit (Exhibit 2-A) of President Feleciano (sic) Leviste. El Dorados yielding its "superior lien" over the land in favor of the mortgagee was plainly intended to overcome the natural reluctance of lending institutions to accept a land whose price has not yet been fully paid as collateral of a loan.66 (Underscoring supplied) Respecting Carrascosos insistence that he was granted verbal extensions within which to pay the balance of the purchase price of the property by El Dorados directors and officers Jose and Angel Leviste, this Court finds the same unsubstantiated by the evidence on record. It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, 1977, calling his attention to his failure to comply, despite "numerous" requests, with his obligation to pay the amount of P1,300,000.00 and 10% annual interest thereon, and advising him that "we would like to rescind the contract of sale." This letter reiterated the term of payment agreed upon in the March 23, 1972 Deed of Sale of Real Property and Carrascososs noncompliance therewith. Carrascoso, harping on Jose Levistes March 10, 1977 letter to Lauros counsel wherein he (Jose Leviste) stated that "some of the Directors of the corporation could not see their way clear in complying with the demands of [Lauro] and have failed to reach a consensus to bring the corresponding action for rescission of the contract against Dr. Fernando Carrascoso,"

argues that the extensions priorly given to him "no doubt lead to the logical conclusion on some of the directors inability to file suit against him." 67 The argument is specious. As the CA found, even if some officers of El Dorado were initially reluctant to file suit against him, the same should not be interpreted to mean that this was brought about by a prior extension of the period to pay the balance of the purchase price of the property as such reluctance could have been due to a myriad of reasons totally unrelated to the period of payment of the balance. The bottomline however is, if El Dorado really intended to extend the period of payment of the balance there was absolutely no reason why it did not do it in writing in clear and unmistakable terms. That there is no such writing negates all the speculations of the court a quo and pretensions of Carrascoso. xxx The unalterable fact here remains that on March 23, 1973, with or without demand, the obligation of Carrascoso to pay P519,933.33 became due. The same was true on March 23, 1974 and on March 23, 1975 for equal amounts. Since he did not perform his obligation under the contract of sale, he, therefore, breached it. Having breached the contract, El Dorados cause of action for rescission of that contract arose.68 (Underscoring supplied) Carrascoso goes on to argue that the appellate court erred in ignoring the import of the warranty of non-tenancy expressly stipulated in the March 23, 1972 Deed of Sale of Real Property. He alleges that on March 8, 1972 or two weeks prior to the execution of the Deed of Sale, he discovered, while inspecting the property on board a helicopter, that there were people and cattle in the area; when he confronted El Dorado about it, he was told that the occupants were caretakers of cattle who would soon leave; 69 four months after the execution of the Deed of Sale, upon inquiry with the Bureau of Lands and the Bureau of Soils, he was informed that there were people claiming to be tenants in certain portions of the property; 70 and he thus brought the matter again to El Dorado which informed him that the occupants were not tenants but squatters. 71 Carrascoso now alleges that as a result of what he concludes to be a breach of the warranty of non-tenancy committed by El Dorado, he incurred expenses in the amount of P2,890,000.00 for which he should be reimbursed, his unpaid obligation to El Dorado amounting to P1,300,000.00 to be deducted therefrom.72 The breach of an express warranty makes the seller liable for damages.73 The following requisites must be established in order that there

be an express warranty in a contract of sale: (1) the express warranty must be an affirmation of fact or any promise by the seller relating to the subject matter of the sale; (2) the natural tendency of such affirmation or promise is to induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying on such affirmation or promise thereon.74 Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted that the property was not being cultivated by any tenant and was, and therefore, not covered by the provisions of the Land Reform Code. If Carrascoso would become liable under the said law, he would be reimbursed for all expenses and damages incurred thereon. Carrascoso claims to have incurred expenses in relocating persons found on the property four months after the execution of the Deed of Sale. Apart from such bare claim, the records are bereft of any proof that those persons were indeed tenants.75 The fact of tenancy76 not having been priorly established,77 El Dorado may not be held liable for actual damages. Carrascoso further argues that both the trial and appellate courts erred in holding that the sale of the 1,000 hectare portion of the property to PLDT, as well as its subsequent sale to PLDTAC, is subject to the March 15, 1977 Notice of Lis Pendens. PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy and Sell which it entered into with Carrascoso on July 11, 1975, positing that the efficacy of its purchase from Carrascoso, upon his fulfillment of the condition it imposed resulting in its decision to formalize their transaction and execute the April 6, 1977 Deed of Sale, retroacted to July 11, 1975 or before the annotation of the Notice of Lis Pendens.78 The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between PLDT and Carrascoso read: 2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby agrees to purchase from the former, 1,000 hectares of the abovedescribed parcel of land as shown in the map hereto attached as Annex "A" and made an integral part hereof and as hereafter to be more particularly determined by the survey to be conducted by Certeza & Co., at the purchase price of P3,000.00 per hectare or for a total consideration of Three Million Pesos (P3,000,000.00) payable in cash. 3. That this contract shall be considered rescinded and cancelled and of no further force and effect, upon failure of the VENDOR to clear the aforementioned 1,000 hectares of land of all the occupants therein located, within a period of one (1) year from the date of execution of this Agreement. However, the VENDEE shall have the option to extend the life

of this Agreement by another six months, during which period the VENDEE shall definitely inform the VENDOR of its decision on whether or not to finalize the deed of absolute sale for the aforementioned 1,000 hectares of land. The VENDOR agrees that the amount of P500.00 per family within the aforementioned 1,000 hectares of land shall be spent by him for relocation purposes, which amount however shall be advanced by the VENDEE and which shall not exceed the total amount of P120,000.00, the same to be thereafter deducted by the VENDEE from the aforementioned purchase price of P3,000,000.00. The aforementioned advance of P120,000.00 shall be remitted by the VENDEE to the VENDOR upon the signing of this Agreement. xxx It is likewise further agreed that the VENDEE shall have the right to enter into any part of the aforementioned 1,000 hectares at any time within the period of this Agreement for purposes of commencing the development of the same. xxx 5. Title to the aforementioned land shall also be cleared of all liens or encumbrances and if there are any unpaid taxes, existing mortgages, liens and encumbrances on the land, the payments to be made by the VENDEE to the VENDOR of the purchase price shall first be applied to liquidate said mortgages, liens and/or encumbrances, such that said payments shall be made directly to the corresponding creditors. Thus, the balance of the purchase price will be paid to the VENDOR after the title to the land is cleared of all such liens and encumbrances. xxx 7. The VENDOR agrees that, during the existence of this Agreement and without the previous written permission from the VENDEE, he shall not sell, cede, assign and/or transfer the parcel of land subject of this Agreement. 79 A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, and serves as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation over said property. 80

Once a notice of lis pendens has been duly registered, any cancellation or issuance of title over the land involved as well as any subsequent transaction affecting the same would have to be subject to the outcome of the suit. In other words, a purchaser who buys registered land with full notice of the fact that it is in litigation between the vendor and a third party stands in the shoes of his vendor and his title is subject to the incidents and result of the pending litigation. 81 x x x Notice of lis pendens has been conceived and, more often than not, availed of, to protect the real rights of the registrant while the case involving such rights is pending resolution or decision. With the notice of lis pendens duly recorded, and while it remains uncancelled, the registrant could rest secure that he would not lose the property or any part of it during the litigation. The filing of a notice of lis pendens in effect (1) keeps the subject matter of litigation within the power of the courtuntil the entry of the final judgment so as to prevent the defeat of the latter by successive alienations; and (2) binds a purchaser of the land subject of the litigation to the judgment or decree that will be promulgated thereon whether such a purchaser is a bona fide purchaser or not; but (3) does not create a non-existent right or lien. The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep the subject matter of the litigation within the power of the court until the judgment or decree shall have been entered; otherwise by successive alienations pending the litigation, its judgment or decree shall be rendered abortive and impossible of execution. The doctrine of lis pendens is based on considerations of public policy and convenience, which forbid a litigant to give rights to others, pending the litigation, so as to affect the proceedings of the court then progressing to enforce those rights, the rule being necessary to the administration of justice in order that decisions in pending suits may be binding and may be given full effect, by keeping the subject matter in controversy within the power of the court until final adjudication, that there may be an end to litigation, and to preserve the property that the purpose of the pending suit may not be defeated by successive alienations and transfers of title.82 (Italics in the original) In ruling against PLDT and PLDTAC, the appellate court held: PLDT and PLDTAC argue that in reality the Farm was bought by the former on July 11, 1975 when Carrascoso and it entered into the Agreement to Buy and Sell (Exhibit 15). How can an agreement to buy and sell which is a preparatory contract be the same as a contract of sale which is a principal contract? If PLDTs contention is correct that it bought the Farm on July 11, 1975, why did it buy the same property again on April 6, 1977? There is

simply no way PLDT and PLDTAC can extricate themselves from the effects of said Notice of Lis Pendens. It is admitted that PLDT took possession of the Farm on July 11, 1975 after the execution of the Agreement to Buy and Sell but it did so not as owner but as prospective buyer of the property. As prospective buyer which had actual on (sic) constructive notice of the lis pendens, why did it pursue and go through with the sale if it had not been willing to gamble with the result of this case? 83 (Underscoring supplied) Further, in its July 8, 2004 Resolution, the CA held: PLDT cannot shield itself from the notice of lis pendens because all that it had at the time of its inscription was an Agreement to Buy and Sell with CARRASCOSO, which in effect is a mere contract to sell that did not pass to it the ownership of the property. xxx Ownership was retained by CARRASCOSO which EL DORADO may very well recover through its action for rescission. xxx PLDTs possession at the time the notice of lis pendens was registered not being a legal possession based on ownership but a mere possession in fact and the Agreement to Buy and Sell under which it supposedly took possession not being registered, it is not protected from an adverse judgment that may be rendered in the case subject of the notice of lis pendens.84 (Underscoring supplied) In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, ownership is not transferred upon delivery of the property but upon full payment of the purchase price. 85 In the former, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in the latter, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.86 PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional contract of sale, thus calling for the application of Articles 118187 and 118788 of the Civil Code as held in Coronel v. Court of Appeals.89 The Court is not persuaded.

