Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

L-37751 July 20, 1982 MANUEL LAPINIG and LEONCIO CHAVAS, petitioners, vs. THE HONORABLE COURT OF APPEALS and FRANCISCO V. JORVINA, respondents.

GUERRERO, J.: This is a petition to review the decision of the Court of Appeals promulgated on September 24, 1973 in CA-G.R. No. 49348-R entitled "Francisco V. Jorvina, Plaintiff- Appellant, versus, People's Homesite and Housing Corporation, Defendant-Appellee, Manuel Lapinig and Leoncio Chavas, Intervenors-Appellees." A complaint was filed in the Court of First Instance of Rizal, Quezon City, Branch IV, by private respondent Francisco V. Jorvina against the People's Homesite and Housing Corporation (hereinafter referred to as PHHC) praying that Lot 10, Block E-156, Psd-68807 of the East Avenue Subdivision be re-awarded to him, for damages and attorney's fees. After therein defendant PHHC filed its Answer, a complaint in intervention was filed with leave of court by petitioners Manuel Lapinig and Leoncio Chavas praying that the PHHC be ordered to execute the Final Deed of Sale in their favor and that plaintiff Jorvina be ordered to pay to them moral and compensatory damages and attorney's fees. At the pre-trial on June 25, 1970, the parties submitted the following "Stipulation of Facts": 1. That, the parties admit the personal circumstances of each party and the jurisdiction of this Honorable Court over the subject matter of this litigation; 2. That, People's Homesite and Housing Corporation (PHHC for brevity) is the registered owner of a parcel of land Identified as Lot No. 10, Block E-156 of the PHHC East Avenue Subdivision in Quezon City; 3. That, on January 28, 1958, plaintiff filed with the defendant PHHC an "Application to Purchase a Lot" and as a result thereof was awarded Lot No. 10, Block E-156, thereafter paying the required 10% deposit in the amount of P546.96; 4. That,on November 2, 1962, a complaint was filed by Mrs. Arsenia Lapinig with the PHHC contesting the award of the lot in controversy in favor of plaintiff Jorvina, copy of which is attached and marked as Annex "A" and made an integral part hereof;

5. That, on January 3, 1963, the PHHC Board of Directors adopted Resolution No. 282 sustaining the award of the lot in question to plaintiff Francisco V. Jorvina and denying Lapinig's appeal for reconsideration; 6. That, on April 1, 1963, the General Manager of defendant PHHC formally notified the plaintiff of Resolution No. 282 of the PHHC Board of Directors, sustaining the award of the lot to the plaintiff; 7. That, on March 20, 1964, a "Conditional Contract to Sell" was executed between the plaintiff Francisco V. Jorvina and defendant PHHC; that since then plaintiff complied with the terms of payment and paid certain amounts reflected in the PHHC Passbook issued by defendant to the plaintiff which, as of February, 1966, amounted to P2,490.31; 8. That, sometime in April 1965, the Presidential Investigating Committee (Gancayco Committee) reinvestigated the lot award in question and that on November 22, 1965 the said Committee, through State Prosecutor Maura Navarro, recommended the cancellation of the award in favor of F. V. Jorvina, herein plaintiff, and the re-award of the lot in favor of Manuel Lapinig and Andronico Alcovendas, pro-indiviso, copy of which recommendation is attached and marked as Annex "B" and made an integral part hereof; that, Francisco V. Jorvina was not given the notice of this reinvestigation or the opportunity to be heard and to adduce his own evidence; 9. That, the recommendation of the Presidential Investigating Committee was approved by the PHHC Board of Directors under Resolution No. 541 dated January 13, 1966, copy of which is attached and marked as Annex "C" and made an integral part hereof; 10. That, on February 1, 1966, Manuel Lapinig and Andronico Alcovendas paid the 10% initial payment of P546.96, Order of Payment being attached and marked as Annex "D" and made integral part hereof; 11. That, on February 3. 1966, plaintiff remitted a check for P163.95 to defendant PHHC, acceptance of which was refused, and that a few days thereafter plaintiff received a letter from the Acting General Manager of defendant PHHC, dated January 31, 1966, stating that Lot 10, Block E-156 was re-awarded to Arsenia Lapinig and Andronico Alcovendas; 12. That, on December 7, 1966, the PHHC Board of Directors under Resolution No. 765, copy attached marked as Annex "E" and made integral part hereof, approved the request for the transfer of rights of the one-half undivided portion from Andronico Alcovendas to Leoncio Chavas who was found qualified under PHHC rules and regulations: 13. That, on November 7, 1969, Resolution No. 372, copy attached and marked as Annex "F" was approved by the PHHC Board of Directors confirming its previous Board Resolution No. 541, dated January 13, 1966 (marked as Annex "C" herein) and Board Resolution No. 765 dated December 7, 1966 (marked as Annex "E" herein), likewise ordering that the "Conditional Contract to Sell" be executed in favor of Lapinig and Chavas; 14. That, on June 4, 1968, defendant PHHC and Manuel Lapinig and Leoncio Chavas executed a "Conditional Contract to Sell" over Lot 10, Block E-156;

15. That, the parties reserve their rights to present such additional evidence as they may respectively deem necessary within the scope of the issues raised.
xxx xxx xxx 1

Resolving the case, the Court of First Instance upheld the authority and power of the PHHC to cancel the award of the lot in question to Jorvina and to re-award the same property to intervenors Lapinig and Chavas. The Court ruled that the PHHC had the duty of carrying out the policy of the government "to acquire large estates ... for their subdivision and re-sale to bona fide occupants," and that it merely complied with the recommendation of the Presidential Investigating Committee to give preference to the actual occupants of the lot. Moreover, the Court held that as owner of the property in controversy, the PHHC had the right to dispose of the lot in favor of whoever it may choose under its rules and regulations. The dispositive portion of the decision of the Court of First Instance dated August 13, 1970 is quoted hereunder: WHEREFORE, judgment is hereby rendered dismissing the plaintiff's complaint with costs against him. Neither the counterclaim of defendant PHHC nor the claim for damages of the intervenors is awarded because there is no evidence supporting the same.
SO ORDERED. 2

On appeal to the Court of Appeals, Jorvina obtained a reversal. Respondent Court of Appeals stressed that not only had the disputed lot been awarded to Jorvina and deposit from him accepted, but more than that, a "Conditional Contract To Sell" had been executed in said awardee's favor on May 20, 1964 wherein the PHHC agreed to sell the lot to Jorvina on installments, which the latter in fact later paid. Thus, reasoned the respondent Court, if the law on contracts were to govern, the PHHC could not just unilaterally annul the aforementioned agreement which, under the New Civil Code, is the law between the parties and should be complied with in good faith. The appellate court decision promulgated on September 24, 1973 reversed the judgment appealed from and ordered the contract in favor of plaintiff-appellant to be maintained and specifically performed and his rights to the lot reinstated. 3 Examining the "Conditional Contract To Sell" dated March 20, 1964 4 executed between the PHHC and herein private respondent Jorvina (see No. 7, "Stipulation of Facts", supra), We find the same to have been validly entered into. By virtue thereof, the PHHC agreed to sell the lot in question to Jorvina for the sum of P5,469.60 payable in monthly installments over a period of ten (10) years, with interest at the rate of 6% per annum. The document was duly signed by the parties in the presence of witnesses and acknowledged before a notary public. It has the essential elements of a perfected contract, namely, consent, subject matter, and cause or consideration. 5 Upon perfection of a contract, "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." 6 Thus, the PHHC as a consequence of its having entered into the "Conditional Contract To Sell" with Jorvina, may NOT unilaterally cancel the award in favor of Jorvina nor re-award the subject property to other persons. To do so would be to violate Jorvina's rights as the awardee of the lot in question under the "Conditional Contract To Sell" of March 20, 1964. The fact that the PHHC is a government corporation does not exempt it from compliance with its contractual obligations. Herein petitioners make capital of the recommendations of the Presidential Investigating Committee for the cancellation of Jorvina's award and for a re-award in favor of Lapinig and Alcovendas, which recommendation was approved by the PHHC Board of Directors on January 13, 1966. They point out that the Committee was precisely created "to investigate and cancel

irregular awards", and contend that in making its recommendations for the disposition of Lot 10, Block E-156, the Committee merely gave recognition to the preferential right of Lapinig and Alcovendas to purchase the disputed lot as the actual and bona fide occupants thereof. We do not agree. The procedure adopted by the Presidential investigating Committee when it inquired into Jorvina's award was arbitrary, oppressive and inquisitorial. As admitted by the parties in the lower Court, said awardee was not given notice of the reinvestigation nor the opportunity to be heard and to adduce his evidence (see No. 8, "Stipulation of Facts", supra). In other words, not even the most basic requisites of due process were met. The records show that a previous investigation of the award to Jorvina brought about by the complaint filed by Mrs. Arsenia Lapinig had been conducted, resulting in the letter of then PHHC General Manager Angel Macapagal dated April 1, 1963, formally notifying Jorvina of the decision in his favor, thus: With reference to the adverse claim of Mrs. Arsenia Lapinig over the above-stated lot awarded to you, I wish to inform you that in view of the findings and recommendation of the Board's Committee on Investigation which had carefully reviewed the records of this case, the PHHC Board of Directors sustained the award of said lot in your favor and denied her appeal for reconsideration of the decision of the PHHC Administrative Investigating Committee under Resolution No. 282, dated January 3, 1963 ...
In view thereof, please come to this Corporation upon receipt hereof for the execution of the "Conditional Contract To Sell" in your favor. 7

The letter dated November 28, 1968 of then PHHC General Manager Esteban Bernido to the Office of the Government Corporate Counsel clearly stated the failure of Mrs. Lapinig to prove her allegations of fraud and misrepresentation in the award to Jorvina. Pertinent portions of the letter reads:
The records show that the subject lot was originally awarded to Mr. Francisco Jorvina on January 28, 1958, when he paid the required 10% deposit in the amount of P546.96. However, on February 10, 1960, a formal complaint was filed by one Mrs. Arsenia Lapinig with the PHHC contesting the award of the above-mentioned property in favor of Mr. Jorvina. After hearings of the case conducted by the PHHC Administrative Investigating Committee, the said Committee in its Memorandum Report dated January 25, 1961 recommended that award in favor of Mr. Jorvina be sustained for failure on the part of the complainant for failure on the part of the complainant to establish fraud and misrepresentation in obtaining the award. This recommendation was approved by the Chairman-General Manager on January 30, 1961. Mrs. Lapinig appealed the decision of the PHHC Investigating Committee to the PHHC Board of Directors. On January 3, 1963 the PHHC Board approved Resolution No. 282 sustaining the award of Mr. Jorvina in view of the reasons stated in the Committee Report dated December 18, 1962 of the Board's Committee on Investigation ... On March 20, 1964, a Conditional Contract to Sell over the subject lot was executed by the PHHC in his favor. 8

Since it is undisputed that the PHHC had accepted several installment payments from Jorvina, there has therefore been a partial performance of the contract. Assuming that the Presidential Investigating Committee had discovered a ground to annul the "Conditional Contract To Sell" dated March 20, 1964, the PHHC should have filed an action for annulment of the contract within the prescribed period. It did not do so. Instead, it merely approved the Committee's recommendations and accepted the initial payment made by the new awardees, Lapinig and Alcovendas. Undoubtedly, the new award is arbitrary and violative of the original awardee's (Jorvina) property rights. Petitioners' claim that they have the preferential right to purchase Lot No. 10, Block E-156 as actual and bona fideoccupants thereof is without merit. To begin with, the character of their

possession of the subject property has not been clearly established. What appears on record is that the subject property was re-awarded pro-indiviso to: (1) herein petitioner Lapinig as the "actual occupant" of the lot, and (2) the predecessor-in-interest of herein petitioner Chavas, Andronico Alcovendas, "who is being relocated from Lot 22, Block E-115 the award of which was sustained because the lot is already covered by title and has already been transferred to an innocent purchaser for value." 9 We find no claim of possession in good faith of the lot in litigation by the aforenamed new awardees, which is the essential ingredient for the pertinent invocation by petitioners of the government policy and PHHC function of acquiring large estates for their resale to "bona fide occupants." 10 The cases of Guardiano vs. Encarnacion 11 and PHHC vs. Tiongco 12 cited by petitioners are, therefore, not applicable. In Guardiano, this Court sustained the action of the PHHC in upholding the preferential right of therein petitioner Guardiano to purchase the PHHC lot subject of the controversy as against the original awardee Encarnacion. Guardiano's "initial status as a squatter had been legalized with her having been duly accepted by the PHHC as a 'registered squatter' or bona fide occupant occupying the lot since 1945. 13 This Court also found that Encarnacion had merely been granted a "tentative award", and that there was "no perfected contract to sell" reached between (him) and the PHHC nor was the 'Conditional Contract to Sell' ever executed between them." 14No monthly payments were made by Encarnacion to the PHHC other than the initial deposit. 15 In the Tiongcocase, this Tribunal emphasized that according to the PHHC's own investigators, therein defendants Tiongco and Escasa were "bona fide squatters since 1949 and introduced improvements therein ... and that their names were included in the list of bona fide squatters during the census by the PHHC (in 1957)." 16 Thus, in both the cited cases. the actual occupants f the disputed PHHC lots were expressly found to be possessors in good faith. In the instant case as already stated above, there is nothing in the record to warrant the same finding. Herein petitioners further assert that they had already signed a "Conditional Contract To Sell" over the property in question. There is such a document on record as Exhibit "1" (Intervenors) which bear the signatures of petitioners. However, it is not signed by the General Manager of the PHHC. It is, therefore, no contract at all and does not give rise to any enforceable right or demandable obligation. On the facts and by law, private respondent Jorvina has a better right, over petitioners Lapinig and Chavas to Lot 10, Block 156 of the East Avenue Subdivision in Quezon City. The decision brought to Us for review must be affirmed. WHEREFORE, the decision of respondent Court of Appeals dated September 24, 1973 is hereby AFFIRMED. Costs against petitioners. SO ORDERED. Barredo (Chairman), Aquino, Concepcion, Jr., Abad Santos, De Castro and Escolin, JJ.,concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-61623 December 26, 1984 PEOPLE'S HOMESITE & HOUSING CORPORATION, petitioner-appellant, vs.

COURT OF APPEALS, RIZALINO L. MENDOZA and ADELAIDA R. MENDOZA, respondentsappellees. Manuel M. Lazaro, Pilipinas Arenas Laborte and Antonio M. Brillantes for petitioner PHHC. Tolentino, Cruz, Reyes, Lava and Manuel for private respondents.

AQUINO, J.: The question in this case is whether the People's Homesite & Housing Corporation bound itself to sell to the Mendoza spouses Lot 4 (Road) Pcs- 4564 of the revised consolidation subdivision plan with an area of 2,6,08.7 (2,503.7) square meters located at Diliman, Quezon City. The PHHC board of directors on February 18, 1960 passed Resolution No. 513 wherein it stated "that subject to the approval of the Quezon City Council of the above-mentioned Consolidation Subdivision Plan, Lot 4. containing4,182.2 square meters be, as it is hereby awarded to Spouses Rizalino Mendoza and Adelaida Mendoza, at a price of twenty-one pesos (P21.00) per square meter" and "that this award shall be subject to the approval of the OEC (PHHC) Valuation Committee and higher authorities". The city council disapproved the proposed consolidation subdivision plan on August 20, 1961 (Exh. 2). The said spouses were advised by registered mail of the disapproval of the plan (Exh. 2PHHC). Another subdivision plan was prepared and submitted to the city council for approval. The revised plan, which included Lot 4, with a reduced area of 2,608.7, was approved by the city council on February 25, 1964 (Exh. H). On April 26, 1965 the PHHC board of directors passed a resolution recalling all awards of lots to persons who failed to pay the deposit or down payment for the lots awarded to them (Exh. 5). The Mendozas never paid the price of the lot nor made the 20% initial deposit. On October 18, 1965 the PHHC board of directors passed Resolution No. 218, withdrawing the tentative award of Lot 4 to the Mendoza -spouses under Resolution No. 513 and re-awarding said lot jointly and in equal shares to Miguela Sto. Domingo, Enrique Esteban, Virgilio Pinzon, Leonardo Redublo and Jose Fernandez, subject to existing PHHC rules and regulations. The prices would be the same as those of the adjoining lots. The awardees were required to deposit an amount equivalent to 20% of the total selling price (Exh. F). The five awardees made the initial deposit. The corresponding deeds of sale were executed in their favor. The subdivision of Lot 4 into five lots was approved by the city council and the Bureau of Lands. On March 16, 1966 the Mendoza spouses asked for reconsideration of the withdrawal of the previous award to them of Lot 4 and for the cancellation of the re-award of said lot to Sto. Domingo and four others. Before the request could be acted upon, the spouses filed the instant action for specific performance and damages. The trial court sustained the withdrawal of the award. The Mendozas appealed. The Appellate Court reversed that decision and declared void the re-award of Lot 4 and the deeds of sale and directed the PHHC to sell to the Mendozas Lot 4 with an area of 2,603.7 square meters at P21 a square meter and pay to them P4,000 as attorney's fees and litigation expenses. The PHHC appealed to this Court.

The issue is whether there was a perfected sale of Lot 4, with the reduced area, to the Mendozas which they can enforce against the PHHC by an action for specific performance. We hold that there was no perfected sale of Lot 4. It was conditionally or contingently awarded to the Mendozas subject to the approval by the city council of the proposed consolidation subdivision plan and the approval of the award by the valuation committee and higher authorities. The city council did not approve the subdivision plan. The Mendozas were advised in 1961 of the disapproval. In 1964, when the plan with the area of Lot 4 reduced to 2,608.7 square meters was approved, the Mendozas should have manifested in writing their acceptance of the award for the purchase of Lot 4 just to show that they were still interested in its purchase although the area was reduced and to obviate ally doubt on the matter. They did not do so. The PHHC board of directors acted within its rights in withdrawing the tentative award. "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 law governing the form of contracts." (Art. 1475, Civil Code). "Son, sin embargo, excepcion a esta regla los casos en que por virtud de la voluntad de las partes o de la ley, se celebra la venta bajo una condicion suspensiva, y en los cuales no se perfecciona la venta hasta el cumplimiento de la condicion" (4 Castan Tobenas, Derecho Civil Espaol 8th ed. p. 81). "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. (Art. 1181, Civil Code). "Se llama suspensive la condicion de la que depende la perfeccion, o sea el principio del contrato". (9 Giorgi, Teoria de las Obligaciones, p. 57). Under the facts of this case, we cannot say there was a meeting of minds on the purchase of Lot 4 with an area of 2,608.7 square meters at P21 a square meter. The case of Lapinig vs. Court of Appeals, 115 SCRA 213 is not in point because the awardee in that case applied for the purchase of the lot, paid the 10% deposit and a conditional contract to sell was executed in his favor. The PHHC could not re-award that lot to another person. WHEREFORE, the decision of the Appellate Court is reversed and set aside and the judgment of the trial court is affirmed. No costs. SO ORDERED. Makasiar (Chairman), Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ., concur.

The Lawphil Project - Arellano Law Foundation

G.R. No. L-55665 February 8, 1989 DELTA MOTOR CORPORATION, petitioner, vs. EDUARDA SAMSON GENUINO, JACINTO S. GENUINO, Jr., VICTOR S. GENUINO, HECTOR S. GENUINO, EVELYN S. GENUINO, and The COURT OF APPEALS, respondents. Alcasid, Villanueva & Associates for petitioner.

Luna, Puruganan, Sison & Ongkiko for respondents.

CORTES, J.: Petitioner, through this petition for review by certiorari, appeals from the decision of respondent appellate court in CA-G.R. No. 59848-R entitled "Eduarda Samson Genuino, et al. v. Delta Motor Corporation" promulgated on October 27, 1980. The facts are as follows: Petitioner Delta Motor Corporation (hereinafter referred to as Delta) is a corporation duly organized and existing under Philippine laws. On the other hand, private respondents are the owners of an iceplant and cold storage located at 1879 E. Rodriguez Sr. Avenue, Quezon City doing business under the name "Espaa Extension Iceplant and Cold Storage." In July 1972, two letter-quotations were submitted by Delta to Hector Genuino offering to sell black iron pipes. T The letter dated July 3, 1972 quoted Delta's selling price for 1,200 length of black iron pipes schedule 40, 2" x 20' including delivery at P66,000.00 with the following terms of payment: a. 20% of the net contract price or P13,200.00 will be due and payable upon signing of the contract papers. b. 20% of the net contract price or P13,200.00 will be due and payable before commencement of delivery. c. The balance of 60% of the net contract price or P39,600.00 with 8% financing charge per annum will be covered by a Promissory Note bearing interest at the rate of 14% per annum and payable in TWELVE (12) equal monthly installment (sic), the first of which will become due thirty (30) days after the completion of delivery. Additional 14% will be charged for all delayed payments. [Exh. "A"; Exh. 1.] The second letter-quotation dated July 18, 1972 provides for the selling price of 150 lengths of black iron pipes schedule 40, 1 1/4" x 20' including delivery at P5,400.00 with the following terms of payment: a. 50% of the net contract price or P 2,700.00 will be due and payable upon signing of the contract papers. b. 50% of the net contract price or P 2,700.00 will be due and payable before commencement of delivery. [Exh. "C"; Exh. "2".] Both letter-quotations also contain the following stipulations as to delivery and price offer: DELIVERY Ex-stock subject to prior sales. xxx xxx xxx

Our price offer indicated herein shall remain firm within a period of thirty (30) days from the date hereof. Any order placed after said period will be subject to our review and confirmation. [Exh. "A" and "C"; Exhs. "l" and "2".] Hector Genuino was agreeable to the offers of Delta hence, he manifested his conformity thereto by signing his name in the space provided on July 17, 1972 and July 24, 1972 for the first and second letter-quotations, respectively. It is undisputed that private respondents made initial payments on both contracts for the first contract, P13,200.00 and, for the second, P2,700.00 for a total sum of P15,900.00 on July 28, 1972 (Exhs. "B" and "D"]. Likewise unquestionable are the following. the non-delivery of the iron pipes by Delta; the nonpayment of the subsequent installments by the Genuinos; and the non-execution by the Genuinos of the promissory note called for by the first contract. The evidence presented in the trial court also showed that sometime in July 1972 Delta offered to deliver the iron pipes but the Genuinos did not accept the offer because the construction of the ice plant building where the pipes were to be installed was not yet finished. Almost three years later, on April 15, 1975, Hector Genuino, in behalf of Espaa Extension Ice Plant and Cold Storage, asked Delta to deliver the iron pipes within thirty (30) days from its receipt of the request. At the same time private respondents manifested their preparedness to pay the second installment on both contracts upon notice of Delta's readiness to deliver. Delta countered that the black iron pipes cannot be delivered on the prices quoted as of July 1972. The company called the attention of the Genuinos to the stipulation in their two (2) contracts that the quoted prices were good only within thirty (30) days from date of offer. Whereupon Delta sent new price quotations to the Genuinos based on its current price of black iron pipes, as follows: P241,800.00 for 1,200 lengths of black iron pjpes schedule 40, 2" x 20' [Exh. "G1".] P17,550.00 for 150 lengths of black iron pipes schedule 40, 1 1/4" x 20' [Exh. "G2".] The Genuinos rejected the new quoted prices and instead filed a complaint for specific performance with damages seeking to compel Delta to deliver the pipes. Delta, in its answer prayed for rescission of the contracts pursuant to Art. 1191 of the New Civil Code. The case was docketed as Civil Case No. Q-20120 of the then Court of First Instance of Rizal, Branch XVIII, Quezon City. After trial the Court of First Instance ruled in favor of Delta,the dispositive portion of its decision reading as follows: WHEREFORE, premises considered, judgment is rendered: 1. Declaring the contracts, Annexes "A" and "C" of the complaint rescinded; 2. Ordering defendant to refund to plaintiffs the sum of P15,900.00 delivered by the latter as downpayments on the aforesaid contracts; 3. Ordering plaintiffs to pay defendant the sum of P10,000.00 as attorney's fees; and,

4. To pay the costs of suit. [CFI Decision, pp. 13-14; Rollo, pp. 53-54.] On appeal, the Court of Appeals reversed and ordered private respondents to make the payments specified in "Terms of Payment (b)" of the contracts and to execute the promissory note required in the first contract and thereafter, Delta should immediately commence delivery of the black iron pipes.* [CA Decision, p. 20; Rollo, p. 75.] The Court of Appeals cited two main reasons why it reversed the trial court, namely: 1. As Delta was the one who prepared the contracts and admittedly, it had knowledge of the fact that the black iron pipes would be used by the Genuinos in their cold storage plant which was then undergoing construction and therefore, would require sometime before the Genuinos would require delivery, Delta should have included in said contracts a deadline for delivery but it did not. As a matter of fact neither did it insist on delivery when the Genuinos refused to accept its offer of delivery. [CA Decision, pp. 16-17; Rollo, pp. 71-72.] 2. Delta's refusal to make delivery in 1975 unless the Genuinos pay a price very much higher than the prices it previously quoted would mean an amendment of the contracts. It would be too unfair for the plaintiffs if they will be made to bear the increase in prices of the black iron pipes when they had already paid quite an amount for said items and defendant had made use of the advance payments. That would be unjust enrichment on the part of the defendant at the expense of the plaintiffs and is considered an abominable business practice. [CA Decision, pp. 18-19; Rollo, pp. 73-74.] Respondent court denied Delta's motion for reconsideration hence this petition for review praying for the reversal of the Court of Appeals decision and affirmance of that of the trial court. Petitioner argues that its obligation to deliver the goods under both contracts is subject to conditions required of private respondents as vendees. These conditions are: payment of 20% of the net contract price or P13,200.00 and execution of a promissory note called for by the first contract; and payment of 50% of the net contract price or P2,700.00 under the second contract. These, Delta posits, are suspensive conditions and only upon their performance or compliance would its obligation to deliver the pipes arise [Petition, pp. 9-12; Rollo, pp. 1720.] Thus, when private respondents did not perform their obligations; when they refused to accept petitioner's offer to deliver the goods; and, when it took them three (3) long years before they demanded delivery of the iron pipes that in the meantime, great and sudden fluctuation in market prices have occurred; Delta is entitled to rescind the two (2) contracts. Delta relies on the following provision of law on rescission: 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.

In construing Art. 1191, the Supreme Court has stated that, "[r]escission will be ordered only where the breach complained of is substantial as to defeat the object of the parties in entering into the agreement. It will not be granted where the breach is slight or casual." [Phil. Amusement Enterprises, Inc. v. Natividad, G.R. No. L-21876, September 29, 1967, 21 SCRA 284, 290.] Further, "[t]he question of whether a breach of a contract is substantial depends upon the attendant circumstances." [Universal Food Corporation v. Court of Appeals, G. R. No. L-29155, May 13,1970,33 SCRA 1, 18]. In the case at bar, the conduct of Delta indicates that the Genuinos' non-performance of its obligations was not a substantial breach, let alone a breach of contract, as would warrant rescission. Firstly, it is undisputed that a month after the execution of the two (2) contracts, Delta's offer to deliver the black iron pipes was rejected by the Genuinos who were "not ready to accept delivery because the cold storage rooms have not been constructed yet. Plaintiffs (private respondents herein) were short-funded, and did not have the space to accommodate the pipes they ordered" [CFI Decision, p. 9; Rollo, p. 49]. Given this answer to its offer, Delta did not do anything. As testified by Crispin Villanueva, manager of the Technical Service department of petitioner: Q You stated that you sent a certain Evangelista to the Espaa Extension and Cold Storage to offer the delivery subject matter of the contract and then you said that Mr. Evangelista reported (sic) to you that plaintiff would not accept delivery, is that correct, as a summary of your statement? A A Yes, sir. Q Now, what did you do in the premises (sic)? A Yes, well, we take the word of Mr. Evangelista. We could not deliver the said black iron pipes, because as per information the Ice Plant is not yet finished. Q Did you not report that fact to ... any other defendant-officials of the Delta Motor Corporation? A No. Q And you did not do anything after that? A Because taking the word of my Engineer we did not do anything. [TSN, December 8, 1975, pp. 18-19.] xxx xxx xxx And secondly, three (3) years later when the Genuinos offered to make payment Delta did not raise any argument but merely demanded that the quoted prices be increased. Thus, in its answer to private respondents' request for delivery of the pipes, Delta countered: Thank you for your letter dated April 15, 1975, requesting for delivery of Black Iron pipes;.

We regret to say, however, that we cannot base our price on our proposals dated July 3 and July 18, 1972 as per the following paragraph quoted on said proposal: Our price offer indicated herein shall remain firm within a period of thirty (30) days from the date hereof. Any order placed after said period will be subject to our review and confirmation. We are, therefore, enclosing our re-quoted proposal based on our current price. [Exh. "G".] Moreover, the power to rescind under Art. 1191 is not absolute. "[T]he 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 otherand is always provisional, being ever subject to scrutiny and review by the proper court." [University of the Phils. v. De los Angeles, G. R. No. L-28602, September 29, 1970, 35 SCRA 102, 107; Emphasis supplied.] In the instant case, Delta made no manifestation whatsoever that it had opted to rescind its contracts with f-he Genuinos. It only raised rescission as a defense when it was sued for specific performance by private respondents. Further, it would be highly inequitable for petitioner Delta to rescind the two (2) contracts considering the fact that not only does it have in its possession and ownership the black iron pipes, but also the P15,900.00 down payments private respondents have paid. And if petitioner Delta claims the right to rescission, at the very least, it should have offered to return the P15,900.00 down payments [See Art. 1385, Civil Code and Hodges v. Granada, 59 Phil. 429 (1934)]. It is for these same reasons that while there is merit in Delta's claim that the sale is subject to suspensive conditions, the Court finds that it has, nevertheless, waived performance of these conditions and opted to go on with the contracts although at a much higher price. Art. 1545 of the Civil Code provides: Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waived performance of the condition. . . . [Emphasis supplied.] Finally, Delta cannot ask for increased prices based on the price offer stipulation in the contracts and in the increase in the cost of goods. Reliance by Delta on the price offer stipulation is misplaced. Said stipulation makes reference to Delta's price offer as remaining firm for thirty (30) days and thereafter, will be subject to its review and confirmation. The offers of Delta, however, were accepted by the private respondents within the thirty (30)-day period. And as stipulated in the two (2) letter-quotations, acceptance of the offer gives rise to a contract between the parties: In the event that this proposal is acceptable to you, please indicate your conformity by signing the space provided herein below which also serves as a contract of this proposal. [Exhs. "A" and "C"; Exhs. "1" and "2".] And as further provided by the Civil Code: 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. Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon thing which is the object of the contract and upon the price.

Thus, the moment private respondents accepted the offer of Delta, the contract of sale between them was perfected and neither party could change the terms thereof. Neither could petitioner Delta rely on the fluctuation in the market price of goods to support its claim for rescission. As testified to by petitioner's Vice-President of Marketing for the Electronics, Airconditioning and Refrigeration division, Marcelino Caja, the stipulation in the two (2) contracts as to delivery, ex-stock subject to prior sales,means that "the goods have not been delivered and that there are no prior commitments other than the sale covered by the contracts.. . once the offer is accepted, the company has no more option to change the price." [CFI Decision, p. 5; Rollo, p. 45; Emphasis supplied.] Thus, petitioner cannot claim for higher prices for the black iron pipes due to the increase in the cost of goods. Based on the foregoing, petitioner Delta and private respondents Genuinos should comply with the original terms of their contracts. WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. G.R. No. L-59266 February 29, 1988 SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners, vs. HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

BIDIN, J.: This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court of Appeals dated July 31,1981, affirming with modification the Decision, dated August 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as Attorneyin-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's) motion for reconsideration, for lack of merit. The undisputed facts as found by the Court of Appeals are as follows: The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners) Dignos spouses sold the said parcel of land to plaintiff-appellant (respondent Atilano J. Jabil) for the sum of P28,000.00, payable in two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be paid on or before September 15, 1965. On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3) was executed by the Dignos spouses in favor of the Cabigas spouses, and which was registered in the Office of the Register of Deeds pursuant to the provisions of Act No. 3344. As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of the land, and as plaintiff- appellant discovered the second sale made by defendants-appellants to the Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-28)

After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the decretal portion of which reads: WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by defendant Isabela L. de Dignos in favor of defendant Luciano Cabigas, a citizen of the United States of America, null and void ab initio, and the deed of sale executed by defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00) to the defendants-spouses upon the execution of the Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when the decision of this case becomes final and executory. The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita L. de Cabigas, through their attorney-in-fact, Panfilo Jabalde, reasonable amount corresponding to the expenses or costs of the hollow block fence, so far constructed. It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de Dignos should return to defendants-spouses Luciano Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity demands that nobody shall enrich himself at the expense of another. The writ of preliminary injunction issued on September 23, 1966, automatically becomes permanent in virtue of this decision. With costs against the defendants. From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein) appealed to the Court of Appeals, which appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al." On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building of a fence upon the land in question. The disposive portion of said decision of the Court of Appeals reads: IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the judgment as pertains to plaintiff-appellant above indicated, the judgment appealed from is hereby AFFIRMED in all other respects. With costs against defendants-appellants. SO ORDERED. Judgment MODIFIED. A motion for reconsideration of said decision was filed by the defendants- appellants (petitioners) Dignos spouses, but on December 16, 1981, a resolution was issued by the Court of Appeals denying the motion for lack of merit. Hence, this petition. In the resolution of February 10, 1982, the Second Division of this Court denied the petition for lack of merit. A motion for reconsideration of said resolution was filed on March 16, 1982. In the

resolution dated April 26,1982, respondents were required to comment thereon, which comment was filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in compliance with the resolution of June 16,1 982. On August 9,1982, acting on the motion for reconsideration and on all subsequent pleadings filed, this Court resolved to reconsider its resolution of February 10, 1982 and to give due course to the instant petition. On September 6, 1982, respondents filed a rejoinder to reply of petitioners which was noted on the resolution of September 20, 1982. Petitioners raised the following assignment of errors: I THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL. II THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT. III THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND ATTORNEY'S FEES TO PETITIONERS. IV PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS. V BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO. The foregoing assignment of errors may be synthesized into two main issues, to wit: I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell. II. Whether or not there was a valid rescission thereof. There is no merit in this petition.

It is significant to note that this petition was denied by the Second Division of this Court in its Resolution dated February 1 0, 1 982 for lack of merit, but on motion for reconsideration and on the basis of all subsequent pleadings filed, the petition was given due course. I. The contract in question (Exhibit C) is a Deed of Sale, with the following conditions: 1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos P12,000.00) Phil. Philippine Currency as advance payment; 2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P12,000.00) Loan from the First Insular Bank of Cebu; 3. That Atilano G. Jabil is to pay the said spouses the balance of Four. Thousand Pesos (P4,000.00) on or before September 15,1965; 4. That the said spouses agrees to defend the said Atilano G. Jabil from other claims on the said property; 5. That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil over the above-mentioned property upon the payment of the balance of Four Thousand Pesos. (Original Record, pp. 10-11) In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale (Exhibit "C") is a mere contract to sell and not an absolute sale; that the same is subject to two (2) positive suspensive conditions, namely: the payment of the balance of P4,000.00 on or before September 15,1965 and the immediate assumption of the mortgage of P12,000.00 with the First Insular Bank of Cebu. It is further contended that in said contract, title or ownership over the property was expressly reserved in the vendor, the Dignos spouses until the suspensive condition of full and punctual payment of the balance of the purchase price shall have been met. So that there is no actual sale until full payment is made (Rollo, pp. 51-52). In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that there is absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey or transfer their ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a private instrument and the absence of a formal deed of conveyance is a very strong indication that the parties did not intend "transfer of ownership and title but only a transfer after full payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms and conditions of the contract, more particularly paragraph four which reads, "that said spouses has agreed to sell the herein mentioned property to Atilano G. Jabil ..." and condition number five which reads, "that the spouses agrees to sign a final deed of absolute sale over the mentioned property upon the payment of the balance of four thousand pesos." Such contention is untenable. By and large, the issues in this case have already been settled by this Court in analogous cases. Thus, it has been held that a deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).

A careful examination of the contract shows that there is no such stipulation reserving the title of the property on the vendors nor does it give them the right to unilaterally rescind the contract upon non-payment of the balance thereof within a fixed period. On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code, are present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. In addition, Article 1477 of the same Code provides that "The ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof." As applied in the case of Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to the contrary, the ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof. While it may be conceded that there was no constructive delivery of the land sold in the case at bar, as subject Deed of Sale is a private instrument, it is beyond question that there was actual delivery thereof. As found by the trial court, the Dignos spouses delivered the possession of the land in question to Jabil as early as March 27,1965 so that the latter constructed thereon Sally's Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts were admitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108). Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of petitioners, contemporaneous with the contract, clearly show that an absolute deed of sale was intended by the parties and not a contract to sell. Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void. II. Petitioners claim that when they sold the land to the Cabigas spouses, the contract of sale was already rescinded. Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on all fours with the case at bar, the contract of sale being absolute in nature is governed by Article 1592 of the Civil Code. It is undisputed that petitioners never notified private respondents Jabil by notarial act that they were rescinding the contract, and neither did they file a suit in court to rescind the sale. The most that they were able to show is a letter of Cipriano Amistad who, claiming to be an emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil because the latter had no money and further advised petitioners to sell the land in litigation to another party (Record on Appeal, p. 23). As correctly found by the Court of Appeals, there is no showing that Amistad was properly authorized by Jabil to make such extra-judicial rescission for the latter who, on the contrary, vigorously denied having sent Amistad to tell petitioners that he was already waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is required that acts and contracts which have for their object the extinguishment of real rights over immovable property must appear in a public document. Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money on the stipulated date of payment on September 15,1965 and was able to raise the necessary amount only by mid-October 1965. It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay on the part of one party in the performance of his obligation is not a sufficient ground for the rescission of the agreement" (Taguba v. Vda. de Leon, supra). Considering that private respondent has only a balance of P4,000.00 and was delayed in payment only for one month, equity and justice mandate as in the aforecited case that Jabil be given an additional period within which to complete payment of the purchase price.

WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision of the Court of Appeals is Affirmed in toto. SO ORDERED. Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

.R. No. 107207 November 23, 1995 VIRGILIO R. ROMERO, petitioner, vs. HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.

VITUG, J.: The parties pose this question: May the vendor demand the rescission of a contract for the sale of a parcel of land for a cause traceable to his own failure to have the squatters on the subject property evicted within the contractually-stipulated period? Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and exportation of perlite filter aids, permalite insulation and processed perlite ore. In 1988, petitioner and his foreign partners decided to put up a central warehouse in Metro Manila on a land area of approximately 2,000 square meters. The project was made known to several freelance real estate brokers. A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land measuring 1,952 square meters. Located in Barangay San Dionisio, Paraaque, Metro Manila, the lot was covered by TCT No. 361402 in the name of private respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and, except for the presence of squatters in the area, he found the place suitable for a central warehouse. Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of P50,000.00 which could be used in taking up an ejectment case against the squatters, private respondent would agree to sell the property for only P800.00 per square meter. Petitioner expressed his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional Sale," was executed between petitioner and private respondent. The simply-drawn contract read: DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:

This Contract, made and executed in the Municipality of Makati, Philippines this 9th day of June, 1988 by and between: ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing at 105 Simoun St., Quezon City, Metro Manila, hereinafter referred to as the VENDOR; -and-

VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age, Filipino, and residing at 110 San Miguel St., Plainview Subd., Mandaluyong Metro Manila, hereinafter referred to as the VENDEE: W I T N E S S E T H : That WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or less, located in Barrio San Dionisio, Municipality of Paraaque, Province of Rizal, covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and more particularly described as follows: xxx xxx xxx WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR has accepted the offer, subject to the terms and conditions hereinafter stipulated: NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE to in to (sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs, successors, administrators, executors, assign, all her rights, titles and interest in and to the property mentioned in the FIRST WHEREAS CLAUSE, subject to the following terms and conditions: 1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine Currency, is to be paid upon signing and execution of this instrument. 2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days after the removal of all squatters from the above described property. 3. Upon full payment of the overall purchase price as aforesaid, VENDOR without necessity of demand shall immediately sign, execute, acknowledged (sic) and deliver the corresponding deed of absolute sale in favor of the VENDEE free from all liens and encumbrances and all Real Estate taxes are all paid and updated. It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60 days from the date of the signing of this contract the VENDOR shall not be able to remove the squatters from the property being purchased, the downpayment made by the buyer shall be returned/reimbursed by the VENDOR to the VENDEE. That in the event that the VENDEE shall not be able to pay the VENDOR the balance of the purchase price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from written notification to the VENDEE of the removal of the squatters from the property being purchased, the FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be forfeited in favor of the VENDOR.

Expenses for the registration such as registration fees, documentary stamp, transfer fee, assurances and such other fees and expenses as may be necessary to transfer the title to the name of the VENDEE shall be for the account of the VENDEE while capital gains tax shall be paid by the VENDOR. IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of Makati MM, Philippines on this 9th day of June, 1988. (Sgd.) (Sgd.) VIRGILIO R. ROMERO ENRIQUETA CHUA VDA. DE ONGSIONG Vendee Vendor SIGNED IN THE PRESENCE OF: (Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz 1

Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a check for P50,000.00 2 from petitioner. 3 Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579) against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of Paraaque. A few months later, or on 21 February 1989, judgment was rendered ordering the defendants to vacate the premises. The decision was handed down beyond the 60-day period (expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30 March 1989. In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received from petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F. Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:.
Our client believes that with the exercise of reasonable diligence considering the favorable decision rendered by the Court and the writ of execution issued pursuant thereto, it is now possible to eject the squatters from the premises of the subject property, for which reason, he proposes that he shall take it upon himself to eject the squatters, provided, that expenses which shall be incurred by reason thereof shall be chargeable to the purchase price of the land. 4

Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Paraaque for a grace period of 45 days from 21 April 1989 within which to relocate and transfer the squatter families. Acting favorably on the request, the court suspended the enforcement of the writ of execution accordingly. On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace period and his client's willingness to "underwrite the expenses for the execution of the judgment and ejectment of the occupants."5 In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty. Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his

client's failure to evict the squatters from the premises within the agreed 60-day period. He added that private respondent had "decided to retain the property." 6 On 23 June 1989, Atty. Apostol wrote back to explain: The contract of sale between the parties was perfected from the very moment that there was a meeting of the minds of the parties upon the subject lot and the price in the amount of P1,561,600.00. Moreover, the contract had already been partially fulfilled and executed upon receipt of the downpayment of your client. Ms. Ongsiong is precluded from rejecting its binding effects relying upon her inability to eject the squatters from the premises of subject property during the agreed period. Suffice it to state that, the provision of the Deed of Conditional Sale do not grant her the option or prerogative to rescind the contract and to retain the property should she fail to comply with the obligation she has assumed under the contract. In fact, a perusal of the terms and conditions of the contract clearly shows that the right to rescind the contract and to demand the return/reimbursement of the downpayment is granted to our client for his protection. Instead, however, of availing himself of the power to rescind the contract and demand the return, reimbursement of the downpayment, our client had opted to take it upon himself to eject the squatters from the premises. Precisely, we refer you to our letters addressed to your client dated April 17, 1989 and June 8, 1989. Moreover, it is basic under the law on contracts that the power to rescind is given to the injured party. Undoubtedly, under the circumstances, our client is the injured party. Furthermore, your client has not complied with her obligation under their contract in good faith. It is undeniable that Ms. Ongsiong deliberately refused to exert efforts to eject the squatters from the premises of the subject property and her decision to retain the property was brought about by the sudden increase in the value of realties in the surrounding areas.
Please consider this letter as a tender of payment to your client and a demand to execute the absolute Deed of Sale. 7

A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued refusal to accept the return of the P50,000.00 advance payment, filed with the Regional Trial Court of Makati, Branch 133, Civil Case No. 89-4394 for rescission of the deed of "conditional" sale, plus damages, and for the consignation of P50,000.00 cash. Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil Case No. 7579 on motion of private respondent but the squatters apparently still stayed on. Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8 rendered decision holding that private respondent had no right to rescind the contract since it was she who "violated her obligation to eject the squatters from the subject property" and that petitioner, being the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement. The court ruled that the provisions in the contract relating to (a) the return/reimbursement of the P50,000.00 if the vendor were to fail in her obligation to free the property from squatters within the stipulated period or (b), upon the other hand, the sum's forfeiture by the vendor if the vendee were to fail in paying the agreed purchase price, amounted to "penalty clauses". The court added:

This Court is not convinced of the ground relied upon by the plaintiff in seeking the rescission, namely: (1) he (sic) is afraid of the squatters; and (2) she has spent so much to eject them from the premises (p. 6, tsn, ses. Jan. 3, 1990). Militating against her profession of good faith is plaintiffs conduct which is not in accord with the rules of fair play and justice. Notably, she caused the issuance of an alias writ of execution on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two months after she filed the complaint before this Court on June 27, 1989. If she were really afraid of the squatters, then she should not have pursued the issuance of an alias writ of execution. Besides, she did not even report to the police the alleged phone threats from the squatters. To the mind of the Court, the so-called squatter factor is simply factuitous (sic). 9

The lower court, accordingly, dismissed the complaint and ordered, instead, private respondent to eject or cause the ejectment of the squatters from the property and to execute the absolute deed of conveyance upon payment of the full purchase price by petitioner. Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its decision.10 It opined that the contract entered into by the parties was subject to a resolutory condition, i.e., the ejectment of the squatters from the land, the non-occurrence of which resulted in the failure of the object of the contract; that private respondent substantially complied with her obligation to evict the squatters; that it was petitioner who was not ready to pay the purchase price and fulfill his part of the contract, and that the provision requiring a mandatory return/reimbursement of the P50,000.00 in case private respondent would fail to eject the squatters within the 60-day period was not a penal clause. Thus, it concluded.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one entered declaring the contract of conditional sale dated June 9, 1988 cancelled and ordering the defendant-appellee to accept the return of the downpayment in the amount of P50,000.00 which was deposited in the court below. No pronouncement as to costs. 11

Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising issues that, in fine, center on the nature of the contract adverted to and the P50,000.00 remittance made by petitioner. A perfected contract of sale may either be absolute or conditional 12 depending on whether the agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be conveyed or on theobligation of a party thereto. When ownership is retained until the fulfillment of a positive condition the breach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a party which is not complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course, the condition is imposed upon the perfection of the contract itself, the failure of such condition would prevent the juridical relation itself from coming into existence. 13 In determining the real character of the contract, the title given to it by the parties is not as much significant as its substance. For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14 The term "condition" in the context of a perfected contract of sale pertains, in reality, to the compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to would normally be, in the case of vendee, the payment of the agreed purchase price and, in the

case of the vendor, the fulfillment of certain express warranties (which, in the case at bench is the timely eviction of the squatters on the property). It would be futile to challenge the agreement here in question as not being a duly perfected contract. A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. 15 The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in San Dionisio, Paraaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the Registry of Deeds for Pasig and therein technically described. The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document of sale and the balance of P1,511,600.00 payable "45 days after the removal of all squatters from the above described property." From the moment the contract is perfected, 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. Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to remove the squatters from the property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. 16This option clearly belongs to petitioner and not to private respondent. We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in accordance with Article 1182 of the Civil Code 17 but a "mixed" condition "dependent not on the will of the vendor alone but also of third persons like the squatters and government agencies and personnel concerned." 18 We must hasten to add, however, that where the so-called "potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the obligation is avoided, leaving unaffected the obligation itself. 19 In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to choose between proceeding with the agreement or waiving the performance of the condition. It is this provision which is the pertinent rule in the case at bench. Here, evidently, petitioner has waived the performance of the condition imposed on private respondent to free the property from squatters. 20 In any case, private respondent's action for rescission is not warranted. She is not the injured party. 21 The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. 22 It is private respondent who has failed in her obligation under the contract. Petitioner did not breach the agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in the ejectment case and to make arrangements with the sheriff to effect such execution. In his letter of 23 June 1989, counsel for petitioner has tendered payment and demanded forthwith the execution of the deed of absolute sale. Parenthetically, this offer to pay, having been made prior to the demand for rescission, assuming for the sake of argument that such a demand is proper under Article 1592 23 of the Civil Code, would likewise suffice to defeat private respondent's prerogative to rescind thereunder. There is no need to still belabor the question of whether the P50,000.00 advance payment is reimbursable to petitioner or forfeitable by private respondent, since, on the basis of our foregoing conclusions, the matter has ceased to be an issue. Suffice it to say that petitioner having opted to proceed with the sale, neither may petitioner demand its reimbursement from private respondent nor may private respondent subject it to forfeiture.

WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET ASIDE, and another is entered ordering petitioner to pay private respondent the balance of the purchase price and the latter to execute the deed of absolute sale in favor of petitioner. No costs. SO ORDERED. Feliciano, Romero, Melo and Panganiban, JJ., concur. G.R. No. 103577 October 7, 1996 ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs. THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-fact, respondents.

MELO, J.:p The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in January 1985 for the price of P1,240,000.00. The undisputed facts of the case were summarized by respondent court in this wise: On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as Coronels) executed a document entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder: RECEIPT OF DOWN PAYMENT P1,240,000.00 Total amount 50,000 Down payment P1,190,000.00 Balance 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 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. Clearly, the conditions appurtenant to the sale are the following:

1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the document aforestated; 2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment; 3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos. On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2"). On February 6, 1985, the property originally registered in the name of the Coronels' father was transferred in their names under TCT No. 327043 (Exh. "D"; Exh. "4") On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F3"; Exh. "6-C") For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona by depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz. On February 22, 1985, Concepcion, et al., filed a complaint for specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5"). On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6"). On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina (Exh. "G"; Exh. "7"). On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8"). (Rollo, pp. 134-136) In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered their documentary evidence accordingly marked as Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same exhibits as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits "1" through "10", likewise inclusive of their corresponding submarkings. Upon motion of the parties, the trial court gave them thirty (30) days within which to simultaneously submit their respective memoranda, and an additional 15 days within which to submit their corresponding comment or reply thereof, after which, the case would be deemed submitted for resolution.

On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as follows: WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the improvements existing thereon free from all liens and encumbrances, and once accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and declared to be without force and effect. Defendants and intervenor and all other persons claiming under them are hereby ordered to vacate the subject property and deliver possession thereof to plaintiffs. Plaintiffs' claim for damages and attorney's fees, as well as the counterclaims of defendants and intervenors are hereby dismissed. No pronouncement as to costs. So Ordered. Macabebe, Pampanga for Quezon City, March 1, 1989. (Rollo, p. 106) A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly: The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by the undersigned Presiding Judge should be denied for the following reasons: (1) The instant case became submitted for decision as of April 14, 1988 when the parties terminated the presentation of their respective documentary evidence and when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that they were allowed to file memoranda at some future date did not change the fact that the hearing of the case was terminated before Judge Roura and therefore the same should be submitted to him for decision; (2) When the defendants and intervenor did not object to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, when they met for the first time before the undersigned Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and they are now estopped from questioning said authority of Judge Roura after they received the decision in question which happens to be adverse to them; (3) While it is true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge with full authority to act on any pending incident submitted before this Court during his incumbency. When he returned to his Official Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve such cases submitted to him for decision or resolution because he continued as Judge of the Regional Trial Court and is of co-equal rank with the undersigned Presiding Judge. The standing rule and supported by jurisprudence is that a Judge to whom a case is submitted for decision has the authority to

decide the case notwithstanding his transfer to another branch or region of the same court (Sec. 9, Rule 135, Rule of Court). Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in the instant case, resolution of which now pertains to the undersigned Presiding Judge, after a meticulous examination of the documentary evidence presented by the parties, she is convinced that the Decision of March 1, 1989 is supported by evidence and, therefore, should not be disturbed. IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul Decision and Render Anew Decision by the Incumbent Presiding Judge" dated March 20, 1989 is hereby DENIED. SO ORDERED. Quezon City, Philippines, July 12, 1989. (Rollo, pp. 108-109) Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial court. Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents' Reply Memorandum, was filed on September 15, 1993. The case was, however, reraffled to undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom the case was last assigned. While we deem it necessary to introduce certain refinements in the disquisition of respondent court in the affirmance of the trial court's decision, we definitely find the instant petition bereft of merit. The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar is the precise determination of the legal significance of the document entitled "Receipt of Down Payment" which was offered in evidence by both parties. There is no dispute as to the fact that said document embodied the binding contract between Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as follows: Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. While, it is the position of private respondents that the "Receipt of Down Payment" embodied a perfected contract of sale, which perforce, they seek to enforce by means of an action for specific performance, petitioners on their part insist that what the document signified was a mere executory contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P. Alcaraz, who left for the United States of America, said contract could not possibly ripen into a contract absolute sale. Plainly, such variance in the contending parties' contentions is brought about by the way each interprets the terms and/or conditions set forth in said private instrument. Withal, based on whatever relevant and admissible evidence may be available on record, this, Court, as were the courts below, is now called upon to adjudge what the real intent of the parties was at the time the said document was executed.

The Civil Code defines a contract of sale, thus: 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. Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following: 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. Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words 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. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule: Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and 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. Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective seller's obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. A contract to sell may thus be 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. A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which

may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, 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. In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, 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. It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. 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-seller's title per se, but the latter, of course, may be used for damages by the intending buyer. In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been previous delivery of the subject property, the seller's ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller's title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale. With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the contract entered into by petitioners and private respondents. It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of Down Payment" that they 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. 1199627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00. without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold their property. When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitioner's father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price. Therefore, petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father, after which, they promised to present said title, now in their names, to the

latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price. The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, the Court may safely presume that, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then. Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the properly to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale. Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain terms and conditions, promised to sell the property to the latter. What may be perceived from the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lot they inherited from their father, completely willing to transfer full ownership of the subject house and lot to the buyer if the documents were then in order. It just happened, however, that the transfer certificate of title was then still in the name of their father. It was more expedient to first effect the change in the certificate of title so as to bear their names. That is why they undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of title is issued in their names, petitioners were committed to immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price arise. There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the seller against a buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor, in the contract entered into in the case at bar, the sellers were the one who were unable to enter into a contract of absolute sale by reason of the fact that the certificate of title to the property was still in the name of their father. It was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the execution of an contract of absolute sale. What is clearly established by the plain language of the subject document is that when the said "Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners' father, Constancio P. Coronel, to their names. The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and private respondent Ramona P. Alcaraz became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the "Receipt of Down Payment." Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus,

Art. 1475. 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 the moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. 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. Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00. It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively admitted that: 3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our names from our deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the downpayment above-stated". The sale was still subject to this suspensive condition. (Emphasis supplied.) (Rollo, p. 16) Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive condition. Only, they contend, continuing in the same paragraph, that: . . . Had petitioners-sellers not complied with this condition of first transferring the title to the property under their names, there could be no perfected contract of sale. (Emphasis supplied.) (Ibid.) not aware that they set their own trap for themselves, for Article 1186 of the Civil Code expressly provides that: Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Besides, it should be stressed and emphasized that what is more controlling than these mere hypothetical arguments is the fact that the condition herein referred to was actually and indisputably fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4"). The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject only to the suspensive condition that the sellers shall effect the issuance of new certificate title from that of their father's name to their names and that, on February 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4"). We, therefore, hold that, in accordance with Article 1187 which pertinently provides

Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation . . . In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations of both seller and buyer arose. Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then not yet the absolute owners of the inherited property. We cannot sustain this argument. Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows: Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to be extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law. Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]). Be it also noted that petitioners' claim that succession may not be declared unless the creditors have been paid is rendered moot by the fact that they were able to effect the transfer of the title to the property from the decedent's name to their names on February 6, 1985. Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an agreement at that time and they cannot be allowed to now take a posture contrary to that which they took when they entered into the agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly states that: Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. Having represented themselves as the true owners of the subject property at the time of sale, petitioners cannot claim now that they were not yet the absolute owners thereof at that time. Petitioners also contend that although there was in fact a perfected contract of sale between them and Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible the consummation thereof by going to the United States of America, without leaving her address, telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were correct in unilaterally rescinding rescinding the contract of sale.

We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case. We note that these supposed grounds for petitioners' rescission, are mere allegations found only in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners' allegations. We have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]). Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6, 1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially rescinding the contract of sale, there being no express stipulation authorizing the sellers to extarjudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984]) Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale. Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense of the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to show that they actually presented the new transfer certificate of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramona's corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default. Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default, to wit: Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. xxx xxx xxx 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 fulfill his obligation, delay by the other begins. (Emphasis supplied.) There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents. With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will apply, to wit:

Art. 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 if be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in 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. The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply. The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer. In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member of the Court, Justice Jose C. Vitug, explains: The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it has held that it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992). (J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604). Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a clean title, she was unaware of any adverse claim or previous sale, for which reason she is buyer in good faith. We are not persuaded by such argument. In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a notice of lis pendens had been annotated on the transfer certificate of title in the names

of petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time of registration, therefore, petitioner Mabanag knew that the same property had already been previously sold to private respondents, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect in petitioners' title to the property at the time of the registration of the property. This Court had occasions to rule that: If a vendee in a double sale registers that sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a pervious sale, the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.) Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts below. Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf as a cobuyer is not squarely raised in the instant petition, nor in such assumption disputed between mother and daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this point. WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED. SO ORDERED. Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur. Panganiban, J., took no part.

DECISION BRION, J.:

Is an annotation made pursuant to Section 4, Rule 74 of the Rules of Court (Rules) on a certificate of title covering real property considered an encumbrance on the property? We resolve this question in the petition for review on certiorari[1] filed by Delfin Tan (Tan) to assail the decision of the Court of Appeals (CA) in CA-G.R. CV No. 52033[2] and the decision of the Regional Trial Court (RTC)[3] that commonly declared the forfeiture of his P200,000.00 down payment as proper, pursuant to the terms of his contract with the respondents.

THE ANTECEDENTS The facts are not disputed. Spouses Lamberto and Erlinda Benolirao and the Spouses Reynaldo and Norma Taningco were the co-owners of a 689-square meter parcel of land (property) located in Tagaytay City and covered by Transfer Certificate of Title (TCT) No. 26423. On October 6, 1992, the coowners executed a Deed of Conditional Sale over the property in favor of Tan for the price of P1,378,000.00. The deed stated:
a) An initial down-payment of TWO HUNDRED (P200,000.00) THOUSAND PESOS, Philippine Currency, upon signing of this contract; then the remaining balance of ONE MILLION ONE HUNDRED SEVENTY EIGHT THOUSAND (P1,178,000.00) PESOS, shall be payable within a period of one hundred fifty (150) days from date hereof without interest; b) That for any reason, BUYER fails to pay the remaining balance within above mentioned period, the BUYER shall have a grace period of sixty (60) days within which to make the payment, provided that there shall be an interest of 15% per annum on the balance amount due from the SELLERS; c) That should in case (sic) the BUYER fails to comply with the terms and conditions within the above stated grace period, then the SELLERS shall have the right to forfeit the down payment, and to rescind this conditional sale without need of judicial action; d) That in case, BUYER have complied with the terms and conditions of this contract, then the SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale;

Pursuant to the Deed of Conditional Sale, Tan issued and delivered to the co-owners/vendors Metrobank Check No. 904407 for P200,000.00 as down payment for the property, for which the vendors issued a corresponding receipt. On November 6, 1992, Lamberto Benolirao died intestate. Erlinda Benolirao (his widow and one of the vendors of the property) and her children, as heirs of the deceased, executed an extrajudicial settlement of Lambertos estate on January 20, 1993. On the basis of the extrajudicial settlement, a new certificate of title over the property, TCT No. 27335, was issued on March 26,

1993 in the names of the Spouses Reynaldo and Norma Taningco and Erlinda Benolirao and her children. Pursuant to Section 4, Rule 74 of the Rules, the following annotation was made on TCT No. 27335:
x x x any liability to credirots (sic), excluded heirs and other persons having right to the property, for a period of two (2) years, with respect only to the share of Erlinda, Andrew, Romano and Dion, all surnamed Benolirao

As stated in the Deed of Conditional Sale, Tan had until March 15, 1993 to pay the balance of the purchase price. By agreement of the parties, this period was extended by two months, so Tan had until May 15, 1993 to pay the balance. Tan failed to pay and asked for another extension, which the vendors again granted. Notwithstanding this second extension, Tan still failed to pay the remaining balance due on May 21, 1993. The vendors thus wrote him a letter demanding payment of the balance of the purchase price within five (5) days from notice; otherwise, they would declare the rescission of the conditional sale and the forfeiture of his down payment based on the terms of the contract. Tan refused to comply with the vendors demand and instead wrote them a letter (dated May 28, 1993) claiming that the annotation on the title, made pursuant to Section 4, Rule 74 of the Rules, constituted an encumbrance on the property that would prevent the vendors from delivering a clean title to him. Thus, he alleged that he could no longer be required to pay the balance of the purchase price and demanded the return of his down payment. When the vendors refused to refund the down payment, Tan, through counsel, sent another demand letter to the vendors on June 18, 1993. The vendors still refused to heed Tans demand, prompting Tan to file on June 19, 1993 a complaint with the RTC of Pasay City for specific performance against the vendors, including Andrew Benolirao, Romano Benolirao, Dion Benolirao as heirs of Lamberto Benolirao, together with Evelyn Monreal and Ann Karina Taningco (collectively, the respondents). In his complaint, Tan alleged that there was a novation of the Deed of Conditional Sale done without his consent since the annotation on the title created an encumbrance over the property. Tan prayed for the refund of the down payment and the rescission of the contract.

On August 9, 1993, Tan amended his Complaint, contending that if the respondents insist on forfeiting the down payment, he would be willing to pay the balance of the purchase price provided there is reformation of the Deed of Conditional Sale. In the meantime, Tan caused the annotation on the title of a notice oflis pendens. On August 21, 1993, the respondents executed a Deed of Absolute Sale over the property in favor of Hector de Guzman (de Guzman) for the price ofP689,000.00. Thereafter, the respondents moved for the cancellation of the notice of lis pendens on the ground that it was inappropriate since the case that Tan filed was a personal action which did not involve either title to, or possession of, real property. The RTC issued an order dated October 22, 1993 granting the respondents motion to cancel the lis pendens annotation on the title. Meanwhile, based on the Deed of Absolute Sale in his favor, de Guzman registered the property and TCT No. 28104 was issued in his name. Tan then filed a motion to carry over the lis pendens annotation to TCT No. 28104 registered in de Guzmans name, but the RTC denied the motion. On September 8, 1995, after due proceedings, the RTC rendered judgment ruling that the respondents forfeiture of Tans down payment was proper in accordance with the terms and conditions of the contract between the parties.[4] The RTC ordered Tan to pay the respondents the amount of P30,000.00, plusP1,000.00 per court appearance, as attorneys fees, and to pay the cost of suit. On appeal, the CA dismissed the petition and affirmed the ruling of the trial court in toto. Hence, the present petition. THE ISSUES Tan argues that the CA erred in affirming the RTCs ruling to cancel the lis pendens annotation on TCT No. 27335. Due to the unauthorized novation of the agreement, Tan presented before the trial court two alternative remedies in his complaint either the rescission of the contract and the return of the down payment, or the reformation of the contract to adjust the payment

period, so that Tan will pay the remaining balance of the purchase price only after the lapse of the required two-year encumbrance on the title. Tan posits that the CA erroneously disregarded the alternative remedy of reformation of contract when it affirmed the removal of the lis pendens annotation on the title. Tan further contends that the CA erred when it recognized the validity of the forfeiture of the down payment in favor of the vendors. While admitting that the Deed of Conditional Sale contained a forfeiture clause, he insists that this clause applies only if the failure to pay the balance of the purchase price was through his own fault or negligence. In the present case, Tan claims that he was justified in refusing to pay the balance price since the vendors would not have been able to comply with their obligation to deliver a clean title covering the property. Lastly, Tan maintains that the CA erred in ordering him to pay the respondents P30,000.00, plus P1,000.00 per court appearance as attorneys fees, since he filed the foregoing action in good faith, believing that he is in the right. The respondents, on the other hand, assert that the petition should be dismissed for raising pure questions of fact, in contravention of the provisions of Rule 45 of the Rules which provides that only questions of law can be raised in petitions for review on certiorari. THE COURTS RULING The petition is granted. No new issues can be raised in the Memorandum

At the onset, we note that Tan raised the following additional assignment of errors in his Memorandum: (a) the CA erred in holding that the petitioner could seek reformation of the Deed of Conditional Sale only if he paid the balance of the purchase price and if the vendors refused to execute the deed of absolute sale; and (b) the CA erred in holding that the petitioner was estopped from asking for the reformation of the contract or for specific performance.

The Courts September 27, 2004 Resolution expressly stated that No new issues may be raised by a party in his/its Memorandum. Explaining the reason for this rule, we said that:
The raising of additional issues in a memorandum before the Supreme Court is irregular, because said memorandum is supposed to be in support merely of the position taken by the party concerned in his petition, and the raising of new issues amounts to the filing of a petition beyond the reglementary period. The purpose of this rule is to provide all parties to a case a fair opportunity to be heard. No new points of law, theories, issues or arguments may be raised by a party in the Memorandum for the reason that to permit these would be offensive to the basic rules of fair play, justice and due process.[5]

Tan contravened the Courts explicit instructions by raising these additional errors. Hence, we disregard them and focus instead on the issues previously raised in the petition and properly included in the Memorandum. Petition raises a question of law Contrary to the respondents claim, the issue raised in the present petition defined in the opening paragraph of this Decision is a pure question of law. Hence, the petition and the issue it presents are properly cognizable by this Court. Lis pendens annotation not proper in personal actions Section 14, Rule 13 of the Rules enumerates the instances when a notice of lis pendens can be validly annotated on the title to real property:
Sec. 14. Notice of lis pendens. In an action affecting the title or the right of possession of real property, the plaintiff and the defendant, when affirmative relief is claimed in his answer, may record in the office of the registry of deeds of the province in which the property is situated a notice of the pendency of the action. Said notice shall contain the names of the parties and the object of the action or defense, and a description of the property in that province affected thereby. Only from the time of filing such notice for record shall a purchaser, or encumbrancer of the

property affected thereby, be deemed to have constructive notice of the pendency of the action, and only of its pendency against the parties designated by their real names. The notice of lis pendens hereinabove mentioned may be cancelled only upon order of the court, after proper showing that the notice is for the purpose of molesting the adverse party, or that it is not necessary to protect the rights of the party who caused it to be recorded.

The litigation subject of the notice of lis pendens must directly involve a specific property which is necessarily affected by the judgment.[6] Tans complaint prayed for either the rescission or the reformation of the Deed of Conditional Sale. While the Deed does have real property for its object, we find that Tans complaint is an in personam action, as Tan asked the court to compel the respondents to do something either to rescind the contract and return the down payment, or to reform the contract by extending the period given to pay the remaining balance of the purchase price. Either way, Tan wants to enforce his personal rights against the respondents, not against the property subject of the Deed. As we explained in Domagas v. Jensen:[7]
The settled rule is that the aim and object of an action determine its character. Whether a proceeding is in rem, or in personam, or quasi in rem for that matter, is determined by its nature and purpose, and by these only. A proceeding in personam is a proceeding to enforce personal rights and obligations brought against the person and is based on the jurisdiction of the person, although it may involve his right to, or the exercise of ownership of, specific property, or seek to compel him to control or dispose of it in accordance with the mandate of the court. The purpose of a proceeding in personam is to impose, through the judgment of a court, some responsibility or liability directly upon the person of the defendant. Of this character are suits to compel a defendant to specifically perform some act or actions to fasten a pecuniary liability on him.

Furthermore, as will be explained in detail below, the contract between the parties was merely a contract to sell where the vendors retained title and ownership to the property until Tan had fully paid the purchase price. Since Tan

had no claim of ownership or title to the property yet, he obviously had no right to ask for the annotation of a lis pendens notice on the title of the property. Contract is a mere contract to sell A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it.[8] Article 1485 of the Civil Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership 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.

The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or promised.[9] In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the propertydespite delivery thereof to the prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed,i.e., full payment of the purchase price.[10] A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur.[11] In the present case, the true nature of the contract is revealed by paragraph D thereof, which states: x x x d) That in case, BUYER has complied with the terms and conditions of this contract, then the SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale;
x x x

Jurisprudence has established that where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the payment of the price, the contract is only a contract to sell.[12] Thus, while the contract is denominated as a Deed of Conditional Sale, the presence of the above-quoted provision identifies the contract as being a mere contract to sell. A Section 4, Rule 74 annotation is an encumbrance on the property While Tan admits that he refused to pay the balance of the purchase price, he claims that he had valid reason to do so the sudden appearance of an annotation on the title pursuant to Section 4, Rule 74 of the Rules, which Tan considered an encumbrance on the property. We find Tans argument meritorious. The annotation placed on TCT No. 27335, the new title issued to reflect the extrajudicial partition of Lamberto Benoliraos estate among his heirs, states:
x x x any liability to credirots (sic), excluded heirs and other persons having right to the property, for a period of two (2) years, with respect only to the share of Erlinda, Andrew, Romano and Dion, all surnamed Benolirao [Emphasis supplied.]

This annotation was placed on the title pursuant to Section 4, Rule 74 of the Rules, which reads:
Sec. 4. Liability of distributees and estate. - If it shall appear at any time within two (2) years after the settlement and distribution of an estate in accordance with the provisions of either of the first two sections of this rule, that an heir or other person has been unduly deprived of his lawful participation in the estate, such heir or such other person may compel the settlement of the estate in the courts in the manner hereinafter provided for the purpose of satisfying such lawful participation. And if within the same time of two (2) years, it shall appear that there are debts outstanding against the estate which have not been paid, or that an heir or other person has been unduly deprived of his lawful participation payable in money, the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of such debts or lawful participation and order how much and in what manner each distributee shall contribute in the payment thereof, and may issue execution, if circumstances require, against the bond provided in the preceding section or against the real estate belonging to the deceased, or both.

Such bond and such real estate shall remain charged with a liability to creditors, heirs, or other persons for the full period of two (2) years after such distribution, notwithstanding any transfers of real estate that may have been made. [Emphasis supplied.]

Senator Vicente Francisco discusses this provision in his book The Revised Rules of Court in the Philippines,[13] where he states:
The provision of Section 4, Rule 74 prescribes the procedure to be followed if within two years after an extrajudicial partition or summary distribution is made, an heir or other person appears to have been deprived of his lawful participation in the estate, or some outstanding debts which have not been paid are discovered. When the lawful participation of the heir is not payable in money, because, for instance, he is entitled to a part of the real property that has been partitioned, there can be no other procedure than to cancel the partition so made and make a new division, unless, of course, the heir agrees to be paid the value of his participation with interest. But in case the lawful participation of the heir consists in his share in personal property of money left by the decedent, or in case unpaid debts are discovered within the said period of two years, the procedure is not to cancel the partition, nor to appoint an administrator to re-assemble the assets, as was allowed under the old Code, but the court, after hearing, shall fix the amount of such debts or lawful participation in proportion to or to the extent of the assets they have respectively received and, if circumstances require, it may issue execution against the real estate belonging to the decedent, or both. The present procedure is more expedient and less expensive in that it dispenses with the appointment of an administrator and does not disturb the possession enjoyed by the distributees.[14] [Emphasis supplied.]

An annotation is placed on new certificates of title issued pursuant to the distribution and partition of a decedents real properties to warn third persons on the possible interests of excluded heirs or unpaid creditors in these properties. The annotation, therefore, creates a legal encumbrance or lien on the real property in favor of the excluded heirs or creditors. Where a buyer purchases the real property despite the annotation, he must be ready for the possibility that the title could be subject to the rights of excluded parties. The cancellation of the sale would be the logical consequence where: (a) the annotation clearly appears on the title, warning all would-be buyers; (b)

the sale unlawfully interferes with the rights of heirs; and (c) the rightful heirs bring an action to question the transfer within the two-year period provided by law. As we held in Vda. de Francisco v. Carreon:[15]
And Section 4, Rule 74 xxx expressly authorizes the court to give to every heir his lawful participation in the real estate notwithstanding any transfers of such real estate and to issue execution thereon. All this implies that, when within the amendatory period the realty has been alienated, the court in redividing it among the heirs has the authority to direct cancellation of such alienation in the same estate proceedings, whenever it becomes necessary to do so. To require the institution of a separate action for such annulment would run counter to the letter of the above rule and the spirit of these summary settlements. [Emphasis supplied.]

Similarly, in Sps. Domingo v. Roces,[16] we said:

The foregoing rule clearly covers transfers of real property to any person, as long as the deprived heir or creditor vindicates his rights within two years from the date of the settlement and distribution of estate. Contrary to petitioners contention, the effects of this provision are not limited to the heirs or original distributees of the estate properties, but shall affect any transferee of the properties. [Emphasis supplied.]

Indeed, in David v. Malay,[17] although the title of the property had already been registered in the name of the third party buyers, we cancelled the sale and ordered the reconveyance of the property to the estate of the deceased for proper disposal among his rightful heirs. By the time Tans obligation to pay the balance of the purchase price arose on May 21, 1993 (on account of the extensions granted by the respondents), a new certificate of title covering the property had already been issued on March 26, 1993, which contained the encumbrance on the property; the encumbrance would remain so attached until the expiration of the two-year period. Clearly, at this time, the vendors could no longer compel Tan to pay the

balance of the purchase since considering they themselves could not fulfill their obligation to transfer a clean title over the property to Tan. Contract to sell is not rescinded but terminated What then happens to the contract? We have held in numerous cases[18] that the remedy of rescission under Article 1191 cannot apply to mere contracts to sell. We explained the reason for this in Santos v. Court of Appeals,[19] where we said:
[I]n a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. x x x Article 1592 speaks of non-payment of the purchase price as a resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of immovable property. Neither provision is applicable [to a contract to sell]. [Emphasis supplied.]

We, therefore, hold that the contract to sell was terminated when the vendors could no longer legally compel Tan to pay the balance of the purchase price as a result of the legal encumbrance which attached to the title of the property. Since Tans refusal to pay was due to the supervening event of a legal encumbrance on the property and not through his own fault or negligence, we find and so hold that the forfeiture of Tans down payment was clearly unwarranted. Award of Attorneys fees

As evident from our previous discussion, Tan had a valid reason for refusing to pay the balance of the purchase price for the property. Consequently, there is no basis for the award of attorneys fees in favor of the respondents. On the other hand, we award attorneys fees in favor of Tan, since he was compelled to litigate due to the respondents refusal to return his down payment despite the fact that they could no longer comply with their obligation under the contract to sell, i.e., to convey a clean title. Given the facts of this case, we find the award of P50,000.00 as attorneys fees proper. Monetary award is subject to legal interest Undoubtedly, Tan made a clear and unequivocal demand on the vendors to return his down payment as early as May 28, 1993. Pursuant to

our definitive ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[20] we hold that the vendors should return the P200,000.00 down payment to Tan, subject to the legal interest of 6% per annum computed from May 28, 1993, the date of the first demand letter.

Furthermore, after a judgment has become final and executory, the rate of legal interest, whether the obligation was in the form of a loan or forbearance of money or otherwise, shall be 12% per annum from such finality until its satisfaction. Accordingly, the principal obligation of P200,000.00 shall bear 6% interest from the date of first demand or from May 28, 1993. From the date the liability for the principal obligation and attorneys fees has become final and executory, an annual interest of 12% shall be imposed on these obligations until their final satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

WHEREFORE, premises considered, we hereby GRANT the petition and, accordingly, ANNUL and SET ASIDE the May 30, 2002 decision of the Court of Appeals in CA-G.R. CV No. 52033. Another judgment is rendered declaring the Deed of Conditional Sale terminated and ordering the respondents to return the P200,000.00 down payment to petitioner Delfin Tan, subject to legal interest of 6% per annum, computed from May 28, 1993. The respondents are also ordered to pay, jointly and severally, petitioner Delfin Tan the amount of P50,000.00 as and by way of attorneys fees. Once this decision becomes final and executory, respondents are ordered to pay interest at 12% per annum on the principal obligation as well as the attorneys fees, until full payment of these amounts. Costs against the respondents. SO ORDERED. DECISION BRION, J.:

Is an annotation made pursuant to Section 4, Rule 74 of the Rules of Court (Rules) on a certificate of title covering real property considered an encumbrance on the property? We resolve this question in the petition for

review on certiorari[1] filed by Delfin Tan (Tan) to assail the decision of the Court of Appeals (CA) in CA-G.R. CV No. 52033[2] and the decision of the Regional Trial Court (RTC)[3] that commonly declared the forfeiture of his P200,000.00 down payment as proper, pursuant to the terms of his contract with the respondents. THE ANTECEDENTS The facts are not disputed. Spouses Lamberto and Erlinda Benolirao and the Spouses Reynaldo and Norma Taningco were the co-owners of a 689-square meter parcel of land (property) located in Tagaytay City and covered by Transfer Certificate of Title (TCT) No. 26423. On October 6, 1992, the coowners executed a Deed of Conditional Sale over the property in favor of Tan for the price of P1,378,000.00. The deed stated:
a) An initial down-payment of TWO HUNDRED (P200,000.00) THOUSAND PESOS, Philippine Currency, upon signing of this contract; then the remaining balance of ONE MILLION ONE HUNDRED SEVENTY EIGHT THOUSAND (P1,178,000.00) PESOS, shall be payable within a period of one hundred fifty (150) days from date hereof without interest; b) That for any reason, BUYER fails to pay the remaining balance within above mentioned period, the BUYER shall have a grace period of sixty (60) days within which to make the payment, provided that there shall be an interest of 15% per annum on the balance amount due from the SELLERS; c) That should in case (sic) the BUYER fails to comply with the terms and conditions within the above stated grace period, then the SELLERS shall have the right to forfeit the down payment, and to rescind this conditional sale without need of judicial action; d) That in case, BUYER have complied with the terms and conditions of this contract, then the SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale;

Pursuant to the Deed of Conditional Sale, Tan issued and delivered to the co-owners/vendors Metrobank Check No. 904407 for P200,000.00 as down payment for the property, for which the vendors issued a corresponding receipt.

On November 6, 1992, Lamberto Benolirao died intestate. Erlinda Benolirao (his widow and one of the vendors of the property) and her children, as heirs of the deceased, executed an extrajudicial settlement of Lambertos estate on January 20, 1993. On the basis of the extrajudicial settlement, a new certificate of title over the property, TCT No. 27335, was issued on March 26, 1993 in the names of the Spouses Reynaldo and Norma Taningco and Erlinda Benolirao and her children. Pursuant to Section 4, Rule 74 of the Rules, the following annotation was made on TCT No. 27335:
x x x any liability to credirots (sic), excluded heirs and other persons having right to the property, for a period of two (2) years, with respect only to the share of Erlinda, Andrew, Romano and Dion, all surnamed Benolirao

As stated in the Deed of Conditional Sale, Tan had until March 15, 1993 to pay the balance of the purchase price. By agreement of the parties, this period was extended by two months, so Tan had until May 15, 1993 to pay the balance. Tan failed to pay and asked for another extension, which the vendors again granted. Notwithstanding this second extension, Tan still failed to pay the remaining balance due on May 21, 1993. The vendors thus wrote him a letter demanding payment of the balance of the purchase price within five (5) days from notice; otherwise, they would declare the rescission of the conditional sale and the forfeiture of his down payment based on the terms of the contract. Tan refused to comply with the vendors demand and instead wrote them a letter (dated May 28, 1993) claiming that the annotation on the title, made pursuant to Section 4, Rule 74 of the Rules, constituted an encumbrance on the property that would prevent the vendors from delivering a clean title to him. Thus, he alleged that he could no longer be required to pay the balance of the purchase price and demanded the return of his down payment. When the vendors refused to refund the down payment, Tan, through counsel, sent another demand letter to the vendors on June 18, 1993. The vendors still refused to heed Tans demand, prompting Tan to file on June 19, 1993 a complaint with the RTC of Pasay City for specific performance against the vendors, including Andrew Benolirao, Romano Benolirao, Dion Benolirao as heirs of Lamberto Benolirao, together with Evelyn Monreal and Ann Karina

Taningco (collectively, the respondents). In his complaint, Tan alleged that there was a novation of the Deed of Conditional Sale done without his consent since the annotation on the title created an encumbrance over the property. Tan prayed for the refund of the down payment and the rescission of the contract. On August 9, 1993, Tan amended his Complaint, contending that if the respondents insist on forfeiting the down payment, he would be willing to pay the balance of the purchase price provided there is reformation of the Deed of Conditional Sale. In the meantime, Tan caused the annotation on the title of a notice oflis pendens. On August 21, 1993, the respondents executed a Deed of Absolute Sale over the property in favor of Hector de Guzman (de Guzman) for the price ofP689,000.00. Thereafter, the respondents moved for the cancellation of the notice of lis pendens on the ground that it was inappropriate since the case that Tan filed was a personal action which did not involve either title to, or possession of, real property. The RTC issued an order dated October 22, 1993 granting the respondents motion to cancel the lis pendens annotation on the title. Meanwhile, based on the Deed of Absolute Sale in his favor, de Guzman registered the property and TCT No. 28104 was issued in his name. Tan then filed a motion to carry over the lis pendens annotation to TCT No. 28104 registered in de Guzmans name, but the RTC denied the motion. On September 8, 1995, after due proceedings, the RTC rendered judgment ruling that the respondents forfeiture of Tans down payment was proper in accordance with the terms and conditions of the contract between the parties.[4] The RTC ordered Tan to pay the respondents the amount of P30,000.00, plusP1,000.00 per court appearance, as attorneys fees, and to pay the cost of suit. On appeal, the CA dismissed the petition and affirmed the ruling of the trial court in toto. Hence, the present petition. THE ISSUES

Tan argues that the CA erred in affirming the RTCs ruling to cancel the lis pendens annotation on TCT No. 27335. Due to the unauthorized novation of the agreement, Tan presented before the trial court two alternative remedies in his complaint either the rescission of the contract and the return of the down payment, or the reformation of the contract to adjust the payment period, so that Tan will pay the remaining balance of the purchase price only after the lapse of the required two-year encumbrance on the title. Tan posits that the CA erroneously disregarded the alternative remedy of reformation of contract when it affirmed the removal of the lis pendens annotation on the title. Tan further contends that the CA erred when it recognized the validity of the forfeiture of the down payment in favor of the vendors. While admitting that the Deed of Conditional Sale contained a forfeiture clause, he insists that this clause applies only if the failure to pay the balance of the purchase price was through his own fault or negligence. In the present case, Tan claims that he was justified in refusing to pay the balance price since the vendors would not have been able to comply with their obligation to deliver a clean title covering the property. Lastly, Tan maintains that the CA erred in ordering him to pay the respondents P30,000.00, plus P1,000.00 per court appearance as attorneys fees, since he filed the foregoing action in good faith, believing that he is in the right. The respondents, on the other hand, assert that the petition should be dismissed for raising pure questions of fact, in contravention of the provisions of Rule 45 of the Rules which provides that only questions of law can be raised in petitions for review on certiorari. THE COURTS RULING The petition is granted. No new issues can be raised in the Memorandum

At the onset, we note that Tan raised the following additional assignment of errors in his Memorandum: (a) the CA erred in holding that the petitioner could seek reformation of the Deed of Conditional Sale only if he paid the

balance of the purchase price and if the vendors refused to execute the deed of absolute sale; and (b) the CA erred in holding that the petitioner was estopped from asking for the reformation of the contract or for specific performance. The Courts September 27, 2004 Resolution expressly stated that No new issues may be raised by a party in his/its Memorandum. Explaining the reason for this rule, we said that:
The raising of additional issues in a memorandum before the Supreme Court is irregular, because said memorandum is supposed to be in support merely of the position taken by the party concerned in his petition, and the raising of new issues amounts to the filing of a petition beyond the reglementary period. The purpose of this rule is to provide all parties to a case a fair opportunity to be heard. No new points of law, theories, issues or arguments may be raised by a party in the Memorandum for the reason that to permit these would be offensive to the basic rules of fair play, justice and due process.[5]

Tan contravened the Courts explicit instructions by raising these additional errors. Hence, we disregard them and focus instead on the issues previously raised in the petition and properly included in the Memorandum. Petition raises a question of law Contrary to the respondents claim, the issue raised in the present petition defined in the opening paragraph of this Decision is a pure question of law. Hence, the petition and the issue it presents are properly cognizable by this Court. Lis pendens annotation not proper in personal actions Section 14, Rule 13 of the Rules enumerates the instances when a notice of lis pendens can be validly annotated on the title to real property:
Sec. 14. Notice of lis pendens. In an action affecting the title or the right of possession of real property, the plaintiff and the defendant, when affirmative relief is claimed in his answer, may record in the office of the registry of

deeds of the province in which the property is situated a notice of the pendency of the action. Said notice shall contain the names of the parties and the object of the action or defense, and a description of the property in that province affected thereby. Only from the time of filing such notice for record shall a purchaser, or encumbrancer of the property affected thereby, be deemed to have constructive notice of the pendency of the action, and only of its pendency against the parties designated by their real names. The notice of lis pendens hereinabove mentioned may be cancelled only upon order of the court, after proper showing that the notice is for the purpose of molesting the adverse party, or that it is not necessary to protect the rights of the party who caused it to be recorded.

The litigation subject of the notice of lis pendens must directly involve a specific property which is necessarily affected by the judgment.[6] Tans complaint prayed for either the rescission or the reformation of the Deed of Conditional Sale. While the Deed does have real property for its object, we find that Tans complaint is an in personam action, as Tan asked the court to compel the respondents to do something either to rescind the contract and return the down payment, or to reform the contract by extending the period given to pay the remaining balance of the purchase price. Either way, Tan wants to enforce his personal rights against the respondents, not against the property subject of the Deed. As we explained in Domagas v. Jensen:[7]
The settled rule is that the aim and object of an action determine its character. Whether a proceeding is in rem, or in personam, or quasi in rem for that matter, is determined by its nature and purpose, and by these only. A proceeding in personam is a proceeding to enforce personal rights and obligations brought against the person and is based on the jurisdiction of the person, although it may involve his right to, or the exercise of ownership of, specific property, or seek to compel him to control or dispose of it in accordance with the mandate of the court. The purpose of a proceeding in personam is to impose, through the judgment of a court, some responsibility or liability directly upon the person of the defendant. Of this character are suits to compel a defendant to specifically perform some act or actions to fasten a pecuniary liability on him.

Furthermore, as will be explained in detail below, the contract between the parties was merely a contract to sell where the vendors retained title and ownership to the property until Tan had fully paid the purchase price. Since Tan had no claim of ownership or title to the property yet, he obviously had no right to ask for the annotation of a lis pendens notice on the title of the property. Contract is a mere contract to sell A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it.[8] Article 1485 of the Civil Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership 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.

The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or promised.[9] In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the propertydespite delivery thereof to the prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed,i.e., full payment of the purchase price.[10] A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur.[11] In the present case, the true nature of the contract is revealed by paragraph D thereof, which states: x x x d) That in case, BUYER has complied with the terms and conditions of this contract, then the SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale;

Jurisprudence has established that where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the payment of the price, the contract is only a contract to sell.[12] Thus, while the contract is denominated as a Deed of Conditional Sale, the presence of the above-quoted provision identifies the contract as being a mere contract to sell. A Section 4, Rule 74 annotation is an encumbrance on the property While Tan admits that he refused to pay the balance of the purchase price, he claims that he had valid reason to do so the sudden appearance of an annotation on the title pursuant to Section 4, Rule 74 of the Rules, which Tan considered an encumbrance on the property. We find Tans argument meritorious. The annotation placed on TCT No. 27335, the new title issued to reflect the extrajudicial partition of Lamberto Benoliraos estate among his heirs, states:
x x x any liability to credirots (sic), excluded heirs and other persons having right to the property, for a period of two (2) years, with respect only to the share of Erlinda, Andrew, Romano and Dion, all surnamed Benolirao [Emphasis supplied.]

This annotation was placed on the title pursuant to Section 4, Rule 74 of the Rules, which reads:
Sec. 4. Liability of distributees and estate. - If it shall appear at any time within two (2) years after the settlement and distribution of an estate in accordance with the provisions of either of the first two sections of this rule, that an heir or other person has been unduly deprived of his lawful participation in the estate, such heir or such other person may compel the settlement of the estate in the courts in the manner hereinafter provided for the purpose of satisfying such lawful participation. And if within the same time of two (2) years, it shall appear that there are debts outstanding against the estate which have not been paid, or that an heir or other person has been unduly deprived of his lawful participation payable in money, the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of such debts or lawful participation and order how much and in

what manner each distributee shall contribute in the payment thereof, and may issue execution, if circumstances require, against the bond provided in the preceding section or against the real estate belonging to the deceased, or both. Such bond and such real estate shall remain charged with a liability to creditors, heirs, or other persons for the full period of two (2) years after such distribution, notwithstanding any transfers of real estate that may have been made. [Emphasis supplied.]

Senator Vicente Francisco discusses this provision in his book The Revised Rules of Court in the Philippines,[13] where he states:
The provision of Section 4, Rule 74 prescribes the procedure to be followed if within two years after an extrajudicial partition or summary distribution is made, an heir or other person appears to have been deprived of his lawful participation in the estate, or some outstanding debts which have not been paid are discovered. When the lawful participation of the heir is not payable in money, because, for instance, he is entitled to a part of the real property that has been partitioned, there can be no other procedure than to cancel the partition so made and make a new division, unless, of course, the heir agrees to be paid the value of his participation with interest. But in case the lawful participation of the heir consists in his share in personal property of money left by the decedent, or in case unpaid debts are discovered within the said period of two years, the procedure is not to cancel the partition, nor to appoint an administrator to re-assemble the assets, as was allowed under the old Code, but the court, after hearing, shall fix the amount of such debts or lawful participation in proportion to or to the extent of the assets they have respectively received and, if circumstances require, it may issue execution against the real estate belonging to the decedent, or both. The present procedure is more expedient and less expensive in that it dispenses with the appointment of an administrator and does not disturb the possession enjoyed by the distributees.[14] [Emphasis supplied.]

An annotation is placed on new certificates of title issued pursuant to the distribution and partition of a decedents real properties to warn third persons on the possible interests of excluded heirs or unpaid creditors in these properties. The annotation, therefore, creates a legal encumbrance or lien on the real property in favor of the excluded heirs or creditors. Where a buyer purchases the real property despite the annotation, he must be ready for the possibility that the title could be subject to the rights of excluded

parties. The cancellation of the sale would be the logical consequence where: (a) the annotation clearly appears on the title, warning all would-be buyers; (b) the sale unlawfully interferes with the rights of heirs; and (c) the rightful heirs bring an action to question the transfer within the two-year period provided by law. As we held in Vda. de Francisco v. Carreon:[15]
And Section 4, Rule 74 xxx expressly authorizes the court to give to every heir his lawful participation in the real estate notwithstanding any transfers of such real estate and to issue execution thereon. All this implies that, when within the amendatory period the realty has been alienated, the court in redividing it among the heirs has the authority to direct cancellation of such alienation in the same estate proceedings, whenever it becomes necessary to do so. To require the institution of a separate action for such annulment would run counter to the letter of the above rule and the spirit of these summary settlements. [Emphasis supplied.]

Similarly, in Sps. Domingo v. Roces,[16] we said:

The foregoing rule clearly covers transfers of real property to any person, as long as the deprived heir or creditor vindicates his rights within two years from the date of the settlement and distribution of estate. Contrary to petitioners contention, the effects of this provision are not limited to the heirs or original distributees of the estate properties, but shall affect any transferee of the properties. [Emphasis supplied.]

Indeed, in David v. Malay,[17] although the title of the property had already been registered in the name of the third party buyers, we cancelled the sale and ordered the reconveyance of the property to the estate of the deceased for proper disposal among his rightful heirs. By the time Tans obligation to pay the balance of the purchase price arose on May 21, 1993 (on account of the extensions granted by the respondents), a new certificate of title covering the property had already been issued on March 26, 1993, which contained the encumbrance on the property; the encumbrance would remain so attached until the expiration of the two-year

period. Clearly, at this time, the vendors could no longer compel Tan to pay the balance of the purchase since considering they themselves could not fulfill their obligation to transfer a clean title over the property to Tan. Contract to sell is not rescinded but terminated What then happens to the contract? We have held in numerous cases[18] that the remedy of rescission under Article 1191 cannot apply to mere contracts to sell. We explained the reason for this in Santos v. Court of Appeals,[19] where we said:
[I]n a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. x x x Article 1592 speaks of non-payment of the purchase price as a resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of immovable property. Neither provision is applicable [to a contract to sell]. [Emphasis supplied.]

We, therefore, hold that the contract to sell was terminated when the vendors could no longer legally compel Tan to pay the balance of the purchase price as a result of the legal encumbrance which attached to the title of the property. Since Tans refusal to pay was due to the supervening event of a legal encumbrance on the property and not through his own fault or negligence, we find and so hold that the forfeiture of Tans down payment was clearly unwarranted. Award of Attorneys fees

As evident from our previous discussion, Tan had a valid reason for refusing to pay the balance of the purchase price for the property. Consequently, there is no basis for the award of attorneys fees in favor of the respondents. On the other hand, we award attorneys fees in favor of Tan, since he was compelled to litigate due to the respondents refusal to return his down payment despite the fact that they could no longer comply with their obligation under the contract to sell, i.e., to convey a clean title. Given the facts of this case, we find the award of P50,000.00 as attorneys fees proper. Monetary award is subject to legal interest Undoubtedly, Tan made a clear and unequivocal demand on the vendors to return his down payment as early as May 28, 1993. Pursuant to

our definitive ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[20] we hold that the vendors should return the P200,000.00 down payment to Tan, subject to the legal interest of 6% per annum computed from May 28, 1993, the date of the first demand letter.

Furthermore, after a judgment has become final and executory, the rate of legal interest, whether the obligation was in the form of a loan or forbearance of money or otherwise, shall be 12% per annum from such finality until its satisfaction. Accordingly, the principal obligation of P200,000.00 shall bear 6% interest from the date of first demand or from May 28, 1993. From the date the liability for the principal obligation and attorneys fees has become final and executory, an annual interest of 12% shall be imposed on these obligations until their final satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

WHEREFORE, premises considered, we hereby GRANT the petition and, accordingly, ANNUL and SET ASIDE the May 30, 2002 decision of the Court of Appeals in CA-G.R. CV No. 52033. Another judgment is rendered declaring the Deed of Conditional Sale terminated and ordering the respondents to return the P200,000.00 down payment to petitioner Delfin Tan, subject to legal interest of 6% per annum, computed from May 28, 1993. The respondents are also ordered to pay, jointly and severally, petitioner Delfin Tan the amount of P50,000.00 as and by way of attorneys fees. Once this decision becomes final and executory, respondents are ordered to pay interest at 12% per annum on the principal obligation as well as the attorneys fees, until full payment of these amounts. Costs against the respondents.
G.R. No. 170405 February 2, 2010

RAYMUNDO S. DE LEON, Petitioner, vs. BENITA T. ONG.1 Respondent. DECISION CORONA, J.: On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were

mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and respondent executed a notarized deed of absolute sale with assumption of mortgage3 stating: xxx xxx xxx

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (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

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 damages6 against petitioner and Viloria in the Regional Trial Court (RTC) of Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the properties to her on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus, petitioner fraudulently deprived her of the properties. Petitioner, on the other hand, insisted that respondent did not have a cause of action against him and consequently prayed for the dismissal of the complaint. He claimed that since the transaction was subject to a condition (i.e., that RSLAI approve the assumption of mortgage), they only entered into a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI, the condition did not arise. Consequently, the sale was not perfected and he could freely dispose of the properties. Furthermore, he made a counter-claim for damages as respondent filed the complaint allegedly with gross and evident bad faith. Because respondent was a licensed real estate broker, the RTC concluded that she knew that the validity of the sale was subject to a condition. The perfection of a contract of sale depended

on 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 non-payment of the price is therefore a negative resolutory condition.12 On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the payment thereof, the seller can only sue for damages.13 The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to respondent "in a manner absolute and irrevocable" for a sum of 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 balance15payable 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

CONTRACT TO SELL

DECISION
DEL CASTILLO, J.: The protection afforded to a subdivision lot buyer under Presidential Decree (PD) No. 957 or The Subdivision and Condominium Buyers Protective Decree will not be defeated by someone who is not an innocent purchaser for value. The lofty aspirations of PD 957 should be read in every provision of the statute, in every contract that undermines its objects, in every transaction which threatens its fruition. For a statute derives its vitality from the purpose for which it is enacted and to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law.[1] These cases involve the separate appeals of Luzon Development Bank (BANK) and Delta Development and Management Services, Inc.[3] (DELTA) from the November 30, 2004 Decision of the Court of Appeals (CA), as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280. The dispositive portion of the assailed Decision reads:
[2]

WHEREFORE, premises considered, the Decision dated June 17, 2003 and Resolution dated November 24, 2003 are AFFIRMED with [m]odification in so far as Delta Development and Management Services, Inc. is liable and directed to pay petitioner Luzon Development Bank the value of the subject lot subject matter of the Contract to Sell between Delta Development and Management Services, Inc. and the private respondent [Catherine Angeles Enriquez]. SO ORDERED.[4]

Factual Antecedents The BANK is a domestic financial corporation that extends loans to subdivision developers/owners.[5] Petitioner DELTA is a domestic corporation engaged in the business of developing and selling real estate properties, particularly Delta Homes I in Cavite. DELTA is owned by Ricardo De Leon (De Leon),[6] who is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T637183[7] of the Registry of Deeds of the Province of Cavite, which corresponds to Lot 4 of Delta Homes I. Said Lot 4 is the subject matter of these cases. On July 3, 1995, De Leon and his spouse obtained a P4 million loan from the BANK for the express purpose of developing Delta Homes I.[8] To secure the loan, the spouses De Leon executed in favor of the BANK a real estate mortgage (REM) on several of their properties,[9] including Lot 4. Subsequently, this REM was amended[10] by increasing the amount of the secured loan from P4 million to P8 million. Both the REM and the amendment were annotated on TCT No. T-637183.[11] DELTA then obtained a Certificate of Registration[12] and a License to Sell[13] from the Housing and Land Use Regulatory Board (HLURB). Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez)[14] over the house and lot in Lot 4 for the purchase price of P614,950.00. Enriquez made a downpayment of P114,950.00. The Contract to Sell contained the following provisions:
That the vendee/s offered to buy and the Owner agreed to sell the above-described property subject to the following terms and conditions to wit: xxxx 6. That the (sic) warning shall be served upon the Vendee/s for failure to pay x x x Provided, however, that for failure to pay three (3) successive monthly installment payments, the Owner may consider this Contract to Sell null and void ab initio without further proceedings or court action and all payments shall be forfeited in favor of the Owner as liquidated damages and expenses for documentations. x x x

That upon full payment of the total consideration if payable in cash, the Owner shall execute a final deed of sale in favor of the Vendee/s. However, if the term of the contract is for a certain period of time, only upon full payment of the total consideration that a final deed of sale shall be executed by the Owner in favor of the Vendee/s.[15]

When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM, agreed to a dation in payment or a dacion en pago. The Deed of Assignment in Payment of Debt was executed on September 30, 1998 and stated that DELTA assigns, transfers, and conveys and sets over [to] the assignee that real estate with the building and improvements existing thereon x x x in payment of the total obligation owing to [the Bank] x x x.[16] Unknown to Enriquez, among the properties assigned to the BANK was the house and lot of Lot 4,[17] which is the subject of her Contract to Sell with DELTA. The records do not bear out and the parties are silent on whether the BANK was able to transfer title to its name. It appears, however, that the dacion en pago was not annotated on the TCT of Lot 4.[18] On November 18, 1999, Enriquez filed a complaint against DELTA and the BANK before the Region IV Office of the HLURB[19] alleging that DELTA violated the terms of its License to Sell by: (a) selling the house and lots for a price exceeding that prescribed in Batas Pambansa (BP) Bilang 220;[20] and (b) failing to get a clearance for the mortgage from the HLURB. Enriquez sought a full refund of the P301,063.42 that she had already paid to DELTA, award of damages, and the imposition of administrative fines on DELTA and the BANK. In his June 1, 2000 Decision,[21] HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the purchase price, but ordered DELTA to accept payment of the balance of P108,013.36 from Enriquez, and (upon such payment) to deliver to Enriquez the title to the house and lot free from liens and encumbrances. The dispositive portion reads:
WHEREFORE, premises considered, a decision is hereby rendered as follows: 1. Ordering [DELTA] to accept complainant[]s payments in the amount of P108,013.36 representing her balance based on the maximum selling price of P375,000.00; 2. Upon full payment, ordering Delta to deliver the title in favor of the complainant free from any liens and encumbrances;

3. Ordering [DELTA] to pay complainant of P50,000.00 as and by way of moral damages; 4. Ordering [DELTA] to pay complainant of P50,000.00 as and by way of exemplary damages;

the

amount

the

amount

5. Ordering [DELTA] to pay complainant P10,000.00 as costs of suit; and 6. Respondent DELTA to pay administrative fine [[22]] [[23]] of P10,000.00 for violation of Section 18 of P.D. 957 and another P10,000.00 for violation of Section 22 of P.D. 957.[[24]] SO ORDERED.[25]

DELTA appealed the arbiters Decision to the HLURB Board of Commissioners.[26] DELTA questioned the imposition of an administrative fine for its alleged violation of Section 18 of PD 957. It argued that clearance was not required for mortgages that were constituted on a subdivision project prior to registration. According to DELTA, it did not violate the terms of its license because it did not obtain a new mortgage over the subdivision project. It likewise assailed the award of moral and exemplary damages to Enriquez on the ground that the latter has no cause of action.[27] Ruling of the Board of Commissioners (Board)[28] The Board held that all developers should obtain a clearance for mortgage from the HLURB, regardless of the date when the mortgage was secured, because the law does not distinguish. Having violated this legal requirement, DELTA was held liable to pay the administrative fine. The Board upheld the validity of the contract to sell between DELTA and Enriquez despite the alleged violation of the price ceilings in BP 220. The Board held that DELTA and Enriquez were presumed to have had a meeting of the minds on the object of the sale and the purchase price. Absent any circumstance vitiating Enriquezconsent, she was presumed to have willingly and voluntarily agreed to the higher purchase price; hence, she was bound by the terms of the contract.

The Board, however, deleted the arbiters award of damages to Enriquez on the ground that the latter was not free from liability herself, given that she was remiss in her monthly amortizations to DELTA. The dispositive portion of the Boards Decision reads:
Wherefore, in view of the foregoing, the Office belows decision dated June 01, 2000 is hereby modified to read as follows: 1. Ordering [Enriquez] to pay [DELTA] the amount due from the time she suspended payment up to filing of the complaint with 12% interest thereon per annum; thereafter the provisions of the Contract to Sell shall apply until full payment is made; 2. Ordering [DELTA] to pay an [a]dministrative [f]ine of P10,000.00 for violation of its license to sell and for violation of Section 18 of P.D. 957. So ordered. Quezon City.[29]

Enriquez moved for a reconsideration of the Boards Decision[30] upholding the contractual purchase price. She maintained that the price for Lot 4 should not exceed the price ceiling provided in BP 220.[31] Finding Enriquezs arguments as having already been passed upon in the decision, the Board denied reconsideration. The board, however, modified its decision, with respect to the period for the imposition of interest payments. The Boards resolution[32] reads:
WHEREFORE, premises considered, to [sic] directive No. 1 of the dispositive portion of the decision of our decision [sic] is MODIFIED as follows: 1. Ordering complainant to pay respondent DELTA the amount due from the time she suspended (sic) at 12% interest per annum, reckoned from finality of this decision[,] thereafter the provisions of the Contract to Sell shall apply until full payment is made. In all other respects, the decision is AFFIRMED. SO ORDERED.[33]

Both Enriquez and the BANK appealed to the Office of the President (OP). The BANK disagreed with the ruling upholding Enriquezs Contract to Sell; and insisted on its ownership over Lot 4. It argued that it has become impossible for DELTA to comply with the terms of the contract to sell and to deliver Lot 4s title to Enriquez given that DELTA had already relinquished all its rights to Lot 4 in favor of the BANK[35] via the dation in payment.
[34]

Meanwhile, Enriquez insisted that the Board erred in not applying the ceiling price as prescribed in BP 220.[36] Ruling of the Office of the President[37] The OP adopted by reference the findings of fact and conclusions of law of the HLURB Decisions, which it affirmed in toto. Enriquez filed a motion for reconsideration, insisting that she was entitled to a reduction of the purchase price, in order to conform to the provisions of BP 220.[38] The motion was denied for lack of merit.[39] Only the BANK appealed the OPs Decision to the CA.[40] The BANK reiterated that DELTA can no longer deliver Lot 4 to Enriquez because DELTA had sold the same to the BANK by virtue of the dacion en pago.[41] As an alternative argument, in case the appellate court should find that DELTA retained ownership over Lot 4 and could convey the same to Enriquez, the BANK prayed that its REM over Lot 4 be respected such that DELTA would have to redeem it first before it could convey the same to Enriquez in accordance with Section 25[42] of PD 957.[43] The BANK likewise sought an award of exemplary damages and attorneys fees in its favor because of the baseless suit filed by Enriquez against it.[44] Ruling of the Court of Appeals[45] The CA ruled against the validity of the dacion en pago executed in favor of the BANK on the ground that DELTA had earlier relinquished its ownership over Lot 4 in favor of Enriquez via the Contract to Sell.[46]

Since the dacion en pago is invalid with respect to Lot 4, the appellate court held that DELTA remained indebted to the BANK to the extent of Lot 4s value. Thus, the CA ordered DELTA to pay the corresponding value of Lot 4 to the BANK.[47] The CA also rejected the BANKs argument that, before DELTA can deliver the title to Lot 4 to Enriquez, DELTA should first redeem the mortgaged property from the BANK. The CA held that the BANK does not have a first lien on Lot 4 because its real estate mortgage over the same had already been extinguished by the dacion en pago. Without a mortgage, the BANK cannot require DELTA to redeem Lot 4 prior to delivery of title to Enriquez.[48] The CA denied the BANKs prayer for the award of exemplary damages and attorneys fees for lack of factual and legal basis.[49] Both DELTA[50] and the BANK[51] moved for a reconsideration of the CAs Decision, but both were denied.[52] Hence, these separate petitions of the BANK and DELTA. Petitioner Deltas arguments[53] DELTA assails the CA Decision for holding that DELTA conveyed its ownership over Lot 4 to Enriquez via the Contract to Sell. DELTA points out that the Contract to Sell contained a condition that ownership shall only be transferred to Enriquez upon the latters full payment of the purchase price to DELTA. Since Enriquez has yet to comply with this suspensive condition, ownership is retained by DELTA.[54] As the owner of Lot 4, DELTA had every right to enter into a dation in payment to extinguish its loan obligation to the BANK. The BANKs acceptance of the assignment, without any reservation or exception, resulted in the extinguishment of the entire loan obligation; hence, DELTA has no more obligation to pay the value of Enriquezs house and lot to the BANK.[55] DELTA prays for the reinstatement of the OP Decision. The BANKs arguments[56]

Echoing the argument of DELTA, the BANK argues that the Contract to Sell did not involve a conveyance of DELTAs ownership over Lot 4 to Enriquez. The Contract to Sell expressly provides that DELTA retained ownership over Lot 4 until Enriquez paid the full purchase price. Since Enriquez has not yet made such full payment, DELTA retained ownership over Lot 4 and could validly convey the same to the BANK via dacion en pago.[57] Should the dacion en pago over Lot 4 be invalidated and the property ordered to be delivered to Enriquez, the BANK contends that DELTA should pay the corresponding value of Lot 4 to the BANK. It maintains that the loan obligation extinguished by the dacion en pago only extends to the value of the properties delivered; if Lot 4 cannot be delivered to the BANK, then the loan obligation of DELTA remains to the extent of Lot 4s value.[58] The BANK prays to be declared the rightful owner of the subject house and lot and asks for an award of exemplary damages and attorneys fees. Enriquezs waiver Enriquez did not file comments[59] or memoranda in both cases; instead, she manifested that she will just await the outcome of the case.[60] Issues The following are the issues raised by the two petitions: 1. Whether the Contract to Sell conveys ownership; 2. Whether the dacion en pago extinguished the loan obligation, such that DELTA has no more obligations to the BANK; 3. Whether the BANK is entitled to damages and attorneys fees for being compelled to litigate; and 4. What is the effect of Enriquezs failure to appeal the OPs Decision regarding her obligation to pay the balance on the purchase price. Our Ruling Mortgage contract void

As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18 of PD 957 in mortgaging the properties in Delta Homes I (including Lot 4) to the BANK without prior clearance from the HLURB. This point need not be belabored since the parties have chosen not to appeal the administrative fine imposed on DELTA for violation of Section 18. This violation of Section 18 renders the mortgage executed by DELTA void. We have held before that a mortgage contract executed in breach of Section 18 of [PD 957] is null and void.[61] Considering that PD 957 aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices, we have construed Section 18 thereof as prohibitory and acts committed contrary to it are void.[62] Because of the nullity of the mortgage, neither DELTA nor the BANK could assert any right arising therefrom. The BANKs loan of P8 million to DELTA has effectively become unsecured due to the nullity of the mortgage. The said loan, however, was eventually settled by the two contracting parties via a dation in payment. In the appealed Decision, the CA invalidated this dation in payment on the ground that DELTA, by previously entering into a Contract to Sell, had already conveyed its ownership over Lot 4 to Enriquez and could no longer convey the same to the BANK. This is error, prescinding from a wrong understanding of the nature of a contract to sell. Contract to sell does not transfer ownership Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of Enriquez did not transfer ownership over Lot 4 to Enriquez. A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him. In other words, 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.[63] It does not, by itself, transfer ownership to the buyer.[64]

In the instant case, there is nothing in the provisions of the contract entered into by DELTA and Enriquez that would exempt it from the general definition of a contract to sell. The terms thereof provide for the reservation of DELTAs ownership until full payment of the purchase price; such that DELTA even reserved the right to unilaterally void the contract should Enriquez fail to pay three successive monthly amortizations. Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said ownership remained with DELTA. DELTA could then validly transfer such ownership (as it did) to another person (the BANK). However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquezs rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. One of the protections afforded by PD 957 to buyers such as Enriquez is the right to have her contract to sell registered with the Register of Deeds in order to make it binding on third parties. Thus, Section 17 of PD 957 provides:
Section 17. Registration. All contracts to sell, deeds of sale, and other similar instruments relative to the sale or conveyance of the subdivision lots and condominium units, whether or not the purchase price is paid in full, shall be registered by the seller in the Office of the Register of Deeds of the province or city where the property is situated. x x x x (Emphasis supplied.)

The purpose of registration is to protect the buyers from any future unscrupulous transactions involving the object of the sale or contract to sell, whether the purchase price therefor has been fully paid or not. Registration of the sale or contract to sell makes it binding on third parties; it serves as a notice to the whole world that the property is subject to the prior right of the buyer of the property (under a contract to sell or an absolute sale), and anyone who wishes to deal with the said property will be held bound by such prior right. While DELTA, in the instant case, failed to register Enriquezs Contract to Sell with the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquezs Contract to Sell. Despite the nonregistration, the BANK cannot be considered, under the circumstances, an innocent purchaser for value of Lot 4 when it accepted the latter (together with other assigned properties) as payment for DELTAs obligation. The BANK was well aware that the assigned properties, including Lot 4, were subdivision lots and therefore within the

purview of PD 957. It knew that the loaned amounts were to be used for the development of DELTAs subdivision project, for this was indicated in the corresponding promissory notes. The technical description of Lot 4 indicates its location, which can easily be determined as included within the subdivision development. Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers. As observed by the Court in another case involving a bank regarding a subdivision lot that was already subject of a contract to sell with a third party:
[The Bank] should have considered that it was dealing with a property subject of a real estate development project. A reasonable person, particularly a financial institution x x x, should have been aware that, to finance the project, funds other than those obtained from the loan could have been used to serve the purpose, albeit partially. Hence, there was a need to verify whether any part of the property was already intended to be the subject of any other contract involving buyers or potential buyers. In granting the loan, [the Bank] should not have been content merely with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent mortgagee. x x x[65]

Further, as an entity engaged in the banking business, the BANK is required to observe more care and prudence when dealing with registered properties. The Court cannot accept that the BANK was unaware of the Contract to Sell existing in favor of Enriquez. In Keppel Bank Philippines, Inc. v. Adao,[66] we held that a bank dealing with a property that is already subject of a contract to sell and is protected by the provisions of PD 957, is bound by the contract to sell (even if the contract to sell in that case was not registered). In the Courts words:
It is true that persons dealing with registered property can rely solely on the certificate of title and need not go beyond it. However, x x x, 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. 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 [the vendee] and [the developer]. 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.[67]

Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same and honor the payments already made by Enriquez for the purchase price of Lot 4. Thus, the BANK can only collect the balance of the purchase price from Enriquez and has the obligation, upon full payment, to deliver to Enriquez a clean title over the subject property.[68] Dacion en pago extinguished the loan obligation The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA has the obligation to pay the BANK the corresponding value of Lot 4. According to the BANK, the dation in payment extinguished the loan only to the extent of the value of the thing delivered. Since Lot 4 would have no value to the BANK if it will be delivered to Enriquez, DELTA would remain indebted to that extent. We are not persuaded. Like in all contracts, the intention of the parties to the dation in payment is paramount and controlling. The contractual intention determines whether the property subject of the dation will be considered as the full equivalent of the debt and will therefore serve as full satisfaction for the debt. The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved,unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished.[69] In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear intention by the parties that the assigned properties would serve as full payment for DELTAs entire obligation:
KNOW ALL MEN BY THESE PRESENTS: This instrument, made and executed by and between: xxxx THAT, the ASSIGNOR acknowledges to be justly indebted to the ASSIGNEE in the sum of ELEVEN MILLION EIGHT HUNDRED SEVENTY-EIGHT THOUSAND EIGHT HUNDRED PESOS (P11,878,800.00), Philippine Currency as of August 25, 1998. Therefore, by virtue of this instrument, ASSIGNOR hereby ASSIGNS, TRANSFERS, and CONVEYS AND SETS OVER [TO] the ASSIGNEE

that real estate with the building and improvements existing thereon, more particularly described as follows: xxxx of which the ASSIGNOR is the registered owner being evidenced by TCT No. x x x issued by the Registry of Deeds of Trece Martires City. THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN PAYMENT OF THE TOTAL OBLIGATION owing to him by the ASSIGNOR as above-stated;[70]

Without any reservation or condition, the Dacion stated that the assigned properties served as full payment of DELTAs total obligation to the BANK. The BANK accepted said properties as equivalent of the loaned amount and as full satisfaction of DELTAs debt. The BANK cannot complain if, as it turned out, some of those assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted earlier, the BANK knew that the assigned properties were subdivision lots and covered by PD 957. It was aware of the nature of DELTAs business, of the location of the assigned properties within DELTAs subdivision development, and the possibility that some of the properties may be subjects of existing contracts to sell which enjoy protection under PD 957. Banks dealing with subdivision properties are expected to conduct a thorough due diligence review to discover the status of the properties they deal with. It may thus be said that the BANK, in accepting the assigned properties as full payment of DELTAs total obligation, has assumed the risk that some of the assigned properties (such as Lot 4) are covered by contracts to sell which it is bound to honor under PD 957. A dacion en pago is governed by the law of sales.[71] Contracts of sale come with warranties, either express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code). In this case, however, the BANK does not even point to any breach of warranty by DELTA in connection with the Dation in Payment. To be sure, the Dation in Payment has no express warranties relating to existing contracts to sell over the assigned properties. As to the implied warranty in case of eviction, it is waivable[72] and cannot be invoked if the buyer knew of the risks or danger of eviction and assumed its consequences.[73] As we have noted earlier, the BANK, in accepting the assigned properties as full payment of DELTAs total obligation, has assumed the risk that some of the assigned properties are covered by contracts to sell which must be honored under PD 957.

Award of damages There is nothing on record that warrants the award of exemplary damages[74] as well as attorneys fees[75] in favor of the BANK. Balance to be paid by Enriquez As already mentioned, the Contract to Sell in favor of Enriquez must be respected by the BANK. Upon Enriquezs full payment of the balance of the purchase price, the BANK is bound to deliver the title over Lot 4 to her. As to the amount of the balance which Enriquez must pay, we adopt the OPs ruling thereon which sustained the amount stipulated in the Contract to Sell. We will not review Enriquezs initial claims about the supposed violation of the price ceiling in BP 220, since this issue was no longer pursued by the parties, not even by Enriquez, who chose not to file the required pleadings[76] before the Court. The parties were informed in the Courts September 5, 2007 Resolution that issues that are not included in their memoranda shall be deemed waived or abandoned. Since Enriquez did not file a memorandum in either petition, she is deemed to have waived the said issue. WHEREFORE, premises considered, the appealed November 30, 2004 Decision of the Court of Appeals, as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280 are hereby AFFIRMED with the MODIFICATIONS that Delta Development and Management Services, Inc. is NOT LIABLE TO PAYLuzon Development Bank the value of the subject lot; and respondent Angeles Catherine Enriquez is ordered to PAY the balance of the purchase price and the interests accruing thereon, as decreed by the Court of Appeals, to the Luzon Development Bank, instead of Delta Development and Management Services, Inc., within thirty (30) days from finality of this Decision. The Luzon Development Bank is ordered to DELIVER a CLEAN TITLE to Angeles Catherine Enriquez upon the latters full payment of the balance of the purchase price and the accrued interests. SO ORDERED.
DECISION

CARPIO MORALES, J.:

Assailed via petition for review are issuances of the Court of Appeals in CA-G.R. CV No. 66198, Decision1 dated April 29, 2004 which set aside the decision of Branch 260 of the Regional Trial Court (RTC) of Paraaque in Civil Case No. 97-067, and Resolution dated February 21, 2005 denying petitioners motion for reconsideration. On or about October 27, 1994,2 petitioner Belen Cordero (Belen), in her own behalf and as attorney-in-fact of her co-petitioners Darrel Cordero, Egmedio Bautista, Rosemay Bautista, Marion Bautista, Danny Boy Cordero and Ladylyn Cordero, entered into a contract to sell3 with respondent, F.S. Management and Development Corporation, through its chairman Roberto P. Tolentino over five (5) parcels of land located in Nasugbu, Batangas described in and covered by TCT Nos. 62692, 62693, 62694, 62695 and 20987. The contract to sell contained the following terms and conditions: 1. That the BUYER will buy the whole lots above described from the OWNER consisting of 50 hectares more or less at P25/sq.m. or with a total price of P12,500,000.00; 2. That the BUYER will pay the OWNER the sum of P500,000.00 as earnest money which will entitle the latter to enter the property and relocate the same, construct the necessary paths and roads with the help of the necessary parties in the area; 3. The BUYER will pay the OWNER the sum of THREE MILLION FIVE HUNDRED THOUSAND PESOS ONLY (P3,500,000.00) on or before April 30, 1995 and the remaining balance will be paid within 18 mons. (sic) from the date of payment of P3.5 Million pesos in 6 equal quarterly payments or P1,411,000.00 every quarter; 4. The title will be transferred by the OWNER to the BUYER upon complete payment of the agreed purchase price. Provided that any obligation by the OWNER brought about by encumbrance or mortgage with any bank shall be settled by the OWNER or by the BUYER which shall be deducted the total purchase price; 5. Provided, the OWNER shall transfer the titles to the BUYER even before the complete payment if the BUYER can provide post dated checks which shall be in accordance with the time frame of payments as above stated and which shall be guaranteed by a reputable bank; 6. Upon the payment of the earnest money and the down payment of 3.5 Million pesos the BUYER can occupy and introduce improvements in the properties as owner while owner is guaranteeing that the properties will have no tenants or squatters in the properties and cooperate in the development of any project or exercise of ownerships by the BUYER; 7. Delay in the payment by the BUYER in the agreed due date will entitle the SELLER for the legal interest.4 Pursuant to the terms and conditions of the contract to sell, respondent paid earnest money in the amount ofP500,000 on October 27, 1994.5 She likewise paid P1,000,000 on June 30, 1995 and another P1,000,000 on July 6, 1995. No further payments were made thereafter.6 Petitioners thus sent respondent a demand letter dated November 28, 19967 informing her that they were revoking/canceling the contract to sell and were treating the payments already made as payment for damages suffered as a result of the breach of contract, and demanding the payment of the amount of P10 Million Pesos for actual damages suffered due to loss of income by reason thereof. Respondent ignored the demand, however. Hence, on February 21, 1997, petitioner Belen, in her own behalf and as attorney-in-fact of her co-petitioners, filed before the RTC of Paraaque a complaint for rescission of contract with

damages8 alleging that respondent failed to comply with its obligations under the contract to sell, specifically its obligation to pay the downpayment ofP3.5 Million by April 30, 1995, and the balance within 18 months thereafter; and that consequently petitioners are entitled to rescind the contract to sell as well as demand the payment of damages. In its Answer,9 respondent alleged that petitioners have no cause of action considering that they were the first to violate the contract to sell by preventing access to the properties despite payment of P2.5 Million Pesos; petitioners prevented it from complying with its obligation to pay in full by refusing to execute the final contract of sale unless additional payment of legal interest is made; and petitioners refusal to execute the final contract of sale was due to the willingness of another buyer to pay a higher price. In its Pre-trial Order10 of June 9, 1997, the trial court set the pre-trial conference on July 8, 1997 during which neither respondents representative nor its counsel failed to appear. And respondent did not submit a pre-trial brief, hence, it was declared as in default by the trial court which allowed the presentation of evidence ex parte by petitioners.11 Petitioners presented as witnesses petitioner Belen and one Ma. Cristina Cleofe. Belen testified on the execution of the contract to sell; the failure of respondent to make the necessary payments in compliance with the contract; the actual and moral damages sustained by petitioners as a result of the breach, including the lost opportunity to sell the properties for a higher price to another buyer, Ma. Cristina Cleofe; and the attorneys fees incurred by petitioners as a result of the suit.12 Ma. Cristina Cleofe, on the other hand, testified on the offer she made to petitioners to buy the properties at P35.00/sq.m.13 which was, however, turned down in light of the contract to sell executed by petitioners in favor of the respondent.14 Respondent filed a motion to set aside the order of default15 which was denied by the trial court by Order dated September 12, 1997.16 Via petition for certiorari, respondent challenged the said order, but it was denied by the Court of Appeals.17 Meanwhile, the trial court issued its decision18 on November 18, 1997, finding for petitioners and ordering respondent to pay damages and attorneys fees. The dispositive portion of the decision reads: WHEREFORE, premises considered, the contract to sell between the Plaintiffs and the Defendant is herebydeclared as rescinded and the defendant is likewise ordered to pay the plaintiff: (1) P4,500,000.00 computed as follows: P5,000,000.00 in actual damages and P2,000,000.00 in moral and exemplary damages, less defendants previous payment of P2,500,000.00 under the contract to sell; and (2) P800,000.00 by way of attorneys fees as well as the costs of suit. SO ORDERED. (Underscoring supplied) Before the Court of Appeals to which respondent appealed the trial courts decision, it raised the following errors: 3.01. The Regional Trial Court erred when it awarded plaintiffs-appellees Five Million Pesos (P5,000,000.00) as actual damages. Corollary thereto, the Regional Trial Court erred in declaring defendant-appellant to have acted in wanton disregard of its obligations under the Contract to Sell. 3.02. The Regional Trial Court erred when it awarded plaintiffs-appellees Two Million Pesos (P2,000,000.00) as moral and exemplary damages.

3.03. The Regional Trial Court erred when it awarded plaintiffs-appellees Eight Hundred Thousand Pesos (P800,000.00) as attorneys fees.19 In the assailed decision,20 the Court of Appeals set aside the contract to sell, it finding that petitioners obligation thereunder did not arise for failure of respondent to pay the full purchase price. It also set aside the award to petitioners of damages for not being duly proven. And it ordered petitioners to return "the amount received from [respondent]." Thus the dispositive portion of the appellate courts decision reads: WHEREFORE, the Decision dated 18 November 1997 of the Regional Trial Court, Branch 260 of Paraaque City in Civil Case No. 97-067 is hereby VACATED. A NEW DECISION is ENTERED ordering the SETTING-ASIDE of the Contract to Sell WITHOUT payment of damages. Plaintiffs-appellees are further ORDERED TO RETURN THE AMOUNTS RECEIVED from defendant-appellant. (Underscoring supplied) SO ORDERED. Their motion for reconsideration having been denied, petitioners filed the present petition for review which raises the following issues: 1. Whether the Court of Appeals erred in ruling on the nature of the contract despite the fact that it was not raised on appeal. 2. Whether or not a contract to sell may be subject to rescission under Article 1191 of the Civil Code. 3. Whether or not the Court of Appeals erred in setting aside the award of damages. Petitioners contend that the Court of Appeals erred in ruling on the nature of the contract to sell and the propriety of the remedy of rescission under Article 1191 of the Civil Code, these matters not having been raised by respondents in the assigned errors. In any event, petitioners claim that the contract to sell involves reciprocal obligations, hence, it falls within the ambit of Article 1191.21 While a party is required to indicate in his brief an assignment of errors and only those assigned shall be considered by the appellate court in deciding the case, appellate courts have ample authority to rule on matters not assigned as errors in an appeal if these are indispensable or necessary to the just resolution of the pleaded issues.22 Thus this Court has allowed the consideration of other grounds or matters not raised or assigned as errors, to wit: 1) grounds affecting jurisdiction over the subject matter; 2) matters which are evidently plain or clerical errors within the contemplation of the law; 3) matters the consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interest of justice or to avoid dispensing piecemeal justice; 4) matters of record which were raised in the trial court and which have some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; 5) matters closely related to an error assigned; and 6) matters upon which the determination of a question properly assigned is dependent.23 In the present case, the nature as well as the characteristics of a contract to sell is determinative of the propriety of the remedy of rescission and the award of damages. As will be discussed shortly, the trial court committed manifest error in applying Article 1191 of the Civil Code to the present case, a fundamental error which "lies at the base and foundation of the proceeding, affecting the judgment necessarily," or, as otherwise expressed, "such manifest error as when removed destroys the foundation of the judgment."24 Hence, the Court of Appeals correctly ruled on these matters even if they were not raised in the appeal briefs. Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment

of which is not a breach of contract but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect.25 Since the obligation of petitioners did not arise because of the failure of respondent to fully pay the purchase price, Article 1191 of the Civil Code would have no application. Rayos v. Court of Appeals26 explained: Construing the contracts together, it is evident that the parties executed a contract to sell and not a contract of sale. The petitioners retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligations of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil Code. x x x The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened. [Emphasis and underscoring supplied; citations omitted] The subject contract to sell clearly states that "title will be transferred by the owner (petitioners) to the buyer (respondent) upon complete payment of the agreed purchase price."27 Since respondent failed to fully pay the purchase price, petitioners obligation to convey title to the properties did not arise. While rescission does not apply in this case, petitioners may nevertheless cancel the contract to sell, their obligation not having arisen.28This brings this Court to Republic Act No. 6552 (THE REALTY INSTALLMENT BUYER PROTECTION ACT). InRamos v. Heruela29 this Court held: Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to sell, RA 6552 applies. In Rillo v. Court of Appeals,30 the Court declared: x x x Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments x x x. [Emphasis supplied] The properties subject of the contract having been intended for commercial, and not for residential, purposes,31petitioners are entitled to retain the payments already made by respondent. RA 6552 expressly recognizes the vendors right to cancel contracts to sell on installment basis industrial and commercial properties with full retention of previous payments.32 But even assuming that the properties were not intended for commercial or industrial purpose, since respondent paid less than two years of installments, it is not entitled to any refund.33 It is on this score that a modification of the challenged issuances of the appellate court is in order. Respecting petitioners claim for damages, failure to make full payment of the purchase price in a contract to sell is not really a breach, serious or otherwise, but, as priorly stated, an event that

prevents the obligation of the vendor to convey title to the property from arising.34 Consequently, the award of damages is not warranted in this case. With regard to attorneys fees, Article 220835 of the Civil Code provides that subject to certain exceptions, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered in the absence of stipulation. None of the enumerated exceptions in Article 2208 is present in this case. It bears stressing that the policy of the law is to put no premium on the right to litigate.36 WHEREFORE, the assailed Court of Appeals Decision dated April 29, 2004 and the Resolution dated February 21, 2005 in CA-G.R. CV No. 66198 are AFFIRMED with the MODIFICATION that petitioners are entitled to retain the payments already received from respondent. SO ORDERED. Quisumbing, J., Chairperson, Carpio, and Velasco, Jr., JJ., concur. Tinga, J., on leave.

Distinguised from Dation in Payment

G.R. No. 173856

November 20, 2008

DAO HENG BANK, INC., now BANCO DE ORO UNIVERSAL BANK, petitioner vs. SPS. LILIA and REYNALDO LAIGO, respondent. DECISION CARPIO MORALES, J.: The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao Heng Bank, Inc. (Dao Heng) in the total amount of P11 Million, to secure the payment of which they forged on October 28, 1996, November 18, 1996 and April 18, 1997 three Real Estate Mortgages covering two parcels of land registered in the name of respondent "Lilia D. Laigo, . . . married to Reynaldo Laigo," one containing 569 square meters and the other containing 537 square meters. The mortgages were duly registered in the Registry of Deeds of Quezon City. The loans were payable within 12 months from the execution of the promissory notes covering the loans. As of 2000, respondents failed to settle their outstanding obligation, drawing them to verbally offer to cede to Dao Heng one of the two mortgaged lots by way of dacion en pago. To

appraise the value of the mortgaged lands, Dao Heng in fact commissioned an appraiser whose fees were shouldered by it and respondents. There appears to have been no further action taken by the parties after the appraisal of the properties. Dao Heng was later to demand the settlement of respondents' obligation by letter of August 18, 20001wherein it indicated that they had an outstanding obligation of P10,385,109.92 inclusive of interests and other charges. Respondents failed to heed the demand, however. Dao Heng thereupon filed in September 2000 an application to foreclose the real estate mortgages executed by respondents. The properties subject of the mortgage were sold for P10,776,242 at a public auction conducted on December 20, 2000 to Banco de Oro Universal Bank (hereafter petitioner) which was the highest bidder. It appears that respondents negotiated for the redemption of the mortgages for by a June 29, 2001 letter2 to them, petitioner, to which Dao Heng had been merged, through its Vice President on Property Management & Credit Services Department, advised respondent Lilia Laigo as follows: This is to formally advise you of the bank's response to your proposal pertaining to the redemption of the two (2) foreclosed lots located in Fairview, Quezon City as has been relayed to you last June 13, 2001 as follows: 1. Redemption price shall be P11.5MM plus 12% interest based on diminishing balance payable in staggered payments up to January 2, 2002 as follows: a. P3MM - immediately upon receipt of this approval b. Balance payable in staggered payments (plus interest) up to January 2, 2002 2. Release Values for Partial Redemption: a. TCT No. 92257 (along Commonwealth) P7.500 MM* b. TCT No. N-146289 (along Regalado) P4.000 MM* * excluding 12% interest 3. Other Conditions:

a. Payments shall be covered by post dated checks b. TCT No. 92257 shall be the first property to be released upon payment of the first P7.5MM plus interest c. Arrangement to be covered by an Agreement If you are agreeable to the foregoing terms and conditions, please affix your signature showing your conformity thereto at the space provided below. (Emphasis and underscoring in the original; italics supplied) Nothing was heard from respondents, hence, petitioner by its Manager, Property Management & Credit Services Department, advised her by letter of December 26, 20013 that in view of their failure to conform to the conditions set by it for the redemption of the properties, it would proceed to consolidate the titles immediately after the expiration of the redemption period on January 2, 2002. Six days before the expiration of the redemption period or on December 27, 2001, respondents filed a complaint before the Regional Trial Court (RTC) of Quezon City, for Annulment, Injunction with Prayer for Temporary Restraining Order (TRO), praying for the annulment of the foreclosure of the properties subject of the real estate mortgages and for them to be allowed "to deliver by way of dacion en pago' one of the mortgaged properties as full payment of [their] mortgaged obligation" and to, in the meantime, issue a TRO directing the defendant-herein petitioner to desist from consolidating ownership over their properties. By respondents' claim, Dao Heng verbally agreed to enter into a dacion en pago. In its Opposition to respondents' Application for a TRO,4 petitioner claimed that there was no meeting of the minds between the parties on the settlement of respondents' loan via dacion en pago. A hearing on the application for a TRO was conducted by Branch 215 of the RTC of Quezon City following which it denied the same. Petitioner thereupon filed a Motion to Dismiss the complaint on the ground that the claim on which respondents' action is founded is unenforceable under the Statute of Frauds and the complaint states no cause of action. Respondents opposed the motion, contending that their delivery of the titles to the mortgaged properties constituted partial performance of their obligation under the dacion en pago to take it out from the coverage of the Statute of Frauds.

The trial court granted petitioner's Motion to Dismiss in this wise: [P]laintiffs' claim must be based on a document or writing evidencing the alleged dacion en pago, otherwise, the same cannot be enforced in an action in court. The Court is not persuaded by plaintiffs' contention that their case is an exception to the operation of the rule on statute of frauds because of their partial performance of the obligation in the dacion en pago consisting of the delivery of the titles of the properties to the defendants. As correctly pointed out by the defendants, the titles were not delivered to them pursuant to the dacion en pago but by reason of the execution of the mortgage loan agreement. If indeed a dacion en pagoagreement was entered into between the parties, it is inconceivable that a written document would not be drafted considering the magnitude of the amount involved.5 (Emphasis and underscoring supplied) Respondents assailed the dismissal of their complaint via Petition for Review before this Court which referred it to the Court of Appeals for disposition. Reversing the trial court's dismissal of the complaint, the appellate court, by Decision of January 26, 2006,6 reinstated respondents' complaint.7 In ordering the reinstatement of respondents' complaint, the appellate court held that the complaint states a cause of action, respondents having alleged that there was partial performance of the agreement to settle their obligation via dacion en pago when they agreed to have the properties appraised to thus place their agreement within the exceptions provided under Article 14038 of the Civil Code on Statute of Frauds. Thus the appellate court ratiocinated: Particularly, in seeking exception to the application of the Statute of Frauds, petitioners[-herein respondents] averred partial performance of the supposed verbal dacion en pago. In paragraph 5 of their complaint, they stated: "As part of the agreement, defendant Dao Heng Bank had the mortgaged property appraised to determine which of the two shall be delivered as full payment of the mortgage obligation; Also as part of the deal, plaintiffs for their part paid P5,000.00 for the appraisal expense. As reported by the appraiser commissioned by Defendant Dao Heng, the appraised value of the mortgaged properties were as follows: x x x" Having done so, petitioners are at least entitled to a reasonable opportunity to prove their case in the course of a full trial, to which the respondents may equally present their evidence in refutation of the formers' case. (Underscoring supplied)

Petitioner's Motion for Reconsideration having been denied by the appellate court by Resolution of July 19, 2006, the present petition was filed faulting the appellate court in ruling: I. . . . THAT THE COMPLAINT ALLEGED A SUFFICIENT CAUSE OF ACTION DESPITE THE ALLEGATIONS, AS WELL AS ADMISSIONS FROM THE RESPONDENTS, THAT THERE WAS NO PERFECTED DACION EN PAGO CONTRACT; II. . . . THAT THE ALLEGED DACION EN PAGO IS NOT UNENFORCEABLE UNDER THE STATUTE OF FRAUDS, DESPITE THE ABSENCE OF A WRITTEN & BINDING CONTRACT; III. . . . THAT THE COMPLAINT SUFFICIENTLY STATED A CAUSE OF ACTION.9 Generally, the presence of a cause of action is determined from the facts alleged in the complaint. In their complaint, respondents alleged: xxxx 4. Sometime in the middle of the year 2000, defendant Dao Heng Bank as the creditor bank agreed to the full settlement of plaintiffs' mortgage obligation of P9 Million through the assignment of one of the two (2) mortgaged properties; [5] As part of the agreement, defendant Dao Heng Bank had the mortgaged properties appraised to determine which of the two (2) mortgaged properties shall be delivered as full payment of the mortgage obligation; Also as part of the deal, plaintiffs for their part paid P5,000.00 for the appraisal expense; As reported by the appraiser commissioned by defendant Dao Heng, the appraised value of the mortgaged properties were as follows: (a) Property No. 1 - T.C.T. No. 92257: P12,518,000.00 L2A Blk 12 Don Mariano Marcos Ave., Fairview, QC

(b) Property No. 2 - T.C.T. No. 146289: P8,055,000.00 L36 Blk 87 Regalado Ave. Cor. Ipil St., Neopolitan, QC [6] Sometime in December, year 2000, the protest of plaintiffs notwithstanding and in blatantbreach of the agreed "Dacion en pago" as the mode of full payment of plaintiffs' mortgage obligation, defendant Dao Heng Bank proceeded to foreclose the mortgaged properties above-described and sold said properties which were aggregately valued at more than P20 Million for only P10,776,242.00, an unconscionably very low price; (Underscoring supplied) Even if a complaint states a cause of action, however, a motion to dismiss for insufficiency of cause of action may be granted if the evidence discloses facts sufficient to defeat the claim and enables the court to go beyond the disclosures in the complaint. In such instances, the court can dismiss a complaint on this ground, even without a hearing, by taking into account the discussions in said motion to dismiss and the disposition thereto.10 In its Opposition to respondents' application for the issuance of a TRO,11 petitioner, responding to respondents' allegation that it agreed to the settlement of their obligation via the assignment of one of the two mortgaged properties, alleged that there was no meeting of the minds thereon: 4. Plaintiffs' claim that defendant Dao Heng Bank[s] foreclosure sale of the mortgaged properties was improper because there was an agreement to dacion one of the two (2) mortgaged properties as full settlement of the loan obligation and that defendant Dao Heng Bank and Banco de Oro were already negotiating and colluding for the latter's acquisition of the mortgaged [properties] for the unsconscionably low price of P10,776.242.00 are clearly WITHOUT BASIS. Quite to the contrary, there was no meeting of the minds between defendant Dao Heng Bank and the plaintiffs to dacion any of the mortgaged properties as full settlement of the loan. Although there was a PROPOSAL and NEGOTIATIONS to settle the loan by way of dacion, nothing came out of said proposal, much less did the negotiations mature into the execution of a dacion en pagoinstrument. Defendant Dao Heng Bank found the offer to settle by way of dacion not acceptable and thus, it opted to foreclose on the mortgage. The law clearly provides that "the debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value, or more valuable than that which is due" (Article 1244, New Civil Code). "The oblige is entitled to demand fulfillment of the

obligation or performance as stipulated" (Palmares v. Court of Appeals, 288 SCRA 422 at p. 444 [1998]). "The power to decide whether or not to foreclose on the mortgage is the sole prerogative of the mortgagee" (Rural Bank of San Mateo, Inc. vs. Intermediate Appellate Court, 146 SCRA 205, at 213 [1986]) Defendant Dao Heng Bank merely opted to exercise such prerogative.12(Emphasis in the original; capitalization and underscoring supplied) Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature of sale whereby property is alienated to the creditor in satisfaction of a debt in money.13 It is an objective novation of the obligation, hence, common consent of the parties is required in order to extinguish the obligation. . . . In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such the elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation."14 (Emphasis, italics and underscoring supplied; citation omitted) Being likened to that of a contract of sale, dacion en pago is governed by the law on sales.15 The partial execution of a contract of sale takes the transaction out of the provisions of the Statute of Frauds so long as the essential requisites of consent of the contracting parties, object and cause of the obligation concur and are clearly established to be present.16 Respondents claim that petitioner's commissioning of an appraiser to appraise the value of the mortgaged properties, his services for which they and petitioner paid, and their delivery to petitioner of the titles to the properties constitute partial performance of their agreement to take the case out of the provisions on the Statute of Frauds. There is no concrete showing, however, that after the appraisal of the properties, petitioner approved respondents' proposal to settle their obligation via dacion en pago. The delivery to petitioner of the titles to the

properties is a usual condition sine qua non to the execution of the mortgage, both for security and registration purposes. For if the title to a property is not delivered to the mortgagee, what will prevent the mortgagor from again encumbering it also by mortgage or even by sale to a third party. Finally, that respondents did not deny proposing to redeem the mortgages,17 as reflected in petitioner's June 29, 2001 letter to them, dooms their claim of the existence of a perfected dacion en pago. WHEREFORE, the Court of Appeals Decision of January 26, 2006 is REVERSED and SET ASIDE. The Resolution of July 2, 2002 of the Regional Trial Court of Quezon City, Branch 215 dismissing respondents' complaint is REINSTATED
Distinguished from Payment by Cession

G.R. No. 118342 January 5, 1998 DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and LYDIA CUBA, respondents. G.R. No. 118367 January 5, 1998 LYDIA P. CUBA, petitioner, vs. COURT OF APPEALS, DEVELOPMENT BANK OF THE PHILIPPINES and AGRIPINA P. CAPERAL, respondents.

DAVIDE, JR., J.: These two consolidated cases stemmed from a complaint 1 filed against the Development Bank of the Philippines (hereafter DBP) and Agripina Caperal filed by Lydia Cuba (hereafter CUBA) on 21 May 1985 with the Regional Trial Court of Pangasinan, Branch 54. The said complaint sought (1) the declaration of nullity of DBP's appropriation of CUBA's rights, title, and interests over a 44hectares fishpond located in Bolinao, Pangasinan, for being violative of Article 2088 of the Civil Code; (2) the annulment of the Deed of Conditional Sale executed in her favor by DBP; (3) the annulment of DBP's sale of the subject fishpond to Caperal; (4) the restoration of her rights, title, and interests over the fishpond; and (5) the recovery of damages, attorney's fees, and expenses of litigation. After the joinder of issues following the filing by the parties of their respective pleadings, the trial court conducted a pre-trial where CUBA and DBP agreed on the following facts, which were embodied in the pre-trial order: 2 1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new) dated May 13, 1974 from the Government;

2. Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Philippines in the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the Promissory Notes dated September 6, 1974; August 11, 1975; and April 4, 1977; 3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights; 4. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the terms of the Promissory Notes; 5. Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question; 6. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question, defendant DBP, in turn, executed a Deed of Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in question; 7. In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the Manager DBP, Dagupan City dated November 6, 1979 and December 20, 1979. DBP thereafter accepted the offer to repurchase in a letter addressed to plaintiff dated February 1, 1982; 8. After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a new Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her husband; 9. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale; 10. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional Sale, she entered with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba promised to make certain payments as stated in temporary Arrangement dated February 23, 1982; 11. Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13, 1984, and which was received by plaintiff Lydia Cuba; 12. After the Notice of Rescission, defendant DBP took possession of the Leasehold Rights of the fishpond in question; 13. That after defendant DBP took possession of the Leasehold Rights over the fishpond in question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24, 1984, to dispose of the property; 14. That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina Caperal on August 16, 1984; 15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A on December 28, 1984 by the Ministry of Agriculture and Food.

Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the pre-trial order. 3 Trial was thereafter had on other matters. The principal issue presented was whether the act of DBP in appropriating to itself CUBA's leasehold rights over the fishpond in question without foreclosure proceedings was contrary to Article 2088 of the Civil Code and, therefore, invalid. CUBA insisted on an affirmative resolution. DBP stressed that it merely exercised its contractual right under the Assignments of Leasehold Rights, which was not a contract of mortgage. Defendant Caperal sided with DBP. The trial court resolved the issue in favor of CUBA by declaring that DBP's taking possession and ownership of the property without foreclosure was plainly violative of Article 2088 of the Civil Code which provides as follows: Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void. It disagreed with DBP's stand that the Assignments of Leasehold Rights were not contracts of mortgage because (1) they were given as security for loans, (2) although the "fishpond land" in question is still a public land, CUBA's leasehold rights and interest thereon are alienable rights which can be the proper subject of a mortgage; and (3) the intention of the contracting parties to treat the Assignment of Leasehold Rights as a mortgage was obvious and unmistakable; hence, upon CUBA's default, DBP's only right was to foreclose the Assignment in accordance with law. The trial court also declared invalid condition no. 12 of the Assignment of Leasehold Rights for being a clear case of pactum commissorium expressly prohibited and declared null and void by Article 2088 of the Civil Code. It then concluded that since DBP never acquired lawful ownership of CUBA's leasehold rights, all acts of ownership and possession by the said bank were void. Accordingly, the Deed of Conditional Sale in favor of CUBA, the notarial rescission of such sale, and the Deed of Conditional Sale in favor of defendant Caperal, as well as the Assignment of Leasehold Rights executed by Caperal in favor of DBP, were also void and ineffective. As to damages, the trial court found "ample evidence on record" that in 1984 the representatives of DBP ejected CUBA and her caretakers not only from the fishpond area but also from the adjoining big house; and that when CUBA's son and caretaker went there on 15 September 1985, they found the said house unoccupied and destroyed and CUBA's personal belongings, machineries, equipment, tools, and other articles used in fishpond operation which were kept in the house were missing. The missing items were valued at about P550,000. It further found that when CUBA and her men were ejected by DBP for the first time in 1979, CUBA had stocked the fishpond with 250,000 pieces of bangus fish (milkfish), all of which died because the DBP representatives prevented CUBA's men from feeding the fish. At the conservative price of P3.00 per fish, the gross value would have been P690,000, and after deducting 25% of said value as reasonable allowance for the cost of feeds, CUBA suffered a loss of P517,500. It then set the aggregate of the actual damages sustained by CUBA at P1,067,500. The trial court further found that DBP was guilty of gross bad faith in falsely representing to the Bureau of Fisheries that it had foreclosed its mortgage on CUBA's leasehold rights. Such representation induced the said Bureau to terminate CUBA's leasehold rights and to approve the Deed of Conditional Sale in favor of CUBA. And considering that by reason of her unlawful ejectment by DBP, CUBA "suffered moral shock, degradation, social humiliation, and serious anxieties for which she became sick and had to be hospitalized" the trial court found her entitled to moral and exemplary damages. The trial court also held that CUBA was entitled to P100,000 attorney's fees in view of the considerable expenses she incurred for lawyers' fees and in view of the finding that she was entitled to exemplary damages. In its decision of 31 January 1990, 4 the trial court disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff: 1. DECLARING null and void and without any legal effect the act of defendant Development Bank of the Philippines in appropriating for its own interest, without any judicial or extra-judicial foreclosure, plaintiff's leasehold rights and interest over the fishpond land in question under her Fishpond Lease Agreement No. 2083 (new); 2. DECLARING the Deed of Conditional Sale dated February 21, 1980 by and between the defendant Development Bank of the Philippines and plaintiff (Exh. E and Exh. 1) and the acts of notarial rescission of the Development Bank of the Philippines relative to said sale (Exhs. 16 and 26) as void and ineffective; 3. DECLARING the Deed of Conditional Sale dated August 16, 1984 by and between the Development Bank of the Philippines and defendant Agripina Caperal (Exh. F and Exh. 21), the Fishpond Lease Agreement No. 2083-A dated December 28, 1984 of defendant Agripina Caperal (Exh. 23) and the Assignment of Leasehold Rights dated February 12, 1985 executed by defendant Agripina Caperal in favor of the defendant Development Bank of the Philippines (Exh. 24) as void ab initio; 4. ORDERING defendant Development Bank of the Philippines and defendant Agripina Caperal, jointly and severally, to restore to plaintiff the latter's leasehold rights and interests and right of possession over the fishpond land in question, without prejudice to the right of defendant Development Bank of the Philippines to foreclose the securities given by plaintiff; 5. ORDERING defendant Development Bank of the Philippines to pay to plaintiff the following amounts: a) The sum of ONE MILLION SIXTY-SEVEN THOUSAND FIVE HUNDRED PESOS (P1,067,500.00), as and for actual damages; b) The sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as moral damages; c) The sum of FIFTY THOUSAND (P50,000.00) PESOS, as and for exemplary damages; d) And the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS, as and for attorney's fees; 6. And ORDERING defendant Development Bank of the Philippines to reimburse and pay to defendant Agripina Caperal the sum of ONE MILLION FIVE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED TEN PESOS AND SEVENTY-FIVE CENTAVOS (P1,532,610.75) representing the amounts paid by defendant Agripina Caperal to defendant Development Bank of the Philippines under their Deed of Conditional Sale. CUBA and DBP interposed separate appeals from the decision to the Court of Appeals. The former sought an increase in the amount of damages, while the latter questioned the findings of fact and law of the lower court. In its decision 5 of 25 May 1994, the Court of Appeals ruled that (1) the trial court erred in declaring that the deed of assignment was null and void and that defendant Caperal could not validly acquire the leasehold rights from DBP; (2) contrary to the claim of DBP, the assignment

was not a cession under Article 1255 of the Civil Code because DBP appeared to be the sole creditor to CUBA cession presupposes plurality of debts and creditors; (3) the deeds of assignment represented the voluntary act of CUBA in assigning her property rights in payment of her debts, which amounted to a novation of the promissory notes executed by CUBA in favor of DBP; (4) CUBA was estopped from questioning the assignment of the leasehold rights, since she agreed to repurchase the said rights under a deed of conditional sale; and (5) condition no. 12 of the deed of assignment was an express authority from CUBA for DBP to sell whatever right she had over the fishpond. It also ruled that CUBA was not entitled to loss of profits for lack of evidence, but agreed with the trial court as to the actual damages of P1,067,500. It, however, deleted the amount of exemplary damages and reduced the award of moral damages from P100,000 to P50,000 and attorney's fees, from P100,000 to P50,000. The Court of Appeals thus declared as valid the following: (1) the act of DBP in appropriating Cuba's leasehold rights and interest under Fishpond Lease Agreement No. 2083; (2) the deeds of assignment executed by Cuba in favor of DBP; (3) the deed of conditional sale between CUBA and DBP; and (4) the deed of conditional sale between DBP and Caperal, the Fishpond Lease Agreement in favor of Caperal, and the assignment of leasehold rights executed by Caperal in favor of DBP. It then ordered DBP to turn over possession of the property to Caperal as lawful holder of the leasehold rights and to pay CUBA the following amounts: (a) P1,067,500 as actual damages; P50,000 as moral damages; and P50,000 as attorney's fees. Since their motions for reconsideration were denied, 6 DBP and CUBA filed separate petitions for review. In its petition (G.R. No. 118342), DBP assails the award of actual and moral damages and attorney's fees in favor of CUBA. Upon the other hand, in her petition (G.R. No. 118367), CUBA contends that the Court of Appeals erred (1) in not holding that the questioned deed of assignment was a pactum commissorium contrary to Article 2088 of the Civil Code; (b) in holding that the deed of assignment effected a novation of the promissory notes; (c) in holding that CUBA was estopped from questioning the validity of the deed of assignment when she agreed to repurchase her leasehold rights under a deed of conditional sale; and (d) in reducing the amounts of moral damages and attorney's fees, in deleting the award of exemplary damages, and in not increasing the amount of damages. We agree with CUBA that the assignment of leasehold rights was a mortgage contract. It is undisputed that CUBA obtained from DBP three separate loans totalling P335,000, each of which was covered by a promissory note. In all of these notes, there was a provision that: "In the event of foreclosure of the mortgagesecuring this notes, I/We further bind myself/ourselves, jointly and severally, to pay the deficiency, if any." 7 Simultaneous with the execution of the notes was the execution of "Assignments of Leasehold Rights" 8 where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond, together with the improvements thereon. As pointed out by CUBA, the deeds of assignment constantly referred to the assignor (CUBA) as "borrower"; the assigned rights, as mortgaged properties; and the instrument itself, as mortgage contract. Moreover, under condition no. 22 of the deed, it was provided that "failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and all mortgages shall be foreclosed." And, condition no. 33 provided that if "foreclosure is actually accomplished, the usual 10% attorney's fees and 10% liquidated damages of the total obligation shall be imposed." There is, therefore, no shred of doubt that a mortgage was intended. Besides, in their stipulation of facts the parties admitted that the assignment was by way of security for the payment of the loans; thus:

3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights. In People's Bank & Trust Co. vs. Odom, 9 this Court had the occasion to rule that an assignment to guarantee an obligation is in effect a mortgage. We find no merit in DBP's contention that the assignment novated the promissory notes in that the obligation to pay a sum of money the loans (under the promissory notes) was substituted by the assignment of the rights over the fishpond (under the deed of assignment). As correctly pointed out by CUBA, the said assignment merely complemented or supplemented the notes; both could stand together. The former was only an accessory to the latter. Contrary to DBP's submission, the obligation to pay a sum of money remained, and the assignment merely served as security for the loans covered by the promissory notes. Significantly, both the deeds of assignment and the promissory notes were executed on the same dates the loans were granted. Also, the last paragraph of the assignment stated: "The assignor further reiterates and states all terms, covenants, and conditions stipulated in the promissory note or notes covering the proceeds of this loan, making said promissory note or notes, to all intent and purposes, an integral part hereof." Neither did the assignment amount to payment by cession under Article 1255 of the Civil Code for the plain and simple reason that there was only one creditor, the DBP. Article 1255 contemplates the existence of two or more creditors and involves the assignment of all the debtor's property. Nor did the assignment constitute dation in payment under Article 1245 of the civil Code, which reads: "Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales." It bears stressing that the assignment, being in its essence a mortgage, was but a security and not a satisfaction of indebtedness. 10 We do not, however, buy CUBA's argument that condition no. 12 of the deed of assignment constituted pactum commissorium. Said condition reads: 12. That effective upon the breach of any condition of this assignment, the Assignor hereby appoints the Assignee his Attorney-in-fact with full power and authority to take actual possession of the property above-described, together with all improvements thereon, subject to the approval of the Secretary of Agriculture and Natural Resources, to lease the same or any portion thereof and collect rentals, to make repairs or improvements thereon and pay the same, to sell or otherwise dispose of whatever rights the Assignor has or might have over said property and/or its improvements and perform any other act which the Assignee may deem convenient to protect its interest. All expenses advanced by the Assignee in connection with purpose above indicated which shall bear the same rate of interest aforementioned are also guaranteed by this Assignment. Any amount received from rents, administration, sale or disposal of said property may be supplied by the Assignee to the payment of repairs, improvements, taxes, assessments and other incidental expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness secured hereby. If after disposal or sale of said property and upon application of total amounts received there shall remain a deficiency, said Assignor hereby binds himself to pay the same to the Assignee upon demand, together with all interest thereon until fully paid. The power herein granted shall not be revoked as long as the Assignor is indebted to the Assignee and all acts that may be executed by the Assignee by virtue of said power are hereby ratified. The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation

for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period. 11 Condition no. 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBA's failure to pay the loan on time. It merely provided for the appointment of DBP as attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by CUBA, and to apply the proceeds to the payment of the loan. This provision is a standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the principal obligation. DBP, however, exceeded the authority vested by condition no. 12 of the deed of assignment. As admitted by it during the pre-trial, it had "[w]ithout foreclosure proceedings, whether judicial or extrajudicial, . . . appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba over the fishpond in question." Its contention that it limited itself to mere administration by posting caretakers is further belied by the deed of conditional sale it executed in favor of CUBA. The deed stated: WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in its favor by the herein vendees [Cuba spouses] the former acquired all the right and interest of the latter over the above-described property; xxx xxx xxx The title to the real estate property [sic] and all improvements thereon shall remain in the name of the Vendor until after the purchase price, advances and interest shall have been fully paid. (Emphasis supplied). It is obvious from the above-quoted paragraphs that DBP had appropriated and taken ownership of CUBA's leasehold rights merely on the strength of the deed of assignment. DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of appropriating the leasehold rights. As stated earlier, condition no. 12 did not provide that CUBA's default would operate to vest in DBP ownership of the said rights. Besides, an assignment to guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute conveyance of title which confers ownership on the assignee. 12 At any rate, DBP's act of appropriating CUBA's leasehold rights was violative of Article 2088 of the Civil Code, which forbids a credit or from appropriating, or disposing of, the thing given as security for the payment of a debt. The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not estop her from questioning DBP's act of appropriation. Estoppel is unavailing in this case. As held by this Court in some cases, 13estoppel cannot give validity to an act that is prohibited by law or against public policy. Hence, the appropriation of the leasehold rights, being contrary to Article 2088 of the Civil Code and to public policy, cannot be deemed validated by estoppel. Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should have foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of assignment. But, as admitted by DBP, there was no such foreclosure. Yet, in its letter dated 26 October 1979, addressed to the Minister of Agriculture and Natural Resources and coursed through the Director of the Bureau of Fisheries and Aquatic Resources, DBP declared that it "had foreclosed the mortgage and enforced the assignment of leasehold rights on March 21, 1979 for failure of said spouses [Cuba spouces] to pay their loan amortizations." 14 This only goes to show that DBP was aware of the necessity of foreclosure proceedings.

In view of the false representation of DBP that it had already foreclosed the mortgage, the Bureau of Fisheries cancelled CUBA's original lease permit, approved the deed of conditional sale, and issued a new permit in favor of CUBA. Said acts which were predicated on such false representation, as well as the subsequent acts emanating from DBP's appropriation of the leasehold rights, should therefore be set aside. To validate these acts would open the floodgates to circumvention of Article 2088 of the Civil Code. Even in cases where foreclosure proceedings were had, this Court had not hesitated to nullify the consequent auction sale for failure to comply with the requirements laid down by law, such as Act No. 3135, as amended. 15With more reason that the sale of property given as security for the payment of a debt be set aside if there was no prior fore closure proceeding. Hence, DBP should render an accounting of the income derived from the operation of the fishpond in question and apply the said income in accordance with condition no. 12 of the deed of assignment which provided: "Any amount received from rents, administration, . . . may be applied to the payment of repairs, improvements, taxes, assessment, and other incidental expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness. . ." We shall now take up the issue of damages. Article 2199 provides: Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages. Actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty.16 A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. 17 It must point out specific facts which could afford a basis for measuring whatever compensatory or actual damages are borne. 18 In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual damages consisting of P550,000 which represented the value of the alleged lost articles of CUBA and P517,500 which represented the value of the 230,000 pieces of bangus allegedly stocked in 1979 when DBP first ejected CUBA from the fishpond and the adjoining house. This award was affirmed by the Court of Appeals. We find that the alleged loss of personal belongings and equipment was not proved by clear evidence. Other than the testimony of CUBA and her caretaker, there was no proof as to the existence of those items before DBP took over the fishpond in question. As pointed out by DBP, there was not "inventory of the alleged lost items before the loss which is normal in a project which sometimes, if not most often, is left to the care of other persons." Neither was a single receipt or record of acquisition presented. Curiously, in her complaint dated 17 May 1985, CUBA included "losses of property" as among the damages resulting from DBP's take-over of the fishpond. Yet, it was only in September 1985 when her son and a caretaker went to the fishpond and the adjoining house that she came to know of the alleged loss of several articles. Such claim for "losses of property," having been made before knowledge of the alleged actual loss, was therefore speculative. The alleged loss could have been a mere afterthought or subterfuge to justify her claim for actual damages. With regard to the award of P517,000 representing the value of the alleged 230,000 pieces of bangus which died when DBP took possession of the fishpond in March 1979, the same was not

called for. Such loss was not duly proved; besides, the claim therefor was delayed unreasonably. From 1979 until after the filing of her complaint in court in May 1985, CUBA did not bring to the attention of DBP the alleged loss. In fact, in her letter dated 24 October 1979, 19 she declared: 1. That from February to May 1978, I was then seriously ill in Manila and within the same period I neglected the management and supervision of the cultivation and harvest of the produce of the aforesaid fishpond thereby resulting to the irreparable loss in the produce of the same in the amount of about P500,000.00 to my great damage and prejudice due to fraudulent acts of some of my fishpond workers. Nowhere in the said letter, which was written seven months after DBP took possession of the fishpond, did CUBA intimate that upon DBP's take-over there was a total of 230,000 pieces of bangus, but all of which died because of DBP's representatives prevented her men from feeding the fish. The award of actual damages should, therefore, be struck down for lack of sufficient basis. In view, however, of DBP's act of appropriating CUBA's leasehold rights which was contrary to law and public policy, as well as its false representation to the then Ministry of Agriculture and Natural Resources that it had "foreclosed the mortgage," an award of moral damages in the amount of P50,000 is in order conformably with Article 2219(10), in relation to Article 21, of the Civil Code. Exemplary or corrective damages in the amount of P25,000 should likewise be awarded by way of example or correction for the public good. 20 There being an award of exemplary damages, attorney's fees are also recoverable. 21 WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-G.R. CV No. 26535 is hereby REVERSED, except as to the award of P50,000 as moral damages, which is hereby sustained. The 31 January 1990 Decision of the Regional Trial Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is MODIFIED setting aside the finding that condition no. 12 of the deed of assignment constituted pactum commissorium and the award of actual damages; and by reducing the amounts of moral damages from P100,000 to P50,000; the exemplary damages, from P50,000 to P25,000; and the attorney's fees, from P100,000 to P20,000. The Development Bank of the Philippines is hereby ordered to render an accounting of the income derived from the operation of the fishpond in question. Let this case be REMANDED to the trial court for the reception of the income statement of DBP, as well as the statement of the account of Lydia P. Cuba, and for the determination of each party's financial obligation to one another. SO ORDERED. Bellosillo, Vitug and Kapunan, JJ., concur. Footnotes

Distinguished from Contract of Agency to Sell

G.R. No. L-11491 August 23, 1918

ANDRES QUIROGA, plaintiff-appellant, vs. PARSONS HARDWARE CO., defendant-appellee.

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. Crossfield & O'Brien for appellee. AVANCEA, J.: On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part: CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions: (A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles. (B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment. (C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons. (D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice. The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash. (E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given. (F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds. ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group. ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval.

ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party. Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal and both substantially amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds. In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. However, according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his

classification of the contract. But it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we have said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement. In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will. For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law. The judgment appealed from is affirmed, with costs against the appellant. So ordered. Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.

The Lawphil Project - Arellano Law Foundation

G.R. No. L-20871 April 30, 1971 KER & CO., LTD., petitioner, vs. JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent. Ross, Selph and Carrascoso for petitioner. Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Atty. Balbino Gatdula, Jr. for respondent.

FERNANDO, J.:

Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea, notwithstanding the vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable stands in the way. The decision under review conforms to and is in accordance with the controlling doctrine announced in the recent case of Commissioner of Internal Revenue v. Constantino. 1 The decisive test, as therein set forth, is the retention of the ownership of the goods delivered to the possession of the dealer, like herein petitioner, for resale to customers, the price and terms remaining subject to the control of the firm consigning such goods. The facts, as found by respondent Court, to which we defer, unmistakably indicate that such a situation does exist. The juridical consequences must inevitably follow. We affirm. It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and compromise penalty for the period from July 1, 1949 to December 31, 1953. There was a request on the part of petitioner for the cancellation of such assessment, which request was turned down. As a result, it filed a petition for review with the Court of Tax Appeals. In its answer, the then Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a commercial broker. In the decision now under review, promulgated on October 19, 1962, the Court of Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount due from it being fixed at P19,772.33. Such liability arose from a contract of petitioner with the United States Rubber International, the former being referred to as the Distributor and the latter specifically designated as the Company. The contract was to apply to transactions between the former and petitioner, as Distributor, from July 1, 1948 to continue in force until terminated by either party giving to the other sixty days' notice. 2 The shipments would cover products "for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao", petitioner, as Distributor, being precluded from disposing such products elsewhere than in the above places unless written consent would first be obtained from the Company. 3 Petitioner, as Distributor, is required to exert every effort to have the shipment of the products in the maximum quantity and to promote in every way the sale thereof. 4 The prices, discounts, terms of payment, terms of delivery and other conditions of sale were subject to change in the discretion of the Company. 5 Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the Distributor will receive, accept and/or hold upon consignment the products specified under the terms of this agreement in such quantities as in the judgment of the Company may be necessary for the successful solicitation and maintenance of business in the territory, and the Distributor agrees that responsibility for the final sole of all goods delivered shall rest with him. All goods on consignment shall remain the property of the Company until sold by the Distributor to the purchaser or purchasers, but all sales made by the Distributor shall be in his name, in which the sale price of all goods sold less the discount given to the Distributor by the Company in accordance with the provision of paragraph 13 of this agreement, whether or not such sale price shall have been collected by the Distributor from the purchaser or purchasers, shall immediately be paid and remitted by the Distributor to the Company. It is further agreed that this agreement does not constitute Distributor the agent or legal representative 4 of the Company for any purpose whatsoever. Distributor is not granted any right or authority to assume or to create any obligation or responsibility, express or implied, in behalf of or in the name of the Company, or to bind the Company in any manner or thing whatsoever." 6 All specifications for the goods ordered were subject to acceptance by the Company with petitioner, as Distributor, required to accept such goods shipped as well as to clear the same through customs and to arrange for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from the stocks carried by the Company's neighboring branches, subsidiaries or other sources of Company's brands. 7 Shipments were to be invoiced at prices to be agreed upon, with the customs duties being paid by petitioner, as Distributor, for account of the Company. 8 Moreover, all resale prices, lists, discounts and general terms and conditions of local resale were to be subject to the approval of the Company and to change from time to time in

its discretion. 9 The dealer, as Distributor, is allowed a discount of ten percent on the net amount of sales of merchandise made under such agreement. 10 On a date to be determined by the Company, the petitioner, as Distributor, was required to report to it data showing in detail all sales during the month immediately preceding, specifying therein the quantities, sizes and types together with such information as may be required for accounting purposes, with the Company rendering an invoice on sales as described to be dated as of the date of inventory and sales report. As Distributor, petitioner had to make payment on such invoice or invoices on due date with the Company being privileged at its option to terminate and cancel the agreement forthwith upon the failure to comply with this obligation. 11 The Company, at its own expense, was to keep the consigned stock fully insured against loss or damage by fire or as a result of fire, the policy of such insurance to be payable to it in the event of loss. Petitioner, as Distributor, assumed full responsibility with reference to the stock and its safety at all times; and upon request of the Company at any time, it was to render inventory of the existing stock which could be subject to change. 12 There was furthermore this equally tell-tale covenant: "Upon the termination or any cancellation of this agreement all goods held on consignment shall be held by the Distributor for the account of the Company, without expense to the Company, until such time as provision can be made by the Company for disposition." 13 The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is one of vendor and vendee or of broker and principal. Not that there would have been the slightest doubt were it not for the categorical denial in the contract that petitioner was not constituted as "the agent or legal representative of the Company for any purpose whatsoever." It would be, however, to impart to such an express disclaimer a meaning it should not possess to ignore what is manifestly the role assigned to petitioner considering the instrument as a whole. That would be to lose sight altogether of what has been agreed upon. The Court of Tax Appeals was not misled in the language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an agent of U.S. Rubber International is borne out by the facts that petitioner can dispose of the products of the Company only to certain persons or entities and within stipulated limits, unless excepted by the contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon consignment the products, which remain properties of the latter company (Par. 8); that every effort shall be made by petitioner to promote in every way the sale of the products (Par. 3); that sales made by petitioner are subject to approval by the company (Par. 12); that on dates determined by the rubber company, petitioner shall render a detailed report showing sales during the month (Par. 14); that the rubber company shall invoice the sales as of the dates of inventory and sales report (Par. 14); that the rubber company agrees to keep the consigned goods fully insured under insurance policies payable to it in case of loss (Par. 15); that upon request of the rubber company at any time, petitioner shall render an inventory of the existing stock which may be checked by an authorized representative of the former (Par. 15); and that upon termination or cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the account of the rubber company until their disposition is provided for by the latter (Par. 19). All these circumstances are irreconcilably antagonistic to the idea of an independent merchant." 14 Hence its conclusion: "However, upon analysis of the contract, as a whole, together with the actual conduct of the parties in respect thereto, we have arrived at the conclusion that the relationship between them is one of brokerage or agency." 15 We find ourselves in agreement, notwithstanding the able brief filed on behalf of petitioner by its counsel. As noted at the outset, we cannot heed petitioner's plea for reversal. 1. According to the National Internal Revenue Code, a commercial broker "includes all persons, other than importers, manufacturers, producers, or bona fide employees, who, for compensation or profit, sell or bring about sales or purchases of merchandise for other persons or bring proposed buyers and sellers together, or negotiate freights or other business for owners of vessels or other means of transportation, or for the shippers, or consignors or consignees of freight carried by vessels or other means of transportation. The term includes commission merchants." 16 The controlling decision as to the test to be followed as to who falls within the above definition of a commercial broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the language of Justice J. B. L. Reyes, who penned the opinion: "Since the company retained ownership of the goods, even as it delivered possession unto the dealer for

resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support of such a view follows: " 'The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made.' "20 The opinion relied on the work of Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote treatises on Sales, were likewise referred to. Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity or presence of these mutual requirements and obligations on any theory other than that of a contract of agency. Salisbury was to furnish the mill and put the timber owned by him into a marketable condition in the form of lumber; Brooks was to furnish the funds necessary for that purpose, sell the manufactured product, and account therefor to Salisbury upon the specific terms of the agreement, less the compensation fixed by the parties in lieu of interest on the money advanced and for services as agent. These requirements and stipulations are in tent with any other conception of the contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be ignored. They were placed there for some purpose, doubtless as the result of definite antecedent negotiations therefore, consummated by the final written expression of the agreement." 21 Hence the Constantino opinion could categorically affirm that the mere disclaimer in a contract that an entity like petitioner is not "the agent or legal representative for any purpose whatsoever" does not suffice to yield the conclusion that it is an independent merchant if the control over the goods for resale of the goods consigned is pervasive in character. The Court of Tax Appeals decision now under review pays fealty to such an applicable doctrine. 2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals. Neither did such Court fail to appreciate in its true significance the act and conduct pursued in the implementation of the contract by both the United States Rubber International and petitioner, as was contended in the second assignment of error. Petitioner ought to have been aware that there was no need for such an inquiry. The terms of the contract, as noted, speak quite clearly. There is lacking that degree of ambiguity sufficient to give rise to serious doubt as to what was contemplated by the parties. A reading thereof discloses that the relationship arising therefrom was not one of seller and purchaser. If it were thus intended, then it would not have included covenants which in their totality would negate the concept of a firm acquiring as vendee goods from another. Instead, the stipulations were so worded as to lead to no other conclusion than that the control by the United States Rubber International over the goods in question is, in the language of the Constantino opinion, "pervasive". The insistence on a relationship opposed to that apparent from the language employed might even yield the impression that such a mode of construction was resorted to in order that the applicability of a taxing statute might be rendered nugatory. Certainly, such a result is to be avoided. Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has developed an expertise in view of its function being limited solely to the interpretation of revenue laws, this Court is not prepared to substitute its own judgment unless a grave abuse of discretion is manifest. It would be to frustrate the objective for which administrative tribunals are created if the judiciary, absent such a showing, is to ignore their appraisal on a matter that forms the staple of their specialized competence. While it is to be admitted that counsel for petitioner did scrutinize with care the decision under review with a view to exposing what was considered its flaws, it cannot be said that there was such a failure to apply what the law commands as to call for its reversal. Instead, what cannot be denied is that the Court of Tax Appeals reached a result to which the Court in the recent Constantino decision gave the imprimatur of its approval.

WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs against petitioner. Concepcion C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

Footnotes Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-34338 November 21, 1984 LOURDES VALERIO LIM, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. RELOVA, J.: Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4) months as maximum, to indemnify the offended party in the amount of P559.50, with subsidize imprisonment in case of insolvency, and to pay the costs." (p. 14, Rollo) From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of the lower court but modified the penalty imposed by sentencing her "to suffer an indeterminate penalty of one (1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1) day of prision correccional as maximum, to indemnify the complainant in the amount of P550.50 without subsidiary imprisonment, and to pay the costs of suit." (p. 24, Rollo) The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell or a contract of sale of the subject tobacco between petitioner and the complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability of petitioner for the crime charged. The findings of facts of the appellate court are as follows: ... The appellant is a businesswoman. On January 10, 1966, the appellant went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she could sell the tobacco. This agreement was made in the presence of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads: To Whom It May Concern: This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo. The proceed in the

amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be given to her as soon as it was sold. This was signed by the appellant and witnessed by the complainant's sister, Salud Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that time was bringing a jeep, and the tobacco was loaded in the jeep and brought by the appellant. Of the total value of P799.50, the appellant had paid to Ayroso only P240.00, and this was paid on three different times. Demands for the payment of the balance of the value of the tobacco were made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug further testified that she had gone to the house of the appellant several times, but the appellant often eluded her; and that the "camarin" the appellant was empty. Although the appellant denied that demands for payment were made upon her, it is a fact that on October 19, 1966, she wrote a letter to Salud Bantug which reads as follows: Dear Salud, Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil kong pera, magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay makapagbigay man lang ako ng marami para hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon. Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng pera. Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala at tiyak na babayaran kita. Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).

Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of P240.00. As no further amount was paid, the complainant filed a complaint against the appellant for estafa. (pp. 14, 15, 16, Rollo) In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to wit: 1. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore, immediately demandable as soon as the tobacco was sold" (Decision, p. 6) as against the theory of the petitioner that the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended in which case the only action that can be maintained is a petition to ask the court to fix the duration thereof; 2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. 1197 of the New Civil Code does not apply" as against the alternative theory

of the petitioner that the fore. going receipt (Exhibit "A") gives rise to an obligation wherein the duration of the period depends upon the will of the debtor in which case the only action that can be maintained is a petition to ask the court to fix the duration of the period; and 3. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing receipt is a contract of agency to sell as against the theory of the petitioner that it is a contract of sale. (pp. 3-4, Rollo) It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply. Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be paid the commission if the goods were sold, the Court of Appeals correctly resolved the matter as follows: ... Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling Ayroso's tobacco, the appellant herself admitted that there was an agreement that upon the sale of the tobacco she would be given something. The appellant is a businesswoman, and it is unbelievable that she would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had brought if she did not intend to make a profit out of the transaction. Certainly, if she was doing a favor to Maria Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not have been the appellant who would have gone to the house of Ayroso, but it would have been Ayroso who would have gone to the house of the appellant and deliver the tobacco to the appellant. (p. 19, Rollo) The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A') constituted her as an agent with the obligation to return the tobacco if the same was not sold. ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs. SO ORDERED. Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and De la Fuente, JJ., concur.

Distinguished from a contract for a piece of work G.R. No. L-8506 August 31, 1956

CELESTINO CO & COMPANY, petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent. Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General Guillermo E. Torres and Solicitor Federico V. Sian for respondent.

BENGZON, J.: Appeal from a decision of the Court of Tax Appeals. Celestino Co & Company is a duly registered general copartnership doing business under the trade name of "Oriental Sash Factory". From 1946 to 1951 it paid percentage taxes of 7 per cent on the gross receipts of its sash, door and window factory, in accordance with section one hundred eighty-six of the National Revenue Code imposing taxes on sale of manufactured articles. However in 1952 it began to claim liability only to the contractor's 3 per cent tax (instead of 7 per cent) under section 191 of the same Code; and having failed to convince the Bureau of Internal Revenue, it brought the matter to the Court of Tax Appeals, where it also failed. Said the Court: To support his contention that his client is an ordinary contractor . . . counsel presented . . . duplicate copies of letters, sketches of doors and windows and price quotations supposedly sent by the manager of the Oriental Sash Factory to four customers who allegedly made special orders to doors and window from the said factory. The conclusion that counsel would like us to deduce from these few exhibits is that the Oriental Sash Factory does not manufacture ready-made doors, sash and windows for the public but only upon special order of its select customers. . . . I cannot believe that petitioner company would take, as in fact it has taken, all the trouble and expense of registering a special trade name for its sash business and then orders company stationery carrying the bold print "Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes, furniture, etc. used season-dried and kiln-dried lumber, of the best quality workmanships" solely for the purpose of supplying the needs for doors, windows and sash of its special and limited customers. One ill note that petitioner has chosen for its tradename and has offered itself to the public as a "Factory", which means it is out to do business, in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors and windows of special design only in particular cases but the bulk of their sales is derived from a readymade doors and windows of standard sizes for the average home. Moreover, as shown from the investigation of petitioner's book of accounts, during the period from January 1, 1952 to September 30, 1952, it sold sash, doors and windows worth P188,754.69. I find it difficult to believe that this amount which runs to six figures was derived by petitioner entirely from its few customers who made special orders for these items. Even if we were to believe petitioner's claim that it does not manufacture ready-made sash, doors and windows for the public and that it makes these articles only special order of its customers, that does not make it a contractor within the purview of section 191 of the national Internal Revenue Code. there are no less than fifty occupations enumerated in the aforesaid section of the national Internal Revenue Code subject to percentage tax and after reading carefully each and every one of them, we cannot find under which the business of manufacturing sash, doors and windows upon special order of customers fall under the category of "road, building, navigation, artesian well, water workers and other construction work contractors" are those who alter or repair buildings, structures, streets, highways, sewers, street railways railroads logging roads, electric lines or power lines, and includes any other work for the construction, altering or repairing for which machinery driven by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68). Having thus eliminated the feasibility off taxing petitioner as a contractor under 191 of the national Internal Revenue Code, this leaves us to decide the remaining issue whether or not petitioner could be taxed with lesser strain and more accuracy as seller of its manufactured articles under section 186 of the same code, as the respondent Collector of Internal Revenue has in fact been doing the Oriental Sash Factory was established in 1946.

The percentage tax imposed in section 191 of our Tax Code is generally a tax on the sales of services, in contradiction with the tax imposed in section 186 of the same Code which is a tax on the original sales of articles by the manufacturer, producer or importer. (Formilleza's Commentaries and Jurisprudence on the National Internal Revenue Code, Vol. II, p. 744). The fact that the articles sold are manufactured by the seller does not exchange the contract from the purview of section 186 of the National Internal Revenue Code as a sale of articles. There was a strong dissent; but upon careful consideration of the whole matter are inclines to accept the above statement of the facts and the law. The important thing to remember is that Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such orders as called for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture. Perhaps the following paragraph represents in brief the appellant's position in this Court: Since the petitioner, by clear proof of facts not disputed by the respondent, manufacturers sash, windows and doors only for special customers and upon their special orders and in accordance with the desired specifications of the persons ordering the same and not for the general market: since the doors ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence and which never would have existed but for the order of the party desiring it; and since petitioner's contractual relation with his customers is that of a contract for a piece of work or since petitioner is engaged in the sale of services, it follows that the petitioner should be taxed under section 191 of the Tax Code and NOT under section 185 of the same Code." (Appellant's brief, p. 11-12). But the argument rests on a false foundation. Any builder or homeowner, with sufficient money, may order windows or doors of the kind manufactured by this appellant. Therefore it is not true that it serves special customers only or confines its services to them alone. And anyone who sees, and likes, the doors ordered by Don Toribio Teodoro & Sons Inc. may purchase from appellant doors of the same kind, provided he pays the price. Surely, the appellant will not refuse, for it can easily duplicate or even mass-produce the same doors-it is mechanically equipped to do so. That the doors and windows must meet desired specifications is neither here nor there. If these specifications do not happen to be of the kind habitually manufactured by appellant special forms for sash, mouldings of panels it would not accept the order and no sale is made. If they do, the transaction would be no different from a purchasers of manufactured goods held is stock for sale; they are bought because they meet the specifications desired by the purchaser. Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer-sizes not previously held in stock for sale to the public-it thereby becomes an employee or servant of the customer,1 not the seller of lumber. The same consideration applies to this sash manufacturer. The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and combining them in such forms as its customers may desire. On the other hand, petitioner's idea of being a contractor doing construction jobs is untenable. Nobody would regard the doing of two window panels a construction work in common parlance.2

Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders for windows and doors according to specifications, it did not sell, but merely contracted for particular pieces of work or "merely sold its services". Said article reads as follows: A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is contract for a piece of work. It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don Toribio Teodoro & Co. (To take one instance) because it also sold the materials. The truth of the matter is that it sold materials ordinarily manufactured by it sash, panels, mouldings to Teodoro & Co., although in such form or combination as suited the fancy of the purchaser. Such new form does not divest the Oriental Sash Factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 above quoted, because although the Factory does not, in the ordinary course of its business, manufacture and keep on stockdoors of the kind sold to Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used therefor (some of them at least). In our opinion when this Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it-it thereby contracts for a piece of work filing special orders within the meaning of Article 1467. The orders herein exhibited were not shown to be special. They were merely orders for work nothing is shown to call them special requiring extraordinary service of the factory. The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders previously made, such orders should not be called special work, but regular work. Would a factory do business performing only special, extraordinary or peculiar merchandise? Anyway, supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. But as the doors and windows had been admittedly "manufactured" by the Oriental Sash Factory, such transactions could be, and should be taxed as "transfers" thereof under section 186 of the National Revenue Code. The appealed decision is consequently affirmed. So ordered. Paras, C. J., Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix, JJ., concur. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-27044 June 30, 1975 THE COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF TAX APPEALS, respondents. G.R. No. L-27452 June 30, 1975 ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, respondent. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel H. Montalino for Commissioner of Internal Revenue, etc. Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and J.R. Balonkita for Engineering and Supply Company.

ESGUERRA, J.: Petition for review on certiorari of the decision of the Court of Tax Appeals in CTA Case No. 681, dated November 29, 1966, assessing a compensating tax of P174,441.62 on the Engineering Equipment and Supply Company. As found by the Court of Tax Appeals, and as established by the evidence on record, the facts of this case are as follows: Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an engineering and machinery firm. As operator of an integrated engineering shop, it is engaged, among others, in the design and installation of central type air conditioning system, pumping plants and steel fabrications. (Vol. I pp. 12-16 T.S.N. August 23, 1960) On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenue denouncing Engineering for tax evasion by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers (Exh. "2" p. 1 BIR record Vol. I). Engineering was likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. Acting on these denunciations, a raid and search was conducted by a joint team of Central Bank, (CB), National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on September 27, 1956, on which occasion voluminous records of the firm were seized and confiscated. (pp. 173-177 T.S.N.) On September 30, 1957, revenue examiners Quesada and Catudan reported and recommended to the then Collector, now Commissioner, of Internal Revenue (hereinafter referred to as Commissioner) that Engineering be assessed for P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its importation of air conditioning units and parts and accessories thereof which are subject to tax under Section 185(m) 1 of the Tax Code, instead of Section 186 of the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This assessment was revised on January 23, 1959, in line with the observation of the Chief, BIR Law Division, and was raised to P916,362.56 representing deficiency advance sales tax and manufacturers sales tax, inclusive of the 25% and 50% surcharges. (pp. 72-80 BIR rec. Vol. I) On March 3, 1959. the Commissioner assessed against, and demanded upon, Engineering payment of the increased amount and suggested that P10,000 be paid as compromise in

extrajudicial settlement of Engineering's penal liability for violation of the Tax Code. The firm, however, contested the tax assessment and requested that it be furnished with the details and particulars of the Commissioner's assessment. (Exh. "B" and "15", pp. 86-88 BIR rec. Vol. I) The Commissioner replied that the assessment was in accordance with law and the facts of the case. On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals and during the pendency of the case the investigating revenue examiners reduced Engineering's deficiency tax liabilities from P916,362.65 to P740,587.86 (Exhs. "R" and "9" pp. 162-170, BIR rec.), based on findings after conferences had with Engineering's Accountant and Auditor. On November 29, 1966, the Court of Tax Appeals rendered its decision, the dispositive portion of which reads as follows: For ALL THE FOREGOING CONSIDERATIONS, the decision of respondent appealed from is hereby modified, and petitioner, as a contractor, is declared exempt from the deficiency manufacturers sales tax covering the period from June 1, 1948. to September 2, 1956. However, petitioner is ordered to pay respondent, or his duly authorized collection agent, the sum of P174,141.62 as compensating tax and 25% surcharge for the period from 1953 to September 1956. With costs against petitioner. The Commissioner, not satisfied with the decision of the Court of Tax Appeals, appealed to this Court on January 18, 1967, (G.R. No. L-27044). On the other hand, Engineering, on January 4, 1967, filed with the Court of Tax Appeals a motion for reconsideration of the decision abovementioned. This was denied on April 6, 1967, prompting Engineering to file also with this Court its appeal, docketed as G.R. No. L-27452. Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same parties and issues, We have decided to consolidate and jointly decide them. Engineering in its Petition claims that the Court of Tax Appeals committed the following errors: 1. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the 30% compensating tax on its importations of equipment and ordinary articles used in the central type air conditioning systems it designed, fabricated, constructed and installed in the buildings and premises of its customers, rather than to the compensating tax of only 7%; 2. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company guilty of fraud in effecting the said importations on the basis of incomplete quotations from the contents of alleged photostat copies of documents seized illegally from Engineering Equipment and Supply Company which should not have been admitted in evidence; 3. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the 25% surcharge prescribed in Section 190 of the Tax Code; 4. That the Court of Tax Appeals erred in holding the assessment as not having prescribed;

5. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable for the sum of P174,141.62 as 30% compensating tax and 25% surcharge instead of completely absolving it from the deficiency assessment of the Commissioner. The Commissioner on the other hand claims that the Court of Tax Appeals erred: 1. In holding that the respondent company is a contractor and not a manufacturer. 2. In holding respondent company liable to the 3% contractor's tax imposed by Section 191 of the Tax Code instead of the 30% sales tax prescribed in Section 185(m) in relation to Section 194(x) both of the same Code; 3. In holding that the respondent company is subject only to the 30% compensating tax under Section 190 of the Tax Code and not to the 30% advance sales tax imposed by section 183 (b), in relation to section 185(m) both of the same Code, on its importations of parts and accessories of air conditioning units; 4. In not holding the company liable to the 50% fraud surcharge under Section 183 of the Tax Code on its importations of parts and accessories of air conditioning units, notwithstanding the finding of said court that the respondent company fraudulently misdeclared the said importations; 5. In holding the respondent company liable for P174,141.62 as compensating tax and 25% surcharge instead of P740,587.86 as deficiency advance sales tax, deficiency manufacturers tax and 25% and 50% surcharge for the period from June 1, 1948 to December 31, 1956. The main issue revolves on the question of whether or not Engineering is a manufacturer of air conditioning units under Section 185(m), supra, in relation to Sections 183(b) and 194 of the Code, or a contractor under Section 191 of the same Code. The Commissioner contends that Engineering is a manufacturer and seller of air conditioning units and parts or accessories thereof and, therefore, it is subject to the 30% advance sales tax prescribed by Section 185(m) of the Tax Code, in relation to Section 194 of the same, which defines a manufacturer as follows: Section 194. Words and Phrases Defined. In applying the provisions of this Title, words and phrases shall be taken in the sense and extension indicated below: xxx xxx xxx (x) "Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured products in such manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such material or manufactured or partially manufactured product so as to reduce it to marketable shape, or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process of manufacture can be put to

special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption. In answer to the above contention, Engineering claims that it is not a manufacturer and setter of air-conditioning units and spare parts or accessories thereof subject to tax under Section 185(m) of the Tax Code, but a contractor engaged in the design, supply and installation of the central type of air-conditioning system subject to the 3% tax imposed by Section 191 of the same Code, which is essentially a tax on the sale of services or labor of a contractor rather than on the sale of articles subject to the tax referred to in Sections 184, 185 and 186 of the Code. The arguments of both the Engineering and the Commissioner call for a clarification of the term contractor as well as the distinction between a contract of sale and contract for furnishing services, labor and materials. The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given. 2 If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendant's request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it. 3 Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece of work thus: Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order and not for the general market, it is a contract for a piece of work. The word "contractor" has come to be used with special reference to a person who, in the pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details. (Araas, Annotations and Jurisprudence on the National Internal Revenue Code, p. 318, par. 191 (2), 1970 Ed.) The true test of a contractor as was held in the cases of Luzon Stevedoring Co., vs. Trinidad, 43, Phil. 803, 807-808, and La Carlota Sugar Central vs. Trinidad, 43, Phil. 816, 819, would seem to be that he renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished. With the foregoing criteria as guideposts, We shall now examine whether Engineering really did "manufacture" and sell, as alleged by the Commissioner to hold it liable to the advance sales tax under Section 185(m), or it only had its services "contracted" for installation purposes to hold it liable under section 198 of the Tax Code. I After going over the three volumes of stenographic notes and the voluminous record of the BIR and the CTA as well as the exhibits submitted by both parties, We find that Engineering did not manufacture air conditioning units for sale to the general public, but

imported some items (as refrigeration compressors in complete set, heat exchangers or coils, t.s.n. p. 39) which were used in executing contracts entered into by it. Engineering, therefore, undertook negotiations and execution of individual contracts for the design, supply and installation of air conditioning units of the central type (t.s.n. pp. 20-36; Exhs. "F", "G", "H", "I", "J", "K", "L", and "M"), taking into consideration in the process such factors as the area of the space to be air conditioned; the number of persons occupying or would be occupying the premises; the purpose for which the various air conditioning areas are to be used; and the sources of heat gain or cooling load on the plant such as sun load, lighting, and other electrical appliances which are or may be in the plan. (t.s.n. p. 34, Vol. I) Engineering also testified during the hearing in the Court of Tax Appeals that relative to the installation of air conditioning system, Engineering designed and engineered complete each particular plant and that no two plants were identical but each had to be engineered separately. As found by the lower court, which finding 4 We adopt Engineering, in a nutshell, fabricates, assembles, supplies and installs in the buildings of its various customers the central type air conditioning system; prepares the plans and specifications therefor which are distinct and different from each other; the air conditioning units and spare parts or accessories thereof used by petitioner are not the window type of air conditioner which are manufactured, assembled and produced locally for sale to the general market; and the imported air conditioning units and spare parts or accessories thereof are supplied and installed by petitioner upon previous orders of its customers conformably with their needs and requirements. The facts and circumstances aforequoted support the theory that Engineering is a contractor rather than a manufacturer. The Commissioner in his Brief argues that "it is more in accord with reason and sound business management to say that anyone who desires to have air conditioning units installed in his premises and who is in a position and willing to pay the price can order the same from the company (Engineering) and, therefore, Engineering could have mass produced and stockpiled air conditioning units for sale to the public or to any customer with enough money to buy the same." This is untenable in the light of the fact that air conditioning units, packaged, or what we know as self-contained air conditioning units, are distinct from the central system which Engineering dealt in. To Our mind, the distinction as explained by Engineering, in its Brief, quoting from books, is not an idle play of words as claimed by the Commissioner, but a significant fact which We just cannot ignore. As quoted by Engineering Equipment & Supply Co., from an Engineering handbook by L.C. Morrow, and which We reproduce hereunder for easy reference: ... there is a great variety of equipment in use to do this job (of air conditioning). Some devices are designed to serve a specific type of space; others to perform a specific function; and still others as components to be assembled into a tailor-made system to fit a particular building. Generally, however, they may be grouped into two classifications unitary and central system. The unitary equipment classification includes those designs such as room air conditioner, where all of the functional components are included in one or two packages, and installation involves only making service connection such as electricity, water and drains. Central-station systems, often referred to as applied or built-up systems, require the installation of components at different points in a building and their interconnection.

The room air conditioner is a unitary equipment designed specifically for a room or similar small space. It is unique among air conditioning equipment in two respects: It is in the electrical appliance classification, and it is made by a great number of manufacturers. There is also the testimony of one Carlos Navarro, a licensed Mechanical and Electrical Engineer, who was once the Chairman of the Board of Examiners for Mechanical Engineers and who was allegedly responsible for the preparation of the refrigeration and air conditioning code of the City of Manila, who said that "the central type air conditioning system is an engineering job that requires planning and meticulous layout due to the fact that usually architects assign definite space and usually the spaces they assign are very small and of various sizes. Continuing further, he testified: I don't think I have seen central type of air conditioning machinery room that are exactly alike because all our buildings here are designed by architects dissimilar to existing buildings, and usually they don't coordinate and get the advice of air conditioning and refrigerating engineers so much so that when we come to design, we have to make use of the available space that they are assigning to us so that we have to design the different component parts of the air conditioning system in such a way that will be accommodated in the space assigned and afterwards the system may be considered as a definite portion of the building. ... Definitely there is quite a big difference in the operation because the window type air conditioner is a sort of compromise. In fact it cannot control humidity to the desired level; rather the manufacturers, by hit and miss, were able to satisfy themselves that the desired comfort within a room could be made by a definite setting of the machine as it comes from the factory; whereas the central type system definitely requires an intelligent operator. (t.s.n. pp. 301-305, Vol. II) The point, therefore, is this Engineering definitely did not and was not engaged in the manufacture of air conditioning units but had its services contracted for the installation of a central system. The cases cited by the Commissioner (Advertising Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino Co & Co. vs. Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are not in point. Neither are they applicable because the facts in all the cases cited are entirely different. Take for instance the case of Celestino Co where this Court held the taxpayer to be a manufacturer rather than a contractor of sash, doors and windows manufactured in its factory. Indeed, from the very start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company stationery carrying the bold print "ORIENTAL SASH FACTORY (CELESTINO CO AND COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc., Manufacturers of All Kinds of Doors, Windows ... ." Likewise, Celestino Co never put up a contractor's bond as required by Article 1729 of the Civil Code. Also, as a general rule, sash factories receive orders for doors and windows of special design only in particular cases, but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home, which "sales" were reflected in their books of accounts totalling P118,754.69 for the period from January, 1952 to September 30, 1952, or for a period of only nine (9) months. This Court found said sum difficult to have been derived from its few customers who placed special orders for these items. Applying the abovestated facts to the case at bar, We found them to he inapposite. Engineering advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies, Engineers, Contractors, 174 Marques de Comillas, Manila (Exh. "B" and "15" BIR rec. p. 186), and not as manufacturers. It likewise paid the contractors tax on all the contracts for the design and construction of central system as testified to by Mr. Rey Parker, its President and General Manager. (t.s.n. p. 102, 103) Similarly, Engineering did

not have ready-made air conditioning units for sale but as per testimony of Mr. Parker upon inquiry of Judge Luciano of the CTA Q Aside from the general components, which go into air conditioning plant or system of the central type which your company undertakes, and the procedure followed by you in obtaining and executing contracts which you have already testified to in previous hearing, would you say that the covering contracts for these different projects listed ... referred to in the list, Exh. "F" are identical in every respect? I mean every plan or system covered by these different contracts are identical in standard in every respect, so that you can reproduce them? A No, sir. They are not all standard. On the contrary, none of them are the same. Each one must be designed and constructed to meet the particular requirements, whether the application is to be operated. (t.s.n. pp. 101-102) What We consider as on all fours with the case at bar is the case of S.M. Lawrence Co. vs. McFarland,Commissioner of Internal Revenue of the State of Tennessee and McCanless, 355 SW 2d, 100, 101, "where the cause presents the question of whether one engaged in the business of contracting for the establishment of air conditioning system in buildings, which work requires, in addition to the furnishing of a cooling unit, the connection of such unit with electrical and plumbing facilities and the installation of ducts within and through walls, ceilings and floors to convey cool air to various parts of the building, is liable for sale or use tax as a contractor rather than a retailer of tangible personal property. Appellee took the Position that appellant was not engaged in the business of selling air conditioning equipment as such but in the furnishing to its customers of completed air conditioning systems pursuant to contract, was a contractor engaged in the construction or improvement of real property, and as such was liable for sales or use tax as the consumer of materials and equipment used in the consummation of contracts, irrespective of the tax status of its contractors. To transmit the warm or cool air over the buildings, the appellant installed system of ducts running from the basic units through walls, ceilings and floors to registers. The contract called for completed air conditioning systems which became permanent part of the buildings and improvements to the realty." The Court held the appellant a contractor which used the materials and the equipment upon the value of which the tax herein imposed was levied in the performance of its contracts with its customers, and that the customers did not purchase the equipment and have the same installed. Applying the facts of the aforementioned case to the present case, We see that the supply of air conditioning units to Engineer's various customers, whether the said machineries were in hand or not, was especially made for each customer and installed in his building upon his special order. The air conditioning units installed in a central type of air conditioning system would not have existed but for the order of the party desiring to acquire it and if it existed without the special order of Engineering's customer, the said air conditioning units were not intended for sale to the general public. Therefore, We have but to affirm the conclusion of the Court of Tax Appeals that Engineering is a contractor rather than a manufacturer, subject to the contractors tax prescribed by Section 191 of the Code and not to the advance sales tax imposed by Section 185(m) in relation to Section 194 of the same Code. Since it has been proved to Our satisfaction that Engineering imported air conditioning units, parts or accessories thereof for use in its construction business and these items were never sold, resold, bartered or exchanged, Engineering should be held liable to pay taxes prescribed under Section 190 5 of the Code. This compensating tax is not a tax on the importation of goods but a tax on the use of imported goods not subject to sales tax. Engineering, therefore, should be held liable to the payment of 30%

compensating tax in accordance with Section 190 of the Tax Code in relation to Section 185(m) of the same, but without the 50% mark up provided in Section 183(b). II We take up next the issue of fraud. The Commissioner charged Engineering with misdeclaration of the imported air conditioning units and parts or accessories thereof so as to make them subject to a lower rate of percentage tax (7%) under Section 186 of the Tax Code, when they are allegedly subject to a higher rate of tax (30%) under its Section 185(m). This charge of fraud was denied by Engineering but the Court of Tax Appeals in its decision found adversely and said" ... We are amply convinced from the evidence presented by respondent that petitioner deliberately and purposely misdeclared its importations. This evidence consists of letters written by petitioner to its foreign suppliers, instructing them on how to invoice and describe the air conditioning units ordered by petitioner. ... (p. 218 CTA rec.) Despite the above findings, however, the Court of Tax Appeals absolved Engineering from paying the 50% surcharge prescribe by Section 183(a) of the Tax Code by reasoning out as follows: The imposition of the 50% surcharge prescribed by Section 183(a) of the Tax Code is based on willful neglect to file the monthly return within 20 days after the end of each month or in case a false or fraudulent return is willfully made, it can readily be seen, that petitioner cannot legally be held subject to the 50% surcharge imposed by Section 183(a) of the Tax Code. Neither can petitioner be held subject to the 50% surcharge under Section 190 of the Tax Code dealing on compensating tax because the provisions thereof do not include the 50% surcharge. Where a particular provision of the Tax Code does not impose the 50% surcharge as fraud penalty we cannot enforce a non-existing provision of law notwithstanding the assessment of respondent to the contrary. Instances of the exclusion in the Tax Code of the 50% surcharge are those dealing on tax on banks, taxes on receipts of insurance companies, and franchise tax. However, if the Tax Code imposes the 50% surcharge as fraud penalty, it expressly so provides as in the cases of income tax, estate and inheritance taxes, gift taxes, mining tax, amusement tax and the monthly percentage taxes. Accordingly, we hold that petitioner is not subject to the 50% surcharge despite the existence of fraud in the absence of legal basis to support the importation thereof. (p. 228 CTA rec.) We have gone over the exhibits submitted by the Commissioner evidencing fraud committed by Engineering and We reproduce some of them hereunder for clarity. As early as March 18, 1953, Engineering in a letter of even date wrote to Trane Co. (Exh. "3-K" pp. 152-155, BIR rec.) viz: Your invoices should be made in the name of Madrigal & Co., Inc., Manila, Philippines, c/o Engineering Equipment & Supply Co., Manila, Philippines forwarding all correspondence and shipping papers concerning this order to us only and not to the customer. When invoicing, your invoices should be exactly as detailed in the customer's Letter Order dated March 14th, 1953 attached. This is in accordance with the Philippine import licenses granted to Madrigal & Co.,

Inc. and such details must only be shown on all papers and shipping documents for this shipment. No mention of words air conditioning equipment should be made on any shipping documents as well as on the cases. Please give this matter your careful attention, otherwise great difficulties will be encountered with the Philippine Bureau of Customs when clearing the shipment on its arrival in Manila. All invoices and cases should be marked "THIS EQUIPMENT FOR RIZAL CEMENT CO." The same instruction was made to Acme Industries, Inc., San Francisco, California in a letter dated March 19, 1953 (Exh. "3-J-1" pp. 150-151, BIR rec.) On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass Corp., New York, U.S.A. (Exh. "3-1" pp. 147-149, BIR rec.) also enjoining the latter from mentioning or referring to the term 'air conditioning' and to describe the goods on order as Fiberglass pipe and pipe fitting insulation instead. Likewise on April 30, 1953, Engineering threatened to discontinue the forwarding service of Universal Transcontinental Corporation when it wrote Trane Co. (Exh. "3-H" p. 146, BIR rec.): It will be noted that the Universal Transcontinental Corporation is not following through on the instructions which have been covered by the above correspondence, and which indicates the necessity of discontinuing the use of the term "Air conditioning Machinery or Air Coolers". Our instructions concerning this general situation have been sent to you in ample time to have avoided this error in terminology, and we will ask that on receipt of this letter that you again write to Universal Transcontinental Corp. and inform them that, if in the future, they are unable to cooperate with us on this requirement, we will thereafter be unable to utilize their forwarding service. Please inform them that we will not tolerate another failure to follow our requirements. And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co. another letter, viz: In the past, we have always paid the air conditioning tax on climate changers and that mark is recognized in the Philippines, as air conditioning equipment. This matter of avoiding any tie-in on air conditioning is very important to us, and we are asking that from hereon that whoever takes care of the processing of our orders be carefully instructed so as to avoid again using the term "Climate changers" or in any way referring to the equipment as "air conditioning." And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953, suggesting a solution, viz: We feel that we can probably solve all the problems by following the procedure outlined in your letter of March 25, 1953 wherein you stated that in all future jobs you would enclose photostatic copies of your import license so that we might make up two sets of invoices: one set describing equipment ordered simply according to the way that they are listed on the import license and another according to our ordinary regular methods of order write-up. We would then include the set made up according to the import license in the shipping boxes themselves and use those items as our actual shipping documents and invoices, and we will send the other regular invoice to you, by separate correspondence. (Exh- No. "3-F-1", p. 144 BIR rec.)

Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-C" p. 141 BIR rec.) In the process of clearing the shipment from the piers, one of the Customs inspectors requested to see the packing list. Upon presenting the packing list, it was discovered that the same was prepared on a copy of your letterhead which indicated that the Trane Co. manufactured air conditioning, heating and heat transfer equipment. Accordingly, the inspectors insisted that this equipment was being imported for air conditioning purposes. To date, we have not been able to clear the shipment and it is possible that we will be required to pay heavy taxes on equipment. The purpose of this letter is to request that in the future, no documents of any kind should be sent with the order that indicate in any way that the equipment could possibly be used for air conditioning. It is realized that this a broad request and fairly difficult to accomplish and administer, but we believe with proper caution it can be executed. Your cooperation and close supervision concerning these matters will be appreciated. (Emphasis supplied) The aforequoted communications are strongly indicative of the fraudulent intent of Engineering to misdeclare its importation of air conditioning units and spare parts or accessories thereof to evade payment of the 30% tax. And since the commission of fraud is altogether too glaring, We cannot agree with the Court of Tax Appeals in absolving Engineering from the 50% fraud surcharge, otherwise We will be giving premium to a plainly intolerable act of tax evasion. As aptly stated by then Solicitor General, now Justice, Antonio P. Barredo: 'this circumstance will not free it from the 50% surcharge because in any case whether it is subject to advance sales tax or compensating tax, it is required by law to truly declare its importation in the import entries and internal revenue declarations before the importations maybe released from customs custody. The said entries are the very documents where the nature, quantity and value of the imported goods declared and where the customs duties, internal revenue taxes, and other fees or charges incident to the importation are computed. These entries, therefore, serve the same purpose as the returns required by Section 183(a) of the Code.' Anent the 25% delinquency surcharge, We fully agree to the ruling made by the Court of Tax Appeals and hold Engineering liable for the same. As held by the lower court: At first blush it would seem that the contention of petitioner that it is not subject to the delinquency, surcharge of 25% is sound, valid and tenable. However, a serious study and critical analysis of the historical provisions of Section 190 of the Tax Code dealing on compensating tax in relation to Section 183(a) of the same Code, will show that the contention of petitioner is without merit. The original text of Section 190 of Commonwealth Act 466, otherwise known as the National Internal Revenue Code, as amended by Commonwealth Act No. 503, effective on October 1, 1939, does not provide for the filing of a compensation tax return and payment of the 25 % surcharge for late payment thereof. Under the original text of Section 190 of the Tax Code as amended by Commonwealth Act No. 503, the contention of the petitioner that it is not subject to the 25% surcharge appears to be legally tenable. However, Section 190 of the Tax Code was subsequently amended by the Republic Acts Nos. 253, 361, 1511 and 1612 effective October 1, 1946, July 1, 1948, June 9, 1949, June 16, 1956 and August 24, 1956 respectively, which invariably provides among others, the following:

... If any article withdrawn from the customhouse or the post office without payment of the compensating tax is subsequently used by the importer for other purposes, corresponding entry should be made in the books of accounts if any are kept or a written notice thereof sent to the Collector of Internal Revenue and payment of the corresponding compensating tax made within 30 days from the date of such entry or notice and if tax is not paid within such period the amount of the tax shall be increased by 25% the increment to be a part of the tax. Since the imported air conditioning units-and spare parts or accessories thereof are subject to the compensating tax of 30% as the same were used in the construction business of Engineering, it is incumbent upon the latter to comply with the aforequoted requirement of Section 190 of the Code, by posting in its books of accounts or notifying the Collector of Internal Revenue that the imported articles were used for other purposes within 30 days. ... Consequently; as the 30% compensating tax was not paid by petitioner within the time prescribed by Section 190 of the Tax Code as amended, it is therefore subject to the 25% surcharge for delinquency in the payment of the said tax. (pp. 224-226 CTA rec.) III Lastly the question of prescription of the tax assessment has been put in issue. Engineering contends that it was not guilty of tax fraud in effecting the importations and, therefore, Section 332(a) prescribing ten years is inapplicable, claiming that the pertinent prescriptive period is five years from the date the questioned importations were made. A review of the record however reveals that Engineering did file a tax return or declaration with the Bureau of Customs before it paid the advance sales tax of 7%. And the declaration filed reveals that it did in fact misdeclare its importations. Section 332 of the Tax Code which provides: Section 332. Exceptions as to period of limitation of assessment and collection of taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment at any time within ten years after the discovery of the falsity, fraud or omission. is applicable, considering the preponderance of evidence of fraud with the intent to evade the higher rate of percentage tax due from Engineering. The, tax assessment was made within the period prescribed by law and prescription had not set in against the Government. WHEREFORE, the decision appealed from is affirmed with the modification that Engineering is hereby also made liable to pay the 50% fraud surcharge. SO ORDERED. Makalintal, C.J., Castro, Makasiar and Martin, JJ., concur.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the decision[1] and the resolution[2] of the Court of Appeals in CA-G.R. CV No. 61948 promulgated on May 7, 2003 and August 13, 2003, respectively, which affirmed the July 27, 2003 decision [3] of the Regional Trial Court of Davao City, Branch 12 dismissing the complaint filed by petitioner. Petitioner Antonio S. Lim, Jr., represented by his mother, Paz S. Lim, as attorney-in-fact, filed a complaint[4] before the Regional Trial Court of Davao City seeking the annulment of a Deed of Absolute Sale[5] involving a parcel of land purportedly executed by Paz S. Lim in favor of her brother, respondent Victor K. San. In the second amended complaint dated May 27, 1993, petitioner alleged the following:

xxx

xxx

xxx

4. That plaintiff is an owner of a parcel of land situated at Bajada, Davao City, containing an area of 1,763 square meters, more or less, covered by Transfer Certificate of Title No. T-11072 of the Registry of Deeds of Davao City, x x x; 4.A. That constructed on the afore-cited parcel of land is a fourteen (14) doors commercial building, and that defendant is paying an annual lease of ONE HUNDRED THOUSAND (P100,000.00) PESOS to the herein plaintiff. 5. On May 29, 1991, the herein defendant taking undue advantage of the depressed mental state of plaintiffs Attorney-in-Fact, brought about by the demise of her late husband, Dr. Antonio A. Lim Sr., caused some papers for her to sign, which later turn (sic) out to be an Absolute Deed of Sale, x x x; 6. That the signature of the Attorney-in-Fact in the aforecited Deed of Absolute Sale was obtained through fraud and trickery employed by the herein defendant and that she never appeared before the Notary Public, who notarized the said deed; 7. That no consideration was ever paid, much less received by the plaintiff or by his Attorney-in-Fact. Simply put, the Deed of Absolute Sale was void ab initio for lack of consideration and for lack of a valid consent; 8. After the signing of the aforecited Deed of Sale with its attendant legal flaws and infirmities, plaintiffs Title was transferred in the name of the defendant, Victor K. San, x x x; 9. Knowing that he is holding an infirmed Title, defendant, Victor K. San is now in the process of selling the aforecited property including the commercial building erected thereon to any third person; and that the defendant had already caused the cancellation of the Mother Title No. T-165010 by subdividing the same into eight (8) lots with eight (8) different titles, as follows:

TCT NO. T-191255, T-191256, T-191257, T-191258, T-191259, T-191260, T191261, T-191262, xxx xxx x x x.
[6]

Respondent Victor K. San denied all the allegations of the petitioner. He alleged that the parcel of land covered by TCT No. T-165010 of the Registry of Deeds of Davao City and registered in his name was validly and regularly issued. He further claimed that he does not have any lease contract with the petitioner with respect to the contested property and does not pay any monthly rental over the same. Moreover, respondent claimed that there was full payment of the consideration of P264,450.00 for the subject property. Respondent Elindo Lo was impleaded as a co-defendant on account of his purchase of one lot covered by TCT No. T-191262,[7] notwithstanding the Notice of Adverse Claim and Lis Pendens annotated on the title of the said parcel of land. On July 27, 1998, after trial on the merits, the Regional Trial Court of Davao City rendered a decision dismissing the complaint.[8] Petitioner appealed to the Court of Appeals which affirmed the judgment of the trial court in toto. Petitioners motion for reconsideration[9] was denied in a Resolution[10] dated August 13, 2003. Hence the present petition based on the following grounds:

a)

that the Court of Appeals erred in affirming the trial courts judgment declaring that the petitioner failed to prove by clear and convincing evidence that the signature of his attorney-in-fact was obtained through fraud and trickery and that no consideration was ever paid. that the Court of Appeals erred in declaring that the medical certificates issued by foreign medical institutions to prove Paz S. Lim (sic) severe mental state of depression cannot be given evidentiary weight considering that its due execution and authenticity were not properly established.
[11]

b)

Petitioner contends that the deed of sale should be declared void because his consent to the same was vitiated by intimidation and that no consideration was paid for the subject property. Respondents, on the other hand, maintain that the parties to the deed of sale validly entered into the same; that Paz S. Lim freely and voluntarily gave her consent to the sale; and that she received the consideration agreed upon by the parties. After a careful review of the records of this case, we find no cogent reason to deviate from the rulings of the court a quo and the Court of Appeals. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. [12] It has three essential elements, or those without which there can be no contract consent, subject matter and cause.[13] A knowledge of these essential elements is material because the perfection stage or the birth of the contract only occurs when the parties to a contract agree upon the essential elements of the same.[14]

A contract of sale is consensual,[15] as such it is perfected by mere consent.[16] Consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent.[17] Consent in contracts presupposes the following requisites: (1) it should be intelligent or with an exact notion of the matter to which it refers; (2) it should be free; and (3) it should be spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence; and spontaneity by fraud.[18] Thus, a contract where consent is given through mistake, violence, intimidation, undue influence or fraud is voidable.[19] Contrary to the allegations of the petitioner that the consent of his attorney-in-fact to the deed of sale was vitiated, a perusal of the records of this case showed that the petitioner failed to establish that violence, intimidation and undue influence vitiated the consent of Paz S. Lim to the deed of sale pertaining to the subject property. In determining whether consent is vitiated by the circumstances provided for in Article 1330 of the Civil Code of the Philippines, courts are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of what they believe to have actually occurred, considering the age, physical infirmity, intelligence, relationship and the conduct of the parties at the time of making the contract and subsequent thereto, irrespective of whether the contract is in a public or private writing.[20] While it is true that upon the death of her husband, Dr. Antonio T. Lim, Sr., on May 18, 1990,[21] Paz S. Lim returned to the Philippines and subsequently stayed at the house of the respondent, such fact per se is not sufficient to establish that the latter employed intimidation, violence or undue influence upon the former. Defect or lack of valid consent, in order to make the contract voidable, must be established by full, clear and convincing evidence, and not merely by a preponderance thereof.[22] Petitioners mere allegations that respondent threatened his mother with harm if she will not sign the contract failed to measure up to the yardstick of evidence required, not only to prove vitiation of consent, but also to overturn the presumption that private transactions have been fair and regular.[23] Paz S. Lims behavior belies the allegation that respondent threatened to harm her. The following testimony is enlightening:
Q A Q A Q A Q A You claim that your brother, the defendant Victor K. San threatened to kill you if you will not cooperate you recall having mentioned that on direct? When? Is it not that you mentioned on the direct that you were threatened by your brother Victor San? Yes, many times he will not let me leave. That was at the time you were then staying with your brother, the defendant in this case? Yes, sir. When did you leave your brother in his residence? One day when he was out I think in 1991, I sneaked out of the gate and I saw my cousin Lucila, she said that we live near each other and that I did not know that from then on my relatives just lived across the fence. Let me be clarified, you left your brothers house in late 1991?

A Q A Q A Q A Q A Q A Q A

Yes, sir. After leaving your brothers house late in 1991, where did you live? With my nephew William. What is the complete name of this William? William Tom. Up to the present you are staying with him? Yes, Marlene Babao was living downstairs. After leaving your brothers house, did you ever report this incident wherein you were threatened by your brother to the police? No, I just told my cousin and my nephew, I am afraid to stay there longer. Did you ever file a criminal case against your brother for grave threats, he having allegedly threatened to kill you? I am the big sister, how can I do that to my own brother, I am a Christian. In other words, you did not report this treatment by your brother to the police nor filed any criminal case against him in Court even up to the present? Yes, sir.[24]

Well-settled is the rule that the findings of facts and assessment of credibility of witnesses is a matter best left to the trial court because of its unique position of having observed that elusive and incommunicable evidence of the witnesses deportment on the stand while testifying, which opportunity is denied to the appellate courts. Only the trial judge can observe the furtive glance, blush of conscious shame, hesitation, flippant or sneering tone, calmness, sigh or the scant or full realization of an oath all of which are useful for an accurate determination of a witness honesty and sincerity.[25] WHEREFORE, based on the foregoing, the petition is DENIED. The Decision dated May 7, 2003 and the Resolution dated August 13, 2003 of the Court of Appeals affirming the dismissal of Civil Case No. 21,924-93 before the Regional Trial Court of Davao City, Branch 12, is AFFIRMED in toto. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing and Carpio, JJ., concur. Azcuna, J., on leave.

G.R. No. 128120

October 20, 2004

SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL SANTOS, BETH FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ, NICANOR ESCALANTE, PETER HODGSON, SAMUEL PARTOSA, HERMINDA ASUNCION, JUANITO HERRERA, JACOBUS NICOLAAS, JOSEPH PEKELHARING (now Representing himself without court sanction as "JOOST PEKELHARING)," MASSIMO ROSSI and ED ENRIQUEZ, petitioners, vs. COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION and ANTONIO K. LITONJUA,respondents.

DECISION TINGA, J.: Petitioners seek a reversal of the twin Orders1 of the Court of Appeals dated 15 November 19962 and 31 January 1997,3 in CA-G.R. CV No. 35886, entitled "ALS Management et al., v. Swedish Match, AB et al." The appellate court overturned the trial courts Order4 dismissing the respondents complaint for specific performance and remanded the case to the trial court for further proceedings. Swedish Match AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not doing business in the Philippines. SMAB, however, had three subsidiary corporations in the Philippines, all organized under Philippine laws, to wit: Phimco Industries, Inc. (Phimco), Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc. Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of Sweden and the latters worldwide match, lighter and shaving products operation to Eemland Management Services, now known as Swedish Match NV of Netherlands, (SMNV), a corporation organized and existing under the laws of Netherlands. STORA, however, retained for itself the packaging business. SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself the shaving business. SMNV adopted a two-pronged strategy, the first being to sell its shares in Phimco Industries, Inc. and a match company in Brazil, which proposed sale would stave-off defaults in the loan covenants of SMNV with its syndicate of lenders. The other move was to sell at once or in one package all the SMNV companies worldwide which were engaged in match and lighter operations thru a global deal (hereinafter, global deal). Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)the management company of the Swedish Match groupwas commissioned and granted full powers to negotiate by SMNV, with the resulting transaction, however, made subject to final approval by the board. Enriquez was held under strict instructions that the sale of Phimco shares should be executed on or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez came to the Philippines in November 1989 and informed the Philippine financial and business circles that the Phimco shares were for sale. Several interested parties tendered offers to acquire the Phimco shares, among whom were the AFP Retirement and Separation Benefits System, herein respondent ALS Management & Development Corporation and respondent Antonio Litonjua (Litonjua), the president and general manager of ALS. In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the latters shares in Phimco and all of Phimcos shares in Provident Tree Farm, Inc. and OTT/Louie (Phils.), Inc. for the sum ofP750,000,000.00.5 Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1 December 1989, thanked respondents for their interest in the Phimco shares. Rossi informed respondents that their price offer was below their expectations but urged them to undertake a comprehensive review and analysis of the value and profit potentials of the Phimco shares, with the assurance that respondents would enjoy a certain priority although several parties had indicated their interest to buy the shares.6 Thereafter, an exchange of correspondence ensued between petitioners and respondents regarding the projected sale of the Phimco shares. In his letter dated 21 May 1990, Litonjua offered to buy the disputed shares, excluding the lighter division for US$30.6 million, which per another letter of the same date was increased to US$36 million.7Litonjua stressed that the bid

amount could be adjusted subject to availability of additional information and audit verification of the company finances. Responding to Litonjuas offer, Rossi sent his letter dated 11 June 1990, informing the former that ALS should undertake a due diligence process or pre-acquisition audit and review of the draft contract for the Match and Forestry activities of Phimco at ALS convenience. However, Rossi made it clear that at the completion of the due diligence process, ALS should submit its final offer in US dollar terms not later than 30 June 1990, for the shares of SMAB corresponding to ninetysix percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in case the "global deal" presently under negotiation for the Swedish Match Lights Group would materialize, SMAB would reimburse up to US$20,000.00 of ALS costs related to the due diligence process.8 Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in SMABs approach to the bidding process. He pointed out that in their 4 June 1990 meeting, he was advised that one final bidder would be selected from among the four contending groups as of that date and that the decision would be made by 6 June 1990. He criticized SMABs decision to accept a new bidder who was not among those who participated in the 25 May 1990 bidding. He informed Rossi that it may not be possible for them to submit their final bid on 30 June 1990, citing the advice to him of the auditing firm that the financial statements would not be completed until the end of July. Litonjua added that he would indicate in their final offer more specific details of the payment mechanics and consider the possibility of signing a conditional sale at that time.9 Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that they would be unable to submit the final offer by 30 June 1990, considering that the acquisition audit of Phimco and the review of the draft agreements had not yet been completed. He said, however, that they would be able to finalize their bid on 17 July 1990 and that in case their bid would turn out better than any other proponent, they would remit payment within ten (10) days from the execution of the contracts.10 Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other parties in view of Litonjuas failure to make a firm commitment for the shares of Swedish Match in Phimco by 30 June 1990.11 In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a conditional contract with a local group for the disposal of Phimco. He told Litonjua that his bid would no longer be considered unless the local group would fail to consummate the transaction on or before 15 September1990.12 Apparently irked by SMABs decision to junk his bid, Litonjua promptly responded by letter dated 4 July 1990. Contrary to his prior manifestations, he asserted that, for all intents and purposes, the US$36 million bid which he submitted on 21 May 1990 was their final bid based on the financial statements for the year 1989. He pointed out that they submitted the best bid and they were already finalizing the terms of the sale. He stressed that they were firmly committed to their bid of US$36 million and if ever there would be adjustments in the bid amount, the adjustments were brought about by SMABs subsequent disclosures and validated accounts, such as the aspect that only ninety-six percent (96%) of Phimco shares was actually being sold and not onehundred percent (100%).13 More than two months from receipt of Litonjuas last letter, Enriquez sent a fax communication to the former, advising him that the proposed sale of SMABs shares in Phimco with local buyers did not materialize. Enriquez then invited Litonjua to resume negotiations with SMAB for the sale of Phimco shares. He indicated that SMAB would be prepared to negotiate with ALS on an exclusive basis for a period of fifteen (15) days from 26 September 1990 subject to the terms contained in the letter. Additionally, Enriquez clarified that if the sale would not be completed at the end of the fifteen (15)-day period, SMAB would enter into negotiations with other buyers.14

Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms and conditions for the sale of the Phimco shares. He emphasized that the new offer constituted an attempt to reopen the already perfected contract of sale of the shares in his favor. He intimated that he could not accept the new terms and conditions contained therein.15 On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of Pasig a complaint for specific performance with damages, with a prayer for the issuance of a writ of preliminary injunction, against defendants, now petitioners. The individual defendants were sued in their respective capacities as officers of the corporations or entities involved in the aborted transaction. Aside from the averments related to their principal cause of action for specific performance, respondents alleged that the Phimco management, in utter bad faith, induced SMAB to violate its contract with respondents. They contended that the Phimco management took an interest in acquiring for itself the Phimco shares and that petitioners conspired to thwart the closing of such sale by interposing various obstacles to the completion of the acquisition audit.16 Respondents claimed that the Phimco management maliciously and deliberately delayed the delivery of documents to Laya Manabat Salgado & Co. which prevented them from completing the acquisition audit in time for the deadline on 30 June 1990 set by petitioners.17 Respondents added that SMABs refusal to consummate the perfected sale of the Phimco shares amounted to an abuse of right and constituted conduct which is contrary to law, morals, good customs and public policy.18 Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares, or otherwise implementing the sale or transfer thereof, in favor of any person or entity other than respondents, and that any such sale to third parties be annulled and set aside. Respondents also asked that petitioners be ordered to execute all documents or instruments and perform all acts necessary to consummate the sales agreement in their favor. Traversing the complaint, petitioners alleged that respondents have no cause of action, contending that no perfected contract, whether verbal or written, existed between them. Petitioners added that respondents cause of action, if any, was barred by the Statute of Frauds since there was no written instrument or document evidencing the alleged sale of the Phimco shares to respondents. Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of Frauds, which the trial court granted. Both parties agreed to adopt as their evidence in support of or against the motion to dismiss, as the case may be, the evidence which they adduced in support of their respective positions on the writ of preliminary injunction incident. In its Order dated 17 April 1991, the RTC dismissed respondents complaint.19 It ruled that there was no perfected contract of sale between petitioners and respondents. The court a quo said that the letter dated 11 June 1990, relied upon by respondents, showed that petitioners did not accept the bid offer of respondents as the letter was a mere invitation for respondents to conduct a due diligence process or pre-acquisition audit of Phimcos match and forestry operations to enable them to submit their final offer on 30 June 1990. Assuming that respondents bid was favored by an oral acceptance made in private by officers of SMAB, the trial court noted, such acceptance was merely preparatory to a formal acceptance by the SMABthe acceptance that would eventually lead to the execution and signing of the contract of sale. Moreover, the court noted that respondents failed to submit their final bid on the deadline set by petitioners. Respondents appealed to the Court of Appeals, assigning the following errors: A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT ERRED PROCEDURALLY IN MOTU PROPIO (sic) DISMISSING THE COMPLAINT IN

ITS ENTIRETY FOR "LACK OF A VALID CAUSE OF ACTION" WITHOUT THE BENEFIT OF A FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS. B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS CAUSE OF ACTION BASED ON TORT WHICH, HAVING BEEN SUFFICIENTLY PLEADED, INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL. C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS CAUSE OF ACTION BASED ON PROMISSORY ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY PLEADED, WARRANTED A FULL-BLOWN TRIAL, INDEPENDENTLY FOR THE OTHER CAUSES OF ACTION. D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO FAVOR DEFENDANTS-APPELLEES BY MAKING UNFOUNDED FINDINGS, ALL IN VIOLATION OF PLAINTIFFS-APPELLANTS RIGHT TO DUE PROCESS.20 After assessing the respective arguments of the parties, the Court of Appeals reversed the trial courts decision. It ruled that the series of written communications between petitioners and respondents collectively constitute a sufficient memorandum of their agreement under Article 1403 of the Civil Code; thus, respondents complaint should not have been dismissed on the ground that it was unenforceable under the Statute of Frauds. The appellate court opined that any document or writing, whether formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose which satisfies all the Statutes requirements as to contents and signature would be sufficient; and, that two or more writings properly connected could be considered together. The appellate court concluded that the letters exchanged by and between the parties, taken together, were sufficient to establish that an agreement to sell the disputed shares to respondents was reached. The Court of Appeals clarified, however, that by reversing the appealed decision it was not thereby declaring that respondents are entitled to the reliefs prayed for in their complaint, but only that the case should not have been dismissed on the ground of unenforceability under the Statute of Frauds. It ordered the remand of the case to the trial court for further proceedings. Hence, this petition. Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds requires not just the existence of any note or memorandum but that such note or memorandum should evidence an agreement to sell; and, that in this case, there was no word, phrase, or statement in the letters exchanged between the two parties to show or even imply that an agreement had been reached for the sale of the shares to respondent. Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were merely tentative and still subject to further negotiations between him and the seller. They point out that there was no meeting of the minds on the essential terms and conditions of the sale because SMAB did not accept respondents offer that consideration would be paid in Philippine pesos. Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at the same time stating that the broad terms and conditions described in their meeting were inadequate for them to make a response at that time so much so that he would have to await the corresponding specifics. Petitioners argue that the foregoing circumstances prove that they failed to reach an agreement on the sale of the Phimco shares. In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute of Frauds does not apply to the instant case. Respondents assert that the sale of the subject shares to them was perfected as shown by the following circumstances, namely: petitioners

assured them that should they increase their bid, the sale would be awarded to them and that they did in fact increase their previous bid of US$30.6 million to US$36 million; petitioners orally accepted their revised offer and the acceptance was relayed to them by Rene Dizon; petitioners directed them to proceed with the acquisition audit and to submit a comfort letter from the United Coconut Planters Bank (UCPB); petitioner corporation confirmed its previous verbal acceptance of their offer in a letter dated 11 June 1990; with the prior approval of petitioners, respondents engaged the services of Laya, Manabat, Salgado & Co., an independent auditing firm, to immediately proceed with the acquisition audit; and, petitioner corporation reiterated its commitment to be bound by the result of the acquisition audit and promised to reimburse respondents cost to the extent of US$20,000.00. All these incidents, according to respondents, overwhelmingly prove that the contract of sale of the Phimco shares was perfected. Further, respondents argued that there was partial performance of the perfected contract on their part. They alleged that with the prior approval of petitioners, they engaged the services of Laya, Manabat, Salgado & Co. to conduct the acquisition audit. They averred that petitioners agreed to be bound by the results of the audit and offered to reimburse the costs thereof to the extent of US$20,000.00. Respondents added that in compliance with their obligations under the contract, they have submitted a comfort letter from UCPB to show petitioners that the bank was willing to finance the acquisition of the Phimco shares.21 The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial courts decision dismissing the complaint for being unenforceable under the Statute of Frauds; and (2) whether there was a perfected contract of sale between petitioners and respondents with respect to the Phimco shares. The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code22 requires certain contracts enumerated therein to be evidenced by some note or memorandum in order to be enforceable. The term "Statute of Frauds" is descriptive of statutes which require certain classes of contracts to be in writing. The Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable.23 Evidence of the agreement cannot be received without the writing or a secondary evidence of its contents. The Statute, however, simply provides the method by which the contracts enumerated therein may be proved but does not declare them invalid because they are not reduced to writing. By law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable.24 Consequently, the effect of noncompliance with the requirement of the Statute is simply that no action can be enforced unless the requirement is complied with.25 Clearly, the form required is for evidentiary purposes only. Hence, if the parties permit a contract to be proved, without any objection, it is then just as binding as if the Statute has been complied with.26 The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.27 However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot rest partly in writing and partly in parol. The note or memorandum must contain the names of the parties, the terms and conditions of the contract, and a description of the property sufficient to render it capable of identification.28 Such note or memorandum must contain the essential

elements of the contract expressed with certainty that may be ascertained from the note or memorandum itself, or some other writing to which it refers or within which it is connected, without resorting to parol evidence.29 Contrary to the Court of Appeals conclusion, the exchange of correspondence between the parties hardly constitutes the note or memorandum within the context of Article 1403 of the Civil Code. Rossis letter dated 11 June 1990, heavily relied upon by respondents, is not complete in itself. First, it does not indicate at what price the shares were being sold. In paragraph (5) of the letter, respondents were supposed to submit their final offer in U.S. dollar terms, at that after the completion of the due diligence process. The paragraph undoubtedly proves that there was as yet no definite agreement as to the price. Second, the letter does not state the mode of payment of the price. In fact, Litonjua was supposed to indicate in his final offer how and where payment for the shares was planned to be made.30 Evidently, the trial courts dismissal of the complaint on the ground of unenforceability under the Statute of Frauds is warranted.31 Even if we were to consider the letters between the parties as a sufficient memorandum for purposes of taking the case out of the operation of the Statute the action for specific performance would still fail. A contract is defined as a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another, or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.32 There can be no contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; (c) cause of the obligation which is established.33Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.34 Specifically, in the case of a contract of sale, required is the concurrence of three elements, to wit: (a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) determinate subject matter, and (c) price certain in money or its equivalent.35 Such contract is born from the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.36 In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.37 A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and pave the way for the celebration of a future contract. An imperfect promise (policitacion), on the other hand, is a mere unaccepted offer.38 Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. At any time prior to the perfection of the contract, either negotiating party may stop the negotiation.39 The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal.40 An offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. Consent in a contract of sale should be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.41

Quite obviously, Litonjuas letter dated 21 May 1990, proposing the acquisition of the Phimco shares for US$36 million was merely an offer. This offer, however, in Litonjuas own words, "is understood to be subject to adjustment on the basis of an audit of the assets, liabilities and net worth of Phimco and its subsidiaries and on the final negotiation between ourselves."42 Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not. Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by 30 June 1990.43With indubitable inconsistency, respondents later claimed that for all intents and purposes, the US$36 million was their final bid. If this were so, it would be inane for Litonjua to state, as he did, in his letter dated 28 June 1990 that they would be in a position to submit their final bid only on 17 July 1990. The lack of a definite offer on the part of respondents could not possibly serve as the basis of their claim that the sale of the Phimco shares in their favor was perfected, for one essential element of a contract of sale was obviously wantingthe price certain in money or its equivalent. The price must be certain, otherwise there is no true consent between the parties.44 There can be no sale without a price.45 Quite recently, this Court reiterated the long-standing doctrine that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist since the agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.46 Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a mere offer in the absence of evidence of its acceptance. To produce a contract, there must be acceptance, which may be express or implied, but it must not qualify the terms of the offer.47 The acceptance of an offer must be unqualified and absolute to perfect the contract.48 In other words, it must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.49 Respondents attempt to prove the alleged verbal acceptance of their US$36 million bid becomes futile in the face of the overwhelming evidence on record that there was in the first place no meeting of the minds with respect to the price. It is dramatically clear that the US$36 million was not the actual price agreed upon but merely a preliminary offer which was subject to adjustment after the conclusion of the audit of the company finances. Respondents failure to submit their final bid on the deadline set by petitioners prevented the perfection of the contract of sale. It was not perfected due to the absence of one essential element which was the price certain in money or its equivalent. At any rate, from the procedural stand point, the continuing objections raised by petitioners to the admission of parol evidence50 on the alleged verbal acceptance of the offer rendered any evidence of acceptance inadmissible. Respondents plea of partial performance should likewise fail. The acquisition audit and submission of a comfort letter, even if considered together, failed to prove the perfection of the contract. Quite the contrary, they indicated that the sale was far from concluded. Respondents conducted the audit as part of the due diligence process to help them arrive at and make their final offer. On the other hand, the submission of the comfort letter was merely a guarantee that respondents had the financial capacity to pay the price in the event that their bid was accepted by petitioners. The Statute of Frauds is applicable only to contracts which are executory and not to those which have been consummated either totally or partially.51 If a contract has been totally or partially performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits already derived by him from the transaction in litigation, and at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby.52 This rule, however, is predicated on the fact of ratification of the contract within the

meaning of Article 1405 of the Civil Code either (1) by failure to object to the presentation of oral evidence to prove the same, or (2) by the acceptance of benefits under them. In the instant case, respondents failed to prove that there was partial performance of the contract within the purview of the Statute. Respondents insist that even on the assumption that the Statute of Frauds is applicable in this case, the trial court erred in dismissing the complaint altogether. They point out that the complaint presents several causes of action. A close examination of the complaint reveals that it alleges two distinct causes of action, the first is for specific performance53 premised on the existence of the contract of sale, while the other is solely for damages, predicated on the purported dilatory maneuvers executed by the Phimco management.54 With respect to the first cause of action for specific performance, apart from petitioners alleged refusal to honor the contract of salewhich has never been perfected in the first place respondents made a number of averments in their complaint all in support of said cause of action. Respondents claimed that petitioners were guilty of promissory estoppel,55 warranty breaches56 and tortious conduct57 in refusing to honor the alleged contract of sale. These averments are predicated on or at least interwoven with the existence or perfection of the contract of sale. As there was no such perfected contract, the trial court properly rejected the averments in conjunction with the dismissal of the complaint for specific performance. However, respondents second cause of action due to the alleged malicious and deliberate delay of the Phimco management in the delivery of documents necessary for the completion of the audit on time, not being based on the existence of the contract of sale, could stand independently of the action for specific performance and should not be deemed barred by the dismissal of the cause of action predicated on the failed contract. If substantiated, this cause of action would entitle respondents to the recovery of damages against the officers of the corporation responsible for the acts complained of. Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents an opportunity to substantiate their allegations with respect to its cause of action for damages against the officers of Phimco based on the latters alleged self-serving dilatory maneuvers. WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby MODIFIED insofar as it declared the agreement between the parties enforceable under the Statute of Frauds. The complaint before the trial court is ordered DISMISSED insofar as the cause of action for specific performance is concerned. The case is ordered REMANDED to the trial court for further proceedings with respect to the cause of action for damages as above specified. SO ORDERED. Puno, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

MANILA METAL CONTAINER CORPORATION, Petitioner,

G.R. No. 166862

Present: REYNALDO C. TOLENTINO, Intervenor, PANGANIBAN, C.J., Chairperson, YNARESSANTIAGO, AUSTRIA-MARTINEZ, - versus CALLEJO, SR., and CHICO-NAZARIO, JJ. PHILIPPINE NATIONAL BANK, Respondent,

DMCI-PROJECT DEVELOPERS, INC., Intervenor.