For in a conditional contract of sale, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. 90 Whereas in a contract to sell, upon fulfillment of the suspensive condition, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. 91 A perusal of the contract92 adverted to in Coronel reveals marked differences from the Agreement to Buy and Sell in the case at bar. In the Coronel contract, there was a clear intent on the part of the therein petitioners-sellers to transfer title to the therein respondent-buyer. In the July 11, 1975 Agreement to Buy and Sell, PLDT still had to "definitely inform Carrascoso of its decision on whether or not to finalize the deed of absolute sale for the 1,000 hectare portion of the property," such that in the April 6, 1977 Deed of Absolute Sale subsequently executed, the parties declared that they "are now decided to execute" such deed, indicating that the Agreement to Buy and Sell was, as the appellate court held, merely a preparatory contract in the nature of a contract to sell. In fact, the parties even had to stipulate in the said Agreement to Buy and Sell that Carrascoso, "during the existence of the Agreement, shall not sell, cede, assign and/or transfer the parcel of land," which provision this Court has held to be a typical characteristic of a contract to sell.93 Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy and Sell to PLDT was merely the beneficial title to the 1,000 hectare portion of the property. The right of Daniel Jovellanos to the property under the contract [to sell] with Philamlife was merely an inchoate and expectant right which would ripen into a vested right only upon his acquisition of ownership which, as aforestated, was contingent upon his full payment of the rentals and compliance with all his contractual obligations thereunder. A vested right is an immediate fixed right of present and future enjoyment. It is to be distinguished from a right that is expectant or contingent. It is a right which is fixed, unalterable, absolute, complete and unconditional to the exercise of which no obstacle exists, and which is perfect in itself and not dependent upon a contingency. Thus, for a property right to be vested, there must be a transition from the potential or contingent to the actual, and the proprietary interest must have attached to a thing; it must have become fixed or established and is no longer open to doubt or controversy.94 (Underscoring supplied) In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not registered, which act of registration is the operative act to convey and affect the land.

An agreement to sell is a voluntary instrument as it is a willful act of the registered owner. As such voluntary instrument, Section 50 of Act No. 496 [now Section 51 of PD 1529] expressly provides that the act of registration shall be the operative act to convey and affect the land. And Section 55 of the same Act [now Section 53 of PD 1529] requires the presentation of the owners duplicate certificate of title for the registration of any deed or voluntary instrument. As the agreement to sell involves an interest less than an estate in fee simple, the same should have been registered by filing it with the Register of Deeds who, in turn, makes a brief memorandum thereof upon the original and owners duplicate certificate of title. The reason for requiring the production of the owners duplicate certificate in the registration of a voluntary instrument is that, being a willful act of the registered owner, it is to be presumed that he is interested in registering the instrument and would willingly surrender, present or produce his duplicate certificate of title to the Register of Deeds in order to accomplish such registration. However, where the owner refuses to surrender the duplicate certificate for the annotation of the voluntary instrument, the grantee may file with the Register of Deeds a statement setting forth his adverse claim, as provided for in Section 110 of Act No. 496. xxx95 (Underscoring supplied) In Valley Golf Club, Inc. v. Salas,96 where a Deed of Absolute Sale covering a parcel of land was executed prior to the annotation of a notice of lis pendens by the original owner thereof but which Deed was registered after such annotation, this Court held: The advance payment of P15,000.00 by the CLUB on October 18, 1960 to ROMERO, and the additional payment by the CLUB of P54,887.50 as full payment of the purchase price on October 26, 1960, also to ROMERO, cannot be held to be the dates of sale such as to precede the annotation of the adverse claim by the SISTERS on October 25, 1960 and the lis pendens on October 27, 1960. It is basic that it is the act of registration of the sale that is the operative act to convey and affect the land. That registration was not effected by the CLUB until December 4, 1963, or three (3) years after it had made full payment to ROMERO. xxx xxx As matters stand, therefore, in view of the prior annotations of the adverse claim and lis pendens, the CLUB must be legally held to have been aware of the flaws in the title. By virtue of the lis pendens, its acquisition of the property was subject to whatever judgment was to be rendered in Civil Case No. 6365. xxx The CLUBs cause of action lies, not against the SISTERS, to whom the property had been adjudged by final judgment in Civil Case No. 6365, but against ROMERO who was found to have had no right to dispose of the land.97 (Underscoring supplied)

PLDT further argues that El Dorados prior, actual knowledge of the July 11, 1975 Agreement to Buy and Sell is equivalent to prior registration not affected by the Notice of Lis Pendens. As such, it concludes that it was not a purchaser pendente lite nor a purchaser in bad faith. PLDT anchors its argument on the testimony of Lauro and El Dorados counsel Atty. Aquino from which it infers that Atty. Aquino filed the complaint for rescission and caused the notice of lis pendens to be annotated on Carrascosos title only after reading newspaper reports on the sale to PLDT of the 1,000 hectare portion of the property. The pertinent portions of Atty. Aquinos testimony are reproduced hereunder: Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in the instant case of Dr. Carrascoso? A: Yes, I asked my associates to go to Mamburao and had the notice of Lis Pendens covering the property as a result of the filing of the instant complaint. Q: Do you know the notice of Lis Pendens? A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso entitled "Notice of Lis Pendens". Q: As a consequence of the filing of the complaint which was annotated, you have known that? A: Yes. xxx Q: After the annotation of the notice of Lis Pendens, do you know, if any further transaction was held on the property? A: As we have read in the newspaper, that Dr. Carrascoso had sold the property in favor of the PLDT, Co. Q: And what did you do? A: We verified the portion of the property having recorded under entry No. 24770 xxx and we also discovered that the articles incorporated (sic) and

other corporate matters had been organized and established of the PLDT, Co., and had been annotated. xxx Q: Do you know what happened to the property? A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time there was already notice of Lis Pendens. xxx Q: In your testimony, you mentioned that you had come cross- (sic) reading the sale of the subject litigation (sic) between Dr. Fernando Carrascoso, the defendant herein and the PLDT, one of defendants-intervenor, may I say when? A: I cannot remember now, but it was in the newspaper where it was informed or mentioned of the sold property to PLDT. xxx Q: Will you tell to the Honorable Court what newspaper was that? A: Well, I cannot remember what is that newspaper. That is only a means of [confirming] the transaction. What was [confirmed] to us is whether there was really transaction (sic) and we found out that there was in the Register of Deeds and that was the reason why we obtained the case. Q: Well, may I say, is there any reason, the answer is immaterial. The question is as regard the matter of time when counsel is being able (sic) to read the newspaper allegedly (interrupted) xxx Q: The idea of the question, your Honor, is to establish and ask further the notice of [lis pendens] with regards (sic) to the transfer of property to PLDT, would have been accorded prior to the pendency of the case. xxx A: I cannot remember.98

PLDT also relies on the following testimony of Carrascoso: Q: You mentioned Doctor a while ago that you mentioned to the late Governor Feliciano Leviste regarding your transaction with the PLDT in relation to the subject property you allegedly mention (sic) your intention to sell with the PLDT? A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched (sic) with me with respect to my transaction with the PLDT, sir. Q: Any other officer of the corporation who knows with instruction aside from Dr. Angel Leviste and Dr. Jose Leviste? A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste. xxx Q: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiffcorporation? A: One of the stockholders and director of the plaintiff-corporation, sir. Q: Will you please tell us the other officers? A: Expedito Leviste, sir. A: Will you tell the position of Expedito Leviste? A: He was the corporate secretary, sir.

of this contract. The property is located in Mindoro, El Dorado is based in Manila. The land was planted to rice. This was not an unusual activity on the land, thus it could have been the Petitioner who was using the land. Not having been notified of this sale, El Dorado could not have stopped PLDT from developing the land. The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the filing of this case on March 15, 1977 and the annotation of a notice of lis pendens on March 16, 1977. Inspite of the notice of lis pendens, PLDT then PLDTAC persisted not only in buying the land but also in putting up improvements on the property such as buildings, roads, irrigation systems and drainage. This was done during the pendency of this case, where PLDT and PLDTAC actively participated as intervenors. They were not innocent bystanders. xxx100 This Court finds the above-quoted testimony of Atty. Aquino to be susceptible of conflicting interpretations. As such, it cannot be the basis for inferring that El Dorado knew of the July 11, 1975 Agreement to Buy and Sell prior to the annotation of the notice of lis pendens on Carrascosos title. Respecting Carrascosos allegation that some of the directors and officers of El Dorado had knowledge of his dealings with PLDT, it is true that knowledge of facts acquired or possessed by an officer or agent of a corporation in the course of his employment, and in relation to matters within the scope of his authority, is notice to the corporation, whether he communicates such knowledge or not.101 In the case at bar, however, apart from Carrascosos claim that he in fact notified several of the directors about his intention to sell the 1,000 hectare portion of the property to PLDT, no evidence was presented to substantiate his claim. Such selfserving, uncorroborated assertion is indubitably inadequate to prove that El Dorado had notice of the July 11, 1975 Agreement to Buy and Sell before the annotation of the notice of lis pendens on his title. PLDT is, of course, not without recourse. As held by the CA:

Q: If you know, was Dr. Jose Leviste also a director at that time? A: Yes, sir.99 On the other hand, El Dorado asserts that it had no knowledge of the July 11, 1975 Agreement to Buy and Sell prior to the filing of the complaint for rescission against Carrascoso and the annotation of the notice of lis pendenson his title. It further asserts that it always acted in good faith: xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was executed in July 11, 1975. There is no evidence that El Dorado was notified Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latter acted in good faith. This is so because it was Carrascosos refusal to pay his just debt to El Dorado that caused PLDT/PLDTAC to suffer pecuniary losses. Therefore, Carrascoso should return to PLDT/PLDTAC the P3,000,000.00 price of the farm plus legal interest from receipt thereof until paid.102 (Underscoring supplied) The appellate courts decision ordering the rescission of the March 23, 1972 Deed of Sale of Real Property between El Dorado and Carrascoso being in order, mutual restitution follows to put back the parties to their original situation prior to the consummation of the contract.

The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction having a retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in their status before the celebration of the contract. Where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they have respectively received and to place each other as far as practicable in his original situation, the rescission has the effect of abrogating the contract in all parts.103 (Underscoring supplied) The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of lis pendens, and as the Court affirms the declaration by the appellate court of the rescission of the Deed of Sale executed by El Dorado in favor of Carrascoso, possession of the 1,000 hectare portion of the property should be turned over by PLDT to El Dorado. As regards the improvements introduced by PLDT on the 1,000 hectare portion of the property, a distinction should be made between those which it built prior to the annotation of the notice of lis pendens and those which it introduced subsequent thereto. When a person builds in good faith on the land of another, Article 448 of the Civil Code governs: Art. 448. 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 if its value is considerably more than that of the building or trees. In such a case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after the proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. The above provision covers cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto.104 Good faith is thus identified by the belief that the land is owned; or that by some title one has the right to build, plant, or sow thereon.105 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 building, planting or sowing, after payment to the builder, planter or sower of the

necessary and useful expenses,106 and in the proper case, expenses for pure luxury or mere pleasure.107 The owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land. If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the owner may remove the improvements thereon. The builder, planter or sower, however, is not obliged to purchase the land if its value is considerably more than the building, planting or sowing. In such case, the builder, planter or sower must pay rent to the owner of the land. If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof. The right to choose between appropriating the improvement or selling the land on which the improvement of the builder, planter or sower stands, is given to the owner of the land.108 On the other hand, when a person builds in bad faith on the land of another, Articles 449 and 450 govern: Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity. Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the land, and the sower the proper rent. In the case at bar, it is undisputed that PLDT commenced construction of improvements on the 1,000 hectare portion of the property immediately after the execution of the July 11, 1975 Agreement to Buy and Sell with the full consent of Carrascoso.109 Thus, until March 15, 1977 when the Notice of Lis Pendens was annotated on Carrascosos TCT No. T-6055, PLDT is deemed to have been in good faith in introducing improvements on the 1,000 hectare portion of the property. After March 15, 1977, however, PLDT could no longer invoke the rights of a builder in good faith.

Should El Dorado then opt to appropriate the improvements made by PLDT on the 1,000 hectare portion of the property, it should only be made to pay for those improvements at the time good faith existed on the part of PLDT or until March 15, 1977,110 to be pegged at its current fair market value. 111 The commencement of PLDTs payment of reasonable rent should start on March 15, 1977 as well, to be paid until such time that the possession of the 1,000 hectare portion is delivered to El Dorado, subject to the reimbursement of expenses as aforestated, that is, if El Dorado opts to appropriate the improvements.112 If El Dorado opts for compulsory sale, however, the payment of rent should continue up to the actual transfer of ownership.113 WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 and Resolution dated July 8, 2004 of the Court of Appeals are AFFIRMED with MODIFICATION in that 1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further directed to: a. determine the present fair price of the 1,000 hectare portion of the property and the amount of the expenses actually spent by PLDT for the improvements thereon as of March 15, 1977; b. include for determination the increase in value ("plus value") which the 1,000 hectare portion may have acquired by reason of the existence of the improvements built by PLDT before March 15, 1977 and the current fair market value of said improvements; 2. El Dorado is ordered to exercise its option under the law, whether to appropriate the improvements, or to oblige PLDT to pay the price of the land, and 3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (P2,000.00) per month as reasonable compensation for its occupancy of the 1,000 hectare portion of the property from the time that its good faith ceased to exist until such time that possession of the same is delivered to El Dorado, subject to the reimbursement of the aforesaid expenses in favor of PLDT or until such time that the payment of the purchase price of the 1,000 hectare portion is made by PLDT in favor of El Dorado in case the latter opts for its compulsory sale. Costs against petitioners.

SO ORDERED. CONCHITA CARPIO MORALES Associate Justice WE CONCUR: ARTEMIO V. PANGANIBAN Associate Justice Chairman ANGELINA SANDOVAL-GUTIERREZ Associate Justice RENATO C. CORONA Associate Justice CANCIO C. GARCIA Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Associate Justice Chairman CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairmans Attestation, it is hereby certified that the conclusions in the

above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. HILARIO G. DAVIDE, JR.

15

Exhibit "E", II Records at 393-394. II Records at 394. Exhibits "F" and "G", II Records at 395-398. Exhibit "H-1", Id. at 400-401. Id. at 401. Exhibit "H", II Records at 399. Ibid. I Records at 1-8. Id. at 7-8. Exhibit "L-1", II Records at 472. Exhibit "21", I Records at 261-264. Id. at 261-262. Exhibit "T", I Records at 265-267. Exhibit "K", II Records at 406-408. Exhibit "J", Id. at 405. I Records at 145-153. Exhibit "L-2", II Records at 473. II Records at 474. Id. at 472. Exhibit "L-3", II Records at 473.

16

17

Chief Justice
18

19

Footnotes
1

20

Exhibit "A", II Records at 366-372. I Records at 9-10. Exhibit "1", II Records at 376-380. Id. at 377-378. Exhibit "2", Id. at 857. Exhibit "2-A", Id. at 858. Exhibit "D-3-a", Id. at 384-389. G.R. No. 123672 Rollo at 38. Exhibit "A-2", II, Records at 371. Exhibit "D", Id. at 381-383. II Records at 382. Exhibit "D-3-b", II Records at 390-391. II Records at 462-A. Exhibit "15", I Records at 159-163.

21

22

23

24

25

26

27

28

29

10

30

11

31

12

32

13

33

14

34

35

Exhibit "Q", III Records at 1480. I Records at 220-223. Id. at 240. Id. at 247-255. Id. at 251-252. III Records at 1962-1970. Id. at 1969-1970. G.R. No. 123672 Rollo at 35-58. Id. at 56-58. Id. at 147-154. Id. at 11-33. Id. at 79-81.

55

G.R. No. 164489 Rollo at 210-246. Id. at 50. G.R. No. 123672 Rollo at 20-21. G.R. No. 164489 Rollo at 226. Exhibit "5", II Records at 864.

36

56

37

57

38

58

39

59

40

Ong v. Court of Appeals, 310 SCRA 1, 9 (1999) (citation omitted).

60

41

42

IV A. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 175 (1997 ed).
61 62

43

Velarde v. Court of Appeals, 361 SCRA 56, 68 (2001). Id. at 66.