Promulgated:

December 20, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x DECISION CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. No. 46153 which affirmed the decision[2] of the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution[3] denying the motion for reconsideration filed by petitioner Manila Metal Container Corporation (MMCC).

The Antecedents

Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City), Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation ofP1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment[4] of Real Estate Mortgage over its property. On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent PNB, payable in quarterly installments of P32,650.00, plus interests and other charges.[5]

On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold at public auction for P911,532.21, petitioners outstanding obligation to respondent PNB as of June 30, 1982,[6] plus interests and attorneys fees.

After due notice and publication, the property was sold at public auction on September 28, 1982 where respondent PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale[7] issued in its favor was registered with the Office of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on February 17, 1984.

Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an extension of time to redeem/repurchase the property.[8] In its reply dated August 30, 1983, respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate action and recommendation.[9]

In a letter[10] dated February 10, 1984, petitioner reiterated its request for a one year extension from February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its

request to repurchase the property on installment.[11] Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does not accept partial redemption.[12]

Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of respondent PNB.[13] Petitioners offers had not yet been acted upon by respondent PNB.

Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account, and as of June 25, 1984 petitioners obligation amounted to P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes, registration expenses, miscellaneous expenses and publication cost.[14] When apprised of the statement of account, petitioner remitted P725,000.00 to respondent PNB as deposit to repurchase, and Official Receipt No. 978191 was issued to it.[15]

In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB management informed petitioner that it was rejecting the offer and the recommendation of

the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property would be sold to other interested buyers.[16]

Petitioner, however, did not agree to respondent PNBs proposal. Instead, it wrote another letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property forP2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to purchase the property.[17] OnFebruary 25, 1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner declared that it had already agreed to the SAMDs offer to purchase the property for P1,574,560.47, and that was why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on the position.[18]

On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioners offer to purchase the property, but forP1,931,389.53 in cash less the P725,000.00 already deposited with it.[19] On page two of the letter was a space above the typewritten name of petitioners President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did not conform to the letter but merely indicated therein that he had received it.[20] Petitioner did not respond, so PNB requested petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase.

Petitioner rejected respondents proposal in a letter dated July 14, 1988. It maintained that respondent PNB had agreed to sell the property forP1,574,560.47, and that since its P725,000.00 downpayment had been accepted, respondent PNB was proscribed from increasing the purchase price of the property.[21] Petitioner averred that it had a net balance payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioners offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.[22]

On August 28, 1989, petitioner filed a complaint against respondent PNB for Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages. To support its cause of action for specific performance, it alleged the following:

34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the substantial amount of P725,000.00 for the redemption/repurchase price ofP1,574,560.47 as approved by its SMAD and considering the reliance made by Manila Metal and the long time that has elapsed, the approval of the higher management of the Bank to confirm the agreement of its SMAD is clearly a potestative condition which cannot legally prejudice Manila Metal which has acted and relied on the approval of SMAD. The Bank cannot take advantage of a condition which is entirely dependent upon its own will after accepting and benefiting from the substantial payment made by Manila Metal.

35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from Manila Metal. PNB cannot take advantage of its own delay and long inaction in demanding a higher amount based on unilateral computation of interest rate without the consent of Manila Metal.

Petitioner later filed an amended complaint and supported its claim for damages with the following arguments:

36. That in order to protect itself against the wrongful and malicious acts the defendant Bank, plaintiff is constrained to engage the services counsel at an agreed fee ofP50,000.00 and to incur litigation expenses at least P30,000.00, which the defendant PNB should be condemned pay the plaintiff Manila Metal.

of of of to

37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal suffered besmirched reputation for which defendant PNB is liable for moral damages of at least P50,000.00.

38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible, exemplary damages should be awarded in favor of the plaintiff by way of example or correction for the public good of at least P30,000.00.[23]

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:
a) Declaring the Amended Real Estate Mortgage (Annex A) null and void and without any legal force and effect.

b)

Declaring defendants acts of extra-judicially foreclosing the mortgage over plaintiffs property and setting it for auction sale null and void.

c)

Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO. 43792) covering the property described in paragraph 4 of the Complaint, to reinstate TCT No. 37025 in the name of Manila Metal and to cancel the annotation of the mortgage in question at the back of the TCT No. 37025 described in paragraph 4 of this Complaint.

d)

Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025 described in paragraph 4 of this Complaint to the plaintiff Manila Metal.

e)

Ordering the defendant PNB to pay the plaintiff Manila Metals actual damages, moral and exemplary damages in the aggregate amount of not less than P80,000.00 as may be warranted by the evidence and fixed by this Honorable Court in the exercise of its sound discretion, and attorneys fees of P50,000.00 and litigation expenses of at least P30,000.00 as may be proved during the trial, and costs of suit.

Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises.[24]

In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem the property had expired.

During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts.[25] The parties agreed to limit the issues to the following:

1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiffs offer to purchase the property is still valid and legally enforceable.

2. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with the conditions set forth by the defendant in its letter dated June 4, 1985.

3. Whether or not there is a perfected contract of sale between the parties.[26]

While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate the property within 15 days from notice,[27] but petitioners refused to do so.

On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.[28] The offer was however rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing market value of the property was approximately P30,000,000.00, and as a matter of policy, it could not sell the property for less than its market

value.[29] On June 21, 1993, petitioner offered to purchase the property for P4,250,000.00 in cash.[30] The offer was again rejected by respondent PNB on September 13, 1993.[31]

On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent PNBs counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had made.[32] The trial court ruled that there was no perfected contract of sale between the parties; hence, petitioner had no cause of action for specific performance against respondent. The trial court declared that respondent had rejected petitioners offer to repurchase the property. Petitioner, in turn, rejected the terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had offered to repurchase the property per its letter of

July 14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which respondent PNB had demanded. It further declared that the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985 was a deposit, and not a downpayment or earnest money.

On appeal to the CA, petitioner made the following allegations:

I THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEES LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFFAPPELLANTS OFFER TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE.

II THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE.

III THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET FORTH BY DEFENDANTAPPELLEE IN ITS LETTER DATED 4 JUNE 1985.

IV THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE.

V THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE.

VI THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER.

VII THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFF-APPELLANT.

VIII THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES, ATTOTRNEYS FEES AND LITIGATION EXPENSES.[33]

Meanwhile, on June 17, 1993, petitioners Board of Directors approved Resolution No. 3-004, where it waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one of its Directors.[34] Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the ownership and management of the property in favor of Reynaldo Tolentino, who later moved for leave to intervene as plaintiffappellant. On July 14, 1993, the CA issued a resolution granting the motion,[35] and likewise granted the motion of Reynaldo Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as intervenor.[36]

The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.[37] It declared that petitioner obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of the minds between the parties as to the price or consideration of the sale.

The CA ratiocinated that petitioners original offer to purchase the subject property had not been accepted by respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically on the selling price; petitioner did not agree to the counter-offer; and the

negotiations did not prosper. Moreover, petitioner did not pay the balance of the purchase price within the sixty-day period set in the June 4, 1985 letter of respondent PNB. Consequently, there was no perfected contract of sale, and as such, there was no contract to rescind.

According to the appellate court, the claim for damages and the counterclaim were correctly dismissed by the court a quo for no evidence was presented to support it. Respondent PNBs letter dated June 30, 1988 cannot revive the failed negotiations between the parties. Respondent PNB merely asked petitioner to submit an amended offer to repurchase. While petitioner reiterated its request for a lower selling price and that the balance of the repurchase be reduced, however, respondent rejected the proposal in a letter dated August 1, 1989.

Petitioner filed a motion for reconsideration, which the CA likewise denied.

Thus, petitioner filed on certiorari, alleging that:

the

instant

petition

for

review

I.

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT.

II.

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.

III.

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE OF THE PETITIONERAPPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNBS JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.

IV.

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.

V.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED CONTRACT OF SALE.[38]

The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected contract for petitioner to repurchase the property from respondent.

Petitioner maintains that it had accepted respondents offer made through the SAMD, to sell the property for P1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it then deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt No. 978194 which respondent had issued. Petitioner avers that the SAMDs acceptance of the deposit amounted to an acceptance of its offer to repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioners offer to purchase the property. It claims that this was the suspensivecondition, the fulfillment of which gave rise to the contract. Respondent could no longer unilaterally withdraw its offer to sell the property for P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of sale; it was obliged to remit to respondent the balance of the original purchase price ofP1,574,560.47, while respondent was obliged to transfer ownership and deliver the property to petitioner, conformably with Article 1159 of the New Civil Code.

Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted respondents offer to sell the

property forP1,574,560.00. Consequently, respondent could no longer validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise maintains that, although the P725,000.00 was considered as deposit for the repurchase of the property in the receipt issued by the SAMD, the amount constitutes earnest money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco[39] and Topacio v. Court of Appeals.[40]

Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its failure to pay the balance of the price as fixed by respondent within the 60-day period from notice was to protest respondents breach of its obligation to petitioner. It did not amount to a rejection of respondents offer to sell the property since respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47. In any event, respondent had the option either to accept the balance of the offered price or to cause the rescission of the contract.

Petitioners letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the case in the RTC were merely to compromise the pending lawsuit, they did not constitute separate offers to repurchase the property. Such offer to compromise should not be taken against it, in accordance with Section 27, Rule 130 of the Revised Rules of Court.

For its part, respondent contends that the parties never graduated from the negotiation stage as they could not agree on the amount of the repurchase price of the property. All that transpired was an exchange of proposals and counter-proposals, nothing more. It insists that a definite agreement on the amount and manner of payment of the price are essential elements in the formation of a binding and enforceable contract of sale. There was no such agreement in this case. Primarily, the concept of suspensive condition signifies a future and uncertain event upon the fulfillment of which the obligation becomes effective. It clearly presupposes the existence of a valid and binding agreement, the effectivity of which is subordinated to its fulfillment. Since there is no perfected contract in the first place, there is

no basis for the application suspensive conditions.

of

the

principles

governing

According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary claims against petitioner. Moreover, the amount stated therein could not likewise be considered as the counter-offer since as admitted by petitioner, it was only recommendation which was subject to approval of the PNB Board of Directors.

Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale contract. As gleaned from the parties Stipulation of Factsduring the proceedings in the court a quo, the amount is merely an acknowledgment of the receipt of P725,000.00 as deposit to repurchase the property. The deposit of P725,000.00 was accepted by respondent on the condition that the purchase price would still be approved by its Board of Directors. Respondent maintains that its acceptance of the amount was qualified by that condition, thus not absolute. Pending such approval, it cannot be legally claimed that respondent is already bound by any contract of sale with petitioner.

According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its authority is limited to administering, managing and preserving the properties and other special assets of PNB. The SAMD does not have the power to sell, encumber, dispose of, or otherwise alienate the assets, since the power to do so must emanate from its Board of Directors. The SAMD was not authorized by respondents Board to enter into contracts of sale with third persons involving corporate assets. There is absolutely nothing on record that respondent authorized the SAMD, or made it appear to petitioner that it represented itself as having such authority.

Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved by the Board subject to the condition, among others, that the selling price shall be the total banks claim as of documentation date x x x payable in cash (P725,000.00 already deposited)

within 60 days from notice of approval. A new Statement of Account was attached therein indicating the total banks claim to be P1,931,389.53 less deposit ofP725,000.00, or P1,206,389.00. Furthermore, while respondents Board of Directors accepted petitioners offer to repurchase the property, the acceptance was qualified, in that it required a higher sale price and subject to specified terms and conditions enumerated therein. This qualified acceptance was in effect a counter-offer, necessitating petitioners acceptance in return.

The Ruling of the Court

The ruling of the appellate court that there was no perfected contract of sale between the parties on June 4, 1985 is correct.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.[41] Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur:

(1)

Consent of the contracting parties;

(2)

Object certain which is the subject matter of the contract;

(3)

Cause of the obligation which is established.

Contracts are perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.[42] Once perfected, they bind other contracting parties and the obligations arising therefrom have the form of law between the parties and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.[43]

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing, and the other to paytherefor a price certain in money or its equivalent.[44] The absence of any of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:[45]

A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.[46]

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract.[47] When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.[48]

In San Miguel Properties Philippines, Inc. v. Huang,[49] the Court ruled that the stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and (3)consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof.

A negotiation is formally initiated by an offer, which, however, must be certain.[50] At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa Properties, Inc. v. Court of Appeals,[51] the Court ruled that:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale.[52]

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counteroffer is considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis.[53] Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer.[54] The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.

In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since it lacked the resources, it requested for more time to redeem/repurchase the property under such terms and conditions agreed upon by the parties.[55] The request, which was made through a letter dated August 25, 1983, was referred to the respondents main branch for appropriate action.[56] Before respondent could act on the request, petitioner again wrote respondent as follows:

1. Upon approval of our your goodselves ONE HUNDRED (P150,000.00);

&

request, FIFTY

we will pay THOUSAND PESOS

2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and

3. The remaining balance together with the interest and other expenses that will be incurred will be paid within the last six months of the one year grave period requested for.[57]

When the petitioner was told that respondent did not allow partial redemption,[58] it sent a letter to respondents President reiterating its offer to purchase the property.[59] There was no response to petitioners letters dated February 10 and 15, 1984.

The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25, 1984 was P1,574,560.47 cannot be considered an unqualified acceptance to petitioners offer to purchase the property. The statement is but a computation of the amount which petitioner was obliged to pay in case respondent would later agree to sell the property, including interests, advances on insurance premium, advances on realty taxes, publication cost, registration expenses and miscellaneous expenses.

There is no evidence that the SAMD was authorized by respondents Board of Directors to accept petitioners offer and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioners offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:[60]

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with the performance of authorized duties of such director, are held not binding on the corporation.

Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when authorized by a board resolution or its by-laws.[61]

It appears that the SAMD had prepared a recommendation for respondent to accept petitioners offer to repurchase the property even beyond the one-year period; it recommended that petitioner be allowed to redeem the property and pay P1,574,560.00 as the purchase price. Respondent later approved the recommendation that the property be sold to petitioner. But instead of the P1,574,560.47 recommended by the SAMD and to which petitioner had previously conformed, respondent set the purchase price at P2,660,000.00. In fine, respondents acceptance of petitioners offer was qualified, hence can be at most considered as a counter-offer. If petitioner had accepted this counteroffer, a perfected contract of sale would have arisen; as it turns out, however, petitioner merely sought to have the counter-offer reconsidered. This request for reconsideration would later be rejected by respondent.

We do not agree with petitioners contention that the P725,000.00 it had remitted to respondent was earnest money which could be considered as proof of the perfection of a contract of sale under Article 1482 of the New Civil Code. The provision reads:

ART. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract.

This contention is likewise negated by the stipulation of facts which the parties entered into in the trial court:

8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated Statement of Account showing MMCCs total liability to PNB as of June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase price of the subject property.

9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The deposit of P725,000 was accepted by PNB on the condition that the purchase price is still subject to the approval of the PNB Board.[62]

Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property, in the event that respondent would approve the recommendation of SAMD for respondent to accept petitioners offer to purchase the property for P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no perfected contract of sale would arise. Absent proof of the concurrence of all the essential elements of a contract of sale, the giving of earnest money cannot establish the existence of a perfected contract of sale.[63]

It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the offer to purchase the property for P1,931,389.53. However, this amounted to an amendment of respondents qualified acceptance, or an amended counter-offer, because while the respondent lowered the purchase price, it still declared that its acceptance was subject to the following terms and conditions:

1.

That the selling price shall be the total Banks claim as of documentation date (pls. see attached statement of account as of 5-3185), payable in cash (P725,000.00 already deposited) within sixty (60) days from notice of approval;

2.

The Bank sells only whatever rights, interests and participation it may have in the property and you are charged with full knowledge of the nature and extent of said rights, interests and participation and waive your right to warranty against eviction.

3.

All taxes and other government imposts due or to become due on the property, as well as expenses including costs of documents and science stamps, transfer fees, etc., to be incurred in connection with the execution and registration of all covering documents shall be borne by you;

4.

That you shall undertake at your own expense and account the ejectment of the occupants of the property subject of the sale, if there are any;

5.

That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of advice accepting your offer, your deposit shall be forfeited and the Bank is thenceforth authorized to sell the property to other interested parties.

6.

That the sale shall be subject to such other terms and conditions that the Legal Department may impose to protect the interest of the Bank.[64]

It appears that although respondent requested petitioner to conform to its amended counter-offer, petitioner refused and instead requested respondent to reconsider its amended counter-

offer. Petitioners request was ultimately rejected and respondent offered to refund its P725,000.00 deposit.

In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject property.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation.

TRADERS ROYAL BANK, Petitioner,

G.R. No. 174286 Present: QUISUMBING, Chairperson, YNARES-SANTIAGO, VELASCO, JR., ** LEONARDO-DE CASTRO, and BRION, JJ.
*

- versus -

CUISON LUMBER CO., INC., and JOSEFA JERODIAS VDA. DE CUISON, Respondents.

Promulgated: June 5, 2009

DECISION BRION, J.: We review in this petition for review on certiorari[1] the decision[2] and resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 49900. The CA affirmed with modifications the decision[4] of the Regional Trial Court (RTC), Davao City, Branch 13. The RTC ruled in favor of respondents Cuison Lumber Co., Inc. (CLCI) and Josefa Vda. De Cuison (Mrs. Cuison), collectively referred to as respondents, in the action they commenced for breach of contract, specific performance, damages, and attorneys fees, with prayer for the issuance of a writ of preliminary injunction against petitioner Traders Royal Bank (bank).

THE BACKGROUND FACTS

On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then president, Roman Cuison Sr., obtained two loans from the bank. The loans were secured by a real estate mortgage over a parcel of land covered by Transfer Certificate of Title No. 10282 (subject property). CLCI failed to pay the loan, prompting the bank to extrajudicially foreclose the mortgage on the subject property. The bank was declared the highest bidder at the public auction that followed, conducted on August 1, 1985. A Certificate of Sale and a Sheriffs Final Certificate of Sale were subsequently issued in the banks favor. In a series of written communications between CLCI and the bank, CLCI manifested its intention to restructure its loan obligations and to repurchase the subject property. On July 31, 1986, Mrs. Cuison, the widow and administratrix of the estate of Roman Cuison Sr., wrote the banks Officer-in-Charge, Remedios Calaguas, a letter indicating her offered terms of repurchase. She stated:
1. That I will pay the interest of P115,538.66, plus the additional expenses of P17,293.69, the total amount of which is P132,832.35 on August 8, 1986; That I will pay 20% of the bid price of P949,632.84, plus whatever interest accruing within sixty (60) days from August 8, 1986; That whatever remaining balance after the above two (2) payments shall be amortized for five (5) years on equal monthly installments including whatever interest accruing lease on diminishing balance.[5]

2.

3.

CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00 (on September 3, 1986). The bank received and regarded these amounts as earnest money for the repurchase of the subject property. On October 20, 1986, the bank sent Atty. Roman Cuison, Jr. (Atty. Cuison), as the president and general manager of CLCI, a letter informing CLCI of the banks board of directors resolution of October 10, 1986 (TRB Repurchase Agreement), laying down the conditions for the repurchase of the subject property:
This is to formally inform you that our Board of Directors, in its regular meeting held on October 10, 1986, passed a resolution for the repurchase of your property acquired by the bank, subject to the following terms and conditions, viz:

1. That the repurchase price shall be at total banks claim as of the date of implementation; 2. That client shall initially pay P132,000.00 within fifteen (15) days from the expiration of the redemption period (August 8, 1986) and further payment of P200,632.84, representing 20% of the bid price, to be remitted on or before October 31, 1986; 3. That the balance of P749,000.00 to be paid in three (3) years in twelve (12) quarterly amortizations, with interest rate at 26% computed on diminishing balance; 4. That all the interest and other charges starting from August 8, 1986 to date of approval shall be paid first before implementation of the request; interest as of October 31, 1986 is P65,669.53; 5. Possession of the property shall be deemed transferred after signing of the Contract to Sell. However, title to the property shall be delivered only upon full payment of the repurchase price via Deed of Absolute Sale; 6. Registration fees, documentary stamps, transfer taxes at the date of sale and other similar government impost shall be for the exclusive account of the buyer; 7. The improvement of the property shall at all times be covered by insurance against loss with a policy to be obtained from a reputable company which designates the bank as beneficiary but premiums shall be paid by the client; 8. That the sale is good for thirty (30) days from the buyers receipt of notice of approval of the offer; otherwise, sale is automatically cancelled; 9. Effective upon signing of the Contract to Sell, all realty taxes which will become due on the property shall be for the account of the buyer; 10. That the first quarterly installment shall be due within ninety (90) days of approval hereof, and the succeeding installment shall be due every three (3) months thereafter; 11. Upon default of the buyer to pay two (2) successive quarterly installments, contract is automatically cancelled at the Banks option and all payments already made shall be treated as rentals or as liquidated damages; and 12. Other terms and conditions that the bank may further impose to protect its interest. Should you agree with the above terms and conditions please sign under Conforme on the space provided below.

We attach herewith your Statement of Account[6] as of October 31, 1986, for your reference. Thank you. Very truly yours, (Signed) Conforme: (Not signed)[7]

CLCI failed to comply with the above terms notwithstanding the extensions of time given by the bank. Nevertheless, CLCI tendered, on February 3, 1987, a check for P135,091.57 to cover fifty percent (50%) of the twenty percent (20%) bid price. The check, however, was returned for insufficiency of funds. On May 13, 1987, CLCI tendered an additional P50,000.00.[8] On May 29, 1987, the bank sent Atty. Cuison a letter informing him that the P185,000.00 CLCI paid was not a deposit, but formed part of the earnest money under the TRB Repurchase Agreement. On August 28, 1987, Atty. Cuison, by letter, requested that CLCIs outstanding obligation of P1,221,075.61 (as of July 31, 1987) be reduced to P1 million, and the amount of P221,075.61 be condoned by the bank. To show its commitment to the request, CLCI paid the bank P100,000.00 and P200,000.00 on August 28, 1987. The bank credited both payments as earnest money. A year later, CLCI inquired about the status of its request. The bank responded that the request was still under consideration by the banks Manila office. On September 30, 1988, the bank informed CLCI that it would resell the subject property at an offered price of P3 million, and gave CLCI 15 days to make a formal offer; otherwise, the bank would sell the subject property to third parties. On October 26, 1988, CLCI offered to repurchase the subject property for P1.5 million, given that it had already tendered the amount of P400,000.00 as earnest money. CLCI subsequently claimed that the bank breached the terms of repurchase, as it had wrongly considered its payments (in the amounts of P140,485.18,P200,000.00 and P100,000.00) as earnest money, instead of applying them to the purchase price. Through its counsel, CLCI demanded that the bank rectify the repurchase agreement to reflect the true consideration agreed upon for which the earnest money had been given. The bank did not act on the demand. Instead, it informed CLCI that the amounts it received were not earnest money, and that the bank was willing to return these sums, less the amounts forfeited to answer for the unremitted rentals on the subject property.

In view of these developments, CLCI and Mrs. Cuison, on February 10, 1989, filed with the RTC a complaint for breach of contract, specific performance, damages, and attorneys fees against the bank. On April 20, 1989, the bank filed its Answer alleging that the TRB repurchase agreement was already cancelled given CLCIs failure to comply with its provisions; by way of counterclaim, the bank also demanded the payment of the accrued rentals in the subject property as of January 31, 1989, and the award of moral damages and exemplary damages as well as attorneys fees and litigation expenses for the unfounded suit instituted against the bank by CLCI.[9] After trial on the merits, the RTC ruled in respondents favor. The dispositive portion of its November 4, 1994 Decision states:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against the defendant bank, ordering said defendant bank to: 1. Execute and consummate a Contract to Sell which is reflective of the true consideration indicated in the Resolution of the Board of Directors of Traders Royal Bank held on October 10, 1986 (Exhibit F and Exhibit 13), duly accrediting the amount of P435,000 as earnest money to be part of the price, the mode of payment being on quarterly installment, but the period within which the first quarterly payment being on quarterly payment shall be made to commence upon the execution of said Contract to Sell; 2. Pay to plaintiffs the amounts of P50,000.00 in concept of moral damages, P20,000.00 as exemplary damages; 3. Pay attorneys fees of P20,000.00; and 4. Pay litigation expenses in the amount of P2,000.00. The counterclaim of defendant bank is hereby dismissed. SO ORDERED.

On appeal to the CA, the bank pointed out the misappreciation of facts the RTC committed and argued that: first, the repurchase agreement did not ripen into a perfected contract; and second, even assuming that there was a perfected repurchase agreement, the bank had the right to revoke it and apply the payments already made to the rentals due for the use of the subject property, or as liquidated damages under paragraph 11 of the TRB Repurchase Agreement, since CLCI violated its terms and conditions. Further, the bank contended that CLCI had abandoned the TRB Repurchase Agreement in its letters dated August

28, 1987 and October 26, 1988 when it proposed to repurchase the subject property for P1 million and P1.5 million, respectively. Lastly, the bank objected to the award of damages in the plaintiffs favor. THE CA DECISION

On March 31, 2006, the CA issued the challenged Decision and affirmed the RTCs factual findings and legal conclusions. Although it deleted the awards of attorneys fees, moral and exemplary damages, the CA ruled that there was a perfected contract to repurchase the subject property given the banks acceptance (as stated in the letter dated October 20, 1986) of CLCIs proposal contained in Mrs. Cuisons letter of July 31, 1986. The CA distinguished between a condition imposed on the perfection of the contract and a condition imposed on the performance of an obligation, and declared that the conditions laid down in the letter dated October 20, 1986 merely relate to the manner the obligation is to be performed and implemented; failure to comply with the latter obligation does not result in the failure of the contract and only gives the other party the options and/or remedies to protect its interest. The CA held that the same conclusion obtains even if the letter of October 20, 1986 is considered a counter-offer by the bank; CLCIs payment of P135,000.00 operated as an implied acceptance of the banks counter-offer, notwithstanding CLCIs failure to expressly manifest its conforme. In light of these findings, the CA went on to acknowledge the validity of the terms of paragraph 11 of the TRB Repurchase Agreement, but nonetheless held that CLCI has not yet violated its terms given the banks previous acts (i.e., the grant of extensions to pay), which showed that it had waived the agreements original terms of payment. The CA rejected the theory that CLCI had abandoned the terms of the TRB Repurchase Agreement and found no incompatibility between the agreement and the contents of the August 28, 1987 and October 26, 1988 letters which did not show an implied abandonment by CLCI, nor the latters expressed intent to cancel or abandon the perfected repurchase agreement. In the same manner, the CA struck down the banks position that CLCIs payments were deposits rather than earnest money. The appellate court reasoned that while the amounts tendered cannot be strictly considered as earnest money under Article 1482 of the New Civil Code,[10] they were nevertheless within the concept of earnest money under this Courts ruling in Spouses Doromal, Sr. v. CA,[11] since they were paid as a guarantee so that the buyer would not back out of the contract.

The CA however ruled that the award of moral and exemplary damages, attorneys fees and litigation expenses lacked factual and legal support. The CA found that the bank acted in good faith and based its actions on the erroneous belief that CLCI had already abandoned the repurchase agreement. Likewise, the award of moral damages was not in order as there was no showing that CLCIs reputation was debased or besmirched by the banks action of applying the previous payments made to the interest and rentals due on the subject property; neither is Mrs. Cuison entitled to moral damages without any evidence to justify this award. The CA also ruled that there was nothing in the records to warrant the awards of exemplary damages and attorneys fees. The bank subsequently moved but failed to secure a reconsideration of the CA decision. The bank thus came to us with the following ISSUES I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN APPREHENDING THE SIGNIFICATION (SIC) OF THE TERM OFFER ON THE ONE HAND AND ACCEPTANCE ON THE OTHER HAND IN SALES CONTRACT WHICH ERROR LED IT TO ARRIVE AT A WRONG CONCLUSION OF LAW. II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS INTERPRETATION OF THE STIPULATIONS AND TERMS AND CONDITIONS EMBODIED IN THE PROPOSED REPURCHASE AGREEMENT xxx WHICH LED IT TO ERRONEOUSLY CONCLUDE THAT THERE WAS A PERFECTED REPURCHASE AGREEMENT BETWEEN RESPONDENTS AND PETITIONER AND WHICH INTERPRETATION IS NOT IN ACCORDANCE WITH THE APPLICABLE LAW AND ESTABLISHED JURISPRUDENCE.

Reduced to the most basic, the main issue posed is whether or not a perfected contract of repurchase existed and can be enforced between the parties.

THE COURTS RULING

We GRANT the petition.

The case presents to us as threshold issue the presence or absence of consent as a requisite for a perfected contract to repurchase the subject property. The RTC ruled that a perfected contract existed based mainly on the following facts: first, the existence of the TRB Repurchase Agreement which clearly depicts the repurchase agreement of the subject property under the terms therein embodied; and second, the payment of earnest money in the total amount of P435,000.00 which forms part of the price and, as initial payment, is proof of the perfection of the contract.[12] In concurring with the foregoing findings on appeal, the CA, in turn, declared that there was a meeting of the minds between the parties on the offer and acceptance

for the repurchase of the subject property under the following quoted facts:
It may be recalled that it was Mrs. Cuison, through her letter of July 31, 1986, who proposed to repurchase the foreclosed property. She in fact had tendered right away an amount of P50,000.00 as partial payment of the P132,000.00 she had promised to pay as initial payment. In response, TRB sent a letter dated October 20, 1986 to Atty. Cuison informing him of the resolution passed by the Board of Directors of TRB acknowledging the proposal of Ms. Cuison to repurchase the property. Under the circumstance, the proposal made by Ms. Cuison constituted the offer contemplated by law, and the reply of TRB was the corresponding acceptance of the proposaloffer. x x x

Conceding arguendo that TRBs letter-response October 20, 1986 constituted a counter-offer or politacion, CLCIs ensuing remittance of P135,000.00 as initial payment of the price, operates effectively as an implied acceptance of TRBs counter-offer. The absence of a signature to signify plaintiffs conforme to the repurchase agreement is of no moment. While the conforme portion of the subject repurchase agreement indeed bears no signature at all, this fact, however, does not detract from the accomplished fact that plaintiffs had acquiesced or assented to the standing conditional counter-offer of TRB. Plaintiffs conforme would at best be a mere formality considering that the repurchase agreement had already been perfected, if impliedly.[13]

Based on these findings, the crucial points that the lower courts apparently considered were Mrs. Cuisons letter of July 31, 1986 to the bank; the banks letter of October 20, 1986 to CLCI; and the parties subsequent conduct showing their acknowledgement of the existence of their agreement, specifically, the respondents payments (designated as earnest money) and the banks acceptance of these payments. However, unlike the RTCs conclusion that relied on CLCIs payment and the banks acceptance of the payment as earnest money, the CA concluded that there was a perfected contract, either because of the banks acceptance of CLCIs offer (made through Mrs. Cuisons letter of July 31, 1986), or by CLCIs implied acceptance indicated by its initial payments in compliance with the terms of the TRB Repurchase Agreement. The petitioner bank, of course, argues differently and concludes that the undisputed facts of the case show that there was no meeting of the minds between the parties given CLCIs failure to give its consent and conformity to the banks letter of October 20, 1986, confirmed by the testimony of Atty. Cuison, no less, when he denied that CLCI consented to the agreements terms of implementation.

Our task in this petition for review on certiorari is not to review the factual findings of the CA and the RTC, but to determine whether or not, on the basis of the said findings, the conclusions of law reached by the said courts are correct. Under the law, a contract is perfected by mere consent, that is, from the moment that there is a meeting of the offer and the acceptance upon the thing and the cause that constitute the contract.[14] The law requires that the offer must be certain and the acceptance absolute and unqualified.[15] An acceptance of an offer may be express and implied; a qualified offer constitutes a counteroffer.[16] Case law holds that an offer, to be considered certain, must be definite,[17]while an acceptance is considered absolute and unqualified when it is identical in all respects with that of the offer so as to produce consent or a meeting of the minds.[18] We have also previously held that the ascertainment of whether there is a meeting of minds on the offer and acceptance depends on the circumstances surrounding the case.[19] In Villonco Realty Co. v. Bormacheco,[20] the Court found a perfected contract of sale between the parties after considering the parties written communications showing the offer (counter-offer) and acceptance by the seller who formally manifested his conformity with the offer in the buyers letter. We took note of the acts of the parties the payment of the buyer of an amount representing the partial payment under the contract; the acceptance of the partial payment by the seller; the allowance of the buyer for the seller to encash the check containing the partial payment; the subsequent return of the amount representing the partial payment by the buyer with the corresponding interest stated in the buyers letter (offer) and considered them evidence of the perfection of the sale. Under these circumstances, we also declared that a change in a phrase in the offer to purchase, that does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender of a counteroffer. In Schuback & Sons Philippine Trading Corp. v. CA,[21] we declared a meeting of minds between the vendor and the vendee even though the quantity of goods purchased had not been fully determined. We noted that the vendee, after expressing his intention to purchase the merchandise, simultaneously enclosed a purchase order whose receipt prompted the vendor to immediately order the merchandise. We also took into account the act of the vendee in requesting for a discount as proof of his acceptance of the quoted price.

Yuviengco v. Dacuycuy[22] yielded a different result, as we considered that the letter and telegrams sent by the parties to each other showed that there was no meeting of minds in the absence of an unconditional acceptance to the terms of the contract of sale; otherwise, the buyers would not have included the phrase to negotiate details when they agreed to the property that was subject of the proposed contract. Similarly, in Philippine National Bank v. CA,[23] we ruled that there was no perfected contract of sale because the specified terms and conditions imposed under the facts of the case constituted counter-offers against each other that were not accepted by either of the parties. This case involved a first contract, involving the same property, which the parties mutually cancelled; we said that the terms of this earlier contract cannot be considered in determining the acceptance and compliance with the terms of a proposed second contract a distinct and separate contract from the one earlier aborted. The incomplete details of the agreement led us to conclude in Insular Life Assurance Co. Ltd. v. Assets Builders Corp.[24] that no perfected contract existed; there were other matters or details in addition to the subject matter and the consideration [that] would be stipulated and agreed. We likewise considered the subsequent acts between the parties and the existence of a second proposal which belied the perfection of any initial contract. The recent Navarra v. Planters Development Bank[25] is another case where we saw no perfected contract, as the offer was incomplete for lack of agreed details on the manner of paying the purchase price; there was also no acceptance as the letter of Planters Development Bank indicated the need to discuss other details of the transaction. All these cases illustrate the rule that the concurrence of the offer and acceptance is vital to the birth and the perfection of a contract. The clear and neat principle is that the offer must be certain and definite with respect to the cause or consideration and object of the proposed contract, while the acceptance of this offer express or implied must be unmistakable, unqualified, and identical in all respects to the offer. The required concurrence, however, may not always be immediately clear and may have to be read from the attendant circumstances; in fact, a binding contract may exist between the parties whose minds have met, although they did not affix their signatures to any written document.[26]

The facts of the present case, although ambivalent in some respects, point on the whole to the conclusion that both parties agreed to the repurchase of the subject property. A reading of the petitioners letter of October 20, 1986 informing CLCI that the banks board of directors passed a resolution for the repurchase of [your] property shows that the tenor of acceptance, except for the repurchase price, was subject to conditions not identical in all respects with the CLCIs letter-offer of July 31, 1986. In this sense, the banks October 20, 1986 letter was effectively a counter-offer that CLCI must be shown to have accepted absolutely and unqualifiedly in order to give birth to a perfected contract. Evidence exists showing that CLCI did not sign any document to show its conformity with the banks counter-offer. Testimony also exists explaining why CLCI did not sign; Atty. Cuison testified that CLCI did not agree with the implementation of the repurchase transaction since the bank made a wrong computation.[27] These indicators notwithstanding, we find that CLCI accepted the terms of the TRC Repurchase Agreement and thus unqualifiedly accepted the banks counter-offer under the TRB Repurchase Agreement and, in fact, partially executed the agreement, as shown from the following undisputed evidence: (a) The letter-reply dated November 29, 1986 of Atty. Cuison, as president and general manager of CLCI, to the bank (in response to the banks demand letter dated November 27, 1986 to pay 20% of the bid price); CLCI requested an extension of time, until the end of December 1986, to pay its due obligation;[28]

(b) Mrs. Cuisons letter-reply of February 3, 1987 (to the banks letter of January 13, 1987) showed that she acknowledged CLCIs failure to comply with its requested extension and proposed a new payment scheme that would be reasonable given CLCIs critical economic difficulties; Mrs. Cuizon tendered a check for P135,091.57, which represented 50% of the 20% bid price;[29] (c) The CLCIs continuous payments of the repurchase price after their receipt of the banks letter of October 20, 1986;

(d) CLCIs possession of the subject property pursuant to paragraph 5 of the TRB Repurchase Agreement, notwithstanding the absence of a signed contract to sell between the parties;

x x x We counted the following facts, too, as indicators leading to the conclusion that a perfected contract existed: CLCI did not raise any objection to the terms and conditions of the TRB Repurchase Agreement, and instead, unconditionally paid without protests or objections[30]; CLCIs acknowledgment of their obligations under the TRB Repurchase Agreement (as shown by Atty. Cuisons letter of November 29, 1986); and Atty. Cuisons admission that the TRB Repurchase Agreement was already a negotiated agreement between CLCI and the bank, as shown by the following testimony:
Q A When you received this document, this Exh. F from the defendant bank, did you already consider this as an agreement? We consider that as a negotiated agreement pending the documentation of the formal contract to sell which is stated under the repurchase agreement.

In other words, at the time you received this document Exh. F, which was on October 23, 1986 date of receipt, was there already a meeting of the minds between the parties? A That is precisely we put [sic] the earnest money because we were of the opinion that the bank is already agreeable to the implementation of the repurchase agreement. x x x COURT Q Q A Insofar as Exh. F is concerned? There was initially, that is precisely we [sic] deposited in consideration [31] of the repurchase agreement.

The bank, for its part, showed its recognition of the existence of a repurchase agreement between itself and CLCI by the following acts: (a) The letter dated November 27, 1986 of the bank, reminding CLCI that it was remiss in its commitments to pay 20% of the bid price under the terms of the TRB Repurchase Agreement; (b) In the same letter, the bank gave CLCI an extension of time (until November 30, 1986) to comply with its past due obligations under the agreement; (c) The banks acceptance of CLCIs payments as earnest money for the repurchase of the property;

(d) CLCIs continued possession of the subject property with the banks consent; (e) The banks grant of extensions to CLCI for the payment of its obligations under the contract; (f) The Statement of Account dated July 31, 1987 showing that the bank applied CLCIs payments according to the terms of the TRB Repurchase Agreement; (g) The letter of January 26, 1989 of the banks counsel, Atty. Abarquez, addressed to CLCIs counsel, showing the banks recognition that there was an agreement between the bank and CLCI, which the latter failed to honor; and (h) The testimonies of the banks witnesses Mr. Eulogio Giramis[32] and Ms. Arlene Aportadera,[33] the banks employees who handled the CLCI transactions who admitted the existence of the repurchase agreement with CLCI and the latters failure to comply with the agreements terms.

Admittedly, some evidence on record may be argued to point to the absence of a meeting of the minds (more particularly, the previous offers made by CLCI to change the payment scheme of the repurchase of the subject property which was not accepted; the banks expressed intent to offer the subject property for sale to third persons at a higher price; and the unaccepted counteroffer by the respondents after the bank increased the purchase price).[34] These incidents, however, were the results of CLCIs failure to comply with its obligations to pay the amounts due on the stipulated time and were made after the parties minds had met on the terms of the contract. The seemingly contrary indications, therefore, do not go into and affect the perfection of the contract; they came after the contract had been perfected and, as discussed below, were indicative of the banks cancellation of the repurchase agreement. In light of this conclusion, we now determine the consequential rights, obligations and liabilities of the parties. It is at this point that we diverge from the conclusions of the CA and the RTC, as we conclude that while there was a perfected contract between the parties, the bank effectively cancelled the contract when it communicated with CLCI that it would sell the subject property at a higher price to third parties, giving CLCI 15 days to make a formal offer,

and disregarding CLCIs counter-offer to buy the subject property for P1.5 million. We arrive at this conclusion after considering the following reasons: First, the bank communicated its intent not to proceed with the repurchase as above outlined and formally cancelled the TRB Repurchase Agreement in its letters dated January 11 and 30, 1989 to CLCI.[35] Thus, CLCIs rights acquired under the TRB Repurchase Agreement to repurchase the subject property have been defeated by its own failure to comply with its obligations under the agreement. The right to cancel for breach is provided under paragraph 11 of the TRB Repurchase Agreement, as follows:
11. Upon default of the buyer to pay two (2) successive quarterly installments, contract is automatically cancelled at the Banks option and all payments already made shall be treated as rentals or as liquidated damages;

We note, additionally, that the TRB Repurchase Agreement is in the nature of a contract to sell where the title to the subject property remains in the banks name, as the vendor, and shall only pass to the respondents, as vendees, upon the full payment of the repurchase price.[36] The settled rule for contracts to sell is that the full payment of the purchase price is a positive suspensive condition; the failure to pay in full is not to be considered a breach, casual or serious, but simply an event that prevents the obligation of the vendor to convey title from acquiring any obligatory force.[37] Viewed in this light, the bank cannot be compelled to perform its obligations under the TRB Repurchase Agreement that has been rendered ineffective by the respondents non-performance of their own obligations. Second, the respondents violated the terms and conditions of the TRB Repurchase Agreement when they failed to pay their obligations under the agreement as these obligations fell due. Paragraphs 2 and 10 of the TRB Repurchase Agreement are clear on the respondents obligation to pay the bid price and the quarterly installments. Paragraphs 2 and 10 state:
2. That client shall initially pay P132,000.00 within fifteen (15) days from the expiration of the redemption period (August 8, 1986) and further payment of P200,632.84 representing 20% of the bid price to be remitted on or before October 31, 1986; xxx xxx xxx

10. That the first quarterly installment shall be due within ninety (90) days of approval hereof, and the succeeding installment shall be due every three (3) months thereafter;

The approval referred to under paragraph 10 is the approval by the bank of the repurchase of the subject property, as indicated in the banks letter of October 20, 1986 which states, This is to formally inform you that our Board of Directors in its regular meeting held on October 10, 1986, passed a resolution for the repurchase of your property acquired by the bank. It was on the basis of this approval and the quoted terms of the agreement that the bank issued its Statement of Account dated July 31, 1987 indicating that the respondents were already in default, not only with respect to the 20% of the bid price, but also with the three quarterly installments. Third, the respondents themselves claim that the bank violated the agreement when it applied the respondents payments to the interest and penalties due without the respondents consent, instead of applying these to the repurchase price for the subject property.[38] An examination of the provisions of the TRB Repurchase Agreement reveals that the bank is allowed to apply the respondents payments first to the amounts due as interests and other charges, before applying any payment to the repurchase price. Paragraph 4 of the agreement provides:
4. That all the interest and other charges starting from August 8, 1986 to date of approval shall be paid first before implementation of the request; interest as of October 31, 1986 is P65,669.53;

Under these terms, the bank cannot be faulted for the application of payments it made. Likewise, the bank cannot be faulted for the application of other amounts paid as rentals as this is allowed under paragraph 11, quoted above, of the agreement. Fourth, the petitioner bank cannot be said, as the CA ruled, to have already waived the terms of the TRB Repurchase Agreement by extending the time to pay and subsequently accepting late payments. The CAs conclusion lacks factual and legal basis taking into account that the Statement of Account of July 31, 1987, heretofore cited, which shows that the bank considered the respondents already in default. At this point, Atty. Cuison, by letter, requested that part of its outstanding obligation be condoned by the bank, paying P300,000.00 as of August 31, 1987, which amount the bank accepted as earnest money. For one whole year thereafter, neither party moved. Significantly, the respondents, who had continuing payments to make and who had the burden of complying with the terms of the agreement, failed to act except to ask the bank for the status of its requested condonation. Under these facts, a continuing breach of the agreement took place, even granting that a waiver had intervened as of August 31, 1987. Thus, the bank was well within its right to consider the agreement cancelled when, in September 1988, it changed

the repurchase terms to P3.0 million. We find it significant that the respondents, instead of asserting its rights under the TRB Repurchase Agreement, counteroffered P1.5 million with the P400,000.00 already paid as part of the purchase price. At that point, it was clear that even the respondents themselves considered the TRB Repurchase Agreement cancelled. Lastly, the perfected repurchase agreement itself provides for the respondents possession of the subject property; in fact, the respondents have been in continuous possession of the subject property since October 1986, despite the absence of a contract to sell apparently with the banks consent. The agreement also provides under its paragraph 11 that upon the respondents default and the cancellation of the agreement, all payments already made shall be treated as rentals or as liquidated damages. The undisputed facts show that the bank has been deprived of the use and benefit of its property that has been in the possession of the respondents for the latters use and benefit without paying any rentals thereon. The records reveal that until now, the respondents are still in possession of the subject property.[39] We note that subsequent to the banks counterclaim for the payment of rentals due as of January 31, 1989, the bank also seeks to recover the rentals that accrued after January 31, 1989, which as of August 8, 1993 amounted to P1,123,500.00 as shown by the evidence presented by the bank before the RTC and in the pleadings it had filed before the RTC, CA, and the Court.[40] Although this claim was not alleged in the banks Answer being an after-acquired claim which was only raised during the trial proper through the testimony dated August 17, 1993 of Ms. Arlene Aportadera,[41] the bank is not barred from recovering these rentals. As we explained in Banco de Oro Universal Bank v. CA,[42] a party is not barred from setting up a claim even after the filing of the answer if the claim did not exist or had not matured at the time said party filed its answer. Moreover, we note that the respondents did not object to the presentation of this evidence, hence, the issue of rentals from August 8, 1993 and onwards was tried with the implied consent of the parties; applying Section 5, Rule 10 of the 1997 Rules of Civil Procedure,[43] the issue should be treated in all respects as if it had been raised in the pleadings.[44] Given the implied consent, judgment may be validly rendered on this issue even if no motion had been filed and no amendment had been ordered.[45] In National Power Corporation v. CA,[46] we held that where there is a variance in the defendants pleadings and the evidence adduced by it at the trial, the Court may treat the pleading as amended to conform to the evidence.

Additionally, the respondents are also liable to pay interest by way of damages for their failure to pay the rentals due for the use of the subject property. InEastern Shipping Lines v. CA,[47] we laid down the following guidelines with respect to the award and the computation of legal interest, as follows:
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the courtat the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169 Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legalinterest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. [Emphasis supplied]

The records are unclear on when the bank made a demand outside of the judicial proceedings for the rentals on the subject property.[48] However, the records show that the bank made a counterclaim for the payments of the rentals due as of January 31, 1989 in its Answer and subsequently, a claim for the afteracquired rentals was made by the bank through the testimony of Ms. Arlene Aportadera. Applying Eastern Shipping Lines, the payment of interest for the rentals shall be reckoned from the date the judicial demand was made by the bank or on April 20, 1989 when the bank set up its counterclaim for rentals in the subject property.

Under the circumstances, we can impose a 6% interest on the rentals from April 20, 1989 up to the finality of this decision. Thereafter, the interest shall be computed at 12% per annum from such finality up to full satisfaction. We find no basis for the award of exemplary damages. Article 2232 of the Civil Code declares:
Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

Considering the factual circumstances we have discussed above, we can hardly characterize respondents act of insisting on the enforcement of the repurchase agreement as wanton, fraudulent, reckless, oppressive, or malevolent. As there is no basis for an award of exemplary damages, the awards of attorneys fees and litigation expenses to the bank are not justified under Article 2208 of the Civil Code. WHEREFORE, premises considered, we hereby GRANT the petition. The Decision dated March 31, 2006 and Resolution dated August 11, 2006 of the Court of Appeals in CA-G.R. CV No. 49900 are hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 19416-89 for breach of contract, specific performance, damages, and attorneys fees, with preliminary injunction filed by Cuison Lumber Co., Inc. and Mrs. Cuison against Traders Royal Bank is hereby DISMISSED. The respondents are ordered to vacate the subject property and to restore its possession to the petitioner bank. The respondents are further ordered to pay reasonable compensation, for the use and occupation of the subject property in the amount of P1,123,500.00, representing the accrued rentals as of August 8, 1993, less the amount of P485,000.00 representing deposits paid by the respondents. In additiodn, respondents are also ordered to pay the amount of P13,700.00 a month by way of rentals starting from August 8, 1993 until they vacate the subject property. The rentals shall earn a corresponding legal interest of six percent (6%) per annum to be computed from April 20, 1989 until the finality of this decision. After this decision becomes final and executory, the rate of legal interest shall be computed at twelve percent (12%) per annum from such finality until its satisfaction.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 155043 September 30, 2004

ARTURO R. ABALOS, petitioner, vs. DR. GALICANO S. MACATANGAY, JR., respondent. DECISION TINGA, J.: The instant petition seeks a reversal of the Decision of the Court of Appeals in CA-G.R. CV No. 48355 entitled "Dr. Galicano S. Macatangay, Jr. v. Arturo R. Abalos and Esther Palisoc-Abalos," promulgated on March 14, 2002. The appellate court reversed the trial courts decision which dismissed the action for specific performance filed by respondent, and ordered petitioner and his wife to execute in favor of herein respondent a deed of sale over the subject property. Spouses Arturo and Esther Abalos are the registered owners of a parcel of land with improvements located at Azucena St., Makati City consisting of about three hundred twentyseven (327) square meters, covered by Transfer Certificate of Title (TCT) No. 145316 of the Registry of Deeds of Makati. Armed with a Special Power of Attorney dated June 2, 1988, purportedly issued by his wife, Arturo executed aReceipt and Memorandum of Agreement (RMOA) dated October 17, 1989, in favor of respondent, binding himself to sell to respondent the subject property and not to offer the same to any other party within thirty (30) days from date. Arturo acknowledged receipt of a check from respondent in the amount of Five Thousand Pesos (P5,000.00), representing earnest money for the subject property, the amount of which would be deducted from the purchase price of One Million Three Hundred Three Hundred Thousand Pesos (P1,300,000.00). Further, the RMOA stated that full payment would be effected as soon as possession of the property shall have been turned over to respondent. Subsequently, Arturos wife, Esther, executed a Special Power of Attorney dated October 25, 1989, appointing her sister, Bernadette Ramos, to act for and in her behalf relative to the transfer of the property to respondent. Ostensibly, a marital squabble was brewing between Arturo and Esther at the time and to protect his interest, respondent caused the annotation of his adverse claim on the title of the spouses to the property on November 14, 1989. On November 16, 1989, respondent sent a letter to Arturo and Esther informing them of his readiness and willingness to pay the full amount of the purchase price. The letter contained a demand upon the spouses to comply with their obligation to turn over possession of the property to him. On the same date, Esther, through her attorney-in-fact, executed in favor of respondent, a Contract to Sell the property to the extent of her conjugal interest therein for the sum of six hundred fifty thousand pesos (P650,000.00) less the sum already received by her and Arturo. Esther agreed to surrender possession of the property to respondent within twenty (20) days from November 16, 1989, while the latter promised to pay the balance of the purchase price in the amount of one million two hundred ninety thousand pesos (P1,290,000.00) after being placed in possession of the property. Esther also obligated herself to execute and deliver to respondent a deed of absolute sale upon full payment.

In a letter dated December 7, 1989, respondent informed the spouses that he had set aside the amount of One Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) as evidenced by Citibank Check No. 278107 as full payment of the purchase price. He reiterated his demand upon them to comply with their obligation to turn over possession of the property. Arturo and Esther failed to deliver the property which prompted respondent to cause the annotation of another adverse claim on TCT No. 145316. On January 12, 1990, respondent filed a complaint for specific performance with damages against petitioners. Arturo filed his answer to the complaint while his wife was declared in default. The Regional Trial Court (RTC) dismissed the complaint for specific performance. It ruled that the Special Power of Attorney (SPA) ostensibly issued by Esther in favor of Arturo was void as it was falsified. Hence, the court concluded that the SPA could not have authorized Arturo to sell the property to respondent. The trial court also noted that the check issued by respondent to cover the earnest money was dishonored due to insufficiency of funds and while it was replaced with another check by respondent, there is no showing that the second check was issued as payment for the earnest money on the property. On appeal taken by respondent, the Court of Appeals reversed the decision of the trial court. It ruled that the SPA in favor of Arturo, assuming that it was void, cannot affect the transaction between Esther and respondent. The appellate court ratiocinated that it was by virtue of the SPA executed by Esther, in favor of her sister, that the sale of the property to respondent was effected. On the other hand, the appellate court considered the RMOA executed by Arturo in favor of respondent valid to effect the sale of Arturos conjugal share in the property. Dissatisfied with the appellate courts disposition of the case, petitioner seeks a reversal of its decision alleging that: I. The Court of Appeals committed serious and manifest error when it decided on the appeal without affording petitioner his right to due process. II. The Court of Appeals committed serious and manifest error in reversing and setting aside the findings of fact by the trial court. III. The Court of Appeals erred in ruling that a contract to sell is a contract of sale, and in ordering petitioner to execute a registrable form of deed of sale over the property in favor of respondent.1 Petitioner contends that he was not personally served with copies of summons, pleadings, and processes in the appeal proceedings nor was he given an opportunity to submit an appellees brief. He alleges that his counsel was in the United States from 1994 to June 2000, and he never received any news or communication from him after the proceedings in the trial court were terminated. Petitioner submits that he was denied due process because he was not informed of the appeal proceedings, nor given the chance to have legal representation before the appellate court. We are not convinced. The essence of due process is an opportunity to be heard. Petitioners failure to participate in the appeal proceedings is not due to a cause imputable to the appellate court but because of petitioners own neglect in ascertaining the status of his case. Petitioners counsel is equally negligent in failing to inform his client about the recent developments in the

appeal proceedings. Settled is the rule that a party is bound by the conduct, negligence and mistakes of his counsel.2 Thus, petitioners plea of denial of due process is downright baseless. Petitioner also blames the appellate court for setting aside the factual findings of the trial court and argues that factual findings of the trial court are given much weight and respect when supported by substantial evidence. He asserts that the sale between him and respondent is void for lack of consent because the SPA purportedly executed by his wife Esther is a forgery and therefore, he could not have validly sold the subject property to respondent. Next, petitioner theorizes that the RMOA he executed in favor of respondent was not perfected because the check representing the earnest money was dishonored. He adds that there is no evidence on record that the second check issued by respondent was intended to replace the first check representing payment of earnest money. Respondent admits that the subject property is co-owned by petitioner and his wife, but he objects to the allegations in the petition bearing a relation to the supposed date of the marriage of the vendors. He contends that the alleged date of marriage between petitioner and his wife is a new factual issue which was not raised nor established in the court a quo. Respondent claims that there is no basis to annul the sale freely and voluntarily entered into by the husband and the wife. The focal issue in the instant petition is whether petitioner may be compelled to convey the property to respondent under the terms of the RMOA and the Contract to Sell. At bottom, the resolution of the issue entails the ascertainment of the contractual nature of the two documents and the status of the contracts contained therein. Contracts, in general, require the presence of three essential elements: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established.3 Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation.4 In a contract of sale, the seller must consent to transfer ownership in exchange for the price, the subject matter must be determinate, and the price must be certain in money or its equivalent.5 Being essentially consensual, a contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.6 However, ownership of the thing sold shall not be transferred to the vendee until actual or constructive delivery of the property.7 On the other hand, an accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option.8 An option merely grants a privilege to buy or sell within an agreed time and at a determined price. It is separate and distinct from that which the parties may enter into upon the consummation of the option.9 A perfected contract of option does not result in the perfection or consummation of the sale; only when the option is exercised may a sale be perfected.10 The option must, however, be supported by a consideration distinct from the price.11 Perusing the RMOA, it signifies a unilateral offer of Arturo to sell the property to respondent for a price certain within a period of thirty days. The RMOA does not impose upon respondent an obligation to buy petitioners property, as in fact it does not even bear his signature thereon. It is quite clear that after the lapse of the thirty-day period, without respondent having exercised his option, Arturo is free to sell the property to another. This shows that the intent of Arturo is merely to grant respondent the privilege to buy the property within the period therein stated. There is nothing in the RMOA which indicates that Arturo agreed therein to transfer ownership of the land which is an essential element in a contract of sale. Unfortunately, the option is not binding upon the promissory since it is not supported by a consideration distinct from the price.12

As a rule, the holder of the option, after accepting the promise and before he exercises his option, is not bound to buy. He is free either to buy or not to buy later. In Sanchez v. Rigos13 we ruled that in an accepted unilateral promise to sell, the promissor is not bound by his promise and may, accordingly, withdraw it, since there may be no valid contract without a cause or consideration. Pending notice of its withdrawal, his accepted promise partakes of the nature of an offer to sell which, if acceded or consented to, results in a perfected contract of sale. Even conceding for the nonce that respondent had accepted the offer within the period stated and, as a consequence, a bilateral contract of purchase and sale was perfected, the outcome would be the same. To benefit from such situation, respondent would have to pay or at least make a valid tender of payment of the price for only then could he exact compliance with the undertaking of the other party.14 This respondent failed to do. By his own admission, he merely informed respondent spouses of his readiness and willingness to pay. The fact that he had set aside a check in the amount of One Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) representing the balance of the purchase price could not help his cause. Settled is the rule that tender of payment must be made in legal tender. A check is not legal tender, and therefore cannot constitute a valid tender of payment.15 Not having made a valid tender of payment, respondents action for specific performance must fail. With regard to the payment of Five Thousand Pesos (P5,000.00), the Court is of the view that the amount is not earnest money as the term is understood in Article 1482 which signifies proof of the perfection of the contract of sale, but merely a guarantee that respondent is really interested to buy the property. It is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale.16 No reservation of ownership on the part of Arturo is necessary since, as previously stated, he has never agreed to transfer ownership of the property to respondent. Granting for the sake of argument that the RMOA is a contract of sale, the same would still be void not only for want of consideration and absence of respondents signature thereon, but also for lack of Esthers conformity thereto. Quite glaring is the absence of the signature of Esther in the RMOA, which proves that she did not give her consent to the transaction initiated by Arturo. The husband cannot alienate any real property of the conjugal partnership without the wifes consent.17 However, it was the Contract to Sell executed by Esther through her attorney-in-fact which the Court of Appeals made full use of. Holding that the contract is valid, the appellate court explained that while Esther did not authorize Arturo to sell the property, her execution of the SPA authorizing her sister to sell the land to respondent clearly shows her intention to convey her interest in favor of respondent. In effect, the court declared that the lack of Esthers consent to the sale made by Arturo was cured by her subsequent conveyance of her interest in the property through her attorney-in-fact. We do not share the ruling. The nullity of the RMOA as a contract of sale emanates not only from lack of Esthers consent thereto but also from want of consideration and absence of respondents signature thereon. Such nullity cannot be obliterated by Esthers subsequent confirmation of the putative transaction as expressed in the Contract to Sell. Under the law, a void contract cannot be ratified18 and the action or defense for the declaration of the inexistence of a contract does not prescribe.19 A void contract produces no effect either against or in favor of anyoneit cannot create, modify or extinguish the juridical relation to which it refers.20 True, in the Contract to Sell, Esther made reference to the earlier RMOA executed by Arturo in favor of respondent. However, the RMOA which Arturo signed is different from the deed which Esther executed through her attorney-in-fact. For one, the first is sought to be enforced as a

contract of sale while the second is purportedly a contract to sell only. For another, the terms and conditions as to the issuance of title and delivery of possession are divergent. The congruence of the wills of the spouses is essential for the valid disposition of conjugal property. Where the conveyance is contained in the same document which bears the conformity of both husband and wife, there could be no question on the validity of the transaction. But when there are two (2) documents on which the signatures of the spouses separately appear, textual concordance of the documents is indispensable. Hence, in this case where the wifes putative consent to the sale of conjugal property appears in a separate document which does not, however, contain the same terms and conditions as in the first document signed by the husband, a valid transaction could not have arisen. Quite a bit of elucidation on the conjugal partnership of gains is in order. Arturo and Esther appear to have been married before the effectivity of the Family Code. There being no indication that they have adopted a different property regime, their property relations would automatically be governed by the regime of conjugal partnership of gains.21 The subject land which had been admittedly acquired during the marriage of the spouses forms part of their conjugal partnership.22 Under the Civil Code, the husband is the administrator of the conjugal partnership. This right is clearly granted to him by law.23 More, the husband is the sole administrator. The wife is not entitled as of right to joint administration.24 The husband, even if he is statutorily designated as administrator of the conjugal partnership, cannot validly alienate or encumber any real property of the conjugal partnership without the wifes consent.25 Similarly, the wife cannot dispose of any property belonging to the conjugal partnership without the conformity of the husband. The law is explicit that the wife cannot bind the conjugal partnership without the husbands consent, except in cases provided by law.26 More significantly, it has been held that prior to the liquidation of the conjugal partnership, the interest of each spouse in the conjugal assets is inchoate, a mere expectancy, which constitutes neither a legal nor an equitable estate, and does not ripen into title until it appears that there are assets in the community as a result of the liquidation and settlement. The interest of each spouse is limited to the net remainder or "remanente liquido" (haber ganancial) resulting from the liquidation of the affairs of the partnership after its dissolution.27 Thus, the right of the husband or wife to one-half of the conjugal assets does not vest until the dissolution and liquidation of the conjugal partnership, or after dissolution of the marriage, when it is finally determined that, after settlement of conjugal obligations, there are net assets left which can be divided between the spouses or their respective heirs.28 In not a few cases, we ruled that the sale by the husband of property belonging to the conjugal partnership without the consent of the wife when there is no showing that the latter is incapacitated is void ab initio because it is in contravention of the mandatory requirements of Article 166 of the Civil Code.29 Since Article 166 of the Civil Code requires the consent of the wife before the husband may alienate or encumber any real property of the conjugal partnership, it follows that acts or transactions executed against this mandatory provision are void except when the law itself authorizes their validity.30 Quite recently, in San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,31 we ruled that neither spouse could alienate in favor of another, his or her interest in the partnership or in any property belonging to it, or ask for partition of the properties before the partnership itself had been legally dissolved. Nonetheless, alienation of the share of each spouse in the conjugal partnership could be had after separation of property of the spouses during the marriage had

been judicially decreed, upon their petition for any of the causes specified in Article 19132 of the Civil Code in relation to Article 21433 thereof. As an exception, the husband may dispose of conjugal property without the wifes consent if such sale is necessary to answer for conjugal liabilities mentioned in Articles 161 and 162 of the Civil Code.34 In Tinitigan v. Tinitigan, Sr.,35 the Court ruled that the husband may sell property belonging to the conjugal partnership even without the consent of the wife if the sale is necessary to answer for a big conjugal liability which might endanger the familys economic standing. This is one instance where the wifes consent is not required and, impliedly, no judicial intervention is necessary. Significantly, the Family Code has introduced some changes particularly on the aspect of the administration of the conjugal partnership. The new law provides that the administration of the conjugal partnership is now a joint undertaking of the husband and the wife. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal partnership, the other spouse may assume sole powers of administration. However, the power of administration does not include the power to dispose or encumber property belonging to the conjugal partnership.36 In all instances, the present law specifically requires the written consent of the other spouse, or authority of the court for the disposition or encumbrance of conjugal partnership property without which, the disposition or encumbrance shall be void.37 Inescapably, herein petitioners action for specific performance must fail. Even on the supposition that the parties only disposed of their respective shares in the property, the sale, assuming that it exists, is still void for as previously stated, the right of the husband or the wife to one-half of the conjugal assets does not vest until the liquidation of the conjugal partnership. Nemo dat qui non habet. No one can give what he has not. WHEREFORE, the appealed Decision is hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 90-106 of the Regional Trial Court of Makati is ordered DISMISSED. No pronouncement as to costs. SO ORDERED. Puno, Austria-Martinez, Callejo, Sr., and Chico-Nazario*, JJ., concur. SECOND DIVISION G.R. No. 155043 September 30, 2004

ARTURO R. ABALOS, petitioner, vs. DR. GALICANO S. MACATANGAY, JR., respondent. DECISION TINGA, J.: The instant petition seeks a reversal of the Decision of the Court of Appeals in CA-G.R. CV No. 48355 entitled "Dr. Galicano S. Macatangay, Jr. v. Arturo R. Abalos and Esther Palisoc-Abalos," promulgated on March 14, 2002. The appellate court reversed the trial courts decision which dismissed the action for specific performance filed by respondent, and ordered petitioner and his wife to execute in favor of herein respondent a deed of sale over the subject property. Spouses Arturo and Esther Abalos are the registered owners of a parcel of land with improvements located at Azucena St., Makati City consisting of about three hundred twenty-

seven (327) square meters, covered by Transfer Certificate of Title (TCT) No. 145316 of the Registry of Deeds of Makati. Armed with a Special Power of Attorney dated June 2, 1988, purportedly issued by his wife, Arturo executed aReceipt and Memorandum of Agreement (RMOA) dated October 17, 1989, in favor of respondent, binding himself to sell to respondent the subject property and not to offer the same to any other party within thirty (30) days from date. Arturo acknowledged receipt of a check from respondent in the amount of Five Thousand Pesos (P5,000.00), representing earnest money for the subject property, the amount of which would be deducted from the purchase price of One Million Three Hundred Three Hundred Thousand Pesos (P1,300,000.00). Further, the RMOA stated that full payment would be effected as soon as possession of the property shall have been turned over to respondent. Subsequently, Arturos wife, Esther, executed a Special Power of Attorney dated October 25, 1989, appointing her sister, Bernadette Ramos, to act for and in her behalf relative to the transfer of the property to respondent. Ostensibly, a marital squabble was brewing between Arturo and Esther at the time and to protect his interest, respondent caused the annotation of his adverse claim on the title of the spouses to the property on November 14, 1989. On November 16, 1989, respondent sent a letter to Arturo and Esther informing them of his readiness and willingness to pay the full amount of the purchase price. The letter contained a demand upon the spouses to comply with their obligation to turn over possession of the property to him. On the same date, Esther, through her attorney-in-fact, executed in favor of respondent, a Contract to Sell the property to the extent of her conjugal interest therein for the sum of six hundred fifty thousand pesos (P650,000.00) less the sum already received by her and Arturo. Esther agreed to surrender possession of the property to respondent within twenty (20) days from November 16, 1989, while the latter promised to pay the balance of the purchase price in the amount of one million two hundred ninety thousand pesos (P1,290,000.00) after being placed in possession of the property. Esther also obligated herself to execute and deliver to respondent a deed of absolute sale upon full payment. In a letter dated December 7, 1989, respondent informed the spouses that he had set aside the amount of One Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) as evidenced by Citibank Check No. 278107 as full payment of the purchase price. He reiterated his demand upon them to comply with their obligation to turn over possession of the property. Arturo and Esther failed to deliver the property which prompted respondent to cause the annotation of another adverse claim on TCT No. 145316. On January 12, 1990, respondent filed a complaint for specific performance with damages against petitioners. Arturo filed his answer to the complaint while his wife was declared in default. The Regional Trial Court (RTC) dismissed the complaint for specific performance. It ruled that the Special Power of Attorney (SPA) ostensibly issued by Esther in favor of Arturo was void as it was falsified. Hence, the court concluded that the SPA could not have authorized Arturo to sell the property to respondent. The trial court also noted that the check issued by respondent to cover the earnest money was dishonored due to insufficiency of funds and while it was replaced with another check by respondent, there is no showing that the second check was issued as payment for the earnest money on the property. On appeal taken by respondent, the Court of Appeals reversed the decision of the trial court. It ruled that the SPA in favor of Arturo, assuming that it was void, cannot affect the transaction between Esther and respondent. The appellate court ratiocinated that it was by virtue of the SPA executed by Esther, in favor of her sister, that the sale of the property to respondent was effected. On the other hand, the appellate court considered the RMOA executed by Arturo in favor of respondent valid to effect the sale of Arturos conjugal share in the property.

Dissatisfied with the appellate courts disposition of the case, petitioner seeks a reversal of its decision alleging that: I. The Court of Appeals committed serious and manifest error when it decided on the appeal without affording petitioner his right to due process. II. The Court of Appeals committed serious and manifest error in reversing and setting aside the findings of fact by the trial court. III. The Court of Appeals erred in ruling that a contract to sell is a contract of sale, and in ordering petitioner to execute a registrable form of deed of sale over the property in favor of respondent.1 Petitioner contends that he was not personally served with copies of summons, pleadings, and processes in the appeal proceedings nor was he given an opportunity to submit an appellees brief. He alleges that his counsel was in the United States from 1994 to June 2000, and he never received any news or communication from him after the proceedings in the trial court were terminated. Petitioner submits that he was denied due process because he was not informed of the appeal proceedings, nor given the chance to have legal representation before the appellate court. We are not convinced. The essence of due process is an opportunity to be heard. Petitioners failure to participate in the appeal proceedings is not due to a cause imputable to the appellate court but because of petitioners own neglect in ascertaining the status of his case. Petitioners counsel is equally negligent in failing to inform his client about the recent developments in the appeal proceedings. Settled is the rule that a party is bound by the conduct, negligence and mistakes of his counsel.2 Thus, petitioners plea of denial of due process is downright baseless. Petitioner also blames the appellate court for setting aside the factual findings of the trial court and argues that factual findings of the trial court are given much weight and respect when supported by substantial evidence. He asserts that the sale between him and respondent is void for lack of consent because the SPA purportedly executed by his wife Esther is a forgery and therefore, he could not have validly sold the subject property to respondent. Next, petitioner theorizes that the RMOA he executed in favor of respondent was not perfected because the check representing the earnest money was dishonored. He adds that there is no evidence on record that the second check issued by respondent was intended to replace the first check representing payment of earnest money. Respondent admits that the subject property is co-owned by petitioner and his wife, but he objects to the allegations in the petition bearing a relation to the supposed date of the marriage of the vendors. He contends that the alleged date of marriage between petitioner and his wife is a new factual issue which was not raised nor established in the court a quo. Respondent claims that there is no basis to annul the sale freely and voluntarily entered into by the husband and the wife. The focal issue in the instant petition is whether petitioner may be compelled to convey the property to respondent under the terms of the RMOA and the Contract to Sell. At bottom, the resolution of the issue entails the ascertainment of the contractual nature of the two documents and the status of the contracts contained therein.

Contracts, in general, require the presence of three essential elements: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established.3 Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation.4 In a contract of sale, the seller must consent to transfer ownership in exchange for the price, the subject matter must be determinate, and the price must be certain in money or its equivalent.5 Being essentially consensual, a contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.6 However, ownership of the thing sold shall not be transferred to the vendee until actual or constructive delivery of the property.7 On the other hand, an accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option.8 An option merely grants a privilege to buy or sell within an agreed time and at a determined price. It is separate and distinct from that which the parties may enter into upon the consummation of the option.9 A perfected contract of option does not result in the perfection or consummation of the sale; only when the option is exercised may a sale be perfected.10 The option must, however, be supported by a consideration distinct from the price.11 Perusing the RMOA, it signifies a unilateral offer of Arturo to sell the property to respondent for a price certain within a period of thirty days. The RMOA does not impose upon respondent an obligation to buy petitioners property, as in fact it does not even bear his signature thereon. It is quite clear that after the lapse of the thirty-day period, without respondent having exercised his option, Arturo is free to sell the property to another. This shows that the intent of Arturo is merely to grant respondent the privilege to buy the property within the period therein stated. There is nothing in the RMOA which indicates that Arturo agreed therein to transfer ownership of the land which is an essential element in a contract of sale. Unfortunately, the option is not binding upon the promissory since it is not supported by a consideration distinct from the price.12 As a rule, the holder of the option, after accepting the promise and before he exercises his option, is not bound to buy. He is free either to buy or not to buy later. In Sanchez v. Rigos13 we ruled that in an accepted unilateral promise to sell, the promissor is not bound by his promise and may, accordingly, withdraw it, since there may be no valid contract without a cause or consideration. Pending notice of its withdrawal, his accepted promise partakes of the nature of an offer to sell which, if acceded or consented to, results in a perfected contract of sale. Even conceding for the nonce that respondent had accepted the offer within the period stated and, as a consequence, a bilateral contract of purchase and sale was perfected, the outcome would be the same. To benefit from such situation, respondent would have to pay or at least make a valid tender of payment of the price for only then could he exact compliance with the undertaking of the other party.14 This respondent failed to do. By his own admission, he merely informed respondent spouses of his readiness and willingness to pay. The fact that he had set aside a check in the amount of One Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) representing the balance of the purchase price could not help his cause. Settled is the rule that tender of payment must be made in legal tender. A check is not legal tender, and therefore cannot constitute a valid tender of payment.15 Not having made a valid tender of payment, respondents action for specific performance must fail. With regard to the payment of Five Thousand Pesos (P5,000.00), the Court is of the view that the amount is not earnest money as the term is understood in Article 1482 which signifies proof of the perfection of the contract of sale, but merely a guarantee that respondent is really interested to buy the property. It is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale.16 No reservation of ownership on the part of Arturo is necessary since, as previously stated, he has never agreed to transfer ownership of the property to respondent.

Granting for the sake of argument that the RMOA is a contract of sale, the same would still be void not only for want of consideration and absence of respondents signature thereon, but also for lack of Esthers conformity thereto. Quite glaring is the absence of the signature of Esther in the RMOA, which proves that she did not give her consent to the transaction initiated by Arturo. The husband cannot alienate any real property of the conjugal partnership without the wifes consent.17 However, it was the Contract to Sell executed by Esther through her attorney-in-fact which the Court of Appeals made full use of. Holding that the contract is valid, the appellate court explained that while Esther did not authorize Arturo to sell the property, her execution of the SPA authorizing her sister to sell the land to respondent clearly shows her intention to convey her interest in favor of respondent. In effect, the court declared that the lack of Esthers consent to the sale made by Arturo was cured by her subsequent conveyance of her interest in the property through her attorney-in-fact. We do not share the ruling. The nullity of the RMOA as a contract of sale emanates not only from lack of Esthers consent thereto but also from want of consideration and absence of respondents signature thereon. Such nullity cannot be obliterated by Esthers subsequent confirmation of the putative transaction as expressed in the Contract to Sell. Under the law, a void contract cannot be ratified18 and the action or defense for the declaration of the inexistence of a contract does not prescribe.19 A void contract produces no effect either against or in favor of anyoneit cannot create, modify or extinguish the juridical relation to which it refers.20 True, in the Contract to Sell, Esther made reference to the earlier RMOA executed by Arturo in favor of respondent. However, the RMOA which Arturo signed is different from the deed which Esther executed through her attorney-in-fact. For one, the first is sought to be enforced as a contract of sale while the second is purportedly a contract to sell only. For another, the terms and conditions as to the issuance of title and delivery of possession are divergent. The congruence of the wills of the spouses is essential for the valid disposition of conjugal property. Where the conveyance is contained in the same document which bears the conformity of both husband and wife, there could be no question on the validity of the transaction. But when there are two (2) documents on which the signatures of the spouses separately appear, textual concordance of the documents is indispensable. Hence, in this case where the wifes putative consent to the sale of conjugal property appears in a separate document which does not, however, contain the same terms and conditions as in the first document signed by the husband, a valid transaction could not have arisen. Quite a bit of elucidation on the conjugal partnership of gains is in order. Arturo and Esther appear to have been married before the effectivity of the Family Code. There being no indication that they have adopted a different property regime, their property relations would automatically be governed by the regime of conjugal partnership of gains.21 The subject land which had been admittedly acquired during the marriage of the spouses forms part of their conjugal partnership.22 Under the Civil Code, the husband is the administrator of the conjugal partnership. This right is clearly granted to him by law.23 More, the husband is the sole administrator. The wife is not entitled as of right to joint administration.24 The husband, even if he is statutorily designated as administrator of the conjugal partnership, cannot validly alienate or encumber any real property of the conjugal partnership without the wifes consent.25 Similarly, the wife cannot dispose of any property belonging to the conjugal

partnership without the conformity of the husband. The law is explicit that the wife cannot bind the conjugal partnership without the husbands consent, except in cases provided by law.26 More significantly, it has been held that prior to the liquidation of the conjugal partnership, the interest of each spouse in the conjugal assets is inchoate, a mere expectancy, which constitutes neither a legal nor an equitable estate, and does not ripen into title until it appears that there are assets in the community as a result of the liquidation and settlement. The interest of each spouse is limited to the net remainder or "remanente liquido" (haber ganancial) resulting from the liquidation of the affairs of the partnership after its dissolution.27 Thus, the right of the husband or wife to one-half of the conjugal assets does not vest until the dissolution and liquidation of the conjugal partnership, or after dissolution of the marriage, when it is finally determined that, after settlement of conjugal obligations, there are net assets left which can be divided between the spouses or their respective heirs.28 In not a few cases, we ruled that the sale by the husband of property belonging to the conjugal partnership without the consent of the wife when there is no showing that the latter is incapacitated is void ab initio because it is in contravention of the mandatory requirements of Article 166 of the Civil Code.29 Since Article 166 of the Civil Code requires the consent of the wife before the husband may alienate or encumber any real property of the conjugal partnership, it follows that acts or transactions executed against this mandatory provision are void except when the law itself authorizes their validity.30 Quite recently, in San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,31 we ruled that neither spouse could alienate in favor of another, his or her interest in the partnership or in any property belonging to it, or ask for partition of the properties before the partnership itself had been legally dissolved. Nonetheless, alienation of the share of each spouse in the conjugal partnership could be had after separation of property of the spouses during the marriage had been judicially decreed, upon their petition for any of the causes specified in Article 19132 of the Civil Code in relation to Article 21433 thereof. As an exception, the husband may dispose of conjugal property without the wifes consent if such sale is necessary to answer for conjugal liabilities mentioned in Articles 161 and 162 of the Civil Code.34 In Tinitigan v. Tinitigan, Sr.,35 the Court ruled that the husband may sell property belonging to the conjugal partnership even without the consent of the wife if the sale is necessary to answer for a big conjugal liability which might endanger the familys economic standing. This is one instance where the wifes consent is not required and, impliedly, no judicial intervention is necessary. Significantly, the Family Code has introduced some changes particularly on the aspect of the administration of the conjugal partnership. The new law provides that the administration of the conjugal partnership is now a joint undertaking of the husband and the wife. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal partnership, the other spouse may assume sole powers of administration. However, the power of administration does not include the power to dispose or encumber property belonging to the conjugal partnership.36 In all instances, the present law specifically requires the written consent of the other spouse, or authority of the court for the disposition or encumbrance of conjugal partnership property without which, the disposition or encumbrance shall be void.37 Inescapably, herein petitioners action for specific performance must fail. Even on the supposition that the parties only disposed of their respective shares in the property, the sale, assuming that it exists, is still void for as previously stated, the right of the husband or the wife to one-half of the conjugal assets does not vest until the liquidation of the conjugal partnership. Nemo dat qui non habet. No one can give what he has not.

WHEREFORE, the appealed Decision is hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 90-106 of the Regional Trial Court of Makati is ordered DISMISSED. No pronouncement as to costs. SO ORDERED. Puno, Austria-Martinez, Callejo, Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 171968 July 31, 2009

XYST CORPORATION, Petitioner, vs. DMC URBAN PROPERTIES DEVELOPMENT INC., Respondent, FE AURORA C. CASTRO, Intervenor. DECISION QUISUMBING, J.: Before us is a petition for review assailing the September 26, 2005 Decision1 and the March 13, 2006 Order2 of the Regional Trial Court (RTC) of Makati City, Branch 64 in Civil Case No. 95-063. The facts are as follows: DMC Urban Properties Development, Inc. and Citibank N.A. entered into an agreement whereby they agreed to take part in the construction of the Citibank Tower, an office condominium building located at Villar corner Valero Streets, Makati City. In said agreement, DMC was allocated the 18th floor of the Citibank Tower subject to the condition that DMC shall not transfer any portion of its allocated floor or rights or interests thereto prior to the completion of the building without the written consent of Citibank N.A. Subsequently, DMC gave authority to sell to several brokers, one of which is herein intervenor, Fe Aurora Castro. Through her effort, Castro found a prospective buyer, Saint Agen Et Fils Limited (SAEFL for brevity), a foreign corporation represented by William Seitz. Notwithstanding the fact that the construction of the Citibank Tower was not yet completed, DMC negotiated with Seitz for the sale of its allocated floor to SAEFL. In a letter dated September 14, 1994,3 SAEFL accepted DMCs offer to sell. The terms of said letter are reproduced below: (1) Property Description Location : 18th Floor, Citibank Tower Paseo de Roxas, Makati Metro Manila18th Floor, 2,034 sq m 1,866 sq m

Gross Floor Area Net Saleable Area

: :

Net Usable Area Selling Price Total Price Parking Slots

: : : :

1,678 sq m P53,500/ - psm of saleable area P99,831,000/-* 22

* VAT tax for the account of the buyer, except that if payment of 26% of the total price is made before 30 September 1994, then VAT, if any, shall be for the account of the seller. The balance of P6,822,552.97 due to Citibank is included and, hence, is to be deducted from the amount due to DMC-UPDI. (2) Payment Terms Reservation Fee : P1,000,000/ - good [until] 26 September 1994 Non-refundable but applicable to the down payment. : P24,956,060/ -

26% -

Upon signing of agreement but not later than first banking hour of the 28th of September 1994. Due on 31 October 1994 (via post-dated check) Due on 30 November 1994 (via post-dated check)

24% 50% -

: P23,959,440/ -

: P43,092,947.03

* For the Account of the Seller

: Expanded Withholding Tax with BIR clearance to the buyer stating that the seller has paid capital gains tax. : Doc stamps; registration; and notarial and all other [similar] fees.

For the Account of the Buyer

On September 16, 1994,4 SAEFL, knowing that the consent of Citibank N.A. must first be obtained, sent another letter obliging DMC to cause Citibank N.A. to enter into a Contract to Sell with SAEFL as an additional condition to the payment of the P1,000,000.00 reservation fee. Soon after, Seitz was informed that the 18th floor is not available for foreign acquisition, so Seitz told DMC that he would instead use XYST Corporation, a domestic corporation of which he is a director and shareholder, to purchase the subject property. XYST then paid the reservation fee. However, DMC advised XYST that the signing of the formal document will not take place since Citibank N.A. opted to exercise its right of first refusal. Hence, the parties agreed that should Citibank N.A. fail to purchase the 18th floor on the agreed date, the same should be sold to XYST. Eventually, Citibank N.A. did not exercise its right of first refusal, but it reminded DMC that should the sale of the floor to any party materialize, it should be consistent with the documents adopted by the co-founders of the project. Hence, a copy of a pro-forma Contract to Sell was given to DMC, a copy of which was then forwarded to XYST.

DMC then undertook to obtain the conformity of Citibank N.A. to the intended sale but DMC encountered problems getting Citibank N.A. to accept the amendments that XYST wanted on the pro-forma contract. For such failure, DMC allowed XYST and Citibank N.A. to negotiate directly with one another to facilitate the transaction, but to no avail. Citibank N.A. refused to concur with the amendments imposed by XYST on the pro-forma contract. Hence, DMC decided to call off the deal and return the reservation fee of P1,000,000.00 to XYST.
lawph!l

A complaint for specific performance with damages was then filed by XYST against DMC. Trial ensued and on September 26, 2005, the RTC dismissed XYSTs complaint. The dispositive portion of said decision reads: WHEREFORE, in view of the foregoing, judgment is rendered as follows: 1. The Complaint for Specific Performance and Damages filed by plaintiff XYST CORPORATION against defendant DMC-URBAN PROPERTIES DEVELOPMENT, INC., is DISMISSED. Plaintiff XYST CORPORATION is hereby ordered to pay defendant DMCURBAN PROPERTIES DEVELOPMENT, INC. the amount of P1,000,000.00 as attorneys fees; and 2. The counterclaim of defendant DMC-URBAN PROPERTIES DEVELOPMENT, INC. against the Intervenor Fe Aurora Castro is DISMISSED. SO ORDERED.5 XYSTs motion for reconsideration was likewise denied. Hence, the instant petition where XYST raises the following issues: I. DID THE TRIAL COURT ERR IN FINDING THAT THERE WAS NO PERFECTED CONTRACT TO SELL BETWEEN XYST AND DEFENDANT DMC BASED ON THE SEPTEMBER 14 AND 16, 1994 LETTER AGREEMENTS, AND THAT DMC CANNOT BE COMPELLED TO PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT? II. DID THE TRIAL COURT ERR IN ORDERING XYST TO PAY DMC ATTORNEYS FEES? III. IS XYST ENTITLED TO ATTORNEYS FEES AND EXEMPLARY DAMAGES.6 Simply stated, in our view, there is one major legal issue for our resolution: whether there is a perfected contract between DMC and XYST. This issue of a legal nature assumes primordial significance because it justified direct resort by petitioner to this Court in a petition for review. XYST argues that there exists a perfected contract of sale between the parties. This was perfected from the moment there was a meeting of the minds upon the thing which is object of the contract and upon the price as manifested by the September 14, 1994 letter. Hence, upon the perfection of the contract, the parties may reciprocally demand performance. Further, XYST avers that the P1,000,000.00 reservation fee it paid is actually in the nature of earnest money or down payment and shall be considered as part of the price and as proof of the perfection of the contract.

Conversely, DMC insists that a contract to sell was entered into by the parties. It avers that in the contract to sell, the element of consent is lacking, and since the acceptance made by XYST is not absolute, no contract of sale existed between the parties. It claims that the terms, conditions and amendments which XYST tried to impose upon DMC and Citibank N.A. were proof that indeed XYST had qualifiedly accepted DMCs offer. We find the petition of XYST Corporation bereft of merit. It is a fundamental rule that, being consensual, a contract is perfected by mere consent.7 From the moment of a meeting of the offer and the acceptance upon the object and the cause that would constitute the contract, consent arises.8 The essence of consent is the conformity of the parties on the terms of the contract, that is, the acceptance by one of the offer made by the other.9 However, the acceptance must be absolute; otherwise, the same constitutes a counteroffer10 and has the effect of rejecting the offer.11 Equally important are the three stages of a contract: (1) preparation or negotiation, (2) perfection, and (3) consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.12 XYST and DMC were still in the negotiation stage of the contract when the latter called off the deal. The facts show that DMC as agreed undertook to obtain the conformity of Citibank N.A. However, Citibank N.A.s consent to the intended sale cannot be obtained since it does not conform to the amendments made by XYST on the pro-forma Contract to Sell. By introducing amendments to the contract, XYST presented a counter-offer to which DMC did not agree. Clearly, there was only an offer and a counter-offer that did not sum up to any final arrangement containing the elements of a contract. No meeting of the minds was established. The rule on the concurrence of the offer and its acceptance did not apply because other matters or detailsin addition to the subject matter and the considerationwould still be stipulated and agreed upon by the parties.13 Therefore, since the element of consent is absent, there is no contract to speak of. Where the parties merely exchanged offers and counter-offers, no agreement or contract is perfected.
lavvphil

As to XYSTs claim that the P1,000,000.00 reservation fee it paid is earnest money, we hold that it is not. Earnest money applies to a perfected sale. Here, no contract whatsoever was perfected since the element of consent was lacking. Therefore, the reservation fee paid by XYST could not be earnest money. Coming now to the issue of whether DMC is entitled to attorneys fees, the Court finds that the award of attorneys fees to DMC is not proper. Article 2208 of the Civil Code states that in the absence of a stipulation, attorneys fees cannot be recovered, except in any of the following circumstances: (1) When exemplary damages are awarded; (2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmens compensation and employers liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered. In the instant case, none of the enumerated grounds for recovery of attorneys fees is present. WHEREFORE, this petition is DENIED. The September 26, 2005 Decision and March 13, 2006 Order of the Regional Trial Court of Makati City, Branch 64 in Civil Case No. 95-063 are hereby AFFIRMED with themodification that the award of attorneys fees in favor of DMC is deleted. Costs against petitioner. SO ORDERED. LEONARDO A. QUISUMBING Associate Justice
EN BANC G.R. No. L-2412 April 11, 1906 PEDRO ROMAN, Plaintiff-Appellant , vs. ANDRES GRIMALT, Defendant-Appellee. TORRES, J.: On July 2, 1904, counsel for Pedro Roman filed a complaint in the Court of First Instance of this city against Andres Grimalt, praying that judgment be entered in his favor and against the defendant (1) for the purchase price of the schooner Santa Marina, to wit, 1,500 pesos or its equivalent in Philippine currency, payable by installments in the manner stipulated; (2) for legal interest on the installments due on the dates set forth in the complaint; (3) for costs of proceedings; and (4) for such other and further remedy as might be considered just and equitable.
chanroble svirtualawl ibra ry chan roble s virtual law l ibra ry chanrob les vi rtua l law lib rary

On October 24 of the same year the court made an order sustaining the demurer filed by defendant to the complaint and allowing plaintiff ten days within which to amend his complaint. To this order the plaintiff duly excepted.
chanroblesv irtualawl ibra ry c han robles v irt ual law l ibra ry

Counsel for plaintiff on November 5 amended his complaint and alleged that between the 13th and the 23rd day of June, 1904, both parties, through one Fernando Agustin Pastor, verbally agreed upon the sale of the said schooner; that the defendant in a letter dated June 23 had agreed to purchase the said schooner and of offered to pay therefor in three installment of 500 pesos each, to wit, on July 15, September 15, and November 15, adding in his letter that if the plaintiff accepted the plan of payment suggested by him the sale would become effective on the following day; that plaintiff on or about the 24th of the same month had notified the defendant through Agustin Pastor that he accepted the plan of payment suggested by him and that from that date the

vessel was at his disposal, and offered to deliver the same at once to defendant if he so desired; that the contract having been closed and the vessel being ready for delivery to the purchaser, it was sunk about 3 o'clock p. m., June 25, in the harbor of Manila and is a total loss, as a result of a severe storm; and that on the 30th of the same month demand was made upon the defendant for the payment of the purchase price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally prayed that judgment be rendered in accordance with the prayer of his previous complaint.
chanrob lesvi rtua lawlib rary chan rob les vi rtual law lib rary

Defendant in his answer asked that the complaint be dismissed with costs to the plaintiff, alleging that on or about June 13 both parties met in a public establishment of this city and the plaintiff personally proposed to the defendant the sale of the said vessel, the plaintiff stating that the vessel belonged to him and that it was then in a sea worthy condition; that defendant accepted the offer of sale on condition that the title papers were found to be satisfactory, also that the vessel was in a seaworthy condition; that both parties then called on Calixto Reyes, a notary public, who, after examining the documents, informed them that they were insufficient to show the ownership of the vessel and to transfer title thereto; that plaintiff then promised to perfect his title and about June 23 called on defendant to close the sale, and the defendant believing that plaintiff had perfected his title, wrote to him on the 23d of June and set the following day for the execution of the contract, but, upon being informed that plaintiff had done nothing to perfect his title, he insisted that he would buy the vessel only when the title papers were perfected and the vessel duly inspected.
chanroble svirtualawl ibra ry chan roble s virtual law libra ry

Defendant also denied the other allegations of the complaint inconsistent with his own allegations and further denied the statement contained in paragraph 4 of the complaint to the effect that the contract was completed as to the vessel; that the purchase price and method of payment had been agreed upon; that the vessel was ready for delivery to the purchaser and that an attempt had been made to deliver the same, but admitted, however, the allegations contained in the last part of the said paragraph.
chanro blesvi rt ualawlib ra ry cha nro bles vi rtua l law lib ra ry

The court below found that the parties had not arrived at a definite understanding. We think that this finding is supported by the evidence introduced at the trial.
chanroblesv irt ualawli bra ry c hanrobles vi rt ual law li bra ry

A sale shall be considered perfected and binding as between vendor and vendee when they have agreed as to the thing which is the object of the contract and as to the price, even though neither has been actually delivered. (Art. 1450 of the Civil Code.)
chanroble s virtual law l ibra ry

Ownership is not considered transmitted until the property is actually delivered and the purchaser has taken possession of the value and paid the price agreed upon, in which case the sale is considered perfected.
chanrob lesvi rtua lawlib rary cha nrob les vi rtu al law lib rary

When the sale is made by means of a public instrument the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract. (Art. 1462 of the Civil Code.)
chanrob les vi rtual law lib rary

Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several days negotiating for the purchase of the schoonerSanta Marina - from the 13th to the 23d of June, 1904. They agreed upon the sale of the vessel for the sum of 1,500 pesos, payable in three installments, provided the title papers to the vessel were in proper form. It is so stated in the letter written by the purchaser to the owner on the 23rd of June.
chan rob lesvi rtualaw lib rary chan roble s virtual law li bra ry

The sale of the schooner was not perfected and the purchaser did not consent to the execution of the deed of transfer for the reason that the title of the vessel was in the name of one Paulina Giron and not in the name of Pedro Roman, the alleged owner. Roman promised, however, to perfect his title to the vessel, but he failed to do so. The papers presented by him did not show that he was the owner of the vessel.
cha nrob lesvi rtua lawlib rary chan roble s virtual law l ib rary

If no contract of sale was actually executed by the parties the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the contract of sale.
chanrob lesvi rtua lawlib rary cha nrob les vi rtual law lib rary

The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during a severe storm and before the owner had complied with the condition exacted by the proposed purchaser, to wit,

the production of the proper papers showing that the plaintiff was in fact the owner of the vessel in question.
chanroble svirtualawl ibra ry chan roble s virtual law l ibra ry

The defendant was under no obligation to pay the price of the vessel, the purchase of which had not been concluded. The conversations had between the parties and the letter written by defendant to plaintiff did not establish a contract sufficient in itself to create reciprocal rights between the parties.
chanroblesvi rt ualawlib ra ry c hanro bles vi rtua l law lib ra ry

It follows, therefore, that article 1452 of the Civil Code relative to the injury or benefit of the thing sold after a contract has been perfected and articles 1096 and 1182 of the same code relative to the obligation to deliver a specified thing and the extinction of such obligation when the thing is either lost or destroyed, are not applicable to the case at bar.
chan roblesv irt ualawli bra ry c hanrobles vi rt ual law li bra ry

The first paragraph of article 1460 of the Civil Code and section 335 of the Code of Civil Procedure are not applicable. These provisions contemplate the existence of a perfected contract which can not, however, be enforced on account of the entire loss of the thing or made the basis of an action in court through failure to conform to the requisites provided by law.
chanro blesvi rtua lawlib rary cha nrob les vi rtua l law lib rary

The judgment of the court below is affirmed and the complaint is dismissed with costs against the plaintiff. After the expiration of twenty days from the date hereof let judgment be entered in accordance herewith and ten days thereafter let the case be remanded to the Court of First Instance for proper action. So ordered.
chanroblesv irtualawl ibra ry c han robles v irt ual law l ibra ry

Arellano, C.J., Mapa, Johnson, Carson and Willard, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-23351 March 13, 1968

CIRILO PAREDES, plaintiff-appellant, vs. JOSE L. ESPINO, defendant-appellee. Simeon Capule for plaintiff-appellant. Iigo R. Pea for defendant-appellee. REYES, J.B.L., Actg. C.J.: Appeal from an order of the Court of First Instance of Palawan in its Civil Case No. 453, granting a motion to dismiss the complaint. Appellant Cirilo Parades had filed an action to compel defendant-appellee Jose L. Espino to execute a deed of sale and to pay damages. The complaint alleged that the defendant "had entered into the sale" to plaintiff of Lot No. 67 of the Puerto Princesa Cadastre at P4.00 a square meter; that the deal had been "closed by letter and telegram" but the actual execution of the deed of sale and payment of the price were deferred to the arrival of defendant at Puerto Princesa; that defendant upon arrival had refused to execute the deed of sale altho plaintiff was able and willing to pay the price, and continued to refuse despite written demands of plaintiff; that as a result, plaintiff had lost expected profits from a resale of the property, and caused plaintiff mental anguish and suffering, for which reason the complaint prayed for specific performance and damages.

Defendant filed a motion to dismiss upon the ground that the complaint stated no cause of action, and that the plaintiff's claim upon which the action was founded was unenforceable under the Statute of Frauds. Plaintiff opposed in writing the motion to dismiss and annexed to his opposition a copy of a letter purportedly signed by defendant (Annex "A"), wherein it was stated (Record on Appeal, pp. 19-20) 106 GonzagaSt. Tuguegarao,Cagayan May18,1964 Mr.CiriloParedes Pto.Princesa,Palawan

Dear Mr. Paredes: So far I received two letters from you, one dated April 17 and the other April 29, both 1964. In reply thereto, please be informed that after consulting with my wife, we both decided to accept your last offer of Four (P4.00) pesos per square meter of the lot which contains 1826 square meters and on cash basis. In order that we can facilitate the transaction of the sale in question, we (Mrs. Espino and I), are going there (Puerto Princess, Pal.) to be there during the last week of the month, May. I will send you a telegram, as per your request, when I will reach Manila before taking the boat for Pto. Princess. As it is now, there is no schedule yet of the boats plying between Manila and Pto. Princess for next week. Plaintiff also appended as Annex "A-1", a telegram apparently from defendant advising plaintiff of his arrival by boat about the last week of May 1964 (Annex "A-1" Record on Appeal, p. 21), as well as a previous letter of defendant (Appendix B, Record on Appeal, p. 35) referring to the lot as the one covered by Certificate of Title No. 62. These allegations and documents notwithstanding, the Court below dismissed the complaint on the ground that there being no written contract, under Article 1403 of the Civil Code of the Philippines Although the contract is valid in itself, the same can not be enforced by virtue of the Statute of Frauds. (Record on Appeal, p. 37).
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Plaintiff duly appealed to this Court. The sole issue here is whether enforcement of the contract pleaded in the complaint is barred by the Statute of Frauds; and the Court a quo plainly erred in holding that it was unenforceable. The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines, does not require that the contract itself be in writing. The plain text of Article 1403, paragraph (2) is clear that a written note or memorandum, embodying the essentials of the contract and signed by the party charged, or his agent, suffices to make the verbal agreement enforceable, taking it out of the operation of the statute. Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) . . . (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: xxx xxx xxx

(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein.
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xxx

xxx

xxx

In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by letter and telegram" (Record on Appeal, p. 2), and the letter referred to was evidently the one copy of which was appended as Exhibit A to plaintiff's opposition to the motion dismiss. This letter, transcribed above in part, together with that one marked as Appendix B, constitute an adequate memorandum of the transaction. They are signed by the defendant-appellee; refer to the property sold as a lot in Puerto Princesa, Palawan, covered, by TCT No. 62; give its area as 1826 square meters and the purchase price of four (P4.00) pesos per square meter payable in cash. We have in them therefore, all the essential terms of the contract, and they satisfy the requirements of the Statute of Frauds. We have ruled in Berg vs. Magdalena Estate, Inc., 92 Phil. 110, 115, that a sufficient memorandum may be contained in two or more documents. Defendant-appellee argues that the authenticity of the letters has not been established. That is not necessary for the purpose of showing prima facie that the contract is enforceable. For as ruled by us in Shaffer vs. Palma, L-24115, March 1, 1968, whether the agreement is in writing or not, is a question of evidence; and the authenticity of the writing need not be established until the trial is held. The plaintiff having alleged that the contract is backed by letter and telegram, and the same being a sufficient memorandum, his cause of action is thereby established, especially since the defendant has not denied the letters in question. At any rate, if the Court below entertained any doubts about the existence of the written memorandum, it should have called for a preliminary hearing on that point, and not dismissed the complaint. WHEREFORE, the appealed order is hereby set aside, and the case remanded to the Court of origin for trial and decision. Costs against defendant-appellee Jose L. Espino. So ordered. Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
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G.R. No. 122544 January 28, 1999

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BLAZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents. G.R. No. 124741 January 28, 1999 REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and Jose A. DIZON, JR., petitioners, vs.

COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS LINES, INC., respondents.

MARTINEZ, J.: Two consolidated petitions were filed before us seeking to set aside and annul the decisions and resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit was juxtaposed with procedural intricacies which finally found its way to this Court. G.R. No. 122544: On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract of Lease with Option to Buy with petitioners 1 (lessors) involving a 1,755.80 square meter parcel of land situated at corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The term of the lease was for one (1) year commencing from May 16, 1974 up to May 15, 1975. During this period, private respondent was granted an option to purchase for the amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00. For failure of private respondent to pay the increased rental of P8,000.00 per month effective June 1976, petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982, the City Court rendered judgment 2 ordering private respondent to vacate the leased premises and to pay the sum of P624,000.00 representing rentals in arrears and/or as damages in the form of reasonable compensation for the use and occupation of the premises during the period of illegal detainer from June 1976 to November 1982 at the monthly rental of P8,000.00, less payments made, plus 12% interest per annum from November 18, 1976, the date of filing of the complaint, until fully paid, the sum of P8,000.00 a month starting December 1982, until private respondent fully vacates the premises, and to pay P20,000.00 as and by way of attorney's fees. Private respondent filed a certiorari petition praying for the issuance of a restraining order enjoining the enforcement of said judgment and dismissal of the case for lack of jurisdiction of the City Court. On September 26, 1984, the then Intermidiate Appellate Court 3 (now Court of Appeals) rendered a decision 4stating that: . . ., the alleged question of whether petitioner was granted an extension of the option to buy the property; whether such option, if any, extended the lease or whether petitioner actually paid the alleged P300,000.00 to Fidela Dizon, as representative of private respondents in consideration of the option and, whether petitioner thereafter offered to pay the balance of the supposed purchase price, are all merely incidental and do not remove the unlawful detainer case from the jurisdiction or respondent court. In consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above matters may be raised and decided in the unlawful detainer suit as, to rule otherwise, would be a violation of the principle prohibiting multiplicity of suits. (Original Records, pp. 38-39). The motion for reconsideration was denied. On review, this Court dismissed the petition in a resolution dated June 19, 1985 and likewise denied private respondent's subsequent motion for reconsideration in a resolution dated September 9, 1985. 5

On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City (Civil Case No. Q-45541) an action for Specific Performance and Fixing of Period for Obligation with prayer for the issuance of a restraining order pending hearing on the prayer for a writ of preliminary injunction. It sought to compel the execution of a deed of sale pursuant to the option to purchase and the receipt of the partial payment, and to fix the period to pay the balance. In an Order dated October 25, 1985, the trial court denied the issuance of a writ of preliminary injunction on the ground that the decision of the then City Court for the ejectment of the private respondent, having been affirmed by the then Intermediate Appellate Court and the Supreme Court, has become final and executory. Unable to secure an injunction, private respondent also filed before the RTC of Quezon City, Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief from Judgment with injunction and damages. In its decision 6 dated May 12, 1986, the trial court dismissed the complaint for annulment on the ground of res judicata, and the writ of preliminary injunction previously issued was dissolved. It also ordered private respondent to pay P3,000.00 as attorney's fees. As a consequence of private respondent's motion for reconsideration, the preliminary injunction was reinstated, thereby restraining the execution of the City Court's judgment on the ejectment case. The two cases were the after consolidated before the RTC of Quezon City, Branch 77. On April 28, 1989, a decision 7 was rendered dismissing private respondent's complaint in Civil Case No. Q-45541 (specific performance case) and denying its motion for reconsideration in Civil Case No. 46487 (annulment of the ejectment case). The motion for reconsideration of said decision was likewise denied. On appeal, 8 respondent Court of Appeals rendered a decision 9 upholding the jurisdiction of the City Court of Quezon City in the ejectment case. It also concluded that there was a perfected contract of sale between the parties on the leased premises and that pursuant to the option to buy agreement, private respondent had acquired the rights of a vendee in a contract of sale. It opined that the payment by private respondent of P300,000.00 on June 20, 1975 as partial payment for the leased property, which petitioners accepted (through Alice A. Dizon) and for which an official receipt was issued, was the operative act that gave rise to a perfected contract of sale, and that for failure of petitioners to deny receipt thereof, private respondent can therefore assume that Alice A. Dizon, acting as agent of petitioners, was authorized by them to receive the money in their behalf. The Court of Appeals went further by stating that in fact, what was entered into was a "conditional contract of sale" wherein ownership over the leased property shall not pass to the private respondent until it has fully paid the purchase price. Since private respondent did not consign to the court the balance of the purchase price and continued to occupy the subject premises, it had the obligation to pay the amount of P1,700.00 in monthly rentals until full payment of the purchase price. The dispositive portion of said decision reads: WHEREFORE, the appealed decision in Case No. 46387 is AFFIRMED. The appealed decision in Case No. 45541 is, on the other hand, ANNULLED and SET ASIDE. The defendants-appellees are ordered to execute the deed of absolute sale of the property in question, free from any lien or encumbrance whatsoever, in favor of the plaintiff-appellant, and to deliver to the latter the said deed of sale, as well as the owner's duplicate of the certificate of title to said property upon payment of the balance of the purchase price by the plaintiff-appellant. The plaintiff-appellant is ordered to pay P1,700.00 per month from June 1976, plus 6% interest per annum, until payment of the balance of the purchase price, as previously agreed upon by the parties. SO ORDERED. Upon denial of the motion for partil reconsideration (Civil Case No. Q-45541) by respondent Court of Appeals, 10petitioners elevated the case via petition for certiorari questioning the authority of Alice A. Dizon as agent of petitioners in receiving private respondent's partial payment amounting

to P300,000.00 pursuant to the Contract of Lease with Option to Buy. Petitioner also assail the propriety of private respondent's exercise of the option when it tendered the said amount on June 20, 1975 which purportedly resulted in a perfected contract of sale. G.R. No. 124741: Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No. 38-29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch 38, for execution of the judgment 11 dated November 22, 1982 which was granted in a resolution dated June 29, 1992. Private respondent filed a motion to reconsider said resolution which was denied. Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction and/or restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution dated September 16, 1992 on the ground that the same was a refiled case previously dismissed for lack of merit. On November 26, 1992, entry of judgment was issued by this Court. On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil Case No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court ordered the issuance of a third alias writ of execution. In denying private respondent's motion for reconsideration, it ordered the immediate implementation of the third writ of execution without delay. On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon City, Branch 104 a petition for certiorari and prohibition with preliminary injunction/restraining order (SP. PROC. No. 93-18722) challenging the enforceability and validity of the MTC judgment as well as the order for its execution. On January 11, 1994, RTC of Quezon City, Branch 104 issued an order 12 granting the issuance of a writ of preliminary injunction upon private respondent's' posting of an injunction bond of P50,000.00. Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners filed a petition 13for certiorari and prohibition with a prayer for a temporary restraining order and/or preliminary injunction with the Court of Appeals. In its decision, 14 the Court of Appeals dismissed the petition and ruled that: The avowed purpose of this petition is to enjoin the public respondent from restraining the ejectment of the private respondent. To grant the petition would be to allow the ejectment of the private respondent. We cannot do that now in view of the decision of this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to eject private respondent has been demonstrated to be without basis in the said civil case. The petitioners have been shown, after all, to have no right to eject private respondents. WHEREFORE, the petition is DENIED due course and is accordingly DISMISSED.
SO ORDERED. 15

Petitioners' motion for reconsideration was denied in a resolution 16 by the Court of Appeals stating that: This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiffappellant (private respondent herein) acquired the rights of a vendee in a contract of sale, in effect, recognizing the right of the private respondent to possess the

subject premises. Considering said decision, we should not allow ejectment; to do so would disturb the status quo of the parties since the petitioners are not in possession of the subject property. It would be unfair and unjust to deprive the private respondent of its possession of the subject property after its rights have been established in a subsequent ruling. WHEREFORE, the motion for reconsideration is DENIED for lack of merit.
SO ORDERED. 17

Hence, this instant petition. We find both petitions impressed with merit. First. Petitioners have established a right to evict private respondent from the subject premises for non-payment of rentals. The term of the Contract of Lease with Option to Buy was for a period of one (1) year (May 16, 1974 to May 15, 1975) during which the private respondent was given an option to purchase said property at P3,000.00 square meter. After the expiration thereof, the lease was for P3,000.00 per month. Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and private respondent. However, since the rent was paid on a monthly basis, the period of lease is considered to be from month to month in accordance with Article 1687 of the New Civil Code. 18 Where the rentals are paid monthly, the lease, even if verbal may be deemed to be on a monthly basis, expiring at the end of every month pursuant to Article 1687, in relation to Article 1673 of the Civil Code. 19 In such case, a demand to vacate is not even necessary for judicial action after the expiration of every month. 20 When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the petitioners had a cause of action to institute an ejectment suit against the former with the then City Court. In this regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The filing by private respondent of a suit with the Regional Trial Court for specific performance to enforce the option to purchase did not divest the then City Court of its jurisdiction to take cognizance over the ejectment case. Of note is the fact that the decision of the City Court was affirmed by both the Intermediate Appellate Court and this Court. Second. Having failed to exercise the option within the stipulated one-year period, private respondent cannot enforce its option to purchase anymore. Moreover, even assuming arguendo that the right to exercise the option still subsists at the time private respondent tendered the amount on June 20, 1975, the suit for specific performance to enforce the option to purchase was filed only on October 7, 1985 or more than ten (10) years after accrual of the cause of action as provided under Article 1144 of the New Civil Code. 21 In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease expired without the private respondent, as lessee, purchasing the property but remained in possession thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other terms of the original contract of lease which are revived in the implied new lease under Article 1670 of the New Civil Code 22 are only those terms which are germane to the lessee's right of continued enjoyment of the property leased. 23 Therefore, an implied new lease does not ipso facto carry with it any implied revival of private respondent's option to purchase (as lessee thereof) the leased premises. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Private respondent's right to exercise the option to purchase expired with the termination of the original contract of lease for one year. The rationale of this Court is that:

This is a reasonable construction of the provision, which is based on the presumption that when the lessor allows the lessee to continue enjoying possession of the property for fifteen days after the expiration of the contract he is willing that such enjoyment shall be for the entire period corresponding to the rent which is customarily paid in this case up to the end of the month because the rent was paid monthly. Necessarily, if the presumed will of the parties refers to the enjoyment of possession the presumption covers the other terms of the contract related to such possession, such as the amount of rental, the date when it must be paid, the care of the property, the responsibility for repairs, etc. But no such presumption may be indulged in with respect to special agreements which by nature are foreign to the right of occupancy or enjoyment inherent in a contract of lease. 24

Third. There was no perfected contract of sale between petitioners and private respondent. Private respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant to the supposed authority given by petitioner Fidela Dizon, the payee thereof. Private respondent further contended that petitioners' filing of the ejectment case against it based on the contract of lease with option to buy holds petitioners in estoppel to question the authority of petitioner Fidela Dizon. It insisted that the payment of P300,000.00 as partial payment of the purchase price constituted a valid exercise of the option to buy. Under Article 1475 of the New 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." Thus, the elements of a contract of sale are consent, object, and price in money or its equivalent. It bears stressing that the absence of any of these essential elements negates the existence of a perfected contract of sale. Sale is a consensual contract and he who alleges it must show its existence by competent proof. 25 In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous presumption that the said amount tendered would constitute a perfected contract of sale pursuant to the contract of lease with option to buy. There was no valid consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners' alleged agent, and private respondent. The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 26 As provided in Article 1868 of the New Civil Code, 27there was no showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf with regard to her transaction with private respondent. The most prudent thing private respondent should have done was to ascertain the extent of the authority of Alice A. Dizon. Being negligent in this regard, private respondent cannot seek relief on the basis of a supposed agency. In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in dealing with an agent: Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agency, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it. For the long years that private respondent was able to thwart the execution of the ejectment suit rendered in favor of petitioners, we now write finis to this controversy and shun further delay so as to ensure that this case would really attain finality.

WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29, 1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals are hereby REVERSED and SET ASIDE. Let the records of this case be remanded to the trial court for immediate execution of the judgment dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII as affirmed in the decision dated September 26, 1984 of the then Intermediate Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of this Court. However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which they received through Alice A. Dizon on June 20, 1975.
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SO ORDERED. Davide, Jr., C.J., Melo, Kapunan and Pardo, JJ., concur. Footnotes

G.R. No. L-116650 May 23, 1995 TOYOTA SHAW, INC., petitioner, vs. COURT OF APPEALS and LUNA L. SOSA, respondents.

DAVIDE, JR., J.: At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. 1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19th of June.

2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989. 3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.

(Sg d.) PO PO NG BER NA RD O. Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review oncertiorari. The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota. Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and abalikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing.

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Paraaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as follows:
a) b) c) downpayment insurance BLT registration fee CHMO fee service fee accessories P 53,148.00 P 13,970.00 P 1,067.00 P 2,715.00 P 500.00 P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not filled-up. It also contains the following pertinent provisions: CONDITIONS OF SALES 1. This sale is subject to availability of unit. 2. Stated Price is subject to change without prior notice, Price prevailing and in effect at time of selling will apply. . . . Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP. On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas." Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused. After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with the reservation, "without prejudice to our future claims for damages." Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take legal action. 6 The second, dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos representing interest and damages, again, with a warning that legal action would be taken if

payment was not made within three days. 7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to accede to the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He alleges, inter alia, that:
9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his family were constrained to take the public transportation from Manila to Lucena City on their way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace that never was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of One Million Pesos (P1,000,000.00). 10

In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that: the VSP did not state date of delivery; Sosa had not completed the documents required by the financing company, and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing requirements, submission of all documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory counterclaims. After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him. As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not volunteer any information as to the company's sales policy and guidelines because they are internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15 The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it disposed as follows: WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and against the defendant: 1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages; 2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages;

3. ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 lawyer's transportation fare per trip in attending to the hearing of this case; 4. ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of the plaintiff in attending the hearing of this case; and 5. ordering the defendant to pay the cost of suit. SO ORDERED. Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the Court of Appeals affirmed in toto the appealed decision. Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponenciaand also the following related issues: (a) whether or not the standard VSP was the true and documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages. We find merit in the petition. Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale. Article 1458 of the Civil Code defines a contract of sale as follows: 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. and Article 1475 specifically provides when it is deemed perfected: Art. 1475. 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. What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid. This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. 18 This is so

because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property. 19 Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz., AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an agent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 21 At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 22

The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP. Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property." 23 Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. 24 Since B.A. Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis.

We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states:
On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . (Emphasis supplied). 25

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury. The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet. Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 26 No such explicit determination thereon was made in the body of the decision of the trial court. No reason thus exists for such an award. WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 8914 is DISMISSED. The counterclaim therein is likewise DISMISSED. No pronouncement as to costs. SO ORDERED. Padilla, Bellosillo and Kapunan, JJ., concur. Quiason, J., is on leave.

G.R. No. L-109236 March 18, 1994 VIRGINIA D. PAGCO and GAUDENCIO PAGCO, petitioners, vs. THE HONORABLE COURT OF APPEALS and PETER NG QUIMSON, respondents. Candido P. Gutierrez for petitioners. Rosendo G. Tansinsin, Jr. for private respondent.

KAPUNAN, J.: Petitioners seek to review the decision of the Court of Appeals dismissing their petition to reverse the decision 1 of the Regional Trial Court of Manila, the dispositive portion of which reads: WHEREFORE, judgment is rendered: (a) Vacating and setting aside the appealed judgment of the lower court; (b) Ordering the defendants to vacate the premises under their respective occupation and surrender possession thereof to the plaintiff; (c) Ordering said defendants to pay to the plaintiff their rental in arrears computed from March 1987 and their current rentals until they vacate the premises leased to them at the following month rates: NAMES RENTAL (1) Francisco Merdeja P45.00 (2) Angelina Villarin 53.40 (3) Luz A. Mondejar 53.14 (4) Ramon Mondejar 48.31 (5) Virginia Pagco 62.76 (6) Asuncion Bandung 45.00 (7) Apolonia Vda. de Glory 3.14 (8) Angelina Molina 43.92 (9) Gaudencio Pagco 48.31 (10) Benjamin Aguilar 45.00 (11) Victor Maguad 45.00 (d) Ordering the defendants to pay their proportionate shares in the costs. (e) Remand the records of this case to the court of origin for immediate execution.
SO ORDERED. 2

Private respondent Peter Quimson is the owner of a parcel if land situated at San Isidro Street, Singalong, Manila, with an area of 1,000 square meters and covered by TCT No. 173114.