44

63

45

Blas v. Angeles-Hutalla, 439 SCRA 273, 293 (2004) (citation omitted), Soliva v. Intestate Estate of Marcelo M. Villalba, 417 SCRA 277, 285 (2003) (citation omitted).
64 65

46

Velarde v. Court of Appeals, supra at 57. G.R. No. 123672 Rollo at 44-45. Id. at 22. Id. at 47. TSN, August 21, 1979 at 45. TSN, June 2, 1980 at 15. TSN, August 21, 1979 at 47. Id. at 26. C. Villanueva, Law on Sales, 538 (2004 ed).

47

Id. at 95.
66

48

Id. at 87-94.
67

49

Id. at 102-126.
68

50

Id. at 126.
69

51

Id. at 128-134.
70

52

Id. at 171-177.
71

53

Id. at 181-196.
72

PLDTAC, now a moribund company, no longer joined in the petition.

54

73

74

Civil Code, art. 1546.

Po Lam v. Court of Appeals, 347 SCRA 86, 96-97 (2000) (citations omitted).
82 83

Bautista v. Mag-isa Vda. De Villena [438 SCRA 259, 265-266 (2004)] provides:
75

G.R. No. 123672 Rollo at 51. Id. at 192-195.

Tenants are defined as persons who in themselves and with the aid available from within their immediate farm households cultivate the land belonging to or possessed by another, with the latters consent; for purposes of production, sharing the produce with the landholder under the share tenancy system, or paying to the landholder a price certain or ascertainable in produce or money or both under the leasehold tenancy system. VHJ Construction and Development Corporation v. Court of Appeals [436 SCRA 392, 398-399 (2004)] provides:
76

84

Jovellanos v. Court of Appeals, 210 SCRA 126, 132 (1992) (citation omitted).
85

Adelfa Properties, Inc. v. Court of Appeals, 240 SCRA 565, 576577 (1995).
86

xxx a tenancy relationship cannot be presumed. There must be evidence to prove this allegation. xxx xxx The requisites of a tenancy relationship are as follows: (1) the parties are the landowner and the tenant; (2) the subject is agricultural land; (3) there is consent by the landowner; (4) the purpose is agricultural production; (5) there is personal cultivation, and (6) there is sharing of the harvests. All these requisites are necessary to create a tenancy relationship, and the absence of one or more requisites will not make the alleged tenant a de jure tenant. xxx unless a person has established his status as a de jure tenant, he is not xxx covered by the Land Reform Program of the Government under existing tenancy laws. xxx Vide: Investment & Development, Inc. v. Court of Appeals , 162 SCRA 636 (1988).
77 78

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.
87

Art. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.
88 89

263 SCRA 15 (1996). Coronel v. Court of Appeals , supra at 27-28. Id. at 28. RECEIPT OF DOWNPAYMENT xxx

90

91

G.R. No. 164489 Rollo at 232.

92

79

Exhibit "15", I Records at 160-162.

Villanueva v. Court of Appeals, 281 SCRA 298, 306 (1997) (citations omitted).
80

Esguerra v. Court of Appeals , 267 SCRA 380, 397-398 (1997) citations omitted).
81

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.

We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the down payment above-stated. On our presentation of the TCT already in or (sic) name, We will immediately execute the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00.
93

107

Civil Code, art 548. Ballatan v. Court of Appeals, 304 SCRA 34, 46 (1999).

108

The July 11, 1975 Agreement to Buy and Sell likewise provides that PLDT shall have the right to enter any part of the 1,000 hectare portion of the property within the period of the Agreement for purposes of commencing its development.
109 110

Padilla v. Paredes, 328 SCRA 434, 442-443 (2000).

Rosales v. Castelltort , G.R. No. 157044, October 5, 2005. Pecson v. Court of Appeals, 244 SCRA 407, 415-416 (1995). Rosales v. Castelltort, supra.

Jovellanos v. Court of Appeals, 210 SCRA 126, 134-135 (1992) (citations omitted).
94

111

L.P. Leviste & Company v. Noblejas, 89 SCRA 520, 528 (1979) (citations omitted).
95 96

112

125 SCRA 471 (1983). Id. at 477-478 (citation omitted). TSN, August 21, 1979 at 8-13. TSN, February 4, 1982 at 39-44. G.R. No. 123672 Rollo at 124-125.

Tecnogas Philippines Manufacturing Corporation v. Court of Appeals, 268 SCRA 5, 22 (1997).

113

97

98

99

100

Francisco v. Government Service Insurance System , 7 SCRA 577, 584-585 (1963) (citation omitted).
101 102

G.R. No. 123672 Rollo at 55.

IV A. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 180-181 (1997 ed).
103

Macasaet v. Macasaet, 439 SCRA 625, 643 (2004) (citations omitted).

104 105

Id. at 644 (citation omitted). Civil Code, art. 546.

106

Republic of the Philippines SUPREME COURT FIRST DIVISION G.R. No. 165889 September 20, 2005 SACOBIA HILLS DEVELOPMENT CORPORATION and JAIME C. KOA, Petitioners, vs. ALLAN U. TY, Respondent. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari1 assails the August 19, 2004 decision of the Court of Appeals in CA-G.R. CV No. 76987,2 which reversed and set aside the November 29, 2002 decision3 of the Regional Trial Court of Manila, Branch 46, and its October 28, 2004 resolution 4 denying reconsideration thereof. The antecedent facts show that petitioner Sacobia Hills Development Corporation (Sacobia) is the developer of True North Golf and Country Club (True North) located inside the Clark Special Economic Zone in Pampanga which boasts of amenities that include a golf course, clubhouse, sports complex and several vacation villas. On February 12, 1997, respondent Allan U. Ty wrote to Sacobia a letter expressing his intention to acquire one (1) Class A share of True North and accordingly paid the reservation fee of P180,000.00 as evidenced by PCI Bank Check No. 0038053.5 Through letters dated May 28, 1997 and July 4, 1997, Sacobia assured its shareholders that the development of True North was proceeding on schedule; that the golf course would be playable by October 1999; that the Environmental Clearance Certificate (ECC) by the Department of Environment and Natural Resources (DENR) as well as the Permit to Sell from the Securities and Exchange Commission (SEC) should have been released by October 1997; and that their registration deposits remained intact in an escrow account.6 On September 1, 1997, Sacobia approved the purchase application and membership of respondent for P600,000.00, subject to certain terms and conditions. The notice of approval provided, inter alia:7

Terms and Conditions 1. Approval of an application to purchase golf/country club shares is subjected to the full payment of the total purchase price. Should the buyer opt for the deferred payment scheme, approval is subject to our receipt of a down payment of at least 30% and the balance payable in installments over a maximum of eleven (11) months from the date of application, and covered by postdated cheques. 2. Your reserved share shall be considered withdrawn and may be deemed cancelled should you fail to settle your obligation within fifteen (15) days from due date, or failure to cover the value of the postdated cheques upon their maturity, or your failure to issue the required postdated cheques. In which case, we shall reserve the right to offer the said shares to other interested parties. This also means forfeiture of 50% of the total amount you have already paid. 3. We will undertake to execute the corresponding sales documents/ Deed of Absolute Sale covering the reserved shares upon full payment of the total purchase price. The Certificate of Membership shall be issued thereafter. ... However, on January 12, 1998, respondent notified Sacobia that he is rescinding the contract and sought refund of the payments already made due to the latters failure to complete the project on time as represented. In an effort to assure the respondent that the project would soon be operational, Sacobia wrote him a letter dated March 10, 1998, stating that the DENR had issued the required ECC only on March 5, 1998, and that the golf course would be ready for use by end of 1998. 8 On April 3, 1998, Sacobia again wrote the respondent advising him that the 18-hole golf course would be fully operational by summer of 1999. Sacobia also sought to collect from respondent the latters outstanding balance of P190,909.08 which was covered by five (5) post dated checks. Notwithstanding, respondent notified Sacobia on April 17, 1998 that he had stopped payment on the five (5) post dated checks and reiterated his demand for the refund of his payments which amounted to P409,090.92. On June 16, 1999, respondent sent Sacobia a letter formally rescinding the contract and demanding for the refund of the P409,090.92 thus far paid by him.

By way of reply, Sacobia informed respondent that it had a no-refund policy, and that it had endorsed respondent to Century Properties, Inc. for assistance on the resale of his share to third persons. Thus, on July 21, 1999, respondent filed a complaint for rescission and damages before the SEC but the case was eventually transferred to the Regional Trial Court of Manila, Branch 46, pursuant to Administrative Circular AM No. 00-11-03.9 On April 13, 2002, the trial court personnel conducted an on-site ocular inspection and in their report, they made the following observations: ... We went up and down the hills on board the golf cart, and have seen the entire golf course. The 9 holes area are already operational and playable, we have seen the tee bank (mount soil) color coded flags, blue for regular golfers, white for senior golfers and red for ladies golfers. We have seen all their playing areas which all appeared in order except the main clubhouse which is undergoing finishing touches. Likewise the road leading to the clubhouse area is undergoing pavement works and concreting. We learned from our tour guide Mr. Gerry Zoleta, Site Supervisor, that the timetable in finishing all remaining things (eg. Clubhouse and the road leading to it) to be done, are influenced or rather, hampered by the prevailing weather condition. Such that when it rain, (which often happens in the area during afternoon or early morning) they cannot really push thru with the construction due to the soil condition (easily eroded) and sloping terrain of the place. Except, the clubhouse, all seem prim and proper for golf playing. In fact, according to Mr. Zoleta, the site has been operational since January 2002. The first tournament was conducted on October 2000 and there were three tournaments already took place in the area. ...

within thirty (30) days from the finality of this decision, otherwise, he forfeits his payments. IT IS SO ORDERED.11 The trial court found that the contract between the parties did not warrant that the golf course and clubhouse would be completed within a certain period of time to entitle respondent to rescind. It also noted that the completion of the project was subject to the issuance of an ECC and the approval by the SEC of the registration of non-proprietary golf club shares, which is beyond Sacobias control. The appellate court, in its decision dated August 19, 2004, disposed of the appeal as follows: WHEREFORE, the appealed November 29, 2002 decision of the Regional Trial Court of Manila, Branch 46, is hereby REVERSED and SET ASIDE, and a new one is hereby entered with this Court hereby CONFIRMING the RESCISSION of the contract of purchase of one (1) Class A proprietary share of True North Golf and Country Club as elected choice by plaintiff-appellant Ty, the aggrieved party, and hereby DIRECTING defendant-appellee SACOBIA to: 1) Refund to the plaintiff-appellant Allan U. Ty the amount of P409,090.20 and all payments made by him thus far on the TRUE NORTH share, with legal interest of 12% per annum from July 21, 1999, the date of the filing of the complaint with the SEC, until fully paid; 2) Return the five post-dated checks of the plaintiff-appellant amounting to P190,908.08; 3) Pay costs of the suit.

In summary, we found nothing amiss for one not to be able to play and enjoy golf to the fullest, except as earlier said the clubhouse. 10 On November 29, 2002, the trial court rendered judgment in favor of petitioners, the decretal portion of which reads: WHEREFORE, the complaint is hereby dismissed without pronouncement as to costs. If the plaintiff desires to continue with the acquisition of the share, he may do so by paying the balance of the acquisition price of One Hundred Ninety Thousand Ninety Pesos and Ten Centavos (P190,090.10) without interest

SO ORDERED.12 The Court of Appeals agreed with the trial court that Sacobia was in delay in the performance of its obligation to respondent. As such, Ty could properly rescind the contract, or demand specific performance with damages, or demand for damages alone. It held though that the failure of the DENR to issue the ECC on time is a valid ground to reduce the damages claimed by Ty. It also ruled that Sacobia is estopped from asserting that there was no completion date for the project as no less than its chairman announced the projected completion dates.

Petitioners motion for reconsideration was denied, hence the instant petition for review on certiorari which raises the issue of whether the contract entered into by the parties may be validly rescinded under Article 1191 of the Civil Code. Sacobia contends that it was not in breach of the contract as the Intent to Purchase, the Contract of Purchase, and the Notice of Approval to Purchase Shares of True North, do not contain any specific date as to when the golf course and country club would be completed. It argues that respondent should have known the risks involved in this kind of project; the construction being contingent on the issuance of the ECC by the DENR and the payment of the buyers of their share. On the other hand, respondent claims that Sacobias arguments raise new matters which would warrant the reversal of the decision rendered by the Court of Appeals. He insists that Sacobia failed to complete the project on time which entitles him to rescind the contract in accordance with Article 1191 of the Civil Code. He further argues that the delay in the completion of the project is clearly established by the fact that there have been no substantial work done on the site, particularly on the clubhouse, despite the lapse of nearly 4-years from the issuance of the ECC on March 5, 1998. The petition is meritorious. In resolving the present controversy, the lower courts merely assumed that the delay in the completion of the golf course was the decisive factor in determining the propriety or impropriety of rescinding the contract. Yet, confusion could have been avoided had there been a more thorough scrutiny of the nature of the contract entered into by the contending parties. In the notice of approval, which embodies the terms and conditions of the agreement, Sacobia signified its intent to retain the ownership of the property until such time that the respondent has fully paid the purchase price. This condition precedent is characteristic of a contract to sell. The intention of the contracting parties is inferable from the following provisions, to wit: TERMS AND CONDITIONS 1. Approval of an application to purchase golf/country club shares is subjected to the full payment of the total purchase price . Should the buyer opt for the deferred payment scheme, approval is subject to our receipt of a down payment of at least 30% and the balance payable in installments over a maximum of eleven (11) months from the date of application, and covered by postdated cheques.

2. Your reserved share shall be considered withdrawn and may be deemed cancelled should you fail to settle your obligation within fifteen (15) days from due date, or failure to cover the value of the postdated cheques upon their maturity, or your failure to issue the required postdated cheques. In which case, we shall reserve the right to offer the said shares to other interested parties. This also means forfeiture of 50% of the total amount you have already paid. 3. We shall undertake to execute the corresponding sales documents/Deed of Absolute Sale covering the reserved shares upon full payment of the total purchase price. The Certificate of Membership shall be issued thereafter. Clearly, the approval of the application hinged on the full payment of the total purchase price. In fact, Sacobia explicitly reserved the right to retain title over the share pending full satisfaction of the purchase price. The notice of approval likewise stipulated that the reservation shall be deemed withdrawn or cancelled in case respondent fails to settle his obligation within 15 days from the due date or cover the value of the checks upon their maturity. Thus, Sacobia reserved the right to unilaterally rescind the contract in the event the respondent fails to comply with his obligation of remitting the full purchase price within the deadline. In fact, Sacobia, after having cancelled the agreement, can offer the share to other interested parties. In addition, the execution of the deed of absolute sale and other pertinent documents shall be made only upon full payment of the purchase price. The terms of the agreement between Sacobia and Ty can be deduced, not on a formal document like a deed of sale, but from a series of correspondence and acts signifying the parties intention to enter into a contract. The absence of a formal deed of conveyance is a strong indication that Sacobia did not intend to transfer title until respondent shall have completely complied with his correlative obligation of paying the contact price. Since the agreement between Sacobia and Ty is a contract to sell, the full payment of the purchase price partakes of a suspensive condition, the nonfulfillment of which prevents the obligation to sell from arising and ownership is retained by the seller without further remedies by the buyer. In Cheng v. Genato,13 we explained the nature of a contract to sell and its legal implications in this wise: In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. It is one where the happening of the

event gives rise to an obligation. Thus, for its non-fulfillment there will be no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical relation. In fact with this circumstance, there can be no rescission of an obligation that is still non-existent, the suspensive condition not having occurred as yet. Emphasis should be made that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. In a contract to sell, the prospective seller does not consent to transfer ownership of the property to the buyer until the happening of an event, which for present purposes, is the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. Upon the fulfillment of the suspensive condition, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. 14 According to True North Payment Schedule,15 respondents checks dated from October 12, 1997 until January 12, 1998 were marked as stale. His failure to cover the value of the checks and by issuing a stop payment order effectively abated the perfection of the contract. For it is understood that when a sale is made subject to a suspensive condition, perfection is had only from the moment the condition is fulfilled. 16 As shown, Ty did not pay the full purchase price which is his obligation under the contract to sell, therefore, it cannot be said that Sacobia breached its obligation. No obligations arose on its part because respondents non-fulfillment of the suspensive condition rendered the contract to sell ineffective and unperfected. Indeed, there can be no rescission under Article 119117 of the Civil Code because until the happening of the condition, i.e. full payment of the contract price, Sacobias obligation to deliver the title and object of the sale is not yet extant. A nonexistent obligation cannot be subject of rescission. Article 1191 speaks of obligations already existing, which may be rescinded in case one of the obligors fails to comply with what is incumbent upon him. As earlier discussed, the payment by Ty of the reservation fee as well as the issuance of the postdated checks is subject to the condition that Sacobia was reserving title until full payment, which is the essence of a contract to sell. The perfection of this kind of contract would give rise to two distinct obligations, namely, 1) the buyers obligation to fulfill the suspensive condition, i.e. the full payment of the contract price as in the instant case, and, 2) the correlative obligation of the seller to convey ownership upon compliance of the suspensive condition.