When private respondent acquired the property on March 17, 1987 through sale at public auction, eleven (11) occupants were in possession of the property with their respective residential houses built thereon, among whom are herein petitioners. Private respondent had earlier negotiated with petitioners for the latter to buy the portions they occupy but petitioners backed off. Private respondent subsequently informed the lessees to pay their back rentals and to remove their houses because he needed the property for his own use and that of the immediate member of his family. For failure of petitioners to heed private respondent's demand, a complaint for ejectment was filed against petitioners and the other occupants of the property in the Metropolitan Trial Court of Manila, Branch 6, docketed as Civil Case No. 125830. 3 Petitioners and the other defendants filed their answer denying that there were negotiations for them to buy the property and alleging as affirmative defense that private respondent has no cause of action as the property is within the area for priority development, hence, eviction of the occupant families is prohibited under P.D. 2016. During the trial of the case, only petitioners adduced their evidence. The other defendants waived their right to present evidence for failure to appear at the trial. After trial, the Metropolitan Trial Court rendered 4 judgment dismissing the complaint for ejectment on the ground that there was a perfected sale over the property between private respondent and its occupants and, consequently, said court had no jurisdiction over the case because the rights of the parties should be governed not by the law on lease but by the law on sales, more specifically Article 1475 of the Civil Code. Private respondent appealed the MTC's decision to the Regional Trial Court, Branch 35, where the case was docketed as Civil Case No. 91-58880. Thereafter, the RTC rendered its decision, reversing that of the Metropolitan Trial Court. Not satisfied with the RTC's decision, petitioners filed a petition for review with the Court of Appeals on the following grounds: I THE LOWER COURT ERRED WHEN IT DISREGARDED THE PERFECTED SALE BETWEEN THE PARTIES AND ORDERED THE EJECTMENT OF DEFENDANTS. II THE DECISION IS IN ERROR WHEN THE FATAL DEFECT OF MISJOINDER OF PARTIES WAS IGNORED. The Court of Appeals in dismissing the petition ratiocinated: A contract of sale is perfected from the time there exists and agreement upon the thing which is the object of the contract and upon the price (Article 1475, Civil Code). Here, the price fixed by respondent Quimson as alleged in paragraph 8 of the complaint is P970.00 per square meter, although respondent testified that the exact price is P980.00 per square meter (page 6, RTC decision). According to petitioners, however, all the defendants agreed to pay the price of P850.00 only

per square meter (page 5, RTC decision). Clearly, therefore, there was no agreement reached between the parties as to the price of the lot in question. Consequently, as no price was agreed upon, there can be no perfected contract of sale within the contemplation of Article 1475 of the Civil Code. That there indeed was no perfected contract of sale is further bolstered by the letter of petitioners' lawyer to respondent Quimson dated June 24, 1988 (Exhibit "C", also Exhibit "1", page 19, MRT record), the relevant portions of which state: Our clients revealed to us that they have not consented much less entered into any agreement on a direct purchase from you of their respective occupied lots especially on the price you mentioned. There is yet another factor that militates against petitioners' pretended perfected sale of the property. In their answer to the complaint, (page 45, MTC record), defendants (including the petitioners herein) never alleged that there was a perfected contract of sale of the portion they were occupying. Paragraphs 4 & 5 of defendants' answer aver: 4. The allegations contained in paragraphs 6, 7 and 8 are vehemently denied, the truth of the matter being, that plaintiff on several occasions demands exhorbitant rentals or payments for the property and harassed them with threats to eject them for their occupied spaces if they refuse to accept and oblige with his terms. 5. Paragraphs 9 and 10 of the complaint, are likewise denied on the ground that defendants never recognized plaintiff as the owner of the property in issue and most of all advised the latter that the same was covered by a proclamation placing it under Area priority development pursuant to the Urban Reform Law. All these established facts debunk petitioners' claim or a perfected contract of sale between them and respondent Peter Quimson. On the second ground, petitioners vehemently assail the RTC decision which allegedly ignored the misjoinder of parties. Citing the case of Flores vs. MallarePhilipps, 144 SCRA 377, petitioners contend that there is misjoinder of parties because the claim against the defendants are separate and distinct. The Flores decision, supra, finds no application in this case. The Supreme Court dismissed the complaint because the claim against Ignacio Binongcal for P11,643.00 on the first cause of action and the claim against Fernando Calion for P10,212.00 on the second cause of action, are separate and distinct and neither of which falls within the original exclusive jurisdiction of the Regional Trial Court under Section 19(8) of B.P. 129 where the amount of the demand is more than P20,000.00. In the case at bar, the cause of action for the ejectment against all the defendants, including the petitioners, is for non-payment of rentals from 1987 to the present. The relief sought against all the defendants is the same, i.e., to vacate the premises and to pay the rentals in arrears. We thus agree with the trial court that

Arrears in payment of rentals for a total of three months is a ground for judicial ejectment (Sec. 5-b, Batas Pambansa Blg. 877, as amended and extended by Rep. Act. No. 6828). In this case, the defendants admitted among others, during the pre-trial, the respective rates of rental they have been paying to the previous owners; that the title to the land in question has been transferred to the plaintiff in March 1987; that they have not been paying their rentals since June 1985; and that they received the letters of demand of the plaintiff (Record, p. 178). However, the plaintiff is entitled to recover the unpaid rentals only from March 1987 when he became the owner-lessor of the land in question.
This is a good example of how persons who have failed to adduce any legal grounds for their continued stay on property belonging to another have nonetheless managed to stave off eviction for more than four years although with respect to the other defendants in the case, writs of execution had already been issued against them. 5

In the instant recourse, petitioners assail the Court of Appeals' decision alleging as their lone assigned error that I THE LOWER COURT ERRED WHEN IT DID NOT CONSIDER AGAINST PLAINTIFF FATAL ALLEGATIONS IN THE COMPLAINT WHICH CLEARLY INDICATES LACK OF CAUSE OF ACTION BUT RATHER CURED THE SAME THROUGH DEFENDANTS ANSWER. The petition is devoid of merit. As correctly found by both the Court of Appeals and the Regional Trial Court on the basis of the evidence, there was no meeting of the minds between the parties regarding the offer by private respondent to sell his property to the occupants. Private respondent wanted P980.00 per square meter, but the occupants were willing to pay only P850.00. In arguing that there was a perfected contract of sale, petitioners wrongly capitalize on the allegations in the complaint, to wit: 8. That this time, upon receipt of Annex "D", defendants negotiated with the plaintiff's offer to buy the area actually occupied by their houses at P970.00 a square meter on easy monthly installment for five (5) years. 9. To consumate the agreement, plaintiff engaged the services of a Geodetic Engineer who prepared a subdivision plan delineating the boundaries of the area to be assigned to each of the defendants.
10. That however, after approving the proposed subdivision plan, the defendants suddenly and abruptly changed their minds and repudiated the agreement which is already a perfected contract, and deliberately and maliciously refused to continue negotiating with the plaintiff as expressed in the attached letter of their counsel marked as ANNEX "E" and made an integral part hereof. 6

However, as the Court of Appeals had appointed out in its decision, petitioners categorically denied in paragraphs 4 and 5 of their answer whatever imputations there are in paragraphs 8 to 10 of the Complaint of the alleged existence of a perfected contract. In other words, petitioners in their answer never claimed ownership of the lot; they only put up the defense that the property is

within one of the areas proclaimed for priority development and, therefore, their eviction is prohibited pursuant to P.D. 2016. The phrase "perfected contract" in paragraph 10 of the complaint is used in its loose sense and does not connote that there was a meeting of the minds between the parties. Observe that after the statement in said paragraph that "after approving the proposed subdivision plan, the defendants suddenly and abruptly changed their minds and repudiated the agreement which is already a perfected contract," there immediately follows the qualifying allegation that "[defendants] deliberately and maliciously refused to continue negotiating with the plaintiff as expressed in the attached letter of their counsel marked as Annex 'E' and made an integral part thereof. The words "refused to continue negotiating with the plaintiff" have no other meaning except that there was a negotiation regarding the offer to sell, but the negotiation fell through because of the refusal of petitioners and the other occupants to talk further as evidenced by the letter of their counsel, which is Annex "C" of the complaint. The letter referred to, which is dated June 24, 1988, states in part:
Our client revealed to us that the have not consented much less entered into by agreement on a direct purchase from you of their respective occupied lots especially on the price you mentioned. 7

Finally, even granting that there was a perfected contract of sale, it can be implied that there was subsequently a mutual withdrawal or "mutual backing out" from the contract. 8 This conclusion may be drawn from the fact of the filing by private respondent of the complaint for ejectment, in which he alleged ownership of the property in question and from the averments in petitioners' answer wherein they never claimed ownership of the property by purchase from private respondent. In Aquino vs. Taedo, 9 involving a sale of land mutually cancelled by both contracting parties, this Court emphasized that the rescission of the contract between the plaintiff and the defendant was not originated by any of the causes specified in Arts. 1291 and 1292 (now Arts. 1381 and 1832 of the New Civil Code), nor is it a relief for the purposes sought by these articles; it is simply another contract for the dissolution of the previous one, and its effects, in relation to the contract so dissolved, should be determined by the agreement of the parties, or by the application of other legal provisions, not by Article 1295 (now Art. 1385 of the Civil Code). WHEREFORE, the petition is DENIED for lack of merit. No pronouncement as to costs. Cruz, Jr., Davide, Jr., Bellosillo and Quiason, JJ., concur.

G.R. No. 128016 September 17, 1998 SPOUSES CESAR AND ELVIRA RAET AND SPOUSES REX AND EDNA MITRA, petitioners, vs. COURT OF APPEALS, PHIL-VILLE DEVELOPMENT & HOUSING CORPORATION, GERONIMA G. QUE AND CAROLINA Q. VILLONGCO, respondents.

MENDOZA, J.:

In 1984, petitioners Cesar and Elvira Raet (the spouses Raet) and petitioners Rex and Edna Mitra (the spouses Mitra) negotiated with Amparo Gatus concerning the possibility of buying the rights of the latter to certain units at the Las Villas de Sto. Nio Subdivision in Meycauayan, Bulacan. 1 This subdivision was developed by private respondent Phil-Ville Development and Housing Corporation (PVDHC) primarily for parties qualified to obtain loans from the Government Service Insurance System (GSIS). 2 The spouses Raet and the spouses Mitra paid Gatus the total amounts of P40,000.00 and P35,000.00, respectively, 3 for which they were issued receipts by Gatus in her own name. 4 In early 1985 the spouses Raet and the spouses Mitra applied directly with private respondent PVDHC for the purchase of units in the said subdivision. As they were not GSIS members, they looked for members who could act as accommodation parties by allowing them to use their policies. 5 Private respondent PVDHC would process the applications for the purchase of the units upon the approval by the GSIS of petitioners' loan applications. 6 The spouses Raet presented the GSIS policy of Ernesto Casidsid, while the spouses Mitra that of Edna Lim. 7 The spouses Raet paid P32,653.00, while the spouses Mitra paid P27,000.00, to private respondent PVDHC, 8 on the understanding that these amounts would be credited to the purchase prices of the units which will be determined after the approval of their loan applications with the GSIS. Meanwhile, the spouses Raet were allowed to occupy the unit built on Lot 4, Block 67, Phase 4A of the Las Villas de Sto. Nio Subdivision, 9 while the spouses Mitra were given the unit on Lot 7, Block 61, Phase 4A thereof. 10 It appears, however, that the GSIS disapproved the loan applications of petitioners. 11 For this reason, they were advised by private respondent PVDHC to seek other sources of financing. In the meantime, they were allowed to remain in the subject premises.

Upon complaint of petitioner Elvira Raet, the Office of the Provincial Prosecutor, Bulacan, charged Amparo Gatus with estafa in the Regional Trial Court of Malolos, Bulacan. However, the case was dismissed. The Regional Trial Court found that Gatus never misrepresented herself as an agent of private respondent PVDHC and accordingly acquitted her in a decision dated August 25, 1989.
Owing to the failure of petitioners to raise money, private respondent PVDHC asked them, in separate demand letters, dated November 10, 1988, to vacate the units they were occupying. As petitioners refused to do so, it filed ejectment cases against them before the Municipal Trial Court of Meycauayan, Bulacan, which eventually ordered them on May 24, 1991 to surrender the possession of the subject units and to pay the fees, litigation expenses, and costs of suit. The decision of the Municipal Trial Court of Meycauayan, Bulacan was affirmed, first by the Regional Trial Court of Malolos, Bulacan and then by the Court of Appeals. 12 Petitioners tried to appeal to this Court but their appeal was dismissed on December 2, 1992.

On May 18, 1988 and November 24, 1988, respectively, the spouses Raet and the spouses Mitra had earlier filed complaints against private respondent PVDHC with the Regional Trial Court of Malolos, Bulacan for the recovery of the supplemental costs they had paid to private respondent PVDHC. However, the complaint of the spouses Raet was dismissed on the ground that the Regional Trial Court did not have jurisdiction over cases involving disputes between subdivision buyers and developers which fall within the exclusive competence of the Housing and Land Use Regulatory Board (HLURB). On the other hand, the complaint of the spouses Mitra was withdrawn by them on April 17, 1990. The spouses Raet and the spouses Mitra then filed on April 15, 1991 a complaint for specific performance and damages against Amparo Gatus and private respondent PVDHC with the HLURB which gave judgment in petitioners' favor. In a decision, dated October 8, 1991, Housing and Land Use Arbiter Arturo M. Dublado ruled: Against this factual backdrop, . . . the following observations could be made, to wit:

1. Respondents Phil-Ville and Gatus transacted with complainant for the sale of the subject housing units despite knowing fully well that they are not qualified to buy under the GSIS financing scheme. This is a fact which respondents could have readily known even before proceeding to transact with complainants. Respondents even allowed complainants to use the GSIS policies of other persons in order that complainants can avail of the GSIS loan facility to pay respondent Phil-Ville which is irregular. 2. Respondent Phil-Ville accepted payments and allowed complainants to occupy the subject premises despite knowing that they are not qualified to buy under the GSIS financing scheme and without executing a written instrument modifying the terms and conditions agreed upon between complainants and respondent Gatus. 3. It was only after several years of occupation of the subject premises by complainants that respondent Phil-Ville informed complainants that they are not qualified to purchase the subject premises. 4. Respondent Gatus did not unequivocally inform complainants in her transactions with them that she was merely selling her interests over the subject properties to complainants. Respondent Phil-Ville could have made its relation with respondent Gatus a lot clearer by altogether ignoring the transaction entered into by respondent Gatus with complainants but it chose to transact with complainants and accept payments from the latter. From the foregoing, the conclusion that thus can be drawn is that respondent Gatus is an agent of respondent Phil-Ville with respect to the sale of the subject properties to complainants. Respondent Gatus is thus duty bound to remit to respondent Phil-Ville all payments made by complainants in connection with the purchase of the subject properties. Respondent Phil-Ville on the other hand is bound to respect the terms and conditions for the purchase of the subject premises as agreed upon by the respondent Gatus and complainants. Accordingly, he ordered Amparo Gatus and private respondent PVDHC as follows: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered directing respondent Amparo Gatus to remit to respondent Phil-Ville Development and Housing Corporation the amounts of P40,000.00 and P35,000.00 representing the amounts respectively paid by complainants spouses Raet and Mitra pursuant to the purchase of their respective housing units or in the alternative respondent Gatus is hereby directed to refund the said amounts of P40,000.00 and P35,000.00 to complainants at 12% interest per annum from the time of the filing of the complaint on April 15, 1991. Respondents are further directed to allow complainants reasonable time to look for sources of financing or to pay the balance on the purchase price of P171,994.50 for complainants spouses Mitra and the purchase price of P213,998.00 for complainants spouses Raet.
Finally, for compelling complainants to engage the services of counsel, respondents are jointly and severally 13 directed to pay P5,000.00 as and by way of attorney's fees.

On appeal, the Board of Commissioners of the HLURB reversed on April 20, 1992 the Housing and Land Use Arbiter on the ground that the issues involved in the case had already been determined by the Municipal Trial Court of Meycauayan, Bulacan in the ejectment suit between the parties. Petitioners moved for a reconsideration, but their motion was denied on January 18, 1993. Petitioners elevated the case to the Office of the President which sustained the ruling of the Housing and Land Use Arbiter in a decision, dated June 29, 1995. The Office of the President held that the HLURB has jurisdiction over cases involving disputes between subdivision buyers and developers to the exclusion of the regular courts. Therefore, the decision in the ejectment case cannot be conclusive on the question whether there were perfected contracts of sale between the petitioners and private respondent PVDHC. Private respondent PVDHC filed a motion for reconsideration which the Office of the President denied in its resolution of December 20, 1995.
The case was elevated to the Court of Appeals by private respondent PVDHC. In its decision, dated July 2, 1996, 14 the Court of Appeals set aside the decision of the Office of the President and dismissed the petitioners' action without prejudice to their right to proceed against Amparo Gatus. Petitioners' subsequent motion for reconsideration was denied by the appellate court on January 6, 1997.

This is a petition for review on certiorari by the spouses Raet and the spouses Mitra. Petitioners first contend that RESPONDENT COURT COMMITTED A REVERSIBLE ERROR IN CONCLUDING THAT THE FACTS AND JUDGMENT RENDERED IN THE UNLAWFUL DETAINER CASE BY THE MUNICIPAL TRIAL COURT OF MEYCAUAYAN, BULACAN, AGAINST THE HEREIN PETITIONERS, WHICH WAS AFFIRMED BY THE APPELLATE COURTS, WAS A BAR TO THE ACTION OF PETITIONERS FOR SPECIFIC PERFORMANCE WHICH IS EXCLUSIVELY COGNIZABLE BY THE HOUSING AND LAND USE REGULATORY BOARD CONTRARY TO THE PROVISION OF SECTION 7, RULE 70, RULES OF COURT AND THE SETTLED JURISPRUDENCE THAT A JUDGMENT THEREIN IS CONCLUSIVE ONLY WITH RESPECT TO POSSESSION DE FACTO AND THE FACTS THEREIN FOUND ARE NOT CONCLUSIVE WITH RESPECT TO THE SAME PARTIES IN A DIFFERENT CAUSE OF ACTION NOT INVOLVING POSSESSION. The contention has merit. The decision in the ejectment suit is conclusive only on the question of possession of the subject premises. It does not settle the principal question involved in the present case, namely, whether there were perfected contracts of sale between petitioners and private respondent PVDHC involving the units in question. Under 8(11) of E.O. No. 648 dated February 7, 1981, as amended by E.O. No. 90 dated December 17, 1986, this question is for the HLURB to decide. The said provision of law gives that agency the power to Hear and decide cases of unsound real estate business practices; claims involving refund filed against project owners, developers, dealers, brokers, or salesmen; and cases of specific performance.
This jurisdiction of the HLURB is exclusive. It has been held to extend to the determination of the question whether there is a perfected contract of sale between a condominium buyer and developer. 15 As the Office of the President correctly pointed out in its decision, dated June 29, 1995:

Unquestionably, the instant case stemmed from an action for specific performance regarding agreements or contracts to purchase houses and lots located in the subdivision owned, developed and/or marketed by respondent PhilVille Development Corporation. As such, it is within the exclusive province of the

HLURB to take cognizance of the instant case, involving, as it does, a demand for specific performance of contractual and statutory obligations by buyers of subdivision lots against a developer, dealer, broker or salesman. As mentioned earlier, the principal question, however, is whether there were perfected contracts of sale between petitioners and private respondent PVDHC over the subject units. Petitioners also contend that RESPONDENT COURT COMMITTED A REVERSIBLE ERROR IN CONCLUDING THAT, UNDER THE UNDISPUTED FACTS OF THE CASE, THERE WERE NO PERFECTED CONTRACTS OF PURCHASE AND SALE BETWEEN PETITIONERS AND PRIVATE RESPONDENT WITH RESPECT TO THE LOTS AND HOUSES WHICH WERE THE SUBJECT MATTER OF THE COMPLAINT FOR SPECIFIC PERFORMANCE BEFORE THE HOUSING AND LAND USE REGULATORY BOARD. We agree with the conclusion of the Court of Appeals that the parties in this case had not reached any agreement with regard to the sale of the units in question.
First, the records do not show the total costs of the units in question and the payment schemes therefor. In his decision of October 8, 1991, the Housing and Land Use Arbiter gave credence to the allegations of petitioners that there were agreements between them and private respondent PVDHC as to the prices of the disputed units. 16 However, as pointed out by private respondent PVDHC, the figures referred to by petitioners were mere estimates given to them by Amparo Gatus.17 The parties' transactions, therefore, lacked the requisites essential for the perfection of contracts. Second, petitioners dealt with Gatus. But Gatus was not the agent of private respondent PVDHC. Indeed, the criminal case for estafa against her was dismissed because it was found that she never represented herself to be an agent of private respondent PVDHC. Moreover, Art. 1874 of the Civil Code requires for the validity of a sale involving land that the agent should have an authorization in writing, which Gatus did not possess. Petitioners knew from the beginning that Gatus was negotiating with them in her own behalf, and not as an agent of private respondent PVDHC. There is, therefore, no basis in fact for the finding of the Housing and Land Use Arbiter that Gatus was the agent of private respondent PVDHC with respect to the transactions in question. 18

Third, since private respondent PVDHC had no knowledge of the figures Amparo Gatus gave to petitioners as estimates of the costs of the units in question, it could not have ratified the same at the time the latter applied for the purchase of the units. At any rate, private respondent PVDHC was to enter into agreements concerning the subject units with petitioners only upon the approval of the latter's loan applications with the GSIS which, as mentioned earlier, failed to materialize. Fourth, there are no written contracts to evidence the alleged sales. If petitioners and private respondent PVDHC had indeed entered into contracts involving the subject units, it is rather strange that contracts of such importance have not been reduced to writing. As the Court ofAppeals correctly held: To our mind, the determinative issue in this case is whether or not petitioners and private respondents have a perfected and enforceable contract of sale or at least an agreement to sell over the disputed housing units. For, without a perfected contract as an independent source of obligation, the binding prestation to do or give and the corollary right to exact compliance do not arise. There can be no specific performance of a contractual obligation as yet non-existent. Without dispute, no written deed of conveyance has been executed by PHILVILLE in favor of private respondents involving the units in question.

As this Court sees it, there was no contract of sale perfected between the private parties over the said property, there being no meeting of the minds as to terms, especially on the price thereof. At best, only a proposed contract to sell obtained which did not even ripen into a perfected contract due at the first instance to private respondents' inability to secure approval of their GSIS housing loans. As it were, petitioners and private respondents have not hurdled the negotiation phase of a contract, which is the period from the time the prospective contracting parties indicate interest on the contract to the time the contract comes into existence the perfection stage upon the concurrence of the essential elements 19 thereof.

Finally, the occupation by petitioners of the units in question for more than three years prior to the ejectment case was merely by virtue of the forbearance of private respondent PVDHC. Since this pertains to the issue of possession of the subject premises, the ruling on this point of the Municipal Trial Court of Meycauayan, Bulacan in the ejectment case is conclusive. No presumption as to the existence of any right that may have been acquired by virtue of such occupation can arise from this circumstance. Petitioners finally contend that RESPONDENT COURT COMMTTED A REVERSIBLE ERROR IN NOT CONSIDERING THE FINDINGS OF FACTS OF THE OFFICE OF THE PRESIDENT WHICH WERE DULY SUPPORTED BY SUBSTANTIAL EVIDENCE AND NOT CONTRARY TO LAW AS FINAL AND BINDING UPON THE AFORESAID APPELLATE COURT.
We generally accord great, respect to the factual findings of administrative agencies. However, as we have also held, this rule does not apply when the evidence on record calls for a reversal or a modification thereof. 20 As the evidence on record points to factual conclusions opposite those reached by the Office of the President, the Court of Appeals correctly refused to give conclusive effect to such administrative findings.

WHEREFORE, the petition is DISMISSED. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-61623 December 26, 1984 PEOPLE'S HOMESITE & HOUSING CORPORATION, petitioner-appellant, vs. COURT OF APPEALS, RIZALINO L. MENDOZA and ADELAIDA R. MENDOZA, respondentsappellees. Manuel M. Lazaro, Pilipinas Arenas Laborte and Antonio M. Brillantes for petitioner PHHC. Tolentino, Cruz, Reyes, Lava and Manuel for private respondents.

AQUINO, J.:

The question in this case is whether the People's Homesite & Housing Corporation bound itself to sell to the Mendoza spouses Lot 4 (Road) Pcs- 4564 of the revised consolidation subdivision plan with an area of 2,6,08.7 (2,503.7) square meters located at Diliman, Quezon City. The PHHC board of directors on February 18, 1960 passed Resolution No. 513 wherein it stated "that subject to the approval of the Quezon City Council of the above-mentioned Consolidation Subdivision Plan, Lot 4. containing4,182.2 square meters be, as it is hereby awarded to Spouses Rizalino Mendoza and Adelaida Mendoza, at a price of twenty-one pesos (P21.00) per square meter" and "that this award shall be subject to the approval of the OEC (PHHC) Valuation Committee and higher authorities". The city council disapproved the proposed consolidation subdivision plan on August 20, 1961 (Exh. 2). The said spouses were advised by registered mail of the disapproval of the plan (Exh. 2PHHC). Another subdivision plan was prepared and submitted to the city council for approval. The revised plan, which included Lot 4, with a reduced area of 2,608.7, was approved by the city council on February 25, 1964 (Exh. H). On April 26, 1965 the PHHC board of directors passed a resolution recalling all awards of lots to persons who failed to pay the deposit or down payment for the lots awarded to them (Exh. 5). The Mendozas never paid the price of the lot nor made the 20% initial deposit. On October 18, 1965 the PHHC board of directors passed Resolution No. 218, withdrawing the tentative award of Lot 4 to the Mendoza -spouses under Resolution No. 513 and re-awarding said lot jointly and in equal shares to Miguela Sto. Domingo, Enrique Esteban, Virgilio Pinzon, Leonardo Redublo and Jose Fernandez, subject to existing PHHC rules and regulations. The prices would be the same as those of the adjoining lots. The awardees were required to deposit an amount equivalent to 20% of the total selling price (Exh. F). The five awardees made the initial deposit. The corresponding deeds of sale were executed in their favor. The subdivision of Lot 4 into five lots was approved by the city council and the Bureau of Lands. On March 16, 1966 the Mendoza spouses asked for reconsideration of the withdrawal of the previous award to them of Lot 4 and for the cancellation of the re-award of said lot to Sto. Domingo and four others. Before the request could be acted upon, the spouses filed the instant action for specific performance and damages. The trial court sustained the withdrawal of the award. The Mendozas appealed. The Appellate Court reversed that decision and declared void the re-award of Lot 4 and the deeds of sale and directed the PHHC to sell to the Mendozas Lot 4 with an area of 2,603.7 square meters at P21 a square meter and pay to them P4,000 as attorney's fees and litigation expenses. The PHHC appealed to this Court. The issue is whether there was a perfected sale of Lot 4, with the reduced area, to the Mendozas which they can enforce against the PHHC by an action for specific performance. We hold that there was no perfected sale of Lot 4. It was conditionally or contingently awarded to the Mendozas subject to the approval by the city council of the proposed consolidation subdivision plan and the approval of the award by the valuation committee and higher authorities. The city council did not approve the subdivision plan. The Mendozas were advised in 1961 of the disapproval. In 1964, when the plan with the area of Lot 4 reduced to 2,608.7 square meters was approved, the Mendozas should have manifested in writing their acceptance of the award for the purchase of Lot 4 just to show that they were still interested in its purchase although the area was reduced and to obviate ally doubt on the matter. They did not do so. The PHHC board of directors acted within its rights in withdrawing the tentative award.

"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 law governing the form of contracts." (Art. 1475, Civil Code). "Son, sin embargo, excepcion a esta regla los casos en que por virtud de la voluntad de las partes o de la ley, se celebra la venta bajo una condicion suspensiva, y en los cuales no se perfecciona la venta hasta el cumplimiento de la condicion" (4 Castan Tobenas, Derecho Civil Espaol 8th ed. p. 81). "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. (Art. 1181, Civil Code). "Se llama suspensive la condicion de la que depende la perfeccion, o sea el principio del contrato". (9 Giorgi, Teoria de las Obligaciones, p. 57). Under the facts of this case, we cannot say there was a meeting of minds on the purchase of Lot 4 with an area of 2,608.7 square meters at P21 a square meter. The case of Lapinig vs. Court of Appeals, 115 SCRA 213 is not in point because the awardee in that case applied for the purchase of the lot, paid the 10% deposit and a conditional contract to sell was executed in his favor. The PHHC could not re-award that lot to another person. WHEREFORE, the decision of the Appellate Court is reversed and set aside and the judgment of the trial court is affirmed. No costs. SO ORDERED. Makasiar (Chairman), Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ., concur.

The Lawphil Project - Arellano Law Foundation

G.R. No. L-29421 January 30, 1971 LINO ARTATES and MANUELA POJAS, plaintiffs-appellants, vs. DANIEL URBI, CRISANTO SOLIVEN, assisted by his Guardian 'ad litem,' MARCELA B. SOLIVEN, REMEGIO BUTACAN and NEMESIO OATE, in their private capacities and/or as Ex-Oficio Provincial Sheriff and Deputy Sheriff of Cagayan, respectively, and BIENVENIDO CACATIAN, as Deputy Register of Deeds of Cagayan, defendants-appellees. Bienvenido J. Jimenez for plaintiffs-appellants. Rogelio Re. Ubarde for defendants-appellees Daniel Urbi and Crisanto Soliven. Alfredo J. Donato for defendant-appellant Nemesio Oate. The Provincial Fiscal (Cagayan) for defendants-appellees Provincial Sheriff and Deputy Register of Deeds.

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

This is an appeal from the decision of the Court of First Instance of Cagayan (Civil Case No. 116T), involving the public sale of a homestead to satisfy a civil judgment against the grantee. The records show that in an action filed in the Court of First Instance of Cagayan, the spouses Lino Artates and Manuela Pojas sought annulment of the execution of a homestead1 covered by Patent No. V-12775 issued to them by the proper land authorities on 23 September 1952, and duly registered in their names (OCT No. P-572). The public sale, conducted by the Provincial Sheriff of Cagayan on 2 June 1962, was made to satisfy a judgment against Lino Artates in the amount of P1,476.35, and awarded to Daniel Urbi by the Justice of the Peace Court of Camilaniugan, Cagayan, in its Civil Case No. 40, for physical injuries inflicted by Artates upon Urbi on 21 October 1955. In the execution sale, the property was sold to the judgment creditor, the only bidder, for P1,476.35. In their complaint, the plaintiffs spouses alleged that the sale of the homestead to satisfy an indebtedness of Lino Artates that accrued on 21 October 1955, violated the provision of the Public Land law exempting said property from execution for any debt contracted within five years from the date of the issuance of the patent; that defendant Urbi, with the intention of defrauding the plaintiffs, executed on 26 June 1961 a deed for the sale of the same parcel of land to defendant Crisanto Soliven, a minor, supposedly for the sum of P2,676.35; that as a result of the aforementioned transactions, defendants Urbi and Soliven entered into the possession of the land and deprived plaintiffs of the owners' share in the rice crops harvested during the agricultural year 1961-1962. Plaintiffs, therefore, prayed that the public sale of the land to defendant Urbi, as well as the deed of sale executed by the latter in favor of defendant Soliven, be declared null and void; that defendants be ordered to deliver to plaintiffs possession of the land; and to pay to plaintiffs compensatory damages at the rate of P1,000.00 per agricultural year until possession is finally restored to them, the sum of P2,000.00 as damages for maliciously casting cloud upon plaintiffs' title on the land, plus attorneys' fees and costs. The defendants2 filed separate answers disputing the averments of the complaint. On 29 March 1953, the court rendered judgment upholding the regularity and validity of the execution conducted by the defendant Provincial Sheriff, but finding that the sale of the lands by defendant Urbi to the minor Soliven was simulated, intended to place the property beyond the reach of the judgment debtor, and that plaintiffs had offered to redeem the land within the 5-year period allowed by Section 119 of the Public Land law for reacquisition thereof by the grantee. Consequently, the court declared the sale of the land by defendant Daniel Urbi to defendant Crisanto Soliven null and void; and Daniel Urbi was ordered to reconvey the property to the plaintiffs upon the latter's payment (to Urbi) of the sum of P1,476.35 plus the sheriff's fee incident to the sale at public auction, with interest thereon at the rate of 12% per annum from 2 June 1961 until said amount shall have been fully paid, and the further sum of P783.45 representing the amount paid by defendant Daniel Urbi to the Philippine National Bank for the release of the real estate mortgage on the land, contracted by Lino Artates, with legal rate of interest thereon from 29 June 1961. From this decision, the plaintiffs interposed the present appeal assigning several errors allegedly committed by the court below, all hinged on the validity or invalidity of the public sale of the lot involved herein. Section 118 of the Public Land law (Commonwealth Act 141) provides as follows: SEC. 118. Except in favor of the Government or any of its branches, units, or institution, or legally constituted banking corporations, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent or grant, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations or corporations. xxx xxx xxx

As thus prescribed by law, for a period of five years from the date of the government grant, lands acquired by free or homestead patent shall not only be incapable of being encumbered or alienated except in favor of the government itself or any of its institutions or of duly constituted banking corporations, but also, they shall not be liable to the satisfaction of any debt contracted within the said period,3 whether or not the indebtedness shall mature during or after the prohibited time.4 This provision against the alienation or encumbrance of public lands granted within five years from the issuance of the patent, it has been held, is mandatory;5 a sale made in violation thereof is null and void 6 and produces no effect whatsoever. Though it may be a limitation on the right of ownership of the grantee, the salutary purpose of the provision cannot be denied: it is to preserve and keep for the homesteader or his family the land given to him gratuitously by the State,7 so that being a property owner, he may become and remain a contented and useful member of our society.8 In the case at bar, the homestead patent covering the land in question (No. V-12775) was issued to appellants on 23 September 1952, and it was sold at public auction to satisfy the civil liability of appellant Lino Artates to Daniel Urbi, adjudged in the 14 March 1956 decision of the Justice of the Peace Court of Camalaniugan, Cagayan. There can be no doubt that the award of damages to Urbi created for Artates a civil obligation, an indebtedness, that commenced from the date such obligation was decreed on 14 March 1956. Consequently, it is evident that it can not be enforced against, or satisfied out of, the sale of the homestead lot acquired by appellants less than 5 years before the obligation accrued. And this is true even if the sale involved here is not voluntary. For purposes of complying with the law, it is immaterial that the satisfaction of the debt by the encumbrancing or alienation of the land grant made voluntarily, as in the case of an ordinary sale, or involuntarily, such as that effected through levy on the property and consequent sale at public auction. In both instances, the spirit of the law would have been violated.9
lwph1.t

Doubts have been expressed as to whether the words "debt contracted prior to the expiration of said period" (of 5 years from and after the grant) would include the civil liability arising from a crime committed by the homesteader. While there is no direct Philippine precedent on this point, there are various reasons why the non-liability of the homestead grant should be extended to extra-contractual obligations. First and foremost, whether it be viewed as an exemption or as a condition attached to the grant to encourage people to settle and cultivate public land, the immunity in question is in consonance with the definite public policy underlying these grants, which is to "preserve and keep in the family of the homesteader that portion of public land which the State has given to him" so he may have a place to live with his family and become a happy citizen and a useful member of society, 10 and the exemption should not be given restrictive application. 11 A levy and sale of the homestead on account of extra-contractual liability incurred would uproot the homesteader and his family and turn them into homeless waifs as effectively as a levy for non-payment of a contractual debt. Secondly, the word "debt" in exemption statutes,
in its wider sense, (it) includes all that is due to a man under any form or obligation or promise, and covers not only obligations arising under contract, but also those imposed by law without contract. 12

Considering the protective policy of the law, it becomes apparent that "debt contracted" was used in it in the sense of "obligation incurred," since Webster gives the verb to "contract" the meaning of "to bring on; incur; acquire." Finally, our public land laws being copied from American legislation, 13 resort to American precedents reveals that, under the weight of authority, exemption from "debts contracted" by a homesteader has been held to include freedom from money liabilities, from torts or crimes committed by him, such as from bigamy (State vs. O'Neil, 7 Ore. 141, 11 Words and Phrases 318) or slander (Conway vs. Sullivan, 44 Ill. 451, 452), breach of contract (Flanagan vs. Forsythe, 50 Pac. 152, 153) or other torts (In Re Radway, 20 Fed. Cas. 154, 162). The execution sale in this case being null and void, the possession of the land should be returned to the owners, the herein appellants. There would even be no need to order appellee Urbi to

execute a deed of reconveyance thereof to the owners. It appears that what was issued here to the judgment creditor/purchaser was only the sheriff's provisional certificate, under which he derived no definite title or right until the period for redemption has expired, without a redemption having been made, 14 or issuance of a final deed or certificate of sale. In other words, the purchaser herein has not acquired an absolute ownership or title in fee over the land that would necessitate a deed of reconveyance to revert ownership back to the appellant spouses. As things now stand, title to the property covered by OCT No. P-572 remains with the appellants, but Lino Artates shall continue to be under obligation to satisfy the judgment debt to Daniel Urbi in the sum of P1,476.35, with legal interest thereon accruing from the date the writ of execution was first returned unsatisfied. It appearing also that appellee Daniel Urbi paid to the Philippine National Bank the sum of P783.45 to release the mortgage on the land, appellants should reimburse him of said amount or of whatever amount appellants have actually been benefited by the said payment. FOR THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby reversed, and appellants are declared entitled to the return and possession of the lot covered by Original Certificate of Title No. P-572, without prejudice to their continuing obligation to pay the judgment debt, and expenses connected therewith. No costs. Concepcion, C.J., Dizon, Zaldivar, Fernando and Makasiar, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 131679 February 1, 2000

CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY, petitioners, vs. SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS, respondents. MENDOZA, J.: This is a petition for review on certiorari of the decision1 of the Court of Appeals in C.A. GR CV No. 42315 and the order dated December 9, 1997 denying petitioners' motion for reconsideration. The following facts are not in dispute. Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are banking institutions duly organized and existing under Philippine laws. On or about June 15, 1983, a certain Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB, to secure which he mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma, Quezon City and covered by TCT No. 300809 registered in his name. As Guansing defaulted in the payment of his loan, CDB foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the mortgaged property was sold to CDB as the highest bidder. Guansing failed to redeem, and on March 2, 1987, CDB consolidated title to the property in its name. TCT No. 300809 in the name of Guansing was cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB.
1wphi1.nt

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

We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, Quezon City for P300,000.00 under the following terms and conditions: (1) 10% Option Money; (2) Balance payable in cash; (3) Provided that the property shall be cleared of illegal occupants or tenants. Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option Money, for which she was issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However, after some time following up the sale, Lim discovered that the subject property was originally registered in the name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT No. 91148. Rodolfo succeeded in having the property registered in his name under TCT No. 300809, the same title he mortgaged to CDB and from which the latter's title (TCT No. 355588) was derived. It appears, however, that the father, Perfecto, instituted Civil Case No. Q39732 in the Regional Trial Court, Branch 83, Quezon City, for the cancellation of his son's title. On March 23, 1984, the trial court rendered a decision2 restoring Perfecto's previous title (TCT No. 91148) and cancelling TCT No. 300809 on the ground that the latter was fraudulently secured by Rodolfo. This decision has since become final and executory. Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company, FEBTC, on their ability to sell the subject property, Lim, joined by her husband, filed on August 29, 1989 an action for specific performance and damages against petitioners in the Regional Trial Court, Branch 96, Quezon City, where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the complaint was amended by impleading the Register of Deeds of Quezon City as an additional defendant. On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1) there was a perfected contract of sale between Lim and CDB, contrary to the latter's contention that the written offer to purchase and the payment of P30,000.00 were merely preconditions to the sale and still subject to the approval of FEBTC; (2) performance by CDB of its obligation under the perfected contract of sale had become impossible on account of the 1984 decision in Civil Case No. Q-39732 cancelling the title in the name of mortgagor Rodolfo Guansing; (3) CDB and FEBTC were not exempt from liability despite the impossibility of performance, because they could not credibly disclaim knowledge of the cancellation of Rodolfo Guansing's title without the admitting their failure to discharge their duties to the public as reputable banking institutions; and (4) CDB and FEBTC are liable for damages for the prejudice caused against the Lims.3 Based on the foregoing findings, the trial court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount of P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full payment. It also ordered petitioners to pay private respondents, jointly and severally, the amounts of P250,000.00 as moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorney's fees, and the costs of the suit.4 Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in toto the decision of the Regional Trial Court. Petitioners moved for reconsideration, but their motion was denied by the appellate court on December 9, 1997. Hence, this petition. Petitioners contend that 1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC were aware of the decision dated March 23, 1984 of the Regional Trial Court of Quezon City in Civil Case No. Q-39732. 2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit of THIRTY THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil Code.

3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages, exemplary damages, attorney's fees and costs of suit. I. At the outset, it is necessary to determine the legal relation, if any, of the parties. Petitioners deny that a contract of sale was ever perfected between them and private respondent Lolita Chan Lim. They contend that Lim's letter-offer clearly states that the sum of P30,000,00 was given as option money, not as earnest money.5 They thus conclude that the contract between CDB and Lim was merely an option contract, not a contract of sale. The contention has no merit. Contracts are not defined by the parries thereto but by principles of law.6 In determining the nature of a contract, the courts are not bound by the name or title given to it by the contracting parties.7 In the case at bar, the sum of P30,000.00, although denominated in the offer to purchase as "option money," is actually in the nature of earnest money or down payment when considered with the other terms of the offer. In Carceler v. Court of Appeals,8 we explained the nature of an option contract, viz. An option contract is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract, it binds the party who has given the option not to enter into the principal contract with any other person during the period; designated, and within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate agreement distinct from the contract to which the parties may enter upon the consummation of the option. An option contract is therefore a contract separate from and preparatory to a contract of sale which, if perfected, does not result in the perfection or consummation of the sale. Only when the option is exercised may a sale be perfected. In this case, however, after the payment of the 10% option money, the Offer to Purchase provides for the payment only of the balance of the purchase price, implying that the "option money" forms part of the purchase price. This is precisely the result of paying earnest money under Art. 1482 of the Civil Code. It is clear then that the parties in this case actually entered into a contract of sale, partially consummated as to the payment of the price. Moreover, the following findings of the trial court based on the testimony of the witnesses establish that CDB accepted Lim's offer to purchase: It is further to be noted that CDB and FEBTC already considered plaintiffs' offer as good and no longer subject to a final approval. In his testimony for the defendants on February 13, 1992, FEBTC's Leomar Guzman stated that he was then in the Acquired Assets Department of FEBTC wherein plaintiffs' offer to purchase was endorsed thereto by Myoresco Abadilla, CDB's senior vice-president, with a recommendation that the necessary petition for writ of possession be filed in the proper court; that the recommendation was in accord with one of the conditions of the offer, i.e., the clearing of the property of illegal occupants or tenants (tsn, p. 12); that, in compliance with the request, a petition for writ of possession was thereafter filed on July 22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the banks; and that no rejection of the offer was thereafter relayed to the plaintiffs (p. 17); which was not a normal procedure, and neither did the banks return the amount of P30,000.00 to the plaintiffs.9 Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of sale was perfected and, indeed, partially executed because of the partial payment of the purchase price. There is, however, a serious legal obstacle to such sale, rendering it impossible for CDB to perform its obligation as seller to deliver and transfer ownership of the property.

Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not have. In applying this precept to a contract of sale, a distinction must be kept in mind between the "perfection" and "consummation" stages of the contract. A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.10 It is, therefore, not required that, at the perfection stage, the seller be the owner of the thing sold or even that such subject matter of the sale exists at that point in time.11 Thus, under Art. 1434 of the Civil Code, when a person sells or alienates a thing which, at that time, was not his, but later acquires title thereto, such title passes by operation of law to the buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not be able to comply with his obligation to transfer ownership to the buyer. It is at the consummation stage where the principle of nemo dat quod non habet applies. In Dignos v. Court of Appeals,12 the subject contract of sale was held void as the sellers of the subject land were no longer the owners of the same because of a prior sale.13 Again, in Nool v. Court of Appeals,14 we ruled that a contract of repurchase, in which the seller does not have any title to the property sold, is invalid: We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals rules that the principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two lower courts appears to find support in Dignos v. Court of Appeals, where the Court held: Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void. In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. Verily, Article 1422 of the Civil Code provides that (a) contract which is the direct result of a previous illegal contract, is also void and inexistent. We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the sellers "were no longer the owners" of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code itself recognizes a sale where the goods are to be acquired . . . by the seller after the perfection of the contract of sale, clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. In the present case, however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative and may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil Code: Those which contemplate an impossible service. Article 1459 of the Civil Code provides that "the vendor must have a right to transfer the ownership thereof [subject of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible. It has become impossible.15 In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must, therefore, be deemed a nullity for CDB did not have a valid title to the said property. To be sure, CDB never acquired a valid title to the property because the foreclosure sale, by virtue of

which, the property had been awarded to CDB as highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed. A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay therefor the bid price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. This is the reason Art. 208516 of the Civil Code, in providing for the essential requisites of the contract of mortgage and pledge, requires, among other things, that the mortgagor or pledgor be the absolute owner of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan. There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good faith" based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title.17 The public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title. This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make a detailed investigation of the history of the title of the property given as security before accepting a mortgage. We are not convinced, however, that under the circumstances of this case, CDB can be considered a mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation on the history of the mortgagor's title, they cannot be excused from the duty of exercising the due diligence required of banking institutions. In Tomas v. Tomas,18 we noted that it is standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who are real owners thereof, noting that banks are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands, for their business is affected with public interest. We held thus: We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the innocent original registered owner who obtained his certificate of title through perfectly legal and regular proceedings, than one who obtains his certificate from a totally void one, as to prevail over judicial pronouncements to the effect that one dealing with a registered land, such as a purchaser, is under no obligation to look beyond the certificate of title of the vendor, for in the latter case, good faith has yet to be established by the vendee or transferee, being the most essential condition, coupled with valuable consideration, to entitle him to respect for his newly acquired title even as against the holder of an earlier and perfectly valid title. There might be circumstances apparent on the face of the certificate of title which could excite suspicion as to prompt inquiry, such as when the transfer is not by virtue of a voluntary act of the original registered owner, as in the instant case, where it was by means of a self-executed deed of extra-judicial settlement, a fact which should be noted on the face of Eusebia Tomas certificate of title. Failing to make such inquiry would hardly be consistent with any pretense of good faith, which the appellant bank invokes to claim the right to be protected as a mortgagee, and for the reversal of the judgment rendered against it by the lower court.19 In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity of Rodolfo Guansing's title. It appears that Rodolfo Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he and Perfecto Guansing were the only surviving heirs entitled to the property, and that Perfecto

had waived all his rights thereto. This self-executed deed should have placed CDB on guard against any possible defect in or question as to the mortgagor's title. Moreover, the alleged ocular inspection report20 by CDB's representative was never formally offered in evidence. Indeed, petitioners admit that they are aware that the subject land was being occupied by persons other than Rodolfo Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title of Rodolfo.21 II. The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties was at fault for the nullity of the contract. Both the trial court and the appellate court found petitioners guilty of fraud, because on June 16, 1988, when Lim was asked by CDB to pay the 10% option money, CDB already knew that it was no longer the owner of the said property, its title having been cancelled.22 Petitioners contend that: (1) such finding of the appellate court is founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC was a party in the case where the mortgagor's title was cancelled; (3) CDB is not privy to any problem among the Guansings; and (4) the final decision cancelling the mortgagor's title was not annotated in the latter's title. As a rule, only questions of law may be raised in a petition for review, except in circumstances where questions of fact may be properly raised.23 Here, while petitioners raise these factual issues, they have not sufficiently shown that the instant case falls under any of the exceptions to the above rule. We are thus bound by the findings of fact of the appellate court. In any case, we are convinced of petitioners' negligence in approving the mortgage application of Rodolfo Guansing. III. We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of the Civil Code provides: If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: xxx xxx xxx

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise. Private respondents are thus entitled to recover the P30,000,00 option money paid by them. Moreover, since the filing of the action for damages against petitioners amounted to a demand by respondents for the return of their money, interest thereon at the legal rate should be computed from August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners accepted the payment. This is in accord with our ruling inCastillo v. Abalayan24 that in case of avoid sale, the seller has no right whatsoever to keep the money paid by virtue thereof and should refund it, with interest at the legal rate, computed from the date of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides that the non-guilty party "may demand the return of what he has given" clearly implies that without such prior demand, the obligation to return what was given does not become legally demandable. Considering CDB's negligence, we sustain the award of moral damages on the basis of Arts. 21 and 2219 of the Civil Code and our ruling in Tan v. Court of Appeals25 that moral damages may be recovered even if a bank's negligence is not attended with malice and bad faith. We find, however, that the sum of P250,000.00 awarded by the trial court is excessive. Moral damages

are only intended to alleviate the moral suffering undergone by private respondent, not to enrich them at the expenses of the petitioners.26 Accordingly, the award of moral damages must be reduced to P50,000.00. Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the Civil Code, is excessive and should be reduced to P30,000.00. The award of P30,000.00 attorney's fees based on Art. 2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to P20,000.00. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to the award of damages as above stated.
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SO ORDERED. Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur. G.R. No. 116635 July 24, 1997 CONCHITA NOOL and GAUDENCIO ALMOJERA, petitioner, vs. COURT OF APPEALS, ANACLETO NOOL and EMILIA NEBRE, respondents.

PANGANIBAN, J.: A contract of repurchase arising out of a contract of sale where the seller did not have any title to the property "sold" is not valid. Since nothing was sold, then there is also nothing to repurchase. Statement of the Case This postulate is explained by this Court as it resolves this petition for review on certiorari assailing the January 20, 1993 Decision 1 of Respondent Court of Appeals 2 in CAG.R. CV No. 36473, affirming the decision 3 of the trial court 4 which disposed as follows: 5 WHEREFORE, judgment is hereby rendered dismissing the complaint for no cause of action, and hereby: 1. Declaring the private writing, Exhibit "C", to be an option to sell, not binding and considered validly withdrawn by the defendants for want of consideration; 2. Ordering the plaintiffs to return to the defendants the sum of P30,000.00 plus interest thereon at the legal rate, from the time of filing of defendants' counterclaim until the same is fully paid; 3. Ordering the plaintiffs to deliver peaceful possession of the two hectares mentioned in paragraph 7 of the complaint and in paragraph 31 of defendants' answer (counterclaim); 4. Ordering the plaintiffs to pay reasonable rents on said two hectares at P5,000.00 per annum or at P2,500.00 per cropping from the time of judicial demand mentioned in paragraph 2 of the dispositive portion of this decision, until the said two hectares shall have been delivered to the defendants; and

5. To pay the costs. SO ORDERED. The Antecedent Facts The facts, which appear undisputed by the parties, are narrated by the Court of Appeals as follows: Two (2) parcels of land are in dispute and litigated upon here. The first has an area of 1 hectare. It was formerly owned by Victorino Nool and covered by Transfer Certificate of Title No. T-74950. With an area of 3.0880 hectares, the other parcel was previously owned by Francisco Nool under Transfer Certificate of Title No. T-100945. Both parcel's are situated in San Manuel, Isabela. The plaintiff spouses, Conchita Nool and Gaudencio Almojera, now the appellants, seek recovery of the aforementioned parcels of land from the defendants, Anacleto Nool, a younger brother of Conchita, and Emilia Nebre, now the appellees.
In their complaint, plaintiff-appellants alleged inter alia that they are the owners of subject parcels of land, and they bought the same from Conchita's other brothers, Victorino Nool and Francisco Nool; that as plaintiffs were in dire need of money, they obtained a loan from the Ilagan Branch of the Development Bank of the Philippines, in Ilagan, Isabela, secured by a real estate mortgage on said parcels of land, which were still registered in the names of Victorino Nool and Francisco Nool, at the time, and for the failure of plaintiffs to pay the said loan, including interest and surcharges, totaling P56,000.00, the mortgage was foreclosed; that within the period of redemption, plaintiffs contacted defendant Anacleto Nool for the latter to redeem the foreclosed properties from DBP, which the latter did; and as a result, the titles of the two (2) parcels of land in question were transferred to Anacleto Nool; that as part of their arrangement or understanding, Anacleto Nool agreed to buy from plaintiff Conchita Nool the two (2) parcels of land under controversy, for a total price of P100,000.00, P30,000.00 of which price was paid to Conchita, and upon payment of the balance of P14,000.00, plaintiffs were to regain possession of the two (2) hectares of land, which amounts defendants failed to pay, and the same day the said arrangement 6 was made; another covenant 7 was entered into by the parties, whereby defendants agreed to return to plaintiffs the lands in question, at anytime the latter have the necessary amount; that plaintiffs asked the defendants to return the same but despite the intervention of the Barangay Captain of their place, defendants refused to return the said parcels of land to plaintiffs; thereby impelling them (plaintiffs) to come to court for relief.

In their Answer, defendants-appellees theorized that they acquired the lands in question from the Development Bank of the Philippines, through negotiated sale, and were misled by plaintiffs when defendant Anacleto Nool signed the private writing, agreeing to return subject lands when plaintiffs have the money to redeem the same; defendant Anacleto having been made to believe, then, that his sister, Conchita, still had the right to redeem the said properties. The pivot of inquiry here, as aptly observed below, is the nature and significance of the private document, marked Exhibit "D" for plaintiffs, which document has not been denied by the defendants, as defendants even averred in their Answer that they gave an advance payment of P30,000.00 therefor, and acknowledged that they had a balance of P14,000.00 to complete their payment. On this crucial issue, the lower court adjudged the said private writing (Exhibit "D") as an option to sell not binding upon and considered the same validly withdrawn by defendants for want of consideration; and decided the case in the manner above-mentioned.

There is no quibble over the fact that the two (2) parcels of land in dispute were mortgaged to the Development Bank of the Philippines, to secure a loan obtained by plaintiffs from DBP (Ilagan Branch), Ilagan, Isabela. For the non-payment of said loan, the mortgage was foreclosed and in the process, ownership of the mortgaged lands was consolidated in DBP (Exhibits 3 and 4 for defendants). After DBP became the absolute owner of the two parcels of land, defendants negotiated with DBP and succeeded in buying the same. By virtue of such sale by DBP in favor of defendants, the titles of DBP were cancelled and the corresponding Transfer Certificates of Title (Annexes "C" and "D" to the Complaint) issued to the defendants. 8

It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the oneyear redemption period was from March 16, 1982 up to March 15, 1983 and that the mortgagors' right of redemption was not exercised within this period. 9 Hence, DBP became the absolute owner of said parcels of land for which it was issued new certificates of title, both entered on May 23, 1983 by the Registry of Deeds for the Province of Isabela.10 About two years thereafter, on April 1, 1985, DBP entered into a Deed of Conditional Sale 11 involving the same parcels of land with Private Respondent Anacleto Nool as vendee. Subsequently, the latter was issued new certificates of title on February 8, 1988. 12 The Court of Appeals ruled: 13 WHEREFORE, finding no reversible error infirming it, the appealed Judgment is hereby AFFIRMED in toto. No pronouncement as to costs. The Issues Petitioners impute to Respondent Court the following alleged "errors": 1. The Honorable Court of Appeals, Second Division has misapplied the legal import or meaning of Exhibit "C" in a way contrary to law and existing jurisprudence in stating that it has no binding effect between the parties and considered validly withdrawn by defendants-appellees for want of consideration. 2. The Honorable Court of Appeals, Second Division has miserably failed to give legal significance to the actual possession and cultivation and appropriating exclusively the palay harvest of the two (2) hectares land pending the payment of the remaining balance of fourteen thousand pesos (P14,000.00) by defendantsappellees as indicated in Exhibit "C".
3. The Honorable Court of Appeals has seriously erred in affirming the decision of the lower court by awarding the payment of rents per annum and the return of P30,000.00 and not allowing the plaintiffs-appellants to re-acquire the four (4) hectares, more or less upon payment of one hundred thousand pesos (P100,000.00) as shown in Exhibit "D". 14

The Court's Ruling The petition is bereft of merit. First Issue: Are Exhibits "C" and "D" Valid and Enforceable? The petitioner-spouses plead for the enforcement of their agreement with private respondents as contained in Exhibits "C" and "D," and seek damages for the latter's alleged breach thereof. In Exhibit C, which was a private handwritten document labeled by the parties as Resibo ti Katulagan or Receipt of Agreement, the petitioners appear to have "sold" to private respondents the parcels of land in controversy covered by TCT No. T-74950 and TCT No. T-100945. On the

other hand, Exhibit D, which was also a private handwritten document in Ilocano and labeled as Kasuratan, private respondents agreed that Conchita Nool "can acquire back or repurchase later on said land when she has the money." 15 In seeking to enforce her alleged right to repurchase the parcels of land, Conchita (joined by her co-petitioner-husband) invokes Article 1370 of the Civil Code which mandates that "(i)f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." Hence, petitioners contend that the Court of Appeals erred in affirming the trial court's finding and conclusion that said Exhibits C and D were "not merely voidable but utterly void and inexistent." We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals ruled that the principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two lower courts appears to find support in Dignos vs. Court of Appeals, 16 where the Court held: Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void. In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. 17 Verily, Article 1422 of the Civil Code provides that "(a) contract which is the direct result of a previous illegal contract, is also void and inexistent." We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the sellers "were no longer the owners" of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. 18 Moreover, the Civil Code 19itself recognizes a sale where the goods are to be "acquired . . . by the seller after the perfection of the contract of sale," clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. In the present case however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative 20 and may thus fall, by analogy, under item no. 5 of Article 1409 of the Civil Code: "Those which contemplate an impossible service." Article 1459 of the Civil Code provides that "the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible. It has become impossible. Furthermore, Article 1505 of the Civil Code provides that "where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell." Here, there is no allegation at all that petitioners were authorized by DBP to sell the property to the private respondents. Jurisprudence, on the other hand, teaches us that "a person can sell only what he owns or is authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally transfer." 21 No one can give what he does not have nono dat quod non habet. On the other hand, Exhibit D presupposes that petitioners could repurchase the property that they "sold" to private respondents. As petitioners "sold" nothing, it follows that they can also "repurchase" nothing. Nothing sold, nothing to repurchase. In this light, the contract of repurchase is also inoperative and by the same analogy, void.

Contract of Repurchase Dependent on Validity of Sale As borne out by the evidence on record, the private respondents bought the two parcels of land directly from DBP on April 1, 1985 after discovering that petitioners did not own said property, the subject of Exhibits C and D executed on November 30, 1984. Petitioners, however, claim that they can exercise their alleged right to "repurchase" the property, after private respondents had acquired the same from DBP. 22 We cannot accede to this, for it clearly contravenes the intention of the parties and the nature of their agreement. Exhibit D reads: WRITING

That I, Anacleto Nool have bought from my sister Conchita Nool a land an area of four hectares (4 has.) in the value of One Hundred Thousand (100,000.00) Pesos. It is our agreement as brother and sister that she can acquire back or repurchase later on said land when she has the money. [Emphasis supplied]. As proof of this agreement we sign as brother and sister this written document this day of Nov. 30, 1984, at District 4, San Manuel, Isabela.

Sgd Emilio Paron Witness

One "repurchases" only what one has previously sold. In other words, the right to repurchase presupposes a valid contract of sale between the same parties. Undisputedly, private respondents acquired title to the property from DBP, and not from petitioners. Assuming arguendo that Exhibit D is separate and distinct from Exhibit C and is not affected by the nullity of the latter, still petitioners do not thereby acquire a right to repurchase the property. In that scenario, Exhibit D ceases to be a "right to repurchase" ancillary and incidental to the contract of sale; rather, it becomes an accepted unilateral promise to sell. Article 1479 of the Civil

Code, however, provides that "an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price." In the present case, the alleged written contract of repurchase contained in Exhibit D is bereft of any consideration distinct from the price. Accordingly, as an independent contract, it cannot bind private respondents. The ruling in Diamante vs. CA 24 supports this. In that case, the Court through Mr. Justice Hilario G. Davide, Jr. explained: Article 1601 of the Civil Code provides: Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of article 1616 and other stipulations which may have been agreed upon. In Villarica, et al. Vs. Court of Appeals, et al., decided on 29 November 1968, or barely seven (7) days before the respondent Court promulgated its decisions in this case, this Court, interpreting the above Article, held: The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can not longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case. . . . In the earlier case of Ramos, et al. vs. Icasiano, et al., decided in 1927, this Court had already ruled that "an agreement to repurchase becomes a promise to sell when made after the sale, because when the sale is made without such an agreement, the purchaser acquires the thing sold absolutely, and if he afterwards grants the vendor the right to purchase, it is a new contract entered into by the purchaser, as absolute owner already of the object. In that case the vendor has nor reserved to himself the right to repurchase. In Vda. De Cruzo, et al. vs. Carriaga, et al. this Court found another occasion to apply the foregoing principle. Hence, the Option to Repurchase executed by private respondent in the present case, was merely a promise to sell, which must be governed by Article 1479 of the Civil Code which reads as follows: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. Right to Repurchase Based on Homestead or Trust Non-Existent Petitioners also base their alleged right to repurchase on (1) Sec. 119 of the Public Land Act 25 and (2) an implied trust relation as "brother and sister." 26 The Court notes that Victorino Nool and Francisco Nool mortgaged the land to DBP. The brothers, together with Conchita Nool and Anacleto Nool, were all siblings and heirs qualified to repurchase the two parcels of land under Sec. 119 of the Public Land Act which provides that

"(e)very conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow or legal heirs, within a period of five years from the date of conveyance." Assuming the applicability of this statutory provision to the case at bar, it is indisputable that Private Respondent Anacleto Nool already repurchased from DBP the contested properties. Hence, there was no more right of repurchase that his sister Conchita or brothers Victorino and Francisco could exercise. The properties were already owned by an heir of the homestead grantee and the rationale of the provision to keep homestead lands within the family of the grantee was thus fulfilled. 27 The claim of a trust relation is likewise without merit. The records show that private respondents did not purchase the contested properties from DBP in trust for petitioners. The former, as previously mentioned, in fact bought the land from DBP upon realization that the latter could not validly sell the same. Obviously, petitioners bought it for themselves. There is no evidence at all in the records that they bought the land in trust for private respondents. The fact that Anacleto Nool was the younger brother of Conchita Nool and that they signed a contract of repurchase, which as discussed earlier was void, does not prove the existence of an implied trust in favor of petitioners. Second Issue: No Estoppel in Impugning the Validity of Void Contracts Petitioners argue that "when Anacleto Nool took the possession of the two hectares, more or less, and let the other two hectares to be occupied and cultivated by plaintiffs-appellant, Anacleto Nool cannot later on disclaim the terms or contions (sic) agreed upon and his actuation is within the ambit of estoppel . . . 28 We disagree. The private respondents cannot be estopped from raising the defense of nullity of contract, specially in this case where they acted in good faith, believing that indeed petitioners could sell the two parcels of land in question. Article 1410 of the Civil Code mandates that "(t)he action or defense for the declaration of the inexistence of a contract does not prescribe." It is a well-settled doctrine that "as between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or it is against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter away what public policy by law seeks to preserve." 29 Thus, it is immaterial that private respondents initially acted to implement the contract of sale, believing in good faith that the same was valid. We stress that a contract void at inception cannot be validated by ratification or prescription and certainly cannot be binding on or enforceable against private respondents. 30 Third Issue: Return of P30,000.00 with Interest and Payment of Rent Petitioners further argue that it would be a "miscarriage of justice" to order them (1) to return the sum of P30,000.00 to private respondents when allegedly it was Private Respondent Anacleto Nool who owed the former a balance of P14,000.00 and (2) to order petitioners to pay rent when they "were allowed to cultivate the said two hectares." 31 We are not persuaded. Based on the previous discussion, the balance of P14,000.00 under the void contract of sale may not be enforced. Petitioners are the ones who have an obligation to return what they unduly and improperly received by reason of the invalid contract of sale. Since they cannot legally give title to what they "sold," they cannot keep the money paid for the object of the sale. It is basic that "(e)very person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same." 32 Thus, if a void contract has already "been performed, the restoration of what has been given is in order." 33 Corollarily and as aptly ordered by respondent appellate court, interest thereon will run only from the time of private respondents' demand for the return of this amount in their counterclaim. 34 In the same vein, petitioners' possession and cultivation of the two hectares are anchored on private respondents' tolerance. Clearly, the latter's tolerance ceased upon their counterclaim and demand on the former to vacate. Hence, their right to possess and cultivate the land ipso facto ceased.

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals affirming that of the trial court is hereby AFFIRMED. SO ORDERED. Narvasa, C.J., Davide, Jr., M Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 136054 September 5, 2001

HEIRS OF SEVERINA SAN MIGUEL, namely: MAGNO LAPINA, PACENCIA LAPINA, MARCELO LAPINA, SEVERINO LAPINA, ROSARIO LAPINA, FRANCISCO LAPINA, CELIA LAPINA assisted by husband RODOLFO TOLEDO, petitioners, vs. THE HONORABLE COURT OF APPEALS, DOMINADOR SAN MIGUEL, GUILLERMO F. SAN ARTEMIO F. SAN MIGUEL, PACIENCIA F. SAN MIGUEL, CELESTINO, assisted by husband, ANTERO CELESTINO, represented by their Attorney-in-Fact ENRICO CELESTINO, AUGUSTO SAN MIGUEL, ANTONIO SAN MIGUEL, RODOLFO SAN MIGUEL, CONRADO SAN MIGUEL and LUCITA SAN MIGUEL, respondents. PARDO, J.: The Case The case is a petition for review on certiorari1 of the decision of the Court of Appeals,2 affirming that of the Regional Trial Court, Cavite, Branch 19, Bacoor3 ordering petitioners, Heirs of Severina San Miguel (hereafter, "Severina's heirs") to surrender to respondents Dominador San Miguel, et al. (hereafter, "Dominador, et al."), Transfer Certificate of Title No. 223511 and further directing Severina's heirs to pay for the capital gains and related expenses for the transfer of the two (2) lots to Dominador, et al. The Facts This case involves a parcel of land originally claimed by Severina San Miguel (petitioners' predecessor-in-interest, hereafter, "Severina"). The land is situated in Panapan, Bacoor, Cavite with an area of six hundred thirty two square meters (632 sq. m.), more or less. Without Severina's knowledge, Dominador managed to cause the subdivision of the land into three (3) lots, to wit:4 "LRC Psu-1312 - with an area of 108 square meters; "LRC Psu-1313 - Lot 1, with an area of 299 square meters; "LRC Psu-1313 - Lot 2, with an area of 225 square meters." On September 25, 1974, Dominador, et al. filed a petition with the Court of First Instance, Cavite, as a land registration court, to issue title over Lots 1 and 2 of LRC Psu-1313, in their names.5

On July 19, 1977, the Land Registration Commission (hereafter "LRC") rendered a decision directing the issuance of Original Certificate of Title No. 0-1816 in the names of Dominador, et al. On or about August 22, 1978, Severina filed with the Court of First Instance of Cavite a petition for review of the decision alleging that the land registration proceedings were fraudulently concealed by Dominador from her.6 On December 27, 1982, the court resolved to set aside the decision of July 19, 1977, and declared Original Certificate of Title No. 0-1816 as null and void. On July 13, 1987, the Register of Deeds of Cavite issued Transfer Certificate of Title No. T223511 in the names of Severina and her heirs.7 On February 15, 1990, the trial court issued an order in favor of Severina's heirs, to wit:8 "WHEREFORE, as prayed for, let the writ of possession previously issued in favor of petitioner Severina San Miguel be implemented." However, the writ was returned unsatisfied. On November 28, 1991, the trial court ordered:9 "WHEREFORE, as prayed for, let an alias writ of demolition be issued in favor of petitioners, Severina San Miguel." Again, the writ was not satisfied. On August 6, 1993, Severina's heirs, decided not to pursue the writs of possession and demolition and entered into a compromise with Dominador, et al. According to the compromise, Severina's heirs were to sell the subject lots10 to Dominador, et al. for one and a half million pesos (P1.5 M) with the delivery of Transfer Certificate of Title No. T-223511 (hereafter, "the certificate of title") conditioned upon the purchase of another lot 11 which was not yet titled at an additional sum of three hundred thousand pesos (P300,000.00). The salient features of the compromise (hereafter "kasunduan") are:12 "5. Na ang Lot 1 at Lot 2, plano LRC Psu-1313 na binabanggit sa itaas na ipinagkasundo ng mga tagapagmana ni Severina San Miguel na kilala sa kasulatang ito sa taguring LAPINA (representing Severina's heirs), na ilipat sa pangalan nina SAN MIGUEL (representing Dominador's heirs) alang alang sa halagang ISANG MILYON AT LIMANG DAANG LIBONG PISO (P1,500,000.00) na babayaran nina SAN MIGUEL kina LAPINA; "6. Na si LAPINA at SAN MIGUEL ay nagkakasundo na ang lote na sakop ng plano LRCPsu-1312, may sukat na 108 metro cuadrado ay ipagbibili na rin kina SAN MIGUEL sa halagang TATLONG DAANG LIBONG PISO (P300,000.00); "7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na sakop ng plano LRC Psu-1312 ay sina LAPINA at sila na ang magpapatitulo nito at sina LAPINA ay walang pananagutan sa pagpapatitulo nito at sa paghahabol ng sino mang tao; "8. Na ang nasabing halaga na TATLONG DAANG LIBONG PISO (P300,000.00) ay babayaran nina SAN MIGUEL kina LAPINA sa loob ng dalawang (2) buwan mula sa petsa ng kasulatang ito at kung hindi mabayaran nina SAN MIGUEL ang nasabing halaga sa takdang panahon ay mawawalan ng kabuluhan ang kasulatang ito;

"9. Na sina LAPINA at SAN MIGUEL ay nagkakadunso (sic) rin na ang owner's copy ng Transfer Certificate of Title No. T-223511 na sumasakop sa Lots 1 at 2, plano LRC Psu1313 ay ilalagay lamang nina LAPINA kina SAN MIGUEL pagkatapos mabayaran ang nabanggit na P300,000.00" On the same day, on August 6, 1993, pursuant to the kasunduan, Severina's heirs and Dominador, et al. executed a deed of sale designated as "kasulatan sa bilihan ng lupa."13 On November 16, 1993, Dominador, et al. filed with the trial court,14 Branch 19, Bacoor, Cavite, a motion praying that Severina's heirs deliver the owner's copy of the certificate of title to them.15 In time, Severina's heirs opposed the motion stressing that under the kasunduan, the certificate of title would only be surrendered upon Dominador, et al.'s payment of the amount of three hundred thousand pesos (P300,000.00) within two months from August 6, 1993, which was not complied with.16 Dominador, et al. admitted non-payment of three hundred thousand pesos (P300,000.00) for the reason that Severina's heirs have not presented any proof of ownership over the untitled parcel of land covered by LRC-Psu-1312. Apparently, the parcel of land is declared in the name of a third party, a certain Emiliano Eugenio.17 Dominador, et al. prayed that compliance with the kasunduan be deferred until such time that Severina's heirs could produce proof of ownership over the parcel of land.18 Severina's heirs countered that the arguments of Dominador, et al. were untenable in light of the provision in thekasunduan where Dominador, et al. admitted their ownership over the parcel of land, hence dispensing with the requirement that they produce actual proof of title over it.19 Specifically, they called the trial court's attention to the following statement in the kasunduan:20 "7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na sakop ng plano LRC Psu-1312 ay sina LAPINA at sila na ang magpapatitulo nito at sina LAPINA ay walang pananagutan sa pagpapatitulo nito at sa paghahabol ng sino mang tao;" According to Severina's heirs, since Dominador, et al. have not paid the amount of three hundred thousand pesos (P300,000.00), then they were justified in withholding release of the certificate of title.21 The trial court conducted no hearing and then rendered judgment based on the pleadings and memoranda submitted by the parties. The Trial Court's Ruling On June 27, 1994, the trial court issued an order to wit:22 "WHEREFORE, finding the Motion to Order to be impressed with merit, the defendantsoppositors-vendors Heirs of Severina San Miguel are hereby ordered to surrender to the movant-plaintiffs-vendees-Heirs of Dominador San Miguel the Transfer Certificates of Title No. 223511 and for herein defendants-oppositors-vendors to pay for the capital gains and related expenses for the transfer of the two lots subject of the sale to herein movants-plaintiffs-vendees-Heirs of Dominador San Miguel." "SO ORDERED."

On July 25, 1994, Severina's heirs filed with the trial court a motion for reconsideration of the afore-quoted order.23 On January 23, 1995, the trial court denied the motion for reconsideration for lack of merit and further ordered:24 "x x x . . . Considering that the Lots 1 and 2 covered by TCT No. T-223511 had already been paid since August 6, 1993 by the plaintiffs-vendees Dominador San Miguel, et al. (Vide, Kasulatan sa Bilihan ng Lupa, Rollo, pp. 174-176), herein defendants-vendorsHeirs of Severina San Miguel is hereby ordered (sic) to deliver the aforesaid title to the former (Dominador San Miguel, et al.) within thirty (30) days from receipt of this order. In case the defendants-vendors-Heirs of Severina San Miguel fail and refuse to do the same, then the Register of Deeds of Cavite is ordered to immediately cancel TCT No. T223511 in the name of Severina San Miguel and issue another one in the name of plaintiffs Dominador San Miguel, et al. "Also send a copy of this Order to the Register of Deeds of the Province of Cavite, Trece Martires City, for her information and guidance. "SO ORDERED." On February 7, 1995, Severina's heirs appealed the orders to the Court of Appeals.25 The Court of Appeals' Ruling On June 29, 1998, the Court of Appeals promulgated a decision denying the appeal, and affirming the decision of the trial court. The Court of Appeals added that the other matters raised in the petition were "extraneous" to thekasunduan.26 The Court of Appeals upheld the validity of the contract of sale and sustained the parties' freedom to contract. The Court of Appeals decided, thus:27 "WHEREFORE, the decision appealed from is hereby AFFIRMED. "SO ORDERED." On August 4, 1998, Severina's heirs filed with the Court of Appeals a motion for reconsideration of the above decision.28 On October 14, 1998, the Court of Appeals denied the motion for reconsideration for lack of merit.29 Hence, this appeal.30 The Issues Severina's heirs submit that the Court of Appeals erred and committed grave abuse of discretion: First, when it held that the kasunduan had no effect on the "kasulatan sa bilihan ng lupa." Second, when it ordered them to surrender the certificate of title to Dominador, et al., despite non-compliance with their prior obligations stipulated under the kasunduan. Third, when it did not find that the kasunduan was null and void for having been entered into by Dominador, et al. fraudulently and in bad faith.31 We find the above issues raised by Severina's heirs to be factual. The question whether the prerequisites to justify release of the certificate of title to Dominador, et al. have been complied with is a question of fact.32

However, we sift through the arguments and identify the main legal issue, which is whether Dominador, et al. may be compelled to pay the three hundred thousand pesos (P300,000.00) as agreed upon in the kasunduan (as a pre-requisite for the release of the certificate of title), despite Severina's heirs' lack of evidence of ownership over the parcel of land covered by LRC Psu-1312. The Court's Ruling We resolve the issue in the negative, and find the petition without merit. Severina's heirs anchor their claim on the kasunduan, stressing on their freedom to stipulate and the binding effect of contracts. This argument is misplaced.33 The Civil Code provides: ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient provided they are not contrary to law, morals, good customs, public order or public policy (italics ours). It is basic that the law is deemed written into every contract.34 Although a contract is the law between the parties, the provisions of positive law which regulate contracts are deemed written therein and shall limit and govern the relations between the parties.35 The Civil Code provisions on "sales" state: ARTICLE 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 a price certain in money or its equivalent. . . . ARTICLE 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. ARTICLE 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of sale (emphasis ours). True, in contracts of sale, the vendor need not possess title to the thing sold at the perfection of the contract.36However, the vendor must possess title and must be able to transfer title at the time of delivery. In a contract of sale, title only passes to the vendee upon full payment of the stipulated consideration, or upon delivery of the thing sold.37 Under the facts of the case, Severina's heirs are not in a position to transfer title. Without passing on the question of who actually owned the land covered by LRC Psu -1312, we note that there is no proof of ownership in favor of Severina's heirs. In fact, it is a certain Emiliano Eugenio, who holds a tax declaration over the said land in his name.38 Though tax declarations do not prove ownership of the property of the declarant, tax declarations and receipts can be strong evidence of ownership of land when accompanied by possession for a period sufficient for prescription.39 Severina's heirs have nothing to counter this document. Therefore, to insist that Dominador, et al. pay the price under such circumstances would result in Severina's heirs' unjust enrichment.40 Basic is the principle in law, "Niguno non deue enriquecerse tortizamente condano de otro."41 The essence of a sale is the transfer of title or an agreement to transfer it for a price actually paid or promised.42 In Nool v. Court of Appeals,43 we held that if the sellers cannot deliver the object of the sale to the buyers, such contract may be deemed to be inoperative. By analogy, such a contract may fall under Article 1405, No. 5 of the Civil Code, to wit: ARTICLE 1405. The following contracts are inexistent and void from the beginning: . . . (5) Those which contemplate an impossible service.

xxx

xxx

xxx

Severina's heirs insist that delivery of the certificate of title is predicated on a condition payment of three hundred thousand pesos (P300,000.00) to cover the sale of Lot 3 of LRO Psu 1312. We find this argument not meritorious. The condition cannot be honored for reasons aforediscussed. Article 1183 of the Civil Code provides that, "Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid, x x x" Hence, the non-payment of the three hundred thousand pesos (P300,000.00) is not a valid justification for refusal to deliver the certificate of title. Besides, we note that the certificate of title covers Lots 1 and 2 of LRC Psu-1313, which were fully paid for by Dominador, et al. Therefore, Severina's heirs are bound to deliver the certificate of title covering the lots. The Fallo WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 48430 is AFFIRMED in toto. No costs. SO ORDERED. Davide, Jr., C .J ., Puno, Kapunan, and Ynares-Santiago, JJ., concur. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 137845 September 9, 2004

ANGEL CLEMENO, JR., MALYN CLEMENO, and NILUS SACRAMENTO, petitioners, vs. ROMEO R. LOBREGAT, respondent. DECISION CALLEJO, SR., J.: This is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No. 53655 reversing the decision of the Regional Trial Court of Quezon City, Branch 224, in Civil Case Nos. 92-12620 and 93-17268. The Antecedents The Spouses Nilus and Teresita Sacramento were the owners of a parcel of land covered by Transfer Certificate of Title (TCT) No. 158728 and the house constructed thereon located at No. 68 Madaling Araw Street, Teresa Heights Subdivision, Novaliches, Quezon City. The Spouses

Sacramento mortgaged the property with the Social Security System (SSS) as security for their housing loan and, likewise, surrendered the owners and duplicate copies of the certificate of title. On September 2, 1980, the spouses executed a Deed of Sale with Assumption of Mortgage in favor of Maria Linda Clemeno and her husband Angel C. Clemeno, Jr., with the conformity of the SSS.2 On March 6, 1981, the Register of Deeds issued TCT No. 277244 over the property in the name of the vendees,3 who, in turn, executed a Real Estate Mortgage Contract over the property in favor of the SSS to secure the payment of the amount of P22,900.00, the balance of the loan.4 The Spouses Clemeno also surrendered the owners duplicate copy of the said title to the SSS. However, per the records of the SSS Loans Department, the vendors (the Spouses Sacramento) remained to be the debtors. On July 1, 1992, respondent Romeo R. Lobregat, a lawyer and an Election Registrar in the Commission on Elections, filed a Complaint against the petitioners, the Spouses Clemeno, and Nilus Sacramento for breach of contract, specific performance with damages with the RTC of Quezon City. The case was docketed as Civil Case No. 92-12620 and raffled to Branch 100. On May 7, 1993, the trial court dismissed the case without prejudice for lack of interest on the part of the plaintiff to prosecute.5 The petitioners, for their part, filed a Complaint against the respondent for recovery of possession of property with damages, docketed as Civil Case No. 93-17268 and raffled to Branch 93 of the court. In the meantime, the RTC, Branch 100 set aside its Order in Civil Case No. 92-12620 and reinstated the case. The two (2) cases were then consolidated in the RTC, Branch 100. The Evidence of The Respondent On June 4, 1987, the respondent and petitioner Angel Clemeno, Jr., relatives by consanguinity, entered into a verbal contract of sale over the property covered by TCT No. 277244 under the following terms and conditions: (a) the respondent would pay the purchase price of the property in the amount of P270,000.00, inclusive of the balance of the loan of the petitioners, the Spouses Clemeno with the SSS6 within two years from June 4, 1987;7(b) the respondent would pay the monthly amortizations of the vendors loan with the SSS; and (c) upon the payment of the purchase price of the property, the Spouses Clemeno would execute a deed of sale in favor of the respondent.8 The respondent made a down payment of P25,000.00 for which petitioner Clemeno, Jr. issued a receipt dated June 4, 1987.9 He then made a partial payment of P5,000.00 to petitioner Clemeno, Jr. on July 8, 1987,10 and another partial payment of P50,000.00 on February 9, 1988.11 The respondent paid the realty taxes due on the property for 1987 and 1988.12 In the meantime, petitioner Clemeno, Jr. read a press release from the SSS in the newspapers allowing delinquent borrowers to restructure the balance of their loans as of March 31, 1988 with no arrearages on the balance of their account under certain terms and conditions.13 On February 26, 1988, he paid the amount of P6,692.63 to the SSS, in partial payment of his loan account.14 He also made a written request to the SSS for a restructuring of his loan.15 Thereafter, the SSS Loans Collection Department issued on March 15, 1988, addressed to the borrower on record, that effective March 15, 1988, the monthly amortization on the loan was P841.84.16 Petitioner Clemeno, Jr., as mortgagor, affixed his conformity thereto.17 He then wrote a letter authorizing the respondent to pay the balance of his restructured loan with the SSS, which payments would be considered as partial payment of the house and lot.18 Conformably, the respondent remitted to the SSS the monthly amortization payments for the account of petitioner Clemeno, Jr. However, the receipts issued by the SSS were in the name of petitioners Nilus Sacramento or Clemeno, Jr.19 The respondent made additional partial payments for the sale of the property to petitioner Clemeno, Jr. on January 17, 1989, and, March 20, 1989, in the total amount of P10,000.00.20 He also continued remitting to the SSS the monthly amortizations due for the account of petitioner Clemeno, Jr.21

The respondent was able to secure a loan of P160,000.00 on April 1, 1989, which was more than sufficient to cover his balance of the purchase of the property. He then offered to pay the said balance to petitioner Clemeno, Jr.,22 but the latter told him to keep the money because the owners duplicate copy of the title was still with the SSS and to instead continue paying the monthly amortizations due. The respondent did so and made payments until March 1990.23 He no longer paid after this date because the SSS informed him that petitioner Clemeno, Jr. had already paid the balance of his account in full on March 23, 1990. Indeed, on May 9, 1990, the SSS had executed a Release of Real Estate Mortgage in favor of petitioner Clemeno, Jr. and released the owners duplicate of TCT No. 277244.24 The respondent offered to pay the balance of the purchase price of the property to petitioner Clemeno, Jr. and asked the latter to execute the deed of sale over the property and deliver the title over the property under his name, but petitioner Clemeno, Jr. refused to do so unless the respondent agreed to buy the property at the price prevailing in 1992. The respondent refused. On June 12, 1992, the respondents counsel wrote petitioner Clemeno, Jr., informing the latter that he (the respondent) had already paid P113,049.96 of the purchase price of the property and that he was ready to pay the balance thereof in the amount of P156,970.04. He demanded that petitioner Clemeno, Jr. execute a deed of absolute sale over the property and deliver the title thereto in his name upon his receipt of the amount ofP156,970.04.25 In his reply-letter, petitioner Clemeno, Jr. stated that he never sold the property to the respondent; that he merely tolerated the respondents possession of the property for one year or until 1987, after which the latter offered to buy the property, which offer was rejected; and that he instead consented to lease the property to the respondent. The petitioner also declared in the said letter that even if the respondent wanted to buy the property, the same was unenforceable as there was no document executed by them to evince the sale.26 In their Answer to the complaint, the petitioners alleged that they entered into a verbal leasepurchase agreement over the house and lot with the respondent under the following terms and conditions: (a) The purchase price will be P270,000.00 to be paid in full not later than June 1, 1988; (b) The rental is P1,500.00 a month, for the whole period from June 1987 to June 1, 1988; (c) If the whole purchase price is not paid on the agreed date, the total amount equivalent to one-year rental shall be deducted from the amount already paid by the plaintiff, who shall peacefully vacate the premises and surrender possession of the house and lot to the defendants. (d) The purchase price of P270,000.00 shall be payable: P90,000.00 upon taking possession of the property, P90,000.00 payable within six (6) months thereafter, and P90,000.00 not later than June 1, 1988.27 The petitioners further alleged that despite the respondents failure to comply with the conditions of their agreement, the latter was still granted an extension of until September 1989 to pay the purchase price of the property, but managed to pay only P113,049.96, including the monthly amortizations of their loan account with the SSS and realty tax payments. The petitioners further alleged that the respondent even failed to pay any rental for the property from June 1987 to June 1, 1988. They posited that the contract between the parties was unenforceable under Article 1403(2) of the New Civil Code, and prayed that judgment be rendered in their favor as prayed for by them in their complaint in Civil Case No. 93-17268, thus: WHEREFORE, it is most respectfully prayed that after due hearing, a decision in favor of plaintiff be rendered, ordering Defendant

(a) And all other persons claiming under him to vacate the premises located at 86 Madaling Araw St., Teresa Heights Subdivision, Novaliches, Quezon City; (b) To pay plaintiff a balance of P64,349.14 for the use and occupancy of the premises until May 31, 1993, and at the rate of P3,628.80 a month from June 1, 1993 until the premises shall have been finally vacated; (c) To pay P50,000.00 plus P2,000.00 per appearance as and for attorneys fees; and (d) To pay the costs of suit. Plaintiff further prays for such other relief reasonable and conscionable in the premises.28 The Evidence for the Petitioners Petitioner Clemeno, Jr. and the respondent were townmates. Sometime in June 1987, petitioner Clemeno, Jr. agreed to sell the property for P270,000.00 payable in three (3) installments: (a) P90,000.00 upon the respondents taking possession of the property; (b) P90,000.00 payable within six (6) months thereafter; and (c)P90,000.00 not later than June 1, 1988. The respondent assured petitioner Clemeno, Jr. that there would be nothing to worry about the documentation of the sale; being a lawyer, he would take care of everything. However, the respondent failed to pay the balance of the purchase price of the property in the amount of P156,970.04 despite promises to do so. On September 16, 1989, petitioner Clemeno, Jr. went to the respondents house to talk to him anew, but the latter was nowhere to be found. He made a typewritten letter to the respondent, stating that the latter had been given more than enough time to exercise the option to buy the property but failed to do so; hence, the offer was deemed cancelled. The petitioner left the letter with the respondents daughter, Michelle Lobregat. The trial court rendered judgment in favor of the petitioners, as follows: Accordingly, therefore, the Court hereby renders judgment in favor of Angel Clemeno, [Jr.] as against Romeo Lobregat and orders the latter and other persons claiming under him to: 1. Vacate the premises located at No. 86 Madaling Araw Street, Teresa Heights Subdivision, Novaliches, Quezon City; 2. Pay Angel Clemeno, Jr. the amount of P64,349.14 for the use and occupancy of the premises until May 31, 1993 and at the rate of P3,628.80 a month from June 1, 1993 until the premises have been finally vacated; 3. Pay the amount of P50,000.00 as attorneys fees and other legal expenses, and 4. To pay the costs of suit. IT IS SO ORDERED.29 The trial court ruled that since both the sale and lease agreements were not reduced to writing, both contracts were unenforceable under Article 1403(2) of the New Civil Code, and had decided the case based on justice and equity.

The respondent appealed the decision to the Court of Appeals and raised the following assignment of errors: 1. THE LOWER COURT, AFTER THE COMPLETE, MERITORIOUS AND WRITTEN PIECES OF EVIDENCE SUBMITTED BY PLAINTIFF-APPELLANT LOBREGAT, FAILED/REFUSED TO CONSIDER THE SAME. INSTEAD, DECIDED ONLY THE CASE OF ACCION PUBLICIANAFILED BY DEFENDANT-APPELLEE A. CLEMENO, JR. 2. THE LOWER COURT FAILED TO CONSIDER THAT RECEIPTS ARE NOT CONTRACT OF SALE BUT EVIDENCE FOR CONTRACT OF SALE AS EVEN NOTED BY THE LOWER COURT. 3. THAT THE LOWER COURT FAILED TO CONSIDER THAT THE PIECES OF EVIDENCE OF LOBREGAT CLEARLY SHOW THAT [THE] SALE WAS THE TRANSACTION BETWEEN HEREIN PARTIES AS ADMITTED BY DEFENDANTAPPELLEE A. CLEMENO, JR. (T.S.N., p. 16, Nov. 20, 1995) (T.S.N., pp. 26 & 27, April 19, 1996) 3. THAT THE HONORABLE LOWER COURT DISREGARDED ITS OWN RULING AS TO THE APPELLEES INTENTIONAL FAILURE TO FOLLOW/COMPLY WITH ITS ORDER DATED MAY 31, 1996. 4. THAT THE LOWER COURT FAILED TO CONSIDER THE DELIBERATE OMISSION OF DEFENDANTS-APPELLEES TO OBSERVE THE NON-FORUM SHOPPING REQUIREMENT. 5. THAT THE LOWER COURT MISAPPLIED THE PRINCIPLE OF STATUTE OF FRAUDS.30 On February 23, 1999, the Court of Appeals rendered judgment reversing the decision of the trial court. The fallo of the decision reads: WHEREFORE, the decision appealed from is REVERSED, and judgment is hereby rendered: 1. In Civil Case No. Q-92-12620 (a) Ordering defendants-appellees to accept the remaining balance of the purchase price of the house and lot subject of sale in the amount of P156,109.00 and, thereafter, execute in favor of plaintiff-appellant the corresponding deed of sale or proper mode of conveyance; and (b) Ordering defendants-appellees to pay, jointly and severally, plaintiffappellant P50,000.00 by way of moral damages, P25,000.00 by way of exemplary damages, and P15,000.00 as attorneys fees. 2. In Civil Case No. Q-93-17268 dismissing the complaint therein. Costs against defendants-appellees. SO ORDERED.31 The Court of Appeals ruled that the contract entered into between the parties was a contract of sale, not a contract to sell. The appellate court also ruled that Article 1403(2) was not applicable

because the contract was already partly performed, since partial payments had been made by the respondent as evidenced by receipts signed by the petitioners. The petitioners now come to this Court, contending that: I The Honorable Court of Appeals grossly erred in holding that the contract entered by the parties is a contract of sale and not a contract to sell.32 II The Court of Appeals erred seriously when it held that "Under Article 1356 of the Civil Code, contract shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present and that the contract of sale of a piece of land may be proved orally, totally ignoring the positive mandate of Article 1358 of the Civil Code, "33 III The Honorable Court of Appeals erred in holding that the Statute of Frauds cannot be raised as a defense against specific performance, there being partial performance of the down-payment and subsequent installments, even if short of the full price and after the expiry of the agreed dates of payment.34 The Court shall resolve these issues simultaneously as they are interrelated. The petitioners posit that the respondent failed to prove the essential elements of a contract of sale over the subject property. They contend that the receipts wherein they acknowledged the receipt of the amounts therein specified do not conform to the legal requirements of a contract of sale, and cited the ruling of this Court in Manotok Realty, Inc. vs. Court of Appeal.35 They also posit that even by his own admission, the respondent defaulted in the payment of the purchase price of the property; hence, they are not obliged to execute a deed of absolute sale over the property and deliver the title to him. The petitioners assert that even if they had entered into an agreement with the respondent, such agreement was a mere contract to sell, not a contract of sale. They further assert that even if, indeed, the parties had entered into a contract of sale, the same is unenforceable under paragraph 2, Article 1403 of the New Civil Code, which provides that such contract must be in writing; and Article 1358 of the New Civil Code which requires that such contract must appear in a public document. On the other hand, the appellate court held that the petitioners and the respondent entered into a verbal contract of sale and not a contract to sell over the subject property, thus: In the case at bench, Clemeno had agreed to sell his house and lot to Lobregat for a total consideration ofP270,000.00 payable in installments within a period of two (2) years. The receipt, Exhibit "A", is self-explanatory: it speaks of the receipt by Clemeno of the sum of P25,000.00 from Lobregat as advance payment of the subject house and lot, the total purchase price of which is P270,000.00. Significantly, upon his receipt of the advance payment, Clemeno delivered the possession of the premises to Lobregat who is now the present possessor thereof. Subsequent payments were made by Lobregat on the purchase price, all of which were duly receipted for by Clemeno. The receipts Exhibits "A1", "A-2" and "A-3", for example, speak uniformly of "additional part payment" for the house and lot subject of this case. Moreover, as suggested by Clemeno himself, Lobregat had been religiously remitting the monthly payments on Clemenos loan obligation with the SSS. Note, for instance, Exhibit "A-4" one of the many receipts of payment to SSS where it is indicated that the real estate loan is in the name of Angel C. Clemeno, Jr., as

borrower, but bears the name of Romeo Lobregat, as payor, on behalf of Clemeno. It is as clear as sunlight that the parties had entered into a contract of sale and not merely a contract to sell.36 The petition has no merit. We find and so hold that the contract between the parties was a perfected verbal contract of sale, not a contract to sell over the subject property, with the petitioner as vendor and the respondent as vendee. Sale is a consensual contract and is perfected by mere consent, which is manifested by a meeting of the minds as to the offer and acceptance thereof on three elements: subject matter, price and terms of payment of the price.37 The petitioners sold their property to the respondent for P270,000.00, payable on installments, and upon the payment of the purchase price thereof, the petitioners were bound to execute a deed of sale in favor of the respondent and deliver to him the certificate of title over the property in his name. The parties later agreed for the respondent to assume the payment of the petitioners loan amortization to the SSS, which payments formed part of the purchase price of the property. The evidence shows that upon the payment made by the respondent of the amount ofP27,000.00 on June 4, 1987, the petitioners vacated their house and delivered possession thereof to the respondent. Conformably to Article 1477 of the New Civil Code, the ownership of the property was transferred to the respondent upon such delivery. The petitioners cannot re-acquire ownership and recover possession thereof unless the contract is rescinded in accordance with law.38 The failure of the respondent to complete the payment of the purchase price of the property within the stipulated period merely accorded the petitioners the option to rescind the contract of sale as provided for in Article 1592 of the New Civil Code.39 The contract entered into by the parties was not a contract to sell because there was no agreement for the petitioners to retain ownership over the property until after the respondent shall have paid the purchase price in full, nor an agreement reserving to the petitioners the right to unilaterally resolve the contract upon the buyers failure to pay within a fixed period.40 Unlike in a contract of sale, the payment of the price is a positive suspensive condition in a contract to sell, failure of which is not a breach but an event that prevents the obligation of the vendor to convey the title from becoming effective.41 The fact that the receipts issued by the SSS evidencing the respondents remittances of the monthly amortization payments of the petitioners loan, and that the receipts issued to the respondent for the payment of realty taxes for 1987 and 1988 were in the name of Nilus Sacramento and/or the petitioner Clemeno, Jr., does not negate the fact of the transfer of the ownership over the property to the respondent on June 4, 1987. Moreover, the deed of sale over the property in favor of the respondent had not yet been executed by the petitioners. The Spouses Sacramento and later, the petitioners, were the borrowers, as per the records of the SSS. The contract of sale of the parties is enforceable notwithstanding the fact that it was an oral agreement and not reduced in writing as required by Article 1403(2) of the New Civil Code, which reads: 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 parties charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:

 (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accepts and receives part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some part of the purchase money: but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; " This is so because the provision applies only to executory, and not to completed, executed or partially executed contracts.42 In this case, the contract of sale had been partially executed by the parties, with the transfer of the possession of the property to the respondent and the partial payments made by the latter of the purchase price thereof. We agree with the petitioners contention that the respondent did not pay the total purchase price of the property within the stipulated period. Moreover, the respondent did not pay the balance of the purchase price of the property. However, such failure to pay on the part of the respondent was not because he could not pay, but because petitioner Angel Clemeno, Jr. told him not to do so. The latter instructed the respondent to continue paying the monthly amortizations due to the SSS on the loan. Unknown to the respondent, petitioner Angel Clemeno, Jr. wanted to increase the purchase price of the property at the prevailing market value in 1992, and not its value in 1987 when the contract of sale was perfected. The petitioners failed to prove their claim that a lease purchase agreement over the property was entered into. Except for their bare claim, they failed to adduce a morsel of documentary evidence to prove the same. On the other hand, all the receipts issued by them on the partial payments made by the respondent were for the purchase price of the property, and not as rentals thereof. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners. SO ORDERED. Puno, Austria-Martinez*, Tinga, and Chico-Nazario, JJ., concu
January 31, 1958 G.R. No. L-9871 ATKINS, KROLL and CO., INC., petitioner, vs. B. CUA HIAN TEK, respondent. Ross Selph, Carrascoso and Janda for petitioner. Ponciano T. Castro for respondent. Bengzon (Jose), J.: Review of a Court of Appeals decision. For its failure to deliver one thousand cartons of sardines, which it had sold to B. Cua Hian Tek, petitioner was sued, and after trial was ordered by the Manila court of first instance to Pay damages, which on appeal was reduced by the Court of Appeals to P3,240.15 representing unrealized profits.

There was no such contract of sale, says petitioner, but only an option to buy, which was not enforceable for lack of consideration because in accordance with Art. 1479 of the New Civil Code an accepted unilatateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. Simple are the facts of this case: Dated September 13, 1951, petitioner sent to respondent a letter of the following tenor: Sir (s) /Madam: We are pleased to make you herewith the following firm offer, subject to reply by September 23, 1951: Quantity and Commodity: 400 Ctns. Luneta brand Sardines in Tomato Sauce 48/15-oz. Ovals at $8.25 Ctn. 300 Ctns. Luntea brand Sardines Natural 48/15 oz. talls at $6.25 Ct. 300 Ctns. Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at $7.48 Ct. Price(s): All prices C ad F Manila Cosular Fees of $6.00 to be added. Shipmet: Durig September/October from US Ports. Supplier: Atkins, Kroll & Co., Sa Frasisco, Cal. U.S.A. We are looking forward to receive your valued order and remain . Very truly yours, The Court of first instance and the Court of Appeals1 found that B. Cua Hian Tek accepted the offer unconditionally and delivered his letter of acceptance Exh. B on September 21, 1951. However, due to shortage of catch of sardines by the packers in California, Atkins Kroll & Co., failed to deliver the commodities it had offered for sale. There are other details to which reference shall not be made, as they touch the question whether the acceptance had been handed on time; and on that issue of Court of Appeals definitely found for plaintiff. Ayway, in presenting its case before this Court petitioner does not dispute such timely acceptance. It merely raises the point that the acceptance only created an option, which, lacking consideration, had no obligatory force. The offer Exh. A, petitioner argues, was a promise to sell a determinate thing for a price certain. Upon its acceptance by respondent, the offer became an accepted unilateral promise to sell a determinate thing for price certain. Inasmuch as there was no consideration to support the promise

to sell distinct from the price, it follows that under Art. 1479 aforequoted, the promise is not binding on the petitioner even if it was accepted by respondent. (p. 12 brief of petitioner.). The argument, maifestly assumes that only a unilateral promise arose when the offeree accepted. Such assumption is a mistake, because a bilateral cotract to sell and to buy was created upon acceptance. So much so that B. Cua Hian Tek could be sued, he had backed out after accepting, by refusing to get the sardines and/or to pay for their price. Indeed, the word option is found neither in the offer nor in the acceptance. On the copntrary Exh. B accepted the firm offer for the sale and adds, the undersigned buyer has immediately filed an application for import license . . . (Emphasis Ours.). Petitioner, however, insists the offer was a mere offer of option, because the firm offer Exh. A. was a continuing offer to sell until September 23, an option is nothing more than a continuing offer for a specified time. In our opinion implies more than that: it implies the legal obligation to keep open for the time specified.2 Yet the letter Exh. A did not by itself produce the legal obligation of keeping the offer open up ot Septmber 23. It could be withdrawn before acceptance, because it is admitted, there was no consideration for it. ART. 1324. When the offerer has showed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as somnething paid or promissed. (n) (New Civil Code.). Ordinarily an offer to buy or sell may be withdrawn or countermanded before accepatnce, even though the offer provides that it will not be withdrawn or countermanded, or allows the offeree a certain time within which to accept it, unless such provision or agreement is supported by an independent consideration. . . (77 Corpus Juris Secundum p. 636.). Furthermore, an option is unilateral: a promise to sell3 at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to later. In this case, however, upon accepeting herein petitioners offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligations of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was bilalteral contract of sale. Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that . If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. . . (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.). It can be taken for granted, as contended by the defendants, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of this acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts-the offer and the acceptance-could at all events have generated a contract, if none there was before (atrs. 1254 and 1262 of the Civil Code). (Zayco vs. Serra, 44 Phil. 331.).

One additional observation should be made before the closing this opinion. The defense in the court of first instance rested on the proposition or propositions that the offer had not been precedent had not been fulfilled. This option-without-consideration idea was never mentioned in the answer. A Change of theory in the appellate courts is not permitted. In order that a question may be raised on appeal, it is essential that it be within the issues made by the parties in their pleadings. Consequently, when a party deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to do so, would be unfair to the adverse party. (Rules of Court by Moran-1957 Ed. Vol. I p.715 citing Agoncillo vs. Javier, 38 Phil. 424; American Express Company vs. Natividad, 46 Phil. 207; San Agustin vs. Barrios, 68 Phil. 465, 480; Toribio vs. Dacasa, 55 Phil. 461.) . We must therefore hold, as the lower courts have held that there was a contract of sale between the parties. And as no legal excuse has been proven, the sellers failure to comply therewith gave around to an award for damages, which has been fixed by the Court of Appeals at P3,240.15amount which petitioner does not dispute in this final instance. Consequently, the decision under review should be, and it is hereby affirmed, with cost against petitioner. Paras, C.J., Padilla, Montemayor, Reyes, A., Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concur. Bautista Angelo, J., concurs in the result.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 106435 July 14, 1999 PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES, VICTORIA V. TEVES and HIRAM DIDAY R. PULIDO, petitioners, vs. HON. COURT OF APPEALS and DEVELOPMENT BANK OF THE PHILIPPINES, respondents.

GONZAGA-REYES, J.: Before Us for review on certiorari is the decision of the respondent Court of Appeals in C.A. G.R. C.V. No. 27861, promulgated on April 23, 1992, 1 affirming in toto the decision of the Regional Trial Court of Makati 2 to a award respondent bank's deficiency claim, arising from a loan secured by chattel mortgage. The antecedents of the case are as follows:

On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of US$267,881.67, or the equivalent of P2,000,000.00 from respondent Bank. By virtue of this loan, petitioner PAMECA, through its President, petitioner Herminio C. Teves, executed a promissory note for the said amount, promising to pay the loan by installment. As security for the said loan, a chattel mortgage was also executed over PAMECA's properties in Dumaguete City, consisting of inventories, furniture and equipment, to cover the whole value of the loan. On January 18, 1984, and upon petitioner PAMECA's failure to pay, respondent bank extrajudicially foreclosed the chattel mortgage, and, as sole bidder in the public auction, purchased the foreclosed properties for a sum of P322,350.00. On June 29, 1984, respondent bank filed a complaint for the collection of the balance of P4,366,332.46 3 with Branch 132 of the Regional Trial Court of Makati City against petitioner PAMECA and private petitioners herein, as solidary debtors with PAMECA under the promissory note. On February 8, 1990, the RTC of Makati rendered a decision on the case, the dispositive portion of which we reproduce as follows:
WHEREFORE, judgment is hereby rendered ordering the defendants to pay jointly and severally plaintiff the (1) sum of P4,366,332.46 representing the deficiency claim of the latter as of March 31, 1984, plus 21% interest per annum and other charges from April 1, 1984 until the whole amount is fully paid and (2) the costs of the suit. SO ORDERED." 4

The Court of Appeals affirmed the RTC decision. Hence, this Petition. The petition raises the following grounds: 1. Respondent appellate court gravely erred in not reversing the decision of the trial court, and in not holding that the public auction sale of petitioner PAMECA's chattels were tainted with fraud, as the chattels of the said petitioner were bought by private respondent as sole bidder in only 1/6 of the market value of the property, hence unconscionable and inequitable, and therefore null and void. 2. Respondent appellate court gravely erred in not applying by analogy Article 1484 and Article 2115 of the Civil Code by reading the spirit of the law, and taking into consideration the fact that the contract of loan was a contract of adhesion. 3. The appellate court gravely erred in holding the petitioners Herminio Teves, Victoria Teves and Hiram Diday R. Pulido solidarily liable with PAMECA Wood Treatment Plant, Inc. when the intention of the parties was that the loan is only for the corporation's benefit. Relative to the first ground, petitioners contend that the amount of P322,350.00 at which respondent bank bid for and purchased the mortgaged properties was unconscionable and inequitable considering that, at the time of the public sale, the mortgaged properties had a total value of more than P2,000,000.00. According to petitioners, this is evident from an inventory dated March 31, 1980 5, which valued the properties at P2,518,621.00, in accordance with the terms of the chattel mortgage contract 6 between the parties that required that the inventories "be maintained at a level no less than P2 million". Petitioners argue that respondent bank's act of bidding and purchasing the mortgaged properties for P322,350.00 or only about 1/6 of their actual value in a public sale in which it was the sole bidder was fraudulent, unconscionable and inequitable, and constitutes sufficient ground for the annulment of the auction sale. To this, respondent bank contends that the above-cited inventory and chattel mortgage contract were not in fact submitted as evidence before the RTC of Makati, and that these documents were first produced by petitioners only when the case was brought to the Court of Appeals. 7 The Court

of Appeals, in turn, disregarded these documents for petitioners' failure to present them in evidence, or to even allude to them in their testimonies before the lower courtr. 8 Instead, respondent court declared that it is not at all unlikely for the chattels to have sufficiently deteriorated as to have fetched such a low price at the time of the auction sale. 9 Neither did respondent court find anything irregular or fraudulent in the circumstance that respondent bank was the sole bidder in the sale, as all the legal procedures for the conduct of a foreclosure sale have been complied with, thus giving rise to the presumption of regularity in the performance of public duties. 10 Petitioners also question the ruling of respondent court, affirming the RTC, to hold private petitioners, officers and stockholders of petitioner PAMECA, liable with PAMECA for the obligation under the loan obtained from respondent bank, contrary to the doctrine of separate and distinct corporate personality. 11 Private petitioners contend that they became signatories to the promissory note "only as a matter of practice by the respondent bank", that the promissory note was in the nature of a contract of adhesion, and that the loan was for the benefit of the corporation, PAMECA, alone. 12 Lastly, invoking the equity jurisdiction of the Supreme Court, petitioners submit that Articles 1484 13 and 2115 14of the Civil Code be applied in analogy to the instant case to preclude the recovery of a deficiency claim. 15 Petitioners are not the first to posit the theory of the applicability of Article 2115 to foreclosures of chattel mortgage. In the leading case of Ablaza vs. Ignacio 16, the lower court dismissed the complaint for collection of deficiency judgment in view of Article 2141 of the Civil Code, which provides that the provisions of the Civil Code on pledge shall also apply to chattel mortgages, insofar as they are not in conflict with the Chattel Mortgage Law. It was the lower court's opinion that, by virtue of Article 2141, the provisions of Article 2115 which deny the creditor-pledgee the right to recover deficiency in case the proceeds of the foreclosire sale are less than the amount of the principal obligation, will apply. This Court reversed the ruling of the lower court and held that the provisions of the Chattel Mortgage Law regarding the effects of foreclosure of chattel mortgage, being contrary to the provisions of Article 2115, Article 2115, in relation to Article 2141, may not be applied to the case. Sec. 14 of Act No. 1508, as amended, or the chattel Mortgage Law, states: xxx xxx xxx The officer making the sale shall, within thirty days thereafter, make in writing a return of his doings and file the same in the office of the Registry of Deeds where the mortgage is recorded, and the Register of Deeds shall record the same. The fees of the officer for selling the property shall be the same as the case of sale on execution as provided in Act Numbered One Hundred and Ninety, and the amendments thereto, and the fees of the Register of Deeds for registering the officer's return shall be taxed as a part of the costs of sale, which the officer shall pay to the Register of Deeds. The return shall particularly describe the articles sold, and state the amount received for each article, and shall operate as a discharge of the lien thereon created by the mortgage. The proceeds of such sale shall be applied to the payment, first, of the costs and expenses of keeping and sale, and then to the payment of the demand or obligation secured by such mortgage, and the residue shall be paid to persons holding subsequent mortgages in their order, and the balance, after paying the mortgage, shall be paid to the mortgagor or persons holding under him on demand. (Emphasis supplied).

It is clear from the above provision that the effects of foreclosure under the Chattel Mortgage Law run inconsistent with those of pledge under Article 2115. Whereas, in pledge, the sale of the thing pledged extinguishes the entire principal obligation, such that the pledgor may no longer recover proceeds of the sale in excess of the amount of the principal obligation, Section 14 of the Chattel Mortgage Law expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of the principal obligation and costs. Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in case of a reduction in the price at public auction. As explained in Manila Trading and Supply Co. vs. Tamaraw Plantation Co. 17, cited inAblaza vs. Ignacio, supra: While it is true that section 3 of Act No. 1508 provides that "a chattel mortgage is a conditional sale", it further provides that it "is a conditional sale of personal property as security for the payment of a debt, or for the performance of some other obligation specified therein." The lower court overlooked the fact that the chattels included in the chattel mortgage are only given as security and not as a payment of the debt, in case of a failure of payment. The theory of the lower court would lead to the absurd conclusion that if the chattels mentioned in the mortgage, given as security, should sell for more than the amount of the indebtedness secured, that the creditor would be entitled to the full amount for which it might be sold, even though that amount was greatly in excess of the indebtedness. Such a result certainly was not contemplated by the legislature when it adopted Act No. 1508. There seems to be no reason supporting that theory under the provision of the law. The value of the chattels changes greatly from time to time, and sometimes very rapidly. If for example, the chattels should greatly increase in value and a sale under that condition should result in largely overpaying the indebtedness, and if the creditor is not permitted to retain the excess, then the same token would require the debtor to pay the deficiency in case of a reduction in the price of the chattels between the date of the contract and a breach of the condition. Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors on the question of chattel mortgages, have said, that "in case of a sale under a foreclosure of a chattel mortgage, there is no question that the mortgagee or creditor may maintain an action for the deficiency, if any should occur." And the. fact that Act No. 1508 permits a private sale, such sale is not, in fact, a satisfaction of the debt, to any greater extent than the value of the property at the time of the sale. The amount received at the time of the sale, of course, always requiring good faith and honesty in the sale, is only a payment, pro tanto, and an action may be maintained for a deficiency in the debt. We find no reason to disturb the ruling in Ablaza vs Ignacio, and the cases reiterating it. 18 Neither do We find tenable the application by analogy of Article 1484 of the Civil Code to the instant case. As correctly pointed out by the trial court, the said article applies clearly and solely to the sale of personal property the price of which is payable in installments. Although Article 1484, paragraph (3) expressly bars any further action against the purchaser to recover an unpaid balance of the price, where the vendor opts to foreclose the chattel mortgage on the thing sold, should the vendee's failure to pay cover two or more installments, this provision is specifically applicable to a sale on installments. To accommodate petitioners' prayer even on the basis of equity would be to expand the application of the provisions of Article 1484 to situations beyond its specific purview, and ignore the language and intent of the Chattel Mortgage Law. Equity, which has been aptly described as

"justice outside legality", is applied only in the absence of, and never against, statutory law or judicial rules of procedure. 19 We are also unable to find merit in petitioners' submission that the public auction sale is void on grounds of fraud and inadequacy of price. Petitioners never assailed the validity of the sale in the RTC, and only in the Court of Appeals did they attempt to prove inadequacy of price through the documents, i.e., the "Open-End Mortgage on Inventory" and inventory dated March 31, 1980, likewise attached to their Petition before this Court. Basic is the rule that parties may not bring on appeal issues that were not raised on trial. Having nonetheless examined the inventory and chattel mortgage document as part of the records, We are not convinced that they effectively prove that the mortgaged properties had a market value of at least P2,000,000.00 on January 18, 1984, the date of the foreclosure sale. At best, the chattel mortgage contract only indicates the obligation of the mortgagor to maintain the inventory at a value of at least P2,000,000.00, but does not evidence compliance therewith. The inventory, in turn, was as of March 31, 1980, or even prior to April 17, 1980, the date when the parties entered into the contracts of loan and chattel mortgage, and is far from being an accurate estimate of the market value of the properties at the time of the foreclosure sale four years thereafter. Thus, even assuming that the inventory and chattel mortgage contract were duly submitted as evidence before the trial court, it is clear that they cannot suffice to substantiate petitioners' allegation of inadequacy of price.
1wphi1.nt

Furthermore, the mere fact that respondent bank was the sole bidder for the mortgaged properties in the public sale does not warrant the conclusion that the transaction was attended with fraud. Fraud is a serious allegation that requires full and convincing evidence, 20 and may not be inferred from the lone circumstance that it was only respondent bank that bid in the sale of the foreclosed properties. The sparseness of petitioners' evidence in this regard leaves Us no discretion but to uphold the presumption of regularity in the conduct of the public sale. We likewise affirm private petitioners' joint and several liability with petitioner corporation in the loan. As found by the trial court and the Court of Appeals, the terms of the promissory note unmistakably set forth the solidary nature of private petitioners' commitment. Thus: On or before May 12, 1980, for value received, PAMECA WOOD TREATMENT PLANT, INC., a corporation organized and existing under the laws of the Philippines, with principal office at 304 El Hogar Filipina Building, San Juan, Manila, promise to pay to the order of DEVELOPMENT BANK OF THE PHILIPPINES at its office located at corner Buendia and Makati Avenues, Makati, Metro Manila, the principal sum of TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED AND EIGHTY ONE & 67/100 US DOLLARS (US$ 267,881.67) with interest at the rate of three per cent (3%) per annum over DBP's borrowing rate for these funds. Before the date of maturity, we hereby bind ourselves, jointly and severally, to make partial payments as follows: xxx xxx xxx In case of default in the payment of any installment above, we bind ourselves to pay DBP for advances . . . xxx xxx xxx We further bind ourselves to pay additional interest and penalty charges on loan amortizations or portion thereof in arrears as follows: xxx xxx xxx

In addition to the above, we also bind ourselves to pay for bank advances for insurance premiums, taxes . . . xxx xxx xxx We further bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred by DBP on the foreign currency borrowings from where the loan shall be drawn . . . xxx xxx xxx
In case of non-payment of the amount of this note or any portion of it on demand, when due, or any other amount or amounts due on account of this note, the entire obligation shall become due and demandable, and if, for the enforcement of the payment thereof, the DEVELOPMENT BANK OF THE PHILIPPINES is constrained to entrust the case to its attorneys, we jointly and severally bind ourselves to pay for attorney's fees as provided for in the mortgage contract, in addition to the legal fees and other incidental expenses. In the event of foreclosure of the mortgage securing this note, we further bind ourselves jointly and severally to pay the deficiency, if any. (Emphasis supplied) 21

The promissory note was signed by private petitioners in the following manner: PAMECA WOOD TREATMENT PLANT, INC. By: (Sgd) HERMINIO G. TEVES (For himself & as President of above-named corporation) (Sgd) HIRAM DIDAY PULIDO
(Sgd) VICTORIA V. TEVES 22

From the foregoing, it is clear that private petitioners intended to bind themselves solidarily with petitioner PAMECA in the loan. As correctly submitted by respondent bank, private petitioners are not made to answer for the corporate act of petitioner PAMECA, but are made liable because they made themselves co-makers with PAMECA under the promissory note. IN VIEW OF THE FOREGOING, the Petition is DENIED and the Decision of the Court of Appeals dated April 23, 1992 in CA G.R. CV No. 27861 is hereby AFFIRMED. Costs against petitioners. SO ORDERED. Romero, Vitug Pananganiban and Purisima, JJ., concur. Footnotes 1 Penned by Justice Lorna S. Lombos-dela Fuente, with the concurrence of Justices Salome A. Montoya and Quirino D. Abad-Santos, Jr. 2 Civil Case No. 7734, Branch 132, presided over by Judge Herminio I. Benito

3 Representing the deficiency claim of respondent bank, inclusive of interest charges, as of March 31, 1984. 4 Rollo, 47; Decision of the RTC, 4. 5 Rollo, 11; "F" of the Petition, 1. 6 Ibid., Open-End Mortgage on Inventory, Annex "G" of the Petition, 1. 7 Ibid., 69; Comment of Private Respondents, 2. 8 Ibid., 28; Decision of the Court of Appeals, 3. 9 Ibid. 10 Ibid., 28-29; Decision of the Court of Appeals, 3-4. 11 Ibid., 18-21; Petition, 13-16. 12 Ibid. 13 Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee' s failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. (Emphasis supplied) 14 Art. 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale are equal to the amount of the obligation interest and expenses in proper case. If the price of the sale is more than said amount, the debtor shall not be entitled to the excess, unless otherwise agreed. If the price of the sale is less, neither shal the creditor be entitled to recover the deficiency notwithstanding any stipulation to the contrary. (Emphasis supplied) 15 Rollo, 14-18; Petition, 9-13. 16 G.R. No. L-11466, May 23, 1958 (unpublished). 17 47 Phil. 513. 18 See Garrido vs. Tuason, 133 Phil. 717; Philippine National Bank vs. Manila Investment and Construction, Inc., 38 SCRA 462. 19 Conte vs. Commission on Audit, 264 SCRA 19; Mendiola vs. Court of Appeals, 258 SCRA 492; Causapin vs. Court of Appeals, 233 SCRA 615.

20 P.T. Cerna Corporation vs. Court of Appeals, 221 SCRA 19; Benitez vs. Intermediate Appellate Court, 154 SCRA 41; Filinvest Corporation vs. Relova, 117 SCRA 420. 21 Rollo, 29-30, 34-35; Annex "C" of the Petition; Decision of the CA, 4-5. 22 Rollo, 35 Annex "C" of the Petitions; Decision of the CA, 5.