In the present case, respondents failure to fulfill this suspensive condition prevented the perfection of the contract to sell. With an ineffective contract, Ty had not acquired the status of a shareholder but remained, at most, a prospective investor. In the absence of a juridical tie between the parties, Ty cannot claim the rights and privileges accorded to Sacobias fullfledged members and shareowners, including the full enjoyment of the amenities being offered. Unfortunately for Ty, he cannot avail of rescission as envisioned by Article 1191 of the Civil Code. However, he can withdraw his investment subject to the restrictions under the terms and conditions pertinent to a reneging investor. Even assuming arguendo that the delay in the completion of the golf course and clubhouse was attributable to Sacobia, respondent had not refuted to this Courts satisfaction the trial courts denial of such claim upon its finding that, among other things, the parties did not warrant the completion of the project within a certain period of time. As early as January 12, 1998, respondent had notified Sacobia of his intention to rescind the contract on the ground that there was unreasonable delay in the completion of the golf course and clubhouse. Yet, evidence shows that even prior thereto, or on May 28, 1997, Sacobia already informed its investors, including the respondent, that the full completion of the project was expected by mid-1999. Patently, respondents claim is premature by one year and a half, if reckoned from the expected time of completion as foreseen by Sacobia. Moreover, respondent was well aware of the risk of delay in the completion of the project considering that he was apprised beforehand of such delay due to the belated issuance of the proper documents. It appears, however, that Sacobia is not really intent on cancelling Tys reservation. Even after it was notified by Ty that he was intending to rescind the contract, and had in fact issued a stop-payment order, Sacobia merely deferred the deposit of Tys checks in an effort to resolve the issue, instead of cancelling the reservation in accordance with the terms of the notice of approval. Subsequently, it sought to collect from Ty his remaining obligations. It also referred Ty to its marketing arm if Ty is so minded to sell his rights to third parties. To this extent, the trial court correctly ordered Ty to pay the remaining balance if he so desires, otherwise, he forfeits half of his payments, pursuant to the terms of the notice of approval. WHEREFORE, the petition is GRANTED. The decision dated August 19, 2004 of the Court of Appeals in CA-G.R. CV No. 76987 and its resolution dated October 28, 2004, are REVERSED and SET ASIDE. Respondents complaint for rescission of contract and damages in Civil Case No. 0199696 is DISMISSED. He is ORDERED toPAY to Sacobia Hills Development Corporation the amount of Pesos: One Hundred Ninety Thousand Nine Hundred Nine and Eight Centavos (P190,909.08) without

interest within thirty (30) days from finality of this decision; otherwise, fifty percent (50%) of his total payments shall be forfeited. SO ORDERED.

Id. at 24-42. Penned by Associate Justice Vicente Q. Roxas with Associate Justices Salvador J. Valdez, Jr. and Juan Q. Enriquez, Jr., concurring.
2 3

Id. at 84-92. Penned by Judge Artemio S. Tipon. Id. at 43. Id. at 61. Id. at 65-68. Id. at 63. Id. at 28. Id. at 31. Id. at 88-89. Id. at 92. Id. at 41-42. 360 Phil. 891, 904-905 (1998). Coronel, et al. v. CA, 331 Phil. 294, 309 (1996). Rollo, p. 49-B.

CONSUELO YNARES-SANTIAGO
4

Associate Justice
5

WE CONCUR:
6

HILARIO G. DAVIDE, JR.

7

Chief Justice
8

LEONARDO A. QUISUMBING, ANTONIO T. CARPIO

9

Associate Justice Associate Justice

10

ADOLFO S. AZCUNA
11

Associate Justice
12

CERTIFICATION
13

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. HILARIO G. DAVIDE, JR. Chief Justice

14

15

Tolentino, citing 2 Castan 26 in the Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 18. See also, Paras, Civil Code of the Philippines, Vol. IV, p. 37.
16

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.
17

Footnotes
1

Rollo, pp. 10-23.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

QUISUMBING, J.: On appeal is the Decision1 dated April 30, 2003 of the Court of Appeals in CA G.R. SP No. 71477. The Court of Appeals affirmed the Decision of the Regional Trial Court which had earlier sustained the Decision of the Metropolitan Trial Court, dismissing the ejectment case against respondent Philip Adao. The case stemmed from the court-approved Compromise Agreement between petitioner Keppel Bank and Project Movers Realty and Development Corporation (PMRDC).2 By virtue of the agreement, PMRDC through its President Mario P. Villamor assigned, transferred and conveyed to petitioner, by way of dacion en pago,3 twenty-five properties consisting of townhouses, condominium units and vacant lots, as partial settlement of their two hundred million pesos (P200,000,000) outstanding obligation. Pursuant thereto, petitioner secured Condominium Certificates of Title over the units. Upon inspection, petitioner found respondent Philip Adao occupying Unit 4 of the Luxor Villas Townhouse, one of the 25 properties above-mentioned. On February 18, 2000, petitioner sent a written demand to respondent to vacate the unit within 30 days from receipt of the notice. Respondent refused and, instead, offered to purchase the unit. However, the parties failed to reach an agreement on the matter. On October 19, 2000, petitioner sent respondent a final demand to vacate. Since the demand was not heeded, petitioner filed a civil case for ejectment docketed as Civil Case No. 8911 against respondent. In his defense, respondent alleged that he has long been occupying the contested unit by virtue of a Contract to Sell4 dated February 7, 1995 between him and PMRDC. He stated that to avoid litigation, he offered to purchase the unit for 2.5 million pesos, in addition to the 3 million pesos he already paid to PMRDC. He added that had his pre-agreed marketing services with PMRDC been duly audited to his credit, the unit would have already been fully paid. Respondent contended that petitioners remedy is to demand from PMRDC the immediate replacement of the property as provided in their Compromise Agreement and Dacion en Pago.5 On August 6, 2001, the MeTC dismissed the complaint and held Adao as the lawful possessor of the property. Petitioner appealed to the Regional Trial Court, which, on March 4, 2002, affirmed in toto the MeTC decision.6 The RTC held that, by virtue of the dacion en pago, petitioner merely stepped into the shoes of PMRDC. Hence, petitioner must respect the contract to sell between PMRDC and respondent. It also held that petitioner failed to show non-payment by respondent, and that in case of non-payment, the remedy of the vendor is either rescission with recovery of possession or

Republic of the Philippines SUPREME COURT FIRST DIVISION G.R. No. 158227 October 19, 2005 KEPPEL BANK PHILIPPINES, INC., Petitioner, vs. PHILIP ADAO, Respondent. DECISION

specific performance based on breach of contract, but not ejectment.7 Petitioner moved for reconsideration but it was denied on June 5, 2002. Petitioner elevated the case to the Court of Appeals. The appellate court held that petitioner must respect the contract to sell though such is not annotated in the certificate of title because petitioner was not a purchaser in good faith, having failed to exercise due diligence required of banks. As an unpaid seller, petitioner can only rescind the contract under Article 15268 of the Civil Code which does not sanction the filing of an action for ejectment. The Court of Appeals affirmed the RTC decision and, subsequently, denied reconsideration. It decreed as follows: WHEREFORE, premises considered, the instant petition is DENIED. The assailed March 4, 2002 decision of the RTC is hereby AFFIRMED. SO ORDERED.9 Petitioner now comes before us and alleges that the Court of Appeals seriously erred when: i. it ruled that the petitioner Bank must respect the terms and conditions of the Contract to Sell allegedly executed on 07 February 1995 despite the fact that petitioner had no knowledge thereof and that said Contract to Sell was not annotated on CCT No. 9522-R prior to the execution of the courtapproved Compromise Agreement and Dacion en Pago between the petitioner and PMRDC. ii. it affirmed the finding of the RTC that respondent had fully paid the purchase price under the Contract to Sell on the basis of respondents unsubstantiated and general allegation in his Answer with Compulsory Counterclaim and when it shifted the burden of proof upon petitioner to prove that respondent had not fully paid the alleged purchase price. Such ruling contravenes the well-settled legal rule that "he who alleges must prove the same." iii. it affirmed the ruling of the RTC that the complaint for ejectment filed by petitioner is not the proper remedy. iii.a The RTCs suggested remedy, as affirmed by the Court of Appeals, of filing an action for "rescission with recovery of possession based on breach of contract" wrongfully presumes that the alleged Contract to Sell is binding on the petitioner.

iii.b The RTCs suggested remedy, as affirmed by the Court of Appeals, is contrary to law and jurisprudence because in a contract to sell, ownership is retained by the seller until the buyer has fully paid the purchase price; iv. it affirmed the ruling of the RTC that petitioners recourse must be against PMRDC and/or its President, Mario P. Villamor. v. it affirmed the RTCs position that it was not duty-bound to rule on the issue of ownership to settle the issue of possession and relied heavily on the alleged Contract to Sell as the basis of respondents right to possess the Subject Property.10 In sum, the issues for our resolution are: (1) Is petitioner bound by the contract to sell? (2) Is the remedy of ejectment legally available to the petitioner? and (3) Who is entitled to physical possession of the property? Petitioner contends he is not bound by the contract to sell as it was not annotated in the certificate of title. It maintains that the contract to sell specifically provides that title shall be transferred to the respondent only after full payment of the purchase price. Not having fully paid the price, respondent is not the owner. Petitioner adds that respondent has the burden of proving payment since under the rules on evidence, a party must prove his own affirmative allegation. Petitioner also maintains that PMRDC merely tolerated the possession by the respondent but such possession became illegal when, as the new owner, it demanded that respondent immediately vacate the property. Respondent counters that an ejectment suit is merely concerned with possession de facto and the issue of ownership need not be resolved. He claims to have a better right of possession having fully paid the purchase price. Further, respondent asserts that petitioner, being a successor-ininterest of PMRDC, is bound by the Contract to Sell. Finally, respondent avers that ejectment cases are governed by the Rules on Summary Procedure which relies merely on affidavits and position papers submitted. Hence, his Affidavit11 dated June 25, 2001 was sufficient to prove full payment. Prefatorily, this case started with a complaint for ejectment filed with the MeTC. In previous cases, this Court consistently held that the only issue for resolution in an ejectment case is physical or material possession of the property involved, independent of any claim of ownership by any of the party litigants.12 Ejectment cases are designed to summarily restore physical possession to one who has been illegally deprived of such possession, without prejudice to the settlement of the parties opposing claims of juridical possession in appropriate proceedings.13 We also said that the question of ownership may be provisionally ruled upon for the sole purpose of determining who is entitled to possession de facto.14

Respondent bases his right of possession on the Contract to Sell. On the other hand, petitioner argues it is not bound by the said contract since the same is not annotated in the Certificate of Title. It is true that persons dealing with registered property can rely solely on the certificate of title and need not go beyond it. 15 However, as correctly held by the Court of Appeals, this rule does not apply to banks. Banks are required to exercise more care and prudence than private individuals in dealing even with registered properties for their business is affected with public interest.16 As master of its business, petitioner should have sent its representatives to check the assigned properties before signing the compromise agreement and it would have discovered that respondent was already occupying one of the condominium units and that a contract to sell existed between respondent and PMRDC. In our view, petitioner was not a purchaser in good faith and we are constrained to rule that petitioner is bound by the contract to sell. Nonetheless, in this case, the contract to sell does not by itself give respondent the right to possess the property. Unlike in a contract of sale, here in a contract to sell, there is yet no actual sale nor any transfer of title, until and unless, full payment is made. The payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.17 Respondent must have fully paid the price to acquire title over the property and the right to retain possession thereof. In cases of non-payment, the unpaid seller can avail of the remedy of ejectment since he retains ownership of the property. Respondent avers that since ejectment cases are decided merely on the basis of affidavits and position papers, his affidavit before the MeTC sufficiently proves his full payment of the purchase price. Nothing could be more erroneous because even though ejectment cases are governed by the Rules on Summary Procedure, there is still need to present substantial evidence to support respondents claim of full payment. Section 9 18 of the Rules on Summary Procedure provides that parties shall submit, together with their position papers, the affidavits of their witnesses and other evidence on the factual issues defined. His lone affidavit is self-serving, and cannot be considered as substantial evidence. As a general rule, one who pleads payment has the burden of proving it. Even where the petitioner alleged non-payment, the general rule is that the burden rests on the respondent to prove payment, rather than on the petitioner to prove nonpayment.19 Considering that respondent failed to discharge the burden of proving payment, he cannot claim ownership of the property and his possession thereof was by mere tolerance. His continued possession became unlawful upon the owners demand to vacate the property. 20 We stress, however, that this adjudication, is only a provisional determination of ownership for

the purpose of settling the issue of possession, 21 and does not bar or prejudice an action between the same parties involving title to the property.22 WHEREFORE, the petition is GRANTED. The Decision dated April 30, 2003 of the Court of Appeals in CA G.R. SP No. 71477 is REVERSED and SET ASIDE. Respondent is hereby ordered to vacate the property. Costs against respondent. SO ORDERED. LEONARDO A. QUISUMBING Associate Justice WE CONCUR: HILARIO G. DAVIDE, JR. Chief Justice Chairman CONSUELO YNARES-SANTIAGO, ANTONIO T. CARPIO Associate Justice Associate Justice ADOLFO S. AZCUNA Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. HILARIO G. DAVIDE, JR.

Chief Justice

Rollo, p. 14. Id. at 23-24. Id. at 174-176.

10

11

Footnotes
12

Rollo, pp. 7-14. Penned by Associate Justice Elvi John S. Asuncion, with Associate Justices Ruben T. Reyes, and Lucas P. Bersamin concurring.
1 2

National Onion Growers Cooperative Marketing Association, Inc. v. Lo, G.R. No. 141493, 28 July 2004, 435 SCRA 358, 362. Barnes v. Quijano Padilla, G.R. No. 160753, 28 June 2005, pp. 10-11.
13

Id. at 50-55. Id. at 56-58. Id. at 168-173. Id. at 66-67. Id. at 83. Id. at 80-81.

Umpoc v. Mercado, G.R. No. 158166, 21 January 2005, 449 SCRA 220, 238-239.
14

Lim v. Chuatoco, G.R. No. 161861, 11 March 2005, 453 SCRA 308, 322-323.
15

Manlapat v. Court of Appeals, G.R. No. 125585, 8 June 2005, p. 26.

16

Rivera v. Del Rosario, G.R. No. 144934, 15 January 2004, 419 SCRA 626, 638.
17

Art. 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods, as such, has:
8

(1) A lien on the goods or right to retain them for the price while he is in possession of them; (2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them; (3) A right of resale as limited by this Title; (4) A right to rescind the sale as likewise limited by this Title. Where the ownership of the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and coextensive with his rights of lien and stoppagein transitu where the ownership has passed to the buyer.

SEC. 9. Submission of affidavits and position papers. Within ten (10) days from receipt of the order mentioned in the next preceding section, the parties shall submit the affidavits of their witnesses and other evidence on the factual issues defined in the order, together with their position papers setting forth the law and the facts relied upon by them.
18

See Mayon Hotel and Restaurant v. Adana, G.R. No. 157634, 16 May 2005, pp. 29-30.
19 20

Supra, note 14 at 235-236. Supra, note 12.

21

Co v. Militar, G.R. No. 149912, 29 January 2004, 421 SCRA 455, 459.
22

Republic of the Philippines SUPREME COURT SECOND DIVISION G.R. No. 154413 August 31, 2005 SPS. ALFREDO R. EDRADA and ROSELLA L. EDRADA, Petitioners, vs. CARMENCITA RAMOS, SPS. EDUARDO RAMOS, Respondents. DECISION Tinga, J.: In this Petition 1 under Rule 45, petitioner Spouses Alfredo and Rosella Edrada (petitioners) seek the reversal of the Former Second Division of the Court of Appeals Decision2 and Resolution3 in CA-G.R. CV No. 66375, which affirmed the Decision of Regional Trial Court (RTC) of Antipolo City, Branch 71,4 in Civil Case No. 96-4057, and denied the Motion for Reconsideration5 therein. Respondent spouses Eduardo and Carmencita Ramos (respondents) are the owners of two (2) fishing vessels, the "Lady Lalaine" and the "Lady Theresa." On 1 April 1996, respondents and petitioners executed an untitled handwritten document which lies at the center of the present controversy. Its full text is reproduced below: 1st April 1996 This is to acknowledge that Fishing Vessels Lady Lalaine and Lady Theresa owned by Eduardo O. Ramos are now in my possession and received in good running and serviceable order. As such, the vessels are now my responsibility.

Documents pertaining to the sale and agreement of payments between me and the owner of the vessel to follow. The agreed price for the vessel is Nine Hundred Thousand Only (P900,000.00). (SGD.) (SGD.) EDUARDO O. RAMOS ALFREDO R. EDRADA (Seller) (Purchaser) CONFORME: CONFORME: (SGD.) (SGD.) CARMENCITA RAMOS ROSIE ENDRADA6 Upon the signing of the document, petitioners delivered to respondents four (4) postdated Far East Bank and Trust Company (FEBTC) checks payable to cash drawn by petitioner Rosella Edrada, in various amounts totaling One Hundred Forty Thousand Pesos (P140,000.00). The first three (3) checks were honored upon presentment to the drawee bank while the fourth check for One Hundred Thousand Pesos (P100,000.00) was dishonored because of a "stop payment" order. On 3 June 1996, respondents filed an action against petitioners for specific performance with damages before the RTC, praying that petitioners be obliged to execute the necessary deed of sale of the two fishing vessels and to pay the balance of the purchase price. In their Complaint,7 respondents alleged that petitioners contracted to buy the two fishing vessels for the agreed purchase price of Nine Hundred Thousand Pesos (P900,000.00), as evidenced by the above-quoted document, which according to them evinced a contract to buy. However, despite delivery of said vessels and repeated oral demands, petitioners failed to pay the balance, so respondents further averred. Belying the allegations of respondents, in their Answer with Counterclaim,8 petitioners averred that the document sued upon merely embodies an agreement brought about by the loans they extended to respondents. According to petitioners, respondents allowed them to manage or administer the fishing vessels as a business on the understanding that should they find the business profitable, the vessels would be sold to them for Nine Hundred Thousand Pesos (P900,000.00). But petitioners "decided to call it quits" after spending a hefty sum for the