Sale by Auction

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 125838 June 10, 2003

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and EMERALD RESORT HOTEL CORPORATION, respondents. CARPIO, J.: The Case This petition for review on certiorari1 seeks to reverse the Joint Decision2 of the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604 dated 31 January 1996 and the Resolution dated 30 July 1996 denying the motion for reconsideration. The Court of Appeals affirmed the Decision3 of the Regional Trial Court of Iriga City, Branch 36, declaring the foreclosure of the mortgaged properties void for failure to comply with the statutory requisites. The Facts Private respondent Emerald Resort Hotel Corporation ("ERHC") obtained a loan from petitioner Development Bank of the Philippines ("DBP"). DBP released the loan of P3,500,000.00 in three installments: P2,000,000.00 on 27 September 1975, P1,000,000.00 on 14 June 1976 and P500,000.00 on 14 September 1976. To secure the loan, ERHC mortgaged its personal and real properties to DBP. On 18 March 1981, DBP approved a restructuring of ERHCs loan subject to certain conditions.4 On 25 August 1981, DBP allegedly cancelled the restructuring agreement for ERHCs failure to comply with some of the material conditions5 of the agreement. Subsequently, ERHC delivered to DBP three stock certificates of ERHC aggregating 3,477,052 shares with a par value of P1.00 per share. ERHC first delivered to DBP on 20 October 1981 Stock Certificate No. 30 covering 1,862,148 shares. Then ERHC delivered on 3 November 1981 Stock Certificate No. 31 covering 691,052 shares, and on 27 November 1981 Stock Certificate No. 32 covering 923,852 shares.

On 5 June 1986, alleging that ERHC failed to pay its loan, DBP filed with the Office of the Sheriff, Regional Trial Court of Iriga City, an Application for Extra-judicial Foreclosure of Real Estate and Chattel Mortgages. Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon issued the required notices of public auction sale of the personal and real properties. However, Sheriffs Ramos and Galeon failed to execute the corresponding certificates of posting of the notices. On 10 July 1986, the auction sale of the personal properties proceeded. The Office of the Sheriff scheduled on 12 August 1986 the public auction sale of the real properties. The Bicol Tribune published on 18 July 1986, 25 July 1986 and 1 August 1986 the notice of auction sale of the real properties. However, the Office of the Sheriff postponed the auction sale on 12 August 1986 to 11 September 1986 at the request of ERHC. DBP did not republish the notice of the rescheduled auction sale because DBP and ERHC signed an agreement to postpone the 12 August 1986 auction sale.6 ERHC, however, disputes the authority of Jaime Nuevas who signed the agreement for ERHC. In a letter dated 24 November 1986, ERHC informed DBP of its intention to lease the foreclosed properties.7 On 22 December 1986, ERHC filed with the Regional Trial Court of Iriga City a complaint for annulment of the foreclosure sale of the personal and real properties. Subsequently, ERHC filed a Supplemental Complaint. ERHC alleged that the foreclosure was void mainly because (1) DBP failed to comply with the procedural requirements prescribed by law; and (2) the foreclosure was premature. ERHC maintained that the loan was not yet due and demandable because the DBP had restructured the loan. DBP moved to dismiss the complaint because it stated no cause of action and ERHC had waived the alleged procedural defenses. The trial court denied the motion to dismiss. Consequently, DBP filed its answer, claiming that it complied with the legal requirements for a valid foreclosure. DBP further claimed that it cancelled the conditional restructuring of ERHCs loan because ERHC failed to comply with some material conditions of the restructuring agreement. Meanwhile, acting on ERHCs application for the issuance of a writ of preliminary injunction, the trial court granted the writ on 20 August 1990. Accordingly, the trial court enjoined DBP from enforcing the legal effects of the foreclosure of both the chattel and real estate mortgages. Thereafter, trial on the merits ensued. After the parties presented their evidence, the trial court rendered a Decision8 dated 28 January 1992, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff corporation and against the defendants: 1. Declaring as null and void the foreclosure and auction sale of the personal properties of plaintiff corporation held on July 10, 1986; 2. Declaring as null and void the foreclosure and auction sale of the real properties of plaintiff corporation covered by TCT No. RT-1075 (19980); TCT No. RT-1076 (19981); TCT No. RT-1077 (22367) and TCT No. 10244 of the Register of Deeds of Camarines Sur (now Iriga City) in the auction sale thereof held on September 11, 1986, and all the improvements therein; 3. Ordering the Register of Deeds of Camarines Sur (now Iriga City) to cancel the annotations of the Sheriffs Certificate of Sale on the aforestated titles as null and void and without any legal effect;

4. Ordering the defendant Development Bank of the Philippines to comply with the restructuring of plaintiff corporations loans retroactively as though the foreclosure had not taken place in the interest of justice and equity; and 5. Ordering the defendant DBP to pay plaintiff corporation moral damages in the amount of P500,000.00 for initiating what was a clearly illegal foreclosure and causing the said plaintiff corporation to suffer needlessly anguish, opprobrium and disrepute as a consequence thereto. SO ORDERED. Both ERHC and DBP appealed the trial courts decision to the Court of Appeals. ERHC anchored its appeal on the insufficiency of the moral damages awarded by the trial court and the absence of any award of temperate, nominal or exemplary damages. DBPs appeal, on the other hand, assailed the decision as well as the order dismissing its petition for a writ of possession. The Court of Appeals, which consolidated the appeals, affirmed the decision of the trial court.9 DBP filed a Motion for Reconsideration which the Court of Appeals denied.10 Hence, this petition. The Ruling of the Court of Appeals The Court of Appeals sustained the trial courts ruling that the foreclosure was void. The Court of Appeals affirmed the trial courts finding that DBP failed to comply with the posting and publication requirements under the applicable laws. The Court of Appeals held that the nonexecution of the certificate of posting of the notices of auction sale and the non-republication of the notice of the rescheduled 11 September 1986 auction sale invalidated the foreclosure. The Court of Appeals also found that the parties perfected the restructuring agreement and that ERHC substantially complied with its conditions based on the following "circumstances": (a) The transmittal letter dated October 20, 1981 which relates to the progress of the restructuring of the mortgage account of Emerald Resort Hotel Corporation and that the same has been approved by the SEC (Exh. "D") (b) The transfer of shares of stocks to appellant DBP, the value of which are broken as follows: 1. Stock certificate No. 30 for 1,862,148 shares worth P1,862,148.00 (Exhs. "D" and "D-1"); 2. Stock certificate No. 32 for 932,852 shares worth P953,852.00 (Exhs. "F" and "F-1"); 3. Stock certificate No. 031, for 691,052 shares worth P691,052.00 (Exhs. "M" and "M-5"). (c) The acceptance of the foregoing by the DBP without raising the fact of delay as embodied in condition no. 7 of Exh. "B". (d) No rejection was made by the defendant-appellant DBP at the time the shares of stocks were being held by the latter.

(e) The belated rejection of the shares of stocks was interposed only at the time the instant suit was filed which was long after the expiration of the 90-day period extended by DBP to Emerald. (f) No rejection was also made when plaintiff corporation did not avail of the additional loan which was allegedly part of the package accommodation.11 The Court of Appeals also affirmed the trial courts award of moral damages but denied ERHCs claim for temperate and exemplary damages. The Court of Appeals found that DBPs intrusion, assisted by sheriffs and several armed men, into Hotel Ibalon and the sheriffs inventory of the hotels furniture and fixtures caused fear and anxiety to the hotel owner, staff and guests. These acts, according to the Court of Appeals, debased the hotels goodwill and undermined its viability warranting the award of moral damages. Finding the foreclosure void, the Court of Appeals also denied DBPs petition for a deficiency claim and a writ of possession. The Issues DBP presents the following issues for resolution: 1. Whether DBP complied with the posting and publication requirements under applicable laws for a valid foreclosure. 2. Whether the restructuring agreement between DBP and ERHC was perfected and implemented by the parties before the foreclosure. 3. Whether ERHCs offer to lease the foreclosed properties constitutes a waiver of its right to question the validity of the foreclosure. 4. Whether the award of moral damages to ERHC, a juridical person, is proper. The Courts Ruling The petition is partly meritorious. First Issue: Compliance with the posting and publication requirements under applicable laws Posting requirement under Acts Nos. 3135 and 1508 In alleging that the foreclosure was valid, DBP maintains that it complied with the mandatory posting requirement under applicable laws.12 DBP insists that the non-execution of the certificate of posting of the auction sale notices did not invalidate the foreclosure. We agree. This Court ruled in Cristobal v. Court of Appeals13 that a certificate of posting is not required, much less considered indispensable for the validity of an extrajudicial foreclosure sale of real property under Act No. 3135. Cristobal merely reiterated the doctrine laid down in Bohanan v. Court of Appeals.14 In the present case, the foreclosing sheriffs failed to execute the certificate of posting of the auction sale notices. However, this fact alone does not prove that the sheriffs failed to post the required notices. As held in Bohanan, "the fact alone that there is no certificate of posting attached to the sheriff's records is not sufficient to prove the lack of posting."15

Based on the records, DBP presented sufficient evidence to prove that the sheriffs posted the notices of the extrajudicial sale. The trial and appellate courts glaringly erred and gravely abused its discretion in disregarding the sheriffs partial report and the sheriffs certificate of sale executed after the auction sale. A careful examination of these two documents clearly shows that the foreclosing sheriffs posted the required notices of sale. The partial report dated 10 July 1986 signed by both Sheriff Abel Ramos and Deputy Sheriff Ruperto Galeon states in part: That on July 1, 1986, the undersigned sheriffs posted the notice of public auction sale of chattel mortgage in the conspicuous places, and at the Iriga City Hall Bulletin Board, including Ibalon Hotel, Iriga City xxx.16 (Emphasis supplied) Similarly, the certificate of sale of the real properties signed by both Sheriff Ramos and Deputy Sheriff Galeon on 11 September 1986 states in part: I, FURTHERMORE CERTIFY that the Notice of Sale was published in BICOL TRIBUNE, a newspaper of general circulation in the province of Camarines Sur, for three (3) consecutive weeks and three (3) copies of the notices of sale were posted in three (3) public places of the City where the properties are located for no less than twenty (20) days before the sale. 17 (Emphasis supplied) Deputy Sheriff Galeon also testified that he, together with Sheriff Ramos,18 actually posted the notices of sale.19Indisputably, there is clear and convincing evidence of the posting of the notices of sale. What the law requires is the posting of the notice of sale, which is present in this case, and not the execution of the certificate of posting. Moreover, ERHC bore the burden of presenting evidence that the sheriffs failed to post the notices of sale.20 In the absence of contrary evidence, as in this case, the presumption prevails that the sheriffs performed their official duty of posting the notices of sale. Consequently, we hold that the non-execution of the certificate of posting cannot nullify the foreclosure of the chattel and real estate mortgages in the instant case. Publication requirement under Act No. 3135 Having shown that there was posting of the notices of auction sale, we shall now resolve whether there waspublication of the notice of sale of the real properties in compliance with Act No. 3135.21 There is no question that DBP published the notice of auction sale scheduled on 12 August 1986. However, no auction sale took place on 12 August 1986 because DBP, at the instance of ERHC, agreed to postpone the same to 11 September 1986. DBP contends that the agreement to postpone dispensed with the need to publish again the notice of auction sale. Thus, DBP did not anymore publish the notice of the 11 September 1986 auction sale. DBP insists that the law does not require republication of the notice of a rescheduled auction sale. Consequently, DBP argues vigorously that the extrajudicial foreclosure of the real estate mortgage is valid. We do not agree. The Court held recently in Ouano v. Court of Appeals22 that republication in the manner prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale. Another publication is required in case the auction sale is rescheduled, and the absence of such republication invalidates the foreclosure sale. The Court also ruled in Ouano that the parties have no right to waive the publication requirement in Act No. 3135. The Court declared thus:

Petitioner further contends that republication may be waived voluntarily by the parties. This argument has no basis in law. The issue of whether republication may be waived is not novel, as we have passed upon the same query in Philippine National Bank v. Nepomuceno Productions Inc. Petitioner therein sought extrajudicial foreclosure of respondents mortgaged properties with the Sheriffs Office of Pasig, Rizal. Initially scheduled on August 12, 1976, the auction sale was rescheduled several times without republication of the notice of sale, as stipulated in their Agreements to Postpone Sale. Finally, the auction sale proceeded on December 20, 1976, with petitioner as the highest bidder. Aggrieved, respondents sued to nullify the foreclosure sale. The trial court declared the sale void for non-compliance with Act No. 3135. This decision was affirmed in toto by the Court of Appeals. Upholding the conclusions of the trial and appellate courts, we held: Petitioner and respondents have absolutely no right to waive the posting and publication requirements of Act No. 3135. xxx Publication, therefore, is required to give the foreclosure sale a reasonably wide publicity such that those interested might attend the public sale. To allow the parties to waive this jurisdictional requirement would result in converting into a private sale what ought to be a public auction. DBP further asserts that Section 24, Rule 39 of the Rules of Court, which allows adjournment of execution sales by agreement of the parties, applies to the present case. Section 24 of Rule 39 provides: Sec. 24. Adjournment of Sale By written consent of debtor and creditor, the officer may adjourn any sale upon execution to any date agreed upon in writing by the parties. Without such agreement, he may adjourn the sale from day to day, if it becomes necessary to do so for lack of time to complete the sale on the day fixed in the notice. The Court ruled in Ouano that Section 24 of Rule 39 does not apply to extrajudicial foreclosure sales, thus: Petitioner submits that the language of the abovecited provision23 implies that the written request of the parties suffices to authorize the sheriff to reset the sale without republication or reposting. At the outset, distinction should be made of the three different kinds of sales under the law, namely: an ordinary execution sale, a judicial foreclosure sale, and an extrajudicial foreclosure sale. An ordinary execution sale is governed by the pertinent provisions of Rule 39 of the Rules of Court. Rule 68 of the Rules of Court applies in cases of judicial foreclosure sale. On the other hand, Act No. 3135, as amended by Act No. 4118 otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages" applies in cases of extrajudicial foreclosure sale. A different set of law applies to each class of sale mentioned. The cited provision in the Rules of Court hence does not apply to an extrajudicial foreclosure sale. (Emphasis supplied) DBP also maintains that ERHCs act of requesting postponement of the 12 August 1986 auction sale estops ERHC from challenging the absence of publication of the notice of the rescheduled auction sale. We do not agree.

ERHC indeed requested postponement of the auction sale scheduled on 12 August 1986.24 However, the records are bereft of any evidence that ERHC requested the postponement without need of republication of the notice of sale. In Philippine National Bank v. Nepomuceno Productions Inc.,25 the Court held that: x x x To request postponement of the sale is one thing; to request it without need of compliance with the statutory requirements is another. Respondents, therefore, did not commit any act that would have estopped them from questioning the validity of the foreclosure sale for non-compliance with Act No. 3135. x x x The form of the notice of extrajudicial sale is now prescribed in Circular No. 7-200226 issued by the Office of the Court Administrator on 22 January 2002. Section 4(a) of Circular No. 7-2002 provides that: Sec. 4. The Sheriff to whom the application for extra-judicial foreclosure of mortgage was raffled shall do the following: a. Prepare a Notice of Extra-judicial Sale using the following form: "NOTICE OF EXTRA-JUDICIAL SALE" "Upon extra-judicial petition for sale under Act 3135/1508 filed _________ against (name and address of Mortgagor/s) to satisfy the mortgage indebtedness which as of ___________ amounts to P __________ excluding penalties, charges, attorneys fees and expenses of foreclosure, the undersigned or his duly authorized deputy will sell at public auction on (date of sale) ________ at 10:00 A.M. or soon thereafter at the main entrance of the ________ (place of sale) to the highest bidder, for cash or managers check and in Philippine Currency, the following property with all its improvements, to wit: "(Description of Property") "All sealed bids must be submitted to the undersigned on the above stated time and date." "In the event the public auction should not take place on the said date, it shall be held on___________,______ without further notice." __________ (date) "SHERIFF" (Emphasis supplied) The last paragraph of the prescribed notice of sale allows the holding of a rescheduled auction sale without reposting or republication of the notice. However, the rescheduled auction sale will only be valid if the rescheduled date of auction is clearly specified in the prior notice of sale. The absence of this information in the prior notice of sale will render the rescheduled auction sale void for lack of reposting or republication. If the notice of auction sale contains this particular information, whether or not the parties agreed to such rescheduled date, there is no more need for the reposting or republication of the notice of the rescheduled auction sale. The Office of the Court Administrator issued Circular No. 7-2002 pursuant to the 14 December 1999 Resolution of this Court in A.M. No. 99-10-05-0, as amended by the Resolutions of 30 January 2001 and 7 August 2001. The Court issued these Resolutions for two reasons. First, the Court seeks to minimize the expenses which the mortgagee incurs in publishing the notice of extrajudicial sale. With the added information in the notice of sale, the mortgagee need

not cause the reposting and republication of the notice of the rescheduled auction sale. There is no violation of the notice requirements under Acts Nos. 3135 and 1508 precisely because the interested parties as well as the public are informed of the schedule of the next auction sale, if the first auction sale does not proceed. Therefore, the purpose of a notice of sale, which is to notify the mortgagor and the public of the foreclosure sale, is satisfied. Second, the Court hopes to deter the practice of some mortgagors in requesting postponement of the auction sale of real properties, then later attacking the validity of the foreclosure for lack of republication. This practice will only force mortgagees to deny outright requests for postponement by mortgagors since it will only mean added publication expense on the part of mortgagees. Such development will eventually work against mortgagors because mortgagees will hesitate to grant postponements to mortgagors. In the instant case, there is no information in the notice of auction sale of any date of a rescheduled auction sale. Even if such information were stated in the notice of sale, the reposting and republication of the notice of sale would still be necessary because Circular No. 7-2002 took effect only on 22 April 2002. There were no such guidelines in effect during the questioned foreclosure. Clearly, DBP failed to comply with the publication requirement under Act No. 3135. There was no publication of the notice of the rescheduled auction sale of the real properties. Therefore, the extrajudicial foreclosure of the real estate mortgage is void. DBP, however, complied with the mandatory posting of the notices of the auction sale of the personal properties. Under the Chattel Mortgage Law,27 the only requirement is posting of the notice of auction sale. There was no postponement of the auction sale of the personal properties and the foreclosure took place as scheduled. Thus, the extrajudicial foreclosure of the chattel mortgage in the instant case suffers from no procedural infirmity. Second Issue: Perfection and implementation of the restructuring agreement between DBP and ERHC ERHC consistently argues that its restructuring agreement with DBP was perfected and even implemented by the parties. ERHC maintains that the delivery of its certificates of stocks to DBP was part of its compliance with the conditions of the restructuring agreement. We do not agree. Contrary to ERHCs allegations and the Court of Appeals findings, the restructuring agreement was never perfected. ERHC failed to comply with the material conditions for the perfection of the restructuring agreement. As specified in DBP Resolution No. 956 dated 19 March 198128 approving the restructuring agreement, the following are the conditions for the restructuring agreement: RESOLUTION NO. 956. Emerald Resort Hotel Corporation (Hotel Ibalon) Conversion Into Common and/or Preferred Shares of P2,786,000.00 Representing 40% of the Total Outstanding Obligations; a Third Additional Loan of P679,000.00 and Restructuring of the Account. xxx In view thereof and as favorably recommended by the Manager of the Industrial Projects Department III in her memorandum dated February 24, 1981, the Board, upon motion made and duly seconded, APPROVED in favor of Emerald Resort Hotel Corporation (Hotel Ibalon) the following:

1. Immediate conversion into common and/or preferred shares at borrowers option, of P2,786,000.00 representing 40% of the total outstanding obligation as of May 15, 1980, in the reduced amount of P6,965,000.00 composed of outstanding principal balance of P3,500,000.00 and total arrearages on interest and other charges of P3,465,000.00, the conversion price to be equal to the par value of the shares; 2. A third additional loan of Six Hundred Seventy-Nine Thousand Pesos (P679,000.00), payable quarterly under the same restructured terms of the original and two (2) additional loans, at 18% interest per annum; and 3. Restructuring of the firms total outstanding principal obligation of P3,500,000.00 in the form of extension of grace period on principal repayment from two (2) years to nine (9) years to make a maximum loan term of nineteen (19) years, regular amortizations to commence three (3) months after the end of the extended grace period on October 31, 1985 and payable quarterly at the following interest rates: Original Loan 1st Additional Loan Total subject to the following terms and conditions: A. For the P679,000.00 Additional Loan a. That subject-firm shall first pay the amount of P473.00 to reduce its total arrearages on interest and other charges of P3,465,473.00 as of May 15, 1980 to P3,465,000.00; and b. That the proceeds of this additional loan shall be applied to subject-firms accrued interest and other charges due DBP as of May 15, 1980 not otherwise covered by the proposed equity conversion of P2,786,000.00. B. For Both Additional Loan and Restructuring a. That a quasi-reorganization shall first be undertaken for the purpose of eliminating existing deficits, which should be formally authorized by the stockholders of the corporation, should comply with legal requirements, and should be approved by the Securities and Exchange Commission which sees to it that the rights of creditors are not prejudiced. xxx e. That subject-firm shall apply with SEC for an amendment of its authorized capitalization to include preferred shares in case immediate conversion into equity of 40% of the total outstanding obligation as of May 15, 1980 will include preferred shares. P1,425,800 at 16% interest per annum 574,200 at 18% interest per annum 1,000,000 at 18% interest per annum 500,000 at 18% interest per annum P3,500,000

xxx (Emphasis supplied) A careful review of the facts and the evidence presented by the parties discloses that ERHC failed to comply with the terms and conditions set forth in DBP Resolution No. 956. First, ERHC failed to comply with the important condition of converting into equity 40 percent of its outstanding debt to DBP. ERHC did not present any evidence to show that it complied with this particular requirement. While it is true that ERHC delivered to DBP certificates of stocks, it was to comply with ERHCs commitment under theoriginal mortgage contracts.29 ERHC committed to pledge or assign to DBP at least 67 percent of its outstanding shares to secure the original loan accommodation. The original mortgage contracts contain the following condition: xxx c. By an assignment to the Mortgagee of not less than 67% of the total subscribed and outstanding voting shares of the company. The said percentages of shares assigned shall be maintained at all times and the said assignment to subsist for as long as the Assignee may deem necessary during the existence of the Mortgagees approved accommodation. xxx30 On 17 April 1985, DBP informed ERHC that it had not complied with the condition in the original mortgage contract on the assignment of 67 percent of its outstanding shares to DBP. The letter of DBP states in part: 2. The condition requiring ERHC to assign in favor of DBP at least 67% of the subscribed and outstanding voting shares of company has not been met. Of the 4,917,500 outstanding voting shares as of December 31, 1982, only 911,800 shares have been assigned instead of 3,294,725 (67% of 4,917,000), more of the outstanding voting shares have increased.31 The deficiency of 2,382,925 shares (3,294,725 - 911,800) may however be covered by the 2,786,000 shares you transferred in the name of DBP as an alternative compliance with 65% requirement. (Emphasis supplied) In its reply letter dated 11 June 1985 to DBP, ERHC signified its readiness to assign 67 percent of its outstanding shares to DBP. Thus, ERHCs reply letter, signed by its President Atty. Jose C. Reyes, states in part: With reference to your letter dated 17 April 1985 which could not be seasonably acted upon on account of my absence from the country for medical reasons, I am pleased to inform your goodself of the action taken on the various items thereon enumerated, to wit: 1. x x x 2. Assignment of 67% of outstanding voting shares. We are ready to bring up the assigned shares in favor of DBP to 67% of the corporations outstanding voting shares of 4,917,500 as of December 31, 1982 or total of 3,294,725 shares. The corporation will maintain its previous assignment of 911,800 shares. Moreover, the corporation is agreeable that Stock Certificate No. 030 for 1,862,148 shares which had been transferred to DBP be considered as an alternative compliance to

the raising of DBPs assigned shares to the full 67% or 3,294,725 shares. Your formal conformity to this arrangement is likewise requested. Finally, the corporation will further assign to DBP another 520,777 shares in exchange of Stock Certificate No. 032 for 923,852 shares which was transferred to DBP conditionally. This Stock Certificate has to be surrendered to the corporation for cancellation before we can issue by way of further assignment the 520,777 shares. In short, the 3 blocks of shares mentioned above would result as follows: 1. 2. 3. Total 911,800 shares 1,862,148 shares 520,777 shares 3,294,725 shares of 67% outstanding voting shares

x x x. 32 Clearly, when ERHC delivered the certificates of stocks, it was to comply with ERHCs commitment under theoriginal mortgage contracts, not the restructuring agreement. Besides, there is a vast difference between an assignment of shares to DBP by existing stockholders and conversion of DBPs loan into equity of ERHC. In the first, the paid-up capital of ERHC remains the same. In the latter, the paid-up capital of ERHC, as well as its liabilities, changes in that the liabilities are transferred to the capital account to the extent of the conversion. The latter case, which is the conversion of debt into equity required under the restructuring agreement, never happened. The delivery to DBP of stock certificates representing 3,294,725 ERHC shares did not reduce the liabilities of ERHC. The reason for the requirement to convert P2,786,000.00 in liabilities of ERHC into equity was to reduce ERHCs debt to equity ratio, which the assignment and delivery of the stock certificates did not and could not have achieved. Second, ERHC did not avail of the P679,000.00 additional loan, despite this being a material condition of the restructuring agreement. ERHC could not simply refuse to avail of the additional loan because the proceeds of this loan were to pay the balance of ERHCs accrued interest and other charges due DBP as of 15 May 1980. Clearly, ERHCs refusal to avail of the additional loan, intended to up-date ERHCs loan account, prevented the perfection of the restructuring agreement. Lastly, ERHC failed to comply with the quasi-reorganization requirement, as clearly admitted in ERHCs letter dated 3 November 1982 to DBP, thus: 3. On July 31, 1981, we once more communicated with your Naga Branch advising of the Emerald Resort Hotel Corporations Stockholders Resolution approving the quasireorganization and the Petition filed with the Securities and Exchange Commission requesting approval of the corporations resolution on quasi-reorganization and the transfer of 1,862,148 shares in favor of the DBP, copy whereof is attached as Annex "C"; 4. On September 7, 1981, we received by personal delivery a letter from Manager Mario C. Leao, copy whereof is attached as Annex "D". In our conversation had on this occasion, I reiterated our request in our letter dated 19 June 1981 that in view of the circumstances affecting our papers in the Securities and Exchange Commission there was need to extend our period of compliance. xxx

It will thus be noted from the foregoing communications that we have exerted our utmost best to comply with the conditions for the re-structuring of our loan accounts and all have been complied, with the exception of the quasireorganization, for reasons beyond our legal control since it is the SEC that passes upon the question as to whether or not we meet the SEC guidelines for a quasi-reorganization. Unfortunately, for the reasons stated in Annex "H" and the enclosures thereto, the SEC felt that ERHC was not within their guidelines for a quasi-reorganization.33 (Emphasis supplied) The quasi-reorganization is required specifically to eliminate ERHCs existing deficits. However, the SEC must first approve the quasi-reorganization which approval ERHC admittedly failed to secure. Through no fault of DBP, SEC disapproved ERHCs application for quasi-reorganization. Considering that ERHC failed to comply with the material conditions of the restructuring agreement, the agreement was never implemented or even perfected. The perfection and implementation of the restructuring agreement were expressly subject to the following conditions embodied in DBP Resolution No. 956 and in DBPs notice of approval to ERHC, respectively: t. x x x Implementation of the restructuring scheme as approved shall take effect upon compliance with the terms and conditions and with all the legal and documentation requirements;34 xxx xxx xxx

7. All documents for this loan approval shall be executed and perfected within 90 days from the date of this notice; otherwise, this accommodation shall be automatically cancelled.35 The trial and appellate courts gravely misapprehended the facts and made manifestly mistaken inferences in finding that the parties had perfected the restructuring agreement. Consequently, when DBP filed the application for extrajudicial foreclosure of the chattel and real estate mortgages, ERHC was already in default in paying its debt to DBP. Third Issue: ERHCs offer to lease the foreclosed properties ERHC offered to lease from DBP the foreclosed properties after the auction sale. DBP argues that when ERHC offered to lease from DBP the foreclosed properties, ERHC waived its right to question the validity of the foreclosure. We do not agree. To constitute a waiver, the intent to waive must be shown clearly and convincingly.36 A mere offer to lease the foreclosed properties cannot constitute a waiver of ERHCs right to contest the validity of the foreclosure on the ground of non-compliance with the statutory requisites. ERHCs offer to lease does not relinquish ERHCs right to challenge the validity of the foreclosure. The offer to lease the foreclosed properties cannot validate or ratify a void foreclosure. ERHCs intention to lease the foreclosed properties cannot simply outweigh DBPs failure to comply with the statutory requisite for a valid extrajudicial foreclosure. As the Court of Appeals correctly ruled, "there can be no waiver of the posting and publication requirements in foreclosure proceedings because the same is contrary to law and public order." Fourth Issue: Award of moral damages

DBP maintains that ERHC, a juridical person, is not entitled to moral damages. ERHC counters that its reputation was debased when the sheriffs and several armed men intruded into Hotel Ibalons premises and inventoried the furniture and fixtures in the hotel. The Court of Appeals erred in awarding moral damages to ERHC. The Court of Appeals sole basis for its ruling is a quoted portion of the testimony of ERHCs President, Atty. Jose Reyes. The testimony was not even offered to prove the justification and amount of damages which ERHC claims against DBP. In other words, ERHC failed to present evidence to warrant the award of moral damages. In a long line of decisions, this Court has held that the claimant for moral damages must present concrete proof to justify its award, thus: xxx while no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity being left to the discretion of the court (Art. 2216), it is, nevertheless, essential that the claimant satisfactorily prove the existence of the factual basis of the damage (Art. 2217) and its causal relation to defendants acts. This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.37 (Emphasis supplied) In the body of its decision, the trial court gave no basis to justify the award of moral damages. The trial court simply awarded moral damages in the dispositive portion of its decision.38 Moreover, as a general rule, moral damages are not awarded to a corporation, thus: The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only be one having a nervous system. The statement in People v. Manero and Mambulao Lumber Co. v. PNB that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is anobiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.39 WHEREFORE, the Joint Decision of the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604 is AFFIRMED withMODIFICATION. The extrajudicial foreclosure of the chattel mortgage is valid whereas the extrajudicial foreclosure of the real estate mortgage is void. The award of moral damages is deleted for lack of basis. No costs. SO ORDERED. Davide, Jr., C.J., Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

ACCEPTANCE
Republic of the Philippines SUPREME COURT Manila EN BANC DECISION March 30, 1916

G.R. No. L-8988 HARTFORD BEAUMONT, assignee of W. Borck, plaintiff-appellee, vs. MAURO PRIETO, BENITO LEGARDA, JR., and BENITO VALDES as administrator of the estate of Benito Legarda, deceased, and BENITO VALDES, defendants and appellants. (See U.S. Supreme Court decision in this same case., p. 985, post. Hausserman, Cohn & Fisher (and subsequently) Gilbert, Cohn & Fisher, and Escaler & Salas and Ledesma, Lim & Irurreta Goyena for appellants Legarda and Valdes. No appearance for the other appellants. , J.: Negotiations having been had, prior to December 4, 1911, between W. Borck and Benito Valdes, relative to the purchase, at first, of a part of the Nagtajan Hacienda, situated in the district of Sampaloc of this city of Manila and belonging to Benito Legarda, and later on, of the entire hacienda, said Benito Valdes, on the date above-mentioned, addressed to said Borck the following letter (Exhibit E): MANILA, December 4, 1911. Mr. W. BORCK, Real Estate Agent, Manila, P.I. SIR: In compliance with your request I herewith give you an option for three months to buy the property of Mr. Benito Legarda known as the Nagtahan Hacienda, situated in the district of Sampaloc, Manila, and consisting of about, 1,993,000 sq. meters of land, for the price of its assessed government valuation. B. VALDES. Subsequent to the said date, W. Borck addressed to Benito Valdes several letters relative to the purchase and sale of the hacienda, and as he did not obtain what he expected or believe he was entitled to obtain from Valdes, he filed the complaint that originated these proceedings, which was amended on the 10th of the following month, April, by bringing his action not only against Benito Valdes but also against Benito Legarda, referred to in the letter above quoted. In said amended complaint it is alleged that the defendant Benito Legarda was the owners of fee simple of the Nagtajan Hacienda, and that Benito Valdes was his attorney in fact and had acted as such on the occasions reffered to in the complaint by virtue of a power of attorney duly executed under notarial seal and presented in the office of the register of deeds, a copy of which, marked as Exhibit A, was attached to the complaint; that on or above December 4, 1911, the defendant Benito Valdez gave to the plaintiff the document written and signed by him, Valdes, quoted at the beginning of this decision, to wit, the letter afore-mentioned, which document is inserted in the amendment to the complaint; that on January 19, 1912, while the offer or option mentioned in said document still stood, the plaintiff in writing accepted the terms of said offer and requested of Valdes to be allowed to inspect the property, titles and other documents pertaining to the property,

and offered to pay to the defendant, immediately and in cash as soon as a reasonable examination could be made of said property titles and other documents, the price stipulated in the contract for said hacienda which is also described in the complaint, as well as its value and the revenue annually obtainable therefrom; that, in spite of the frequent demands made by the plaintiff, the defendants ha persistently refused to deliver to him the property titles and other documents relative to said property and to execute any instrument of conveyance thereof in his favor; that the plaintiff, on account of said refusal on the part of the defendant Valdes, based on instructions from the defendant Legarda, had suffered damages in the amount of P760,000, and, by the tardiness, failure and refusal of the defend to comply with his obligation, the plaintiff had incurred great expense and suffered great losses, whereby he was prejudiced in the mount of P80,000; that the plaintiff was and had been, on all occasions, willing to comply with the obligation imposed upon him to pay to the defendants the full stipulated price. The plaintiff concluded by praying: (1) That the defendant Valdes be ordered to execute the necessary formal document as proof of the contract or obligation before referred to, and to incorporate the same in a public instrument, and that the defendant Legarda be ordered to convey in absolute sale to the plaintiff, either directly or through the defendant Valdes, by a property deed, the said Nagtajan Hacienda, described in the complaint; (2) that both defendants and each of them be ordered and required to render an account to the plaintiff of such rents and profits as they may have collected from the said property from the 19th of January, 1912, until the date of the execution of the judgment that may be rendered in these proceedings, together with legal interest on the amounts thereof; (3) that, in case it can shown that specific performance of the contract is impossible, that the defendant be ordered to pay the plaintiff damages in the sum of P760,000; and finally, that the plaintiff have recovered the interests and the costs in these proceedings. While this complaint was not yet amended, the defendant Valdes filed a demurer, on the grounds that there was a misjoinder of parties on account of the erroneous inclusion therein of the defendant Valdes, that the complaint did not set forth fact that constituted a cause of action against said defendant, and that it was ambiguous, unintelligible and vague. This demurrer was overruled on April 11, 1912. The defendant Benito Legarda also interposed a demurrer to the amended complaint on the grounds that the facts therein set forth did not constitute a right of action against him. This demurrer was likewise overruled on June 26, 1912. On the 22nd of the same month of June, the court, ruling on a petition made in voluntary insolvency proceedings brought on May 10, 1912, by the plaintiff W. Borck, and in view of the agreement entered into in said proceedings by all of the latters creditors, ordered that the plaintiff Borck be substituted in the instant proceedings by Hartford Beaumont, as the trustee appointed therein and representative of the said plaintiffs creditors, the assignee of his rights, in said proceedings. The defendant Benito Valdes, answering the complaint as amended, denied each and all of the allegations thereof from paragraph 4, except those which the admitted in the special defense, in which he alleged: (1) That the option given by him to the plaintiff was an option without consideration and subject to the approval of the defendant Legarda; (2) that, as the defendant Legarda has not approved said option, it had no value whatever, according to the understanding

and agreement between himself and the plaintiff; (3) that the option offered by him to the plaintiff had not been accepted by the latter within a reasonable period of time nor during the time it was in force, in accordance with the conditions agreed upon between the parties; (4) that he sighed the letter of December 4, in which he tendered to the plaintiff the option which has given rise to this suit, through deceit employed by the plaintiff with respect to its contents, for the plaintiff had stated to him that it was written in accordance with what had been agreed upon by both parties, without which statement he would not have signed it; (5) that the plaintiff, on the prior to January 19, 1912, was insolvent, and had neither proven his solvency nor offered to pay the price in cash, as he had agreed to do; and (6) that he, Valdes, was merely a general attorney in fact of the defendant Benito Legarda and had no interest whatever in the subject-matter of the suit, nor in the litigation, and in all his acts had carried out the instructions of the said Legarda. He finally prayed that the complaint be dismissed with costs against the plaintiff. The defendant Benito Legarda, answering the complaint, denied each and all of the allegations thereof, from paragraph 3, except such as he expressly admitted and were contained in the special defense inserted in said answer, in which he alleged: (1) That his codefendant Benito Valdes, though his attorney-in-fact, had instructions not to give any option on the hacienda in question without Legardas previous knowledge and consent; (2) that on and before December 4, 1911, the plaintiff had knowledge of the scope and limitations of the powers conferred upon the defendant Valdes; (3) that the latter gave the option, alleged by the plaintiff, without his (Legardas) knowledge or consent, thus violating the instructions he had given to the said Valdes; (4) that he had disapproved and rejected the option in question as soon as he had learned of it; (5) that he had been informed, and therefore alleged as true, that the option said to have been executed in behalf of the plaintiff had been obtained by the latter by a false and malicious interruption of the letter of December 4, 1911, and that the plaintiff, availing himself of such interpretation, induced the defendant Valdes to sign the said option; (6) that the option said to have been tendered to the plaintiff had not been legally accepted; and (7) that on the subsequently to January 19, 1912, the date on which, according to the plaintiff, a tender of payment of the price of the Nagtajan Hacienda, in accordance with its assessed value, was made to his codefendant Valdes, as well as to the date of the answer, the plaintiff was insolvent. After the hearing, in which the respective parties presented their evidence, the Court of First Instance of this city of Manila, on February 12, 1912, rendered judgment in which he found; (1) That the instrument Exhibit E that is, the letter of December 4, 1911, quoted at the beginning of this decision), as supported by Exhibit A (the power of attorney, a copy of which accompanied the complaint) and as confirmed by Exhibit G (the letter of January 19, 1912, addressed by the plaintiff Borck to the defendant Valdes, presented in evidence at the trial and of which mention will be made elsewhere herein), constituted a contract by which the principal defendant undertook to convey to the plaintiff the property therein described; (2) that the plaintiff made a sufficient tender of performance, of his part, of the contract, in accordance with section 347 of the Code of Civil Procedure; (3) that the defendants had failed to execute such conveyance in accordance with said contract, and that the plaintiff was entitled to the specific performance thereof, and to the net income, if any, obtained from the land since January 19, 1912, but that he had not shown sufficient loss which entitle him to additional damage unless it subsequently should appear that a conveyance could not be made. The court accordingly decreed: (1) That upon the payment by the

plaintiff to the principal defendant, Benito Legarda, or to the clerk of the court, of the sum of P307,000, the said defendant, or his codefendant and attorney-in-fact, should execute and deliver to the plaintiff good and sufficient conveyance, free of all incumbrance, of the property described in Exhibits B and C, attached to the plaintiffs complaint, so far as the same was included within the terms of Exhibit G; (2) that upon the said defendants failure to execute such conveyance within a reasonable time after such payment, the clear of the court should execute one, and the same together with the decree, should constitute a true conveyance; (3) that if for any sufficient reason such conveyance could not then be made, the plaintiff should have and recover from the defendant Legarda, as alternative damages, the sum of P73,000, with interest thereon at 6 per cent per annum from March 13, 1912; and (4) that the defendants should render an accounting, within thirty days, of the income and profits derived from said property since January 19, 1912, and pay the costs of the proceedings. The parties having being notified of this judgment, the defendant Benito Legarda and Benito Valdes excepted thereto and at the same time prayed that it be se aside and that they be granted a new trial on the grounds that the judgment was not sufficiently supported by the evidence and was contrary to law, and that the findings of fact therein contained were manifestly and openly contrary to the weight of the evidence. Their prayer having been denied by a ruling to which they also excepted, they have brought these proceedings on appeal to the Supreme Court by the proper bill of exceptions, and have specified in their respective briefs several errors which they allege the lower court committed. Some of these errors consist in that the trial judge overruled the demurrer filed to the complaint; others, in that he admitted certain evidence and excluded others, this being the alleged cause of the erroneous consideration of the instrument Exhibit E and of the rights and obligations derived from it, both with respect to the plaintiff and the two defendants and still others refer to the various statements in the judgment resulting from those findings and on which the conclusions arrived at, have been founded. The defendant Benito Legarda also alleged, among the said errors, as especially affecting his rights, that the court held that Benito Valdes was his agent, empowered to execute contracts in his (Legardas) name in respect to real property; that the court admitted in evidence the document Exhibit A, introduced by the plaintiff, to wit, the copy of the power of attorney attached to the complaint, which never was offered as such; and that he based one of his findings thereon. The defendant Benito Valdes specified, also particularly with reference to himself, other errors consisting in the court having held that he voluntarily executed the option in question, instead of holding that it was obtained through fraud; and likewise in holding that the document Exhibit E was a contract of option and not an offer to sell, and in not holding that said option was an offer subject to the approval of the defendant Legarda. Inasmuch as it does not appear from the bill of exceptions that the defendants recorded the exceptions to the overruling of the demurrer respectively filed to the complaint by both defendants, the assignment of error relative to the said ruling cannot be taken into consideration by this Supreme Court. The plaintiffs action is based on the failure of the defendant Valdes, as the agent or attorney in fact of the other defendant Benito Legarda, to perform the obligation contracted by the Benito

Valdes to sell to the plaintiff the property belonging to the said Legarda, mentioned in the letter of December 4, 1911 (Exhibit E), within the period and for the price specified therein; and the object or purpose of these proceedings is to require fulfillment of the said obligation and to secure the payment of a proper indemnity for damages to the plaintiff because of its not having been duly and timely complied with. Inasmuch as it was set forth in the document Exhibit E that the property known as the Nagtajan Hacienda, (an option to buy which was given by the defendant Valdes to the plaintiff Borck) belonged to Benito Legarda; as negotiations had been undertaken prior to the execution of the said document, between the plaintiff Borck and the defendant Valdes with respect to the maters set forth in that document, by virtue of which Borck knew that Valdes was Legardas agent or attorneyin-fact, although it appears in said instrument that the agent Valdes acted in his own name; and, further, as the plaintiff in the complaint made the necessary allegations to explain the relations that existed between the principal Legarda and the agent Valdez with regard to the said document Exhibit E and the failure alleged by the plaintiff, to fulfill the stipulations therein contained; therefore, the facts alleged in the complaint did constitute a right of action against either or both defendants, and the lower court did not err in so holding, for, though the person who contracts with an agent has no action against the principal, pursuant to article 1717 of the Civil Code, when the agent acts in his own name, as in such a case the agent would be directly liable to the person with whom he contracted as if it were a personal matter of the agents yet this does not occur when the acts performed by the agent involved the principals own things, and in the document Exhibit E, which was inserted in the complaint when the latter was amended, it appears that the defendant Valdes, who signed the said document, stated that the property, the option to buy which he gave to the plaintiff, Borck, belonged to Legarda. And as it is unquestionable that, pursuant to the above-cited provision of law, the action was properly brought against Benito Legarda as Valdes principal, it is also unquestionable that Valdes was properly included in the complaint as one of the defendant, for said article 1717, in providing that in cases like the one here in question the person who contracted with the agent has an action against the principal, does not say that such person does not have, and cannot bring an action against the agent also, and the silence of the statute on this point should not be construed in that sense, when the rights and obligations, the matter brought into discussion by means of the action prosecuted, cannot be legally and juridically determined without hearing both the principal and the agent. Section 114 of the Code of Civil Procedure in force, treating of the parties who should be included in an action as defendants, includes any person who has or claims an interest in the controversy or the subject-mater thereof adverse to the plaintiff, or who is a necessary party to a complete determination or settlement of the questions involved therein; and there can be no doubt whatever, and the record itself shows, that the agent Benito Valdes was and in a necessary party in these proceedings for the complete and proper determination of the matter involved. As one of the allegations of the complaint was that the defendant Benito Valdes was the attorney in fact of Benito Legarda, the owner of the Nagtajan Hacienda, the option to buy which was granted by the said defendant Valdes to the plaintiff Borck, in the letter of December 4, 1911, Exhibit E, there was attached to the complaint a copy of the power of attorney marked Exhibit A, by virtue of which, as therein also set forth, the defendant Benito Valdes, the attorney-in-fact of Benito Legarda, in giving to the plaintiff the option to buy the said hacienda, had acted according to the

aforesaid document Exhibit F, which was likewise inserted in the amended complaint as a part thereof. Inasmuch as the relation which, according to the plaintiff, existed between Benito Legarda and Benito Valdes as to the obligation contracted by means of Exhibit E, and the fulfillment thereof was established by means of the said allegations, supported, as it appeared, by the power of attorney Exhibit A, and by the letter or document Exhibit E (which were made by the plaintiff a part of the complaint), the joining of the copy of the power of attorney to the complaint cannot be considered to have been done merely for the purpose of attesting the personality of either of the defendants, but to show the legal status of each of them in the obligation referred to, in view of the terms of the document Exhibit E, the authority under which the defendant Valdes acted in executing this document, as well as the fact of hi having been granted such authority by the defendant Legarda, by means of said power of attorney. So that as said two documents, to wit, Exhibit A or the power of attorney executed by Legarda in favor of Valdes, authorizing him to perform various acts, among them, that of selling, exchanging, ceding, admitting in payment or by way of compensation or in any other manner acquiring or conveying all kinds of real property for such prices and on such conditions he might deem proper, and the document Exhibit E, or the letter setting forth the option given to the plaintiff Valdes to buy the said Nagtajan Hacienda belonging to Legarda, cannot be considered separately, in view of the allegations of the complaint and the action brought thereon against the two defendants; and as said two documents, each of complement of the other, constituted the basis of the action brought in the complaint, and as their genuineness and due execution were not denied under oath by either of the two defendants, as they might have done, pursuant to section 103 of the Code of Civil Procedure, the plaintiff was not obliged to present at the trial, as proof, the aforementioned power of attorney to prove its existence and the fact of Valdes being his attorney in fact, vested with the powers specified in this instrument, notwithstanding the general denial made by the defendant Legarda in his answer of the allegations contained in the complaint from its third paragraph on, in which paragraph that averment is made, supported by the copy of the said power of attorney attached to the complaint. On the contrary, as the said document Exhibit A constitutes prima facie proof of the fact that Benito Valdes is the attorney-in-fact of Benito Legarda, and that he is vested with the powers specified therein, on account of Legardas not having denied under oath the genuiness and due execution of the said document, it was therefore incumbent upon Legarda himself to prove that he had not executed the said power of attorney in Valdes favor and that he had not conferred upon him, by virtue thereof, the powers therein mentioned. (Merchant vs. International Banking Corporation, 6 Phil., 314; Papa vs. Martinez, 12 Phil., 613; Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil., 222; Banco Espanol-Filipino vs. McKay & Zoeller, 27 Phil., 183; Knight vs. Whitmore, 125 Cal., 198; McCormick Harvesting Machine Co., vs. Doucette, 61 Minn., 40.) The lower court, therefore, did not err in holding that Benito Valdes was the agent of Benito Legarda, vested with powers to execute contracts for the sale of real estate in the latters name; nor in considering as proof the power of attorney, the plaintiffs Exhibit A, and making it the basis of one of the conclusions of the judgment, notwithstand that it was not offered as such proof by the plaintiff. Consequently, the court likewise did not err in admitting the evidence introduced by the plaintiff himself to show the existence of the contractual obligation on the part of the defendant

Legarda, as principal of the other defendant, Valdes, and which was contended by the plaintiff to be one of the grounds of the action brought in this complaint against the two defendants. It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of three months and for its assessed valuation, a grant which necessarily implied the offer or obligation on the part of the defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned, and as the grant made by Valdes to Borck in the said letter was made as a result of the requests of Borck himself, as stated in the letter, and of the negotiations previously entered into between the latter and Valdes with respect to the purchase of the hacienda, as shown in the letter of the 2d of the same month of December, that is, the letter which two days before was addressed by Borck to Valdes, Exhibit C, the terms of the said document Exhibit E appear to be of the nature of an option contract between Valdes and Borck, inasmuch as, by means of said document, the former finally accepted the propositions of the latter with respect to the granting of that right to Borck. There was, therefore a meeting of minds on the part of the one and the other, with regard to the stipulations made in the said document. But it is not shown that there was any cause or consideration for that agreement, and this omission is a bar which precludes our holding that the stipulations contained in Exhibit E is a contract of option, for, pursuant to article 121 of the Civil Code, there can be no contract without the requisite, among others, of the cause for the obligation to be established. In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language: A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from, or selling to, B certain securities or properties within a limited time at a specified price. (Story vs. Salamon, 71 N.Y., 420.) From vol. 6, page 5001, of the work Words and Phrases, citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken: An agreement in writing to give a person the `option to purchase lands within a given time at a named price is neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or option of the other party. The second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of value; that is, the right to call for the receive lands if he elects. The owner parts with his right to sell his lands, except to the second party, for a limited period. The second party receives this right, or, rather, from his point of view, he receives the right to elect to buy. But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to the case where there was cause or consideration for the obligation, the subject of the agreement made by the parties; while in the case at bar there was no such cause or consideration. The lower court in the judgment appealed from said:

There is some discussion in the briefs as to whether this instrument constitutes a mere offer to sell or an actual contract of option. In terms it purports to be the latter and in fact recites the acceptance of a request or offer, by the plaintiff. But viewing the instrument as in itself no more than an offer, it was at least a continuing one, for three months, and as it is not claimed to have been withdrawn during that period, nor afterward, the plaintiff could at any time enter into an actual contract, if it were not such already, by mere acceptance. So the, the lower court did not insist that, by the said document Exhibit E, a real contract of option was executed. He stated that it was at least a continuing offer for three months an offer which it was neither alleged nor proven to have been withdrawn during that period and held that but the plaintiffs mere acceptance at any time during the course of said period, the terms of the said document became a contract, if such it were not already. There is therefor no foundation for the third assignment of error made by the defendant Valdes, to wit, that the lower court erred in holding that the document Exhibit E was a contract of option and not an offer to sell. A certainly this document Exhibit E contains an offer or promise on the part of the defendant Valdes, who signed it, to sell the hacienda in question to the plaintiff Borck, at its assessed valuation, to whom was granted three months within which to make use of his right to purchase the property. In order that such an offer, or proposal, or promise on the part of Valdes, to sell the said hacienda might be converted into a binding contract for him and for Borck, it was necessary that the latter should have accepted the offer, by making use of the right thereby granted him, within the period stipulated, and paying the price agreed upon in that document. Referring particularly to the sale of real estate, there is in fact practically no difference between a contract of option to purchase land and an offer or promise to sell it. In both cases the purchaser has the right to decide whether he will buy the land, and that right becomes a contract when it is exercised, or, what amounts to the same thing, when use is made of the option, or when the offer or promise to sell the property is accepted in conformity with the terms and conditions specified in such option, offer, or promise. An option for the purchase of a real estate is merely a right of election to purchase which when exercised, by comes a contract. (Hopwood vs. McCausland, 120 Iowa, 218.) So that in the case at bar it is immaterial whether the contents of the document be considered as an option granted by the defendant Valdes to the plaintiff to purchase the Nagtajan Hacienda, or as an offer or promise on the part of the former to sell the estate to the latter within the period and for the price specified in Exhibit E. In the defendants answer no concrete allegation was made that either of them had withdrawn said offer to sell, but the defendant Valdes introduced evidence to prove that the withdrawal of the offer was made before the plaintiff had accepted it, that is, before January 17, 1912, and for this purpose presented a letter from the defendant Legarda (p. 103, part 1 of the record), dated November 13, 1911, and addressed from Paris to Mauro Prieto, also one of Legardas attorneys in fact. In this letter Legarda stated to Prieto, among other things, that, with reference to the steps taken by Borck for the purchase of the Nagtajan Hacienda, the addressee might say to Borck that

the writer was not very anxious to sell the property except for a price greater than P400,000 in cash. The defendant Valdes testified that the contents of this letter were communicated by him to Borck, though he did not state positively on what date. Valdes also presented the witnesses Alejandro Roces and Jose E. Alemany. The first testified that sometime during the second half of January, on an occasion when he was in Dr. Valdes office, he heard the latter and Borck speaking, and that Borck said something to Dr. Valdes about P300,000, and that it would be difficult to find a purchaser for cash; and that he also heard them talk about P400,000. The second witness, Dr. Jose E. Alemany, also testified that about the 12th or 15th of January, at a time when he was in Dr. Valdes office, he heard a conversation between Valdes and Borck in which the former said to the latter that what Borck wanted was impossible, and that the latter replied to Valdes that it was very dear, that he did not want it, that he did not have the money. On this occasion, this witness also heard them talking about P400,000. As the record does not show positively that the defendant Valdes, on the occasion above referred to, told the plaintiff Borck that he (Valdes) withdrew the offer of sale contained in the document Exhibit E, for here merely communicated to Borck the contents of the said letter from Legarda to Prieto, as the date when he did this does not appear; and as the statements made by the witnesses with regard to the conversation they heard between Valdes and Borck are vague and as it cannot be deduced therefrom that such statements referred expressly to the fact that Valdes withdrew the offer on that occasion, it must be concluded that there is no proof on this point. But, though it had been proven that the withdrawal of the offer was made in the month of December, 1911, or before January 17, 1912, as stated by Valdes counsel in his brief, such a fact could not be a bar to, or annul the acceptance by the plaintiff Borck, of said offer on any date prior to the expiration of the three months fixed in the document Exhibit E, to wit, March 4, 1912, because the offer or promise to sell therein contained was not made without period or limitation whatever (in which case Valdes might have withdrawn it and the latter have accepted it at nay time until it was withdrawn) but for three months, that is, for a specific period of time; and, as the plaintiff Borck had a right to accept the offer during that period, it was Valdes corresponding duty not to withdraw the offer during the same period. Therefore the withdrawal of the offer claimed to have been made by this defendant was null and void. Consequently, the lower court did not err in holding that the offer and not been withdrawn during the three months mentioned and that it could be converted into a real contract by the plaintiff Borcks mere acceptance within the same period. One of the allegations made by the plaintiff in the complaint, as we have seen, is that on January 19, 1912, while the said offer was still open, the plaintiff accepted it in writing, in conformity with its terms, and requested permission of the defendant Valdes to inspect the property titles and other documents pertaining to the estate, and offered to pay the defendant Valdes as soon as a reasonable examination could be made of the said property titles and other documents, immediately and in cash the price stipulated and agreed upon in the contract for the said stipulated and agreed upon in the contract for the said hacienda. To prove this allegation, the plaintiff presented the document Exhibit G, which reads as follows: MANILA, January 19, 1912.

DR. BENITO VALDES, 195 San Sebastian, City. SIR: I hereby advise you that I am ready to purchase the Hacienda Nagtahan, situated in the district of Sampaloc and Nagtahan, Manila, and in the Province of Rizal, consisting of about 1,993,000, square meters of land, property of Mr. Benito Legarda, for the sum of three hundred and seven thousand (307,000) pesos Ph. c. the price quoted in the option given my by you. Full payment will be made on or before the third day of March 1912, provided all documents in connection with the Hacienda Nagtahan, as Torrens title deed, contracts of leases and other matters be immediately placed at my disposal for inspection and if such papers have been found in good order. Very truly yours, W. BORCK. In the preceding letter that plaintiff in fact did state that he accepted the offer made to him or the option given to him by the defendant Valdes in the document or letter of December 4, 1911, Exhibit E, for, even though it was not stated therein what option it was that was mentioned in the said letter it is unquestionable that it could refer to no other than to the option or offer mentioned in the said Exhibit E, as no other was then pending between the plaintiff and this defendant. But aside from the fact that the complete payment of the P307,000 mentioned in the said letter was made to depend on the condition that all the documents relative to the Nagtahan Hacienda, such as the Torrens title, etc., be immediately placed at the plaintiffs disposal for his inspection, and be found satisfactory, the said tender of payment was offered to be made on or before March 3, 1912. A simple statement of the last part of the letter is enough to convince that the plaintiff did not offer to pay, immediately and in cash to the defendant Valdes as he alleged in his complaint, the price stipulated and agreed upon between themselves in the said document Exhibit E. Of court, it is undeniable that the plaintiff Borck had a right to examine the title deed and all the documents relative to the Nagtajan Hacienda, before the sale of the property should be consummated by means of the execution of the proper deed of conveyance in his favor by the defendant Valdes as the attorney-in-fact of the other defendant Legarda, and, consequently, the plaintiff Borck was also entitled to refrain from making payment as long as he should not find the documents relative to the said property complete and satisfactory, an indispensable condition in order that the said deed of conveyance might be executed in his favor. But at the very moment this instrument was executed and signed by the vendor, the payment of the stipulated price should have been made in order that it might be an immediate cash payment. Pursuant to the language of that part of the document or letter Exhibit G to which we now refer in respect to the payment, it cannot be understood that the plaintiff tendered payment to the defendant immediately and in cash, for the simple reason that if the documents had been placed by the defendant at the plaintiffs disposal for his inspection, for example, on January 20th, the day following the date of the letter Exhibit G, and

the plaintiff had examined and found them satisfactory, and the defendant Valdes had executed in the plaintiffs favor the proper deed of conveyance or sale of the hacienda on the 25th of the same month of January, according to the exact terms of the letter of acceptance of the offer, Exhibit G, dated January 19, 1912, the plaintiff, that is, the purchaser Borck, could have made full payment to the defendant Valdes, of the P307,000, the price of the property, on the 3d of March, 1912, or on any date on which the deed of conveyance was issued, from the 25th of January up to the said 3d day of March, for nothing else can be understood by, and no other meaning and scope can attach to, the words full payment will be made on or before the third day of March 1912. In short, by the way the part of said document Exhibit G relative to the offer of payment in the example above given is drawn, the purchaser Borck might pay the stipulated price of the property, or have the period from the 25th of January to the 3d of March within which to pay it, and meanwhile the ownership of the estate would already have been conveyed, by means of the proper deed, to the purchaser Borck, and he could not have been obliged to pay the said price until the very day of March 3, 1912, by reason of the contents of the said letter, Exhibit G. In connection with the allegation we have just been discussing, to wit, that the plaintiff Borck made a tender of payment to the defendant Valdes immediately and in cash of the price of the hacienda fixed in the instrument Exhibit G, the plaintiff also presented as proof, in relation to the allegation as to the presentation of the letter of January 19, 1912, Exhibit G, another letter written by himself, and also addressed to the defendant Valdes, under date of the 23rd of the same month of January This document is marked Exhibit J and is of the following tenor: January 23, 1912. DR. BENITO VALDES, 195 Calle San Sebastian, City. SIR. I have the pleasure to inform you that I can improve the conditions of payment for the Hacienda Nagtahan in so far as to agree to pay the whole amount of purchase price, three hundred and seven thousand (307,000) pesos, Ph., c., ten days after the Torrens title deeds and all papers in connection with the hacienda have been placed at my disposal for inspection and these documents and papers have been found in good order. Respectfully yours, As may be seen by the language in which the preceding letter is couched, the plaintiff virtually recognized, just as he had done in the letter of January 19th, that is, the one written four days before, Exhibit G, that the tender of payment to the defendant Valdes, of the price of the hacienda, could not be understood to have been a tender of immediate and cash payment, as alleged in the complaint, but that payment might be made on any date prior to March 3, or on this same date, even though he may have found satisfactory all the documents that the defendant might have placed at his disposal to be examined, and consequently, although the proper deed of conveyance of the property should have been executed in his favor. Nothing else is meant by the statement made by the plaintiff Borck to the defendant Valdes in the letter of January 23, Exhibit J, that he

had the pleasure to inform him that he could improve the conditions of payment for the Hacienda Nagtajan in so far as to agree to pay the whole amount of purchase price, P307,000, ten days after the Torrens title deeds and all papers in connection with the hacienda should have been placed at his disposal for inspection and should have been found satisfactory, for the payment which Borck offered to make to Valdes, of the price of the property, in said letter Exhibit J, was not indeed to be effected on the third of March or prior thereto, but within the limited period of ten days after the documents-relative to the property should have been delivered to the plaintiff for his inspection and been found satisfactory. And were they any doubt that the meaning or the sense; of said offer was not as just above stated, it would be removed by a mere perusal of the statement made therein by the plaintiff telling the defendant Valdes that he, the former, had the pleasure to inform he latter that he, Borck, could improve the conditions of payment for the hacienda, to wit, those mentioned in the letter written four days before, that is, on January 19th, Exhibit G, in the manner aforementioned by paying the whole amount of the purchase price ten days after the documents should have been delivered to the plaintiff and he should have found them satisfactory. But, the letter of January 23, Exhibit J, is drawn up_in such a way that it also does not contain any tender of immediate and cash payment by the plaintiff Borck to the defendant Valdes. Indeed, as said letter makes the total payment of the price of the property depend on the delivery by the defendant Valdes to the plaintiff Borck of all the documents relative to the hacienda, and of the further condition that, the latter should find such documents in good order and satisfactory, and as a period of ten days was fixed for the said payment, counting from the date of the delivery of the documents, and on the condition that Borck should find them satisfactory, the date of payment cannot be-understood to have been fixed for any certain day after those ten days, or for the eleventh day, for the simple reason that, for example, if the documents were delivered to Borck on February 1 for his inspection, and after the lapse of ten days thereafter he had not finished examining them and had kept them in his possession for this purpose for ten days longer, that is, until February 20, and then had found them satisfactory, the result would be that the payment would have had to be made, not ten days, but twenty days, after the delivery of the said documents, and this would have been authorized by the ambiguous terms in which the tender of payment are couched. But supposing that as appears to be the case, it had been the purpose of the plaintiff Borck, in fixing those ten days in the letter Exhibit J, for the payment, that there should be an interval of said ten days between the delivery and inspection of the said titles and the determination of whether they were satisfactory or not, it might also have happened that on the third day after the delivery of the titles, these might have been found by the purchaser to be satisfactory, and that the vendor might immediately have executed the proper deed of conveyance of the property in the purchasers favor. In that event, according to the terms of said letter Exhibit J, the purchaser Borck would not be obliged to make payment to the vendor Valdes until seven days after the execution of the deed of conveyance and the transfer of the property to the former that is, not until the expiration of the period of ten days counting from the date of the delivery of the documents tothe purchaser; and it is evident that such a payment would not be in cash, pursuant to the provisions of article 1462, in connection with article 1500, of the Civil Code.

Furthermore: The plaintiff Borck also presented another letter in connection with his aforementioned allegation made in the complaint, and related to the other two previous letters, Exhibit G and J, to prove what he had intended to accomplish by means of the latter, to wit, that the tender of payment made by him to the defendant was made in accordance with the said allegation, immediately and in cash. This letter (Exhibit K) bears the date of February 28,t1912, and reads as follows: MANILA, P.I., February 28, 1912. DR. BENITO VALDES, Attorney-in-fact for Benito Legarda Manila. DEAR SIR: To prevent any misunderstanding, I wish to advise you that the purchase price of the Hacienda Nagtahan is ready to be paid over to you, and I request you to notify me whenever it is convenient for you to place at my disposal for inspection the title deed and papers in connection with said estate. Very respectfully, W. BORCK. As may also be seen by the very terms employed by the-plaintiff in this letter, he virtually admits, clearly acknowledges, that in the two previous letters, Exhibits G and J, he had made the tender of payment of the price for the Nagtajan Hacienda in such a manner that it could not be understood to have been in accordance with the agreement entered into between himself and Valdes, that is, that the payment should be in cash. The letter Exhibit K in fact begins with these words: To prevent any misunderstanding. and then says: I wish to advise you that the purchase price for the Hacienda Nagtahan is ready to be paid over to you, and request you to notify me whenever it is convenient for you to place at my disposal for inspection the title deed and papers in connection with said estate. The first words of the letter of course indicate that the plaintiff Borck himself, in writing them, feared, at least the was not sure, that, in accepting, in the letter of January 19th, Exhibit G, the offer of the sale of the hacienda to him by Valdes, and in making therein the tender of payment band in renewing this tender in the letter, Exhibit J, of the 23 of the same month, he, the plaintiff, had not conformed to the terms of the offer of sale or of the option to buy, given to him by Valdes by means of the document Exhibit E, for in the said last letter, Exhibit K, he takes it for granted that there was or might be some misunderstanding between himself and the defendant Valdes with)respect to the tender made by him of the price of the estate. According to the admission of the plaintiff Borck in his complaint, this price was to be paid at one and in cash. In the said letter Exhibit K, to avoid that misunderstanding, the plaintiff Borck stated to the defendant Valdes that the purchase price for the hacienda was ready to be paid over to hi, and requested to be notified

by Valdes when it would be convenient for him to place at the plaintiffs disposal for inspection the title deed and papers in connection with said estate. The notification contained in this letter written by Borck to Valdes, that the purchase price of the estate was ready to be paid over to the latter, and the mention made in this same letter, immediately after the notification, of the inspection which the plaintiff wished to make of the titles which he desired should be delivered to him for this purpose, show that this last letter, Exhibit K, relates to the one that preceded it, dated January 23, Exhibit J, or, what amounts to the same thing, is a result of it, for it is virtually said therein that the price of P307,000 (which according to his previous letter, he had agreed to pay for the hacienda, ten days after the delivery to him of the documents relative to the estate and their having been found by him to be satisfactory) was already held in readiness by the plaintiff for delivery to the defendant, but this delivery of the price was subordinated to the delivery requested by the plaintiff to those titles and other documents,and to the plaintiffs finding such documents satisfactory, and the delivery of the price was also subordinate to the period of the ten days, mentioned in the said letter Exhibit J. The letter Exhibit K can have no meaningwhatever in that part thereof where reference is made tothe offer of payment of the price of the hacienda, or to the payment itself, except in connection with the previous Exhibit J, inasmuch as the letter Exhibit K does not state when Borck was to deliver to Valdes the price which, according to this same letter, the plaintiff already had in readiness for that purpose. So that neither in the letter Exhibit K is any specific offer of payment made by the plaintiff Borck to the defendant Valdes, of the price stipulated in the document Exhibit E to be paid at open and in cash, notwithstanding its being said therein that the plaintiff had the money ready to be turned over to the defendant. Upon the plaintiff Borcks testifying at the trial as witness, said documents Exhibits E, G., J, and K, and also others marked from A to M, including the four just referred to, were presented in evidence. Among these documents is found Exhibit F, which reads as follows: MANILA, January 17, 1912. DR. BENITO VALDES, 194 San Sebastian, City. SIR: In reference to our negotiations regarding the Hacienda Nagtahan at Manila, property of Mr. Benito Legarda, consisting of about 1,993,000 sq. meters of land, I offer to purchase said property for the sum of three hundred and seven thousand (307,000) pesos P. c., cash, net to you, payable the first day of May 1912 or before and with delivery of a Torrens title free of all encumbrances as taxes and other debts. Respectfully, YOURS, On said documents being presented in evidence at the trial, the defendants objected to their admission; the court reserved his decision thereon and in the judgment appealed from made no

mention as to the contents of said documentExhibit F, and in ruling on the defendants motion for a new trial, in which motion they signed as one of the error of the said judgment the fact that no notice whatever had been taken therein of the said Exhibit F, which defendants claimed to be one of the their most important proofs, the court stated as a reason for the omission that this Exhibit F was unsigned, unidentified and was not attested by anyone, besides the fact that no conclusion, either in favorof or against the plaintiff, could be based on its because, although the said letter, that is, Exhibit F, might have been actually delivered, no right whatever could be predicated thereon, nor any liability, and it was, therefore, inadmissible. The record shows that when Exhibit F and Exhibits G, J, K, L, and M, were shown to the defendant Valdes by the plaintiffs counsel Beaumont, for their identification and in order that Valdes might state to the court whether he had received the originals and, if so, where they were, defendant merely said in reply that he had received three originals from Borck and two originals from Beaumont (p. 14 of the transcription of the stenographic notes), and exhibited the originals of Exhibits C, M. L., K, and G, but not that ofExhibit F. The plaintiff Borck having been presented as a witness, after he had been asked the first four questions by Attorney Hartford Beaumont, the latter made the following statement: I would like to interrupt the witness at this moment in order to present all the Exhibits A to M, which were identified by the previous witness. Counsel for the defendant Legarda objected to the admission of the said documents on the ground that they were incompetent, immaterial and irrelevant. The same objection was also made by counsel for the defendant Valdes in behalf of his client, and the court said that he would reserve his decision (pp. 24 and 25 of the record). During the examination of plaintiff Borck, in which Attorney Beaumont plied him with questions in regard to the aforementioned documents, beginning with Exhibit A and showed him the documents themselves, on coming to Exhibit F, after having given attention to other exhibits among which was Exhibit O, which we shall mention later on, the plaintiff answered the questions put to him with respect to Exhibit F in the following manner as found in the transcription of the stenographic notes in English(p. 61 on the record): Q. Now I will show you Exhibit F, and call you attention to the fact that it has the same date, January 17, as Exhibit O, and ask you to state the circumstances under which Exhibit O was signed A. This is may acceptance of the option of Dr. Valdes. Q. How does it happen that it has the same date as Exhibit O? A. Because I dont believe in hanging back with my business. I conclude it as soon as possible. As soon as I got the offer, I made my acceptance to Dr. Valdes. The document Exhibit F, as has been seen, is unsigned but the document Exhibit J, to wit, the aforementioned letter of January 23, 1912, is in the same condition. It is true that although the document Exhibit J is unsigned because it is a copy of the letter addressed on that same date to Valdes by Borck, Valdes kept the original in his possession and he did not present the original of Exhibit Fibut only the other letters before mentioned, although he stated with reference to the letter he had received from Borck, that as he was not a business man and was not acquainted with

that kind of business, he sometimes read the letters and, after taking notes of their contents, transmitted their substance to Mr. Legarda, and at other times sent to him the letters themselves, from which testimony of Valdes it is concluded that he was not in the habit of keeping the originals he received from Borck. However, as has already been seen, notwithstanding that Exhibit F was not identified by Valdes, the plaintiff Borck, However, as has already been seen, notwithstanding that Exhibit F was not identified by Valdes, the plaintiff Borck, referring to the said document on its being shown to him by his attorney, who called his attention to the fact that it has the same date, January 17, as Exhibit O, and asked him to state the circumstances under which Exhibit O was signed, said that Exhibit F was his acceptance of Dr. Valdes option; and in answering the next question, explained the reason why Exhibit F bore the same date as Exhibit O, saying that he did not believe in hangingback with his business; that he concluded it as soon as possible; and that as soon as he got the offer, he made his acceptance to Dr. Valdes. Exhibit O is as follows: MANILA, January 17, 1912. W. BORCK, Esq., Manila. DEAR SIR: Referring to our recent conversation regarding_the proposed purchase by clients of ours of the property known as the Hacienda Nagtajan, I beg to advise you that our clients, after investigation of the physical conditions of the property, are prepared to make an offer for the purchase of the same at the price named by you, to wit, P380,000, cash, provided that there is good titled to the property, that it contains substantially and area represented, namely, 1,993,000 square meters, and that the existing leases upon certain portions of the said property are found to be in proper form. It is the desire of our clients to have an opportunity to investigate the legality of_the title and leases at the earliest practicable moment, and they have authorized us to say that if the conditions are satisfactory with regard to these matters, they are prepared to make you a firm offer of the amount above named, and to make a deposit of a reasonable amount as an evidence of good faith. Very truly yours, BRUCE LAWRENCE, ROSS, AND BLOCK, JAMES ROSS. Connecting the contents of this document Exhibit O with those of the previous Exhibit F, and taking into account the testimony given by Borck, as above quoted, in answering the questions put to him by his own attorney, relative to the said exhibits, it is clearly understood that on Borcks receiving the letter of January 17m 1912, from the law firm of Bruce, Lawrence, Ross and Block, and signed by James Ross, Exhibit O, in which these gentlemen stated that they were prepared to make an offer for the purchase of the Hacienda Nagtajan at the price of P380,000 cash, he wrote on the same date, January 17, to Dr. Valdes the letter, a copy of which is Exhibit F, in which, referring to the negotiations between them regarding the said Nagtajan Hacienda, he offered to purchase this property for P307,000, cash and net, payable on or before the first day of May, 1912, delivery to be made to him to a Torrens title free of all encumbrance, such as taxes and other debts. For this reason the plaintiff Borck stated in his testimony that the said letter Exhibit F was his acceptance of

Dr. Valdes option, for, not believing in hanging back with his business and desiring to conclude it as soon as possible, as soon as he received the officer, contained in the letter Exhibit O, from the said law firm, he transmitted or made known his acceptance to Dr. Valdes. We do not think there could be a better identification of the letter Exhibit F than that made by it sown writer, the plaintiff Borck, for he admitted in his testimony that he wrote this letter, and although the defendant Valdes did not present the original of the said letter Exhibit F, perhaps because it was one of those which he did not keep in his possession, there can be no doubt whatever that the original of the said Exhibit F was transmitted to Valdes by the plaintiff Borck, of the latter explicitly said so in stating that letter was his acceptance of Dr. Valdes option, the plaintiff explaining why he had written said letter, on referring to the relation between said Exhibit F and the Exhibit C, on account of the same date both letters bore, on making further explanations in the matter, hand saying: As soon as I got the offer, I made my acceptance to Dr. Valdes. Furthermore, if there were still any doubt whatever about this, it would disappear after a consideration of the following quotation taken from the plaintiffs written brief file before the lower court rendered judgment, in which mention is made of the said brief and of the questions discussed therein said brief is found on pages 190 to 206 of the record and is signed, by the plaintiffs attorneys, Aitken and Beaumont. On page 195 thereof, appears the following: 3. THE ACCEPTANCE. On the 17th of January, 1912, Mr. Borck received a written offer (Exhibit O) for the property from Mr. James Ross of this city for the price of P380,000 and thereupon on the same day wrote Dr. Valdes the letter which appears as Exhibit T (pp. 56, 169 of the record). No question arises as to the validity of this acceptance for reasons which will presently appear. . . . As may be seen, in the paragraph of that brief signed by the plaintiffs attorney there is a restatement of what the plaintiff had said in his testimony, to with, that as soon as he received, on January 17, 1912, a written offer Exhibit O, from Mr. James Ross of this city for the property in question and for the price of P380,000, he wrote on the same day the letter of Dr. Valdes that appears as Exhibit T (pp. 56, 169, of the record). In this same brief the statement was also made that no question had arisen as to the validity of this acceptance, for the reasons which would presently appear. It is to be noted that Exhibit T, mentioned in the preceding paragraph transcribed from the brief, is the same Exhibit F, which was erroneously marked with the letter T in the said paragraph, as shown by the fact that in this paragraph Exhibit T is referred to as being found on page 56 of the record, which page containes Exhibit F, and on page 169 of the record, which contains a copy of the same Exhibit F,_the date of this latter exhibit, January 17, being also that of the Exhibit O, mentioned in the said brief. The trial court therefore erred in not admitting in evidencesaid document Exhibit F and, consequently, in not taking it into consideration in the judgment appealed from. This rejection cannot be warranted by the fact that the defendants themselves opposed its admission, for the latter also opposed the admission of all the documents presented by the plaintiff, on the understanding that, as they were not bound by the documents Exhibits A and E, the one as principal and the other as agent, such documents were immaterial, incompetent and irrelevant, nevertheless the trial court admitted some of those documents and considered them for the purpose of drawing his conclusions in the judgment rendered.

It is hardly necessary now to show that said letter of January 17, 1912 (Exhibit F) was Borcks acceptance of the option or offer of sale made to him by the defendant Valdes in his letter of December 4, 1911 (Exhibit E), for the plaintiff Borck himself admitted in his testimony at the trial that the letter Exhibit F was his acceptance of said option. In fact, the plaintiff Borck, referring in the letter, Exhibit F, to the negotiations between himself and Valdes regarding the Nagtajan Hacienda belonging to Benito Legarda, offers to purchase said property for the sum of P307,000, cash and net, payable the first day of May 1912, or before, the plaintiff to be furnished with a Torrens title free of all encumbrances, such as taxes and other debts. The offer of sale or option of purchase contained in the document Exhibit E, was for the period of three months, from December 4, 1911, for the assessed valuation of the property, understood to be P307,000, though subsequently at the trial it was fixed by agreement of the parties at P306,954 and payment was to be made in cash, for, even though this was not stated in the document, that failure itself so to state created the understanding that the price was to be paid in cash when delivery of the property was made, in accordance with the provisions of article 1462, in connection with article 1500, of the Civil Code. The plaintiff Borck recognized this in his complaint, in making the allegation we considered at the beginning of this decision, to with, that he accepted in writing the said offer in conformity with its terms and offered to pay to the said Valdes, immediately and in cash the price stipulated; and he also so testified atthe trial, saying, in reference to the conditions of the payment of the purchase price, that the conditions were not discussed, because the payment was to be made in cash on exhibition of the documents. Now then, in the document Exhibit F, that is, the letter of January 17, 1912, it is stated that payment of the net amount would be made in cash on_the first day of May, 1912, or before. So that it may be said with all the more reason that in relation to the other offers of payment contained in the documents F, G, J, and K, that in the letter, Exhibit F, the plaintiff Borck, in accepting the offer of sale, did not make an offer to pay the price immediately and in cash, as stated in his allegation set forth in the complaint, for, by virtue of the said documents, he reserved to himself the right to make the payment on the first day of May, 1912, or on any date prior thereto, as might suit him, that i, two months after the termination of the option or of the offer, which would be, on or before March 4, 1912, although the deed of conveyance of the property in his favor should have been executed by the defendant Valdes on any date within the period of the option, that is, within the three months which ended on the said 4th day of March, 1912, whereby the plaintiff virtually gave himself five months from the date of the offer of sale or option of purchase, to effect the said payment. This is evidently not an offer to pay immediately and in cash, nor is it a payment in cash, as the law provides, nor such a payment as the plaintiff Borck himself understood it to be, when he stated in his testimony that the payment was to be made in cash upon exhibition of the documents. Duly considering the documents Exhibits F, G, J, andk, that is, the statements made by the plaintiff Borck in the letter of January 17, 19 and 23, 1912, and February 28th of the same year, addressed by him to the defendant Valdes, in accepting the option that the latter had granted him for the purchase of the Nagtajan Hacienda, or the offer of sale of the said hacienda defendant made to the plaintiff, with respect to the payment of the price therof, it is seen that in the said documents the plaintiff Borck offered to pay to the defendant Valdes the said price, first within the period of five months from December 4, 1911, afterwards within the terms of three months from the same date of December 4, and, finally, within a period which could as well be ten days as

twenty or thirty of more days from the time Valdes should put at the plaintiffs disposal to be inspected, the titles and other documents relative to the said hacienda, and the plaintiff should find them satisfactory and the proper deed of conveyance should, in consequence thereof, be executed in his favor by Valdes; and this evidently is an offer of payment in installments, and not an immediate and cash payment. The lower court in the judgment appealed from says that as the document Exhibit E, dated December 4, 1911, gave the plaintiff a three months option for the purchase of the property, a period which expired, therefore, on March 4, 1912, this necessarily allowed the plaintiff them for the payment until this last date, and as in the letter Exhibit G, of the date of January 19, 1912, the plaintiff said that he would pay before the expiration of the said period, in no manner could this have modified the option, rather, on the contrary, it coincided with it, the court adding, moreover, that a payment made on or before the 4th of March would have been a payment in cash, if this was required by Exhibit E. It is true that the period granted by the defendant Valdes to the plaintiff for purchasing the property, was three months from December 4, 1912, but not because this period expired on March 4, 1912, that is, the last day of the said three months, may it be understood that the defendant granted to the plaintiff the period for payment until the very last day, March 4, 1912, for the simple reason that, the period for the purchase being three months, that is,the time during which the plaintiff Borck could make use of the power or the right granted by him by Valdes to arrange for the purchase of, and to purchase in fact, the said property, if Borck purchased it on any date prior to March 4, 1912 (on January 19, 1912, for example) the result would be that the proper deed of sale being consequently executed in his favor on the said date of January 19, and the time that payment would be made not having been fixed in the said document Exhibit E, such payment wouldhave to be made at the time of the delivery of the thing sold, pursuant to article 1500 of the Civil Code; but as, in accordance with article 1462 of the same code, the execution of the deed of sale is equivalent to the delivery of the thing which is the object of the contract, the payment would not be in cash if it were not made on the same 19th day of January, 1912, and were postponed until some other later day, or until March 4, 1912. In short, it is impossible to confound the period of the option granted to the plaintiff Borck for the purchase of the Nagtajan Hacienda, with the period for the payment of it price, had he purchased it. The plaintiff Borck had three months, from December 4, 1911, within which to make the purchase; to make the payment he did not have a single day after the date on which the proper deed of sale would have been executed in his favor; he was to pay the price at the very moment the said deed was executed, because, by this means, the property would have been delivered to his, although there still might have been lacking one or two months of the three months period of the said option. This is the payment in cash to which the law refers in the sale of real estate in cases where the time for making payment has not been fixed, and the plaintiff himself, Borck, so understood when he stated in his testimony, as we have before said, that, as the conditions for the payment had notbeen discussed, payment was to be made in cash on exhibition of the documents, or, what amounts to the same thing, on the execution of the proper deed of sale of the property in his favor. It is therefore evident was not fixed therein, the document Exhibit E, dated December 4, 1911, required the payment to be made in cash, and the lower court erred in holding that the plaintiff Borcks letter, Exhibit G, of the date of January 19, 1912, in stating that the payment would be made on or before March 4, 1912, in no manner modified the option or offer of sale

contained in the document Exhibit E, but that on the contrary it coincided therewith; also in holding that a payment made on or before March 4, 1912, would have been a cash payment. The letter of December 4, 1911, Exhibit E, contained, as aforesaid, an offer of sale or a proposal of sale on the partof the defendant Valdes to the plaintiff Borck, of the Nagtajan Hacienda, for the assessed valuation of the same, effective during the period of three months counting from the said date. Such proposal or offer was an expression of the will only of the defendant Valdes, manifested to the plaintiff Borck. In order that such a proposal might have the force of a contract, it was necessary that the plaintiff Borcks will should have been expressed in harmony with all the terms of the said proposal. Consent is shown by the concurrence of the offer and the acceptance of the thing and the cause which are to constitute the contract. (Art. 1262, Civil Code.) There is no contract unless, among other requisites, there is consent of the contracting parties. (Art. 1261, par. 1, of the same code.) Contracts are perfected by mere consent, and from that time they are binding, not only with regard to the fulfillment of what has been expressly stipulated, but also with regard to all the consequences which, according to their character, are in accordance with good faith, use, and law. (Art. 1258, Civil Code.) Promises are binding in just so far as they are accepted in the explicit terms in which they are made; it not being lawful to alter, against the will of the promisor, the conditions imposed by him (Decision of the supreme court of Spain, of November 25, 1858); for only thus may the indispensable consent of the parties exist for the perfection of the contract. (Decision of the same court, of September 26, 1871.) An option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell or lease his land, if the holder elects to accept them withinthe time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. (words and Phrases, vol. 6, p. 5000, citing McMillan vs. Philadelphia Co., 28 Atl., 220; 159 Pa., 142.) An offer of a bargain by one person to another, imposes no obligation upon the former, unless it be accepted by the latter, according to the terms in which the offer was made. Any qualification or, or departure from, those terms, invalidates the offer, unless the same be agreed to by the person who made it. (Eliason et al. vs. Henshaw, 4 Wheaton, 225.) In order that an acceptance of proposition may be operative it must be unequivocal, unconditional, and without variance of any sort between it and the proposal, . . . . An absolute acceptance of a proposal, coupled with any qualification or condition, will not be regarded as a complete contract, because there at no time exists the requisite mutual assent to the same thing in the same senses. (Bruner et al. vs. Wheaton, 46 Mo., 363.) As already seen while we were considering the documents Exhibits F, G, J, and K, the plaintiff Borck accepted the offer of sale made to hi, or the option of purchase given him in document Exhibit E by the defendant Valdes, of the Nagtajan Hacienda, for the assessed valuation of the same, but his acceptance was not in accordance with the condition with regard to the payment of the price of the property, under which the offer or the option was made for, while this payment was to be paid in cash, as the plaintiff Borck himself admitted and the defendant Valdes positively stated in his testimony, and also a provided by law, for the reason that the time was not fixed in

said offer or option when the payment should be made in the aforesaid four documents Exhibits F, G, J, and K, the plaintiff Borck made the offer to pay the said price, in the first of them, within the period of five months from December 14, 1911; in the second, within the period of three months from the same date, and, finally, in the other two documents, within an indefinite period which could as well be ten days as twenty or thirty or more, counting from the date when the muniments of title relative to the said hacienda should have been placed at his disposal to be inspected and he should have found them satisfactory and, in consequence thereof, the deed of conveyance should have been executed in his favor by the defendant Valdes. So that there was no concurrence of the offer and the acceptance as to one of the conditions related to the cause of the contract, to wit, the form in which the payment should be made. The expression of Borcks will was not in accordance with all the terms of Valdes proposal, or, what amounts to the same thing, the latters promise was not accepted by the former in the specific terms, in which it was made, and finally, the acceptance of the said proposal on Borcks part was not unequivocal and without variance of any sort between it and the proposal, because, in view of the terms in which the payment was offered by Borck in his said letters of January 17, 19 and 23, Exhibits F, G, J, and K, there was variance from the moment in which according to said terms, in the first two letters, the payment of the price should be made on or before the 1st of May and on or before the 3d of March, 1912, respectively, that is, within a period limited in those letters, and the offer of payment was equivocal inasmuch as, by the last two letters, it was made to depend on certain acts as a basis for fixing the period in which the said payment should have to be made; finally, there was no mutual conformity between the person who made the proposal or offer, Valdes, and the person who accepted it, Borck, in the same sense with respect to the form of payment, and Borck deviated from the terms of the proposition with regard to the form of payment and the record does not show that Valdes assented to such variance. It is, therefore, evident that, in accordance with the provision of law and the principles laid down in the decisions above cited, the proposal or offer of sale made by the defendant Valdes to the plaintiff Borck, or the option of purchase granted by the former to the latter, with respect to the Nagtajan Hacienda, in the document Exhibit E, was not converted into a perfect and binding contract for the, and that as Valdes did not assent to the modification introduced by Borck in the offer of sale made by this defendant in regard to one of its terms, to with, the form of payment, the said offer became null and void, and, consequently, Borck has no right to demand of the defendant Valdes and of the latters principal, the other defendant, Legarda, or of the administrators of the estate left by Legarda at his death which occurred during the course of these proceedings, and whose names appear at the beginning of this decision, the fulfillment of that offer, nor, therefore, any indemnity whatever for such nonfulfillment. The lower court erred, than, in finding otherwise in the three conclusions of law contained in the judgment appealed from which were mentioned at the beginning of this decision and on which, in short, the pronouncement made in that judgment was founded. As the power of attorney conferred by Benito Legarda upon Benito Valdes was explicit and positive, according to the document Exhibit A, a copy of which was attached to the complaint, to sell and convey all kinds of real estate at such prices and on such conditions as Valdes might deem proper, and also as the terms of the option granted by Valdes to Borck, or of the offer of sale made by the former to the latter in the document Exhibit E, of the Nagtajan Hacienda belonging to Benito Legarda, are clear; and, furthermore, as the plaintiff made the said documents an integral part of

the complaint as the grounds thereof, the testimony introduced by the defendant Valdes to prove that said offer of sale made by him to Borck was subject to the approval of his, Valdes, principal was improper (sections 103 and 285, Code Civ. Proc.) and the lower court did not err in not taking that testimony into consideration in his judgment. Likewise the evidence presented by the defendant Valdes in an endeavor to prove that said offer of sale was obtained from him by the plaintiff Borck by means of fraud and deceit, was improper. Consequently the trial court did not err by making no finding in the judgment on those two points. In conclusion, as the offer of sale of the Nagtajan Hacienda, made by Valdes to Borck, or the option of purchase thereof granted by the former to the latter by the letter of December 4, 1911, Exhibit E, did not constitute a perfect contract and, consequently, was not binding upon the defendants Valdes and Legarda or the plaintiff Borck, by reason of the lack of the mutual assent of the parties concerned therein, which is wholly in accordance with the terms of the said offer, there can be no obligation demandable in law by virtue of the stipulations contained in said document, and the action prosecuted by the plaintiff for that purpose in these proceedings in improper. For the foregoing reasons the judgment appealed from is reversed and we absolve the defendants from the complaint. The costs of the first instance shall be imposed upon the plaintiff. No special finding is made with respect to those of this second instance. So ordered. Arellano, C.J., Torres and Johnson, JJ., concur. Moreland and Trent, JJ., concur in the result.

FIRST DIVISION G.R. No. L-35272 August 26, 1977 FLORENCIA CRONICO, substituted by LUCILLE E. VENTURANZA, petitioner-appellant, vs. J. M. TUASON & CO., INC., and CLAUDIO R. RAMIREZ, respondents-appellees. Antonio B. Alcera for appellant. Araneta, Mendoza & Papa for appellee J. M. Tuason & Co., Inc. Leonardo Abola for appellee Caludio R. Ramirez.

FERNANDEZ, J: In Civil Case No. Q-6363 entitled "Florencia Cronies, substituted by Lucille E. Venturanza, plaintiff, versus J. M. Tuason & Co., Inc., represented by Gregorio Araneta, Inc., and Claudio Ramirez, defendants," the Court of First Instance of Rizal, Branch IV, Quezon City, rendered its decision dated January 25, 1969, the dispositive part of which reads: IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows:

a) Declaring the Contract to Sell No. 10879 Exhibit 3-company, executed by defendant corporation in favor of its co- defendant Ramirez on April 2,1962, as NULL and VOID; b) Ordering the defendant-corporations to execute a Contract to Sell in favor of the substituted plaintiff Dr. Lucille E. Venturanza over Lot 22, Block 461 of the Sta. Mesa Heights Subdivision, under the same terms and conditions of their offer to the plaintiffs as contained in the letter of Gregorio Araneta, Inc., representative of J. M. Tuason & Co., Inc., to Florencia Cronico of March 20, 1962 (Exh. H) or under the same terms given to defendant Ramirez; c) Declaring as cancelled any and all transfer certificates of title that might have been issued in favor of defendant Ramirez over said Lot No. 22; d) Ordering the defendants, jointly and severally, to pay the plaintiff (Dr. Lucille E. Venturanza) the sum of P160,000.00, as damages representing the rents derived from the property in question up to December 2, 1968, plus the sum of P2,000.00 every month thereafter until the lot in question is sold and delivered to plaintiff (Dr. Venturanza); e) Ordering defendants, jointly and severally, to pay plaintiff (Dr. Lucille E. Venturanza) the sum of P10,000.00, as attorney's fees; f) To pay the costs. IT IS SO ORDERED Quezon City, Philippines, January 25, 1969. s/t WALFRIDO DE LOS ANGELES J u d g e (Rollo, p. 69, Joint Record on Appeal, pp. 49-50) The defendants J. M. Tuason & Co., Inc. and Claudio R. Ramirez appealed to the Court of Appeals which promulgated its decision on April 21, 1972 reversing the judgment appealed from and dismissing the complaint with costs against the plaintiff-appellee. (Rollo, p. 31, Decision in CA-G. R. No. 44479R, p. 19) The plaintiff, Florencia Cronico substituted by Lucille E. Venturanza, filed with this Court a petition for certiorari to review the decision of the Court of Appeals * assigning the following errors: I THE HONORABLE COURT OF APPEALS ERRED IN- HOLDING THAT FLORENCIA CRONICO OBTAINED. THE DEFENDANT COMPANY'S LETTEROFFER TO HER DATED MARCH 20, 1962 BY MEANS OF IRREGULAR AND PREMATURE DELIVERY. II THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RECORDS DO NOT SHOW THAT DEFENDANT COMPANY'S LETTER-OFFER OR UNILATERAL PROMISE TO SELL W AS SUPPORTED BY A CONSIDERATION OTHER THAN THE SELLING PRICE. III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PLAINTIFF CRONICO IS NOT PRINCIPALLY NOR SUBSIDIARILY OBLIGED UNDER THE CONTRACT TO SELL (EXH. 3-Company) AND HENCE MAY NOT BRING SUIT TO ANNUL THE SAME. IV THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE TRIAL COURT AND DISMISSING THE COMPLAINT. (Rollo, p.74, Petitioner's Brief, pp. 1-2) The facts, as found by the Court of Appeals, are: Appellant J. M. Tuason & Co. Inc. hereinafter referred to as appellant company was the registered owner of Lot No. 22, Block 461, Sta. Mesa Heights Subdivision, located at the Northwestern corner of Quezon Boulevard and Gregorio Araneta, Quezon City and embraced by Transfer Certificate of Title No. 49235 of the registry of Deeds of said city. In March, 1962, plaintiff Florencia Cronico offered to buy the lot from the appellant company with the help of Mary E. Venturanza. They personally talked to Benjamin F. Bautista, Manager of the Real Estate Department of Gregorio Araneta, Inc. the appellant company's attorney-infact, proposing to buy Lot No. 22. She was required to present proofs to show her rights to the lot. On March 8, 1962, Florencia Cronico exhibited certain documents showing her priority rights to buy the lot. In the first week of March, 1962, defendant-appellant Claudio Ramirez also learned that the lot in question was being sold by the appellant company. The occupants thereof who also had priority rights to buy the land informed Claudio Ramirez, about the intended sale. Juanita Semilla and Pedro Fernandez, who were the occupants of the said Lot No. 22 expressed their willingness to waive their rights although-Pedro Fernandez reserved a condition that a small portion of the land whereon his house stands be sold to him. In the same month, March, 1962, plaintiff Cronico and defendant- appellant Ramirez sent separate individual letters to appellant company wherein they expressed their desire to purchase the land and requested information concerning the area, the price and other terms and conditions of the contract to sell. Two others intimated their desire to buying the lot. They were Bonifacio Chung and Angeles Henson. Both, however, subsequently lost their interest in said lot. On March 20, 1962, the appellant company sent separate reply letters to prospective buyers including plaintiff Cronies and defendant-appellant Ramirez. They were dropped in the Manila Post Office at 11:00 in the morning of March 21, 1962 by registered mail. It so happened that plaintiff Cronico went to the appellant company's office on March 21, 1962, and she was informed that the reply letter of the appellant company to prospective buyers of the same lot had been mailed. With this information, plaintiff Cronies and Mary E. Venturanza went to the post office in Manila and she was able to get the letter at about 3:30 in the afternoon of the same date. After she got the letter, plaintiff Cronies and Mary E. Venturanza went directly to the office of Gregorio Araneta Inc., Escolta, Manila, and presented the letter to Benjamin Bautista, Head of the Real Estate Department of said company. Since she had no money, plaintiff Cronies requested Mary E. Venturanza to issue a check in the amount of P33,572.00 to cover the down payment for the lot. However, Benjamin Bautista did not accept the cheek. He advised plaintiff Cronies that it is Gregorio Araneta II who would decide whose offer to buy may be accepts after the appellant company receives the registry return cards attached to the registered letters sent to the offerors.

On March 22, 1962, between 10:00 and 11:00 a.m., appellant Ramirez received from the post office at San Francisco del Monte, Quezon City, the reply letter of the appellant company dated March 20, 1962, wherein it stated that Lot 22, Block 461, Sta. Mesa Heights Subdivision, was available for sale under the conditions therein set forth and that the said lot was being offered for sale on a first come first serve basis. Appellant Ramirez proceeded to the office of Benjamin Bautista in the same morning stating that he accepted the conditions stated in the appellant company's letter. Benjamin Bautista advised appellant Ramirez to wait for the decision of Gregorio Araneta II. The next day, March 23, 1962, appellant Ramirez presented his letter to the appellant company confirming his verbal acceptance of the terms and conditions in connection with the sale. On March 31, 1962, Atty. Jose E. Patangco in behalf of appellant Ramirez wrote the appellant company requesting the early execution of the proper contract to sell over Lot No. 22. A check in the amount of P33,572 was enclosed in the letter to cover the down payment for said lot. The request was favorably considered. On April 2, 1962, the J. M. Tuason & Co. Inc., and Claudio R. Ramirez executed a contract to sell whereby the appellant company agreed to sell to appellant Ramirez the lot in question for a total price of P167,896.00 subject to the terms and conditions therein set forth. Meanwhile, on March 27, 1962, the appellant company received a letter from Atty. Godofredo Asuncion in behalf of Florencia Cronies requesting that the lot subject of litigation be 'sold to her. She tendered a check to cover the down payment which was, however, returned. On April 4, 1962, the appellant company sent a letter to the plaintiff-appellee informing her that it had decided to sell the lot in question to appellant Ramirez. This triggered the instant suit. On April 28,1962, plaintiff Florencia Cronico lodged in the Court of First Instance of Rizal (Quezon City Branch) a complaint against the defendants-appellants J. M. Tuason & Co., Inc. and Claudio Ramirez. The main purpose of the said suit is to annul and set aside the contract to sell executed by and between appellant company and appellant Ramirez. On May 30, 1962, Gregorio Araneta, representing J. M. Tuason & Co. Inc., filed its answer to the complaint with cross claim against its co-defendant Claudio Ramirez and Luisa Patangco. On the part of defendant Claudio Ramirez, he filed a motion to dismiss on the ground that the complaint states no cause of action against him. He contends that the action for the annulment of contract may only be instituted by those who are parties thereto or those who are thereby obliged principally or subsidiarily. According to Claudio Ramirez such action to annul a deed of sale can not prosper against third persons as they are not principally or subsidiarily obligated thereby. The motion to dismiss was denied. So Claudio Ramirez filed his answer reiterating in his affirmative defenses that since the plaintiff-appellee is not a party to the contract to sell executed by him and the defendant company, plaintiff Florencia Cronico has no right whatsoever to demand the annulment of said contract. On November 19, 1968, plaintiff together with Dr. Lucille E. Venturanza filed a motion for substitution for party plaintiff whereby plaintiff Florencia Cronico expressed her willingness to be substituted by Dr. Lucille E. Venturanza as the former had transferred to the latter whatever rights and interests which she may have over Lot 22, Block 261, Sta. Mesa Heights Subdivision by virtue of a deed of assignment she executed on July 5, 1968. The court granted the substitution of the party plaintiff by Dr. Lucille E. Venturanza. (Rollo, p. 31, Decision of Court of Appeals, pp. 1- 71) Anent the first error assigned, the petitioner contends that "No less than the chief of the general service section of the Manila post office, Gaspar Bautista, speaking on the regularity of plaintiff

Cronico's receipt of the letter, testified before the trial court that the means by which plaintiff Cronico received her letter is very regular." (Rollo, p. 74, Petitioner's Brief, p. 18). And that "Anyway, the manner by which the offerees were to receive their letters was not announced by the offeror to the contestant such that they could not be bound thereby. Hence, the rule of the fittest and without lawlessness should govern, and that was Cronies who proved her diligence and resourcefullness over Claudio Ramirez." (Rollo, p. 74, Petitioner's Brief, p. 21) The petitioner also averred that the capability of the plaintiff, Florencia Cronico to purchase the land in question was not raised as an issue in the answer of the defendant company and was developed as an afterthought during the trial. It is a fact that the petitioner, Florencia Cronico upon being tipped by Benjamin Bautista, head of the Real Estate Department of Gregorio Araneta Inc., that the reply letters of the appellant company were already placed in the mails on March 21, 1962 at 11:00 o'clock in the morning, immediately went to the Manila post office and claimed the registered letter addressed to her without waiting for the ordinary course for registered mails to be delivered. The petitioner took delivery of the registered letter addressed to her at the entry section of the Manila post office. While this procedure may be tolerated by the postal authorities, the act of the petitioner in taking delivery of her letter at the entry section of the Manila post office without waiting for said letter to be delivered to her in due course of mail is a violation of the "first come first served" condition imposed by the respondent J. M. Tuason & Co. Inc., acting through Gregorio Araneta Inc. The respondent, Claudio R. Ramirez, received on March 22, 1962 in the morning the reply letter of the respondent company dated March 20, 1962 stating that Lot 22, Block 461, Sta. Mesa Heights Subdivision was available for sale under the conditions set forth on the basis of "first come first served". The respondent, Claudio R. Ramirez, proceeded to the office of Benjamin Bautista on the same date and manifested that he was accepting the conditions stated in the respondent company's letter. On March 23, 1962, respondent Ramirez presented his letter to the respondent company confirming his verbal acceptance of the terms and conditions in connection with the sale. It was only on March 27, 1962 that the respondent company received a letter from Atty. Godofredo Asuncion in behalf of petitioner, Florencia Cronies, requesting that the lot subject of litigation be sold to her. The enclosed cheek to cover the down payment was returned to petitioner Cronico and on April 4, 1962, the respondent company wrote said petitioner that it had decided to sell the lot in question to the respondent Ramirez. In view of the foregoing circumstances, we concur in the finding of the Court of Appeals that "Viewing the case from the standpoint of regularity of notice, plaintiff-appellee falls short of the yardstick." (Rollo, p. 42, Decision of the Court of Appeal p.12) The Court of Appeals entertained serious doubts as to the financial capability of petitioner Florencia Cronico to purchase the property because she was receiving only the amount of P150.00 a month as her salary from her employment and there was no showing that she had sources of income other than her job. In fact, when petitioner Cronico tried to pay the down payment for the purchase of the land, it was Mary E. Venturanza who drew the check in the amount of P33,572.00 which was rejected by the respondent company. It is also to be noted that in the trial court, Florencia cronico was substituted by her assignee Lucille E. Venturanza, daughter of Mary E. Venturanza. It is apparent that petitioner, Florencia Cronico, did not have the capability to pay and that she acted only as a mere front of the Venturanzas. As correctly pointed out by the Court of Appeals, realtors are given the right to choose their buyers so as to avoid delinquent payments of monthly installments which may result in costly court litigations. The contention of petitioner. Florencia Cronico that the promise to sell is supported by a consideration as to her because she had established her link as successor of Gregorio Venturanza who bought the lot from Juan Ramos who in turn acquired said lot from Pedro

Deudor. The petitioner then argues that since Clause Seventh of the Compromise Agreement between the respondent company and the Deudors, et al. obligated the respondent company to sell to the buyers of the Deudors 'listed in Annex B thereof, Exhibit R-1, and Juan Ramos was the purchaser of the lot from Pedro Deudor with such right to buy from the defendant company under a new contract with the latter, the said petitioner had established the onerous cause or consideration apart from the selling price of the lot. Granting, arguendo, that Clause Seventh of the Compromise Agreement constitutes a valid consideration of the promise to sell apart from the selling price, it appears that the Compromise Agreement upon which the petitioner Cronico predicates her right to buy the lot in question has been rescinded and set aside. (Deudor vs. J.M. Tuason & Co., Inc., 2 SCRA 129 and J. M. Tuason & Co., Inc. vs. Sanvictores 4 SCRA 123, 126) Hence, the promise of the respondent company to sell the lot in question to the petitioner, Florencia Cronico has no consideration separate from the selling price of said lot. In order that a unilateral promise may be binding upon the promisor, Article 1479, Civil Code of the Philippines, requires the concurrence of the condition that the promise be "supported by a consideration distinct from the price. Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. The promisee has the burden of proving such consideration. (Sanchez vs. Rigos, 45 SCRA 368, 372-373) The petitioner, Florencia Cronies, has not established the existence of a consideration distinct from the price of the lot in question. The petitioner cannot claim that she had accepted the promise before it was withdrawn because, as stated above, she had violated the condition of "first, come, first served" Moreover, it was only on March 27, 1962 that the respondent company received a letter from counsel of the petitioner requesting that the lot subject of this litigation be sold to her. The respondent, Claudio R. Ramirez, had on March 23, 1962, confirmed in writing his verbal acceptance of the terms and conditions of the sale of the lot in question. The petitioner maintains that the contract to sell (Exhibit 3) executed by the respondent company in favor of the respondent, Claudio R. Ramirez, contains a stipulation for her benefit, which reads: b) that the buyer Claudio Ramirez has been fully informed by the company of all the circumstances relative to the offer of Florencia Cronico to buy said lot and that he agrees and binds himself to hold the company absolutely free and harmless from all claims and damages to said Florencia Cronico in connection with this sale of the lot to him. (Rollo, p. 74, Petitioner's Brief, pp. 31-32) The foregoing clause cannot ' by any stretch of the imagination be considered as a clause "pour autrui" or for the benefit of the petitioner. The stipulation does not confer any right arising from the contract that may be enforced by the petitioner against any of the parties thereto. Neither does it impose any obligation arising from the contract that may be enforced by any of the parties thereto against the petitioner. The petitioner is not "obliged principally or subsidiarily" by the contract to sell executed between the respondent company and the respondent Claudio R. Ramirez. The said stipulation is for the benefit of the respondent company. The contention of the petitioner that she has become the obligee or creditor of the respondent company because she was the first to comply with the terms of the letter-offer has no merit. Her so-called acceptance has no effect because she violated the condition of "first come, first served" by taking delivery of the reply letter of the respondent company in the entry section of the Manila post office and of the fact that her formal letter of acceptance was only received by the respondent company on March 27, 1962. In view of all the foregoing, we find that the Court of Appeals has not committed any of the errors assigned in the brief of the petitioner.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. 44479-R is hereby affirmed, without pronouncement as to costs. SO ORDERED. Makasiar, Martin and Guerrero, JJ., concur. Teehankee (Chairman), concurs in the result. Mu;oz Palma, J., took no part. FIRST DIVISION G.R. No. L-35272 August 26, 1977 FLORENCIA CRONICO, substituted by LUCILLE E. VENTURANZA, petitioner-appellant, vs. J. M. TUASON & CO., INC., and CLAUDIO R. RAMIREZ, respondents-appellees. Antonio B. Alcera for appellant. Araneta, Mendoza & Papa for appellee J. M. Tuason & Co., Inc. Leonardo Abola for appellee Caludio R. Ramirez.

FERNANDEZ, J: In Civil Case No. Q-6363 entitled "Florencia Cronies, substituted by Lucille E. Venturanza, plaintiff, versus J. M. Tuason & Co., Inc., represented by Gregorio Araneta, Inc., and Claudio Ramirez, defendants," the Court of First Instance of Rizal, Branch IV, Quezon City, rendered its decision dated January 25, 1969, the dispositive part of which reads: IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows: a) Declaring the Contract to Sell No. 10879 Exhibit 3-company, executed by defendant corporation in favor of its co- defendant Ramirez on April 2,1962, as NULL and VOID; b) Ordering the defendant-corporations to execute a Contract to Sell in favor of the substituted plaintiff Dr. Lucille E. Venturanza over Lot 22, Block 461 of the Sta. Mesa Heights Subdivision, under the same terms and conditions of their offer to the plaintiffs as contained in the letter of Gregorio Araneta, Inc., representative of J. M. Tuason & Co., Inc., to Florencia Cronico of March 20, 1962 (Exh. H) or under the same terms given to defendant Ramirez; c) Declaring as cancelled any and all transfer certificates of title that might have been issued in favor of defendant Ramirez over said Lot No. 22; d) Ordering the defendants, jointly and severally, to pay the plaintiff (Dr. Lucille E. Venturanza) the sum of P160,000.00, as damages representing the rents derived from the property in question up to December 2, 1968, plus the sum of P2,000.00

every month thereafter until the lot in question is sold and delivered to plaintiff (Dr. Venturanza); e) Ordering defendants, jointly and severally, to pay plaintiff (Dr. Lucille E. Venturanza) the sum of P10,000.00, as attorney's fees; f) To pay the costs. IT IS SO ORDERED Quezon City, Philippines, January 25, 1969. s/t WALFRIDO DE LOS ANGELES J u d g e (Rollo, p. 69, Joint Record on Appeal, pp. 49-50) The defendants J. M. Tuason & Co., Inc. and Claudio R. Ramirez appealed to the Court of Appeals which promulgated its decision on April 21, 1972 reversing the judgment appealed from and dismissing the complaint with costs against the plaintiff-appellee. (Rollo, p. 31, Decision in CA-G. R. No. 44479R, p. 19) The plaintiff, Florencia Cronico substituted by Lucille E. Venturanza, filed with this Court a petition for certiorari to review the decision of the Court of Appeals * assigning the following errors: I THE HONORABLE COURT OF APPEALS ERRED IN- HOLDING THAT FLORENCIA CRONICO OBTAINED. THE DEFENDANT COMPANY'S LETTEROFFER TO HER DATED MARCH 20, 1962 BY MEANS OF IRREGULAR AND PREMATURE DELIVERY. II THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RECORDS DO NOT SHOW THAT DEFENDANT COMPANY'S LETTER-OFFER OR UNILATERAL PROMISE TO SELL W AS SUPPORTED BY A CONSIDERATION OTHER THAN THE SELLING PRICE. III THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PLAINTIFF CRONICO IS NOT PRINCIPALLY NOR SUBSIDIARILY OBLIGED UNDER THE CONTRACT TO SELL (EXH. 3-Company) AND HENCE MAY NOT BRING SUIT TO ANNUL THE SAME. IV THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE TRIAL COURT AND DISMISSING THE COMPLAINT. (Rollo, p.74, Petitioner's Brief, pp. 1-2) The facts, as found by the Court of Appeals, are: Appellant J. M. Tuason & Co. Inc. hereinafter referred to as appellant company was the registered owner of Lot No. 22, Block 461, Sta. Mesa Heights Subdivision, located at the Northwestern corner of Quezon Boulevard and

Gregorio Araneta, Quezon City and embraced by Transfer Certificate of Title No. 49235 of the registry of Deeds of said city. In March, 1962, plaintiff Florencia Cronico offered to buy the lot from the appellant company with the help of Mary E. Venturanza. They personally talked to Benjamin F. Bautista, Manager of the Real Estate Department of Gregorio Araneta, Inc. the appellant company's attorney-infact, proposing to buy Lot No. 22. She was required to present proofs to show her rights to the lot. On March 8, 1962, Florencia Cronico exhibited certain documents showing her priority rights to buy the lot. In the first week of March, 1962, defendant-appellant Claudio Ramirez also learned that the lot in question was being sold by the appellant company. The occupants thereof who also had priority rights to buy the land informed Claudio Ramirez, about the intended sale. Juanita Semilla and Pedro Fernandez, who were the occupants of the said Lot No. 22 expressed their willingness to waive their rights although-Pedro Fernandez reserved a condition that a small portion of the land whereon his house stands be sold to him. In the same month, March, 1962, plaintiff Cronico and defendant- appellant Ramirez sent separate individual letters to appellant company wherein they expressed their desire to purchase the land and requested information concerning the area, the price and other terms and conditions of the contract to sell. Two others intimated their desire to buying the lot. They were Bonifacio Chung and Angeles Henson. Both, however, subsequently lost their interest in said lot. On March 20, 1962, the appellant company sent separate reply letters to prospective buyers including plaintiff Cronies and defendant-appellant Ramirez. They were dropped in the Manila Post Office at 11:00 in the morning of March 21, 1962 by registered mail. It so happened that plaintiff Cronico went to the appellant company's office on March 21, 1962, and she was informed that the reply letter of the appellant company to prospective buyers of the same lot had been mailed. With this information, plaintiff Cronies and Mary E. Venturanza went to the post office in Manila and she was able to get the letter at about 3:30 in the afternoon of the same date. After she got the letter, plaintiff Cronies and Mary E. Venturanza went directly to the office of Gregorio Araneta Inc., Escolta, Manila, and presented the letter to Benjamin Bautista, Head of the Real Estate Department of said company. Since she had no money, plaintiff Cronies requested Mary E. Venturanza to issue a check in the amount of P33,572.00 to cover the down payment for the lot. However, Benjamin Bautista did not accept the cheek. He advised plaintiff Cronies that it is Gregorio Araneta II who would decide whose offer to buy may be accepts after the appellant company receives the registry return cards attached to the registered letters sent to the offerors. On March 22, 1962, between 10:00 and 11:00 a.m., appellant Ramirez received from the post office at San Francisco del Monte, Quezon City, the reply letter of the appellant company dated March 20, 1962, wherein it stated that Lot 22, Block 461, Sta. Mesa Heights Subdivision, was available for sale under the conditions therein set forth and that the said lot was being offered for sale on a first come first serve basis. Appellant Ramirez proceeded to the office of Benjamin Bautista in the same morning stating that he accepted the conditions stated in the appellant company's letter. Benjamin Bautista advised appellant Ramirez to wait for the decision of Gregorio Araneta II. The next day, March 23, 1962, appellant Ramirez presented his letter to the appellant company confirming his verbal acceptance of the terms and conditions in connection with the sale. On March 31, 1962, Atty. Jose E. Patangco in behalf of appellant Ramirez wrote the appellant company requesting the early execution of the proper contract to sell over Lot No. 22. A check in the amount of P33,572 was enclosed in the letter to cover the down payment for said lot. The request was favorably considered.

On April 2, 1962, the J. M. Tuason & Co. Inc., and Claudio R. Ramirez executed a contract to sell whereby the appellant company agreed to sell to appellant Ramirez the lot in question for a total price of P167,896.00 subject to the terms and conditions therein set forth. Meanwhile, on March 27, 1962, the appellant company received a letter from Atty. Godofredo Asuncion in behalf of Florencia Cronies requesting that the lot subject of litigation be 'sold to her. She tendered a check to cover the down payment which was, however, returned. On April 4, 1962, the appellant company sent a letter to the plaintiff-appellee informing her that it had decided to sell the lot in question to appellant Ramirez. This triggered the instant suit. On April 28,1962, plaintiff Florencia Cronico lodged in the Court of First Instance of Rizal (Quezon City Branch) a complaint against the defendants-appellants J. M. Tuason & Co., Inc. and Claudio Ramirez. The main purpose of the said suit is to annul and set aside the contract to sell executed by and between appellant company and appellant Ramirez. On May 30, 1962, Gregorio Araneta, representing J. M. Tuason & Co. Inc., filed its answer to the complaint with cross claim against its co-defendant Claudio Ramirez and Luisa Patangco. On the part of defendant Claudio Ramirez, he filed a motion to dismiss on the ground that the complaint states no cause of action against him. He contends that the action for the annulment of contract may only be instituted by those who are parties thereto or those who are thereby obliged principally or subsidiarily. According to Claudio Ramirez such action to annul a deed of sale can not prosper against third persons as they are not principally or subsidiarily obligated thereby. The motion to dismiss was denied. So Claudio Ramirez filed his answer reiterating in his affirmative defenses that since the plaintiff-appellee is not a party to the contract to sell executed by him and the defendant company, plaintiff Florencia Cronico has no right whatsoever to demand the annulment of said contract. On November 19, 1968, plaintiff together with Dr. Lucille E. Venturanza filed a motion for substitution for party plaintiff whereby plaintiff Florencia Cronico expressed her willingness to be substituted by Dr. Lucille E. Venturanza as the former had transferred to the latter whatever rights and interests which she may have over Lot 22, Block 261, Sta. Mesa Heights Subdivision by virtue of a deed of assignment she executed on July 5, 1968. The court granted the substitution of the party plaintiff by Dr. Lucille E. Venturanza. (Rollo, p. 31, Decision of Court of Appeals, pp. 1- 71) Anent the first error assigned, the petitioner contends that "No less than the chief of the general service section of the Manila post office, Gaspar Bautista, speaking on the regularity of plaintiff Cronico's receipt of the letter, testified before the trial court that the means by which plaintiff Cronico received her letter is very regular." (Rollo, p. 74, Petitioner's Brief, p. 18). And that "Anyway, the manner by which the offerees were to receive their letters was not announced by the offeror to the contestant such that they could not be bound thereby. Hence, the rule of the fittest and without lawlessness should govern, and that was Cronies who proved her diligence and resourcefullness over Claudio Ramirez." (Rollo, p. 74, Petitioner's Brief, p. 21) The petitioner also averred that the capability of the plaintiff, Florencia Cronico to purchase the land in question was not raised as an issue in the answer of the defendant company and was developed as an afterthought during the trial. It is a fact that the petitioner, Florencia Cronico upon being tipped by Benjamin Bautista, head of the Real Estate Department of Gregorio Araneta Inc., that the reply letters of the appellant company were already placed in the mails on March 21, 1962 at 11:00 o'clock in the morning, immediately went to the Manila post office and claimed the registered letter addressed to her without waiting for the ordinary course for registered mails to be delivered. The petitioner took

delivery of the registered letter addressed to her at the entry section of the Manila post office. While this procedure may be tolerated by the postal authorities, the act of the petitioner in taking delivery of her letter at the entry section of the Manila post office without waiting for said letter to be delivered to her in due course of mail is a violation of the "first come first served" condition imposed by the respondent J. M. Tuason & Co. Inc., acting through Gregorio Araneta Inc. The respondent, Claudio R. Ramirez, received on March 22, 1962 in the morning the reply letter of the respondent company dated March 20, 1962 stating that Lot 22, Block 461, Sta. Mesa Heights Subdivision was available for sale under the conditions set forth on the basis of "first come first served". The respondent, Claudio R. Ramirez, proceeded to the office of Benjamin Bautista on the same date and manifested that he was accepting the conditions stated in the respondent company's letter. On March 23, 1962, respondent Ramirez presented his letter to the respondent company confirming his verbal acceptance of the terms and conditions in connection with the sale. It was only on March 27, 1962 that the respondent company received a letter from Atty. Godofredo Asuncion in behalf of petitioner, Florencia Cronies, requesting that the lot subject of litigation be sold to her. The enclosed cheek to cover the down payment was returned to petitioner Cronico and on April 4, 1962, the respondent company wrote said petitioner that it had decided to sell the lot in question to the respondent Ramirez. In view of the foregoing circumstances, we concur in the finding of the Court of Appeals that "Viewing the case from the standpoint of regularity of notice, plaintiff-appellee falls short of the yardstick." (Rollo, p. 42, Decision of the Court of Appeal p.12) The Court of Appeals entertained serious doubts as to the financial capability of petitioner Florencia Cronico to purchase the property because she was receiving only the amount of P150.00 a month as her salary from her employment and there was no showing that she had sources of income other than her job. In fact, when petitioner Cronico tried to pay the down payment for the purchase of the land, it was Mary E. Venturanza who drew the check in the amount of P33,572.00 which was rejected by the respondent company. It is also to be noted that in the trial court, Florencia cronico was substituted by her assignee Lucille E. Venturanza, daughter of Mary E. Venturanza. It is apparent that petitioner, Florencia Cronico, did not have the capability to pay and that she acted only as a mere front of the Venturanzas. As correctly pointed out by the Court of Appeals, realtors are given the right to choose their buyers so as to avoid delinquent payments of monthly installments which may result in costly court litigations. The contention of petitioner. Florencia Cronico that the promise to sell is supported by a consideration as to her because she had established her link as successor of Gregorio Venturanza who bought the lot from Juan Ramos who in turn acquired said lot from Pedro Deudor. The petitioner then argues that since Clause Seventh of the Compromise Agreement between the respondent company and the Deudors, et al. obligated the respondent company to sell to the buyers of the Deudors 'listed in Annex B thereof, Exhibit R-1, and Juan Ramos was the purchaser of the lot from Pedro Deudor with such right to buy from the defendant company under a new contract with the latter, the said petitioner had established the onerous cause or consideration apart from the selling price of the lot. Granting, arguendo, that Clause Seventh of the Compromise Agreement constitutes a valid consideration of the promise to sell apart from the selling price, it appears that the Compromise Agreement upon which the petitioner Cronico predicates her right to buy the lot in question has been rescinded and set aside. (Deudor vs. J.M. Tuason & Co., Inc., 2 SCRA 129 and J. M. Tuason & Co., Inc. vs. Sanvictores 4 SCRA 123, 126) Hence, the promise of the respondent company to sell the lot in question to the petitioner, Florencia Cronico has no consideration separate from the selling price of said lot. In order that a unilateral promise may be binding upon the promisor, Article 1479, Civil Code of the Philippines, requires the concurrence of the condition that the promise be "supported by a consideration distinct from the price. Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct

consideration. The promisee has the burden of proving such consideration. (Sanchez vs. Rigos, 45 SCRA 368, 372-373) The petitioner, Florencia Cronies, has not established the existence of a consideration distinct from the price of the lot in question. The petitioner cannot claim that she had accepted the promise before it was withdrawn because, as stated above, she had violated the condition of "first, come, first served" Moreover, it was only on March 27, 1962 that the respondent company received a letter from counsel of the petitioner requesting that the lot subject of this litigation be sold to her. The respondent, Claudio R. Ramirez, had on March 23, 1962, confirmed in writing his verbal acceptance of the terms and conditions of the sale of the lot in question. The petitioner maintains that the contract to sell (Exhibit 3) executed by the respondent company in favor of the respondent, Claudio R. Ramirez, contains a stipulation for her benefit, which reads: b) that the buyer Claudio Ramirez has been fully informed by the company of all the circumstances relative to the offer of Florencia Cronico to buy said lot and that he agrees and binds himself to hold the company absolutely free and harmless from all claims and damages to said Florencia Cronico in connection with this sale of the lot to him. (Rollo, p. 74, Petitioner's Brief, pp. 31-32) The foregoing clause cannot ' by any stretch of the imagination be considered as a clause "pour autrui" or for the benefit of the petitioner. The stipulation does not confer any right arising from the contract that may be enforced by the petitioner against any of the parties thereto. Neither does it impose any obligation arising from the contract that may be enforced by any of the parties thereto against the petitioner. The petitioner is not "obliged principally or subsidiarily" by the contract to sell executed between the respondent company and the respondent Claudio R. Ramirez. The said stipulation is for the benefit of the respondent company. The contention of the petitioner that she has become the obligee or creditor of the respondent company because she was the first to comply with the terms of the letter-offer has no merit. Her so-called acceptance has no effect because she violated the condition of "first come, first served" by taking delivery of the reply letter of the respondent company in the entry section of the Manila post office and of the fact that her formal letter of acceptance was only received by the respondent company on March 27, 1962. In view of all the foregoing, we find that the Court of Appeals has not committed any of the errors assigned in the brief of the petitioner. WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. 44479-R is hereby affirmed, without pronouncement as to costs. SO ORDERED. Makasiar, Martin and Guerrero, JJ., concur. Teehankee (Chairman), concurs in the result. Mu;oz Palma, J., took no part.