repair and maintenance of the vessels which were already in dilapidated condition. After trial, the RTC rendered a Decision9 dated 22 February 1999, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants and the latter are ordered to pay to the former the amount of Eight Hundred Sixty Thousand Pesos (P860,000.00) with legal interests thereon from June 30, 1996 until fully paid; the amount of P20,000.00 as attorneys fees and the cost of suit. The counterclaim of the defendants for moral and exemplary damages and for attorneys fees is dismissed for lack of merit. SO ORDERED.10 The RTC treated the action as one for collection of a sum of money and for damages and considered the document as a perfected contract of sale. On 19 April 1999, petitioners filed a Motion for Reconsideration which the RTC denied in an Order11 dated 2 July 1999. Both parties appealed the RTC Decision. However, finding no reversible error in the appealed decision, the Court of Appeals, in its Decision,12 affirmed the same and dismissed both appeals. Only petitioners elevated the controversy to this Court. Petitioners raised the nature of the subject document as the primary legal issue. They contend that there was no perfected contract of sale as distinguished from a contract to sell. They likewise posed as sub-issues the purpose for which the checks were issued, whether replacement of the crew was an act of ownership or administration, whether petitioners failed to protest the dilapidated condition of the vessels, and whether the instances when the vessels went out to sea proved that the vessels were not seaworthy.13 It is also alleged in the petition that the true agreement as between the parties was that of a loan. Evidently, the petition hinges on the true nature of the document dated 1 April 1996. Normally, the Court is bound by the factual findings of the lower courts, and accordingly, should affirm the conclusion that the document in question was a perfected contract of sale. However, we find that both the RTC and the Court of Appeals gravely misapprehended the nature of the said document, and a reevaluation of the document is in order.14 Even if such reevaluation would lead the court to examine issues not raised by the parties, it should be remembered that the Court has authority to review

matters even if not assigned as errors in the appeal, if it is found that their consideration is necessary in arriving at a just decision of the case. 15 In doing so, we acknowledge that the contending parties offer vastly differing accounts as to the true nature of the agreement. Still, we need not look beyond the document dated 1 April 1996 and the stipulations therein in order to ascertain what obligations, if any, have been contracted by the party. The parol evidence rule forbids any addition to or contradiction of the terms of a written agreement by testimony or other evidence purporting to show that different terms were agreed upon by the parties, varying the purport of the written contract. Whatever is not found in the writing is understood to have been waived and abandoned.16 We disagree with the RTC and the Court of Appeals that the document is a perfected contract of sale. A contract of sale is defined as an agreement whereby one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent. 17 It must evince the consent on the part of the seller to transfer and deliver and on the part of the buyer to pay.18 An examination of the document reveals that there is no perfected contract of sale. The agreement may confirm the receipt by respondents of the two vessels and their purchase price. However, there is no equivocal agreement to transfer ownership of the vessel, but a mere commitment that "documents pertaining to the sale and agreement of payments[are] to follow." Evidently, the document or documents which would formalize the transfer of ownership and contain the terms of payment of the purchase price, or the period when such would become due and demandable, have yet to be executed. But no such document was executed and no such terms were stipulated upon. The fact that there is a stated total purchase price should not lead to the conclusion that a contract of sale had been perfected. In numerous cases,19 the most recent of which is Swedish Match, AB v. Court of Appeals,20 we held that before a valid and binding contract of sale can exist, the manner of payment of the purchase price must first be established, as such stands as essential to the validity of the sale. After all, such agreement on the terms of payment is integral to the element of a price certain, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Assuming arguendo that the document evinces a perfected contract of sale, the absence of definite terms of payment therein would preclude its enforcement by the respondents through the instant Complaint. A requisite

for the judicial enforcement of an obligation is that the same is due and demandable. The absence of a stipulated period by which the purchase price should be paid indicates that at the time of the filing of the complaint, the obligation to pay was not yet due and demandable. Respondents, during trial, did claim the existence of a period. Respondent Carmencita Ramos, during cross-examination, claimed that the supposed balance shall be paid on 30 June 1996.21 But how do respondents explain why the Complaint was filed on 3 June 1996? Assuming that the 30 June 1996 period was duly agreed upon by the parties, the filing of the Complaint was evidently premature, as no cause of action had accrued yet. There could not have been any breach of obligation because on the date the action was filed, the alleged maturity date for the payment of the balance had not yet arrived. In order that respondents could have a valid cause of action, it is essential that there must have been a stipulated period within which the payment would have become due and demandable. If the parties themselves could not come into agreement, the courts may be asked to fix the period of the obligation, under Article 1197 of the Civil Code. 22 The respondents did not avail of such relief prior to the filing of the instant Complaint; thus, the action should fail owing to its obvious prematurity. Returning to the true nature of the document, we neither could conclude that a "contract to sell" had been established. A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.23 A contract is perfected when there is concurrence of the wills of the contracting parties with respect to the object and the cause of the contract. In this case, the agreement merely acknowledges that a purchase price had been agreed on by the parties. There was no mutual promise to buy on the part of petitioners and to sell on the part of respondents. Again, the aforestated proviso in the agreement that documents pertaining to the sale and agreement of payments between the parties will follow clearly manifests lack of agreement between the parties as to the terms of the contract to sell, particularly the object and cause of the contract. The agreement in question does not create any obligatory force either for the transfer of title of the vessels, or the rendition of payments as part of the purchase price. At most, this agreement bares only their intention to enter into either a contract to sell or a contract of sale.

Consequently, the courts below erred in ordering the enforcement of a contract of sale that had yet to come into existence. Instead, the instant Complaint should be dismissed. It prays for three reliefs arising from the enforcement of the document: execution by the petitioners of the necessary deed of sale over the vessels, the payment of the balance of the purchase price, and damages. The lower courts have already ruled that damages are unavailing. Our finding that there is no perfected contract of sale precludes the finding of any cause of action that would warrant the granting of the first two reliefs. No cause of action arises until there is a breach or violation thereof by either party.24 Considering that the documents create no obligation to execute or even pursue a contract of sale, but only manifest an intention to eventually contract one, we find no rights breached or violated that would warrant any of the reliefs sought in the Complaint. WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals areREVERSED and SET ASIDE. The case before the Regional Trial Court is ordered dismissed. no pronouncement as to costs. SO ORDERED. DANTE O. TINGA Associate Justice WE CONCUR:

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Associate Justice Chairman, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. HILARIO G. DAVIDE, JR. Chief Justice

Footnotes REYNATO S. PUNO

1

Rollo, pp. 13-28.

Associate Justice Chairman MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR. Associate Justice Associate Justice MINITA V. CHICO-NAZARIO Associate Justice ATTESTATION Penned by Associate Justice Cancio C. Garcia (now Supreme Court Associate Justice), and concurred in by Associate Justices Marina L. Buzon and Eliezer R. Delos Santos. Id. at 83-93.
2 3

Id. at 100. Presided by Judge Felix S. Caballes. Rollo, pp. 56-79. Id. at 38. Id. at 29-33. Id. at 40-44.

Id. at 49-54. Id. at 54. Id. at 81. Id. at 83- 93. Rollo, p. 19.

10

11

"If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof." We can reasonably conclude that the parties in this case intended a period, considering that respondents did claim during trial that there was one, and that the petitioners had started making installment payments.
22 23

12

Coronel v. Court of Appeals, 331 Phil. 294 (1996). Cole v. Vda. de Gregorio, 202 Phil. 226 (1982).

13

24

One of the recognized exceptions to the rule that findings of fact of the lower courts are binding on this Court is if the judgment is based on a misapprehension of facts. See, e.g., Maglucot-aw v. Maglucot, G.R. No. 132518, 28 March 2000, 329 SCRA 78, citing Sta. Maria v. Court of Appeals, G.R. No. 127549, 28 January 1998, 285 SCRA 351; Medina v. Asistio, G.R. No. 75450, 8 November 1990, 191 SCRA 218.
14

See Heirs of Enrique Zambales v. Court of Appeals, G.R. No. L54070, 28 February 1983, 120 SCRA 897; citing Saura Import & Export Co., Inc. v. Phil. International Surety Co., Inc., 8 SCRA 143 (1963).
15

Soriano v. Compania General de Barbados de Filipinas, 125 Phil. 80 (1966).

16 17

Article 1458, Civil Code. Art. 1475, Civil Code.

18

Velasco v. Court of Appeals, G.R. No. L-31018, 29 June 1973, 51 SCRA 439, citing Navarro v. Sugar Producers Cooperative Marketing Association, G.R. No. L-12888, 29 April 1961, 1 SCRA 1180; Toyota Shaw, Inc. v. Court of Appeals, 314 Phil. 201 (1995); Limketkai Sons Milling, Inc. v. Court of Appeals, 330 Phil. 171 (1996); Uraca v. Court of Appeals, 228 SCRA 702 (1997); Co v. Court of Appeals, 349 Phil 745 (1998); San Miguel Properties, Inc. v. Huang, 391 Phil. 636 (2000); Montecillo v. Reynes, 434 Phil. 456 (2002).
19 20

G.R. No. 128120, 20 October 2004, 441 SCRA 1. Rollo, p. 24.

21