Republic of the Philippines SUPREME COURT Manila

THIRD DIVISION

G.R. No. 73573 May 23, 1991 SPOUSES TRINIDAD AND EPIFANIO NATINO, petitioners, vs. THE INTERMEDIATE APPELLATE COURT, THE RURAL BANK OF AGUILAR, INC. AND THE PROVINCIAL SHERIFF EX-OFFICIO OF PANGASINAN, respondents. Jose P. Villamor for petitioners. Oscar A. Benzon for private respondents. Bitty G. Viliran for Rural Bank of Aguilar, Inc.

DAVIDE, JR., J.:p Unsatisfied with the decision of 4 June 1985 and the resolution of 23 December 1985 of the then Intermediate Appellate Court (IAC) in A.C.-G.R. CV No. 69539 1 which, respectively, reversed the decision of the then Court of First Instance of Pangasinan, Branch II, of 1 December 1981 in Civil Case No. 15573, and denied the motion for the reconsideration of the 4 June 1985 decision, petitioners filed with this Court the instant petition to seek reversal thereof. They submit one principal issue: whether or not the conclusion drawn by the Intermediate Appellate Court from proven facts is correct. 2 The following facts are not disputed: On 12 October 1970 petitioners executed a real estate mortgage in favor of respondent bank as security for a loan of P2,000.00. Petitioners failed to pay the loan on due date. The bank applied for the extrajudicial foreclosure of the mortgage. At the foreclosure sale on 11 December 1974 the respondent bank was the highest and winning bidder with a bid of P2,945.11. A certificate of sale was executed in its favor by the sheriff and the same was registered with the Office of the Register of Deeds on 29 January 1975. The certificate of sale, a copy of which was furnished the petitioners by registered mail, expressly provided that the redemption period shall be two years from the registration thereof. Since no redemption was made by petitioners within the two-year period, which expired on 29 January 1977, the sheriff issued a Final Deed of Sale on 15 February 1977. Petitioners, however, claimed that they were granted by respondent bank an extension of the redemption period; but the latter denied it. On 22 November 1979 respondent bank file a petition for a writ of possession, which petitioners later opposed on the ground that they had consigned the redemption money of P4,000.00 on 12 December 1979. The court rejected the opposition and issued the writ of possession. However, to prevent its execution, petitioners instituted with the then Court of First Instance of Pangasinan a complaint against respondent bank and the Ex-Officio Provincial Sheriff for the annulment of the aforementioned final deed of sale and for the issuance of a writ of preliminary injunction. The case was docketed as Civil Case No. 15573 which was raffled to Branch II thereof. In their complaint petitioners alleged that the final deed of sale was prematurely issued since they were granted an extension of time to redeem the property.

In resolving the issue of extension of the redemption period, the trial court, in its Decision of 1 December 1981, made the following findings and conclusion: xxx xxx xxx From the bank's evidence, it is difficult to believe that the plaintiffs who are personally known to the president and manager herself, and from whom she had to hire trucks, would not have made any move or offer to redeem the property within the redemption period. The presumption is that they exercised ordinary care of their concerns (Sc. 5 (d), Rule 131, Rules of Court, Cabigao vs. Lim 50 Phil. 844). If indeed, the plaintiffs made no such offer during the redemption period, the defendant bank should have presented evidence rebutting the plaintiffs' evidence. But it did not. While the plaintiff testified that the tender was made to Mr. Salgado, loan clerk, and Mr. Madrid, Acting Manager of the Bank and also board members Dr. Jing Zarate and Mr. Rosario, none of them were presented to rebut plaintiffs' evidence. Hence, the presumption that if their testimony were produced, it would be adverse to the defendant bank under Sec. 5(e) Rule 131 of the Rules of Court, would apply. Furthermore, the very evidence of the defendant bank shows that there was indeed an extension of the period to redeem the property. The statutory period of redemption granted the mortgagor in the certificate of sale registered on January 29, 1975 was 2 years. The period should have terminated on January 29, 1977. However, the Sheriff's Certificate of Final sale was only executed on February 15, 1977 and registered only on November 14, 1979 which registration date is the effective date of the confirmation of the sale which cuts off redemption. Such extension of nearly 3 years strengthens the plaintiffs' claim that indeed, there was an agreement to extend the redemption date. The plaintiffs' evidence has shown that there was an agreement between them and the defendant bank through its personnel and its president and manager, acting as its agents to extend the period for redemption for the plaintiffs. However, the plaintiffs were not given a specific time to pay and redeem but were given by the President and Manager of the bank such time when their means permit them to do so. This created an obligation with a period under Art. 1180 of the Civil Code of the Philippines, which provides: Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article 1197. This does not mean that the condition was exclusively dependent of the will of the plaintiffs, for they had already promised payment. If therefore became necessary, under Article 1197 for the Court to fix the term in order that the condition may be fulfilled. Any action to recover before this is done is considered premature (Patents vs. Omega, 93 Phil. 218). That agreement or contract entered into between the President and Manager of the bank was not in writing is of no moment since under Article 1315 of the Civil Code, "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." The defendant's claim that the agreement must be in writingciting the ruling in the case of Pornellosa vs. Land Tenure Administration, 1 SCRA 375, only applies to executory contracts, not to those either totally or partially performed, (Inigo vs. Estate of Maloto, 21 SCRA

246). In this case, the bank had already partially performed its obligation thereunder by extending the period redemption from January 29, 1977 to November 14, 1979. The agreement does not novate the original contract of mortgage but only changes one of its conditions, that which concerns the period of redemption. The period of redemption may be extended by the parties under special circumstances (Lichauco vs. Olegario, 43 Phil. 540, 542). This the parties may do, since the right of the mortgagee to demand compliance within the 2 year period of redemption maybe waived, unless the waiver is contrary to the public order, public policy, morals or good customs or prejudicial to a third person with a right recognized by law." None of the inhibitions enumerated are present in this case.
Hence, the action of the defendant bank in securing the Sheriffs Final Sale prior to the fixing of the period within which the plaintiffs had to pay was not in order by reason of the extension of the period of redemption without a term. Not being in order, the period for redemption by the plaintiffs still exists but has to be set. 3

and on the basis thereof, decreed to (a) annul the Sheriffs Final Deed of Sale, dated 15 February 1977 and its registration of 17 March 1979, (b) fix the period of redemption to ninety (90) days from receipt of the decision by petitioners, (c) order petitioners to pay the respondent bank, within ninety (90) days from receipt of the decision the amount of P2,945.11, the purchase price, with 1% interest per month from 11 December 1974 to 14 December 1979, together with any amount representing assessment or taxes which the bank may have paid after 11 December 1974, with interest thereon at 1% per month up to 14 December 1979, (d) order the Bank to receive and credit the petitioners with such amounts, restore petitioners to the property and to deliver to them a certificate of redemption, and to pay petitioners the sum of P2,000.00 as attorney's fees and the costs. 4 Respondent bank appealed from said Decision to the then Intermediate Appellate Court which docketed the appeal as C.A.-G.R. CV No. 69539. In support of its appeal, respondent bank assigned the following errors: -ITHE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE APPELLEES TO THE APPELLANTS WERE MADE AFTER THE PERIOD OF REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF FACT, WERE MADE ONLY AFTER THE EXECUTION OF THE DEED OF FINAL SALE BY THE SHERIFF. -IITHE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED THE APPELLEES AN EXTENSION OF THE PERIOD FOR THE REDEMPTION OF THE PROPERTY WHICH WAS SOLD DURING THE FORECLOSURE SALE. -IIITHE LOWER COURT ERRED IN HOLDING THAT THE PREPONDERANCE OF EVIDENCE FAVORS THE APPELLEES DESPITE THE FACT THAT THE ONLY EVIDENCE PRESENTED BY THEM IS THE SOLE TESTIMONY OF EPIFANIO NATINO, WHICH IS NOT ONLY UNCORROBORATED, BUT IS EVEN

CONTRARY TO THE IMPORT OF HIS DECLARATIONS AND ADMISSIONS MADE IN OPEN COURT; AS AGAINST THE TESTIMONY OF THE APPELLANTS' WITNESS WHICH IS CORROBORATED, NOT ONLY BY DOCUMENTARY EVIDENCE, BUT EVEN BY THE IMPORT OF PLAINTIFFAPPELLEES' TESTIMONY. -IVTHE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-APPELLEE WHICH DID NOT PROVE AN OFFER TO REDEEM WITHIN THE REGLEMENTARY PERIOD IN AN AUTHENTIC MANNER AS REQUIRED BY THE LAW, RULES AND JURISPRUDENCE. -VTHE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-APPELLEE ON THE ALLEGED EXTENSION OF THE REDEMPTION PERIOD INASMUCH AS IT IS NOT IN A PUBLIC DOCUMENT OR AT LEAST IN AN AUTHENTIC WRITING. -VITHE LOWER COURT ERRED IN APPLYING ARTICLES 1180 AND 1197 OF THE CIVIL CODE, BOTH OF WHICH HAS NO RELEVANCE OR MATERIALITY TO THE CASE AT BAR. -VIIASSUMING ARGUENDO THAT SOME OFFICERS OR EMPLOYEES OF THE APPELLANT BANK MANIFESTED TO THE PLAINTIFF-APPELLEE THAT THEY CAN RECOVER THE LAND IN QUESTION, AS TESTIFIED BY THE PLAINTIFFAPPELLEE, THE LOWER COURT ERRED IN HOLDING THAT SUCH OFFICERS ACTED AS AGENTS OF THE APPELLANT-BANK. CONSEQUENTLY, THE LOWER COURT ERRED IN NOT HOLDING THAT ONLY THE ACTION BY THE BOARD OF DIRECTORS OF THE BANK CAN BIND THE LATTER. -VIIITHE LOWER COURT ERRED IN HOLDING THAT THE EXECUTION OF THE DEED OF FINAL SALE WAS NOT IN ORDER AND IN HOLDING THAT THE APPELLEES MAY STILL REDEEM THE PROPERTY BY PAYING THE PURCHASE PRICE PLUS 1% INTEREST PER MONTH, DESPITE THE LAPSE OF THE PERIOD OF REDEMPTION. -IXTHE LOWER COURT ERRED IN NOT DECIDING THE CASE IN FAVOR OF THE APPELLANTS AND CONSEQUENTLY ERRED IN NOT AWARDING DAMAGES TO THE APPELLANTS HEREIN. 5

Herein petitioners, as appellees, did not file their Brief.

In its Decision of 4 June 1985, the Intermediate Appellate Court disposed of the assigned errors as follows: xxx xxx xxx The bank has assigned eight (8) errors in the decision but the determinants are the first and the second. But before going into their merits We must take note of the failure of the appellees to file their brief. Appellees did not file any motion for reconsideration. It has to be stated there that, generally, appellee's failure to file brief is considered as equivalent to a confession of error, warranting, although not necessarily requiring a reversal, but any doubt entertained by the appellate court as to what disposition should be made of the case will be resolved against the appellee (4 CJS 1832, cited in Francisco, the Revised Rules of Court Civil Procedure, Vol. III, p. 638) Re the first error THE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE APPELLEES TO THE APPELLANTS WERE MADE AFTER THE PERIOD OF REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF FACT, WERE MADE ONLY AFTER THE EXECUTION OF THE DEED OF FINAL SALE BY THE SHERIFF. It will take better proofs than appellees' mere declaration for the Court to believe that they had tendered the redemption money within the redemption period which was refused by the bank. There would have been no valid reason for a refusal; it is an obligation imposed by law on every purchaser at public auction that admits of redemption, to accept tender of redemption money. And should there be refusal, the correlative duty of the mortgagor is clear: he must deposit the money with the sheriff. The evidence does not show that appellees complied with this duty. All that was shown by way of compliance was the deposit made with the Clerk of Court of the sum of P4,000.00. This deposit is a belated and last ditch attempt to exercise a right that had long expired. It was made only on December 12, 1979, or after the redemption period of two (2) years from January 29, 1977 when the sheriffs certificate of sale was registered and after sheriff's final sale which was registered on November 14, 1979. And, it is clear that the late deposit was utilized to defeat the bank's vested right which it sought to enforce by its petition for a writ of possession. The lower court correctly ruled against any validity to it. The right to redeem becomes functus officio on the date of its expiry, and its exercise after the period is not really one of redemption but a repurchase. Distinction must be made because redemption is by force of law; the purchaser at public auction is bound to accept redemption. Repurchase however of foreclosed property, after redemption period, imposes no such obligation. After expiry, the purchaser may or may not re-sell the property but no law will compel him to do so, And, he is not bound by the bid price; it is entirely within his discretion to set a higher price, for after all, the property already belongs to him as owner. This brings Us to the second error THE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED THE APPELLEES AN EXTENSION OF

THE PERIOD FOR THE REDEMPTION OF THE PROPERTY WHICH WAS SOLD DURING THE FORECLOSURE SALE. Appellees' main premise is the alleged assurances of the bank's officers that they could redeem the property. From the testimony of Epifanio Natino, however, it is clear that these assurances were given before expiry of redemption (tsn, pp. 15 & 16). Such assurances were not at all necessary since the right to redeem was still in existence. Those assurances however could not and did not extend beyond the redemption period.
It seems clear from testimony elicited on cross-examination of the president and manager of the bank that the latter offered to re-sell the property for P30,000.00 but after the petition for a writ of possession had already been filed, and well after expiry of the period to redeem. Appellants failed to accept the offer; they deposited only P4,000.00. There was therefore no meeting of the minds, and accordingly, appellants may no longer be heard. 6

and in the light thereof, REVERSED and SET ASIDE the appealed decision. Their motion to reconsider the same having been denied in the resolution of 23 December 1985, 7 petitioners have come to Us on appeal by certiorari raising the sole issue stated in the beginning of this decision. We find the petition to be devoid of merit. Petitioners have failed to demonstrate that the conclusion made by the respondent Intermediate Appellate Court from the proven facts is wrong. We agree with said Court, and, therefore, set aside the contrary conclusion of the trial court, that the attempts to redeem the property were done after the expiration of the redemption period and that no extension of that period was granted to petitioners. The contrary conclusion made by the trial court is drawn from inferences which are not supported by adequate or sufficient facts or is based on erroneous assumptions. We note that its decision is remarkably silent as to the dates when petitioner Epifanio Natino went to the respondent bank to talk with a bank personnel to offer to pay the loan. If indeed the offer was made within the redemption period, but the Bank refused to accept the redemption money, petitioners should have made the tender to the sheriff who made the sale and who then had the duty to accept the tender and execute the certificate of redemption. (Enage vs. Vda. de Hijos de Escano, 38 Phil. 657, cited in II MORAN, Comments on the Rules of Court, 1979 Ed., pp. 326-327). There was no such tender to the Sheriff. Again, if indeed this occurred during the redemption period, then, as correctly pointed out by respondent IAC, it was not necessary to ask for extension of the period to redeem. In respect to the alleged assurance given by Mrs. Brodeth, the President and Manager of the Bank, sometime in May of 1978 to the effect that petitioners can redeem the property as soon as they have the money, it is obvious that this took place after the expiration of the redemption period. As correctly pointed out by the respondent IAC, this could only relate to the matter of resale of the property, not redemption. Furthermore, even assuming for the sake of argument that Mrs. Brodeth gave the assurance, the same could bind the bank only if its Board of Directors approved or ratified it. No evidence was offered to prove such action by the Board. Moreover, Mrs. Brodeth denied that during that meeting in May 1978 she made the assurance; according to her petitioner Epifanio neither mentioned the loan nor offered to redeem, although earlier he was told that to 'redeem" the property he should pay P30,000.00. The latter statement supports the conclusion of respondent IAC that this was the Bank's offer for the re-sell (not redemption of the property), which, logically took place after the expiration of the redemption period.

Even if Mrs. Brodeth is to be understood to have promised to allow the petitioners to buy the property at any time they have the money, the Bank was not bound by the promise not only because it was not approved or ratified by the Board of Directors but also because, and more decisively, it was a promise unsupported by a consideration distinct from the re-purchase price. The second paragraph of Article 1479 of the Civil Code expressly provides: xxx xxx xxx An accepted unilateral. promise to buy or to sell a determinate thing for a price certain is binding upon the promissory if the promise is supported by a consideration distinct from the price. Thus in Rural Bank of Paraaque Inc. vs. Remolado, et al., 8 a commitment by the bank to resell a property, within a specified period, although accepted by the party in whose favor it was made, was considered an option not supported by a consideration distinct from the price and, therefore, not binding upon the promissor. Pursuant toSouthwestern Sugar and Molasses Co. vs. Atlantic Gulf and Pacific Company, 9 it was void. WHEREFORE, the instant petition is DISMISSED, with costs against the Petitioners. SO ORDERED. Fernan C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur,

G.R. No. L-7382

June 29, 1955

SOUTHWESTERN SUGAR AND MOLASSES COMPANY, plaintiff-appellee, vs. ATLANTIC GULF & PACIFIC COMPANY, defendant-appellant. Arturo A. Alafriz and A. B. Alcera for appellant. Mariano Agoncillo for appellee. BAUTISTA ANGELO, J.: This is an action for specific performance. On March 24, 19 53, the Atlantic Gulf & Pacific Company of Manila, hereafter called Atlantic Gulf for short, granted an option to Southwestern Sugar & Molasses Co. (Far East) Inc., hereafter called Southwestern Company, to buy its barge No. 10 for the sum of P30,000 to be exercised within a period of ninety days. On May 11, 1953, the Southwestern Company wrote to Atlantic Gulf advising the latter that it wanted "to exercise our option at your earliest convenience" and requested that it be notified as soon as the barge was available. On May 12, 1953, the Atlantic Gulf replied stating that their understanding was that the "offer of option" is to be a cash transaction and to be effected "at the time the lighter is available", and, on June 25, 1953, reiterating the unavailability of the barge, it further advised the Southwestern Company that since there is still further work for it, and as this situation still applies" the barge could not be turned over to the latter company.

On June 27, 1953, in view if such vacillating attitude, the Southwestern Company instituted the present action to compel the Atlantic Gulf to sell the barge in line with the option, depositing with the court a check covering the sum of P30,000. This check however was later withdrawn with the approval of the court. On June 29, 1953, the Atlantic Gulf withdraw its "offer of option" with due notices to the Southwestern Company stating as reason therefor that the option was granted merely as a favor. The Atlantic Gulf set up as a defense the option to sell made by it to the Southwestern Company is null and void because it is not supported by any consideration. After due trial, the lower court rendered judgment granting plaintiff's prayer for specific performance. It further ordered the defendant to pay damages in an amount equivalent to 6 per centum per annum on the sum of P30,000 from the date of the filing of the complaint, and to pay the sum of P600 as attorney's fees, plus the costs of action. The case before us on the assertion that the only issue involved is one of law. The option granted by appellant to appellee is contained in a letter dated March 24, 1953 which reads as follows: March 24, 1953 Southwestern Sugar & Molasses Co. Far East, Inc. 145 Muelle de Binondo Manila, Philippines Gentlemen: This is to confirm our conversion of today whereby we offer you our Barge No. 10, which is 120' 00" long by 44"-0 wide and 9'-0" deep, for the sum of of P30,000. Barge to cleaned of creosote and fuel oil. This option is to be good for ninety (90) days, or until June 30, 1953. Yours very truly, ATLANTIC, GULF & PACIFIC CO. OF MANILA (Sgd.) W. H. SCHOENING The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in support thereof it invokes article 1479 of the new Civil Code. This article provides: ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. On the other hand, appellee contends that, even granting that the "offer of option" is not supported by any consideration, that option became binding on appellant when the appellee gave

notice to its acceptance, and that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support of this contention, appellee invokes article 1324 of the Civil Code which provides: ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. There is no question that under article 1479 of the new Civil Code "an option to sell", or a "promise to buy or to sell", as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of said article that a unilateral promise to buy or sell, even if accepted, is only binding if supported by a consideration. In other words, "an accepted unilateral promise" can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee. It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as modified by the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price. We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article 1479. While under the "offer of option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress. Wherefore, the decision appealed from is reversed, without pronouncement as to costs. Bengzon, Acting C.J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion, and Reyes, J.B.L., JJ.,concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-12888 April 29, 1961

R. F. NAVARRO, doing business under the firm name of R.F. NAVARRO & COMPANY, plaintiff-appellant, vs. SUGAR PRODUCERS COOPERATIVE MARKETING ASSOCIATION INC., defendant-appellee. Marquez, Quirino and Associates for plaintiff-appellant. San Juan, Africa and Benedicto for defendant-appellee.

BARRERA, J.: Plaintiff-appellant R. F. Navarro (doing business under the firm name R.F. Navarro & Company) appeals directly to us from the order of the Court of First Instance of Rizal (in Civil Case No. 1733-P) dismissing his complaint for lack of cause of action, on the assertion that only questions of law are involved herein. The material and pertinent allegations of plaintiff's complaint are: 2. On September 19th, 1956, defendant formally offered to plaintiff the sale from 15,000 to 20,000 metric tons of molasses, 1st-degrees gravity, 60% sugar by invert, at P50.00 per metric ton, ex-warehouse San Carlos and Bais, Negros Occidental, giving him up to noon of September 24th, 1956 within which to accept the offer, with the admonition that upon its failure to hear from him by then, the defendant shall feel free to negotiate the sale with other possible buyers; 3. On September 21st, 1956, answering an inquiry made by the plaintiff, the defendant advised the latter that the cost of pumping the molasses offered by it for sale is P1.20 per metric ton in San Carlos district and P3.00 per metric ton in Bais district and that the date of delivery thereof shall start from February on to March, April and May, 1957, as milling in the districts indicated (San Carlos and Bais) starts during the month of January; 4. Promptly at five minutes before noon of September 24th, 1956, plaintiff formally accepted the offer of sale tendered by the defendant by informing the latter in writing that he binds himself to purchase from the preferred 20,000 metric tons of molasses in question for P50.00 per metric ton, and the day after September 21st, 1956, plaintiff upon the request of defendant, made the following clarifications of his agreement to purchase the said molasses, (1) 20,000 metric tons of Philippine molasses, 185-degrees specific gravity, 60% sugar by invert; (2) Price P50.00 Philippine currency, per metric ton exwarehouse; (3) shipments to be in quantities of 3,000 or more metric tons every each shipment during the month of February, March, April and May until the whole amount has been completely shipped; and (4)payment shall be by irrevocable, divisible and assignable domestic letter of credit to be opened in a local bank in defendant's favor; 5. On the same day plaintiff made the foregoing clariffications of his acceptance of the sale, the defendant hurried advised plaintiff that it committed a typographical error indicating the specific gravity of the molasses at 185-degrees which should be only 85degrees, the latter being the high for molasses at 60% sugar by invert, and requesting plain that the "specific gravity" be amended accordingly, which correction and amendment plaintiff readily agreed to and accepted: 6. That neither on September 24th, 1956 when plaintiff exercised his option nor on September 25th when he request plaintiff to clarify his acceptance to indicate the manner payment, nor upon the submittal of the clarification which presented by plaintiff himself and received by the defendant thru its President, Amado Garcia, and for three days the after, there was no single word, effort or hint that the defendant's offer, accepted by the plaintiff, was qualified in any way whatsoever; 7. That on September 24th, 1956, relying upon the consummation and perfection of the purchase and sale of 20,000 metric tons of molasses in question as indicated above, plaintiff through his business associate here in Manila (J.D. QUIRINO) continued negotiations for the resale of said molasses to foreign buyers of said conunodity by immediately communicating the availability of said commodity through letters, cablegrams a long-distance calls to the latter's business contacts in U.S.A., a Japan, and ultimately disposing and reselling the said molasses for forward deliveries in accordance with plaintiff's agreement with the defendant;

8. On September 28th, 1956, three days after an agreement had been consummated on the price, quantity and quality of said molasses and the manner of payment thereof, the defendant, belatedly and abruptly advised plaintiff of its desire add certain additional conditions to be incorporated in the formal contract of purchase and sale then under preparation by it for signature, which were never even mentioned nor hinted at in its original offer or proposal, on the untenable pretext that they were 'standard conditions' on all contracts for the sale said commodity, the most onerous of which were, "(a) That upon the signing of the contract of purchased and sale; plaintiff shall pay defendant in cash an amount equivalent to 50% of the purchase value Of the molasses; "(b) that to cover the remaining and unpaid balance of the purchase price, plaintiff shall open with the Philippine National Bank an irrevocable domestic letter of credit in favor of defendant, which shall be assignable and divisible; and "(c) that in negotiating the said letter of credit, plaintiff shall allow defendant immediately to withdraw from the same the corresponding amount representing 50% of the value of the molasses withdrawn from the central, upon presentation of the requisite certificate thereof (certainly a condition which, taken with (a) above, is most one-sided in favor only of the seller); 9. On October 2nd, 1956, plaintiff personally conferred with the defendant's manager, Amado G. Garcia, with a view of threshing out the difficulties necessarily evoked by the foregoing conditions belatedly demanded by the defendant, but the latter remained adamant in the defendant, and the day after (October 3rd, 1956), it peremptorily gave plaintiff up to noon again of October 26th, 1956, within which to decide upon his acceptance of said additional conditions with the warning that if he failed to do so, it would feel free to advise its planters concerned that they could negotiate their molasses with other parties; 10. On October 5th, 1956, plaintiff, in a spirit of cooperation and in his desire to insure the success of his purchase of the molasses in question, reiterated to the defendant his readiness and willingness, already imparted to it during their conference on October 2nd , to assist defendant in working out certain financing transactions with the bank whereby it may be possible to provide in the letter of credit to be opened in favor of the defendant authority to draw cash advances up to 50% of the contract value of the molasses, under certain conditions, and alternatively, plaintiff expressed his willingness to satisfy defendant's desire to be paid in advance an amount equivalent to 50% of the purchase value of the molasses, but provided, that their original agreement of P50.00 for metric ton were to be converted into what is known as "equal standard condition", under which the purchase value would be only P32.00 per metric ton; 11. On the very same day and evidently without even any attempt to consider the matter further, defendant simply and rudely turned down the foregoing friendly gesture of the plaintiff caused by the additional conditions demanded by the defendant in its letter of September 28, 1956 (indicated in par. 7 above), and bluntly informed plaintiff that in view of his non-acceptance of said conditions it would not continue with the sale of the molasses in question to plaintiff and that it felt free to offer the same to any other interested buyer. Claiming breach of contract, plaintiff prayed that judgment be rendered ordering defendant to comply with and perform its contractual obligations, pursuant to its agreement with plaintiff of September 19 and 24, 1956 and in case of failure to do so, to pay plaintiff any and all damages he may suffer by reason of such non-compliance, plus moral damages and to pay plaintiff reasonable attorney's fees and actual costs of the litigation.

As heretofore stated, upon defendant's motion to dismiss on the ground that it (complaint) states no cause of action for the reason that "there is no binding contract between" plaintiff and defendant, under Article 1479 of the New Civil Code, the trial court dismissed the action in an order which in part reads: ORDER xxx xxx xxx

The defendant contends that the complaint states no cause of action because defendant's promise to sell, although accepted by the plaintiff, is not supported by any consideration distinct from the price and, under Article 1479 of the New Civil Code, is not binding. Article 1479 provides: "A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. "An accepted unilateral promise to buy or sell a determinable thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price." Although the existence of a lawful consideration or cause of support a contract is presumed, yet from the allegations of the herein complaint, it is apparent that the defendant's promise to sell is not supported by any consideration. In fact, the absence of any consideration of the option given to the plaintiff was admitted by plaintiff's counsel in his oral argument opposing the defendant's motion to dismiss. Plaintiff, however, contends that the option became binding on the defendant when plaintiff gave notice of its acceptance and that having been accepted within the period of the option, the offer can no longer be withdrawn and, in any event, such withdrawal is ineffective because there had already arisen an existing bilateral contract which can be enforced. The case of Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. (51 O.G. 3447) is practically on all fours with the case at bar. In said case, on March 24, 1953, defendant Atlantic Gulf & Pacific Co. granted an option to plaintiff Southwestern Sugar & Molasses Co. to buy its barge for P30,000.00 to be exercised within ninety days. On May 11, 1953, Atlantic Gulf wrote Southwestern Sugar that it was exercising its option and that it be notified as soon as the barge was available. On May 12, 1953, Atlantic Gulf replied that their understanding was that the "offer of option" is to be cash transaction and to be effected at the time the barge was available. On June 25, 1953, Atlantic Gulf informed Southwestern Sugar that the damage action could not be turned over to the latter. On June 27, 1953, Southwestern Sugar instituted an action for specific performance in line with the accepted option, depositing with the Court the purchase price of 30,000.00. Atlantic Gulf, relying upon Article 1479 of the New Civil Code, contended that the option was not valid because it was not supported by any consideration apart from the price. Southwestern Sugar contended that the option became binding on Atlantic Gulf when plaintiff gave notice of its acceptance during the option period citing as its authority Article 1324 of the New Civil Code which provides that 'when the offer or has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal except "when the option is founded upon a consideration, as something paid or promised." Upholding the contention of Atlantic Gulf and holding that the promise to sell was not valid because it was not supported by a consideration distinct from the price, the (Supreme) Court stated: "There is no question that under Article 1479 of the New Civil Code "an option to sell" or a "promise to buy or to sell", as used in said article, to be valid must be "supported by a consideration distinct from the price". This is clearly inferred from

the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration. In other words, "an accepted unilateral promise" can only have a binding effect if supported by a consideration. Here, it is not disputed that the option is without consideration. It can, therefore, be withdrawn notwithstanding the acceptance made of it by appellee." "It is true that under Article 1324 of the New Civil Code, the general rule regarding offer and acceptance is that, when the offer or gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance" except when the option is founded upon consideration, but this general provision must be interpreted as modified by the provision of Article 1479 above referred to, which applies to "a promise to buy and sell" specifically. As already stated, this rule requires that a premise to sell to be valid must be supported by a consideration distinct from the price." On the strength of the above ruling laid down in the above cited case of Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., supra, the facts of which are identical with those alleged in the present complaint, this Court rules that since the herein defendant's promise to sell is not supported by any consideration distinct from the price, said promise si invalid and enforceable. Plaintiff's complaint does not, hence state a cause of action. While under the allegations of the present complaint, here in defendant may have assumed a clear obligation to sell it molasses to plaintiff at P50.00 per metric ton and, under the complaint, said defendant may have no justifiable reason not to proceed with the sale, yet, this Court cannot do otherwise that declare the option not binding and unenforceable in view of the clear provisions of the law on the matter. Thus, said the Supreme Court in the above-mentioned case of Southwestern Sugar v. Atlantic Gulf: "While under the "offer of option" in question, appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for the appellant to withdraw its offer, this Court cannot adopt a different attitude because the la on the matter is clear. Our imperative duty is to apply it unless modified by Congress." WHEREFORE, the Court sustains, as it hereby sustain the defendant's motion to dismiss and hereby declares plaintiff's complaint dismissed, without costs. SO ORDERED. His motion for reconsideration having been denied, plain plaintiff interposed this appeal. It is the contention of plaintiff-appellant that "the lower court erred in characterizing the transaction had between plaintiff and the defendant as an accepted unilateral promise to buy or to sell, and in deciding that as there was no consideration therefor, Article 1479, paragraph 2 of the Civil Code, and the ruling in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 51 Off. Gaz. 3447, are applicable thereto." In support of his claim, appellant seeks in his brief to differentiate his case from that of Southwestern Sugar & Molasses Company v. Atlantic Gulf & Pacific Company relied upon by the trial court by arguing that what was involved in the Atlantic Gulf case was a mere option, while here the transaction is a bilateral promise to sell and buy which requires no consideration distinct from the selling price.

This contention is not borne out by the facts alleged in the complaint. In the first place, as noted by the trial court in its order denying plaintiff's motion for reconsideration, plaintiff himself, in paragraph 6 of his complaint, referred to the transaction as an "option" which he exercised on September 24, 1956. Then again, in his memorandum in lieu of oral argument, he expressly agreed that the offer made by defendant and described in paragraph 2 of plaintiff's complaint is, In option, a unilateral promise to sell. (See page 4 of the memorandum.) And, undoubtedly, this is the offer, the option, the unilateral promise to sell that was accepted by plaintiff five minutes before the deadline noon of September 24, 1956.(See first part of paragraph 4 of the complaint.) This acceptance, without consideration, did not create an enforceable obligation on the part of the defendant. The offer as well as the acceptance, did not contemplate nor produce an immediately binding and enforceable contract of sale. Both lack a most essential element the manner of payment of the purchase price. In fact, it was only after the exercise of the option or acceptance of the unilateral promise to sell that the terms of payment were first discussed. This was in connection with the clarification of plaintiff's acceptance which was transmitted to defendant on September 25, 1956. (See last part of paragraph 6 of the complaint.) Plaintiff's offer of a domestic letter of credit was not accepted by defendant who insisted on a cash payment of 50% of the purchase value, upon signing of a contract. (See paragraphs 8 and 9 of the complaint.) Plaintiff, on the other hand, agreed to accede to this provided the price is reduced from P50.00 per metric ton to 7132.00 Defendant rejected defendant's alternative counter-offer. In the circumstance, there was no complete meeting of the minds of the parties necessary for the perfection of a contract of sale. Consequently, appellee was justified in withdrawing its offer to sell the molasses in question.(See Zayco vs. Serra, 44 Phil. 326; Montinola v. Victorias Milling Co., et al., 54 Phil. 782; and Batangan v. Cojuangco 78 Phil. 481.) In view of the conclusion we have reached, it would not be necessary to pass upon appellee's motion to dismiss the appeal. WHEREFORE, finding no reversible error in the order appealed from, the same is hereby affirmed, with cost against the plaintiff-appellant. So ordered. Bengzon, C.J., Bautista Angelo, Labrador, Paredes and Dizon, JJ., concur. Padilla, J., took no part. Concepcion and Reyes, J.B.L., JJ., concur in the result. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-25494 June 14, 1972 NICOLAS SANCHEZ, plaintiff-appellee, vs. SEVERINA RIGOS, defendant-appellant. Santiago F. Bautista for plaintiff-appellee. Jesus G. Villamar for defendant-appellant.

CONCEPCION, C.J.:p

Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the case to Us, upon the ground that it involves a question purely of law. The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of said province, within two (2) years from said date with the understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and damages. After the filing of defendant's answer admitting some allegations of the complaint, denying other allegations thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell, and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void" on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos. This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides: ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of which was annexed to said pleading as Annex A thereof and is quoted on the margin. 1 Hence, plaintiff maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has been made "an integral part" of his complaint, the provisions of said instrument form part "and parcel" 2 of said pleading. The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted, however, that: (1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar. (2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price." Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint. (3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as March 14, 1908, it had been held, in Bauermann v. Casas, 3 that: One who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, and without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment on those allegations taken together with such of his own as are admitted in the pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.) This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5 Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from which We quote: The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in support thereof it invokes article 1479 of the new Civil Code. The article provides: "ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price." On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by any consideration, that option became binding on appellant when the appellee gave notice to it of its acceptance, and that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the Civil Code which provides: "ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn any time before acceptance by communicating such withdrawal, except when the

option is founded upon consideration as something paid or promised." There is no question that under article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to sell," as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by consideration. In other words, "an accepted unilateral promise can only have a binding effect if supported by a consideration which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. It is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance of it by appellee. It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as modified by the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price. We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article 1479. While under the "offer of option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress. However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later thatSouthwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said: Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case, however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was a bilateral contract of sale. Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that:

"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See also 27 Ruling Case Law 339 and cases cited.) "It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts the offer and the acceptance could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.) In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale. This view has the advantage of avoiding a conflict between Articles 1324 on the general principles on contracts and 1479 on sales of the Civil Code, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modifiedby Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same principle. Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view adhered to in theSouthwestern Sugar & Molasses Co. case should be deemed abandoned or modified. WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendantappellant Severina Rigos. It is so ordered. Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur. Castro, J., took no part.

Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION G.R. No. L-62051 March 18, 1985 RURAL BANK OF PARARAQUE, INC., petitioner, vs. ISIDRA REMOLADO and COURT OF APPEALS, respondents.

AQUINO, J.: This case is about the repurchase of mortgage property after the period of redemption and had expired. Isidra Remolado, 64, a widow, and resident of Makati, Rizal, owned a lot with an area of 308 square meters, with a bungalow thereon, which was leased to Beatriz Cabagnot (86-7, record on Appeal). The lot is located at 41 Molave Street, United Paraaque, Rizal. In 1966 she mortgaged it to the Rural Bank of Paraaque, Inc. as security for a loan of P15,000. She paid the loan. On April 17, 1971 she mortgaged it again to the bank. She eventually secured loans totalling P18,000 (Exh. At D). the loans become overdue. The bank foreclosed the mortagage on July 21, 1972 and bought the property at the foreclosure sale for P22,192.70. The one-year period of redemption was to expire on August 21, 1973. On August 8, 1973 the bank advised Remolado that she had until August 23 to redeem the property (Exh. U or 6; 53, Record on Appeal). On August 9, 1973 or 14 days before the expiration of the one-year redemption period, the bank gave her a statement showing that she should pay P25,491.96 for the redemption of the property on August 23 (Exh. F). No redemption was made on that date. On September 3, 1973 the bank consolidated its ownership over the property (Exh. H). Remolado's title was cancelled. A new title, TCT No. 418737, was issued to the bank on September 5 (Exh. 0). On September 24, 1973, the bank gave Remolado up to ten o'clock in the morning of October 31, 1973, or 37 days, within which to repurchase (not redeem since the period of redemption had expired) the property (Exh. I-1; 32, Record on Appeal). The bank did not specify the price. On October 26, 1973 Remolado and her daughter, Patrocinio Gomez, promised to pay the bank P33,000 on October 31 for the repurchase of the property (Exh. X or 9; 64, Record on Appeal). Exhibits 1-1 and X do not evidence any perfected repurchase agreemi6nt. Even if it is assumed that the bank's commitment to resell the property was accepted by Remolado, that option was not supported by a consideration distinct from the price (Art. 1479, Civil Code). Lacking such consideration, the option is void (Southwestern Sugar & Molasses Co. vs. Atlantic Gulf & Pacific Company, 97 Phil. 249). Contrary to her promise, Remolado did not repurchase the property on October 31, Five days later, or on November 5, Remolado and her daughter delivered P33,000 rash to the bank's assistant manager as repurchase price. The amount was returned to them the next day, November 6, 1973 (Exh. V, W and 11). The assistant manager had no intention of receiving the money. It was just left with her by Remolado (Exh. 10; 42, Record on Appeal). At that time, the bank was no longer willing to allow the repurchase.

On that day, November 6, Remolado filed an action to compel the bank to reconvey the property to her for P25,491.96 plus interest and other charges and to pay P35,000 as damages. The repurchase price was not consigned. A notice of lis pendens was registered. On November 15, the bank sold the property to Pilar Aysip for P50,000. A new title was issued to Aysip with an annotation of lis pendens (Exh. P and 12; 649, Record on Appeal). The trial court ordered the bank to return the property to Remolado upon payment of the redemption price of P25,491.96 plus interest and other bank charges and to pay her P15,000 as damages. The Appellate Court affirmed the judgment. The bank appealed to this Court. It contends that Remolado had no more right of redemption and, therefore, no cause of action against the bank. We hold that the trial court and the Appellate Court erred in ordering the reconveyance of the property, There was no binding agreement for its repurchase. Even on the assumption that the bank should be bound by its commitment to allow repurchase on or before October 31, 1973, still Remolado had no cause of action because she did not repurchase the property on that date. Justice is done according to law. As a rule, equity follows the law. There may be a moral obligation, often regarded as an equitable consideration (meaning compassion), but if there is no enforceable legal duty, the action must fail although the disadvantaged party deserves commiseration or sympathy. The choice between what is legally just and what is morally just, when these two options do not coincide, is explained by Justice Moreland in Vales vs. Villa, 35 Phfl. 769, 788 where he said: Courts operate not because one person has been defeated or overcome by another, but because he has been defeated or overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by them-indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, a violation of law, the commission of what the law knows as an actionable wrong before the courts are authorized to lay hold of the situation and remedy it. In the instant case, the bank acted within its legal rights when it refused to give Remolado any extension to repurchase after October 31, 1973. It had given her about two years to liquidate her obligation. She failed to do so. WHEREFORE, the Appellate Court's judgment is reversed and set aside. The complaint and counterclaim are dismissed. The notice of lis pendens is cancelled. No costs. SO ORDERED. Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ., concur. Makasiar (Chairman), J., took no part. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-26876 December 27, 1969

LUCRECIA JEREZ, JULIA JALANDONI, JULIETA JALANDONI, EVA JALANDONI, CARMELO JALANDONI, JOSE JALANDONI and ELISEO JALANDONI, petitioners, vs. HON. EMIGDIO V. NIETES, Judge of the Court of First Instance of Iloilo, LUCILO JALANDONI and VICTORIA JALANDONI DE GORRICETA, respondents. Tomas Concepcion, Lorenzo F. Miravite and Corazon Miraflor for petitioners. No appearance for respondents. FERNANDO, J.: This Court has not had previously the opportunity to pass squarely on the question raised in this petition for the review of a resolution of the Court of Appeals sustaining an order of respondent Judge Emigdio V. Nietes of the Court of First Instance of Iloilo, reopening the proceedings in the intestate estate of the late Nicolas Jalandoni, after having approved a project of partition and final accounting, and allowing a plea of intervention filed within the reglementary period by the other respondents, Lucilo Jalandoni and Victoria Jalandoni de Gorriceta, allegedly children of the deceased with an illegitimate status. The petitioners are the widow and the legitimate children of the late Nicolas Jalandoni.1 The Court of Appeals cannot be reversed for recognizing the existence of such a power possessed by the respondent Judge to thus act favorably on a motion to intervene even if submitted at such a stage. That is the answer we give to the main issue thus posed. Our approval of the action taken, however, is not unqualified. For respondent Judge apparently was much too generous in his appraisal of the right of the private respondents to intervene, accepting as established what ought to have been proved. A modification of the appealed resolution is thus called for. The facts are undisputed. Nicolas Jalandoni died on October 3, 1960. Before the end of that month, on October 27, a special proceeding2 for the settlement of his estate was filed before the sala of respondent Judge, petitioner Lucrecia Jerez, his widow, being appointed as administratrix. A project of partition and final accounting was submitted on June 14, 1966, resulting in an order from respondent Judge dated June 15, 1966, approving the same. On June 29, 1966, respondent Lucilo Jalandoni, alleging that he is an acknowledged natural child of the late Nicolas Jalandoni, and respondent Victoria Jalandoni de Gorriceta, alleging that she is an illegitimate daughter, sought to be allowed to intervene on the ground that they were preterited in the project of partition which they would have respondent Judge reject for being contrary to law. Then came on July 80, 1966 an order of respondent Judge allowing intervention and reopening the proceedings to permit the movants, now private respondents, "to present whatever evidence they may have to show their right to participate in the estate of the deceased." After a motion for reconsideration, filed by petitioners, was denied, the matter was elevated to the Court of Appeals on a petition for certiorari and prohibition with preliminary injunction filed on September 3, 1966. As set forth at the opening of this decision, the Court of Appeals in a resolution of September 21, 1966 denied such petition to annul and set aside the order of respondent Judge. The basis for such resolution, penned by Justice Martin with the concurrence of Justice Rodriguez, Justice Esguerra concurring in the result with a separate opinion, was explained in this wise: ". . . that the determination of a prima facie interest in an estate to justify reopening proceedings for the settlement thereof is primarily addressed to the sound discretion and judgment of the probate court; that, while no supporting documents are appended to the motion to reopen tending to show the personality to intervene, the said motion is nevertheless verified upon oaths of the claimants of interest and the probate court has authority to require the submission of at least a prima facie showing of said interest; that the motion to reopen was filed on June 29, 1966 before the order closing the proceedings of June 15, 1966 had achieved finality and during the reglementary period within which the court still had jurisdiction over the case and retained full power to amend and control its process and orders so as to make them comfortable to law and justice; that, because the closure order aforesaid had not yet become final, the requirements of Rule 38

respecting relief from judgment do not apply and, hence, the failure of the motion to reopen to allege any of the grounds therein stated is not fatal; that the better practice in case of the appearance of alleged preterited heirs is to secure relief by reopening the proceedings by a proper motion within the reglementary period (Ramos, et al. vs. Ortuzar, et al., G.R. No. L-3299, August 20, 1951), it being desirable that all aspects of a controversy be ventilated in the same proceeding and thus avoid multiplicity of suits; . . . ."3 Evidently, an ordinary division of three Justices did not suffice for a decision on such petition for certiorari and prohibition resulting in a creation of a division of five. Two Justices dissented from the aforesaid resolution, the dissenting opinion being penned by Justice Lucero with whom Justice Villamor concurred. The dissent is premised on the following considerations: "We should not let Lucilo Jalandoni (alleged acknowledged natural son) and Victoria Jalandoni de Gorriceta (alleged illegitimate daughter) to come in first and identify themselves later, because the better policy according to jurisprudence (Asinas vs. Court, 51 Phil. 665) is to require them first to produce prima facie evidence of such a civil status before opening the door and letting them in. Under Section 2, Rule 12, Revised, 'a person may, before or during a trial, be permitted by the court, in its discretion, to intervene in an action, if he has legal interest in the matter in litigation.' The possibility of interlopers getting in for a share in the estate cannot be totally discounted specially considering that the present intestate proceedings had been pending for the last six (6) years without a motion to intervene having been filed by the present claimants in spite of the notice of publication and the in rem character of the intestate proceedings. According to their residence certificate, the claimants are residents of Iloilo City (Rec. 20). The procedure adopted by the lower court is more conducive to prejudice and unnecessary loss of time, effort and expense than the method suggested by jurisprudence of requiring first a prima facie evidence of status before letting them come in to intervene. Hence, the order of July 30, 1966 sought to be nullified under the present petition insofar as it reconsidered the approval of the project of partition and the first accounting is unjustified, as practically putting the cart before the horse instead of the horse before the cart. Moreover, the claims can be asserted in a separate action against the legitimate children to whom the share of the deceased Nicolas Jalandoni was adjudicated."4 Stress is laid in this petition for review in respondent Judge allowing private respondents to intervene after the intestate proceedings were closed. We do not see it that way. We repeat what we said at the outset. The challenged resolution cannot be reversed insofar as it recognized the power of respondent Judge to reopen the proceedings and allow intervention. While it is undeniable that the question presented has not been definitely passed upon before, still an indication of how such an issue should be resolved is to be found in an opinion of Justice Tuason in Ramos v. Ortuzar,5 referred to in the resolution of the Court of Appeals. Thus: "The only instance that we can think of in which a party interested in a probate proceeding may have a final liquidation set aside is when he is left out by reason of circumstances beyond his control or through mistake or inadvertence not imputable to negligence. Even then, the better practice to secure relief is reopening of the same case by proper motion within the reglementary period, instead of an independent action the effect of which, if successful, would be, as in the instant case, for another court or judge to throw out a decision or order already final and executed and reshuffle properties long ago distributed and disposed of." The above excerpt commends itself for approval. We do so now and definitely hold that rather than require any party who can allege a grievance that his interest was not recognized in a testate or intestate proceeding to file a separate and independent action, he may within the reglementary period secure the relief that is his due by a reopening of the case even after a project of partition and final accounting had been approved. Such a view finds support in the doctrine of liberality as to pleas for intervention so consistently followed and adhered to by this Court.6 As was emphatically expressed by Justice Makalintal, speaking for this Court, in Balane v. De Guzman:7 "Respondent Judge would have done well to brush aside narrow technicalities in this case, allow the intervention prayed for and thus avoid needless delay in the resolution of the conflicting interests of all the parties."

It is thus understandable why the resolution of the Court of Appeals upholding the power of respondent Judge to reopen the proceedings and allow intervention is not vulnerable to attack. It was within his competence to do so. The question remains, however, whether he did so in the appropriate manner. It is not the existence of the power but the mode of its exercise that is open to question. In that sense, the appealed resolution bears further scrutiny. It is indisputable that after the project of partition and final accounting was submitted by the counsel for petitioner Lucrecia Jerez, as administratrix, on June 14, 1966, respondent Judge approved the same and declared closed and terminated the intestacy the next day, June 15, 1966. Subsequently, on a verified petition by private respondents, filed on June 29, 1966, based on the assertion made that they should have had a share in the estate as illegitimate children but that they were omitted in the aforesaid project of partition, they sought to be allowed to intervene and "to have the project of partition rejected for being contrary to law." Such a pleading, without more, resulted in the questioned order of July 30, 1966, reopening the proceedings and reconsidering the approval of the project of partition and final accounting, to enable the private respondents "to present whatever evidence they may have to show their right to participate in the estate of the deceased." Although the recognition of their right to intervene appeared to be tentative and conditional, it cannot be denied that they were given a standing sufficient to set aside the project of partition. Respondent Judge acted too soon. The verified motion on the part of private respondents did not suffice to call into play the power of respondent Judge to allow intervention. There must be proof beyond allegations in such motion to show the interest of the private movants. In the absence thereof, the action taken by respondent Judge could be considered premature. As was stated by us in an opinion penned by Justice Sanchez: "No one may quibble over the existence of the court's discretion on whether to admit or reject intervention. But such discretion is not unlimited."8 WHEREFORE, the resolution of September 21, 1966 of the Court of Appeals is hereby modified in the sense that respondent Judge, Honorable Emigdio V. Nietes of the Court of First Instance of Iloilo Judicial District, Branch I, or whoever may be acting in his place, is directed to require private respondents Lucilo Jalandoni and Victoria Jalandoni de Gorriceta to present evidence to justify their right to intervene in Special Proceeding No. 1562 re Intestate Estate of Nicolas H. Jalandoni pending before such sala. In the event that they could so justify such a right, the lower court on the basis of such evidence is to proceed conformably to law. Without pronouncement as to costs. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Teehankee and Barredo, JJ.,concur.

Footnotes
December 22, 1905 G.R. No. 2058 JOSE MAS, administrator of the estate of FRANCISCA HILARIO, deceased, plaintiffappellee, vs. TIMOTEO LANUZA AND WIFE, ANDREA FLORES, ET AL., defendants-appellants. Chicote, Miranda and Sierra for appellants. W.A. Kincaid for appellee.

CARSON, J.: Judgement was rendered in favor of the plaintiff for the possession of a certain lot of land described in the complaint as lot No. 120, Calle Clavel, Tondo, Manila, and declaring said lot to be the property of the estate of which the plaintiff is administrator. The plaintiff introduced in evidence an agreement in writing executed on the 4th of July, 1882, and signed by the appellants and by Francisca Hilario, whereby the said Francisca Hilario, since deceased, gave the appellants permission to enter upon the land in question, and to occupy it for such time as the said Francisca Hilario or her heirs should permit, the appellants, on their part, expressly acknowledging the right and title of the said Francisca Hilario, deceased, to the possession and ownership of said property, and, among other stipulations binding themselves to close the opening in the wall which divided the said lot from their town, should any question ever arise over the title thereto. Plaintiff also introduced in evidence a transcript of the record of a criminal case in the Court of First Instance of Manila, during the course of which one of the appellants, Timoteo Lanuza, on the 11th day of January, 1900, declared under oath that the lot in question was the property of the said Francisca Hilario, and that he had been treating with her for the purchase thereof. The defendants admit the execution of the above-described agreement, and that they took possession of the lot under and by virtue thereof, but they allege that they entered into it under the mistaken belief that Francisca Hilario was in fact the owner of the property, that they discovered later that she held the property merely as administratrix for the true owner, and that on the 7th of December, 1892, they loaned the true owner, one Joaquin Lao-Jico, 200 pesos, and took from him an agreement in writing whereby he promised to sell them the said property for 500 pesos, an agreement which was never consummated, however, because he died a short time thereafter. The defendants offered in evidence this alleged agreement for the sale of the property, and certain other documents which tended to show that the title to said property was in the said Joaquin LaoJico, but the trial court, over the objection of the defendants, refused to admit these documents in evidence. These documents are made a part of the bill of exceptions, and we are of opinion that the trial could properly refused to admit them in evidence, as on the defendants own showing the agreement to sell did not pass title or dominion over the property, and only gave the defendants a right to demand the fulfillment of the terms thereof, should it appear that the instrument is what it purports to be, and that the title was in fact in the said Joaquin Lao-Jico. (Art. 1451, Civil Code.) This evidence being excluded, we have before us only the above-described permission to the defendants to occupy the lot in question at the will of the deceased Francisca Hilario, her heirs, or legal representatives, and the plaintiff having made demand for possession, is entitled thereto in accordance with the terms of that agreement. We do not think that the plaintiff affirmatively established title to the lot in question, and so much of the judgment of the trial court as undertakes to declare title to the said lot in the estate of which the plaintiff is administrator should be reversed.

No weight can be given to the defendants claim to title by prescription, for even if it were admitted that they had been in possession for the full prescriptive period, they took possession by virtue of the express permission of the deceased Francisca Hilario, and continued in possession by virtue of said permission until January 15, 1900, as appears from the above-mentioned certified copy of the statement under oath of one of the defendants, Timoteo Lanuza. (Art. 447, Civil Code.) The judgment of the trial court should be modified in accordance with this opinion, by substituting for the finding of the trial court that the lot in question is the property of the estate represented by the plaintiff, a finding that neither plaintiff nor defendants have proven title to the property in question, but that the plaintiff administrator is entitled to possession thereof; thus modified the judgment should be affirmed, with the costs of this instance against the appellants. After the expiration of twenty days let judgment be entered in accordance herewith, and the record returned to the court wherein it originated for execution thereof. So ordered. Arellano, C.J., Torres, Mapa, and Johnson, JJ., concur.

December 2, 1913 G.R. No. L-8238 ANTONIO M. BARRETTO, plaintiff-appellee, vs. JOSE SANTA MARINA, defendant-appellant. William A. Kincaid and Thomas L. Hartigan, for appellant. Haussermann, Cohn and Fisher, for appellee. TRENT, J.: The La Insular cigar and cigarette factory is a joint account association with a nominal capital of P865,000, the plaintiffs share being P20,000, or 4/173 of the whole. On March 14, 1910, the plaintiffs attorneys wrote the defendants local representative a letter offering to sell to the defendant plaintiffs participation in the factory. The result of the correspondence between the parties and their representatives was that Exhibit G was duly executed on May 3, 1910. In accordance with the terms of this exhibit a committee of appraisers was appointed to ascertain and fix the actual value of La Insular. The committee rendered its report on November 14, 1910, fixing the net value at P4,428,194.44. Of this amount 4/173 part represented the plaintiffss share on his P20,000 of the nominal capital. In Exhibit J which was executed on November 22, 1910, the plaintiff acknowledged to have received from the defendant that amount. Subsequently to the execution of Exhibit J, demand was made by the plaintiff upon the defendant for his share of the profits from June 30, 1909, to November 22, 1910. This demand was refused and thereupon this action was instituted to recover said profits. Upon the evidence submitted at the hearing, the court below held: (1) That the agreement of May 3, 1910, was by its terms a contract to sell in the future and did not pass title and (2) that the sale of plaintiffs interest did not include the profits in question. Judgment was rendered accordingly, with interest and cost. The defendant appealed. The important issue in this case is whether the sale in question included that proportionate share of the profits due the plaintiff by reason of his investment in the concern. It is admitted that no

distribution of profits had taken place during the period from June 30, 1909, to November 22, 1910. We will inquire (1) into the nature and character of the agreement of May 3, 1910, and (2) whether the appraisers included in their appraisement the accumulated profits since June 30, 1909. The plaintiff admits that if the agreement of May 3, 1910, was a perfected sale he cannot recover any profits after that date; while on the other hand defendant concedes that if the said agreement was only a promise to sell in the future it, standing alone, would not prevent recovery in this action. The plaintiff and defendant were both interested in La Insular. The plaintiff was the local general manager from November 14, 1906, to January 8, 1910. The plaintiffs attorneys wrote the defendants representative a letter on January 14, 1910, saying: On behalf of Sr. D. Antonio M. Barretto, we beg leave to offer for sale to your principal, at their actual market value, the participation of Sr. Barretto in the joint venture known as La Insular and the one-half interest of the latter in the participation therein which stands in the name of Messrs. Barretto & Co. As you are doubtless aware these participations represent nominal values of P20,000 and P69,400, making a total nominal value of P54,700 which is hereby offered. Again the plaintiffs attorneys after acknowledging the receipt of the balance sheet of the profits for the year ending June 30, 1909, stated in their letter to the defendants representative, dated March 2, 1910, that, Now that the accord between the interested parties no longer exists we do not deem if feasible to subscribe a balance of this nature, unless . . . And again, the plaintiff himself, in his letter of April 7, 1910, addressed to the defendants representative, said: In view of the relations that have come about between Mr. Santa Marina and myself, I believe it would suit both of us that our interest in the La Insular business should be separated, and that the only point to be discussed is that of the amount that should be paid me for my share. From the correspondence above mentioned it appears that the plaintiff offered to sell to the defendant his participation in La Insular. This offer was made on account of the strained relations existing between the parties at that time and the desire on the part of the plaintiff to separate himself from that business. In the offer the plaintiffs interest of or participation was definitely defined and stated to be P20,000 in the nominal capital of P865,000. (We are not now dealing with the plaintiffs interest in the P69,400 of Barretto & Company.) Article 1450 of the Civil Code reads: The sale shall be perfected between vendor and vendees and shall be binding on both of them, if they have agreed upon the thing which is the object of the contract and upon the price, even when neither has been delivered. This is supplemented by article 1447 of the Code which reads as follows: In order that the price may be considered fixed, it shall be sufficient that it be fixed with regard to another determinate thing also specific, or that the determination of the same be left to the judgment of a specified person. The contract of May 3, 1910, after reciting the fact that each of the contracting parties is a participant in the joint account association known as la Insular, provides that:

Whereas the respective contracting parties have agreed, the one sell and the other to buy the whole of the right, title and interest of the said Antonio Maria Barretto in and to the said joint account association, including not only the individual participation of the said party of the second part standing on the books of the association in the name of Antonio M. Barretto, but also one-half of the share in the business which stands on the books in the name of Barretto & Company constituting a total nominal share of P54,700 Philippine currency in the total nominal capital of P865,000 Phlippine currency; and Whereas the respective contracting parties have been unable to agrees as to the true present value of the said interest of the party of the second part, but have agreed upon the method of fixing and determining the said value for which the party of the first part is to buy and the party of the second part is to sell that interest; Wherefore, by reason and is consideration of the foregoing and of the mutual promises and agreements hereinafter set forth, the respective parties herein contracting do hereby mutually stipulate, agree, and provide the following: (1) That a board of assessors, composed of Enrique Barrera y Caldes, D. M. Fleming, J. H. Gibson, all of the city of Manila, Philippine Islands, by mutual agreement is hereby appointed, commissioned, and designated for the purpose of hearing the respective claims of the one and the other party relative to the value of the business known and designated by the name of La Insular tobacco factory, and the respective assets of said business; and in accordance with the proof adduced relative to said values to fix and determine the same for the purposes of the purchase and sale above mentioned. xxx xxx xxx (5) That the decision and conclusion of said board with reference to the total value of the business known and designated by the name of La Insular Cigar Factory shall be conclusive, final, and binding upon each of the contracting parties herein; and the party of the first part will immediately buy for cash and the party of the second part will immediately sell to the party of the first part all the right, title and interest of the party of the second part in and to the said business; and the party of the first part will pay thereof such proportional part of the total net value of said business as equals the proportion that the sum of fifty-four thousand seven hundred pesos (54,700) Philippine currency bears to the sum of eight hundred and sixty-five thousand pesos (P865,000), Philippine currency. The following appears in the contract of November 22, 1910: Antonio M. Barretto hereby declares to have received from John D. MacGavin as legal representative of Jose Santa Marina as the price of the cession and transfer of the said shares, the sum of P280,025.70 Philippine currency by check No. 528525 drawn by the said MacGavin in his above-stated capacity upon the Hongkong & Shanghai Bank of this city, for which sum the first named issues to him a most legal bill of sale. Antonio M. Barretto also acknowledges by virtue of the present sale, cession, and transfer that he has from this date relinquished (separado) all intervention, claim, right, or action that he has in said factory by reason of the shares under consideration. Under article 1450, supra, there are two indispensable requisites in a perfected sale: (1) There must be an agreement upon the thing which is the object of the contract; and (2) the contracting parties must agree upon the price. The object of the contract in the case at bar was the whole of the plaintiffs right, title, and interest in La Insular. This whole was 4/173 of the entire net value of the business. The parties agreed that the price should be 4/173 of the total net value. The fixing of such net value was unreservedly left to the judgment of the appraisers. As to the thing and the price the minds of the contracting parties met, and all questions relating thereto were settled. Nothing was left unfinished in so far as the contracting parties were concerned. Neither party could withdraw from the contract without the consent of the other. The result is that the two essential requisites necessary to constitute a perfected sale were present.

But the plaintiff strongly insists that the language used in the contracts of May 3 and November 22 and the fact that the appraisers did not take into consideration in fixing the value of the business the profits accruing after June 30, 1909, show beyond a doubt that the first named contract constitutes an agreement to sell in the future and not a perfected sale and that this is clearly in harmony with the intention of the parties. In support of the above proposition the plaintiff calls our attention to the recital in the first paragraph of the excerpt from the contract of May 3, 1910, to the effect that the parties have agreed, the one to sell and the other to buy and the words of the fifth paragraph where it is stated that the party of the first part (the defendant) will immediately buy for cash and the party of the second part (the plaintiff) will immediately sell the plaintiffs entire interest in the business; cites Alcantara vs. Alinea et al. (8 Phil. Rep., 112); and quotes the following from the report of the appraisers: . . . proceeds to make a valuation of the property, stock, securities, and credits which compose the assets of the said business known and designated as the Insular Cigar Factory, taking as a basis therefor the assests of the said business on June 30, 1909, and in order to act with greater certainty in the discharge of their duties have had the real estate in Manila appraised by a civil engineer, Mr. Irureta Goyena, the machinery by an engineer, Mr. Loader, and the stocks of tobacco by tobacco experts recommended by the managers of the cigar factories called Flor de la Isabela, La Commercial, and Maria Cristina, and these experts have discharged the duties imposed upon them in the manner shown in the respective reports filed by them. With respect to the real estate in the Provinces of Cagayan and Isabela, and the steam launch Santa Marina, the undersigned, after hearing evidence of persons whom they deem to be competent, have fixed the valuation of those properties in a manner deemed by them to be fair and equitable. With regard to the Sundry Debtors account, they have proceeded to make an examination of the same and have disregarded the accounts which in their judgment may be regarded as uncollectible and deducted 25 per cent from those which in their opinion are doubtful. In view of the difference between the value placed by the parties on the furniture and fixtures, they have taken the average of those valuations so as to avoid the expense of an expert appraisal. And, finally, with respect to the rest of the items which make up the assets of the said business, they have accepted the figures at which they stand in the said inventory as these have been accepted by both parties. For the purpose of determining the soundness of the plaintiffs position with reference to the intention of the parties will examine (1) the contract of May 3, and (2) the report of the appraisers. 1. The recitals in the first and fifth paragraphs relied upon by the plaintiff standing alone indicate that it was the intention of the parties to make a contract to sell in the future, but it must be remembered that the whole contract must be interpreted or read together in order to arrive at its true meaning. Certain stipulations cannot be segregated and then made to control, neither do particular words and phrases necessarily determine the character of the contract. As to whether or not the parties, when they executed the contract of May 3, made a perfected sale or only an agreement to sell in the future is not to be determined alone by any particular provision the said contract contains, disconnected from all others, but in the ruling intention of the parties as gathered from all the language they have used and from their contemporaneous and subsequent acts. In the contract of May 3, we find that the parties did not only agree the one sell and the other to buy and that one will immediately sell and the other will immediately buy the whole of the plaintiffs interest but that they were unable to agree as to the true present value of the said

interest; they did agree, however, upon the method of fixing and determining such value by appointing appraisers for this purpose. It was the duty of the appraisers to hear the respective claims of the one and the other party relative to the value and assets of the business, and in accordance with the proof adduced relative to said values to fix and determine the same for the purposes of the purchase and sale above mentioned. They did not say for the purposes of a sale to be made in the future. Is the language, for the purposes of the purchase and sale above mentioned any the less significant or controlling than that relied upon by the plaintiff found in the first and fifth paragraphs? When the parties used this language they had in mind the purchase and sale which they had just made. According to the ordinary and well-understood use of the words purchase and sale they mean, in the absence of any expression to limit their significance, a transmutation of property from one party to another in consideration of some price or recompense in value; a transmission of property by a voluntary act or agreement, founded on a valuable consideration; divesting the title out of the vendor and vesting it in the vendee. Again, not only was the title of the plaintiffs interest vested in the defendant on the execution of the contract of May 3 but the possession of that interest was also then transferred to the defendant. (Art. 1462, Civil Code; Uy Piaoco vs. McMicking, 10 Phil. Rep., 286.) The total value of the business as fixed by the appraisers was final and conclusive and binding upon each of the parties. Neither could question the correctness of such value when once thus fixed. The only thing which either could then do was the one to tender and the other accept the cash. The one could not immediately sell and the other could not immediately buy because the purchase and sale had already taken place. If they could have done this then the plaintiff could have sold his interest to any other person at any time after the execution of the contract of May 3 and before November 22 for the reason that by a contract to sell only a jus in personam is created; while, by a sale a jus in rem is transferred. Now, did the parties intend to include the profits in question in the purchase and sale, and did the appraisers include said profits when they fixed the total net value of La Insular? In the second paragraph of the contract of May 3 this language was used: Whereas the respective contracting parties have been unable to agree as to the true present value of said interest of the party of the second part, . . . . The said interest was the whole of the right, title, and interest of the plaintiff in the factory. The true present value was the actual value of the plaintiffs entire interest on that date, May 3. The appraisers were appointed to ascertain and fix the total net value so that the true present value, 4/173 of the whole net value, of the plaintiffs interest might be segregated and paid for. The plaintiff delivered to the defendant or his predecessor in interest a sum of money in order to participate in the profits and losses that might accrue from the business denominated La Insular. An obligation was thereby created between the parties by virtue of which the plaintiff became the creditor and the defendant the debtor. The plaintiff was a creditor in a double sense, to wit: (a) For the capital invested, and (b) for the profits which that capital might produce. This juridical relation existed on May 3, 1910, when that contract was executed and signed by the parties. On this date the plaintiff had: 1. Right to and right of action for his capital invested in the business of La Insular.

2. Right to participate, in proportion to his investment in the expansion and increase of the companys capital. 3. Right in proportion to his capital in all the trademarks, credit, and good will of the business. 4. Right to a proportional share in the annual dividends of the business on his capital invested, after deduction of the 20 per cent of said dividends to which Santa Marina is entitled in his capacity of managing partner. 5. Right to revise, approve or impugn the annual statements rendered by the managing partner, Santa Marina. The sum total of these constituted on May 3, 1910 the whole of the plaintiffs right, title, and interest in the La Insular. In the absence of something in the contract showing that the word whole (tolidad) was not used in its ordinary sense it must be understood so to have been used, and we find nothing of that kind. All the authorities agree that when the word whole is thus used it means the entire thing; the entire assemblage of parts; totality; all of a thing without defect or exception; comprising all the parts; complete; entire. Exclude one part, the remainder would not be the whole. The whole of the right, title, and interest of the said Antonio Maria Barretto in and to said joint account association means what it says if it means anything at all. Language will not admit of a clearer and more expressive statement of what was sold. Exclude the profits sought to be recovered then the plaintiff did not sell the whole of his right, title, and interest, he only sold a part is never equal to the whole. That the profits were a part of the plaintiffs interest is selfevident. In the case of Alcantara vs. Alinea et al., (supra), the defendants borrowed P480 from the plaintiff to be returned at the expiration of an agreed period, at the same time promised that in the event of their failure to pay the borrowed money within the time they would sell him certain property for the amount of the loan, the court holding that it was a contract of loan and a promise of sale of a house and lot. In this case, however, the consummation of the contract of sale depended upon the failure to pay the loan. If the loan was repaid the sale did not take place. It was uncertain whether the sale of the house and lot would be consummated until after the loan was due. In the case at bar was there any such uncertainty as to the sale of the property? The one agreed to sell and other agreed to buy a certain specified interest in La Insular. This agreement was carried into effect. No subsequent contingency could affect the sale. The distinction between the two cases is apparent. It is therefore clear that the recitals from the contract and the case cited do not support the contention of the plaintiff. 2. The appraisers were appointed, as we have said, to ascertain and fix the total net value of the factory for the purpose of determining the true present value of the plaintiffs entire interest therein. The profits for the year ending June 30, 1910, were not ascertained until some twelve days after the appraisers submitted their report. Such profits were in the possession of the association during the entire period from May 3 to November 22, and had not been segregated from the general mass of property up to the latter date. It is true that the appraisers said that they made a valuation of the assets of the business, taking as a basis thereof the assets of said business on June 30, 1909. The appraisers could not have based their valuation exclusively upon the assets of that date for the reason that the books of the concern had not been balanced when they concluded their work. In fact, we find the appraisers saying in the very same paragraph in which the above quotation appears that in order to act with greater certainty in the discharge of their duties they had the real estate and the machinery appraised by civil engineers and the stock of tobacco by tobacco experts.

The value of the real estate in the provinces and a certain small launch was fixed by the appraisers upon the testimony of the competent witnesses. The appraisers disposed of the accounts of the various debtors not in accordance with the inventory of the books of the company but according to their own judgment, excluding those which they found were uncollectible and deducting 25 per cent from the doubtful ones. So it is clear from the quotation relied upon by the plaintiff that the appraisers paid very little attention to the assets of the business on June 30, 1909, in fixing the valuation of the property. The stock of tobacco which was appraised by tobacco experts was not that on the hand on June 30, 1909, but was the amount belonging to the association at the time the appraisement was made. This item alone was fixed at P1,140,259.77. Another item of assets was the cash on hand P323,235.20. This was the actual amount of cash in the possession of the association at the time the appraisement was made and was considered as a part of the assets. In fact, according to the report of the appraisers the books of the concern showed that the total assets, not including the trade-mark and good will, amounted to P2,505,767. 83 while the appraisers fixed the value at P3,049,394.07, a difference of a little over a half million pesos. That the appraisers in fixing the total net value included the accumulated profits we think there can be no question. These profits formed for that purpose a part of the assets. The appraisers could not distinguish the profits from the other personal property as such profits had not at that time been set aside and the appraisers were instructed to ascertain and fix the total net value so that the entire present value of the plaintiffs interest might be ascertained. The contracts and the report of the appraisers are so clear and cover the entire subject matter so fully that we are convinced that the subsequent demand for the profits in question was an afterthought. If there had been any doubt in the mind of the plaintiff about the inclusion of the accrued profits in the sale of May 3 or that the appraisers were authorized to take into consideration such profits in fixing the total net value of the business so that the entire present value of the plaintiffs interest might be ascertained, the plaintiff would certainly have raised the question at the time. He remained perfectly quite until after he had received the full value of the whole of his right, title, and interest in the factory and had solemnly declared that he relinquished all intervention, claim, right, or action in said factory by reason of the shares under consideration. After this he came forward for the first time and demanded his share of the profit which he had sold and received payment therefor. Surely he does not expect to be paid twice for the same thing. For the foregoing reasons the judgment appealed from is reversed upon the merits and the complaint dismissed without costs in either instance. Arellano, C.J., Torres, Johnson, Carson and Moreland, JJ., concur.

SECOND DIVISION

[G.R. No. 152411. September 29, 2004]

UNIVERSITY OF THE PHILIPPINES, petitioner, vs. PHILAB INDUSTRIES, INC., respondent. DECISION
CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 44209, as well as its Resolution[2] denying the petitioners motion for the reconsideration thereof. The Court of Appeals set aside the Decision[3] of Branch 150 of the Regional Trial Court (RTC) of Makati City, which dismissed the complaint of the respondent against the petitioner for sum of money and damages.

The Facts of the Case Sometime in 1979, the University of the Philippines (UP) decided to construct an integrated system of research organization known as the Research Complex. As part of the project, laboratory equipment and furniture were purchased for the National Institute of Biotechnology and Applied Microbiology (BIOTECH) at the UP Los Baos. Providentially, the Ferdinand E. Marcos Foundation (FEMF) came forward and agreed to fund the acquisition of the laboratory furniture, including the fabrication thereof. Renato E. Lirio, the Executive Assistant of the FEMF, gave the go-signal to BIOTECH to contact a corporation to accomplish the project. On July 23, 1982, Dr. William Padolina, the Executive Deputy Director of BIOTECH, arranged for Philippine Laboratory Industries, Inc. (PHILAB), to fabricate the laboratory furniture and deliver the same to BIOTECH for the BIOTECH Building Project, for the account of the FEMF. Lirio directed Padolina to give the go-signal to PHILAB to proceed with the fabrication of the laboratory furniture, and requested Padolina to forward the contract of the project to FEMF for its approval. On July 13, 1982, Padolina wrote Lirio and requested for the issuance of the purchase order and downpayment for the office and laboratory furniture for the project, thus:

1. Supply and Installation of Laboratory furniture for the BIOTECH Building Project Amount Supplier : : P2,934,068.90 Philippine Laboratory Furniture Co., College, Laguna Attention: Mr. Hector C. Navasero President 40% or P1,173,627.56

Downpayment

2.

Fabrication and Supply of office furniture for the BIOTECH Building Project Amount Supplier : : P573,375.00 Trans-Oriental Woodworks, Inc. 1st Avenue, Bagumbayan Tanyag, Taguig, Metro Manila 50% or P286,687.50
[4]

Downpayment

Padolina assured Lirio that the contract would be prepared as soon as possible before the issuance of the purchase orders and the downpayment for the goods, and would be transmitted to the FEMF as soon as possible. In a Letter dated July 23, 1982, Padolina informed Hector Navasero, the President of PHILAB, to proceed with the fabrication of the laboratory furniture, per the directive of FEMF Executive Assistant Lirio. Padolina also requested for copies of the shop drawings and a sample contract[5] for the project, and that such contract and drawings had to be finalized before the down payment could be remitted to the PHILAB the following week. However, PHILAB failed to forward any sample contract. Subsequently, PHILAB made partial deliveries of office and laboratory furniture to BIOTECH after having been duly inspected by their representatives and FEMF Executive Assistant Lirio. On August 24, 1982, FEMF remitted P600,000 to PHILAB as downpayment for the laboratory furniture for the BIOTECH project, for which PHILAB issued Official Receipt No. 253 to FEMF. On October 22, 1982, FEMF made another partial payment of P800,000 to PHILAB, for which the latter issued Official Receipt No. 256 to FEMF. The remittances were in the form of checks drawn by FEMF and delivered to PHILAB, through Padolina. On October 16, 1982, UP, through Emil Q. Javier, the Chancellor of UP Los Baos and FEMF, represented by its Executive Officer, Rolando Gapud, executed a Memorandum of Agreement (MOA) in which FEMF agreed to grant financial support and donate sums of money to UP for the construction of buildings, installation of laboratory and other capitalization for the project, not to exceed P29,000,000.00. The obligations of FEMF under the MOA are the following:

ARTICLE II OBLIGATIONS OF THE FOUNDATION 2.1. The FOUNDATION, in carrying out its principal objectives of promoting philantrophic and scientific projects through financial support to such projects that will contribute to the countrys economic development, shall grant such financial support and donate such sums of money to the RESEARCH COMPLEX as may be necessary for the construction of buildings, installation of laboratories, setting up of offices and physical plants and facilities and other capital investment of the RESEARCH COMPLEX and/or any of its component Research Institutes not to exceed P29 Million. For this purpose, the FOUNDATION shall:

(a) Acquire and donate to the UNIVERSITY the site for the RESEARCH COMPLEX; and (b) Donate or cause to be donated to the UNIVERSITY the sum of TWENTYNINE MILLION PESOS (P29,000,000.00) for the construction of the buildings of the National Institutes of Biotechnology and Applied Microbiology (BIOTECH) and the installation of their laboratories and their physical plants and other facilities to enable them to commence operations. 2.2. In addition, the FOUNDATION shall, subject to the approval of the Board of Trustees of the FOUNDATION, continue to support the activities of the RESEARCH COMPLEX by way of recurrent additional grants and donations for specific research and development projects which may be mutually agreed upon and, from time to time, additional grants and donations of such amounts as may be necessary to provide the RESEARCH COMPLEX and/or any of its Research Institutes with operational flexibility especially with regard to incentives to staff purchase of equipment/facilities, travel abroad, recruitment of local and expatriate staff and such other activities and inputs which are difficult to obtain under usual government rules and regulations.
[6]

The Board of Regents of the UP approved the MOA on November 25, 1982. [7] In the meantime, Navasero promised to submit the contract for the installation of laboratory furniture to BIOTECH, by January 12, 1983. However, Navasero failed to do so. In a Letter dated February 1, 1983, BIOTECH reminded Navasero of the need to submit the contract so that it could be submitted to FEMF for its evaluation and approval.[8] Instead of submitting the said contract, PHILAB submitted to BIOTECH an accomplishment report on the project as of February 28, 1983, and requested payment thereon.[9] By May 1983, PHILAB had completed 78% of the project, amounting to P2,288,573.74 out of the total cost of P2,934,068.90. The FEMF had already paid forty percent (40%) of the total cost of the project. On May 12, 1983, Padolina wrote Lirio and furnished him the progress billing from PHILAB. [10] On August 11, 1983, the FEMF made another partial payment of P836,119.52 representing the already delivered laboratory and office furniture after the requisite inspection and verification thereof by representatives from the BIOTECH, FEMF, and PHILAB. The payment was made in the form of a check, for which PHILAB issued Official Receipt No. 202 to FEMF through Padolina.[11] On July 1, 1984, PHILAB submitted to BIOTECH Invoice No. 01643 in the amount of P702,939.40 for the final payment of laboratory furniture. Representatives from BIOTECH, PHILAB, and Lirio for the FEMF, conducted a verification of the accomplishment of the work and confirmed the same. BIOTECH forwarded the invoice to Lirio on December 18, 1984 for its payment.[12] Lirio, in turn, forwarded the invoice to Gapud, presumably sometime in the early part of 1985. However, the FEMF failed to pay the bill. PHILAB reiterated its request for payment through a letter on May 9, 1985.[13] BIOTECH again wrote Lirio on March 21, 1985, requesting the payment of PHILABs bill.[14] It sent another letter to Gapud, on November 22, 1985, again appealing for the payment of PHILABs bill.[15] In a Letter to BIOTECH dated December 5, 1985, PHILAB requested payment of P702,939.40 plus interest

thereon of P224,940.61.[16] There was, however, no response from the FEMF. On February 24, 1986, PHILAB wrote BIOTECH, appealing for the payment of its bill even on installment basis.[17] President Marcos was ousted from office during the February 1986 EDSA Revolution. On March 26, 1986, Navasero wrote BIOTECH requesting for its muchneeded assistance for the payment of the balance already due plus interest of P295,234.55 for its fabrication and supply of laboratory furniture.[18] On April 22, 1986, PHILAB wrote President Corazon C. Aquino asking her help to secure the payment of the amount due from the FEMF. [19] The letter was referred to then Budget Minister Alberto Romulo, who referred the letter to then UP President Edgardo Angara on June 9, 1986. On September 30, 1986, Raul P. de Guzman, the Chancellor of UP Los Baos, wrote then Chairman of the Presidential Commission on Good Government (PCGG) Jovito Salonga, submitting PHILABs claim to be officially entered as accounts payable as soon as the assets of FEMF were liquidated by the PCGG.[20] In the meantime, the PCGG wrote UP requesting for a copy of the relevant contract and the MOA for its perusal.[21] Chancellor De Guzman wrote Navasero requesting for a copy of the contract executed between PHILAB and FEMF. In a Letter dated October 20, 1987, Navasero informed De Guzman that PHILAB and FEMF did not execute any contract regarding the fabrication and delivery of laboratory furniture to BIOTECH. Exasperated, PHILAB filed a complaint for sum of money and damages against UP. In the complaint, PHILAB prayed that it be paid the following:
(1) PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY NINE & 40/100 (P702,939.40) plus an additional amount (as shall be determined during the hearing) to cover the actual cost of money which at the time of transaction the value of the peso was eleven to a dollar (P11.00:$1) and twenty seven (27%) percent interest on the total amount from August 1982 until fully paid; PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages; FIFTY THOUSAND [PESOS] (P50,000.00) as and for attorneys fees; and Cost of suit.[22]

(2) (3) (4)

PHILAB alleged, inter alia, that:

3. Sometime in August 1982, defendant, through its officials, particularly MR. WILLIAM PADOLINA, Director, asked plaintiff to supply and install several laboratory furnitures and equipment at BIOTECH, a research laboratory of herein defendant located at its campus in College, Laguna, for a total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTYEIGHT & 90/100 (P2,939,058.90); 4. After the completion of the delivery and installation of said laboratory furnitures and equipment at defendants BIOTECH Laboratory, defendant paid three (3) times on installment basis: a) P600,000.00 as per Official Receipt No. 253 dated August 24, 1982; b) P800,000.00 as per Official Receipt No. 256 dated October 22, 1982; c) P836,119.52 as per Official Receipt No. 202 dated August 11, 1983;

thus leaving a balance of PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY-NINE & 40/100 (P702,939.40).
5. That notwithstanding repeated demands for the past eight years, defendant arrogantly and maliciously made plaintiff believe that it was going to pay the balance aforestated, that was why plaintiffs President and General Manager himself, HECTOR C. NAVASERO, personally went to and from UP Los Baos to talk with defendants responsible officers in the hope of expecting payment, when, in truth and in fact, defendant had no intention to pay whatsoever right from the start on a misplaced ground of technicalities. Some of plaintiffs demand letters since year 1983 up to the present are hereto attached as Annexes A, B, C, D, E, F, G, and H hereof; 6. That by reason of defendants malicious, evil and unnecessary misrepresentations that it was going to pay its obligation and asking plaintiff so many red tapes and requirements to submit, compliance of all of which took plaintiff almost eight (8) years to finish, when, in truth and in fact, defendant had no intention to pay, defendant should be ordered to pay plaintiff no less than PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages, so that other government institutions may be warned that they must not unjustly enrich themselves at the expense of the people they serve.[23]

In its answer, UP denied liability and alleged that PHILAB had no cause of action against it because it was merely the donee/beneficiary of the laboratory furniture in the BIOTECH; and that the FEMF, which funded the project, was liable to the PHILAB for the purchase price of the laboratory furniture. UP specifically denied obliging itself to pay for the laboratory furniture supplied by PHILAB. After due proceedings, the trial court rendered judgment dismissing the complaint without prejudice to PHILABs recourse against the FEMF. The fallo of the decision reads:

WHEREFORE, this case is hereby DISMISSED for lack of merit without prejudice to plaintiff's recourse to the assets of the Marcos Foundation for the unpaid balance of P792,939.49. SO ORDERED.
[24]

Undaunted, PHILAB appealed to the Court of Appeals (CA) alleging that the trial court erred in finding that:
1. the contract for the supply and installation of subject laboratory furniture and equipment was between PHILAB and the Marcos Foundation; and, 2. the Marcos Foundation, not the University of the Philippines, is liable to pay the respondent the balance of the purchase price.[25]

The CA reversed and set aside the decision of the RTC and held that there was never a contract between FEMF and PHILAB. Consequently, PHILAB could not be bound by the MOA between the FEMF and UP since it was never a party thereto. The appellate court ruled that, although UP did not bind itself to pay for the laboratory furniture; nevertheless, it is liable to PHILAB under the maxim: No one should unjustly enrich himself at the expense of another.

The Present Petition Upon the denial of its motion for reconsideration of the appellate courts decision, UP, now the petitioner, filed its petition for review contending that:
I. THE COURT OF APPEALS ERRED WHEN IT FAILED TO APPLY THE LAW ON CONTRACTS BETWEEN PHILAB AND THE MARCOS FOUNDATION. II. THE COURT OF APPEALS ERRED IN APPLYING THE LEGAL PRINCIPLE OF UNJUST ENRICHMENT WHEN IT HELD THAT THE UNIVERSITY, AND NOT THE MARCOS FOUNDATION, IS LIABLE TO PHILAB.[26]

Prefatorily, the doctrinal rule is that pure questions of facts may not be the subject of appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as this mode of appeal is generally restricted to questions of law.[27] However, this rule is not absolute. The Court may review the factual findings of the CA should they be contrary to those of the trial court.[28] Correspondingly, this Court may review findings of facts when the judgment of the CA is premised on a misapprehension of facts. [29] On the first assigned error, the petitioner argues that the CA overlooked the evidentiary effect and substance of the corresponding letters and communications which support the statements of the witnesses showing affirmatively that an implied contract of sale existed between PHILAB and the FEMF. The petitioner furthermore asserts that no contract existed between it and the respondent as it could not have entered into any agreement without the requisite public bidding and a formal written contract. The respondent, on the other hand, submits that the CA did not err in not applying the law on contracts between the respondent and the FEMF. It, likewise, attests that it was never privy to the MOA entered into between the petitioner and the FEMF. The respondent adds that what the FEMF donated was a sum of money equivalent to P29,000,000, and not the laboratory equipment supplied by it to the petitioner. The respondent submits that the petitioner, being the recipient of the laboratory furniture, should not enrich itself at the expense of the respondent. The petition is meritorious. It bears stressing that the respondents cause of action is one for sum of money predicated on the alleged promise of the petitioner to pay for the purchase price of the furniture, which, despite demands, the petitioner failed to do. However, the respondent failed to prove that the petitioner ever obliged itself to pay for the laboratory furniture supplied by it. Hence, the respondent is not entitled to its claim against the petitioner. There is no dispute that the respondent is not privy to the MOA executed by the petitioner and FEMF; hence, it is not bound by the said agreement. Contracts take effect only between the parties and their assigns.[30] A contract cannot be binding upon and cannot be enforced against one who is not a party to it, even if he is aware of such contract and has acted with knowledge thereof.[31] Likewise admitted by the parties, is the fact that there was no written contract executed by the petitioner, the respondent and FEMF relating to the fabrication and delivery of office and laboratory furniture to the BIOTECH. Even the CA failed to specifically declare that the petitioner and the respondent entered into a contract of sale over the said laboratory furniture. The parties are in accord that the FEMF had remitted to the respondent

partial payments via checks drawn and issued by the FEMF to the respondent, through Padolina, in the total amount of P2,288,573.74 out of the total cost of the project of P2,934,068.90 and that the respondent received the said checks and issued receipts therefor to the FEMF. There is also no controversy that the petitioner did not pay a single centavo for the said furniture delivered by the respondent that the petitioner had been using ever since. We agree with the petitioner that, based on the records, an implied-in-fact contract of sale was entered into between the respondent and FEMF. A contract implied in fact is one implied from facts and circumstances showing a mutual intention to contract. It arises where the intention of the parties is not expressed, but an agreement in fact creating an obligation. It is a contract, the existence and terms of which are manifested by conduct and not by direct or explicit words between parties but is to be deduced from conduct of the parties, language used, or things done by them, or other pertinent circumstances attending the transaction. To create contracts implied in fact, circumstances must warrant inference that one expected compensation and the other to pay.[32] An implied-in-fact contract requires the parties intent to enter into a contract; it is a true contract.[33] The conduct of the parties is to be viewed as a reasonable man would view it, to determine the existence or not of an implied-in-fact contract.[34] The totality of the acts/conducts of the parties must be considered to determine their intention. An implied-in-fact contract will not arise unless the meeting of minds is indicated by some intelligent conduct, act or sign.[35] In this case, the respondent was aware, from the time Padolina contacted it for the fabrication and supply of the laboratory furniture until the go-signal was given to it to fabricate and deliver the furniture to BIOTECH as beneficiary, that the FEMF was to pay for the same. Indeed, Padolina asked the respondent to prepare the draft of the contract to be received by the FEMF prior to the execution of the parties (the respondent and FEMF), but somehow, the respondent failed to prepare one. The respondent knew that the petitioner was merely the donee-beneficiary of the laboratory furniture and not the buyer; nor was it liable for the payment of the purchase price thereof. From the inception, the FEMF paid for the bills and statement of accounts of the respondent, for which the latter unconditionally issued receipts to and under the name of the FEMF. Indeed, witness Lirio testified:
Q: Now, did you know, Mr. Witness, if PHILAB Industries was aware that it was the Marcos Foundation who would be paying for this particular transaction for the completion of this particular transaction? A: I think they are fully aware.

Q: What is your basis for saying so? A: First, I think they were appraised by Dr. Padolina. Secondly, there were occasions during our inspection in Los Baos, at the installation site, there were occasions, two or three occasions, when we met with Mr. Navasero who is the President, I think, or manager of PHILAB, and we appraised him that it was really between the foundation and him to which includes (sic) the construction company constructing the building. He is fully aware that it is the foundation who (sic) engaged them and issued the payments.[36]

The respondent, in its Letter dated March 26, 1986, informed the petitioner and sought its assistance for the collection of the amount due from the FEMF:

Dear Dr. Padolina: May we request for your much-needed assistance in the payment of the balance still due us on the laboratory furniture we supplied and installed two years ago? Business is still slow and we will appreciate having these funds as soon as possible to keep up our operations. We look forward to hearing from you regarding this matter. Very truly yours, PHILAB INDUSTRIES, INC.
[37]

The respondent even wrote former President Aquino seeking her assistance for the payment of the amount due, in which the respondent admitted it tried to collect from her predecessor, namely, the former President Ferdinand E. Marcos:

YOUR EXCELLENCY: At the instance of the national government, subject laboratory furnitures were supplied by our company to the National Institute of Biotechnology & Applied Microbiology (BIOTECH), University of the Philippines, Los Baos, Laguna, in 1984. Out of the total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (P2,939,058.90), the previous administration had so far paid us the sum of P2,236,119.52 thus leaving a balance of PESOS: ONE MILLION FOUR HUNDRED TWELVE THOUSAND SEVEN HUNDRED FORTY-EIGHT & 61/100 (P1,412.748.61) inclusive of interest of 24% per annum and 30% exchange rate adjustment. On several occasions, we have tried to collect this amount from your predecessor, the latest of which was subject invoice (01643) we submitted to DR. W. PADOLINA, deputy director of BIOTECH. But this, notwithstanding, our claim has remained unacted upon up to now. Copy of said invoice is hereto attached for easy reference. Now that your excellency is the head of our government, we sincerely hope that payment of this obligation will soon be made as this is one project the Republic of the Philippines has use of and derives benefit from.
[38]

Admittedly, the respondent sent to the petitioner its bills and statements of accounts for the payments of the laboratory furniture it delivered to the petitioner which the petitioner, through Padolina, transmitted to the FEMF for its payment. However, the FEMF failed to pay the last statement of account of the respondent because of the onset of the EDSA upheaval. It was only when the

respondent lost all hope of collecting its claim from the government and/or the PCGG did it file the complaint against the petitioner for the collection of the payment of its last delivery of laboratory furniture. We reject the ruling of the CA holding the petitioner liable for the claim of the respondent based on the maxim that no one should enrich itself at the expense of another. Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully. [39] Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitled and that the state of affairs are such that it would be unjust for the person to keep the benefit.[40] Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request.[41] Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of restitution.[42] Article 22 of the New Civil Code reads:

Every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. (Boldface supplied)
In order that accion in rem verso may prosper, the essential elements must be present: (1) that the defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the defendant is without just or legal ground, and (4) that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict.[43] An accion in rem verso is considered merely an auxiliary action, available only when there is no other remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action under any other institution of positive law, that action must be resorted to, and the principle of accion in rem verso will not lie.[44] The essential requisites for the application of Article 22 of the New Civil Code do not obtain in this case. The respondent had a remedy against the FEMF via an action based on an implied-in-fact contract with the FEMF for the payment of its claim. The petitioner legally acquired the laboratory furniture under the MOA with FEMF; hence, it is entitled to keep the laboratory furniture. IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED AND SET ASIDE. The Decision of the Regional Trial Court, Makati City, Branch 150, is REINSTATED. No costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, and Tinga, JJ., concur. Chico-Nazario, J., on leave.

Earnest money
January 23, 1952 G.R. No. L-3825 APOLINAR E. VELASCO, petitioner, vs. THE COURT OF APPEALS, respondents. Padilla, Carlos, Fernando and Apolinar F. Tolentino and Nicetas A. Suanes for petitioner. First Assistant Solicitor General Roberto A. Gianzon and Solicitor Jose P. Alejandro for respondent. Jugo, J.: This is a petition for certiorari against the decision of the Court of Appeals in the above-entitled case. We can review only questions of law for the reason that the judgment of the Court of Appeals is conclusive as to the facts, and cannot be reviewed by the Supreme Court (Moran Comments on the Rules of Court, Vol. I, p. 857, Third Edition, and the cases therein cited). The Court of Appeals affirmed the judgment of the Court of First Instance of Manila, which convicted the appellant of the crime of estafa and imposed upon him the penalty of three (3) months of arresto mayor, a fine of P6,000.00 to indemnity the offended party in the sum of P3,000.00, with subsidiary imprisonment in case of insolvency, with the accessory penalties of the law, and to pay the costs. The facts of this case as found by the Court of Appeals are as follows: On February l4, 1946, as President of the Federal Films, Inc., a domestic corporation, entered into a contract of lease with one Eugenio Vitan, whereby the latter leased his property consisting of a lot of building situated in Cavite City to the former for a period of 20 years (Exhibit A, pp. 69-71, rec.). It appears that the building was an old one and was formerly utilized as a dance hall (cabaret). Said building was however, remodelled, improved and converted into a theater and called Cine Palace (pp. 3, 4, t.s.n., Del Rosario). On August 8, l946, appellant, as president of the said corporation, like entered into a contract of lease with the offended party in Manila whereby the latter leased his Cine National, situated in Manrique St., Sampaloc, Manila to the former (Exhibit 2, pp. 118-120, rec.). In order to secure the conformity of the offended party to the lease contract, appellant made it appear that the corporation was the owner of the Cine Palace (pp. 10, t.s.n., Monzon) which he mortgaged (Exhibit C, pp. 73-75, rec.) to the former as security for the payment of the P3,000 monthly rent during the whole two-years term of the lease. Among other things, the lease contract (Exhibit 2, pp. 118-120, rec.) provides that it shall be for a term of two years commencing from August 16, 1946; that the monthly rental is P3,000; that the lessee will pay the lessor P3,000 upon taking possession of the theater and, within 15 days thereafter, pay another P3,000, representing two months advance rent. Upon taking possession of the Cine National, appellant paid the sum of P3,000. He, however, failed to pay the balance of P3,000 as agreed upon, notwithstanding the demands made by the offended party (pp., 10, 12, 13, t.s.n., Monzon). For that reason, the offended party attempted to for close

the mortgage (p. 16, t.s.n., Monzon), but desisted (p. 16, t.s.n., Monzon), because he found out that the Cine Palace belongs to one Eugenio Vitan of Cavite City and not to appellant (p. 11, t.s.n., Monzon). To avoid further loss in his part, the offended party closed the Cine National on November 3, 1946 (p. 43, t.s.n., Del Rosario) and cause the filing of the complaint against the appellant (p. 16, t.s.n., Monzon). The petitioner makes the following assignment of errors: I The respondent Court of Appeals erred in convicting petitioner of the crime of estafa because no damage was caused to the offended party, or even if it be granted that damage was caused to the latter the same was caused by his own negligent acts. II The respondent Court of Appeals erred in not holding that the acts complained of against petitioner do not constitute the deceit required in the conviction for the crime of estafa. III The respondent Court of Appeals erred in not holding that the alleged fraudulent representation of petitioner did not deceive the offended party because even without said representation the offended party would have entered into the contract of lease. It will be observed that the errors assigned raise not only questions of law but also of fact. We have to disregard the questions of fact and confine ourselves to those of law. There can be no doubt that the petitioner mortgaged a property which was not his and for that reason it could not be forclosed. The decision appealed from makes reference to the mortgage, Exhibit C. In that deed of mortgage the description of the building is clearly given, and it is stated that the Federal Films, Inc. of which the defendant is the president, is the lawful and absolute owner of the building. It is a fact that the building is owned by one Eugenio Vitan. It is true that in the mortgage deed reference is made to the lease between Vitan and Federal Films, Inc., but that reference concerns only the equipment placed by the latter in the movie theater of Vitan, which may or may not belong to the Federal Films, Inc. But the fact is, as found by the Court of Appeals and as appears from the deed, that the house was mortgaged by the Federal Films, Inc. This constitutes deceit and a clear violation of Article 316, paragraph 1, of the Revised Penal Code. It is also clear that said mortgage covers the amount of P3,000 which was the rental for the month of September 16 to October 15, 1946, for the mortgage provides that it shall remain in full force and effect, in accordance with the law for the sum of P66,000.00 for a period of 2 years rental effective August 16, 1946, and to expire on August 16, 1948. There can be no doubt that damage was caused to the offended party, for the reason that he could not realize any amount from the mortgage to satisfy the unpaid rental. The petitioner contends that the mortgage could have been foreclosed as against Vitan, for the reason that the latter consented to the execution of the mortgage. In the first place, nothing appears in the findings of the Court of Appeals with regard to this point; and in the second place, the alleged consent of Vitan was not a consent at all, for he testified as follows:

A. I know that they guaranteed their participation. They asked me if have no objection to their putting the building as guaranty in connection with the lease of Cine National, here in Manila, and I answered them: If you consider it possible, its up to you. (t.s.n., p. 5, Session of July 11, 1947.) Furthermore, the mere consent of Vitan, if it been given, did not make him a mortgagor. Finding no errors of law in the decision of the Court of Appeals, it is hereby affirmed, with costs against the appellant. So ordered. Paras, C.J., Feria, Bengzon, Padilla, and Reyes, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-36083 September 5, 1975 Spouses RAMON DOROMAL, SR., and ROSARIO SALAS, and Spouses RAMON DOROMAL, JR., and GAUDELIA VEGA, petitioners, vs. HON. COURT OF APPEALS and FILOMENA JAVELLANA, respondents. Salonga, Ordonez, Yap, Parlade and Associates and Marvin J. Mirasol for petitioners. Arturo H. Villanueva, Jr. for private respondent.

BARREDO, J.: Petition for review of the decision of the Court of Appeals in CA-G.R. No. 47945-R entitled Filomena Javellana vs. Spouses Ramon Doromal, Sr., et al. which reversed the decision of the Court of First Instance of Iloilo that had in turn dismissed herein private respondent Filomena Javellana's action for redemption of a certain property sold by her coowners to herein petitioners for having been made out of time. The factual background found by the Court of Appeals and which is binding on this Court, the same not being assailed by petitioners as being capricious, is as follows: IT RESULTING: That the facts are quite simple; Lot 3504 of the cadastral survey of Iloilo, situated in the poblacion of La Paz, one of its districts, with an area of a little more than 2- hectares was originally decreed in the name of the late Justice Antonio Horilleno, in 1916, under Original Certificate of Title No. 1314, Exh. A; but before he died, on a date not particularized in the record, he executed a last will and testament attesting to the fact that it was a co-ownership between himself and his brothers and sisters, Exh. C; so that the truth was that the owners or better stated, the co-owners were; beside Justice Horilleno, "Luis, Soledad, Fe, Rosita, Carlos and Esperanza,"

all surnamed Horilleno, and since Esperanza had already died, she was succeeded by her only daughter and heir herein plaintiff. Filomena Javellana, in the proportion of 1/7 undivided ownership each; now then, even though their right had not as yet been annotated in the title, the co-owners led by Carlos, and as to deceased Justice Antonio Horilleno, his daughter Mary, sometime since early 1967, had wanted to sell their shares, or if possible if Filomena Javellana were agreeable, to sell the entire property, and they hired an acquaintance Cresencia Harder, to look for buyers, and the latter came to interest defendants, the father and son, named Ramon Doromal, Sr. and Jr., and in preparation for the execution of the sale, since the brothers and sisters Horilleno were scattered in various parts of the country, Carlos in Ilocos Sur, Mary in Baguio, Soledad and Fe, in Mandaluyong, Rizal, and Rosita in Basilan City, they all executed various powers of attorney in favor of their niece, Mary H. Jimenez Exh. 1-8, they also caused preparation of a power of attorney of identical tenor for signature by plaintiff, Filomena Javellana, Exh. M, and sent it with a letter of Carlos, Exh. 7 dated 18 January, 1968 unto her thru Mrs. Harder, and here, Carlos informed her that the price was P4.00 a square meter, although it now turns out according to Exh. 3 that as early as 22 October, 1967, Carlos had received in check as earnest money from defendant Ramon Doromal, Jr., the sum of P5,000.00 and the price therein agreed upon was five (P5.00) pesos a square meter as indeed in another letter also of Carlos to Plaintiff in 5 November, 1967, Exh. 6, he had told her that the Doromals had given the earnest money of P5,000.00 at P5.00 a square meter, at any rate, plaintiff not being agreeable, did not sign the power of attorney, and the rest of the co-owners went ahead with their sale of their 6/7, Carlos first seeing to it that the deed of sale by their common attorney in fact, Mary H. Jimenez be signed and ratified as it was signed and ratified in Candon, Ilocos Sur, on 15 January, 1968, Exh. 2, then brought to Iloilo by Carlos in the same month, and because the Register of Deeds of Iloilo refused to register right away, since the original registered owner, Justice Antonio Horilleno was already dead, Carlos had to ask as he did, hire Atty. Teotimo Arandela to file a petition within the cadastral case, on 26 February, 1968, for the purpose, Exh. C, after which Carlos returned to Luzon, and after compliance with the requisites of publication, hearing and notice, the petition was approved, and we now see that on 29 April, 1968, Carlos already back in Iloilo went to the Register of Deeds and caused the registration of the order of the cadastral court approving the issuance of a new title in the name of the co-owners, as well as of the deed of sale to the Doromals, as a result of which on that same date, a new title was issued TCT No. 23152, in the name of the Horillenos to 6/7 and plaintiff Filomena Javellana to 1/7, Exh. D, only to be cancelled on the same day under TCT No. 23153, Exh. 2, already in the names of the vendees Doromals for 6/7 and to herein plaintiff, Filomena Javellana, 1/7, and the next day 30 April, 1968, the Doromals paid unto Carlos by check, the sum of P97,000.00 Exh. 1, of Chartered Bank which was later substituted by check of Phil. National Bank, because there was no Chartered Bank Branch in Ilocos Sur, but besides this amount paid in check, the Doromals according to their evidence still paid an additional amount in cash of P18,250.00 since the agreed price was P5.00 a square meter; and thus was consummated the transaction, but it is here where complications set in, On 10 June, 1968, there came to the residence of the Doromals in Dumangas, Iloilo, plaintiff's lawyer, Atty. Arturo H. Villanueva, bringing with him her letter of that date, reading, "P. O. Box 189, Bac olod

City Jun e 10, 196 8 Mr. & Mrs. Ramon Doromal, Sr. and Mr. and Mrs. Ramon Doromal, Jr. "Dumangas Iloilo Dear Mr. and Mrs. Doromal: The bearer of this letter is my nephew, Atty. Arturo H. Villanueva, Jr., of this City. Through him, I am making a formal offer to repurchase or redeem from you the 6/7 undivided share in Lot No. 3504, of the Iloilo Cadastre, which you bought from my erstwhile co-owners, the Horillenos, for the sum of P30,000.00, Atty. Villanueva has with him the sum of P30,000.00 in cash, which he will deliver to you as soon as you execute the contract of sale in my favor. Thank you very much for whatever favorable consideration you can give this request. Very truly yours, (SIG NE D) Mrs. FIL OM ENA JAV ELL ANA " p. 26, Exh. "J", Manual of Exhibits. and then and there said lawyer manifested to the Doromals that he had the P30,000.00 with him in cash, and tendered it to them, for the exercise of the legal redemption, the Doromals were aghast, and refused. and the very next day as has been said. 11 June, 1968, plaintiff filed this case, and in the trial, thru oral and documentary proofs sought to show that as co-owner, she had the right to redeem at the price stated in the deed of sale, Exh. 2, namely P30,000.00 of the but defendants in answer, and in their evidence, oral and documentary sought to show that plaintiff had no more right to redeem and that if ever she should have, that it should be at the true and real price by them paid, namely, the total sum of P115,250.00, and trial judge, after hearing the evidence, believed defendants, that plaintiff had no more right, to redeem, because, "Plaintiff was informed of the intended sale of the 6/7 share belonging to the Horillenos."

and that, "The plaintiff have every reason to be grateful to Atty. Carlos Horilleno because in the petition for declaration of heirs of her late uncle Antonio Horilleno in whose name only the Original Certificate of Title covering the Lot in question was issued, her uncle Atty. Carlos Horilleno included her as one of the heirs of said Antonio Horilleno. Instead, she filed this case to redeem the 6/7 share sold to the Doromals for the simple reason that the consideration in the deed of sale is the sum of P30,000.00 only instead of P115,250.00 approximately which was actually paid by the defendants to her co-owners, thus she wants to enrich herself at the expense of her own blood relatives who are her aunts, uncles and cousins. The consideration of P30,000.00 only was placed in the deed of sale to minimize the payment of the registration fees, stamps, and sales tax. pp. 77-78, R.A., and dismiss and further condemned plaintiff to pay attorney's fees, and moral and exemplary damages as set forth in few pages back, it is because of this that plaintiff has come here and contends, that Lower Court erred: "I. ... in denying plaintiff-appellant, as a co-owner of Lot No. 3504, of the Iloilo Cadastre, the right of legal redemption under Art. 1620, of the Civil Code: "II. ... as a consequence of the above error, in refusing to order the defendantsappellees, the vendees of a portion of the aforesaid Lot No. 3504 which they bought from the co-owners of the plaintiff-appellant, to reconvey the portion they purchased to the herein plaintiff-appellant.. "III. ... in admitting extrinsic evidence in the determination of the consideration of the sale, instead of simply adhering to the purchase price of P30,000.00, set forth in the pertinent Deed of Sale executed by the vendors and owners of the plaintiffappellant in favor of the defendants-appellees. "IV. ... in dismissing the complaint filed in this case." pp. 1-3, Appellant's Brief,. which can be reduced to the simple question of whether or not on tile basis of the evidence and the law, the judgment appealed from should be maintained; (Pp. 1622, Record.) . Upon these facts, the Court of Appeals reversed the trial court's decision and held that although respondent Javellana was informed of her co-owners' proposal to sell the land in question to petitioners she was, however, "never notified ... least of all, in writing", of the actual execution and registration of the corresponding deed of sale, hence, said respondent's right to redeem had not yet expired at the time she made her offer for that purpose thru her letter of June 10, 1968 delivered to petitioners on even date. The intermediate court further held that the redemption price to be paid by respondent should be that stated in the deed of sale which is P30,000 notwithstanding that the preponderance of the evidence proves that the actual price paid by petitioners was P115,250. Thus, in their brief, petitioners assign the following alleged errors: I IT IS ERROR FOR THE COURT OF APPEALS TO HOLD THAT THE NOTICE IN WRITING OF THE SALE CONTEMPLATED IN ARTICLE 1623 OF THE CIVIL CODE REFERS TO A NOTICE IN WRITING AFTER THE EXECUTION AND REGISTRATION OF THE INSTRUMENT OF SALE, HENCE, OF THE DOCUMENT OF SALE. II

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE INSCRIPTION OF THE SALE IN THE REGISTRY OF PROPERTY TAKES EFFECT AS AGAINST THIRD PERSONS INCLUDING CLAIMS OF POSSIBLE REDEMPTIONERS. ASSUMING, ARGUENDO THAT PRIVATE RESPONDENT HAS THE RIGHT TO REDEEM, THE COURT OF APPEALS ERRED IN HOLDING THAT THE REDEMPTION PRICE SHOULD BE THAT STATED IN THE DEED OF SALE. (Pp. 1-2, Brief for Petitioner, page 74-Rec.) We cannot agree with petitioners. Petitioners do not question respondent's right to redeem, she being admittedly a 1/7 co-owner of the property in dispute. The thrust of their first assignment of error is that for purposes of Article 1623 of the Civil Code which provides that: ART. 1623. 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. The right of redemption of co-owners excludes that of adjoining owners. the letters sent by Carlos Horilleno to respondent and dated January 18, 1968, Exhibit 7, and November 5, 1967, Exhibit 6, constituted the required notice in writing from which the 30-day period fixed in said provision should be computed. But to start with, there is no showing that said letters were in fact received by respondent and when they were actually received. Besides, petitioners do not pinpoint which of these two letters, their dates being more than two months apart, is the required notice. In any event, as found by the appellate court, neither of said letters referred to a consummated sale. As may be observed, it was Carlos Horilleno alone who signed them, and as of January 18, 1968, powers of attorney from the various co-owners were still to be secured. Indeed, the later letter of January 18, 1968 mentioned that the price was P4.00 per square meter whereas in the earlier letter of November 5, 1967 it was P5.00, as in fact, on that basis, as early as October 27, 1967, Carlos had already received P5,000 from petitioners supposedly as earnest money, of which, however, mention was made by him to his niece only in the later letter of January 18, 1968, the explanation being that "at later negotiation it was increased to P5.00 per square meter." (p. 4 of petitioners' brief as appellees in the Court of Appeals quoting from the decision of the trial court.) In other words, while the letters relied upon by petitioners could convey the idea that more or less some kind of consensus had been arrived at among the other co-owners to sell the property in dispute to petitioners, it cannot be said definitely that such a sale had even been actually perfected. The fact alone that in the later letter of January 18, 1968 the price indicated was P4.00 per square meter while in that of November 5, 1967, what was stated was P5.00 per square meter negatives the possibility that a "price definite" had already been agreed upon. While P5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show that the same was in the concept of the earnest money contemplated in Article 1482 of the Civil Code, invoked by petitioner, as signifying perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the record, We are more inclined to believe that the said P5,000 were paid in the concept of earnest money as the term was understood under the Old Civil Code, that is, as a guarantee that the buyer would not back out, considering that it is not clear that there was already a definite agreement as to the price then and that petitioners were decided to buy 6/7 only of the property should respondent Javellana refuse to agree to part with her 1/7 share. In the light of these considerations, it cannot be said that the Court of Appeals erred in holding that the letters aforementioned sufficed to comply with the requirement of notice of a sale by co-

owners under Article 1623 of the Civil Code. We are of the considered opinion and so hold that for purposes of the co-owner's right of redemption granted by Article 1620 of the Civil Code, the notice in writing which Article 1623 requires to be made to the other co-owners and from receipt of which the 30-day period to redeem should be counted is a notice not only of a perfected sale but of the actual execution and delivery of the deed of sale. This is implied from the latter portion of Article 1623 which requires that before a register of deeds can record a sale by a co-owner, there must be presented to him, an affidavit to the effect that the notice of the sale had been sent in writing to the other co-owners. A sale may not be presented to the register of deeds for registration unless it be in the form of a duly executed public instrument. Moreover, the law prefers that all the terms and conditions of the sale should be definite and in writing. As aptly observed by Justice Gatmaitan in the decision under review, Article 1619 of the Civil Code bestows unto a co-owner the right to redeem and "to be subrogated under the same terms and conditions stipulated in the contract", and to avoid any controversy as to the terms and conditions under which the right to redeem may be exercised, it is best that the period therefor should not be deemed to have commenced unless the notice of the disposition is made after the formal deed of disposal has been duly executed. And it being beyond dispute that respondent herein has never been notified in writing of the execution of the deed of sale by which petitioners acquired the subject property, it necessarily follows that her tender to redeem the same made on June 10, 1968 was well within the period prescribed by law. Indeed, it is immaterial when she might have actually come to know about said deed, it appearing she has never been shown a copy thereof through a written communication by either any of the petitioners-purchasers or any of her coowners-vendees. (Cornejo et al. vs. CA et al., 16 SCRA 775.) The only other pivotal issue raised by petitioners relates to the price which respondent offered for the redemption in question. In this connection, from the decision of the Court of Appeals, We gather that there is "decisive preponderance of evidence" establishing "that the price paid by defendants was not that stated in the document, Exhibit 2, of P30,000 but much more, at least P97,000, according to the check, Exhibit 1, if not a total of P115,250.00 because another amount in cash of P18,250 was paid afterwards." It is, therefore, the contention of petitioners here that considering said finding of fact of the intermediate court, it erred in holding nevertheless that "the redemption price should be that stated in the deed of sale." Again, petitioners' contention cannot be sustained. As stated in the decision under review, the trial court found that "the consideration of P30,000 only was placed in the deed of sale to minimize the payment of the registration fees, stamps and sales tax." With this undisputed fact in mind, it is impossible for the Supreme Court to sanction petitioners' pragmatic but immoral posture. Being patently violative of public policy and injurious to public interest, the seemingly wide practice of understating considerations of transactions for the purpose of evading taxes and fees due to the government must be condemned and all parties guilty thereof must be made to suffer the consequences of their ill-advised agreement to defraud the state. Verily, the trial court fell short of its devotion and loyalty to the Republic in officially giving its stamp of approval to the stand of petitioners and even berating respondent Javellana as wanting to enrich herself "at the expense of her own blood relatives who are her aunts, uncles and cousins." On the contrary, said "blood relatives" should have been sternly told, as We here hold, that they are in pari-delicto with petitioners in committing tax evasion and should not receive any consideration from any court in respect to the money paid for the sale in dispute. Their situation is similar to that of parties to an illegal contract. 1 Of course, the Court of Appeals was also eminently correct in its considerations supporting the conclusion that the redemption in controversy should be only for the price stipulated in the deed, regardless of what might have been actually paid by petitioners that style inimitable and all his own, Justice Gatmaitan states those considerations thus: CONSIDERING: As to this that the evidence has established with decisive preponderance that the price paid by defendants was not that stated in the

document, Exh. 2 of P30,000.00 but much more, at least P97,000.00 according to the check, Exh. 1 if not a total of P115,250.00 because another amount in cash of P18,250.00 was paid afterwards, perhaps it would be neither correct nor just that plaintiff should be permitted to redeem at only P30,000.00, that at first glance would practically enrich her by the difference, on the other hand, after some reflection, this Court can not but have to bear in mind certain definite points. 1st According to Art. 1619 "Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title." pp. 471-472, New Civil Code, and note that redemptioner right is to be subrogated "upon the same terms and conditions stipulated in the contract." and here, the stipulation in the public evidence of the contract, made public by both vendors and vendees is that the price was P30,000.00; 2nd According to Art. 1620, "A co-owner of a thing may exercise the right of redemption in case the share of all the other coowners or any of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable one. p. 472, New Civil Code, . from which it is seen that if the price paid is 'grossly excessive' redemptioner is required to pay only a reasonable one; not that actually paid by the vendee, going to show that the law seeks to protect redemptioner and converts his position into one not that of a contractually but of a legally subrogated creditor as to the right of redemption, if the price is not 'grossly excessive', what the law had intended redemptioner to pay can be read in Art. 1623. The right of a legal pre-emption or redemption shall not be exercised except within thirty (30) 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 of all possible redemptioners.' p. 473, New Civil Code, if that be so that affidavit must have been intended by the lawmakers for a definite purpose, to argue that this affidavit has no purpose is to go against all canons of statutory construction, no law mandatory in character and worse, prohibitive should be understood to have no purpose at all, that would be an absurdity, that purpose could not but have been to give a clear and unmistakable guide to redemptioner, on how much he should pay and when he should redeem; from this must follow that that notice must have been intended to state the truth and if vendor and vendee should have instead, decided to state an untruth therein, it is they who should bear the consequences of having thereby misled the redemptioner who had the right to rely and act thereon and on nothing else; stated otherwise, all the elements of equitable estoppel are here since the requirement of the law is to submit the affidavit of notice to all possible redemptioners, that affidavit to be a condition precedent to registration of the sale therefore, the law must have intended that it be by the parties understood that

they were there asking a solemn representation to all possible redemptioners, who upon faith of that are thus induced to act, and here worse for the parties to the sale, they sought to avoid compliance with the law and certainly refusal to comply cannot be rewarded with exception and acceptance of the plea that they cannot be now estopped by their own representation, and this Court notes that in the trial and to this appeal, plaintiff earnestly insisted and insists on their estoppel; 3rd If therefore, here vendors had only attempted to comply with the law, they would have been obligated to send a copy of the deed of sale unto Filomena Javellana and from that copy, Filomena would have been notified that she should if she had wanted to redeem, offered no more, no less, that P30,000.00, within 30 days, it would have been impossible for vendors and vendees to have inserted in the affidavit that the price was truly P97,000.00 plus P18,250.00 or a total of P115,250.00; in other words, if defendants had only complied with the law, they would have been obligated to accept the redemption money of only P30,000.00; 4th If it be argued that foregoing solution would mean unjust enrichment for plaintiff, it need only be remembered that plaintiff's right is not contractual, but a mere legal one, the exercise of a right granted by the law, and the law is definite that she can subrogate herself in place of the buyer, "upon the same terms and conditions stipulated in the contract," in the words of Art. 1619, and here the price "stipulated in the contract" was P30,000.00, in other words, if this be possible enrichment on the part of Filomena, it was not unjust but just enrichment because permitted by the law; if it still be argued that plaintiff would thus be enabled to abuse her right, the answer simply is that what she is seeking to enforce is not an abuse but a mere exercise of a right; if it be stated that just the same, the effect of sustaining plaintiff would be to promote not justice but injustice, the answer again simply is that this solution is not unjust because it only binds the parties to make good their solemn representation to possible redemptioners on the price of the sale, to what they had solemnly averred in a public document required by the law to be the only basis for that exercise of redemption; (Pp. 24-27, Record.) WHEREFORE, the decision of the Court of Appeals is affirmed, with costs against petitioners.. Fernando, Makasiar, Esguerra, Aquino and Martin, JJ., concur. Makalintal, CJ., took no part. Muoz Palma, J., took no part. Antonio and Concepcion Jr., JJ., are on leave.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 23550

September 16, 1925

P.J. SALAS RODRIGUEZ, plaintiff-appellant, vs. MARIANO P. LEUTERIO, defendant-appellee. The appellant in his own behalf. No appearance for appellee. STREET, J.: On September 24, 1920, the parties to this action entered into a contract by which the defendant agreed to sell, and the plaintiff to buy, seven thousand square meters of land in the barrio of Tuliahan, municipality of Caloocan, Rizal, for the consideration of P5,600, which was paid by the plaintiff in the act of transfer. At the time of this sale the particular lots contemplated as the subject of the sale had not been segregated, but the seller agreed to establish the lots with a special frontage on a principal thoroughfare as soon as the streets should be laid out in a projected new subdivision of the city. As time passed the seller was unable to comply with this part of the agreement and was therefore unable to place the purchaser in possession. The present action was accordingly instituted by the purchaser in the Court of First Instance of the Province of Rizal for the resolution (in the complaint improperly denominated rescission) of the contract and a return of double the amount delivered to the defendant as the purchase price of the land. The trial court decreed a rescission (properly resolution) of the contract and ordered the defense to return to the plaintiff the amount received, or the sum of P5,600, with legal interest from the date of the filing of the complaint. From this judgment the plaintiff appealed. As no transcript of the evidence has been brought to this court, our revision of the case is confined to the questions of law involved, which are two in number, namely, first, whether the plaintiff is entitled to recover double the amount paid out by him as the purchase price of the land; and, secondly, whether he is entitled to interest from the date upon which the money was paid to the defendant, instead of from the date of the filing of the complaint only. As suggested by the trial judge in the appealed decision the provisions of the Civil Code applicable to the case are found in articles 1451 and 1124. By the latter of these articles a person prejudiced by the nonfulfillment of a contract may demand its resolution, with indemnity for damages and payment of interest. Article 1454 of the Civil Code is relied upon by plaintiffappellant as authority for claiming double the amount paid out by him. In this article it is declared that when earnest money or pledge is given to bind a contract of purchase and sale, the contract may be rescinded if the vendee should be willing to forfeit the earnest money or pledge or the vendor to returndouble the amount. This provision is clearly not pertinent to the case, for the reason that where the purchase price is paid in whole or in part, the payment cannot be considered to be either earnest money or pledge. In this connection the commentator Manresa observes that the delivery of part of the purchase should not be understood as constituting earnest money unless it be shown that such was the intention of the parties. (Manresa, Commentaries on the Civ. Code, 2nd., vol. 10, p. 85.) In the case before us there is nothing to indicate that the parties intended that the cash price paid by the purchaser should be treated merely as earnest money; and such could not possibly have been their intention. The evident purpose was that said payment should be taken as a fulfillment of the contract on the part of the purchaser. The contention of the plaintiff-appellant with respect to interest is, we think, meritorious. In case of the resolution of a contract of sale under article 1124, the purchaser is declared to be entitled to indemnity for damages and payment of interest. As pointed out by Manresa interest in here conceded in lieu of damages. (Manresa, Commentaries on the Spanish Civil Code, 3rd ed., vol. 8, p. 157); and it is familiar doctrine that interest at the legal rate is the accepted measure of

damages for the detention of money. Moreover, as the resolution of a contract has the effect of dissolving the obligation ab initio, it follows that interest should be allowed on the purchase money during the entire period that the defendant has had it in his possession, that is, in this case from the date of the contract. If the plaintiff had had possession of the land during this period, he would be entitled to no damages, and hence to no interest. It will not escape notice that a similar provision with respect to interest is found in article 1295 of the Civil Code, which deals with rescission, properly so called, and in article 1303, which deals with annulment of contracts. The judgment appealed from will be modified by giving interest at the legal rate on the amount awarded by the trial court from September 24, 1920, until paid. As thus modified the judgment will be affirmed, and it is so ordered, without special pronouncement as to costs. Avancea, C.J., Malcolm, Villamor, Ostrand, Johns, Romualdez, and Villa-Real, JJ., concur. Johnson, J., dissents.

Capacity to buy or sell

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-11872 December 1, 1917

DOMINGO MERCADO and JOSEFA MERCADO, plaintiffs-appellants, vs. JOSE ESPIRITU, administrator of the estate of the deceased Luis Espiritu, defendantappellee. Perfecto Salas Rodriguez for appellants. Vicente Foz for appellee.

TORRES, J.: This is an appeal by bill of exceptions, filed by the counsel for the plaintiffs from the judgment of September 22, 1914, in which the judge of the Seventh Judicial District dismissed the complaint filed by the plaintiffs and ordered them to keep perpetual silence in regard to the litigated land, and to pay the costs of the suit. By a complaint dated April 9, 1913, counsel for Domingo and Josefa Mercado brought suit in the Court of First Instance of Bulacan, against Luis Espiritu, but, as the latter died soon thereafter, the complaint was amended by being directed against Jose Espiritu in his capacity of his administrator of the estate of the deceased Luis Espiritu. The plaintiffs alleged that they and their sisters Concepcion and Paz, all surnamed Mercado, were the children and sole heirs of Margarita Espiritu, a sister of the deceased Luis Espiritu; that Margarita Espiritu died in 1897, leaving as her paraphernal property a tract of land of 48 hectares in area situated in the barrio of Panducot, municipality of Calumpit, Bulacan, and bounded as described in paragraph 4 of the amended complaint, which hereditary portion had since then been held by the plaintiffs and their sisters, through their father Wenceslao Mercado, husband of Margarita Espiritu; that, about the year 1910, said Luis Espiritu, by means of cajolery, induced, and fraudulently succeeded in getting the

plaintiffs Domingo and Josefa Mercado to sign a deed of sale of the land left by their mother, for the sum of P400, which amount was divided among the two plaintiffs and their sisters Concepcion and Paz, notwithstanding the fact that said land, according to its assessment, was valued at P3,795; that one-half of the land in question belonged to Margarita Espiritu, and one-half of this share, that is, one-fourth of said land , to the plaintiffs, and the other one-fourth, to their two sisters Concepcion and Paz; that the part of the land belonging to the two plaintiffs could produce 180 cavanes of rice per annum, at P2.50 per cavan, was equivalent to P450 per annum; and that Luis Espiritu had received said products from 1901 until the time of his death. Said counsel therefore asked that judgment be rendered in plaintiffs' favor by holding to be null and void the sale they made of their respective shares of their land, to Luis Espiritu, and that the defendant be ordered to deliver and restore to the plaintiffs the shares of the land that fell to the latter in the partition of the estate of their deceased mother Margarita Espiritu, together with the products thereof, uncollected since 1901, or their equivalent, to wit, P450 per annum, and to pay the costs of the suit. In due season the defendant administrator answered the aforementioned complaint, denying each and all of the allegations therein contained, and in special defense alleged that the land, the subject-matter of the complaint, had an area of only 21 cavanes of seed rice; that, on May 25, 1894, its owner, the deceased Margarita Espiritu y Yutoc, the plaintiffs' mother, with the due authorization of her husband Wenceslao Mercado y Arnedo Cruz sold to Luis Espiritu for the sum of P2,000 a portion of said land, to wit, an area such as is usually required for fifteen cavanes of seed; that subsequently, on May 14, 1901, Wenceslao Mercado y Arnedo Cruz, the plaintiffs' father, in his capacity as administrator of the property of his children sold under pacto de retro to the same Luis Espiritu at the price of P375 the remainder of the said land, to wit, an area covered by six cavanes of seed to meet the expenses of the maintenance of his (Wenceslao's) children, and this amount being still insufficient the successively borrowed from said Luis Espiritu other sums of money aggregating a total of P600; but that later, on May 17,1910, the plaintiffs, alleging themselves to be of legal age, executed, with their sisters Maria del Consejo and Maria dela Paz, the notarial instrument inserted integrally in the 5th paragraph of the answer, by which instrument, ratifying said sale under pacto de retro of the land that had belonged to their mother Margarita Espiritu, effected by their father Wenceslao Mercado in favor of Luis Espiritu for the sum of P2,600, they sold absolutely and perpetually to said Luis Espiritu, in consideration of P400, the property that had belonged to their deceased mother and which they acknowledged having received from the aforementioned purchaser. In this cross-complaint the defendant alleged that the complaint filed by the plaintiffs was unfounded and malicious, and that thereby losses and damages in the sum of P1,000 had been caused to the intestate estate of the said Luis Espiritu. He therefore asked that judgment be rendered by ordering the plaintiffs to keep perpetual silence with respect to the land in litigation and, besides, to pay said intestate estate P1,000 for losses and damages, and that the costs of the trial be charged against them. In reply to the cross-complaint, the plaintiffs denied each and all of the facts therein set forth, and in special defense alleged that at the time of the execution of the deed of sale inserted in the cross-complaint the plaintiffs were still minors, and that since they reached their majority the four years fixed by law for the annulment of said contract had not yet elapsed. They therefore asked that they be absolved from the defendant's cross-complaint. After trial and the introduction of evidence by both parties, the court rendered the judgment aforementioned, to which the plaintiffs excepted and in writing moved for a reopening of the case and a new trial. This motion was overruled, exception was taken by the petitioners, and the proper bill of exceptions having been presented, the same was approved and transmitted to the clerk of this court. As the plaintiffs assailed the validity of the deed of sale, Exhibit 3, executed by them on May 17, 1910, on the ground that they were minors when they executed it, the questions submitted to the decision of this court consist in determining whether it is true that the plaintiffs were then minors and therefore incapable of selling their property on the date borne by the instrument Exhibit 3; and in case they then were such, whether a person who is really and truly a minor and,

notwithstanding, attests that he is of legal age, can, after the execution of the deed and within legal period, ask for the annulment of the instrument executed by him, because of some defect that invalidates the contract, in accordance with the law (Civ. Code, arts. 1263 and 1300), so that he may obtain the restitution of the land sold. The records shows it to have been fully proven that in 1891 Lucas Espiritu obtained title by composition with the State, to three parcels of land, adjoining each other, in the sitio of Panducot of the pueblo of Calumpit, Bulacan, containing altogether an area of 75 hectares, 25 ares, and 59 centares, which facts appear in the title Exhibit D; that, upon Luis Espiritu's death, his said lands passed by inheritance to his four children named Victoria, Ines, Margarita, and Luis; and that, in the partition of said decedent's estate, the parcel of land described in the complaint as containing forty-seven and odd hectares was allotted to the brother and sister Luis and Margarita, in equal shares. Margarita Espiritu, married to Wenceslao Mercado y Ardeno Cruz, had by this husband five children, Maria Consejo, Maria de la Paz, Domingo, Josefa, and Amalia, all surnamed Mercado y Espiritu, who, at the death of their mother in 1896 inherited, by operation of law, onehalf of the land described in the complaint. The plaintiffs' petition for annulment of the sale and the consequent restitution to them of twofourths of the land left by their mother, that is, of one-fourth of all the land described in the complaint, and which, they stated, amounts to 11 hectares, 86 ares and 37 centares. To this claim the defendant excepted, alleging that the land in question comprised only an area such as is customarily covered by 21 cavanes of seed. It was also duly proven that, by a notarial instrument of May 25, 1894, the plaintiffs' mother conveyed by actual and absolute sale for the sum of P2,000, to her brother Luis Espiritu a portion of the land now on litigation, or an area such as is usually covered by about 15 cavanes of seed; and that, on account of the loss of the original of said instrument, which was on the possession of the purchaser Luis Espiritu, and furthermore because, during the revolution, the protocols or registers of public documents of the Province of Bulacan were burned, Wenceslao Mercado y Arnedo Cruz, the widower of the vendor and father of the plaintiffs, executed, at the instance of the interested party Luis Espiritu, the notarial instrument Exhibit 1, of the date of May 20, 1901, in his own name and those of his minor children Maria Consejo, Maria de la Paz, Domingo, Josefa, and Amalia, and therein set forth that it was true that the sale of said portion of land had been made by his aforementioned wife, then deceased, to Luis Espiritu in 1894. However, even prior to said date, to wit, on May 14th of the same year, 1901, the widower Wenceslao Mercado, according to the private document Exhibit 2, pledged or mortgaged to the same man, Luis Espiritu, for P375, a part, or an area covered by six cavanes of seed, of the land that had belonged to this vendor's deceased wife, to the said Luis Espiritu and which now forms a part of the land in question a transaction which Mercado was obliged to make in order to obtain funds with which "to cover his children's needs." Wenceslao Mercado, the plaintiffs' father, having died, about the year 1904, the plaintiffs Domingo and Josefa Mercado, together with their sisters Consejo and Paz, declaring themselves to be of legal age and in possession of the required legal status to contract, executed and subscribed before a notary the document Exhibit 3, on May 17, 1910, in which referring to the previous sale of the land, effected by their deceased mother for the sum of P2,600 and with her husband's permission and authorization, they sold absolutely and in perpetuity to Luis Espiritu, for the sum of P400 "as an increase" of the previous purchase price, the land described in said instrument and situated in Panducot, pueblo of Calumpit, Bulacan, of an area equal to that usually sown with 21 cavanes of seed bounded on the north by the lands of Flaviano Abreu and the heirs of Pedro Espiritu, on the east by those of Victoria Espiritu and Ines Espiritu, on the south by those of Luis Espiritu, and on the west by those of Hermogenes Tan-Toco and by the Sapang-Maitu stream. In this status of the case the plaintiffs seek the annulment of the deed Exhibit 3, on the ground that on the date of its execution they were minors without legal capacity to contract, and for the further reason that the deceased purchaser Luis Espiritu availed himself of deceit and fraud in obtaining their consent for the execution of said deed.

As it was proven by the testimony of the clerk of the parochial church of Apalit (plaintiffs were born in Apalit) that the baptismal register books of that parish pertaining to the years 1890-1891, were lost or burned, the witness Maria Consejo Mercado recognized and identified the book Exhibit A, which she testified had been kept and taken care of by her deceased father Wenceslao Mercado, pages 396 and 397 of which bear the attestation that the plaintiff Domingo Mercado was born on August 4, 1890, and Josefa Mercado, on July 14, 1891. Furthermore, this witness corroborated the averment of the plaintiffs' minority, by the personal registration certificate of said Domingo Mercado, of the year 1914, Exhibit C, by which it appears that in 1910 he was only 23 years old, whereby it would also be appear that Josefa Mercado was 22 years of age in 1910, and therefore, on May 17,1910, when the instrument of purchase and sale, Exhibit 3, was executed, the plaintiffs must have been, respectively, 19 and 18 years of age. The witness Maria Consejo Mercado also testified that after her father's death her brother and sisters removed to Manila to live there, although her brother Domingo used to reside with his uncle Luis Espiritu, who took charge of the administration of the property left by his predecessors in interest; that it was her uncle Luis who got for her brother Domingo the other cedula, Exhibit B, pertaining to the year 1910, where in it appears that the latter was then already 23 years of age; that she did not know why her uncle did so; that she and her brother and sisters merely signed the deed of May 17, 1910; and that her father Wenceslao Mercado, prior to his death had pledged the land to her uncle Luis Espiritu. The witness Ines Espiritu testified that after the death of the plaintiffs' father, it was Luis Espiritu who directed the cultivation of the land in litigation. This testimony was corroborated by her sister Victoria Espiritu, who added that her nephew, the plaintiff Domingo, had lived for some time, she did not know just how long, under the control of Luis Espiritu. Roque Galang, married to a sister of Luis Espiritu, stated that the land that fell to his wife and to his sister-in-law Victoria, and which had an area of about 8 hectares less than that of the land allotted to the aforementioned Luis and Margarita produced for his wife and his sister-in-law Victoria a net and minimum yield of 507 cavanes in 1907, in spite of its being high land and of inferior quality, as compared with the land in dispute, and that its yield was still larger in 1914, when the said two sisters' share was 764 cavanes. Patricio Tanjucto, the notary before whom the deed Exhibit 3 was ratified, was a witness for the defendant. He testified that this deed was drawn up by him at the request of the plaintiff Josefa Mercado; that the grantors of the instrument assured him that they were all of legal age; that said document was signed by the plaintiffs and the other contracting parties, after it had been read to them and had been translated into the Pampangan dialect for those of them who did not understand Spanish. On cross-examination, witness added that ever since he was 18 years of age and began to court, he had known the plaintiff Josefa Mercado, who was then a young maiden, although she had not yet commenced to attend social gatherings, and that all this took place about the year 1898, for witness said that he was then [at the time of his testimony, 1914,] 34 years of age. Antonio Espiritu, 60 years of age, who knew Lucas Espiritu and the properties owned by the latter, testified that Espiritu's land contained an area of 84 cavanes, and after its owner's death, was under witness' administration during to harvest two harvest seasons; that the products yielded by a portion of this land, to wit, an area such as is sown by about 15 cavanes of seed, had been, since 1894, utilized by Luis Espiritu, by reason of his having acquired the land; and that, after Margarita Espiritu's death, her husband Wenceslao Mercado took possession of another portion of the land, containing an area of six cavanes of seed and which had been left by this deceased, and that he held same until 1901, when he conveyed it to Luis Espiritu.
lawphi1.net

The defendant-administrator, Jose Espiritu, son of the deceased Luis Espiritu, testified that the plaintiff Domingo Mercado used to live off and on in the house of his deceased father, about the year 1909 or 1910, and used to go back and forth between his father's house and those of his

other relatives. He denied that his father had at any time administered the property belonging to the Mercado brother and sisters. In rebuttal, Antonio Mercado, a cousin of Wenceslao, father of the plaintiffs, testified that he mediate in several transactions in connection with a piece of land belonging to Margarita Espiritu. When shown the deed of purchase and sale Exhibit 1, he stated that he was not acquainted with its contents. This same witness also testified that he mediated in a transaction had between Wenceslao Mercado and Luis Espiritu (he did not remember the year), in which the former sold to the latter a parcel of land situated in Panducot. He stated that as he was a witness of the deed of sale he could identify this instrument were it exhibited to him; but he did not do so, for no instrument whatever was presented to him for identification. The transaction mentioned must have concerned either the ratification of the sale of the land of 15 cavanes, in 1901, attested in Exhibit 1, or the mortgage or pledge of the other parcel of 6 cavanes, given on May 14, 1901, by Wenceslao Mercado to Luis Espiritu, as may be seen by the private document Exhibit 2. In rebuttal, the plaintiff Josefa Mercado denied having gone to the house of the notary Tanjutco for the purpose of requesting him to draw up any document whatever. She stated that she saw the document Exhibit 3 for the first time in the house of her uncle Luis Espiritu on the day she signed it, on which occasion and while said document was being signed said notary was not present, nor were the witnesses thereto whose names appear therein; and that she went to her said uncle's house, because he had sent for her, as well as her brother and sisters, sending a carromata to fetch them. Victoria Espiritu denied ever having been in the house of her brother. Luis Espiritu in company with the plaintiffs, for the purpose of giving her consent to the execution of any deed in behalf of her brother. The evidence adduced at the trial does not show, even circumstantially, that the purchaser Luis Espiritu employed fraud, deceit, violence, or intimidation, in order to effect the sale mentioned in the document Exhibit 3, executed on May 17, 1910. In this document the vendors, the brother and the sisters Domingo, Maria del Consejo, Paz and, Josefa surnamed Mercado y Espiritu, attested the certainty of the previous sale which their mother, during her lifetime, had made in behalf of said purchaser Luis Espiritu, her brother with the consent of her husband Wenceslao Mercado, father of the vendors of the portion of land situated in the barrio of Panducot, pueblo of Calumpit, Bulacan; and in consideration of the fact that the said vendor Luis Espiritu paid them, as an increase, the sum of P400, by virtue of the contract made with him, they declare having sold to him absolutely and in perpetuity said parcel of the land, waive and thenceforth any and all rights they may have, inasmuch as said sum constitutes the just price of the property. So that said document Exhibit 3 is virtually an acknowledgment of the contract of sale of the parcel or portion of land that would contain 15 cavanes of seed rice made by the vendors' mother in favor of the purchaser Luis Espiritu, their uncle, and likewise an acknowledgment of the contract of pledge or mortgage of the remainder of said land, an area of six cavanes, made with the same purchaser, at an increase of P400 over the price of P2,600, making an aggregate sum of P3,000, decomposed as follows: P2,000, collected during her lifetime, by the vendors' father; and the said increase of P400, collected by the plaintiffs. In the aforementioned sale, according to the deed of May 25, 1894, Margarita Espiritu conveyed to her brother Luis the parcel of 15 cavanes of seed, Exhibit 1, and after her death the plaintiffs' widowed father mortgaged or pledged the remaining parcel or portion of 6 cavanes of seed to her brother-in-law, Luis Espiritu, in May, 1901 (Exhibit 2). So it is that the notarial instrument Exhibit 3, which was assailed by the plaintiffs, recognized the validity of the previous contracts, and the totality of the land, consisting of an area containing 21 cavanes of seed rice, was sold absolutely and in perpetuity, the vendors receiving in exchange P400 more; and there is no conclusive proof in the record that this last document was false and simulated on account of the employment of any violence, intimidation, fraud, or deceit, in the procuring of the consent of the vendors who executed it. Considering the relation that exists between the document Exhibit 3 and those of previous dates, Exhibits 1 and 2, and taking into the account the relationship between the contracting parties, and

also the general custom that prevails in many provinces of these Islands for the vendor or debtor to obtain an increase in the price of the sale or of the pledge, or an increase in the amount loaned, without proof to the contrary, it would be improper and illegal to hold, in view of the facts hereinabove set forth, that the purchaser Luis Espiritu, now deceased, had any need to forge or simulate the document Exhibit 3 inasmuch as, since May, 1894, he has held in the capacity of owner by virtue of a prior acquisition, the parcel of land of 15 cavanes of seed, and likewise, since May, 1901, according to the contract of mortgage or pledge, the parcel of 6 cavanes, or the remainder of the total area of 21 cavanes. So that Luis Espiritu was, during his lifetime, and now, after his death, his testate or intestate estate is in lawful possession of the parcel of land situated in Panducot that contains 21 cavanes of seed, by virtue of the title of conveyance of ownership of the land measuring 15 cavanes, and, in consequence of the contract of pledge or mortgage in security for the sum of P600, is likewise in lawful possession of the remainder of the land, or an area containing 6 cavanes of seed. The plaintiffs have absolutely no right whatever to recover said first parcel of land, as its ownership was conveyed to the purchaser by means of a singular title of purchase and sale; and as to the other portion of 6 cavanes of seed, they could have redeemed it before May 17, 1910, upon the payment or the return of the sum which their deceased father Wenceslao Mercado had, during his lifetime, received as a loan under security of the pledged property; but, after the execution of the document Exhibit 3, the creditor Luis Espiritu definitely acquired the ownership of said parcel of 6 cavanes. It is therefore a rash venture to attempt to recover this latter parcel by means of the contract of final and absolute sale, set forth in the deed Exhibit 3. Moreover, the notarial document Exhibit 1, are regards the statements made therein, is of the nature of a public document and is evidence of the fact which gave rise to its execution and of the date of the latter, even against a third person and his predecessors in interest such as are the plaintiffs. (Civ. Code, art. 1218.) The plaintiffs' father, Wenceslao Mercado, recognizing it to be perfectly true that his wife Margarita Espiritu sold said parcel of land which she inherited from her father, of an area of about "15 cavanes of seed," to her brother Luis Espiritu, by means of an instrument executed by her on May 25,1894 an instrument that disappeared or was burned and likewise recognizing that the protocols and register books belonging to the Province of Bulacan were destroyed as a result of the past revolution, at the request of his brother-in-law Luis Espiritu he had no objection to give the testimony recorded in said notarial instrument, as it was the truth regarding what had occurred, and in so doing he acted as the plaintiffs' legitimate father in the exercise of his parental authority, inasmuch as he had personal knowledge of said sale, he himself being the husband who authorized said conveyance, notwithstanding that his testimony affected his children's interest and prejudiced his own, as the owner of any fruits that might be produced by said real property. The signature and handwriting of the document Exhibit 2 were identified as authentic by one of the plaintiffs, Consejo Mercado, and as the record shows no evidence whatever that this document is false, and it does not appear to have been assailed as such, and as it was signed by the plaintiffs' father, there is no legal ground or well-founded reason why it should be rejected. It was therefore properly admitted as evidence of the certainty of the facts therein set forth. The principal defect attributed by the plaintiffs to the document Exhibit 3 consists in that, on the date of May 17, 1910, when it was executed that they signed it, they were minors, that is, they had not yet attained the age of 21 years fixed by Act No. 1891, though no evidence appears in the record that the plaintiffs Josefa and Domingo Mercado were in fact minors, for no certified copies were presented of their baptismal certificates, nor did the plaintiffs adduce any supplemental evidence whatever to prove that Domingo was actually 19 and Josefa 18 years of age when they signed the document Exhibit 3, on May 17, 1910, inasmuch as the copybook, Exhibit A, notwithstanding the testimony of the plaintiff Consejo Mercado, does not constitute sufficient proof of the dates of births of the said Domingo and Josefa.

However, even in the doubt whether they certainly were of legal age on the date referred to, it cannot be gainsaid that in the document Exhibit 3 they stated that they were of legal age at the time they executed and signed it, and on that account the sale mentioned in said notarial deed Exhibit 3 is perfectly valid a sale that is considered as limited solely to the parcel of land of 6 cavanes of seed, pledged by the deceased father of the plaintiffs in security for P600 received by him as a loan from his brother-in-law Luis Espiritu, for the reason that the parcel of 15 cavanes had been lawfully sold by its original owner, the plaintiffs' mother. The courts, in their interpretation of the law, have laid down the rule that the sale of real estate, made by minors who pretend to be of legal age, when in fact they are not, is valid, and they will not be permitted to excuse themselves from the fulfillment of the obligations contracted by them, or to have them annulled in pursuance of the provisions of Law 6, title 19, of the 6th Partida; and the judgment that holds such a sale to be valid and absolves the purchaser from the complaint filed against him does not violate the laws relative to the sale of minors' property, nor the juridical rules established in consonance therewith. (Decisions of the supreme court of Spain, of April 27, 1860, July 11, 1868, and March 1, 1875.)
itc@ alf

With respect to the true age of the plaintiffs, no proof was adduced of the fact that it was Luis Espiritu who took out Domingo Mercado's personal registration certificate on April 13, 1910, causing the age of 23 years to be entered therein in order to corroborate the date of the notarial instrument of May 17th of the same year; and the supposition that he did, would also allow it to be supposed, in order to show the propriety of the claim, that the cedula Exhibit C was taken out on February 14, 1914, where in it is recorded that Domingo Mercado was on that date 23 years of age, for both these facts are not proved; neither was any proof adduced against the statement made by the plaintiffs Domingo and Josefa in the notarial instrument Exhibit 3, that, on the date when they executed it, they were already of legal age, and, besides the annotation contained in the copybook Exhibit A, no supplemental proof of their true ages was introduced. Aside from the foregoing, from a careful examination of the record in this case, it cannot be concluded that the plaintiffs, who claim to have minors when they executed the notarial instrument Exhibit 3, have suffered positive and actual losses and damages in their rights and interests as a result of the execution of said document, inasmuch as the sale effected by the plaintiffs' mother, Margarita Espiritu, in May, 1894, of the greater part of the land of 21 cavanes of seed, did not occasion any damage or prejudice to the plaintiffs, inasmuch as their father stated in the document Exhibit 2 that he was obliged to mortgage or pledge said remaining portion of the land in order to secure the loan of the P375 furnished by Luis Espiritu and which was subsequently increased to P600 so as to provide for certain engagements or perhaps to meet the needs of his children, the plaintiff; and therefore, to judge from the statements made by their father himself, they received through him, in exchange for the land of 6 cavanes of seed, which passed into the possession of the creditor Luis Espiritu, the benefit which must have accrued to them from the sums of money received as loans; and, finally, on the execution of the impugned document Exhibit 3, the plaintiffs received and divided between themselves the sum of P400, which sum, added to that P2,000 received by Margarita Espiritu, and to that of the P600 collected by Wenceslao Mercado, widower of the latter and father of the plaintiffs, makes all together the sum of P3,000, the amount paid by the purchaser as the price of all the land containing 21 cavanes of seed, and is the just price of the property, was not impugned, and, consequently, should be considered as equivalent to, and compensatory for, the true value of said land. For the foregoing reasons, whereby the errors assigned to the judgment appealed from have been refuted, and deeming said judgment to be in accordance with law and the evidence of record, we should, and do hereby, affirm the same, with costs against the appellants. So ordered. Arellano, C. J., Johnson, Street, and Malcolm, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-11835 October 30, 1958

FERNANDO HERMOSA, JR., as Judicial Administrator of the Intestate Estate of the deceased, Fernando Hermosa, Sr., plaintiff-appellant, vs. ALFONSO ZOBEL Y ROXAS, defendant-appellee. Jacinto R. Bohol for appellant. Ramirez and Ortigas for appellee. BAUTISTA ANGELO, J.: Fernando Hermosa, Sr. was the owner of certain real estate situated in San Sebastian, Spain, which he inherited from his parents. When he died on December 19, 1944, intestate proceedings were instituted in the Court of First Instance of Samar for the settlement of his estate and his daughter Luz Hermosa was appointed administratrix. He left as heirs his daughter Luz and a grandson, Fernando Hermosa, Jr. On January 14, 1947, the administratrix requested permission from the court to sell the property located in Spain with the conformity of her co-heir Fernando Jr. which was to be made through public auction. The court granted the permission in an order dated April 5, 1947. As the sale could not be carried out through public auction for lack of bidders, the administratrix requested permission to sell the property privately, which request was granted in an order of October 23, 1947. Still unable to find a buyer of the property, the administratrix approached Alfonso Zobel to interest him in buying the property but the latter, while willing to buy it, did not wish to have negotiations with the heirs or go through a cumbersome judicial process, and to overcome this objection the two heirs Luz and Fernando agreed to have the property ceded and adjudicated to one of them who may later carry on the negotiation with the prospective buyer. In line with their agreement, they executed on November 18, 1947 a deed of cession and adjudication of the property in favor of Luz Hermosa, and on November 20, 1947, the two filed a joint petition with the probate court explaining the circumstances surrounding the adjudication of the property to Luz Hermosa and requesting that the same be approved. Acceding to their joint petition, the court issued an order approving the deed of cession and adjudication on November 21, 1947. After the property had been adjudicated to Luz Hermosa, the latter renewed the negotiation concerning the sale of the property to Alfonso Zobel and after discussing the terms and conditions thereof, both agreed that the sale price would be P20,000, Philippine currency. However, since under the laws of Spain the lessee of a property which is sold may repurchase the same by paying the sale price in Spanish pesetas at the official rate of exchange, in order to protect the investment of the buyer it was agreed to state in the deed of sale a sale price of P80,000. Another problem that arose was in connection with the tax that the vendor may be made to pay if the price were fixed at P80,000 and to obviate the same it was likewise agreed to make it appear that the difference of P60,000 had been paid to the vendor during the Japanese occupation. After the negotiation had been completed, Luz Hermosa executed the necessary deed of sale on December 10, 1947, together with a memorandum wherein she stated that she had received the amount of P60,000 during the years 1942, 1943 and 1944 and that out of the balance of P20,000 she received P15,000 on account, the remaining P5,000 to be paid after the property had been

registered in the name of the vendor. And on April 27, 1948, this remainder was in effect paid by Zobel to Luz Hermosa thereby completing the transaction. Meantime, Luz Hermosa died and Fernando Hermosa, Jr. was appointed in her place as administrator of the estate of her late father, and when he came to know that under the deed of sales executed by Luz Hermosa in favor of Alfonso Zobel the sale price was P80,000 and Luz only reported to the probate court the sum of P20,000, he demanded from Zobel the payment of the balance of P60,000, or the specific performance of the contract, and when Zobel refused to accede to his demand, he began the present action on May 28, 1954 in the Court of First Instance of Samar asking for specific performance or the rescission of the sale, plus damages, in his capacity as judicial administrator. Defendant answered the complaint setting up certain special defenses and a counterclaim. After hearing, the court found the complaint unmeritorious and rendered judgment dismissing it but ordering plaintiff to pay defendant the sum of P1,000 as moral damages and P500 as attorney's fees and costs. The case is now before us on appeal in view of the amount involved. It should be noted that this action was instituted by plaintiff in his capacity as administrator of the estate of Fernando Hermosa, Sr. and that its purpose is to demand either the specific performance or the rescission of the deed of sale executed by Luz Hermosa in her personal capacity in favor of defendant Alfonso Zobel on December 10, 1947. Note should also be taken of the fact that Luz Hermosa died on December 26, 1953 for which reason plaintiff was appointed administrator of the estate in her place. Such being the case, plaintiff has no capacity to bring this action for the property involved has ceased to belong to the estate of Fernando Hermosa, Sr., the only party in interest who could take this action being either the administrator of the estate of Luz or her heirs and none of them is a party to this case (Article 1311, new Civil Code). But plaintiff contends that the deed of cession executed by him jointly with Luz Hermosa adjudicating to the latter the property in question in order to facilitate its sale to the defendant is null and void for the reason that at the time it was executed by him on November 18, 1947 he was still a minor and so the cession did not have any legal effect. We fail to see how this contention can be sustained it appearing that at the time he and his aunt. Luz executed said deed of cession, he was almost of age, or was already 20 years 11 months and 3 days old. As this Court said in the case of Mercado vs. Espiritu, 37 Phil., 215: "The courts have laid down the rule that the sale of real estate, effected by minors who have already passed the ages of puberty and adolescence and are near the adult age when they pretend to have already reached their majority, while in fact they have not, is valid, and they cannot be permitted afterwards to excuse themselves from compliance with the obligation assumed by them or to seek their annulment." Moreover, after he and his aunt Luz had executed the aforesaid deed of cession, they filed a joint petition with the probate court wherein they explained the reason why the cession had to be made in favor of Luz Hermosa and requested that said deed be approved. And after considering the reasons advanced by them, the court approved the cession in the following wise: "It having been shown that for the best interest of the estate the deed of cession executed by Luz Hermosa Nuez and Fernando Hermosa, Jr. in favor of Luz Hermosa Nuez on November 18, 1947 in the City of Manila and acknowledged before a Notary Public should be approved by the court, upon motion of the counsel for the heirs, the said cession is hereby approved" (Exhibit 10). Plaintiff is therefore now estopped from disputing the validity of said cession. As this Court aptly said: "The circumstance that, about one month after the date of the conveyance, the appellee informed the appellants of his minority, is of no moment, because appellee's previous misrepresentation had already estopped him from disavowing the contract."(Sia Suanvs. Alcantara, 47 Off. Gaz., p. 4561; 85 Phil., 669.) It should be here mentioned parenthetically that plaintiff in his affidavit Exhibit 4 stated that he was already of legal age. This is an affidavit plaintiff executed on January 20, 1947 wherein he gave his consent to the sale of the property in question by the administratrix Luz Hermosa the first time they decided to dispose of the property for the benefit of the heirs. Verily, plaintiff cannot now be allowed to repudiate such statement to the prejudice of defendant.

But even if it be granted that plaintiff has sufficient legal ground to ask for the rescission of the sale, the fact remains that his right of action has already prescribed, it appearing that he became of age on January 7, 1948, and he only brought the present action on May 28, 1954, or more than four years after he attained the age of majority. Under Article 1389 of the new Civil Code, an action for rescission prescribes in four years from removal of one's incapacity, and this happened more than four years ago. Having reached the foregoing conclusion, we need not discuss the other questions raised by appellant in his brief. The lower court ordered plaintiff to pay defendant the sum of P1,000 as moral damages and P500 as attorney's fees on the ground that in filing the present action he was actuated by a deliberate intent to harass and molest defendant knowing full well that he had no sufficient cause of action. We entertain a different opinion considering that plaintiff did not take part in the sale and so he was not aware of the circumstances under which it was carried out. Apparently he was of the belief that the real consideration was P80,000 as it was made to appear in the document and he brought this action in the belief that defendant has not paid the balance of P60,000. In the circumstances, we are of the opinion that the award of damages and attorney's fees is not justified. Wherefore, the decision appealed from is affirmed with the only modification that the award of damages and attorney's fees should be eliminated. No pronouncement as to costs. Montemayor, Labrador, Reyes, J. B. L. and Endencia, JJ., concur. Paras, C. J., Bengzon and Concepcion, JJ., concur in the result. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-46850 June 20, 1940

UY SIU PIN and CHUA HUE, petitioners, vs. CASIMIRA CANTOLLAS, ET AL., respondents. Trinidad & Enriquez and Sumulong, Lavidez and Sumulong for petitioners. Azada, Veluz and De Luna for respondents. LAUREL, J.: In the year 1929 or thereabout the spouses Pedro Velegao and Casimira Cantollas were indebted to El Hogar Filipino in the sum of P2,000 secured by a mortgage on certain land covered by original certificate of title No. 1017. Upon the death of Pedro Velegao in the same year, there remained an unpaid balance of P1,300. On April 2, 1932 Casimira Cantollas and her son Blas Velegao, who succeeded to the mortgaged land, entered into a contract with Uy Siu Pin by which Casimira and Blas agreed to deliver the latter to possess and enjoy the same with its improvements during the period of fifteen years from April 2, 1932, on condition that Uy Siu Pin would pay to El Hogar Filipino the unpaid balance of the indebtedness of Casimira and Blas, together with all other expenses including realty taxes. It was further covenanted that after the lapse of fifteen years, Uy Siu Pin would return the land to Casimira Cantollas and Blas Velegao without any obligation on the part of the latter to pay anything to Uy Siu Pin, but that, if after the expiration of five years from April 2, 1932, Casimira and Blas would be in a position to do so, they had the right to redeem said land by paying to Uy Siu Pin or his successors in interest the sum of

P1,750. In pursuance of this agreement, Uy Siu Pin, on April 2, 1932, took possession of the land and proceeded to make payments to El Hogar Filipino upon account of the indebtedness of Casimira Cantollas and Blas Velegao. The payments thus made amounted to P600 up to July, 1933, when Uy Siu Pin ceased to make further payments to El Hogar Filipino , as a result of which the latter foreclosed the mortgage which it held on the land in question which was then in the possession of Uy Siu Pin by reason of the agreement between him and Casimira and Blas already above referred to. In the foreclosure sale, the land was bought by El Hogar Filipino for P1,062.66. The mortgage debtors, Casimira and Blas, having failed to redeem the land within the statutory period, a final deed of sale was issued in favor of El Hogar Filipino on December 24, 1934. On December 26, 1934 the latter sold the aforesaid land to Uy Siu Pin for P1,198.17. On December 28, 1934 Uy Siu Pin in turn sold the land to his wife Chua Hue in consideration of P4,000. Transfer certificate of title No. 8446 was issued in favor of Uy Siu Pin but it was later cancelled by a new transfer certificate of title No. 8447, issued in the name of Chua Hue. On December 10, 1935, Casimira Cantollas and Blas Velegao filed in the Court of First Instance of Tayabas a complaint against Uy Siu Pin and Chua Hue in which, as subsequently amended, it was prayed that the sale in favor of Chua Hue and transfer certificate of title No. 8447 in her name be cancelled; that the agreement entered into between Uy Siu Pin and Casimira and Blas on April 2, 1932, and attached to the complaint as Exhibit A, be noted on the transfer certificate of title issued in favor of Uy Siu Pin, and that the defendants be ordered to pay to the plaintiffs the sum of P380 by way of damages and the sum of P7,500 as the value of the land in question. On December 11, 1935 a notice of lis pendens was inscribed in the office of the register of deeds of Tayabas and noted on the back of transfer certificate of title No. 8447. The defendant Uy Siu Pin and Chua Hue filed an answer containing a general denial and the special defenses that Uy Siu Pin entered into the contract Exhibit A through fraud on the part of the plaintiffs Casimira and Blas, that the latter failed to perform their part of the contract in that they failed to deliver to Uy Siu Pin the possession of the land in question, and that Uy Siu Pin, after acquiring said land from El Hogar Filipino independently of the contract Exhibit A, sold the same to his codefendant Chua Hue Juan Magbajos intervening the action, prayed that he be declared the owner of the land involved therein by virtue of the sale executed in his favor by Chua Hue on December 31, 1935. After trial, the Court of First Instance of Tayabas rendered judgment setting aside the sale executed by Uy Siu Pin in favor of Chua Hue as well as the sale executed by the latter in favor of Juan Magbajos, ordering the register of deeds of Tayabas to cancel transfer certificate of title No. 8447 issued in the name of Chua Hue and to note the agreement Exhibit A on transfer certificate of title No. 8446 issued in the name of Uy Siu Pin, and sentencing the latter to pay to the plaintiffs as damages the sum of P380 plus the costs of the action. Upon appeal from this judgment by the defendants and the intervenor, the Court of Appeals, on July 18, 1939, affirmed the same with the sole modification that the award of damages in the sum of P380 was eliminated therefrom. The present petition for certiorari has been presented by Uy Siu Pin and Chua Hue with a view to obtaining a favorable judgment in their favor, the petitioners contending that: I. The Court of Appeals erred in declaring that under the agreement Exhibit A, the petitioner Uy Siu Pin received the land in question from the respondents Casimira Cantollas and Blas Velegao as mere trustee with right of usufruct; II. The Court of Appeals erred in declaring that the petitioner El Hogar Filipino, not in his own right but as trustee of the respondents Casimira Cantollas and Blas Velegao; III. The Court of Appeals erred in holding that the obligation assumed by petitioner Uy Siu Pin under Exhibit A has not been validly extinguished; IV. The Court of Appeals erred in declaring null and void the sale of the land in question in favor of the petitioner Chua Hue V. The Court of Appeals erred in denying petitioner's motion for reconsideration. Counsel for the petitioners stress the argument that Exhibit A was not a contract creating a trust relation as held by the Court of Appeals, but was one of antichresis. We find it unnecessary to make any pronouncement on this point, because whatever may be its denomination, the petitioner Uy Siu Pin is bound to comply therewith, it being still in full force and effect as found by the Court of Appeals. The respondents Casimira Cantollas and Blas Velegao performed their part of the contract when they delivered on April 2, 1932 the land involved herein to the petitioner Uy Siu Pin. Thereafter it was incumbent upon the latter to fulfill his obligation to pay the debt

owning by said respondents to El Hogar Filipino and to return said land to them, after the period of fifteen years. It cannot be contended with fairness that Uy Siu Pin acquired the land in his own right from El Hogar Filipino after the latter had foreclosure the mortgage thereon, because the foreclosure was brought about by his own failure to pay, as stipulated in the contract Exhibit A, the indebtedness of Casimira and Blas. Neither could the latter be blamed for their failure to redeem the land from El Hogar Filipino after the foreclosure sale, for the reason that they had the perfect right to rely on their contract with Uy Siu Pin. In any event, whether we consider Uy Siu Pin as having purchased the land from El Hogar Filipino in his own right, and not on behalf of Casimira Cantollas and Blas Velegao, he is still bound, under the circumstances of this case, to reconvey the same to Casimira and Blas after the expiration of the period stipulated in the existing contract Exhibit A. It is pretended, however, that the obligations assumed by Uy Siu Pin under Exhibit A have been validly extinguished when "he returned the possession of the property in question to the debtors Casimira Cantollas and Blas Velegao." Against this pretension there is the finding of fact of the Court of Appeals, not capable of review by us in the present proceedings, that Uy Siu Pin has remained in possession of the land since April 2, 1932. The sale from Uy Siu Pin to his wife Chua Hue is null and void not only because the former had no right to dispose of the land in controversy in view of the existence of the contract Exhibit A but because such sale comes within the prohibition of article 1458 of the Civil Code. It is not necessary to dwell upon the sale from Chua Hue to the intervenor Juan Magbajos, as the latter has not appealed from the decision complained of by the petitioners. The petition for certiorari will therefore be dismissed and the appealed decision affirmed, with costs against the petitioners. So ordered. Avancea, C.J., Imperial, Diaz and Moran, JJ., concur. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-65594 July 9, 1986 MAHARLIKA PUBLISHING CORPORATION, ANGELA CALICA, ADOLFO CALICA and the HEIRS OF THE LATE PIO CALICA, petitioners, vs. SPOUSES LUZ R. TAGLE and EDILBERTO TAGLE and the GOVERNMENT SERVICE INSURANCE SYSTEM and the HONORABLE INTERMEDIATE APPELLATE COURT, respondents.

GUTIERREZ, JR., J.:

The Government Service Insurance System (GSIS) was the registered owner of a parcel of land consisting of 1,373 square meters situated in the district of Paco and covered by Transfer Certificate of Title No. 5986 of the Registry of Deeds of Manila. On June 4, 1963, the GSIS entered into a conditional contract to sell the parcel of land to petitioner Maharlika Publishing Corporation (Maharlika for short) together with the building thereon as well as the printing machinery and equipment therein. Among the conditions of the sale are that the petitioner shall pay to the GSIS monthly installments of P969.94 until the total purchase price shall have been fully paid and that upon the failure of petitioner to pay any

monthly installment within ninety (90) days from due date, the contract shall be deemed automatically cancelled. After Maharlika failed to pay the installments for several months, the GSIS, on June 7, 1966, notified Maharlika in writing of its arrearages and warned Maharlika that the conditions of the contract would be enforced should Maharlika fail to settle its account within fifteen (15) days from notice. Because of Maharlika's failure to settle the unpaid accounts, the GSIS notified Maharlika in writing on June 26, 1967 that the conditional contract of sale was annulled and cancelled and required Maharlika to sign a lease contract. Maharlika refused to vacate the premises and to sign the lease contract. Sometime later, the GSIS published an invitation to bid several acquired properties, among which was the property in question, to be held at the Office of the General Manager, second floor, GSIS Building, Arroceros Street, Manila, from 9:00 a.m. to 3:00 p.m. on February 12, 1971. Meanwhile, on February 11, 1971, or one day before the scheduled public bidding, Maharlika represented by its president Adolfo Calica addressed to GSIS a letter-proposal to repurchase their foreclosed properties proposing that they be allowed to pay P11,000.00 representing ten percent (10%) of their total account; that they be allowed to pay P18,300.00 as balance to complete the twenty-five percent (25%) of their total arrearages( P117,175.00) not later than February 28, 1971 and the remaining seventy-five percent (75%) to be paid in twenty four (24) months. This letter-proposal was discussed by Adolfo Calica with GSIS Board Vice-Chairman Leonilo Ocampo, who wrote a note to the General Manager Roman Cruz, Jr., the last paragraph of which reads as follows: It sounds fair and reasonable subject to your wise judgment, as usual. (Exhibit 4, Maharlika) Said letter-proposal and Ocampo's note were taken by Calica to General Manager Cruz, Jr., who, in turn, wrote on the face of Exhibit 4-Maharlika a note to one Mr. Ibaez which reads: "Hold Bidding. Discuss with me." The letter-proposal together with two (2) checks amounting to P11,000.00 were submitted to the office of General Manager Cruz, Jr. and were received by his Secretary. On February 12, 1971, however, the public bidding of this particular property was held as scheduled prompting Adolfo Calica to submit his bid to the Bidding Committee with a deposit of P11,000.00 represented by the same two checks submitted to General Manager Cruz, Jr., together with his letter-proposal. His bid proposal reads: "I bid to match the highest bidder." The bidding committee rejected Maharlika's bid as an imperfect bid and recommended acceptance of private respondent Luz Tagle's bid of P130,000.00 with a ten percent (10%) deposit of P13,000.00. On February 19, 1971, the GSIS addressed a letter to Adolfo Calica informing him of the nonacceptance of his bid and returning his two checks. After approval and confirmation of the sale of the subject property to Luz Tagle on April 20, 1971, the GSIS executed a Deed of Conditional Sale in favor of the Tagles on June 8, 1971. Due to the refusal of petitioners to surrender the possession of the property in question, respondent spouses Luz R. Tagle and Edilberto Tagle filed a case for Recovery of Possession with Damages with the Court of First Instance of Manila which rendered the following decision on May 15, 1974:"

IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment: (a) declaring the letter-proposal (Exh.. 3-Maharlika) ineffective and without any binding effect, being imperfect to create any contractual relation between GSIS and defendants Maharlika and Adolfo Calica; (b) declaring plaintiffs and (sic) entitled to the possession of the properties in question and directing, therefore, defendants Maharlika and Adolfo Calica, or any person or persons holding or possessing the properties in their behalf, to forthwith vacate the properties in question and to surrender the same to the plaintiffs;" (c) dismissing the complaint as against defendants 'Heirs of the deceased Pio Calica' (except Angela Calica) it appearing that they were not properly summoned and represented in the instant suit:" (d) directing the defendants Maharlika, Adolfo Calica and Angela Calica, to pay jointly and severally the plaintiffs a monthly rental of the properties in question in the sum of P976.00 a month commencing 12 February 1971, until the said properties are vacated by said defendants, with legal interest of all sums due from 12 Feb. 1971 up to the rendition of this judgment in this instant suit, such interest to commence from the filing of the complaint until the same is fully paid; and that such monthly rentals commencing from the date of this judgment, shall also earn interest at the legal rate unless paid within the first ten days of the current month for the rental of the preceding month;" (e) dismissing the counterclaim of defendants Maharlika and the Calicas against plaintiffs; (f) dismissing the cross-claim of defendants Maharlika and the Calicos against defendant GSIS;" (g) dismissing all other claims which the parties may have against each other; and (h) directing defendants Maharlika, Adolfo Calica and Angela Calica to pay the costs of this suit. After a motion to set aside judgment and grant a new trial was denied by the trial court for lack of merit, the case was brought on appeal to the former Court of Appeals on April 8, 1976. On March 2, 1983, the Intermediate Appellate Court affirmed the decision of the trial court, stating as follows: xxx xxx xxx The mere offer to repurchase of the subject property and the deposit of the amount of P11,000.00 by the defendants on February 11, 1971, does not have the effect of reviving the conditional deed of sale (Exhibit 4-GSIS, Ibid, p. 29) executed by the GSIS and the defendants. To revive the said contract, and for the defendants to be deemed to have repurchased the subject property, there should have been payment in favor of the GSIS of all the installments due and interests thereon in the total amount of P117,175.00 as of February 11, 1971 But the defendants insist that the notations of Leonilo M. Ocampo, Vice-Chairman of the GSIS Board of Trustees, to GSIS General Manager Roman Cruz, Jr. (Exhibits 4-A and 4-B Maharlika, Ibid, p. 76) as well as the notation of GSIS General Manager Roman Cruz, Jr.' to hold bidding. Discuss with me' (Exhibit 4-C

Maharlika, Ibid, p. 76) means that the GSIS had accepted defendants' offer and had revived the conditional contract of sale dated June 4, 1963. This interpretation is far-fetched. The notations referred to by the defendants do not show acceptance of defendants' offer to repurchase the subject property. In fact, the defendants themselves were aware that their offer was not accepted at all because they submitted to and participated in the bidding of the subject property on February 12,1971 (Exhibits K, K-1, 6, 6-A, Ibid, pp. 16-34), using its letter- proposal as deposit for its bid. But defendants' bid was rejected because it was imperfect and not accompanied with a deposit of 10% of the highest bid (Exhibits B-1, 7 GSIS, 7-A Maharlika, Ibid, pp. 5, 35), and that defendants' bid did not contain a specific bid price proposal (Exhibit 7 GSIS, Ibid, p. 35). The consequent auction sale of the property on February 12, 1971 and execution of the conditional deed of sale in favor of the plaintiffs (Exhibit A, Ibid, p. 1) is valid. The plaintiffs are entitled to the possession of the subject property. xxx xxx xxx A motion for reconsideration and/or new trial was filed by petitioners. The motion was denied by the respondent Appellate Court. Hence, this petition for review on certiorari filed on December 16,1983. On January 9, 1984, we resolved to deny in a minute resolution, the petition for lack of merit. A timely motion for reconsideration was filed by the petitioners which contained the following reasons to warrant review of the case: It is apparent that petitioners will suffer serious injustice, consisting in the loss of the subject property, by reason of the failure of respondent Court to decide questions of substance involved herein in a way not in accord with law and the applicable decisions of this Honorable Court, such questions being the following: (1) Whether or not respondent Edilberto Tagle's being a GSIS officer at the time of the sale by the GSIS of the subject property to his wife should be allowed to be introduced as newly discovered evidence or at any rate received in the interest of justice;" (2) Whether or not respondent Court acted with grave abuse of discretion in ignoring the irregular appearance of respondent Luz Tagle's bid and the inference of fraud flowing therefrom in the context of surrounding circumstances; (3) Whether or not the auction sale in question is void for having been conducted despite the directive of the GSIS General Manager to suspend the same in virtue of petitioners' offer to repurchase the subject property and their payment of P11,000.00 in checks as earnest money which he accepted. Significantly, on September 21, 1984, the GSIS filed a Supplemental Memorandum submitting for resolution of this Court the matter of whether the respondent spouses Luz and Edilberto Tagle can still enforce their claim as winning bidders considering the fact that they have so far made only two payments to the GSIS amounting to P32,500.00 in violation of the terms and conditions of the conditional sale executed in their favor and which provides for its automatic cancellation in such case, or whether the petitioners can still repurchase the property in question as original owners thereof. We find the petitioners' motion for reconsideration impressed with merit.

The certification secured by the petitioners from GSIS on April 28, 1983 shows that Edilberto Tagle was Chief, Retirement Division, GSIS, from 1970 to 1978. He worked for the GSIS since 1952. Strictly speaking, the evidence of Mr. Tagle's being a GSIS official when his wife bid for the disputed property is not newly discovered evidence. However, we cannot simply ignore the fact that on February 12, 1971 when Adolfo Calica was desperately trying to retrieve the property foreclosed against him, after receiving assurances from the highest GSIS officials that his letterproposal would be accepted and after the sale at public auction of the property was, in fact, ordered to be stopped, the wife of a GSIS official would be allowed to bid for that property and would actually win in the bidding. As stated by the petitioners, this important factor implicit in good government, should have been considered in the interest of justice. It was incumbent under the law for GSIS to have rejected the bid of the wife of a GSIS official and to have refused to enter into the deed of conditional sale with the respondents Tagle. The petitioners bank on the allegation that the indirect participation of Edilberto Tagle in the public bidding creates a "conflict of interests situation" which invalidates the aforesaid transaction under the precept laid down in Article 1409 paragraph (1) of the Civil Code making his participation void for being contrary to morals, good customs, and public policy. The Supreme Court has ample authority to go beyond the pleadings when in the interest of justice and the promotion of public policy there is a need to make its own finding to support its conclusions. In this particular case, there is absolutely no doubt that Mr. Edilberto Tagle was a GSIS Division Chief when his wife bid for the property being sold by GSIS. The only issue is whether or not to consider this fact because it surfaced only after trial proper. We declare it to be a policy of the law that public officers who hold positions of trust may not bid directly or indirectly to acquire prop properties foreclosed by their offices and sold at public auction. Article XIII, Section 1 of our Constitution states that: Public office is a public trust. Public officers and employees shall serve with the highest degree of responsibility, integrity, loyalty and efficiency, and shall remain accountable to the people. We stated in Ancheta vs. Hilario (96 SCRA 62); xxx xxx xxx ...A public servant must exhibit at all times the highest sense of honesty and integrity. ... Under Article 1491 of the Civil Code the following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: (1) The guardian, the property of the person or persons who may be under his guardianship; (2) Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal has been given; (3) Executors and administrators, the property of the estate under administration; (4) Public officers and employees, the property of the State or of any subdivisions thereof, or of any government owned or controlled corporation, or institution, the

administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale; (5) Justices, judges, prosecuting attorneys, clerk of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession; (6) Any others specially disqualified by law. In so providing, the Code tends to prevent fraud, or more precisely, tends not to give occasion for fraud, which is what can and must be done (Francisco, Sales, p. 111). We, therefore, reject the contention of respondents that the fact that Edilberto Tagle was, at the time of the public bidding, a GSIS official, will not alter or change the outcome of the case. A Division Chief of the GSIS is not an ordinary employee without influence or authority. The mere fact that he exercises ample authority with respect to a particular activity, i.e., retirement, shows that his influence cannot be lightly regarded. The point is that he is a public officer and his wife acts for and in his name in any transaction with the GSIS. If he is allowed to participate in the public bidding of properties foreclosed or confiscated by the GSIS, there will always be the suspicion among other bidders and the general public that the insider official had access to information and connections with his fellow GSIS officials as to allow him to eventually acquire the property. It is precisely the need to forestall such suspicions and to restore confidence in the public service that the Civil Code now declares such transactions to be void from the beginning and not merely voidable (Rubias vs. Batiller, 51 SCRA 120). The reasons are grounded on public order and public policy. We do not comment on the motives of the private respondents or the officers supervising the bidding when they entered into the contract of sale. Suffice it to say that it fags under the prohibited transactions under Article 1491 of the Civil Code and, therefore, void under Article 1409. In the case of Garciano vs. Oyao (102 SCRA 195), this Court held: xxx xxx xxx ...We need not exaggerate the importance of being absolutely free from any suspicion which may unnecessarily erode the faith and confidence of the People in their government. As the Constitution categorically declared: 'Public office is a public trust. Public officers and employees shall serve with the highest degree of responsibility, integrity, loyalty and efficiency, and shall remain accountable to the people' (Art. XIII, Sec. 1, Constitution). xxx xxx xxx Respondent Wilfredo Oyao, should avoid so far as reasonably possible a situation which would normally tend to arouse any reasonable suspicion that he is utilizing his official position for personal gain or advantage to the prejudice of party litigants or the public in general. In the language of then Justice, now Chief Justice Enrique M. Fernando in the case of Pineda vs. Claudio (28 SCRA 34, 54): 'There may be occasion then where the needs of the collectivity that is the government may collide with his private interest as an individual.

In Mclain vs. Miller County (23 SW 2d. 2-4; 255) the Court ruled that: As the efficiency of the public service is a matter of vital concern to the public, it is not surprising that agreements tending to injure such service should be regarded as being contrary to public policy. It is not necessary that actual fraud should be shown, for a contract which tends to the injury of the public service is void, although the parties entered into it honestly, and proceeded under it in good faith. The courts do not inquire into the motives of the parties in the particular case to ascertain whether they were corrupt or not, but stop when it is ascertained that the contract is one which is opposed to public policy. Nor is it necessary to show that any evil was in fact, done by or through the contract. The purpose of the rule is to prevent persons from assuming a position where selfish motives may impel them to sacrifice the public good to private benefit. There is no need, therefore, to pass upon the issue of irregularity in the appearance of the private respondents' bid and the alleged inference of fraud flowing therefrom. We reiterate that assuming the transaction to be fair and not tainted with irregularity, it is still looked upon with disfavor because it places the officer in a position which might become antagonistic to his public duty. There are other grounds which contain us to grant this petition. We now come to the issue whether or not there was a repurchase of the property in question from the GSIS effected by the petitioners the day before the public bidding. In Article 1475 of the Civil Code, we find that "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 law governing the form of contracts. " This Court in the case of Central Bank of the Philippines vs. Court of Appeals (63 SCRA 431) ruled on the perfection of government contracts in the following manner: We are not persuaded that petitioner's posture conforms with law and equity. According to Paragraph IB 114.1 of the Instructions to Bidders, Ablaza was 'required to appear in the office of the Owner (the Bank) in person, or, if a firm or corporation, a duly authorized representative (thereof )and to execute the contract within five (5) days after notice that the contract has been awarded to him. Failure or neglect to do so shall constitute a breach of agreement effected by the acceptance of the Proposal. There can be no other meaning of this provision than that the Bank's acceptance of the bid of respondent Ablaza effected an actionable agreement between them. We cannot read it in the unilateral sense suggested by petitioner that it bound only the contractor, without any corresponding responsibility or obligation at all on the part of the Bank. An agreement presupposed a meeting of minds and when that point is reached in the negotiations between two parties intending to enter into a contract, the purported contract is deemed perfected and none of them may thereafter disengage himself therefrom without being liable to the other in an action for specific performance. " In American Jurisprudence, 2d., Section 73 (pp. 186-187), we read: The principle is fundamental that a party cannot be held to have contracted if there was no assent, and this is so both as to express contracts and contracts implied in fact. There must be mutual assent or a meeting of minds in all essential elements or terms in order to form a binding contract. However, ordinarily no more

is meant by this than an expression or manifestation of mutual assent, as an objective thing, is necessary, and that is generally deemed sufficient in the formation of a contract ... In other words, appropriate conduct by the parties may be sufficient to establish an agreement, and there may be instances where interchanged correspondence does not disclose the exact point at which the deal was closed, but the actions of the parties may indicate that a binding obligation has been undertaken. It is undisputed that when the letter-proposal of petitioners was presented to GSIS General Manager Roman Cruz, Jr., he wrote on the face of such letter the words "Hold Bidding. Discuss with me." These instructions were addressed to one Mr. Ibaez who was in-charge of public bidding. Thereafter, a deposit of P11,000.00 in checks was accepted by the Secretary of Mr. Roman Cruz, Jr. In the light of these circumstances an inference may be made that General Manager Cruz, Jr. had already accepted the petitioners' offer of repurchase or at the very least had led them to understand that he had arrived at a decision to accept it. It should also be noted that there is no serious denial as to General Manager Cruz, Jr.'s capacity to enter into binding contractual obligations for GSIS without the prior approval of the Board of Trustees. On the other hand, the letter of endorsement made by the GSIS Board Vice-Chairman Leonilo Ocampo which states ...subject to your wise judgment, as usual leads one to conclude that it has been the practice of GSIS to permit the General Manager to do acts within the scope of his apparent authority. In the case of Francisco vs. Government Service Insurance System (7 SCRA 577), we held that: xxx xxx xxx ... Corporate transactions would speedily come to a standstill were every person dealing with a corporation held duty-bound to disbelieve every act of its responsible officers, no matter how regular they should appear on their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made. Naturally he can have little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external manifestation of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law; and we would be sorry to announce a doctrine which would permit the property of a man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporation whose name and authority had been used in the manner disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority; and where it is said if the corporation permits' this means the same as 'if the thing is permitted by the directing power of the corporation. We note that the petitioners are not complete strangers entering into a contract with respondent GSIS for the first time. There was an earlier contract to sell the same properties to the petitioners. That contract was perfected and there had been partial compliance with its terms. The transaction now under question in this case merely referred to the curing of certain defects which led to the

cancellation of the earlier contract by GSIS. Under the peculiar circumstances of this case, therefore, the acceptance of the petitioners' letter-proposal by Mr. Roman Cruz, Jr., the person with authority to do so, and his order to his subordinates to stop the bidding so that they could first discuss the matter with him, created an agreement of binding nature with the petitioners. WHEREFORE, the decision and resolution of the Intermediate Appellate Court subject of the instant petition for review on certiorari are hereby SET ASIDE. The conditional sale entered into between public respondent GSIS and private respondents Luz and Edilberto Tagle is declared NULL and VOID for being contrary to public policy. The prayer of petitioners for the repurchase of the subject property in an amount equal to the amount offered by private respondents and to retain ownership and possession of the disputed property is GRANTED. SO ORDERED. Feria (Chairman), Fernan and Alampay, JJ., concur. Cruz, J., concurs in the result.
The Lawphil Project - Arellano Law Foundation

G.R. No. L-21644 May 29, 1970 WENCESLAO PASCUAL, plaintiff, vs. PILAR BAUTISTA, ET AL., defendants. PILAR BAUTISTA, third party plaintiff-appellee, vs. MARIANO R. FLORES, third party defendant-appellant. Sarte & Espinosa for plaintiff-appellee. Zosimo Rivas for third-party defendant-appellant.

DIZON, J.: This is an appeal taken by Mariano R. Flores from the decision of the Court of First Instance of Manila in Civil Case No. 48819 entitled "Pilar Bautista vs. Mariano R. Flores", the dispositive part of which reads as follows: It appearing that this motion to revive the said decision, Exhibit A, was filed on November 21, 1961, or before the expiration of the ten-year period provided by law, judgment is hereby rendered and, under Article 1144, in connection with Article 1152 of the Civil Code, this Court hereby declares that the decision of the Supreme Court in G.R. No. L-6569 and G.R. No. L-6576 is hereby REVIVED. SO ORDERED Manila, Philippines, March 12, 1963. It appears that in Civil Case No. 5203 of the Court, of First Instance of Manila entitled "Wenceslao Pascual vs. Pilar Bautista, Primitivo Lovina, Nelly Montilla de Lovina and Leon Yambao", the first

(appellee herein) filed, with leave of court, a third-party complaint against Mariano R. Flores (appellant herein). Having failed to answer the third-party complaint, Flores was declared in default (Rec. on appeal, pp. 19-20, 40-41) and, after due trial of the whole case, the court, on March 7, 1951, rendered judgment as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Pilar Bautista, ordering the latter to return to the plaintiff the sum of P2,000.00 representing part of the rent advanced by him for the second year of the lease; to pay to the plaintiff the sum of P13,181.86 representing one half of the cost of the improvements and repairs made by the plaintiff on the fishpond; and against Pilar Bautista and the spouses Primitivo Lovina and Nelly Montilla de Lovina, ordering them to pay jointly and severally to the plaintiff the sum of Twenty thousand two hundred fifty pesos (P20,250.00) representing the value of the fish at the time the plaintiff was dispossessed of the fishpond, and the costs. Likewise judgment is hereby rendered in favor of the defendant Pilar Bautista as third-party plaintiff and against Mariano R. Flores, as third-party defendant, for the sums of Five hundred thousand pesos (P500,000.00) as liquidated damages and Fifty thousand pesos (P50,000.00) for attorney's fees in accordance with her contract with him embodied in the aforesaid 'Memorandum of Agreements,' with costs against said Mariano R. Flores. Plaintiff's claim for exemplary damages and attorney's fees, Pilar Bautista's counterclaim and cross-claim, and the spouses Lovina's counter cross-claim are hereby dismissed. Defendant Leon S. Yambao is absolved from all liability under the complaint and cross-claim. All the parties above-mentioned, except the third-party defendant Flores, appealed from the above decision to the Court of Appeals (CA-G.R. 7878-R), appellee Pilar Bautista, from the portions thereof adverse to her and in favor of the plaintiff. In its decision of February 16, 1953, the Court of Appeals modified the appealed decision "by eliminating from it the award of damages in favor of Wenceslao Pascual against Pilar Bautista and Primitivo Lovina and Nelly Montilla de Lovina, as solidary debtors; and substituting, in its stead, an award in favor of Wenceslao Pascual in the total sum of P15,181.86, to be paid by Pilar Bautista alone. In all other respects the judgment of the Court below is affirmed, without pronouncement as to costs". (See page 61 of the Record on Appeal). Not satisfied with the result, Pilar Bautista and Wenceslao Pascual appealed to Us (G.R. Nos. L-6569 and L-6576), but on April 18, 1956, We affirmed the decision of the Court of Appeals. On June 6, 1957, our decision was entered by the Clerk of Court of First Instance of Manila in the entry book of his office. On June 3, 1957 Pilar Bautista secured the corresponding writ to execute the decision rendered in her favor in Civil Case No. 5203 as third-party plaintiff therein against third-party defendant Flores, but the writ was later returned unsatisfied. Thereafter she obtained several alias writs of execution against the same party, the latest having been issued on April 17, 1961, but they were likewise returned unsatisfied. On May 4, 1961, she filed a petition for the examination under oath of her judgment debtor (Flores) alleging that the latter had fraudulently disposed of his properties, and, on May 18 of the same year, the court ordered said judgment debtor to appear before it for examination under oath on June 5, 1961. Upon petition of Flores, however, the court, on June 24, 1961, set aside its order for his examination as well as the writ of execution then outstanding, on the ground that "more than ten years had already elapsed since the judgment against third-party defendant Mariano R. Flores and in favor of third-party plaintiff was entered, so that no writ of execution of said judgment can now be issued (Sec. 6, Rule 39 of the Rules of Court)". On August 29, 1961 appellee Bautista filed a petition for relief from said order of June 24, 1961, but the same was denied by the court, and although on November 15, 1961 she filed a notice of appeal from said order on denial, no appeal therefrom appears to have been actually perfected. On November 21, 1961, appellee Pilar Bautista filed an action in the Court of First Instance of Manila (Civil Case No. 48819) for the revival of the final judgment heretofore mentioned rendered in Civil Case No. 5203 against appellant Flores. In his answer to the complaint, the latter alleged

that said judgment had already prescribed pursuant to Sec. 6, Rule 39, Rules of Court, and Article 1144(3) of the New Civil Code. After trial, the lower court rendered the appealed judgment. In his brief appellant submits for our consideration ten errors allegedly committed by the trial court, but brushing aside all non-essential issues, We believe that the fate of the present appeal depends upon the following question: Which judgment, that of the Court of First Instance of Manila rendered in Civil Case No. 5203 on March 7, 1951, or that of this Court in G.R. Nos. L6569 and L-6576 rendered on April 18, 1956 (affirming the decision of the Court of Appeals in CA-G.R. No. L-7878 which, in turn, modified the aforementioned decision of the Court of First Instance of Manila) could be revived as against appellant Flores? If it is the former, it is clear that the action to revive it (Civil Case No. 48859) filed with the same Court came too late on November 21, 1961, bearing in mind that the decision sought to be revived a judgment by default as far as the third party defendant Flores was concerned was rendered on March 7, 1951. On the other hand, if it was our decision in G.R. Nos. L-6569 and L-6576 promulgated on April 18, 1956, the action for revival was timely filed, as held by the lower court. In connection with the above question, two undisputed facts must be borne in mind. The first is that from the decision of the Court of First Instance of Manila in Civil Case No. 5203 rendered on March 7, 1951, all the parties thereto, except the third-party defendant therein, Flores, appealed to the Court of Appeals. The latter, therefore, was not affected at all neither by the decision rendered by the Court of Appeals nor by the one subsequently rendered by this Court. The second is that the decision of the Court of First Instance of Manila in Civil Case No. 5203 was, as far as Flores was concerned, a judgment by default which, under the law then in force, was not appeallable and was deemed to be immediately executory. (Lim Toco vs. Go Fay, 89 Phil. 166; Rodrigo vs. Cabrera, G.R. No. L-6074, September 16, 1954, construing the effects of a judgment by default under Rule 35, Section 7 of the original Rules of Court.) Therefore, even if Flores had attempted to appeal therefrom, his appeal would have been out of order. It has been argued that, as the judgment by default against Flores was in favor of Pilar Bautista upon her third party complaint, the same may not be considered final or enforceable until the final determination of the main case which took place only upon the finality of cur decision in G.R. No. L-6569 and G.R. No. L-6576 promulgated on April 18, 1956 and that, this being so, the action for revival in question was filed on time. The argument might apply if the cause of action alleged in Pilar Bautista's third party complaint against Mariano R. Flores was dependent upon the success or failure of the claim subject matter of the main action instituted by Wenceslao Pascual against Pilar Bautista, plaintiff and defendant therein, respectively. Such, however, is not the case before Us, where it is clear that Bautista's cause of action as third party plaintiff against third party defendant Flores was based on paragraph 5 of their agreement of January 6, 1945 which reads as follows: (5) The VENDOR shall, in the event that for any reason whatsoever Nelly Montilla de Lovina shall refuse or fail to execute in favor of the VENDOR a deed of sale covering the said fishpond, pay unto the VENDEE the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) legal tender at the time, as liquidated damages, plus all expenses that VENDEE shall have incurred for the improvement of the fishpond; and in case of non-payment of the liquidated damages and the other expenses above stated the VENDEE shall have the right to foreclose and levy upon the guarantee hereinabove described, the VENDOR hereby expressly waiving all his rights under the provisions of Rule 39, Section 12 of the Rules of Court; The above stipulation makes it crystal clear that the vendee (Pilar Bautista) would be entitled to recover from the vendor (Mariano Flores) the liquidated damages and expenses agreed upon "in the event that for any reason whatsoever Nelly Montilla de Lovina shall refuse or fail to execute in favor of the vendor a deed of sale covering the said fishpond" (Emphasis supplied). Because Mrs. Lovina refused and/or failed to execute the contemplated deed of sale the trial court rendered the judgment by default against Mariano Flores. That the cause of action or claim of Pilar Bautista, as

third party plaintiff, against Mariano Flores, as third party defendant, did not depend upon the outcome of the principal action (Pascual vs. Bautista and the Lovinas) is evident from the nature of the claims involved therein described in our decision in G.R. No. L-6569 and G.R. No. L-6576 as follows: In his complaint against Pilar Bautista, the Lovinas, and the latter's man, Yambao, Pascual alleged his lease, dispossession and losses and sought: (a) the rescission of the lease with Pilar Bautista; (b) the return of the P10,000.00 he paid; and (c) payment of P27,556.00, representing the value of the fish he had in the fishpond; P20,814.72 worth of repairs thereto and P3,000.00 attorney's fees. Bautista answered pleading the acquisition of the rights of Mariano Flores; that she offered to place the fishpond in plaintiff's possession but that the latter refused to resume possession; and counterclaimed for the balance of the second year's rent, amounting to P6,000.00. The Lovina's filed answer denying privity of contract with Pascual; and pleaded the expiration of Flores' option without its being exercised, and that they had repossessed the fishpond because it was abandoned. Subsequently, Pilar Bautista filed a third-party complaint against Mariano R. Flores alleging breach of the contract Exh. 6-Bautista, and consequent losses; and prayed for judgment in the sum of P500,000.00 as liquidated damages and attorney's fees, and that the mortgage in her favor be foreclosed. Flores was declared in default and his properties were attached. Whether or not the filing of the third party complaint was proper can not now be raised by, nor be invoked in favor of Pilar Bautista, because it was she precisely who filed it. Moreover, it is clear from the provisions of the Rules of Court that for a claim to be properly raised in a pending action by way of third party complaint, it is not necessary that it be one arising from entirely dependent upon the main action; it is enough that it be "in respect" of the claim of third party plaintiff's opponent (Rule 6, Section 12, Rules of Court), or that it be "connected with plaintiff's claim" (Capayas vs. Court of First Instance of Albay 43 O.G. 2071, 2074; U.S. Commercial Company vs. Macario Guevarra, et al., 48 O.G. pp. 612-613). The foregoing makes unnecessary the consideration of other issues raised by appellant in his brief. WHEREFORE, judgment is hereby rendered setting aside the appealed decision, without costs. Concepcion, C.J., Reyes, J.B.L., Fernando and Villamor, JJ., concur. Makalintal, Zaldivar and Teehankee, JJ., took no part. Castro, J., is on leave.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 156364

September 3, 2007

JACOBUS BERNHARD HULST, petitioner, vs. PR BUILDERS, INC., respondent. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court assailing the Decision1 dated October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 60981. The facts: Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van Ijzeren (Ida), Dutch nationals, entered into a Contract to Sell with PR Builders, Inc. (respondent), for the purchase of a 210-sq m residential unit in respondent's townhouse project in Barangay Niyugan, Laurel, Batangas. When respondent failed to comply with its verbal promise to complete the project by June 1995, the spouses Hulst filed before the Housing and Land Use Regulatory Board (HLURB) a complaint for rescission of contract with interest, damages and attorney's fees, docketed as HLRB Case No. IV6-071196-0618. On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino (HLURB Arbiter) rendered a Decision2 in favor of spouses Hulst, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainant, rescinding the Contract to Sell and ordering respondent to: 1) Reimburse complainant the sum of P3,187,500.00, representing the purchase price paid by the complainants to P.R. Builders, plus interest thereon at the rate of twelve percent (12%) per annum from the time complaint was filed; 2) Pay complainant the sum of P297,000.00 as actual damages; 3) Pay complainant the sum of P100,000.00 by way of moral damages; 4) Pay complainant the sum of P150,000.00 as exemplary damages; 5) P50,000.00 as attorney's fees and for other litigation expenses; and 6) Cost of suit. SO ORDERED.3 Meanwhile, spouses Hulst divorced. Ida assigned her rights over the purchased property to petitioner.4 From then on, petitioner alone pursued the case. On August 21, 1997, the HLURB Arbiter issued a Writ of Execution addressed to the Ex-Officio Sheriff of the Regional Trial Court of Tanauan, Batangas directing the latter to execute its judgment.5

On April 13, 1998, the Ex-Officio Sheriff proceeded to implement the Writ of Execution. However, upon complaint of respondent with the CA on a Petition for Certiorari and Prohibition, the levy made by the Sheriff was set aside, requiring the Sheriff to levy first on respondent's personal properties.6 Sheriff Jaime B. Ozaeta (Sheriff) tried to implement the writ as directed but the writ was returned unsatisfied.7 On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an Alias Writ of Execution.8 On March 23, 1999, the Sheriff levied on respondent's 15 parcels of land covered by 13 Transfer Certificates of Title (TCT)9 in Barangay Niyugan, Laurel, Batangas.10 In a Notice of Sale dated March 27, 2000, the Sheriff set the public auction of the levied properties on April 28, 2000 at 10:00 a.m..11 Two days before the scheduled public auction or on April 26, 2000, respondent filed an Urgent Motion to Quash Writ of Levy with the HLURB on the ground that the Sheriff made an overlevy since the aggregate appraised value of the levied properties at P6,500.00 per sq m is P83,616,000.00, based on the Appraisal Report12 of Henry Hunter Bayne Co., Inc. dated December 11, 1996, which is over and above the judgment award.13 At 10:15 a.m. of the scheduled auction date of April 28, 2000, respondent's counsel objected to the conduct of the public auction on the ground that respondent's Urgent Motion to Quash Writ of Levy was pending resolution. Absent any restraining order from the HLURB, the Sheriff proceeded to sell the 15 parcels of land. Holly Properties Realty Corporation was the winning bidder for all 15 parcels of land for the total amount ofP5,450,653.33. The sum of P5,313,040.00 was turned over to the petitioner in satisfaction of the judgment award after deducting the legal fees.14 At 4:15 p.m. of the same day, while the Sheriff was at the HLURB office to remit the legal fees relative to the auction sale and to submit the Certificates of Sale15 for the signature of HLURB Director Belen G. Ceniza (HLURB Director), he received the Order dated April 28, 2000 issued by the HLURB Arbiter to suspend the proceedings on the matter.16 Four months later, or on August 28, 2000, the HLURB Arbiter and HLURB Director issued an Order setting aside the sheriff's levy on respondent's real properties,17 reasoning as follows: While we are not making a ruling that the fair market value of the levied properties is PhP6,500.00 per square meter (or an aggregate value of PhP83,616,000.00) as indicated in the Hunter Baynes Appraisal Report, we definitely cannot agree with the position of the Complainants and the Sheriff that the aggregate value of the 12,864.00-square meter levied properties is only around PhP6,000,000.00. The disparity between the two valuations are [sic] so egregious that the Sheriff should have looked into the matter first before proceeding with the execution sale of the said properties, especially when the auction sale proceedings was seasonably objected by Respondent's counsel, Atty. Noel Mingoa. However, instead of resolving first the objection timely posed by Atty. Mingoa, Sheriff Ozaete totally disregarded the objection raised and, posthaste, issued the corresponding Certificate of Sale even prior to the payment of the legal fees (pars. 7 & 8, Sheriff's Return). While we agree with the Complainants that what is material in an execution sale proceeding is the amount for which the properties were bidded and sold during the public auction and that, mere inadequacy of the price is not a sufficient ground to annul the sale, the court is justified to intervene where the inadequacy of the price shocks the conscience (Barrozo vs. Macaraeg, 83 Phil. 378). The difference between PhP83,616,000.00 and Php6,000,000.00 is PhP77,616,000.00 and it definitely invites our attention to look into

the proceedings had especially so when there was only one bidder, the HOLLY PROPERTIES REALTY CORPORATION represented by Ma, Chandra Cacho (par. 7, Sheriff's Return) and the auction sale proceedings was timely objected by Respondent's counsel (par. 6, Sheriff's Return) due to the pendency of the Urgent Motion to Quash the Writ of Levy which was filed prior to the execution sale. Besides, what is at issue is not the value of the subject properties as determined during the auction sale, but the determination of the value of the properties levied upon by the Sheriff taking into consideration Section 9(b) of the 1997 Rules of Civil Procedure x x x. xxxx It is very clear from the foregoing that, even during levy, the Sheriff has to consider the fair market value of the properties levied upon to determine whether they are sufficient to satisfy the judgment, and any levy in excess of the judgment award is void (Buan v. Court of Appeals, 235 SCRA 424). x x x x18 (Emphasis supplied). The dispositive portion of the Order reads: WHEREFORE, the levy on the subject properties made by the Ex-Officio Sheriff of the RTC of Tanauan, Batangas, is hereby SET ASIDE and the said Sheriff is hereby directed to levy instead Respondent's real properties that are reasonably sufficient to enforce its final and executory judgment, this time, taking into consideration not only the value of the properties as indicated in their respective tax declarations, but also all the other determinants at arriving at a fair market value, namely: the cost of acquisition, the current value of like properties, its actual or potential uses, and in the particular case of lands, their size, shape or location, and the tax declarations thereon. SO ORDERED.19 A motion for reconsideration being a prohibited pleading under Section 1(h), Rule IV of the 1996 HLURB Rules and Procedure, petitioner filed a Petition for Certiorari and Prohibition with the CA on September 27, 2000. On October 30, 2002, the CA rendered herein assailed Decision20 dismissing the petition. The CA held that petitioner's insistence that Barrozo v. Macaraeg21 does not apply since said case stated that "when there is a right to redeem inadequacy of price should not be material" holds no water as what is obtaining in this case is not "mere inadequacy," but an inadequacy that shocks the senses; that Buan v. Court of Appeals22 properly applies since the questioned levy covered 15 parcels of land posited to have an aggregate value of P83,616,000.00 which shockingly exceeded the judgment debt of only around P6,000,000.00. Without filing a motion for reconsideration,23 petitioner took the present recourse on the sole ground that: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE ARBITER'S ORDER SETTING ASIDE THE LEVY MADE BY THE SHERIFF ON THE SUBJECT PROPERTIES.24 Before resolving the question whether the CA erred in affirming the Order of the HLURB setting aside the levy made by the sheriff, it behooves this Court to address a matter of public and national importance which completely escaped the attention of the HLURB Arbiter and the CA:

petitioner and his wife are foreign nationals who are disqualified under the Constitution from owning real property in their names. Section 7 of Article XII of the 1987 Constitution provides: Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. (Emphasis supplied). The capacity to acquire private land is made dependent upon the capacity to acquire or hold lands of the public domain. Private land may be transferred or conveyed only to individuals or entities "qualified to acquire lands of the public domain." The 1987 Constitution reserved the right to participate in the disposition, exploitation, development and utilization of lands of the public domain for Filipino citizens25 or corporations at least 60 percent of the capital of which is owned by Filipinos.26 Aliens, whether individuals or corporations, have been disqualified from acquiring public lands; hence, they have also been disqualified from acquiring private lands.27 Since petitioner and his wife, being Dutch nationals, are proscribed under the Constitution from acquiring and owning real property, it is unequivocal that the Contract to Sell entered into by petitioner together with his wife and respondent is void. Under Article 1409 (1) and (7) of the Civil Code, all contracts whose cause, object or purpose is contrary to law or public policy and those expressly prohibited or declared void by law are inexistent and void from the beginning. Article 1410 of the same Code provides that the action or defense for the declaration of the inexistence of a contract does not prescribe. A void contract is equivalent to nothing; it produces no civil effect.28 It does not create, modify or extinguish a juridical relation.29 Generally, parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or "in equal fault."30 In pari delicto is "a universal doctrine which holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other."31 This rule, however, is subject to exceptions32 that permit the return of that which may have been given under a void contract to: (a) the innocent party (Arts. 1411-1412, Civil Code);33 (b) the debtor who pays usurious interest (Art. 1413, Civil Code);34 (c) the party repudiating the void contract before the illegal purpose is accomplished or before damage is caused to a third person and if public interest is subserved by allowing recovery (Art. 1414, Civil Code);35 (d) the incapacitated party if the interest of justice so demands (Art. 1415, Civil Code);36 (e) the party for whose protection the prohibition by law is intended if the agreement is not illegal per se but merely prohibited and if public policy would be enhanced by permitting recovery (Art. 1416, Civil Code);37and (f) the party for whose benefit the law has been intended such as in price ceiling laws (Art. 1417, Civil Code)38and labor laws (Arts. 1418-1419, Civil Code).39 It is significant to note that the agreement executed by the parties in this case is a Contract to Sell and not a contract of sale. A distinction between the two is material in the determination of when ownership is deemed to have been transferred to the buyer or vendee and, ultimately, the resolution of the question on whether the constitutional proscription has been breached. In a contract of sale, the title passes to the buyer upon the delivery of the thing sold. The vendor has lost and cannot recover the ownership of the property until and unless the contract of sale is itself resolved and set aside.40 On the other hand, a contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title 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.41 In other words, in a contract to sell, the prospective seller agrees to transfer ownership of the property to the

buyer upon the happening of an event, which normally is the full payment of the purchase price. But even upon the fulfillment of the suspensive condition, ownership does not automatically transfer to the buyer. The prospective seller still has to convey title to the prospective buyer by executing a contract of absolute sale.42 Since the contract involved here is a Contract to Sell, ownership has not yet transferred to the petitioner when he filed the suit for rescission. While the intent to circumvent the constitutional proscription on aliens owning real property was evident by virtue of the execution of the Contract to Sell, such violation of the law did not materialize because petitioner caused the rescission of the contract before the execution of the final deed transferring ownership. Thus, exception (c) finds application in this case. Under Article 1414, one who repudiates the agreement and demands his money before the illegal act has taken place is entitled to recover. Petitioner is therefore entitled to recover what he has paid, although the basis of his claim for rescission, which was granted by the HLURB, was not the fact that he is not allowed to acquire private land under the Philippine Constitution. But petitioner is entitled to the recovery only of the amount of P3,187,500.00, representing the purchase price paid to respondent. No damages may be recovered on the basis of a void contract; being nonexistent, the agreement produces no juridical tie between the parties involved.43 Further, petitioner is not entitled to actual as well as interests thereon,44 moral and exemplary damages and attorney's fees. The Court takes into consideration the fact that the HLURB Decision dated April 22, 1997 has long been final and executory. Nothing is more settled in the law than that a decision that has acquired finality becomes immutable and unalterable and may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it was made by the court that rendered it or by the highest court of the land.45 The only recognized exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.46 None of the exceptions is present in this case. The HLURB decision cannot be considered a void judgment, as it was rendered by a tribunal with jurisdiction over the subject matter of the complaint.47 Ineluctably, the HLURB Decision resulted in the unjust enrichment of petitioner at the expense of respondent. Petitioner received more than what he is entitled to recover under the circumstances. Article 22 of the Civil Code which embodies the maxim, nemo ex alterius incommode debet lecupletari (no man ought to be made rich out of another's injury), states: Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as basic principles to be observed for the rightful relationship between human beings and for the stability of the social order; designed to indicate certain norms that spring from the fountain of good conscience; guides for human conduct that should run as golden threads through society to the end that law may approach its supreme ideal which is the sway and dominance of justice.48 There is unjust enrichment when a person unjustly retains a benefit at the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.49 A sense of justice and fairness demands that petitioner should not be allowed to benefit from his act of entering into a contract to sell that violates the constitutional proscription.

This is not a case of equity overruling or supplanting a positive provision of law or judicial rule. Rather, equity is exercised in this case "as the complement of legal jurisdiction [that] seeks to reach and to complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so."50 The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its judgments to the special circumstances of a case because of the inflexibility of its statutory or legal jurisdiction.51 The sheriff delivered to petitioner the amount of P5,313,040.00 representing the net proceeds (bidded amount isP5,450,653.33) of the auction sale after deducting the legal fees in the amount of P137,613.33.52 Petitioner is only entitled to P3,187,500.00, the amount of the purchase price of the real property paid by petitioner to respondent under the Contract to Sell. Thus, the Court in the exercise of its equity jurisdiction may validly order petitioner to return the excess amount of P2,125,540.00. The Court shall now proceed to resolve the single issue raised in the present petition: whether the CA seriously erred in affirming the HLURB Order setting aside the levy made by the Sheriff on the subject properties. Petitioner avers that the HLURB Arbiter and Director had no factual basis for pegging the fair market value of the levied properties at P6,500.00 per sq m or P83,616,000.00; that reliance on the appraisal report was misplaced since the appraisal was based on the value of land in neighboring developed subdivisions and on the assumption that the residential unit appraised had already been built; that the Sheriff need not determine the fair market value of the subject properties before levying on the same since what is material is the amount for which the properties were bidded and sold during the public auction; that the pendency of any motion is not a valid ground for the Sheriff to suspend the execution proceedings and, by itself, does not have the effect of restraining the Sheriff from proceeding with the execution. Respondent, on the other hand, contends that while it is true that the HLURB Arbiter and Director did not categorically state the exact value of the levied properties, said properties cannot just amount to P6,000,000.00; that the HLURB Arbiter and Director correctly held that the value indicated in the tax declaration is not the sole determinant of the value of the property. The petition is impressed with merit. If the judgment is for money, the sheriff or other authorized officer must execute the same pursuant to the provisions of Section 9, Rule 39 of the Revised Rules of Court, viz: Sec. 9. Execution of judgments for money, how enforced. (a) Immediate payment on demand. - The officer shall enforce an execution of a judgment for money by demanding from the judgment obligor the immediate payment of the full amount stated in the writ of execution and all lawful fees. x x x (b) Satisfaction by levy. - If the judgment obligor cannot pay all or part of the obligation in cash, certified bank check or other mode of payment acceptable to the judgment obligee, the officer shall levy upon the properties of the judgment obligor of every kind and nature whatsoever which may be disposed of for value and not otherwise exempt from execution, giving the latter the option to immediately choose which property or part thereof may be levied upon, sufficient to satisfy the judgment. If the judgment obligor does not exercise the option, the officer shall first levy on the personal

properties, if any, and then on the real properties if the personal properties are insufficient to answer for the judgment. The sheriff shall sell only a sufficient portion of the personal or real property of the judgment obligor which has been levied upon. When there is more property of the judgment obligor than is sufficient to satisfy the judgment and lawful fees, he must sell only so much of the personal or real property as is sufficient to satisfy the judgment and lawful fees. Real property, stocks, shares, debts, credits, and other personal property, or any interest in either real or personal property, may be levied upon in like manner and with like effect as under a writ of attachment (Emphasis supplied).53 Thus, under Rule 39, in executing a money judgment against the property of the judgment debtor, the sheriff shall levy on all property belonging to the judgment debtor as is amply sufficient to satisfy the judgment and costs, and sell the same paying to the judgment creditor so much of the proceeds as will satisfy the amount of the judgment debt and costs. Any excess in the proceeds shall be delivered to the judgment debtor unless otherwise directed by the judgment or order of the court.54 Clearly, there are two stages in the execution of money judgments. First, the levy and then the execution sale. Levy has been defined as the act or acts by which an officer sets apart or appropriates a part or the whole of a judgment debtor's property for the purpose of satisfying the command of the writ of execution.55 The object of a levy is to take property into the custody of the law, and thereby render it liable to the lien of the execution, and put it out of the power of the judgment debtor to divert it to any other use or purpose.56 On the other hand, an execution sale is a sale by a sheriff or other ministerial officer under the authority of a writ of execution of the levied property of the debtor.57 In the present case, the HLURB Arbiter and Director gravely abused their discretion in setting aside the levy conducted by the Sheriff for the reason that the auction sale conducted by the sheriff rendered moot and academic the motion to quash the levy. The HLURB Arbiter lost jurisdiction to act on the motion to quash the levy by virtue of the consummation of the auction sale. Absent any order from the HLURB suspending the auction sale, the sheriff rightfully proceeded with the auction sale. The winning bidder had already paid the winning bid. The legal fees had already been remitted to the HLURB. The judgment award had already been turned over to the judgment creditor. What was left to be done was only the issuance of the corresponding certificates of sale to the winning bidder. In fact, only the signature of the HLURB Director for that purpose was needed58 a purely ministerial act. A purely ministerial act or duty is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard for or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion nor judgment.59In the present case, all the requirements of auction sale under the Rules have been fully complied with to warrant the issuance of the corresponding certificates of sale. And even if the Court should go into the merits of the assailed Order, the petition is meritorious on the following grounds:

Firstly, the reliance of the HLURB Arbiter and Director, as well as the CA, on Barrozo v. Macaraeg60 and Buan v. Court of Appeals61 is misplaced. The HLURB and the CA misconstrued the Court's pronouncements in Barrozo. Barrozo involved a judgment debtor who wanted to repurchase properties sold at execution beyond the one-year redemption period. The statement of the Court in Barrozo, that "only where such inadequacy shocks the conscience the courts will intervene," is at best a mere obiter dictum. This declaration should be taken in the context of the other declarations of the Court in Barrozo, to wit: Another point raised by appellant is that the price paid at the auction sale was so inadequate as to shock the conscience of the court. Supposing that this issue is open even after the one-year period has expired and after the properties have passed into the hands of third persons who may have paid a price higher than the auction sale money, the first thing to consider is that the stipulation contains no statement of the reasonable value of the properties; and although defendant' answer avers that the assessed value wasP3,960 it also avers that their real market value was P2,000 only. Anyway, mere inadequacy of price which was the complaint' allegation is not sufficient ground to annul the sale. It is only where such inadequacy shocks the conscience that the courts will intervene. x x x Another consideration is that the assessed value being P3,960 and the purchase price being in effect P1,864 (P464 sale price plus P1,400 mortgage lien which had to be discharged) the conscience is not shocked upon examining the prices paid in the sales in National Bank v. Gonzales, 45 Phil., 693 and Guerrero v. Guerrero, 57 Phil., 445, sales which were left undisturbed by this Court. Furthermore, where there is the right to redeem as in this case inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale. x x x x (Emphasis supplied).62 In other words, gross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as when a sale is made at public auction,63 upon the theory that the lesser the price, the easier it is for the owner to effect redemption.64 When there is a right to redeem, inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale.65 Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption. More importantly, the subject matter in Barrozo is the auction sale, not the levy made by the Sheriff. The Court does not sanction the piecemeal interpretation of a decision. To get the true intent and meaning of a decision, no specific portion thereof should be isolated and resorted to, but the decision must be considered in its entirety.66 As regards Buan, it is cast under an entirely different factual milieu. It involved the levy on two parcels of land owned by the judgment debtor; and the sale at public auction of one was sufficient to fully satisfy the judgment, such that the levy and attempted execution of the second parcel of land was declared void for being in excess of and beyond the original judgment award granted in favor of the judgment creditor. In the present case, the Sheriff complied with the mandate of Section 9, Rule 39 of the Revised Rules of Court, to "sell only a sufficient portion" of the levied properties "as is sufficient to satisfy the judgment and the lawful fees." Each of the 15 levied properties was successively bidded upon

and sold, one after the other until the judgment debt and the lawful fees were fully satisfied. Holly Properties Realty Corporation successively bidded upon and bought each of the levied properties for the total amount of P5,450,653.33 in full satisfaction of the judgment award and legal fees.67 Secondly, the Rules of Court do not require that the value of the property levied be exactly the same as the judgment debt; it can be less or more than the amount of debt. This is the contingency addressed by Section 9, Rule 39 of the Rules of Court. In the levy of property, the Sheriff does not determine the exact valuation of the levied property. Under Section 9, Rule 39, in conjunction with Section 7, Rule 57 of the Rules of Court, the sheriff is required to do only two specific things to effect a levy upon a realty: (a) file with the register of deeds a copy of the order of execution, together with the description of the levied property and notice of execution; and (b) leave with the occupant of the property copy of the same order, description and notice.68 Records do not show that respondent alleged non-compliance by the Sheriff of said requisites. Thirdly, in determining what amount of property is sufficient out of which to secure satisfaction of the execution, the Sheriff is left to his own judgment. He may exercise a reasonable discretion, and must exercise the care which a reasonably prudent person would exercise under like conditions and circumstances, endeavoring on the one hand to obtain sufficient property to satisfy the purposes of the writ, and on the other hand not to make an unreasonable and unnecessary levy.69 Because it is impossible to know the precise quantity of land or other property necessary to satisfy an execution, the Sheriff should be allowed a reasonable margin between the value of the property levied upon and the amount of the execution; the fact that the Sheriff levies upon a little more than is necessary to satisfy the execution does not render his actions improper.70 Section 9, Rule 39, provides adequate safeguards against excessive levying. The Sheriff is mandated to sell so much only of such real property as is sufficient to satisfy the judgment and lawful fees. In the absence of a restraining order, no error, much less abuse of discretion, can be imputed to the Sheriff in proceeding with the auction sale despite the pending motion to quash the levy filed by the respondents with the HLURB. It is elementary that sheriffs, as officers charged with the delicate task of the enforcement and/or implementation of judgments, must, in the absence of a restraining order, act with considerable dispatch so as not to unduly delay the administration of justice; otherwise, the decisions, orders, or other processes of the courts of justice and the like would be futile.71 It is not within the jurisdiction of the Sheriff to consider, much less resolve, respondent's objection to the continuation of the conduct of the auction sale. The Sheriff has no authority, on his own, to suspend the auction sale. His duty being ministerial, he has no discretion to postpone the conduct of the auction sale. Finally, one who attacks a levy on the ground of excessiveness carries the burden of sustaining that contention.72In the determination of whether a levy of execution is excessive, it is proper to take into consideration encumbrances upon the property, as well as the fact that a forced sale usually results in a sacrifice; that is, the price demanded for the property upon a private sale is not the standard for determining the excessiveness of the levy.73 Here, the HLURB Arbiter and Director had no sufficient factual basis to determine the value of the levied property. Respondent only submitted an Appraisal Report, based merely on surmises. The Report was based on the projected value of the townhouse project after it shall have been fully developed, that is, on the assumption that the residential units appraised had already been built. The Appraiser in fact made this qualification in its Appraisal Report: "[t]he property subject of this appraisal has not been constructed. The basis of the appraiser is on the existing model units."74 Since it is undisputed that the townhouse project did not push through, the projected value did not become a reality. Thus, the appraisal value cannot be equated with the fair market value. The Appraisal Report is not the best proof to accurately show the value of the levied properties as it is clearly self-serving. Therefore, the Order dated August 28, 2000 of HLURB Arbiter Aquino and Director Ceniza in HLRB Case No. IV6-071196-0618 which set aside the sheriff's levy on respondent's real

properties, was clearly issued with grave abuse of discretion. The CA erred in affirming said Order. WHEREFORE, the instant petition is GRANTED. The Decision dated October 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60981 is REVERSED and SET ASIDE. The Order dated August 28, 2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB Case No. IV6-071196-0618 is declared NULL andVOID. HLURB Arbiter Aquino and Director Ceniza are directed to issue the corresponding certificates of sale in favor of the winning bidder, Holly Properties Realty Corporation. Petitioner is ordered to return to respondent the amount of P2,125,540.00, without interest, in excess of the proceeds of the auction sale delivered to petitioner. After the finality of herein judgment, the amount of P2,125,540.00 shall earn 6% interest until fully paid. SO ORDERED. Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ., concur.

Footnotes

Rubias vs. Batiller, No. L-35702, 51 SCRA 120, May 29, 1973
Posted by Alchemy Business Center and Marketing Consultancy at 8:46 PMLabels: 1973, 51 SCRA 120, Civil Law Review, May 29, No. L-35702,Rubias vs. Batiller

Rubias vs. Batiller, No. L-35702, 51 SCRA 120, May 29, 1973

G.R. No. L-35702 May 29, 1973 DOMINGO D. RUBIAS, plaintiff-appellant, vs. ISAIAS BATILLER, defendant-appellee. Gregorio M. Rubias for plaintiff-appellant. Vicente R. Acsay for defendant-appellee.

TEEHANKEE, J.: In this appeal certified by the Court of Appeals to this Court as involving purely legal questions, we affirm the dismissal order rendered by the Iloilo court of first instance after pre-trial and submittal of the pertinent documentary exhibits. Such dismissal was proper, plaintiff having no cause of action, since it was duly established in the record that the application for registration of the land in question filed by Francisco Militante, plaintiff's vendor and predecessor interest, had been dismissed by decision of 1952 of the land registration court as affirmed by final judgment in 1958 of the Court of Appeals and hence, there was no title or right to the land that could be transmitted by the purported sale to plaintiff.

As late as 1964, the Iloilo court of first instance had in another case of ejectment likewise upheld by final judgment defendant's "better right to possess the land in question . having been in the actual possession thereof under a claim of title many years before Francisco Militante sold the land to the plaintiff." Furthermore, even assuming that Militante had anything to sell, the deed of sale executed in 1956 by him in favor of plaintiff at a time when plaintiff was concededly his counsel of record in the land registration case involving the very land in dispute (ultimately decided adversely against Militante by the Court of Appeals' 1958 judgment affirming the lower court's dismissal of Militante's application for registration) was properly declared inexistent and void by the lower court, as decreed by Article 1409 in relation to Article 1491 of the Civil Code. The appellate court, in its resolution of certification of 25 July 1972, gave the following backgrounder of the appeal at bar: On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to recover the ownership and possession of certain portions of lot under Psu-99791 located in Barrio General Luna, Barotac Viejo, Iloilo which he bought from his father-in-law, Francisco Militante in 1956 against its present occupant defendant, Isaias Batiller, who illegally entered said portions of the lot on two occasions in 1945 and in 1959. Plaintiff prayed also for damages and attorneys fees. (pp. 1-7, Record on Appeal). In his answer with counter-claim defendant claims the complaint of the plaintiff does not state a cause of action, the truth of the matter being that he and his predecessors-in-interest have always been in actual, open and continuous possession since time immemorial under claim of ownership of the portions of the lot in question and for the alleged malicious institution of the complaint he claims he has suffered moral damages in the amount of P 2,000.00, as well as the sum of P500.00 for attorney's fees. ... On December 9, 1964, the trial court issued a pre-trial order, after a pre-trial conference between the parties and their counsel which order reads as follows.. 'When this case was called for a pre-trial conference today, the plaintiff appeared assisted by himself and Atty. Gregorio M. Rubias. The defendant also appeared, assisted by his counsel Atty. Vicente R. Acsay. A. During the pre-trial conference, the parties have agreed that the following facts are attendant in this case and that they will no longer introduced any evidence, testimonial or documentary to prove them: 1. That Francisco Militante claimed ownership of a parcel of land located in the Barrio of General Luna, municipality of Barotac Viejo province of Iloilo, which he caused to be surveyed on July 18-31, 1934, whereby he was issued a plan Psu99791 (Exhibit "B"). (The land claimed contained an area of 171:3561 hectares.) 2. Before the war with Japan, Francisco Militante filed with the Court of First Instance of Iloilo an application for the registration of the title of the land technically described in psu-99791 (Exh. "B") opposed by the Director of Lands, the Director of Forestry and other oppositors. However, during the war with Japan, the record of the case was lost before it was heard, so after the war Francisco Militante petitioned this court to reconstitute the record of the case. The record was reconstitutedon the Court of the First Instance of Iloilo and docketed as Land Case No. R-695, GLRO Rec. No. 54852. The Court of First Instance heard the land registration case on November 14, 1952, andafter the trial this court dismissed the application for registration. The appellant, Francisco Militante, appealed from the decision of this Court to the Court of Appeals where the case was docketed as CA-GR No. 13497-R.. 3. Pending the disposal of the appeal in CA-GR No. 13497-R and more particularly on June 18, 1956, Francisco Militante sold to the plaintiff, Domingo Rubias the land technically described in psu-99791 (Exh. "A"). The sale was duly recorded in the Office of the Register of Deeds for the province of Iloilo as Entry No. 13609 on July 11, 1960 (Exh. "A-1"). (NOTE: As per deed of sale, Exh. A, what Militante purportedly sold to plaintiff-appellant, his son-in-law, for the sum of P2,000.00 was "a parcel of untitled land having an area Of 144.9072 hectares ... surveyed under Psu 99791 ... (and) subject to the exclusions made by me, under (case) CA-i3497, Land Registration Case No. R-695, G.L.R.O. No. 54852, Court of First Instance of the province of Iloilo. These exclusions referred to portions of the original area of over 171 hectares originally claimed by Militante as applicant, but which he expressly recognized during the trial to pertain to some oppositors, such as the Bureau of Public Works and Bureau of Forestry and several other individual occupants and accordingly withdrew his application over the same. This is expressly made of record in Exh. A, which is the Court of Appeals' decision of 22 September 1958 confirming the land registration court's dismissal of Militante's application for registration.)

4. On September 22,1958 the Court of appeals in CA-G.R. No. 13497-R promulgated its judgment confirming the decision of this Court in Land Case No. R-695, GLRO Rec. No. 54852 which dismissed the application for Registration filed by Francisco Militante (Exh. "I"). 5. Domingo Rubias declared the land described in Exh. 'B' for taxation purposes under Tax Dec. No. 8585 (Exh. "C") for 1957; Tax Dec. Nos. 9533 (Exh. "C-1") and 10019 (Exh. "C-3")for the year 1961; Tax Dec. No. 9868 (Exh. "C-2") for the year 1964, paying the land taxes under Tax Dec. No. 8585 and 9533 (Exh. "D", "D-1", "G-6"). 6. Francisco Militante immediate predecessor-in-interest of the plaintiff, has also declared the land for taxation purposes under Tax Dec. No. 5172 in 1940 (Exh. "E") for 1945; under Tax Dec. No. T-86 (Exh. "E-1") for 1948; under Tax Dec. No. 7122 (Exh. "2"), and paid the land taxes for 1940 (Exhs. "G" and "G-7"), for 1945 46 (Exh. "G-1") for 1947 (Exh. "G-2"), for 1947 & 1948 (Exh. "G-3"), for 1948 (Exh. "G-4"), and for 1948 and 1949 (Exh. "G-5"). 7. Tax Declaration No. 2434 in the name of Liberato Demontao for the land described therein (Exh. "F") was cancelled by Tax. Dec. No. 5172 of Francisco Militante (Exh. "E"). Liberato Demontao paid the land tax under Tax Dec. No. 2434 on Dec. 20, 1939 for the years 1938 (50%) and 1959 (Exh. "H"). 8. The defendant had declared for taxation purposes Lot No. 2 of the Psu-155241 under Tax Dec. Not. 8583 for 1957 and a portion of Lot No. 2, Psu-155241, for 1945 under Tax Dec. No. 8584 (Exh. "2-A" Tax No. 8583 (Exh. "2") was revised by Tax Dec. No. 9498 in the name of the defendant (Exh. "2-B") and Tax Dec. No. 8584 (Exh. "2-A") was cancelled by Tax Dec. No. 9584 also in the name of the defendant (Exh. "2-C"). The defendant paid the land taxes for Lot 2, Psu-155241, on Nov. 9, 1960 for the years 1945 and 1946, for the year 1950, and for the year 1960 as shown by the certificate of the treasurer (Exh. "3"). The defendant may present to the Court other land taxes receipts for the payment of taxes for this lot. 9. The land claimed by the defendant as his own was surveyed on June 6 and 7,1956, and a plan approved by Director of Land on November 15, 1956 was issued, identified as Psu 155241 (Exh. "5"). 10. On April 22, 1960, the plaintiff filed forcible Entry and Detainer case against Isaias Batiller in the Justice of the Peace Court of Barotac Viejo Province of Iloilo (Exh. "4") to which the defendant Isaias Batiller riled his answer on August 29, 1960 (Exh. "4-A"). The Municipal Court of Barotac Viejo after trial,decided the case on May 10, 1961 in favor of the defendant and against the plaintiff (Exh. "4-B"). The plaintiff appealed from the decision of the Municipal Court of Barotac Viejo which was docketed in this Court as Civil Case No. 5750 on June 3, 1961, to which the defendant, Isaias Batiller, on June 13, 1961 filed his answer (Exh. "4-C"). And this Court after the trial. decided the case on November 26, 1964, in favor of the defendant, Isaias Batiller and against the plaintiff (Exh. "4-D"). (NOTE: As per Exh. 4-B, which is the Iloilo court of first instance decision of 26 November 1964 dismissing plaintiff's therein complaint for ejectment against defendant, the iloilo court expressly found "that plaintiff's complaint is unjustified, intended to harass the defendant" and "that the defendant, Isaias Batiller, has a better right to possess the land in question described in Psu 155241 (Exh. "3"), Isaias Batiller having been in the actual physical possession thereof under a claim of title many years before Francisco Militante sold the land to the plaintiff-hereby dismissing plaintiff's complaint and ordering the plaintiff to pay the defendant attorney's fees ....") B. During the trial of this case on the merit, the plaintiff will prove by competent evidence the following: 1. That the land he purchased from Francisco Militante under Exh. "A" was formerly owned and possessed by Liberato Demontao but that on September 6, 1919 the land was sold at public auction by virtue of a judgment in a Civil Case entitled"Edw J. Pflieder plaintiff vs. Liberato Demontao Francisco Balladerosand Gregorio Yulo, defendants", of which Yap Pongco was the purchaser (Exh. "1-3"). The sale was registered in the Office of the Register of Deeds of Iloilo on August 4, 1920, under Primary Entry No. 69 (Exh. "1"), and a definite Deed of Sale was executed by Constantino A. Canto, provincial Sheriff of Iloilo, on Jan. 19, 1934 in favor of Yap Pongco (Exh. "I"), the sale having been registered in the Office of the Register of Deeds of Iloilo on February 10, 1934 (Exh. "1-1"). 2. On September 22, 1934, Yap Pongco sold this land to Francisco Militante as evidenced by a notarial deed (Exh. "J") which was registered in the Registry of Deeds on May 13, 1940 (Exh. "J-1"). 3. That plaintiff suffered damages alleged in his complaint. C. Defendants, on the other hand will prove by competent evidence during the trial of this case the following facts:

1. That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned and possessed by Felipe Batiller, grandfather of the defendant Basilio Batiller, on the death of the former in 1920, as his sole heir. Isaias Batiller succeeded his father , Basilio Batiller, in the ownership and possession of the land in the year 1930, and since then up to the present, the land remains in the possession of the defendant, his possession being actual, open, public, peaceful and continuous in the concept of an owner, exclusive of any other rights and adverse to all other claimants. 2. That the alleged predecessors in interest of the plaintiff have never been in the actual possession of the land and that they never had any title thereto. 3. That Lot No. 2, Psu 155241, the subject of Free Patent application of the defendant has been approved. 4. The damages suffered by the defendant, as alleged in his counterclaim."'
1

The appellate court further related the developments of the case, as follows: On August 17, 1965, defendant's counsel manifested in open court that before any trial on the merit of the case could proceed he would file a motion to dismiss plaintiff's complaint which he did, alleging that plaintiff does not have cause of action against him because the property in dispute which he (plaintiff) allegedly bought from his father-in-law, Francisco Militante was the subject matter of LRC No. 695 filed in the CFI of Iloilo, which case was brought on appeal to this Court and docketed as CA-G.R. No. 13497-R in which aforesaid case plaintiff was the counsel on record of his father-in-law, Francisco Militante. Invoking Arts. 1409 and 1491 of the Civil Code which reads: 'Art. 1409. The following contracts are inexistent and void from the beginning: xxx xxx xxx (7) Those expressly prohibited by law. 'ART. 1491. The following persons cannot acquire any purchase, even at a public auction, either in person of through the mediation of another: . xxx xxx xxx (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights of in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring an assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.' defendant claims that plaintiff could not have acquired any interest in the property in dispute as the contract he (plaintiff) had with Francisco Militante was inexistent and void. (See pp. 22-31, Record on Appeal). Plaintiff strongly opposed defendant's motion to dismiss claiming that defendant can not invoke Articles 1409 and 1491 of the Civil Code as Article 1422 of the same Code provides that 'The defense of illegality of contracts is not available to third persons whose interests are not directly affected' (See pp. 32-35 Record on Appeal). On October 18, 1965, the lower court issued an order disclaiming plaintiffs complaint (pp. 42-49, Record on Appeal.) In the aforesaid order of dismissal the lower court practically agreed with defendant's contention that the contract (Exh. A) between plaintiff and Francism Militante was null and void. In due season plaintiff filed a motion for reconsideration (pp. 5056 Record on Appeal) which was denied by the lower court on January 14, 1966 (p. 57, Record on Appeal). Hence, this appeal by plaintiff from the orders of October 18, 1965 and January 14, 1966. Plaintiff-appellant imputes to the lower court the following errors: '1. The lower court erred in holding that the contract of sale between the plaintiff-appellant and his father-in-law, Francisco Militante, Sr., now deceased, of the property covered by Plan Psu-99791, (Exh. "A") was void, not voidable because it was made when plaintiff-appellant was the counsel of the latter in the Land Registration case.

'2. The lower court erred in holding that the defendant-appellee is an interested person to question the validity of the contract of sale between plaintiff-appellant and the deceased, Francisco Militante, Sr. '3. The lower court erred in entertaining the motion to dismiss of the defendant-appellee after he had already filed his answer, and after the termination of the pre-trial, when the said motion to dismiss raised a collateral question. '4. The lower court erred in dismissing the complaint of the plaintiff-appellant.' The appellate court concluded that plaintiffs "assignment of errors gives rise to two (2) legal posers (1) whether or not the contract of sale between appellant and his father-in-law, the late Francisco Militante over the property subject of Plan Psu99791 was void because it was made when plaintiff was counsel of his father-in-law in a land registration case involving the property in dispute; and (2) whether or not the lower court was correct in entertaining defendant-appellee's motion to dismiss after the latter had already filed his answer and after he (defendant) and plaintiff-appellant had agreed on some matters in a pre-trial conference. Hence, its elevation of the appeal to this Court as involving pure questions of law. It is at once evident from the foregoing narration that the pre-trial conference held by the trial court at which the parties with their counsel agreed and stipulated on the material and relevant facts and submitted their respective documentary 2 exhibits as referred to in the pre-trial order, supra, practically amounted to a fulldress trial which placed on record all the facts and exhibits necessary for adjudication of the case. The three points on which plaintiff reserved the presentation of evidence at the-trial dealing with the source of the alleged 3 right and title of Francisco Militante's predecessors, supra, actually are already made of record in thestipulated facts and admitted exhibits. The chain of Militante's alleged title and right to the land as supposedly traced back to Liberato Demontao was actually asserted by Militante (and his vendee, lawyer and son-in-law, herein plaintiff) in the land registration case and rejected by the Iloilo land registration court whichdismissed Militante's application for registration of 4 the land. Such dismissal, as already stated, was affirmed by the final judgment in 1958 of the Court of Appeals. The four points on which defendant on his part reserved the presentation of evidence at the trial dealing with his and his ancestors' continuous, open, public and peaceful possession in the concept of owner of the land and the Director of Lands' 5 approval of his survey plan thereof, supra, are likewise already duly established facts of record, in the land registration case as well as in the ejectment case wherein the Iloilo court of first instance recognized the superiority of defendant's right to the land as against plaintiff. No error was therefore committed by the lower court in dismissing plaintiff's complaint upon defendant's motion after the pre-trial. 1. The stipulated facts and exhibits of record indisputably established plaintiff's lack of cause of action and justified the outright dismissal of the complaint. Plaintiff's claim of ownership to the land in question was predicated on the sale thereof for P2,000.00 made in 1956 by his father-in- law, Francisco Militante, in his favor, at a time when Militante's application for registration thereof had already been dismissed by the Iloilo land registration court and was pending appeal in the Court of Appeals. With the Court of Appeals' 1958 final judgment affirming the dismissal of Militante's application for registration, the lack of any rightful claim or title of Militante to the land was conclusively and decisively judicially determined. Hence, there was no right or title to the land that could be transferred or sold by Militante's purported sale in 1956 in favor of plaintiff. Manifestly, then plaintiff's complaint against defendant, to be declared absolute owner of the land and to be restored to possession thereof with damages was bereft of any factual or legal basis. 2. No error could be attributed either to the lower court's holding that the purchase by a lawyer of the property in litigation 6 from his client is categorically prohibited by Article 1491, paragraph (5) of the Philippine Civil Code, reproducedsupra; and that consequently, plaintiff's purchase of the property in litigation from his client (assuming that his client could sell the same since as already shown above, his client's claim to the property was defeated and rejected) was void and could produce no legal effect, by virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts "expressly prohibited or declared void by law' are "inexistent and that "(T)hese contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived."

The 1911 case of Wolfson vs. Estate of Martinez relied upon by plaintiff as holding that a sale of property in litigation to the party litigant's lawyer "is not void but voidable at the election of the vendor" was correctly held by the lower court to 8 have been superseded by the later 1929 case of Director of Lands vs. Abagat. In this later case of Abagat, the Court expressly cited two antecedent cases involving the same transaction of purchase of property in litigation by the lawyer which was expressly declared invalid under Article 1459 of the Civil Code of Spain (of which Article 1491 of our Civil Code of the Philippines is the counterpart) upon challenge thereof not by the vendor-client but by the adverse parties against whom the lawyer was to enforce his rights as vendee thus acquired. These two antecedent cases thus cited in Abagat clearly superseded (without so expressly stating the previous ruling in Wolfson: The spouses, Juan Soriano and Vicente Macaraeg, were the owners of twelve parcels of land. Vicenta Macaraeg died in November, 1909, leaving a large number of collateral heirs but no descendants. Litigation between the surviving husband, Juan Soriano, and the heirs of Vicenta immediately arose, and the herein appellant Sisenando Palarca acted as Soriano's lawyer. On May 2, 1918, Soriano executed a deed for the aforesaid twelve parcels of land in favor of Sisenando Palarca and on the following day, May 3, 1918, Palarca filed an application for the registration of the land in the deed. After hearing, the Court of First Instance declared that the deed was invalid by virtue of the provisions of article 1459 of the Civil Code, which prohibits lawyers and solicitors from purchasing property rights involved in any litigation in which they take part by virtue of their profession. The application for registration was consequently denied, and upon appeal by Palarca to the Supreme Court, the judgement of the lower court was affirmed by a decision promulgated November 16,1925. (G.R. No. 24329, Palarca vs. Director of Lands, not reported.) In the meantime cadastral case No. 30 of the Province of Tarlac was instituted, and on August 21, 1923, Eleuteria Macaraeg, as administratrix of the estate of Vicente Macaraeg, filed claims for the parcels in question. Buenaventura Lavitoria administrator of the estate of Juan Soriano, did likewise and so did Sisenando Palarca. In a decision dated June 21, 1927, the Court of First Instance, Judge Carballo presiding, rendered judgment in favor of Palarea and ordered the registration of the land in his name. Upon appeal to this court by the administration of the estates of Juan Soriano and Vicente Macaraeg, the judgment of the court below was reversed and the land adjudicated to the two estates as conjugal property of the 9 deceased spouses. (G.R. No. 28226, Director of Lands vs. Abagat, promulgated May 21, 1928, not reported.) In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of the lawyer's purchase of the land in litigation from his client, ordered the issuance of a writ of possession for the return of the land by the lawyer to the adverse parties without reimbursement of the price paid by him and other expenses, and ruled that "the appellant Palarca is a lawyer and is presumed to know the law. He must, therefore, from the beginning, have been well aware of the defect in his title and is, consequently, a possessor in bad faith." As already stated, Wolfson and Abagat were decided with relation to Article 1459 of the Civil Code of Spain then adopted here, until it was superseded on August 30, 1950 by the Civil Code of the Philippines whose counterpart provision is Article 1491. Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six paragraphs certain persons, by reason of the relation of trust or their peculiar control over the property, from acquiring such property in their trust or control either directly or indirectly and "even at a public or judicial auction," as follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and employees; judicial officers and employees, prosecuting attorneys, and lawyers; and (6) others especially disqualified by law. In Wolfson which involved the sale and assignment of a money judgment by the client to the lawyer, Wolfson, whose right to so purchase the judgment was being challenged by the judgment debtor, the Court, through Justice Moreland, then expressly reserved decision on "whether or not the judgment in question actually falls within the prohibition of the article" and held only that the sale's "voidability can not be asserted by one not a party to the transaction or his representative," 10 citing from Manresa that "(C)onsidering the question from the point of view of the civil law, the view taken by the code, we must limit ourselves to classifying as void all acts done contrary to the express prohibition of the statute. Now then: As the code does not recognize such nullity by the mere operation of law, the nullity of the acts hereinbefore referred to must be asserted by the person having the necessary legal capacity to do so and decreed by a competent 11 court."

The reason thus given by Manresa in considering such prohibited acquisitions under Article 1459 of the Spanish Civil Code as merely voidable at the instance and option of the vendor and not void "that the Code does not recognize such nullity de pleno derecho" is no longer true and applicable to our own Philippine Civil Code which does recognize the absolute nullity of contracts "whose cause, object, or purpose is contrary to law, morals, good customs, public order or public policy" or which are "expressly prohibited or declared void by law" and declares such contracts "inexistent and void from the 12 beginning." The Supreme Court of Spain and modern authors have likewise veered from Manresa's view of the Spanish codal provision itself. In its sentencia of 11 June 1966, the Supreme Court of Spain ruled that the prohibition of Article 1459 of the Spanish Civil Code is based on public policy, that violation of the prohibition contract cannot be validated by confirmation or ratification, holding that: ... la prohibicion que el articulo 1459 del C.C. establece respecto a los administradores y apoderados, la cual tiene conforme a la doctrina de esta Sala, contendia entre otras, en S. de 27-5-1959, un fundamento de orden moral lugar la violacion de esta a la nulidad de pleno derecho del acto o negocio celebrado, ... y prohibicion legal, afectante orden publico, no cabe con 13 efecto alguno la aludida retification ... The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code) as a matter of public order and policy as applied by the Supreme Court of Spain to administrators and agents in its above cited decision should certainly apply with greater reason to judges, judicial officers, fiscals and lawyers under paragraph 5 of the codal article. Citing the same decisions of the Supreme Court of Spain, Gullon Ballesteros, his "Curso de Derecho Civil, (Contratos Especiales)" (Madrid, 1968) p. 18, affirms that, with respect to Article 1459, Spanish Civil Code:. Que caracter tendra la compra que se realice por estas personas? Porsupuesto no cabe duda de que el caso (art.) 1459, 40 y 14 50, la nulidad esabsoluta porque el motivo de la prohibicion es de orden publico. Perez Gonzales in such view, stating that "Dado el caracter prohibitivo delprecepto, la consequencia de la infraccion es la 15 nulidad radical y ex lege." Castan, quoting Manresa's own observation that. "El fundamento do esta prohibicion es clarisimo. No sa trata con este precepto tan solo de guitar la ocasion al fraude; persiguese, ademasel proposito derodear a las personas que intervienen en la administrcionde justicia de todos los retigios que necesitan pora ejercer su ministerio librandolos de toda suspecha, que aunque fuere in fundada, redundura 16 endescredito de la institucion." arrives at the contrary and now accepted view that "Puede considerace en nuestro derecho inexistente 'o radicalmente nulo el contrato en los siguentes cases: a) ...; b) cuando el contrato se ha celebrado en violacion de una prescripcion 'o prohibicion legal, fundada sobre motivos de orden publico (hipotesis del art. 4 del codigo) 17 ..." It is noteworthy that Caltan's rationale for his conclusion that fundamental consideration of public policy render void and inexistent such expressly prohibited purchase (e.g. by public officers and employees of government property intrusted to them and by justices, judges, fiscals and lawyers of property and rights in litigation and submitted to or handled by them, under Article 1491, paragraphs (4) and (5) of our Civil Code) has been adopted in a new article of our Civil Code, viz, Article 18 1409 declaring such prohibited contracts as "inexistent and void from the beginning." Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification. The public interest and public policy remain paramount and do not permit of compromise or ratification. In his aspect, the permanent disqualification of public and judicial officers and lawyers grounded on public policy differs from the first three cases of guardians, agents and administrators (Article 1491, Civil Code), as to whose transactions it had been opined that they may be "ratified" by means of and in "the form of a new contact, in which cases its validity shall be determined only by the circumstances at the time the execution of such new contract. The causes of nullity which have ceased to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the time of the first contract, may have already become lawful at the time of the ratification or second contract; or the service which was impossible may have become possible; or the intention which could not be ascertained may have been clarified by the parties. The ratification or second 19 contract would then be valid from its execution; however, it does not retroact to the date of the first contract."

As applied to the case at bar, the lower court therefore properly acted upon defendant-appellant's motion to dismiss on the ground of nullity of plaintiff's alleged purchase of the land, since its juridical effects and plaintiff's alleged cause of action founded thereon were being asserted against defendant-appellant. The principles governing the nullity of such prohibited contracts and judicial declaration of their nullity have been well restated by Tolentino in his treatise on our Civil Code, as follows: Parties Affected. Any person may invoke the in existence of the contract whenever juridical effects founded thereon are asserted against him. Thus, if there has been a void transfer of property, the transferor can recover it by the accion reinvindicatoria; and any prossessor may refuse to deliver it to the transferee, who cannot enforce the contract. Creditors may attach property of the debtor which has been alienated by the latter under a void contract; a mortgagee can allege the inexistence of a prior encumbrance; a debtor can assert the nullity of an assignment of credit as a defense to an action by the assignee. Action On Contract. Even when the contract is void or inexistent, an action is necessary to declare its inexistence, when it has already been fulfilled. Nobody can take the law into his own hands; hence, the intervention of the competent court is necessary to declare the absolute nullity of the contract and to decree the restitution of what has been given under it. The judgment, however, will retroact to the very day when the contract was entered into. If the void contract is still fully executory, no party need bring an action to declare its nullity; but if any party should bring an 20 action to enforce it, the other party can simply set up the nullity as a defense. ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with costs in all instances against plaintiffappellant. So ordered. Makalintal, Zaldivar, Castro,. Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 156364 September 3, 2007

JACOBUS BERNHARD HULST, petitioner, vs. PR BUILDERS, INC., respondent. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court assailing the Decision1 dated October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 60981. The facts: Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van Ijzeren (Ida), Dutch nationals, entered into a Contract to Sell with PR Builders, Inc. (respondent), for the purchase of a 210-sq m residential unit in respondent's townhouse project in Barangay Niyugan, Laurel, Batangas. When respondent failed to comply with its verbal promise to complete the project by June 1995, the spouses Hulst filed before the Housing and Land Use Regulatory Board (HLURB) a complaint

for rescission of contract with interest, damages and attorney's fees, docketed as HLRB Case No. IV6-071196-0618. On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino (HLURB Arbiter) rendered a Decision2 in favor of spouses Hulst, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainant, rescinding the Contract to Sell and ordering respondent to: 1) Reimburse complainant the sum of P3,187,500.00, representing the purchase price paid by the complainants to P.R. Builders, plus interest thereon at the rate of twelve percent (12%) per annum from the time complaint was filed; 2) Pay complainant the sum of P297,000.00 as actual damages; 3) Pay complainant the sum of P100,000.00 by way of moral damages; 4) Pay complainant the sum of P150,000.00 as exemplary damages; 5) P50,000.00 as attorney's fees and for other litigation expenses; and 6) Cost of suit. SO ORDERED.3 Meanwhile, spouses Hulst divorced. Ida assigned her rights over the purchased property to petitioner.4 From then on, petitioner alone pursued the case. On August 21, 1997, the HLURB Arbiter issued a Writ of Execution addressed to the Ex-Officio Sheriff of the Regional Trial Court of Tanauan, Batangas directing the latter to execute its judgment.5 On April 13, 1998, the Ex-Officio Sheriff proceeded to implement the Writ of Execution. However, upon complaint of respondent with the CA on a Petition for Certiorari and Prohibition, the levy made by the Sheriff was set aside, requiring the Sheriff to levy first on respondent's personal properties.6 Sheriff Jaime B. Ozaeta (Sheriff) tried to implement the writ as directed but the writ was returned unsatisfied.7 On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an Alias Writ of Execution.8 On March 23, 1999, the Sheriff levied on respondent's 15 parcels of land covered by 13 Transfer Certificates of Title (TCT)9 in Barangay Niyugan, Laurel, Batangas.10 In a Notice of Sale dated March 27, 2000, the Sheriff set the public auction of the levied properties on April 28, 2000 at 10:00 a.m..11 Two days before the scheduled public auction or on April 26, 2000, respondent filed an Urgent Motion to Quash Writ of Levy with the HLURB on the ground that the Sheriff made an overlevy since the aggregate appraised value of the levied properties at P6,500.00 per sq m is P83,616,000.00, based on the Appraisal Report12 of Henry Hunter Bayne Co., Inc. dated December 11, 1996, which is over and above the judgment award.13 At 10:15 a.m. of the scheduled auction date of April 28, 2000, respondent's counsel objected to the conduct of the public auction on the ground that respondent's Urgent Motion to Quash Writ of

Levy was pending resolution. Absent any restraining order from the HLURB, the Sheriff proceeded to sell the 15 parcels of land. Holly Properties Realty Corporation was the winning bidder for all 15 parcels of land for the total amount ofP5,450,653.33. The sum of P5,313,040.00 was turned over to the petitioner in satisfaction of the judgment award after deducting the legal fees.14 At 4:15 p.m. of the same day, while the Sheriff was at the HLURB office to remit the legal fees relative to the auction sale and to submit the Certificates of Sale15 for the signature of HLURB Director Belen G. Ceniza (HLURB Director), he received the Order dated April 28, 2000 issued by the HLURB Arbiter to suspend the proceedings on the matter.16 Four months later, or on August 28, 2000, the HLURB Arbiter and HLURB Director issued an Order setting aside the sheriff's levy on respondent's real properties,17 reasoning as follows: While we are not making a ruling that the fair market value of the levied properties is PhP6,500.00 per square meter (or an aggregate value of PhP83,616,000.00) as indicated in the Hunter Baynes Appraisal Report, we definitely cannot agree with the position of the Complainants and the Sheriff that the aggregate value of the 12,864.00-square meter levied properties is only around PhP6,000,000.00. The disparity between the two valuations are [sic] so egregious that the Sheriff should have looked into the matter first before proceeding with the execution sale of the said properties, especially when the auction sale proceedings was seasonably objected by Respondent's counsel, Atty. Noel Mingoa. However, instead of resolving first the objection timely posed by Atty. Mingoa, Sheriff Ozaete totally disregarded the objection raised and, posthaste, issued the corresponding Certificate of Sale even prior to the payment of the legal fees (pars. 7 & 8, Sheriff's Return). While we agree with the Complainants that what is material in an execution sale proceeding is the amount for which the properties were bidded and sold during the public auction and that, mere inadequacy of the price is not a sufficient ground to annul the sale, the court is justified to intervene where the inadequacy of the price shocks the conscience (Barrozo vs. Macaraeg, 83 Phil. 378). The difference between PhP83,616,000.00 and Php6,000,000.00 is PhP77,616,000.00 and it definitely invites our attention to look into the proceedings had especially so when there was only one bidder, the HOLLY PROPERTIES REALTY CORPORATION represented by Ma, Chandra Cacho (par. 7, Sheriff's Return) and the auction sale proceedings was timely objected by Respondent's counsel (par. 6, Sheriff's Return) due to the pendency of the Urgent Motion to Quash the Writ of Levy which was filed prior to the execution sale. Besides, what is at issue is not the value of the subject properties as determined during the auction sale, but the determination of the value of the properties levied upon by the Sheriff taking into consideration Section 9(b) of the 1997 Rules of Civil Procedure x x x. xxxx It is very clear from the foregoing that, even during levy, the Sheriff has to consider the fair market value of the properties levied upon to determine whether they are sufficient to satisfy the judgment, and any levy in excess of the judgment award is void (Buan v. Court of Appeals, 235 SCRA 424). x x x x18 (Emphasis supplied). The dispositive portion of the Order reads:

WHEREFORE, the levy on the subject properties made by the Ex-Officio Sheriff of the RTC of Tanauan, Batangas, is hereby SET ASIDE and the said Sheriff is hereby directed to levy instead Respondent's real properties that are reasonably sufficient to enforce its final and executory judgment, this time, taking into consideration not only the value of the properties as indicated in their respective tax declarations, but also all the other determinants at arriving at a fair market value, namely: the cost of acquisition, the current value of like properties, its actual or potential uses, and in the particular case of lands, their size, shape or location, and the tax declarations thereon. SO ORDERED.19 A motion for reconsideration being a prohibited pleading under Section 1(h), Rule IV of the 1996 HLURB Rules and Procedure, petitioner filed a Petition for Certiorari and Prohibition with the CA on September 27, 2000. On October 30, 2002, the CA rendered herein assailed Decision20 dismissing the petition. The CA held that petitioner's insistence that Barrozo v. Macaraeg21 does not apply since said case stated that "when there is a right to redeem inadequacy of price should not be material" holds no water as what is obtaining in this case is not "mere inadequacy," but an inadequacy that shocks the senses; that Buan v. Court of Appeals22 properly applies since the questioned levy covered 15 parcels of land posited to have an aggregate value of P83,616,000.00 which shockingly exceeded the judgment debt of only around P6,000,000.00. Without filing a motion for reconsideration,23 petitioner took the present recourse on the sole ground that: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE ARBITER'S ORDER SETTING ASIDE THE LEVY MADE BY THE SHERIFF ON THE SUBJECT PROPERTIES.24 Before resolving the question whether the CA erred in affirming the Order of the HLURB setting aside the levy made by the sheriff, it behooves this Court to address a matter of public and national importance which completely escaped the attention of the HLURB Arbiter and the CA: petitioner and his wife are foreign nationals who are disqualified under the Constitution from owning real property in their names. Section 7 of Article XII of the 1987 Constitution provides: Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. (Emphasis supplied). The capacity to acquire private land is made dependent upon the capacity to acquire or hold lands of the public domain. Private land may be transferred or conveyed only to individuals or entities "qualified to acquire lands of the public domain." The 1987 Constitution reserved the right to participate in the disposition, exploitation, development and utilization of lands of the public domain for Filipino citizens25 or corporations at least 60 percent of the capital of which is owned by Filipinos.26 Aliens, whether individuals or corporations, have been disqualified from acquiring public lands; hence, they have also been disqualified from acquiring private lands.27 Since petitioner and his wife, being Dutch nationals, are proscribed under the Constitution from acquiring and owning real property, it is unequivocal that the Contract to Sell entered into by petitioner together with his wife and respondent is void. Under Article 1409 (1) and (7) of the Civil Code, all contracts whose cause, object or purpose is contrary to law or public policy and those expressly prohibited or declared void by law are inexistent and void from the beginning. Article 1410 of the same Code provides that the action or defense for the declaration of the inexistence

of a contract does not prescribe. A void contract is equivalent to nothing; it produces no civil effect.28 It does not create, modify or extinguish a juridical relation.29 Generally, parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or "in equal fault."30 In pari delicto is "a universal doctrine which holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other."31 This rule, however, is subject to exceptions32 that permit the return of that which may have been given under a void contract to: (a) the innocent party (Arts. 1411-1412, Civil Code);33 (b) the debtor who pays usurious interest (Art. 1413, Civil Code);34 (c) the party repudiating the void contract before the illegal purpose is accomplished or before damage is caused to a third person and if public interest is subserved by allowing recovery (Art. 1414, Civil Code);35 (d) the incapacitated party if the interest of justice so demands (Art. 1415, Civil Code);36 (e) the party for whose protection the prohibition by law is intended if the agreement is not illegal per se but merely prohibited and if public policy would be enhanced by permitting recovery (Art. 1416, Civil Code);37and (f) the party for whose benefit the law has been intended such as in price ceiling laws (Art. 1417, Civil Code)38and labor laws (Arts. 1418-1419, Civil Code).39 It is significant to note that the agreement executed by the parties in this case is a Contract to Sell and not a contract of sale. A distinction between the two is material in the determination of when ownership is deemed to have been transferred to the buyer or vendee and, ultimately, the resolution of the question on whether the constitutional proscription has been breached. In a contract of sale, the title passes to the buyer upon the delivery of the thing sold. The vendor has lost and cannot recover the ownership of the property until and unless the contract of sale is itself resolved and set aside.40 On the other hand, a contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title 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.41 In other words, in a contract to sell, the prospective seller agrees to transfer ownership of the property to the buyer upon the happening of an event, which normally is the full payment of the purchase price. But even upon the fulfillment of the suspensive condition, ownership does not automatically transfer to the buyer. The prospective seller still has to convey title to the prospective buyer by executing a contract of absolute sale.42 Since the contract involved here is a Contract to Sell, ownership has not yet transferred to the petitioner when he filed the suit for rescission. While the intent to circumvent the constitutional proscription on aliens owning real property was evident by virtue of the execution of the Contract to Sell, such violation of the law did not materialize because petitioner caused the rescission of the contract before the execution of the final deed transferring ownership. Thus, exception (c) finds application in this case. Under Article 1414, one who repudiates the agreement and demands his money before the illegal act has taken place is entitled to recover. Petitioner is therefore entitled to recover what he has paid, although the basis of his claim for rescission, which was granted by the HLURB, was not the fact that he is not allowed to acquire private land under the Philippine Constitution. But petitioner is entitled to the recovery only of the amount of P3,187,500.00, representing the purchase price paid to respondent. No damages may be recovered on the basis of a void contract; being nonexistent, the agreement produces no juridical tie between the parties involved.43 Further, petitioner is not entitled to actual as well as interests thereon,44 moral and exemplary damages and attorney's fees. The Court takes into consideration the fact that the HLURB Decision dated April 22, 1997 has long been final and executory. Nothing is more settled in the law than that a decision that has

acquired finality becomes immutable and unalterable and may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it was made by the court that rendered it or by the highest court of the land.45 The only recognized exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.46 None of the exceptions is present in this case. The HLURB decision cannot be considered a void judgment, as it was rendered by a tribunal with jurisdiction over the subject matter of the complaint.47 Ineluctably, the HLURB Decision resulted in the unjust enrichment of petitioner at the expense of respondent. Petitioner received more than what he is entitled to recover under the circumstances. Article 22 of the Civil Code which embodies the maxim, nemo ex alterius incommode debet lecupletari (no man ought to be made rich out of another's injury), states: Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as basic principles to be observed for the rightful relationship between human beings and for the stability of the social order; designed to indicate certain norms that spring from the fountain of good conscience; guides for human conduct that should run as golden threads through society to the end that law may approach its supreme ideal which is the sway and dominance of justice.48 There is unjust enrichment when a person unjustly retains a benefit at the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.49 A sense of justice and fairness demands that petitioner should not be allowed to benefit from his act of entering into a contract to sell that violates the constitutional proscription. This is not a case of equity overruling or supplanting a positive provision of law or judicial rule. Rather, equity is exercised in this case "as the complement of legal jurisdiction [that] seeks to reach and to complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so."50 The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its judgments to the special circumstances of a case because of the inflexibility of its statutory or legal jurisdiction.51 The sheriff delivered to petitioner the amount of P5,313,040.00 representing the net proceeds (bidded amount isP5,450,653.33) of the auction sale after deducting the legal fees in the amount of P137,613.33.52 Petitioner is only entitled to P3,187,500.00, the amount of the purchase price of the real property paid by petitioner to respondent under the Contract to Sell. Thus, the Court in the exercise of its equity jurisdiction may validly order petitioner to return the excess amount of P2,125,540.00. The Court shall now proceed to resolve the single issue raised in the present petition: whether the CA seriously erred in affirming the HLURB Order setting aside the levy made by the Sheriff on the subject properties. Petitioner avers that the HLURB Arbiter and Director had no factual basis for pegging the fair market value of the levied properties at P6,500.00 per sq m or P83,616,000.00; that reliance on

the appraisal report was misplaced since the appraisal was based on the value of land in neighboring developed subdivisions and on the assumption that the residential unit appraised had already been built; that the Sheriff need not determine the fair market value of the subject properties before levying on the same since what is material is the amount for which the properties were bidded and sold during the public auction; that the pendency of any motion is not a valid ground for the Sheriff to suspend the execution proceedings and, by itself, does not have the effect of restraining the Sheriff from proceeding with the execution. Respondent, on the other hand, contends that while it is true that the HLURB Arbiter and Director did not categorically state the exact value of the levied properties, said properties cannot just amount to P6,000,000.00; that the HLURB Arbiter and Director correctly held that the value indicated in the tax declaration is not the sole determinant of the value of the property. The petition is impressed with merit. If the judgment is for money, the sheriff or other authorized officer must execute the same pursuant to the provisions of Section 9, Rule 39 of the Revised Rules of Court, viz: Sec. 9. Execution of judgments for money, how enforced. (a) Immediate payment on demand. - The officer shall enforce an execution of a judgment for money by demanding from the judgment obligor the immediate payment of the full amount stated in the writ of execution and all lawful fees. x x x (b) Satisfaction by levy. - If the judgment obligor cannot pay all or part of the obligation in cash, certified bank check or other mode of payment acceptable to the judgment obligee, the officer shall levy upon the properties of the judgment obligor of every kind and nature whatsoever which may be disposed of for value and not otherwise exempt from execution, giving the latter the option to immediately choose which property or part thereof may be levied upon, sufficient to satisfy the judgment. If the judgment obligor does not exercise the option, the officer shall first levy on the personal properties, if any, and then on the real properties if the personal properties are insufficient to answer for the judgment. The sheriff shall sell only a sufficient portion of the personal or real property of the judgment obligor which has been levied upon. When there is more property of the judgment obligor than is sufficient to satisfy the judgment and lawful fees, he must sell only so much of the personal or real property as is sufficient to satisfy the judgment and lawful fees. Real property, stocks, shares, debts, credits, and other personal property, or any interest in either real or personal property, may be levied upon in like manner and with like effect as under a writ of attachment (Emphasis supplied).53 Thus, under Rule 39, in executing a money judgment against the property of the judgment debtor, the sheriff shall levy on all property belonging to the judgment debtor as is amply sufficient to satisfy the judgment and costs, and sell the same paying to the judgment creditor so much of the proceeds as will satisfy the amount of the judgment debt and costs. Any excess in the proceeds shall be delivered to the judgment debtor unless otherwise directed by the judgment or order of the court.54 Clearly, there are two stages in the execution of money judgments. First, the levy and then the execution sale.

Levy has been defined as the act or acts by which an officer sets apart or appropriates a part or the whole of a judgment debtor's property for the purpose of satisfying the command of the writ of execution.55 The object of a levy is to take property into the custody of the law, and thereby render it liable to the lien of the execution, and put it out of the power of the judgment debtor to divert it to any other use or purpose.56 On the other hand, an execution sale is a sale by a sheriff or other ministerial officer under the authority of a writ of execution of the levied property of the debtor.57 In the present case, the HLURB Arbiter and Director gravely abused their discretion in setting aside the levy conducted by the Sheriff for the reason that the auction sale conducted by the sheriff rendered moot and academic the motion to quash the levy. The HLURB Arbiter lost jurisdiction to act on the motion to quash the levy by virtue of the consummation of the auction sale. Absent any order from the HLURB suspending the auction sale, the sheriff rightfully proceeded with the auction sale. The winning bidder had already paid the winning bid. The legal fees had already been remitted to the HLURB. The judgment award had already been turned over to the judgment creditor. What was left to be done was only the issuance of the corresponding certificates of sale to the winning bidder. In fact, only the signature of the HLURB Director for that purpose was needed58 a purely ministerial act. A purely ministerial act or duty is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard for or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion nor judgment.59In the present case, all the requirements of auction sale under the Rules have been fully complied with to warrant the issuance of the corresponding certificates of sale. And even if the Court should go into the merits of the assailed Order, the petition is meritorious on the following grounds: Firstly, the reliance of the HLURB Arbiter and Director, as well as the CA, on Barrozo v. Macaraeg60 and Buan v. Court of Appeals61 is misplaced. The HLURB and the CA misconstrued the Court's pronouncements in Barrozo. Barrozo involved a judgment debtor who wanted to repurchase properties sold at execution beyond the one-year redemption period. The statement of the Court in Barrozo, that "only where such inadequacy shocks the conscience the courts will intervene," is at best a mere obiter dictum. This declaration should be taken in the context of the other declarations of the Court in Barrozo, to wit: Another point raised by appellant is that the price paid at the auction sale was so inadequate as to shock the conscience of the court. Supposing that this issue is open even after the one-year period has expired and after the properties have passed into the hands of third persons who may have paid a price higher than the auction sale money, the first thing to consider is that the stipulation contains no statement of the reasonable value of the properties; and although defendant' answer avers that the assessed value wasP3,960 it also avers that their real market value was P2,000 only. Anyway, mere inadequacy of price which was the complaint' allegation is not sufficient ground to annul the sale. It is only where such inadequacy shocks the conscience that the courts will intervene. x x x Another consideration is that the assessed value being P3,960 and the purchase price being in effect P1,864 (P464 sale price plus P1,400 mortgage lien which had to be discharged) the conscience is not shocked upon examining the prices paid in the sales in National Bank v. Gonzales, 45 Phil., 693 and Guerrero v. Guerrero, 57 Phil., 445, sales which were left undisturbed by this Court.

Furthermore, where there is the right to redeem as in this case inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale. x x x x (Emphasis supplied).62 In other words, gross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as when a sale is made at public auction,63 upon the theory that the lesser the price, the easier it is for the owner to effect redemption.64 When there is a right to redeem, inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale.65 Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption. More importantly, the subject matter in Barrozo is the auction sale, not the levy made by the Sheriff. The Court does not sanction the piecemeal interpretation of a decision. To get the true intent and meaning of a decision, no specific portion thereof should be isolated and resorted to, but the decision must be considered in its entirety.66 As regards Buan, it is cast under an entirely different factual milieu. It involved the levy on two parcels of land owned by the judgment debtor; and the sale at public auction of one was sufficient to fully satisfy the judgment, such that the levy and attempted execution of the second parcel of land was declared void for being in excess of and beyond the original judgment award granted in favor of the judgment creditor. In the present case, the Sheriff complied with the mandate of Section 9, Rule 39 of the Revised Rules of Court, to "sell only a sufficient portion" of the levied properties "as is sufficient to satisfy the judgment and the lawful fees." Each of the 15 levied properties was successively bidded upon and sold, one after the other until the judgment debt and the lawful fees were fully satisfied. Holly Properties Realty Corporation successively bidded upon and bought each of the levied properties for the total amount of P5,450,653.33 in full satisfaction of the judgment award and legal fees.67 Secondly, the Rules of Court do not require that the value of the property levied be exactly the same as the judgment debt; it can be less or more than the amount of debt. This is the contingency addressed by Section 9, Rule 39 of the Rules of Court. In the levy of property, the Sheriff does not determine the exact valuation of the levied property. Under Section 9, Rule 39, in conjunction with Section 7, Rule 57 of the Rules of Court, the sheriff is required to do only two specific things to effect a levy upon a realty: (a) file with the register of deeds a copy of the order of execution, together with the description of the levied property and notice of execution; and (b) leave with the occupant of the property copy of the same order, description and notice.68 Records do not show that respondent alleged non-compliance by the Sheriff of said requisites. Thirdly, in determining what amount of property is sufficient out of which to secure satisfaction of the execution, the Sheriff is left to his own judgment. He may exercise a reasonable discretion, and must exercise the care which a reasonably prudent person would exercise under like conditions and circumstances, endeavoring on the one hand to obtain sufficient property to satisfy the purposes of the writ, and on the other hand not to make an unreasonable and unnecessary levy.69 Because it is impossible to know the precise quantity of land or other property necessary to satisfy an execution, the Sheriff should be allowed a reasonable margin between the value of the property levied upon and the amount of the execution; the fact that the Sheriff levies upon a little more than is necessary to satisfy the execution does not render his actions improper.70 Section 9, Rule 39, provides adequate safeguards against excessive levying. The

Sheriff is mandated to sell so much only of such real property as is sufficient to satisfy the judgment and lawful fees. In the absence of a restraining order, no error, much less abuse of discretion, can be imputed to the Sheriff in proceeding with the auction sale despite the pending motion to quash the levy filed by the respondents with the HLURB. It is elementary that sheriffs, as officers charged with the delicate task of the enforcement and/or implementation of judgments, must, in the absence of a restraining order, act with considerable dispatch so as not to unduly delay the administration of justice; otherwise, the decisions, orders, or other processes of the courts of justice and the like would be futile.71 It is not within the jurisdiction of the Sheriff to consider, much less resolve, respondent's objection to the continuation of the conduct of the auction sale. The Sheriff has no authority, on his own, to suspend the auction sale. His duty being ministerial, he has no discretion to postpone the conduct of the auction sale. Finally, one who attacks a levy on the ground of excessiveness carries the burden of sustaining that contention.72In the determination of whether a levy of execution is excessive, it is proper to take into consideration encumbrances upon the property, as well as the fact that a forced sale usually results in a sacrifice; that is, the price demanded for the property upon a private sale is not the standard for determining the excessiveness of the levy.73 Here, the HLURB Arbiter and Director had no sufficient factual basis to determine the value of the levied property. Respondent only submitted an Appraisal Report, based merely on surmises. The Report was based on the projected value of the townhouse project after it shall have been fully developed, that is, on the assumption that the residential units appraised had already been built. The Appraiser in fact made this qualification in its Appraisal Report: "[t]he property subject of this appraisal has not been constructed. The basis of the appraiser is on the existing model units."74 Since it is undisputed that the townhouse project did not push through, the projected value did not become a reality. Thus, the appraisal value cannot be equated with the fair market value. The Appraisal Report is not the best proof to accurately show the value of the levied properties as it is clearly self-serving. Therefore, the Order dated August 28, 2000 of HLURB Arbiter Aquino and Director Ceniza in HLRB Case No. IV6-071196-0618 which set aside the sheriff's levy on respondent's real properties, was clearly issued with grave abuse of discretion. The CA erred in affirming said Order. WHEREFORE, the instant petition is GRANTED. The Decision dated October 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60981 is REVERSED and SET ASIDE. The Order dated August 28, 2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB Case No. IV6-071196-0618 is declared NULL andVOID. HLURB Arbiter Aquino and Director Ceniza are directed to issue the corresponding certificates of sale in favor of the winning bidder, Holly Properties Realty Corporation. Petitioner is ordered to return to respondent the amount of P2,125,540.00, without interest, in excess of the proceeds of the auction sale delivered to petitioner. After the finality of herein judgment, the amount of P2,125,540.00 shall earn 6% interest until fully paid. SO ORDERED. Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ., concur.

IN RE: PETITION FOR SEPARATION OF PROPERTY

G.R. No. 149615

ELENA BUENAVENTURA MULLER, Petitioner,

Present: Panganiban, C.J. (Chairperson), Ynares-Santiago, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ.

- versus -

HELMUT MULLER, Respondent. Promulgated:

August 29, 2006

x ---------------------------------------------------------------------------------------- x

DECISION
YNARES-SANTIAGO, J.:

This petition for review on certiorari[1] assails the February 26, 2001 Decision[2] of the Court of Appeals in CA-G.R. CV No. 59321 affirming with modification the August 12, 1996 Decision[3] of the Regional Trial Court of Quezon City, Branch 86 in Civil Case No. Q-9421862, which terminated the regime of absolute community of property between petitioner and respondent, as well as the [4] Resolution dated August 13, 2001 denying the motion for reconsideration.

The facts are as follows:

Petitioner Elena Buenaventura Muller and respondent Helmut Muller were married in Hamburg, Germany on September 22, 1989. The couple resided inGermany at a house owned by respondents parents but decided to move and reside permanently in the Philippines in 1992. By this time, respondent had inherited the house in Germany from his parents which he sold and used the proceeds for the purchase of a parcel of land in Antipolo, Rizal at the cost of P528,000.00 and the construction of a house amounting to P2,300,000.00. The Antipolo property was registered in the name of petitioner under Transfer Certificate of Title No. 219438[5] of the Register of Deeds of Marikina, Metro Manila.

Due to incompatibilities and respondents alleged womanizing, drinking, and maltreatment, the spouses eventually separated. On September 26, 1994, respondent filed a petition[6] for separation of properties before the Regional Trial Court of Quezon City.

On August 12, 1996, the trial court rendered a decision which terminated the regime of absolute community of property between the petitioner and respondent. It also decreed the separation of properties between them and ordered the equal partition of personal properties located within the country, excluding those acquired by gratuitous title during the marriage. With regard to the Antipolo property, the court held that it was acquired using paraphernal funds of the respondent. However, it ruled that respondent cannot recover his funds because the property was purchased in violation of Section 7, Article XII of the Constitution. Thus

However, pursuant to Article 92 of the Family Code, properties acquired by gratuitous title by either spouse during the marriage shall be excluded from the community property. The real property, therefore, inherited by petitioner

in Germany is excluded from the absolute community of property of the herein spouses. Necessarily, the proceeds of the sale of said real property as well as the personal properties purchased thereby, belong exclusively to the petitioner. However, the part of that inheritance used by the petitioner for acquiring the house and lot in this country cannot be recovered by the petitioner, its acquisition being a violation of Section 7, Article XII of the Constitution which provides that save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations or associations qualified to acquire or hold lands of the public domain. The law will leave the parties in the situation where they are in without prejudice to a voluntary partition by the parties of the said real property. x x x

xxxx

As regards the property covered by Transfer Certificate of Title No. 219438 of the Registry of Deeds of Marikina, Metro Manila, situated in Antipolo, Rizal and the improvements thereon, the Court shall not make any pronouncement on constitutional grounds.[7]

Respondent appealed to the Court of Appeals which rendered the assailed decision modifying the trial courts Decision. It held that respondent merely prayed for reimbursement for the purchase of the Antipolo property, and not acquisition or transfer of ownership to him. It also considered petitioners ownership over the property in trust for the respondent. As regards the house, the Court of Appeals ruled that there is nothing in the Constitution which prohibits respondent from acquiring the same. The dispositive portion of the assailed decision reads:

the

WHEREFORE, in view of the foregoing, the Decision of lower court dated August 12, 1996 is hereby

MODIFIED. Respondent Elena Buenaventura Muller is hereby ordered to REIMBURSE the petitioner the amount of P528,000.00 for the acquisition of the land and the amount of P2,300,000.00 for the construction of the house situated in Atnipolo, Rizal, deducting therefrom the amount respondent spent for the preservation, maintenance and development of the aforesaid real property including the depreciation cost of the house or in the alternative to SELL the house and lot in the event respondent does not have the means to reimburse the petitioner out of her own money and from the proceeds thereof, reimburse the petitioner of the cost of the land and the house deducting the expenses for its maintenance and preservation spent by the respondent. Should there be profit, the same shall be divided in proportion to the equity each has over the property. The case is REMANDED to the lower court for reception of evidence as to the amount claimed by the respondents for the preservation and maintenance of the property.

SO ORDERED.[8]

Hence, the instant petition for review raising the following issues:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE RESPONDENT HEREIN IS ENTITLED TO REIMBURSEMENT OF THE AMOUNT USED TO PURCHASE THE LAND AS WELL AS THE COSTS FOR THE CONSTRUCTION OF THE HOUSE, FOR IN SO RULING, IT INDIRECTLY ALLOWED AN ACT DONE WHICH OTHERWISE COULD NOT BE DIRECTLY x x x DONE, WITHOUT DOING VIOLENCE TO THE CONSTITUTIONAL PROSCRIPTION THAT AN ALIEN IS PROHIBITED FROM

ACQUIRING OWNERSHIP OF LOCATED IN THE PHILIPPINES.

REAL

PROPERTIES

II

THE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING RESPONDENTS CAUSE OF ACTION WHICH IS ACTUALLY A DESPERATE ATTEMPT TO OBTAIN OWNERSHIP OVER THE LOT IN QUESTION, CLOTHED UNDER THE GUISE OF CLAIMING REIMBURSEMENT.

Petitioner contends that respondent, being an alien, is disqualified to own private lands in the Philippines; that respondent was aware of the constitutional prohibition but circumvented the same; and that respondents purpose for filing an action for separation of property is to obtain exclusive possession, control and disposition of the Antipolo property.

Respondent claims that he is not praying for transfer of ownership of the Antipolo property but merely reimbursement; that the funds paid by him for the said property were in consideration of his marriage to petitioner; that the funds were given to petitioner in trust; and that equity demands that respondent should be reimbursed of his personal funds.

The issue for resolution is whether respondent is entitled to reimbursement of the funds used for the acquisition of the Antipolo property.

The petition has merit.

Section 7, Article XII of the 1987 Constitution states:

Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.

Aliens, whether individuals or corporations, are disqualified from acquiring lands of the public domain. Hence, they are also disqualified from acquiring private lands.[9] The primary purpose of the constitutional provision is the conservation of the national patrimony. In the case of Krivenko v. Register of Deeds,[10] the Court held:

Under section 1 of Article XIII of the Constitution, natural resources, with the exception of public agricultural land, shall not be alienated, and with respect to public agricultural lands, their alienation is limited to Filipino citizens. But this constitutional purpose conserving agricultural resources in the hands of Filipino citizens may easily be defeated by the Filipino citizens themselves who may alienate their agricultural lands in favor of aliens. It is partly to prevent this result that section 5 is included in Article XIII, and it reads as follows:

Sec. 5. Save in cases of hereditary succession, no private agricultural land will be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines.

This constitutional provision closes the only remaining avenue through which agricultural resources may leak into aliens hands. It would certainly be futile to prohibit the alienation of public agricultural lands to aliens if, after all, they may be freely so alienated upon their becoming private agricultural lands in the hands of Filipino citizens. x x x

xxxx

If the term private agricultural lands is to be construed as not including residential lots or lands not strictly agricultural, the result would be that aliens may freely acquire and possess not only residential lots and houses for themselves but entire subdivisions, and whole towns and cities, and that they may validly buy and hold in their names lands of any area for building homes, factories, industrial plants, fisheries, hatcheries, schools, health and vacation resorts, markets, golf courses, playgrounds, airfields, and a host of other uses and purposes that are not, in appellants words, strictly agricultural. (Solicitor Generals Brief, p. 6.) That this is obnoxious to the conservative spirit of the Constitution is beyond question.

Respondent was aware of the constitutional prohibition and expressly admitted his knowledge thereof to this Court.[11] He declared that he had the Antipolo property titled in the name of petitioner because of the said prohibition.[12] His attempt at subsequently asserting or claiming a right on the said property cannot be sustained.

The Court of Appeals erred in holding that an implied trust was created and resulted by operation of law in view of petitioners marriage to respondent. Save for the exception provided in cases of hereditary succession, respondents disqualification from owning lands in the Philippines is absolute. Not even an ownership in trust is allowed. Besides, where the purchase is made in violation of an existing statute and in evasion of its express provision, no trust can result in favor of the party who is guilty of the fraud.[13] To hold otherwise would allow circumvention of the constitutional prohibition.

Invoking the principle that a court is not only a court of law but also a court of equity, is likewise misplaced. It has been held that equity as a

rule will follow the law and will not permit that to be done indirectly which, because of public policy, cannot be done directly.[14] He who seeks equity must do equity, and he who comes into equity must come with clean hands. The latter is a frequently stated maxim which is also expressed in the principle that he who has done inequity shall not have equity. It signifies that a litigant may be denied relief by a court of equity on the ground that his conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the controversy in issue.[15]

Thus, in the instant case, respondent cannot seek reimbursement on the ground of equity where it is clear that he willingly and knowingly bought the property despite the constitutional prohibition.

Further, the distinction made between transfer of ownership as opposed to recovery of funds is a futile exercise on respondents part. To allow reimbursement would in effect permit respondent to enjoy the fruits of a property which he is not allowed to own. Thus, it is likewise proscribed by law. As expressly held in Cheesman v. Intermediate Appellate Court:[16]

Finally, the fundamental law prohibits the sale to aliens of residential land. Section 14, Article XIV of the 1973 Constitution ordains that, Save in cases of hereditary succession, no private land shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. Petitioner Thomas Cheesman was, of course, charged with knowledge of this prohibition. Thus, assuming that it was his intention that the lot in question be purchased by him and his wife, he acquired no right whatever over the property by virtue of that purchase; and in attempting to acquire a right or interest in land, vicariously and clandestinely, he knowingly violated the Constitution; the sale as to him was null and void. In any event, he had and has no capacity or personality to question the subsequent sale of the same property by his wife on the theory that in so doing he

is merely exercising the prerogative of a husband in respect of conjugal property. To sustain such a theory would permit indirect controversion of the constitutional prohibition. If the property were to be declared conjugal, this would accord to the alien husband a not insubstantial interest and right over land, as he would then have a decisive vote as to its transfer or disposition. This is a right that the Constitution does not permit him to have.

As already observed, the finding that his wife had used her own money to purchase the property cannot, and will not, at this stage of the proceedings be reviewed and overturned. But even if it were a fact that said wife had used conjugal funds to make the acquisition, the considerations just set out to militate, on high constitutional grounds, against his recovering and holding the property so acquired, or any part thereof. And whether in such an event, he may recover from his wife any share of the money used for the purchase or charge her with unauthorized disposition or expenditure of conjugal funds is not now inquired into; that would be, in the premises, a purely academic exercise.(Emphasis added)

WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The Decision dated February 26, 2001 of the Court of Appeals in CA-G.R. CV No. 59321 ordering petitioner Elena Buenaventura Muller to reimburse respondent Helmut Muller the amount of P528,000 for the acquisition of the land and the amount of P2,300,000 for the construction of the house in Antipolo City, and the Resolution dated August 13, 2001 denying reconsideration thereof, areREVERSED and SET ASIDE. The August 12, 1996 Decision of the Regional Trial Court of Quezon City, Branch 86 in Civil Case No. Q-94-21862 terminating the regime of absolute community between the petitioner and respondent, decreeing a separation of property between them and ordering the partition of the personal properties located in the Philippines equally, is REINSTATED.

OBJECT
Republic of the Philippines SUPREME COURT Manila EN BANC DECISION April 30, 1968 G.R. No. L-24732 PIO SIAN MELLIZA, petitioner, vs. CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS, respondents. Cornelio P. Ravena for petitioner. Office of the Solicitor General for respondents. BENGZON, J.P., J.: Juliana Melliza during her lifetime owned, among other properties, three parcels of residential land in Iloilo City registered in her name under Original Certificate of Title No. 3462. Said parcels of land were known as Lots Nos. 2, 5 and 1214. The total area of Lot No. 1214 was 29,073 square meters. On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of Lot 1214, to serve as site for the municipal hall.[[1]] The donation was however revoked by the parties for the reason that the area donated was found inadequate to meet the requirements of the development plan of the municipality, the so-called Arellano Plan.[[2]] Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B3. As approved by the Bureau of Lands, Lot 1214-B-1 with 4,562 square meters, became known as Lot 1214-B; Lot 1214-B-2, with 6,653 square meters, was designated as Lot 1214-C; and Lot 1214-B-13, with 4,135 square meters, became Lot 1214-D. On November 15, 1932 Juliana Melliza executed an instrument without any caption containing the following: Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS VEINTIDOS PESOS (P6,422.00),moneda filipina que por la presente declaro haber recibido a mi entera satisfaccion del Gobierno Municipal de Iloilo, cedo y traspaso en venta real y difinitiva a dicho Gobierno Municipal de Iloilo los lotes y porciones de los mismos que a continuacion se especifican a saber: el lote No. 5 en toda su extension; una porcion de 7669 metros cuadrados del lote No. 2, cuya porcion esta designada como sub-lotes Nos. 2-B y 2-C del piano de subdivision de dichos lotes preparado por la Certeza Surveying Co., Inc., y una porcion de 10,788 metros cuadrados del lote No. 1214 cuya porcion esta designada como sub-lotes Nos. 1214-B-2 y 1214-B-3 del mismo plano de subdivision.

Asimismo nago constar que la cesion y traspaso que ariba se mencionan es de venta difinitiva, y que para la mejor identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el Gobierno Municipal de Iloilo para la construccion de avenidas, parques y City Hall site del Municipal Government Center de iloilo, segun el plano Arellano. On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva who thereafter obtained her own registered title thereto, under Transfer Certificate of Title No. 18178. Remedios in turn on November 4, 1946 transferred her rights to said portion of land to Pio Sian Melliza, who obtained Transfer Certificate of Title No. 2492 thereover in his name. Annotated at the back of Pio Sian Mellizas title certificate was the following: (a) that a portion of 10,788 square meters of Lot 1214 now designated as Lots Nos. 1214-B-2 and 1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument dated November 15, 1932. On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city hall site together with the building thereon, to the University of the Philippines (Iloilo branch). The site donated consisted of Lots Nos. 1214-B, 1214-C and 1214-D, with a total area of 15,350 square meters, more or less. Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio Sian Melliza thereupon made representations, thru his lawyer, with the city authorities for payment of the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by plaintiff, the City did not have funds (p. 9, Appellants Brief.) The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering the three lots, Nos. 1214-B, 1214-C and 1214-D. On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo against Iloilo City and the University of the Philippines for recovery of Lot 1214-B or of its value. The defendants answered, contending that Lot 1214-B was included in the public instrument executed by Juliana Melliza in favor of Iloilo municipality in 1932. After stipulation of facts and trial, the Court of First Instance rendered its decision on August 15, 1957, dismissing the complaint. Said court ruled that the instrument executed by Juliana Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B. In support of this conclusion, it referred to the portion of the instrument stating: Asimismo hago constar que la cesion y traspaso que arriba se mencionan es de venta difinitiva, y que para la major identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el Gobierno municipal de Iloilo para la construccion de avenidas, parques y City Hall site del Municipal Government Center de Iloilo, segun el plano Arellano. and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but also such other portions of lots as were necessary for the municipal hall site, such as Lot 1214-B. And thus it held that Iloilo City had the right to donate Lot 1214-B to the U.P. Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the Court of Appeals affirmed the interpretation of the Court of First Instance, that the portion of Lot 1214 sold

by Juliana Melliza was not limited to the 10,788 square meters specifically mentioned but included whatever was needed for the construction of avenues, parks and the city hall site. Nonetheless, it ordered the remand of the case for reception of evidence to determine the area actually taken by Iloilo City for the construction of avenues, parks and for city hall site. The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant maintains that the public instrument is clear that only Lots Nos. 1214-C and 1214-D with a total area of 10,788 square meters were the portions of Lot 1214 included in the sale; that the purpose of the second paragraph, relied upon for a contrary interpretation, was only to better identify the lots sold and none other; and that to follow the interpretation accorded the deed of sale by the Court of Appeals and the Court of First Instance would render the contract invalid because the law requires as an essential element of sale, a determinate object (Art. 1445, now 1448, Civil Code). Appellees, on the other hand, contend that the present appeal improperly raises only questions of fact. And, further, they argue that the parties to the document in question really intended to include Lot 1214-B therein, as shown by the silence of the vendor after Iloilo City exercised ownership thereover; that not to include it would have been absurd, because said lot is contiguous to the others admittedly included in the conveyance, lying directly in front of the city hall, separating that building from Lots 1214-C and 1214-D, which were included therein. And, finally, appellees argue that the sales object was determinate, because it could be ascertained, at the time of the execution of the contract, what lots were needed by Iloilo municipality for avenues, parks and city hall site according to the Arellano Plan, since the Arellano plan was then already in existence. The appeal before Us calls for the interpretation of the public instrument dated November 15, 1932. And interpretation of such contract involves a question of law, since the contract is in the nature of law as between the parties and their successors-in-interest. At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana Melliza to Iloilo municipality included that portion of Lot 1214 known as Lot 1214-B. If not, then the same was included, in the instrument subsequently executed by Juliana Melliza of her remaining interest in Lot 1214 to Remedios Sian Villanueva, who in turn sold what she thereunder had acquired, to Pio Sian Melliza. It should be stressed, also, that the sale to Remedios Sian Villanueva from which Pio Sian Melliza derived title did not specifically designate Lot 1214-B, but only such portions of Lot 1214 as were not included in the previous sale to Iloilo municipality (Stipulation of Facts, par. 5, Record on Appeal, p. 23). And thus, if said Lot 1214-B had been included in the prior conveyance to Iloilo municipality, then it was excluded from the sale to Remedios Sian Villanueva and, later, to Pio Sian Melliza. The point at issue here is then the true intention of the parties as to the object of the public instrument Exhibit D. Said issue revolves on the paragraph of the public instrument aforequoted and its purpose, i.e., whether it was intended merely to further describe the lots already specifically mentioned, or whether it was intended to cover other lots not yet specifically mentioned. First of all, there is no question that the paramount intention of the parties was to provide Iloilo municipality with lots sufficient or adequate in area for the construction of the Iloilo City hall site,

with its avenues and parks. For this matter, a previous donation for this purpose between the same parties was revoked by them, because of inadequacy of the area of the lot donated. Secondly, reading the public instrument in toto, with special reference to the paragraphs describing the lots included in the sale, shows that said instrument describes four parcels of land by their lot numbers and area; and then it goes on to further describe, not only those lots already mentioned, but the lots object of the sale, by stating that said lots are the ones needed for the construction of the city hall site, avenues and parks according to the Arellano plan. If the parties intended merely to cover the specified lots Lots 2, 5, 1214-C and 1214-D, there would scarcely have been any need for the next paragraph, since these lots are already plainly and very clearly described by their respective lot number and area. Said next paragraph does not really add to the clear description that was already given to them in the previous one. It is therefore the more reasonable interpretation, to view it as describing those other portions of land contiguous to the lots aforementioned that, by reference to the Arellano plan, will be found needed for the purpose at hand, the construction of the city hall site. Appellant however challenges this view on the ground that the description of said other lots in the aforequoted second paragraph of the public instrument would thereby be legally insufficient, because the object would allegedly not be determinate as required by law. Such contention fails on several counts. The requirement of the law that a sale must have for its object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific mention of some of the lots plus the statement that the lots object of the sale are the ones needed for city hall site, avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the execution of the contract, for rendering determinate said lots without the need of a new and further agreement of the parties. The Arellano plan was in existence as early as 1928. As stated, the previous donation of land for city hall site on November 27, 1931 was revoked on March 6, 1932 for being inadequate in area under said Arellano plan. Appellant claims that although said plan existed, its metes and bounds were not fixed until 1935, and thus it could not be a basis for determining the lots sold on November 15, 1932. Appellant however fails to consider that the area needed under that plan for city hall site was then already known; that the specific mention of some of the lots covered by the sale in effect fixed the corresponding location of the city hall site under the plan; that, therefore, considering the said lots specifically mentioned in the public instrument Exhibit D, and the projected city hall site, with its area, as then shown in the Arellano plan (Exhibit 2), it could be determined which, and how much of the portions of land contiguous to those specifically named, were needed for the construction of the city hall site. And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and 1214D, admittedly covered by the public instrument. It is stipulated that, after execution of the contract Exhibit D, the Municipality of Iloilo possessed it together with the other lots sold. It sits practically in the heart of the city hall site. Furthermore, Pio Sian Melliza, from the stipulation of facts, was the notary public of the public instrument. As such, he was aware of its terms. Said instrument was also registered with the Register of Deeds and such registration was annotated at the back of the

corresponding title certificate of Juliana Melliza. From these stipulated facts, it can be inferred that Pio Sian Melliza knew of the aforesaid terms of the instrument or is chargeable with knowledge of them; that knowing so, he should have examined the Arellano plan in relation to the public instrument Exhibit D; that, furthermore, he should have taken notice of the possession first by the Municipality of Iloilo, then by the City of Iloilo and later by the University of the Philippines of Lot 1214-B as part of the city hall site conveyed under that public instrument, and raised proper objections thereto if it was his position that the same was not included in the same. The fact remains that, instead, for twenty long years, Pio Sian Melliza and his predecessors-in-interest, did not object to said possession, nor exercise any act of possession over Lot 1214-B. Applying, therefore, principles of civil law, as well as laches, estoppel, and equity, said lot must necessarily be deemed included in the conveyance in favor of Iloilo municipality, now Iloilo City. WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the Court of First Instance, and the complaint in this case is dismissed. No costs. So ordered. Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. Concepcion , C.J., is on leave. echo

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION OLEGARIO B. CLARIN, petitioner, vs. ALBERTO L. RULONA and THE HONORABLE COURT OF APPEALS, respondents., G.R. No. L-30786 1984 Feb 20 DECISION GUTIERREZ, JR., J.: This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed the finding of the trial court that there was a perfected contract of sale between the petitioner and the respondent with regard to the ten (10) hectares of land constituting the petitioners share of Lot 20 PLD No. 4, Carmen Cadastre in Carmen, Bohol. On May 31, 1959 the petitioner executed two documents, namely, Exhibits A and B which respectively provide: TO WHOM THIS MAY CONCERN: This is to authorize Mr. Gustavo Decasa, surveyor from Batuan, Bohol to survey on behalf of Mr. & Mrs. Alberto L. Rulona of Suba, Katipunan, Carmen, Bohol, a portion of the share of the undersigned of Lot 20 PLD No. 4 (Carmen Cadastre) from the CLARIN HERMANOS of which the undersigned is one of the

heirs in a decision rendered in Cad. Case No. 20, Reg. Rec. No. 200 promulgated by Judge Hipolito Alo of the Court of First Instance of this province dated January 6, 1956; of the ten hectares (10) awarded to Mr. & Mrs. Alberto L. Rulona which the couple purchased from the undersigned for TWO THOUSAND FIVE HUNDRED PESOS (P2,500.00). The portion of land to be surveyed is situated where the house and vicinity of Mr. & Mrs. A. Rulona are located in said lot. (SGD.) OLEGARIO B. CLARIN (SGD.) ZOILA L. CLARIN Received from Mr. Alberto Rulona of Carmen, Bohol, the sum of Eight Hundred (P800.00) Pesos as an initial payment for the ten hectares of land in Carmen, Bohol which he is going to purchase from the undersigned. The value of the land in question is P2,500.00. Respondent Rulona filed a complaint for specific performance and recovery of improvements on the ground that the petitioner and his wife violated the terms of the agreement of sale by returning by their own volition and without the consent of plaintiff, the amount of P1,100.00 in six postal money orders, covering the downpayment of P1,000.00 and first installment of P100.00. In his complaint, the respondent alleged that the petitioner sold ten hectares of his share of the disputed lot to him for P2,500.00. The conditions of the sale were that a downpayment of P1,000.00 was to be made and then the balance of P1,500.00 was to be paid in monthly installment of P100.00. As shown by Exhibit B, the respondent delivered to the petitioner a downpayment of P800.00 and on the first week of June the amount of P200.00 was also delivered thereby completing the downpayment of P1,000.00. On the first week of August, another delivery was made by the respondent in the amount of P100.00 as payment for the first installment. Respondent further alleged that despite repeated demands to let the sale continue and for the petitioner to take back the six postal money orders, the latter refused to comply. In his answer, the petitioner alleged that while it is true that he had a projected contract of sale of a portion of land with the respondent, such was subject to the following conditions: (1) that the contract would be realized only if his co-heirs would give their consent to the sale of a specific portion of their common inheritance from the late Aniceto Clarin before partition of the said common property and (2) that should his co-heirs refuse to give their consent, the projected contract would be discontinued or would not be realized. Petitioner further contended that the respondent knew fully well the above terms and accepted them as conditions precedent to the perfection or consummation of the contract; that respondent delivered the amount of P1,000.00 as earnest money, subject to the above conditions and that the amount was returned by the petitioner upon his learning definitely that his co-heirs and co-owners refused to give their consent to the projected sale. The trial court rendered judgment in favor of the respondent on the ground that the contract of sale, Exhibit A, is a pure sale of a portion of Lot No. 20, containing an area of ten hectares for the sum of P2,500.00, and that the sale is not subject to any condition nor is it vitiated by any flaw. Therefore, it declared the same binding upon the parties under Articles 1356 and 1458 of the Civil Code. The trial court also ruled that the fact that petitioner returned the sum of P1,100.00 paid by the respondent indicated an intention to rescind the contract. The court stated, however, that rescission under Article 1191 of the Civil Code can be authorized by the court only if either party violates his obligation. Since there had been no violation, the court ruled that the petitioner could not rescind the contract. Lastly, the court held that although as co-owner the petitioner could not dispose of a specific portion of the land, nevertheless, his share was bound by the effect of the sale.

On appeal, the Court of Appeals sustained the findings of the trial court, stating that: xxx xxx xxx

. . . We believe that the trial court did not incur any error when it arrived at the conclusion that there was a perfected contract of sale between the plaintiff and the defendant, for indeed the terms of the agreement (Exh. A) were clearly drafted in an equivocal manner that leaves no room for interpretation other than those terms contained therein, the real substance of which satisfied all the elements and requisites of a contract. Appellant, however, argues that Exhibit A was a mere authority to survey. It is not addressed to any definite party, it does not contain the proper heading, there is no statement of the manner of paying the purchase price, no personal circumstances of the parties, and it is not notarized. All these grounds relied upon to suit the theory of appellant, anchored as it were on a weak foundation, deserve scant consideration. Suffice it to state that a contract to be binding upon the contracting parties need not be notarized. Neither should it specify the manner of payment of the consideration nor should it specify the manner of payment of the consideration nor should it contain the proper heading. (sic) It is maintained in this petition that the appellate court erred in holding there was a perfected contract of sale between the petitioner and the respondent, principally relying on Exhibit A and that even assuming that the latter were a perfected contract of sale, such was subject to a condition precedent with which there was no compliance. The petitioner alleges that the two documents introduced in evidence could not effectively convey title to the land because they were not public documents. Lastly, the petitioner contends that he could not have validly disposed of a definite portion of the community property and therefore, there arose a legal impossibility for him and the respondent to agree on a definite object. The petitioners contentions are without merit. While it is true that Exhibits A and B are, in themselves, not contracts of sale, they are, however, clear evidence that a contract of sale was perfected between the petitioner and the respondent and that such contract had already been partially fulfilled and executed. A 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. (Article 1475, Civil Code; Phil. Virginia Tobacco Administration v. De los Angeles, 87 SCRA 210). Such contract is binding in whatever form it may have been entered into. (Lopez v. Auditor General, 20 SCRA 655). Construing Exhibits A and B together, it can be seen that the petitioner agreed to sell and the respondent agreed to buy a definite object, that is, ten hectares of land which is part and parcel of Lot 20 PLD No. 4, owned in common by the petitioner and his sisters although the boundaries of the ten hectares would be delineated at a later date. The parties also agreed on a definite price which is P2,500.00. Exhibit B further shows that the petitioner has received from the respondent as initial payment, the amount of P800.00. Hence, it cannot be denied that there was a perfected contract of sale between the parties and that such contract was already partially executed when the petitioner received the initial payment of P800.00. The latters acceptance of the payment clearly showed his consent to the contract thereby precluding him from rejecting its binding effect. (See Federation of United Namarco Distributors, Inc. v. National Marketing Corporation, 4 SCRA 884). With the contract being partially executed, the same is no longer covered by the requirements of the Statute of Frauds in order to be enforceable. (See Khan v. Asuncion, 19 SCRA 996). Therefore, with the contract being valid and enforceable, the petitioner cannot avoid his obligation by interposing that Exhibit A is not a public document. On the contrary, under Article 1357 of the Civil Code, the petitioner can even be compelled by the respondent to execute a public document to embody their valid and enforceable contract.

The petitioners contention that he was only forced to receive money from the respondent due to the insistence of the latter merits little consideration. It is highly improbable that the respondent would give different sums on separate dates to the petitioner with no apparent reason, without a binding assurance from the latter that the disputed lot would be sold to him. We agree with the trial court and the appellate court that the payments were made in fulfillment of the conditions of the sale, namely, a downpayment of P1,000.00 and the balance of P1,500.00, to be paid in monthly installments of P100.00 each. We, therefore, find no error in the lower courts holding that a contract of sale was perfected between the petitioner and the respondent and that the sale did not depend on a condition that the petitioners co-owners would have to agree to the sale. The latter finding is strengthened by the fact that although the petitioner has been stressing that he made it clear to the respondent that the consent of his sisters as co-owners was necessary in order for the sale to push through, his letter to respondent marked Exhibit C stated another reason, to wit: My dear Mr. Rulona: Replying to your letter of recent date, I deeply regret to inform you that my daughter, Alice, who is now in Manila, could not be convinced by me to sell the land in question, that is, the ten (10) hectares of land referred to in our tentative agreement. It is for this reason that I hereby authorize the bearer, Mr. Paciano Parmisano, to return to you in person the sum of One Thousand and One Hundred (P1,100.00) Pesos which you have paid in advance for the proposed sale of the land in question. xxx xxx xxx

The reasons given by the petitioner cannot operate against the validity of the contract in question. A contract is valid even though one of the parties entered into it against his better judgment. (See Lagunzad v. Vda. de Gonzales, 92 SCRA 476; citing Martinez v. Hongkong and Shanghai Bank, 15 Phil. 252). Finally, we agree with the lower courts holding that although as a co-owner, the petitioner cannot dispose of a specific portion of the land, his share shall be bound by the effect of the sale. This is anchored in Article 493 of the Civil Code which provides: Art. 493. Each co-owner shall have the full ownership of his part and the fruits and benefits

pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be alloted to him in the division upon the termination of the co-ownership. WHEREFORE, the petition is hereby DISMISSED for lack of merit. Costs against the petitioner. SO ORDERED. Melencio-Herrera Plana and Relova JJ., concur. Teehankee, J., concurs in the result.

[Synopsis/Syllabi]

THIRD DIVISION

[G.R. No. 104482. January 22, 1996]

BELINDA TAREDO, for herself and in representation of her brothers and sisters, and TEOFILA CORPUZ TANEDO, representing her minor daughter VERNA TANEDO, petitioners, vs. THE COURT OF APPEALS, SPOUSES RICARDO M. TAREDO AND TERESITA BARERA TAREDO, respondents.
DECISION
PANGANIBAN, J.:

Is a sale of future inheritance valid? In multiple sales of the same real property, who has preference in ownership? What is the probative value of the lower courts finding of good faith in registration of such sales in the registry of property? These are the main questions raised in this Petition for review on certiorari under Rule 45 of the Rules of Court to set aside and reverse the Decision1 of the Court of Appeals2 in CA-G.R. CV NO. 24987 promulgated on September 26, 1991 affirming the decision of the Regional Trial Court, Branch 63, Third Judicial Region, Tarlac, Tarlac in Civil Case No. 6328, and its Resolution denying reconsideration thereof, promulgated on May 27, 1992. By the Courts Resolution on October 25, 1995, this case (along with several others) was transferred from the First to the Third Division and after due deliberation, the Court assigned it to the undersigned ponenle for the writing of this Decision. The Facts On October 20, 1962, Lazardo Taedo executed a notarized deed of absolute sale in favor of his eldest brother, Ricardo Taedo, and the latters wife, Teresita Barera, private respondents herein, whereby he conveyed to the latter in consideration of P1,500.00, one hectare of whatever share I shall have over Lot No. 191 of the cadastral survey of Gerona, Province of Tarlac and covered by Title T-l3829 of the Register of Deeds of Tarlac, the said property being his future inheritance from his parents (Exh. 1). Upon the death of his father Matias, Lazaro executed an Affidavit of Conformity dated February 28, 1980 (Exh. 3) to re-affirm, respect. acknowledge and validate the sale I made in 1962. On January 13, 1981, Lazaro executed

another notarized deed of sale in favor of private respondents covering his undivided ONE TWELVE (1/12) of a parcel of land known asLot 191 x x (Exh. 4). He acknowledged therein his receipt of P 10,000.00 as consideration therefor. In February 1981, Ricardo learned that Lazaro sold the same property to his children, petitioners herein, through a deed of sale dated December 29, 1980 (Exh. E). On June 7, 1982, private respondents recorded the Deed of Sale (Exh. 4) in their favor in the Registry of Deeds and the corresponding entry was made in Transfer Certificate of Title No. 166451 (Exh. 5). Petitioners on July 16, 1982 filed a complaint for rescission (plus damages) of the deeds of sale executed by Lazaro in favor of private respondents covering the property inherited by Lazaro from his father. Petitioners claimed that their father, Lazaro, executed an Absolute Deed of Sale dated December 29, 1980 (Exit. E), conveying to his ten children his allotted portion under the extrajudicial partition executed by the heirs of Matias, which deed included the land in litigation (Lot 191). Petitioners also presented in evidence: (1) a private writing purportedly prepared and signed by Matias dated December 28, 1978, stating that it was his desire that whatever inheritance Lazaro would receive from him should be given to his (Lazaros) children (Exh. A); (2) a typewritten document dated March 10, 1979 signed by Lazaro in the presence of two witnesses, wherein he confirmed that he would voluntarily abide by the wishes of his father, Matias, to give to his (Lazaros) children all the property he would inherit from the latter (Exh. B); and (3) a letter dated January 1, 1980 of Lazaro to his daughter, Carmela, stating that his share in the extrajudicial settlement of the estate of his father was intended for his children, petitioners herein (Exh. C). Private respondents, however presented in evidence a Deed of Revocation of a Deed of Sale dated March 12, 1981 (Exh. 6), wherein Lazaro revoked the sale in favor of petitioners for the reason that it was simulated or fictitious - without any consideration whatsoever. Shortly after the case a quo was filed, Lazaro executed a sworn statement (Exh. G) which virtually repudiated the contents of the Deed of Revocation of a Deed of Sale (Exh. 6) and the Deed of Sale (Exh. 4) in favor of private respondents. However, Lazaro testified that he sold the property to Ricardo, and that it was a lawyer who induced him to execute a deed of sale in favor of his children after giving him five pesos (P5.00) to buy a drink (TSN September 18, 1985, pp. 204-205). The trial court decided in favor of private respondents, holding that petitioners failed to adduce a preponderance of evidence to support (their) claim. On appeal, the Court of Appeals affirmed the decision of the trial

court, ruling that the Deed of Sale dated January 13, 1981 (Exh. 9) was valid and that its registration in good faith vested title in said respondents. The Issues Petitioners raised the following errors in the respondent Court, which they also now allege in the instant Petition: I. The trial court erred in concluding that the Contract of Sale of October 20, 1962 (Exhibit 7, Answer) is merely voidable or annulable and not void ab initio pursuant to paragraph 2 of Article 1347 of the New Civil Code involving as it does a future inheritance. II. The trial court erred in holding that defendants-appellees acted in good faith in registering the deed of sale of January 13, 1981 (Exhibit 9) with the Register of Deeds of Tarlac and therefore ownership of the land in question passed on to defendants-appellees. III. The trial court erred in ignoring and failing to consider the testimonial and documentary evidence of plaintiffs-appellants which clearly established by preponderance of evidence that they are indeed the legitimate and lawful owners of the property in question. IV. The decision is contrary to law and the facts of the case and the conclusions drawn from the established facts are illogical and off-tangent. From the foregoing, the issues may be restated as follows:
1. Is the sale of a future inheritance valid? 2. Was the subsequent execution on January 13, 1981 (and registration with the Registry of Property) of a deed of sale covering the same property to the same buyers valid? 3. May this Court review the findings of the respondent Court (a) holding that the buyers acted in good faith in registering the said subsequent deed of sale and (b) in failing to consider petitioners evidence? Are the conclusions of the respondent Court illogical and off-tangent?

The Courts Ruling At the outset, let it be clear that the errors which are reviewable by this Court in this petition for review on certiorari are only those allegedly committed by the respondent Court of Appeals and not directly those of the trial court, which is not a party here. The assignment of errors in the petition quoted above are therefore totally misplaced, and for that reason,

the petition should be dismissed. But in order to give the parties substantial justice we have decided to delve into the issues as above re-stated. The errors attributed by petitioners to the latter (trial) court will be discussed only insofar as they are relevant to the appellate courts assailed Decision and Resolution. The sale made in 1962 involving future inheritance is not really at issue here. In context, the assailed Decision conceded it may be legally correct that a contract of sale of anticipated future inheritance is null and void.3 But to remove all doubts, we hereby categorically rule that, pursuant to Article 1347 of the Civil Code, (n)o contract may be entered into upon a future inheritance except in cases expressly authorized by law. Consequently, said contract made in 1962 is not valid and cannot be the source of any right nor the creator of any obligation between the parties. Hence, the affidavit of conformity dated February 28, 1980, insofar as it sought to validate or ratify the 1962 sale, is also useless and, in the words of the respondent Court, suffers from the same infirmity. Even private respondents in their memorandum4 concede this. However, the documents that are critical to the resolution of this case are: (a) the deed of sale of January 13, 1981 in favor of private respondents covering Lazaros undividedinheritance of one-twelfth (1/12) share in Lot No. 191, which was subsequently registered on June 7, 1982; and (b) the deed of sale dated December 29, 1980 in favor of petitioners covering the same property. These two documents were executed after the death of Matias (and his spouse) and after a deed of extrajudicial settlement of his (Matias) estate was executed, thus vesting in Lazaro actual title over said property. In other words, these dispositions, though conflicting, were no longer infected with the infirmities of the 1962 sale. Petitioners contend that what was sold on January 13, 1981 was only one-half hectare out of Lot No. 191, citing as authority the trial courts decision. As earlier pointed out, what is on review in these proceedings by this Court is the Court of Appeals decision - which correctly identified the subject matter of the January 13, 1981 sale to be the entire undivided 1/12 share of Lazaro in Lot No. 191 and which is the same property disposed of on December 29, 1980 in favor of petitioners. Critical in determining which of these two deeds should be given effect is the registration of the sale in favor of private respondents with the register of deeds on June 7, 1982. Article 1544 of the Civil Code governs the preferential rights of vendees in cases of multiple sales, as follows:

Art. 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. The property in question is land, an immovable, and following the above-quoted law, ownership shall belong to the buyer who in good faith registers it first in the registry of property. Thus, although the deed of sale in favor of private respondents was later than the one in favor of petitioners, ownership would vest in the former because of the undisputed fact of registration. On the other hand, petitioners have not registered the sale to them at all. Petitioners contend that they were in possession of the property and that private respondents never took possession thereof. As between two purchasers, the one who registered the sale in his favor has a preferred right over the other who has not registered his title, even if the latter is in actual possession of the immovable property.5 As to third issue, while petitioners conceded the fact of registration, they nevertheless contended that it was done in bad faith. On this issue, the respondent Court ruled: Under the second assignment of error, plaintiffs-appellants contend that defendants-appellees acted in bad faith when they registered the Deed of Sale in their favor as appellee Ricardo already knew of the execution of the deed of sale in favor of the plaintiffs; appellants cite the testimony of plaintiff Belinda Tafledo to the effect that defendant Ricardo Taedo called her up on January 4 or 5, 1981 to tell her that he was already the owner of the land in question but the contract of sale between our father and us were (sic) already consumated (pp. 9-10, tsn, January 6, 1984). This testimony is obviously self-serving, and because it was a telephone conversation, the deed of sale dated December 29, 1980 was not shown; Belinda merely told her uncle that there was already a document showing that plaintiffs are the owners (p. 80). Ricardo Taedo controverted this and testified that he learned for the first time of the deed of sale executed by Lazaro in favor of his children about a month or sometime in February 1981 (p. 111, tsn, Nov. 28, 1984). x x x6 The respondent Court, reviewing the trial courts findings, refused to overturn the latters assessment of the testimonial evidence, as follows:

We are not prepared to set aside the finding of the lower court upholding Ricardo Tanedos testimony, as it involves a matter of credibility of witnesses which the trial judge, who presided at the hearing, was in a better position to resolve. (Court of Appeals Decision, p. 6.) In this connection, we note the tenacious allegations made by petitioners, both in their basic petition and in their memorandum, as follows:
1. The respondent Court allegedly ignored the claimed fact that respondent Ricardo by fraud and deceit and with foreknowledge that the property in question had already been sold to petitioners, made Lazaro execute the deed of January 13, 1981; 2. There is allegedly adequate evidence to show that only 1/2 of the purchase price of P10,000.00 was paid at the time of the execution of the deed of sale, contrary to the written acknowledgment, thus showing bad faith; 3. There is allegedly sufficient evidence showing that the deed of revocation of the sale in favor of petitioners was tainted with fraud or deceit. 4. There is allegedly enough evidence to show that private respondents took undue advantage over the weakness and unschooled and pitiful situation of Lazaro Tafledo . . . and that respondent Ricardo Taedo exercised moral ascendancy over his younger brother he being the eldest brother and who reached fourth year college of law and at one time a former Vice-Governor of Tarlac, while his younger brother only attained first year high school x x x ; 5. The respondent Court erred in not giving credence to petitioners evidence, especially Lazaro Taedos Sinumpaang Salaysay dated July 27, 1982 stating that Ricardo Taedo deceived the former in executing the deed of sale in favor of private respondents.

To be sure, there are indeed many conflicting documents and testimonies as well as arguments over their probative value and significance. Suffice it to say, however, that all the above contentions involve questions of fact, appreciation of evidence and credibility of witnesses, which are not proper in this review. It is well-settled that the Supreme Court is not a trier of facts. In petitions for review under Rule 45 of the Revised Rules of Court, only questions of law may be raised and passed upon. Absent any whimsical or capricious exercise of judgment, and unless the lack of any basis for the conclusions made by the lower courts be amply demonstrated, the Supreme Court will not disturb their findings. At most, it appears that petitioners have shown that their evidence was not believed by both the trial and the appellate courts, and that the said courts tended to give more credence to the evidence presented by private respondents. But this in itself is not a reason for setting aside such findings. We are far from convinced that both courts gravely abused their respective authorities and judicial prerogatives. As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goidrock Construction and Development Corp.:7

The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or Impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the reevaluation of the findings of fact made by the courts below. In the same vein, the ruling in the recent case of South Sea Surety and Insurance Company, Inc. vs. Hon. Court of Appeals, et al.[8] is equally applicable to the present case: We see no valid reason to discard the factual conclusions of the appellate court. x x x (I)t is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide. (italics supplied) WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals is AFFIRMED. No Costs. SO ORDERED. Narvasa, C.J. (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

Republic of the Philippines

Supreme Court
Baguio City

SECOND DIVISION

ATTY. PEDRO M. FERRER, Petitioner,

G.R. No. 165300

Present: - versus CARPIO, J., Chairperson, BRION, SPOUSES ALFREDO DIAZ and IMELDA DIAZ, REINA COMANDANTE and SPOUSES BIENVENIDO PANGAN and ELIZABETH PANGAN, Respondents. Promulgated: April 23, 2010 ABAD, DEL CASTILLO, and PEREZ, JJ.

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DECISION

DEL CASTILLO, J.:

The basic questions to be resolved in this case are: Is a waiver of hereditary rights in favor of another executed by a future heir while the parents are still living valid? Is an adverse claim annotated on the title of a property on the basis of such waiver likewise valid and effective as to bind the subsequent owners and hold them liable to the claimant?

This Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court assails the December 12, 2003 Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No. 70888.[3] Said Decision modified the June 14, 2001 Summary Judgment[4] of the Regional Trial Court (RTC) of Quezon City in Civil Case No. Q-99-38876 by holding respondents Spouses Bienvenido and Elizabeth Pangan (the Pangans) not solidarily liable with the other respondents, Spouses Alfredo and Imelda Diaz (the Diazes) and Reina Comandante (Comandante), to petitioner Atty. Pedro M. Ferrer (Atty. Ferrer). Likewise assailed is the CA Resolution[5]dated September 10, 2004 which denied petitioners as well as respondents Spouses Diaz and Comandantes respective motions for reconsideration.

The parties respective versions of the factual antecedents are as follows:

Version of the Petitioner Petitioner Atty. Ferrer claimed in his original Complaint[6] that on May 7, 1999, the Diazes, as represented by their daughter Comandante, through a Special Power of Attorney (SPA),[7] obtained from him a loan of P1,118,228.00. The loan was secured by a Real Estate Mortgage Contract[8] by way of second mortgage over Transfer Certificate of Title (TCT) No. RT-6604[9] and a Promissory Note[10] payable within six months or up to November 7, 1999. Comandante also issued to petitioner postdated checks to secure payment of said loan. Petitioner further claimed that prior to this or on May 29, 1998, Comandante, for a valuable consideration of P600,000.00, which amount formed part of the abovementioned secured loan, executed in his favor an instrument entitled Waiver of Hereditary Rights and Interests Over a Real Property (Still Undivided),[11] the pertinent portions of which read:
I, REINA D. COMANDANTE, of legal age, Filipino, married, with residence and postal address at No. 6, Road 20, Project 8, Quezon City, Metro Manila, Philippines, for a valuable consideration of SIX HUNDRED THOUSAND PESOS (P600,000.00) which constitutes my legal obligation/loan to Pedro M. Ferrer, likewise of legal age, Filipino, married to Erlinda B. Ferrer, with residence and postal address at No. 9, Lot 4, Puerto Rico Street, Loyola Grand Villas, Quezon City, Metro Manila, Philippines, by virtue of these presents, do hereby WAIVE, and/or REPUDIATE all my hereditary rights and interests as a legitimate heir/daughter of Sps. Alfredo T. Diaz and Imelda G. Diaz in favor of said Pedro M. Ferrer, his heirs and assigns over a

certain parcel of land together with all the improvements found thereon and which property is more particularly described as follows: TRANSFER CERTIFICATE OF TITLE NO. RT-6604 (82020) PR-18887 xxxx and which property is titled and registered in the name of my parents Alfredo T. Diaz and Imelda G. Diaz, as evidenced by Transfer Certificate of Title No. RT 6604 (82020) PR-18887. (sgd.) REINA COMANDANTE Affiant D.

On the basis of said waiver, petitioner executed an Affidavit of Adverse Claim which he caused to be annotated at the back of TCT No. RT-6604 on May 26, 1999.
[12]

The Diazes, however, reneged on their obligation as the checks issued by Comandante were dishonored upon presentment. Despite repeated demands, said respondents still failed and refused to settle the loan. Thus, petitioner filed on September 29, 1999 a Complaint[13] for Collection of Sum of Money Secured by Real Estate Mortgage Contract against the Diazes and Comandante docketed as Civil Case No. Q-99-38876 and raffled to Branch 224 of RTC, Quezon City. Petitioner twice amended his complaint. First, by including as an alternative relief the Judicial Foreclosure of Mortgage[14] and, second, by impleading as additional defendants the Pangans as the mortgaged property covered by TCT No. RT-6604 was already transferred under their names in TCT No. N-209049. Petitioner prayed in his second amended complaint that all the respondents be ordered to jointly and solidarily pay him the sum of P1,118,228.00, exclusive of interests, and/or for the judicial foreclosure of the property pursuant to the Real Estate Mortgage Contract. Version of the Respondents In her Answer[15] to petitioners original complaint, Comandante alleged that petitioner and his wife were her fellow members in the Couples for Christ Movement. Sometime in 1998, she sought the help of petitioner with regard to the mortgage with a bank of her parents lot located at No. 6, Rd. 20, Project 8,Quezon City and covered by TCT No. RT-6604. She also sought financial accommodations

from the couple on several occasions which totaled P500,000.00. Comandante, however, claimed that these loans were secured by chattel mortgages over her taxi units in addition to several postdated checks she issued in favor of petitioner. As she could not practically comply with her obligation, petitioner and his wife, presented to Comandante sometime in May 1998 a document denominated as Waiver of Hereditary Rights and Interests Over a Real Property (Still Undivided) pertaining to a waiver of her hereditary share over her parents abovementioned property. Purportedly, the execution of said waiver was to secure Comandantes loan with the couple which at that time had already ballooned toP600,000.00 due to interests. A year later, the couple again required Comandante to sign the following documents: (1) a Real Estate Mortgage Contract over her parents property; and, (2) an undated Promissory Note, both corresponding to the amount of P1,118,228.00, which petitioner claimed to be the total amount of Comandantes monetary obligation to him exclusive of charges and interests. Comandante alleged that she reminded petitioner that she was not the registered owner of the subject property and that although her parents granted her SPA, same only pertains to her authority to mortgage the property to banks and other financial institutions and not to individuals. Petitioner nonetheless assured Comandante that the SPA was also applicable to their transaction. As Comandante was still hesitant, petitioner and his wife threatened to foreclose the formers taxi units and present the postdated checks she issued to the bank for payment. For fear of losing her taxi units which were the only source of her livelihood, Comandante was thus constrained to sign the mortgage agreement as well as the promissory note. Petitioner, however, did not furnish her with copies of said documents on the pretext that they still have to be notarized, but, as can be gleaned from the records, the documents were never notarized. Moreover, Comandante claimed that the SPA alluded to by petitioner in his complaint was not the same SPA under which she thought she derived the authority to execute the mortgage contract. Comandante likewise alleged that on September 29, 1999 at 10:00 o clock in the morning, she executed an Affidavit of Repudiation/Revocation of Waiver of Hereditary Rights and Interests Over A (Still Undivided) Real Property,[16] which she caused to be annotated on the title of the subject property with the Registry of Deeds of Quezon City on the same day. Interestingly, petitioner filed his complaint later that day too. By way of special and affirmative defenses, Comandante asserted in her Answer to the amended complaint[17] that said complaint states no cause of action against her because the Real Estate Mortgage Contract and the waiver referred to by petitioner in his complaint were not duly, knowingly and validly executed by her; that

the Waiver of Hereditary Rights and Interests Over a Real Property (Still Undivided) is a useless document as its execution is prohibited by Article 1347 of the Civil Code,[18] hence, it cannot be the source of any right or obligation in petitioners favor; that the Real Estate Mortgage was of doubtful validity as she executed the same without valid authority from her parents; and, that the prayer for collection and/or judicial foreclosure was irregular as petitioner cannot seek said remedies at the same time. Apart from executing the affidavit of repudiation, Comandante also filed on October 4, 1999 a Petition for Cancellation of Adverse Claim (P.E. 2468) Under The Memorandum of Encumbrances of TCT No. RT-6604 (82020) PR18887[19] docketed as LRC Case No. Q-12009 (99) and raffled to Branch 220 of RTC, Quezon City. Petitioner who was impleaded as respondent therein moved for the consolidation of said case[20] with Civil Case No. Q-99-38876. On June 24, 2000, Branch 220 of RTC, Quezon City ordered the consolidation of LRC Case No. Q12009 (99) with Civil Case No. Q-99-38876. Accordingly, the records of the former case was forwarded to Branch 224. For their part, the Diazes asserted that petitioner has no cause of action against them. They claimed that they do not even know petitioner and that they did not execute any SPA in favor of Comandante authorizing her to mortgage for the second time the subject property. They also contested the due execution of the SPA as it was neither authenticated before the Philippine Consulate in the United States nor notarized before a notary public in the State of New York where the Diazes have been residing for 16 years. They claimed that they do not owe petitioner anything. The Diazes also pointed out that the complaint merely refers to Comandantes personal obligation to petitioner with which they had nothing to do. They thus prayed that the complaint against them be dismissed.[21] At the Pangans end, they alleged that they acquired the subject property by purchase in good faith and for a consideration of P3,000,000.00 on November 11, 1999 from the Diazes through the latters daughter Comandante who was clothed with SPA acknowledged before the Consul of New York. The Pangans immediately took actual possession of the property without anyone complaining or protesting. Soon thereafter, they were issued TCT No. N-209049 in lieu of TCT No. RT-6604 which was cancelled. [22] However, on December 21, 1999, they were surprised upon being informed by petitioner that the subject land had been mortgaged to him by the Diazes. Upon inquiry from Comandante, the latter readily admitted that she has a personal loan with petitioner for which the mortgage of the property in petitioners favor was executed. She admitted, though, that her parents were not aware of such mortgage and

that they did not authorize her to enter into such contract. Comandante also informed the Pangans that the signatures of her parents appearing on the SPA are fictitious and that it was petitioner who prepared such document. As affirmative defense, the Pangans asserted that the annotation of petitioners adverse claim on TCT No. RT-6604 cannot impair their rights as new owners of the subject property. They claimed that the Waiver of Hereditary Rights and Interests Over a Real Property (Still Undivided) upon which petitioners adverse claim is anchored cannot be the source of any right or interest over the property considering that it is null and void under paragraph 2 of Article 1347 of the Civil Code. Moreover, the Pangans asserted that the Real Estate Mortgage Contract cannot bind them nor in any way impair their ownership of subject property because it was not registered before the Register of Deeds.[23] All the respondents interposed their respective counterclaims and prayed for moral and exemplary damages and attorneys fees in varying amounts. After the parties have submitted their respective pre-trial briefs, the Diazes filed on March 29, 2001 a Motion for Summary Judgment[24] alleging that: first, since the documents alluded to by petitioner in his complaint were defective, he was not entitled to any legal right or relief; and, second, it was clear from the pleadings that it is Comandante who has an outstanding obligation with petitioner which the latter never denied. With these, the Diazes believed that there is no genuine issue as to any material fact against them and, hence, they were entitled to summary judgment. On May 7, 2001, petitioner also filed a Motion for Summary Judgment,[25] claiming that his suit against the respondents is meritorious and wellfounded and that same is documented and supported by law and jurisprudence. He averred that his adverse claim annotated at the back of TCT No. RT-6604, which was carried over in TCT No. 209049 under the names of the Pangans, is not merely anchored on the Waiver of Hereditary Rights and Interests Over a Real Property (Still Undivided) executed by Comandante, but also on the Real Estate Mortgage likewise executed by her in representation of her parents and in favor of petitioner. Petitioner insisted that said adverse claim is not frivolous and invalid and is registrable under Section 70 of Presidential Decree (PD) No. 1529. In fact, the Registrar of Deeds of Quezon City had already determined the sufficiency and/or validity of such registration by annotating said claim, and this, respondents failed to question. Petitioner further averred that even before the sale and transfer to the Pangans of the subject property, the latter were already aware of the existence of his adverse claim. In view of these, petitioner prayed that his Motion for Summary Judgment be granted.

Ruling of the Regional Trial Court After the filing of the parties respective Oppositions to the said motions for summary judgment, the trial court, in an Order dated May 31, 2001,[26] deemed both motions for summary judgment submitted for resolution. Quoting substantially petitioners allegations in his Motion for Summary Judgment, it thereafter rendered on June 14, 2001 a Summary Judgment[27] in favor of petitioner, the dispositive portion of which reads:
WHEREFORE, premises considered, summary judgment is hereby rendered in favor of plaintiff and against defendants by: a) ORDERING all defendants jointly and solidarily to pay plaintiff the sum of ONE MILLION ONE HUNDRED EIGHTEEN THOUSAND TWO HUNDRED TWENTY EIGHT PESOS (P1,118,228.00) which is blood money of plaintiff; b) ORDERING the Honorable Registrar of Deeds of Quezon City that the rights and interest of the plaintiff over subject property be annotated at the back of T.C.T. No. N-209049; c) SENTENCING all defendants to pay plaintiffs expenses of TEN THOUSAND PESOS (P10,000.00) and to pay the costs of suit. IT IS SO ORDERED.[28]

The Pangans, the Diazes, and Comandante appealed to the CA.[29] The Pangans faulted the trial court in holding them jointly and severally liable with the Diazes and Comandante for the satisfaction of the latters personal obligation to petitioner in the total amount of P1,118,228.00. The Diazes and Comandante, on the other hand, imputed error upon the trial court in rendering summary judgment in favor of petitioner. They averred that assuming the summary judgment was proper, the trial court should not have considered the Real Estate Mortgage Contract and the Promissory Note as they were defective, as well as petitioners frivolous and nonregistrable adverse claim. In its Decision[30] dated December 12, 2003, the CA declared Comandantes waiver of hereditary rights null and void. However, it found the Real Estate Mortgage executed by Comandante on behalf of her parents as binding between the parties thereto. As regards the Pangans, the CA ruled that the mortgage contract was not binding upon them as they were purchasers in good faith and for value. The property

was free from the mortgage encumbrance of petitioner when they acquired it as they only came to know of the adverse claim through petitioners phone call which came right after the formers acquisition of the property. The CA further ruled that as Comandantes waiver of hereditary rights and interests upon which petitioners adverse claim was based is a nullity, it could not be a source of any right in his favor. Hence, the Pangans were not bound to take notice of such claim and are thus not liable to petitioner. Noticeably, the appellate court did not rule on the propriety of the issuance of the Summary Judgment as raised by the Diazes and Comandante. In the ultimate, the CA merely modified the assailed Summary Judgment of the trial court by excluding the Pangans among those solidarily liable to petitioner, in effect affirming in all other respects the assailed summary judgment, viz:
WHEREFORE, foregoing premises considered, the Decision of the Regional Trial Court of Quezon City, Branch 224 in Civil Case No. Q-99-38876 is hereby MODIFIED, as follows: 1. Ordering defendants-appellants Comandante and Spouses Diaz to jointly and severally pay plaintiff the sum of Php 1,118, 228.00; and 2. Ordering defendants-appellants Comandante and Spouses Diaz to jointly and severally pay plaintiff the amount of Php10,000.00 plus cost of suit. SO ORDERED.[31]

Petitioners Motion for Reconsideration[32] having been denied by the CA in its Resolution[33] dated September 10, 2004, he now comes to us through this petition for review on certiorari insisting that the Pangans should, together with the other respondents, be held solidarily liable to him for the amount ofP1,118,228.00. Our Ruling The petition lacks merit. Petitioner merely reiterates his contentions in the Motion for Summary Judgment he filed before the trial court. He insists that his Adverse Claim annotated at the back of TCT No. RT-6604 is not merely anchored on Comandantes Waiver of Hereditary Rights and Interests Over A Real Property (Still Undivided) but also on her being the attorney-in-fact of the Diazes when she executed the mortgage contract in favor of petitioner. He avers that his adverse claim is not frivolous or invalid and is registrable as the Registrar of Deeds of Quezon City even allowed its annotation. He also claims that even prior to the sale of subject property to the Pangans, the latter

already knew of his valid and existing adverse claim thereon and are, therefore, not purchasers in good faith. Thus, petitioner maintains that the Pangans should be held, together with the Diazes and Comandante, jointly and severally liable to him in the total amount of P1,118,228.00. Petitioners contentions are untenable. The Affidavit of Adverse Claim executed by petitioner reads in part:
xxxx 1. That I am the Recipient/Benefactor of compulsory heirs share over an undivided certain parcel of land together with all the improvements found therein x x x as evidenced by Waiver of Hereditary Rights and Interests Over A Real Property, executed by REINA D. COMANDANTE (a compulsory/legitimate heir of Sps. Alfredo T. Diaz and Imelda G. Diaz), x x x. 2. That in order to protect my interest over said property as a Recipient/Benefactor, for the registered owners/parents might dispose (of) and/or encumber the same in a fraudulent manner without my knowledge and consent, for the owners duplicate title was not surrendered to me, it is petitioned that this Affidavit of Adverse Claim be ANNOTATED at the back of the said title particularly on the original copy of Transfer Certificate of Title No. RT-6604 (82020) PR-18887 which is on file with the Register of Deeds of Quezon City. 3. That I am executing this Affidavit in order to attest (to) the truth of the foregoing facts and to petition the Honorable Registrar of Deeds, Quezon City, to annotate this Affidavit of Adverse Claim at the back of the said title particularly the original copy of Transfer Certificate of Title No. RT-6604 (82020) PR-18887 which is on file with the said office, so that my interest as Recipient/Benefactor of the said property will be protected especially the registered owner/parents, in a fraudulent manner might dispose (of) and/or encumber the same without my knowledge and consent. (Emphasis ours)

Clearly, petitioners Affidavit of Adverse Claim was based solely on the waiver of hereditary interest executed by Comandante. This fact cannot be any clearer especially so when the inscription of his adverse claim at the back of TCT No. RT6604 reads as follows:
P.E. 2468/T-(82020)RT-6604 - - AFFIDAVIT OF ADVERSE CLAIM - Executed under oath by PEDRO M. FERRER, married to Erlinda B. Ferrer, claiming among others that they have a claim, the interest over said property as Recipient/Benefactor, by virtue of a waiver of Hereditary Rights and Interest over a real property x x x[34] (Emphasis ours)

Therefore, there is no basis for petitioners assertion that the adverse claim was also anchored on the mortgage contract allegedly executed by Comandante on behalf of her parents. The questions next to be resolved are: Is Comandantes waiver of hereditary rights valid? Is petitioners adverse claim based on such waiver likewise valid and effective? We note at the outset that the validity of petitioners adverse claim should have been determined by the trial court after the petition for cancellation of petitioners adverse claim filed by Comandante was consolidated with Civil Case No. Q-9938876.[35] This is in consonance with Section 70 of PD 1529 which provides:
Section 70. Adverse Claim. Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Decree for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, a reference to the number of the certificate of title of the registered owner, the name of the registered owner, and a description of the land in which the right or interest is claimed. The statement shall be signed and sworn to, and shall state the adverse claimants residence, and a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest: Provided, however, That after cancellation, no second adverse claim based on the same ground shall be registered by the same claimant. Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of First Instance where the land is situated for the cancellation of the adverse claim, and the court shall grant a speedy hearing upon the question of validity of such adverse claim, and shall render judgment as may be just and equitable. If the adverse claim is adjudged to be invalid, the registration thereof shall be ordered cancelled. If, in any case, the court, after notice and hearing, shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an amount not less than one thousand pesos nor more than five thousand pesos, in its discretion. Before the lapse of thirty days, the claimant may withdraw his adverse claim by filing with the Register of Deeds a sworn petition to that effect. (Emphasis ours)

Pursuant to the third paragraph of the afore-quoted provision, it has been held that the validity or efficaciousness of an adverse claim may only be determined by the Court upon petition by an interested party, in which event, the Court shall order the immediate hearing thereof and make the proper adjudication as justice and equity may

warrant. And, it is only when such claim is found unmeritorious that the registration of the adverse claim may be cancelled.[36] As correctly pointed out by respondents, the records is bereft of any showing that the trial court conducted any hearing on the matter. Instead, what the trial court did was to include this material issue among those for which it has rendered its summary judgment as shown by the following portion of the judgment:
x x x it will be NOTED that subject Adverse Claim annotated at the back of Transfer Certificate of Title No. RT-6604 (82020) PR-18887, and carried over to defendantsSps. Pangans Title No. N-20909, is not merely anchored on defendant Reina Comandantes Waiver of Hereditary Rights and Interest Over a Real Property but also on her being the Attorney-In-Fact of the previous registered owners/parents/defendants Sps. Alfredo and Imelda Diaz about the Real Estate Mortgage Contract for a loan of P1,118,228.00 which is a blood money of the plaintiff. Moreover, subject Adverse Claim in LRC Case No. Q-12009 (99) is NOT frivolous and invalid and consequently, REGISTRABLE by virtue of Section 110 of the Land Registration Act (now Section 70 of Presidential Decree No. 1529). [37] (Emphasis ours)

It does not escape our attention that the trial court merely echoed the claim of petitioner that his adverse claim subject of LRC Case No. Q-12009 (99) is not frivolous, invalid and is consequently registrable. We likewise lament the apparent lack of effort on the part of said court to make even a short ratiocination as to how it came up with said conclusion. In fact, what followed the above-quoted portion of the summary judgment are mere recitals of the arguments raised by petitioner in his motion for summary judgment. And in the dispositive portion, the trial court merely casually ordered that petitioners adverse claim be inscribed at the back of the title of the Pangans. What is worse is that despite this glaring defect, the CA manifestly overlooked the matter even if respondents vigorously raised the same before it. Be that as it may, respondents efforts of pointing out this flaw, which we find significant, have not gone to naught as will be hereinafter discussed. All the respondents contend that the Waiver of Hereditary Rights and Interest Over a Real Property (Still Undivided) executed by Comandante is null and void for being violative of Article 1347 of the Civil Code, hence, petitioners adverse claim which was based upon such waiver is likewise void and cannot confer upon the latter any right or interest over the property. We agree with the respondents. Pursuant to the second paragraph of Article 1347 of the Civil Code, no contract may be entered into upon a future inheritance except in cases expressly authorized by

law. For the inheritance to be considered future, the succession must not have been opened at the time of the contract. A contract may be classified as a contract upon future inheritance, prohibited under the second paragraph of Article 1347, where the following requisites concur:
(1) That the succession has not yet been opened. (2) That the object of the contract forms part of the inheritance; and, (3) That the promissor has, with respect to the object, an expectancy of a right which is purely hereditary in nature.[38]

In this case, there is no question that at the time of execution of Comandantes Waiver of Hereditary Rights and Interest Over a Real Property (Still Undivided), succession to either of her parents properties has not yet been opened since both of them are still living. With respect to the other two requisites, both are likewise present considering that the property subject matter of Comandantes waiver concededly forms part of the properties that she expect to inherit from her parents upon their death and, such expectancy of a right, as shown by the facts, is undoubtedly purely hereditary in nature. From the foregoing, it is clear that Comandante and petitioner entered into a contract involving the formers future inheritance as embodied in the Waiver of Hereditary Rights and Interest Over a Real Property (Still Undivided) executed by her in petitioners favor. In Taedo v. Court of Appeals,[39] we invalidated the contract of sale between Lazaro Taedo and therein private respondents since the subject matter thereof was a one hectare of whatever share the former shall have over Lot 191 of the cadastral survey of Gerona, Province of Tarlac and covered by Title T-13829 of the Register of Deeds of Tarlac. It constitutes a part of Taedos future inheritance from his parents, which cannot be the source of any right nor the creator of any obligation between the parties. Guided by the above discussions, we similarly declare in this case that the Waiver of Hereditary Rights and Interest Over a Real Property (Still Undivided) executed by Comandante in favor of petitioner as not valid and that same cannot be the source of any right or create any obligation between them for being violative of the second paragraph of Article 1347 of the Civil Code. Anent the validity and effectivity of petitioners adverse claim, it is provided in Section 70 of PD 1529, that it is necessary that the claimant has a right or interest in the registered land adverse to the registered owner and that it must arise subsequent to registration. Here, as no right or interest on the subject property flows from

Comandantes invalid waiver of hereditary rights upon petitioner, the latter is thus not entitled to the registration of his adverse claim. Therefore, petitioners adverse claim is without any basis and must consequently be adjudged invalid and ineffective and perforce be cancelled. Albeit we have already resolved the issues raised by petitioner, we shall not stop here as the Diazes and Comandante in their Comment[40] call our attention to the failure of the CA to pass upon the issue of the propriety of the issuance by the trial court of the Summary Judgment in favor of petitioner despite the fact that they have raised this issue before the appellate court. They argue that summary judgment is proper only when there is clearly no genuine issue as to any material fact in the action. Thus, where the defendant presented defenses tendering factual issue which call for presentation of evidence, as when he specifically denies the material allegations in the complaint, summary judgment cannot be rendered. The Diazes and Comandante then enumerate the genuine issues in the case which they claim should have precluded the trial court from issuing a summary judgment in petitioners favor. First, the execution of the SPA in favor of Comandante referred to by petitioner in his complaint was never admitted by the Diazes. They assert that as such fact is disputed, trial should have been conducted to determine the truth of the matter, same being a genuine issue. Despite this, the trial court merely took the word of the plaintiff and assumed that said document was indeed executed by them. Second, although Comandante acknowledges that she has a personal obligation with petitioner, she nevertheless, did not admit that it was in the amount of P1,118,228.00. Instead, she claims only the amount ofP500,000.00 or P600,000.00 (if inclusive of interest) as her obligation. Moreover, the Diazes deny borrowing any money from petitioner and neither did the Pangans owe him a single centavo. Thus, the true amount of the obligation due the petitioner and how each of the respondents are responsible for such amount are genuine issues which need formal presentation of evidence. Lastly, they aver that the trial court ignored factual and material issues such as the lack of probative value of Comandantes waiver of hereditary rights as well as of the SPA; the fact that Comandante signed the mortgage contract and promissory note in her personal capacity; and, that all such documents were prepared by petitioner who acted as a lawyer and the creditor of Comandante at the same time. Rule 35 of the Rules of Court provides for summary judgment, the pertinent provisions of which are the following:
Section 1. Summary Judgment for claimant. A party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a declaratory relief may, at any time after the pleading in answer thereto has been served, move with supporting affidavits,

depositions or admissions for a summary judgment in his favor upon all or any part thereof. Section 2. Summary Judgment for the defending party. A party against whom a claim, counterclaim or cross-claim is asserted or a declaratory relief is sought may, at any time, move with supporting affidavits, depositions or admissions for a summary judgment in his favor as to all or any part thereof. Section 3. Motion and proceedings thereon. The motion shall be served at least ten (10) days before the time specified for the hearing. The adverse party may serve opposing affidavits, depositions, or admissions at least three (3) days before the hearing. After the hearing, the judgment sought shall be rendered forthwith if the pleadings, supporting affidavits, depositions and admissions on file, show that, except as to the amount of damages, there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

As can be deduced from the above provisions, summary judgment is a procedural devise resorted to in order to avoid long drawn out litigations and useless delays. When the pleadings on file show that there are no genuine issues of facts to be tried, the Rules of Court allows a party to obtain immediate relief by way of summary judgment. That is, when the facts are not in dispute, the court is allowed to decide the case summarily by applying the law to the material facts. Conversely, where the pleadings tender a genuine issue, summary judgment is not proper. A genuine issue is such fact which requires the presentation of evidence as distinguished from a sham, fictitious, contrived or false claim.[41] Here, we find the existence of genuine issues which removes the case from the coverage of summary judgment. The variance in the allegations of the parties in their pleadings is evident. Petitioner anchors his complaint for sum of money and/or judicial foreclosure on the alleged real estate mortgage over the subject property allegedly entered into by Comandante in behalf of her parents to secure payment of a loan amounting to P1,118,228.00. To support this claim, petitioner attached to his complaint (1) the SPA alleged to have been executed by the Diazes; (2) the Real Estate Mortgage Contract pertaining to the amount of P1,118,228.00; and, (3) a Promissory Note. Comandante, in her Answer to petitioners Amended Complaint, assailed the validity and due execution of the abovementioned documents. She asserted that the same were not duly, knowingly and validly executed by her and that it was petitioner who prepared all of them. Also, although she admitted owing petitioner, same was not an absolute admission as she limited herself to an obligation amounting only

to P600,000.00 inclusive of charges and interests. She likewise claimed that such obligation is her personal obligation and not of her parents. The Diazes, for their part, also denied that they executed the SPA authorizing their daughter to mortgage their property to petitioner as well as having any obligation to the latter. Clearly, there are genuine issues in this case which require the presentation of evidence. For one, it is necessary to ascertain in a full blown trial the validity and due execution of the SPA, the Real Estate Mortgage and the Promissory Notes because the determination of the following equally significant questions depends on them, to wit: (1) Are the Diazes obligated to petitioner or is the obligation a purely personal obligation of Comandante? and, (2) Is the sum of P1,118,228.00 as shown in the Real Estate Mortgage and the Promissory Note, the amount which is really due the petitioner? To stress, trial courts have limited authority to render summary judgments and may do so only when there is clearly no genuine issue as to any material fact. When the facts as pleaded by the parties are disputed or contested, proceedings for summary judgment cannot take the place of trial.[42] From the foregoing, it is apparent that the trial court should have refrained from issuing the summary judgment but instead proceeded to conduct a full blown trial of the case. In view of this, the present case should be remanded to the trial court for further proceedings and proper disposition according to the rudiments of a regular trial on the merits and not through an abbreviated termination of the case by summary judgment. WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated December 12, 2003 insofar as it excluded the respondents Spouses Bienvenido Pangan and Elizabeth Pangan from among those solidarily liable to petitioner Atty. Pedro M. Ferrer, is AFFIRMED. The inscription of the adverse claim of petitioner Atty. Pedro M. Ferrer on T.C.T. No. N-209049 is hereby ordered CANCELLED. Insofar as its other aspects are concerned, the assailed Decision is SET ASIDE and VACATED. The case is REMANDED to the Regional Trial Court of Quezon City, Branch 224 for further proceedings in accordance with this Decision. SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:
SUPREME COURT Manila EN BANC G.R. No. L-10141 January 31, 1958

REPUBLIC OF THE PHILIPPINES, petitioner, vs. PHILIPPINE RESOURCES DEVELOPMENT CORPORATION and the COURT OF APPEALS, respondents. Office of the Solicitor General Ambrosio Padilla, and Solicitor Frine C. Zaballero for petitioner. Vicente L. Santiago for respondent Corporation. PADILLA, J.: This is a petition under Rule 46 to review a judgment rendered by the Court of Appeals,in CA-GR No. 15767-R, Philippine Resources Development Corporation vs. The Hon. Judge Magno Gatmaitan et al. The findings of the Court of Appeals are, as follows. It appears that on May 6, 1955, the Republic of the Philippines in representation of the Bureau of Prisons instituted against Macario Apostol and the Empire Insurance Co. a complaint docketed as Civil Case No. 26166 of the Court of First instance of Manila. The complaint alleges as the first cause of action, that defendant Apostol submitted the highest bid the amount P450.00 per ton for the purchase of 100 tons of Palawan Almaciga from the Bureau of Prisons; that a contract therefor was drawn and by virtue of which, Apostol obtained goods from the Bureau of Prisons valued P15,878.59; that of said account, Apostol paid only P691.10 leaving a balane obligation of P15,187.49. The complaint further averes, as second cause of action, that Apostol submitted the best bid with the Bureau of Prisons for the purchase of three million board feet of logs at P88.00 per 1,000 board feet; that a contract was executed between the Director of Prisons and Apostol pursuant to which contract Apostol obtained deliveries of logs valued at P65.830.00, and that Apostol failed to pay a balance account Of P18,827.57. All told, for the total demand set forth in complaint against Apostol is for P34,015.06 with legal interests thereon from January 8, 1952. The Empire lnsurance Company was included in the complaint having executed a performance bond of P10,000.00 in favor of Apostol. In his answer, Apostol interposed payment as a defense and sought the dismissal of the complaint. On July 19, 1955, the Philippine Resources Development Corporation moved to intervene, appending to its motion, the complaint in the intervention of even date. The complaint recites that for sometime prior to Apostol's transactions the corporate had some goods deposited in a warehouse at 1201 Herran, Manila; that Apostol, then the president of the corporation but without the knowledge or consent of the stockholders thereof,

disposed of said goods by delivering the same to the Bureau of Prisons of in an attempt to settle his personal debts with the latter entity; that upon discovery of Apodol's act, the corporation took steps to recover said goods by demanding from the Bureau of Prisons the return thereof; and that upon the refusal of the Bureau to return said goods, the corporation sought leave to intervene in Civil Case No. 26166. As aforestated, His Honor denied the motion for intervention and thereby issued an order to this effect on July 23, 1955. A motion for the reconsideration of said order was filed by the movant corporation and the same was likewise denied by His Honor on August 18, 1955 . . . (Annex L.). On 3 September 1955, in a petition for a writ of certiorari filed in the Court of Appeals, the herein respondent corporation prayed for the setting aside of the order of the Court of First Instance that had denied the admission of its complaint-in-intervention and for an order directing the latter Court to allow the herein respondent corporation to intervene in the action (Annex G). On 12 December 1955 the Court of Appeals set aside the order denying the motion to intervene and ordered the respondent court to admit the herein respondent corporation's complaint-inintervention with costs against Macario Apostol. On 9 January 1956 the Republic of the Philippines filed this petition in this Court for the purpose stated at the beginning of this opinion. The Goverment contends that the intervenor has no legal interest in the matter in litigation, because the action brought in the Court of First Instance of Manila against Macario Apostol and the Empire Insurance Company (Civil Case No. 26166, Annex A) is just for the collection from the defendant Apostol of a sum of money, the unpaid balance of the purchase price of logs and almaciga bought by him from the Bureau of Prisons, whereas the intervenor seeks to recover ownership and possession of G. I. sheets, black sheets, M. S. plates, round bars and G. I. pipes that it claims its owns-an intervention which would change a personal action into one ad rem and would unduly delay the disposition of the case. The Court of Appeals held that: Petitioner ardently claims that the reason behind its motion to intervene is the desire to protect its rights and interests over some materials purportedly belonging to it; that said material were unauthorizedly and illegally assigned and delivered to the Bureau of Prisons by petitioning corporation's president Macario Apostol in payment of the latter's personal accounts with the said entity; and that the Bureau of Prisons refused to return said materials despite petitioner's demands to do so. Petitioner refers to the particulars recited in Apostol's answer dated July 12, 1955 to the effect that Apostol had paid unto the Bureau of Prisons his accounts covered, among others, by BPPO 1077 for the sum of P4,638.40 and BPPO 1549 for the amount of P4,398.54. Petitioner moreover, points to the State of Paid and Unpaid accounts of Apostol dated January 16, 1954 prepared by the accounting of officer of the Bureau of Prisons (Annex B. Complaint in Intervention), wherein it appears that the aforementioned accounts covered respectively by BPPO Nos. 1077 for 892 pieces of GI sheets and 1549 for 399 pieces of GI pipes in the total sum of P9,036.94 have not been credited to Apostol's account in view of lack of supporting papers; and that according to the reply letter of the Undersecretary of Justice, said GI sheets and pipes were delivered by Macario Apostol to the Bureau of Prisons allegedly in Apostol's capacity as owner and that the black iron sheets were delivered by Apostol as President of the petitioner corporation. Respondents, on the other hand, assert that the subject matter of the original litigation is a sum of money allegedly due to the Bureau of Prisons from Macario Apostol and not the

goods or the materials reportedly turned over by Apostol as payment of his private debts to the Bureau of Prisons and the recovery of which is sought by the petitioner; and that for this reason, petitioner has no legal interest in the very subject matter in litigation as to entitle it to intervene. We find no merit in respondents' contention. It is true that the very subject matter of the original case is a sum of money. But it is likewise true as borne out by the records, that the materials purportedly belonging to the petitioner corporation have been assessed and evaluated and their price equivalent in terms of money have been determined; and that said materials for whatever price they have been assigned by defendant now respondent Apostol as tokens of payment of his private debts with the Bureau of Prisons. In view of these considerations, it becomes enormously plain in the event the respondent judge decides to credit Macario Apostol with the value of the goods delivered by the latter to the Bureau of Prisons, the petitioner corporation stands to be adversely affected by such judgment. The conclusion, therefore, is inescapable that the petitioner possesses a legal interest in the matter in litigation and that such interest is of an actual, material, direct and immediate nature as to entitle petitioner to intervene. xxx xxx xxx

Section 3 of Rule 13 of the Rules of Court endows the lower Court with discretion to allow or disapprove the motion for intrvention (Santarromana et al. vs. Barrios, 63 Phil. 456); and that in the exercise of such discretion, the court shall consider whether or not the intervention will unduly delay or prejudice the adjudicatio of the rights of the original parties and whether or not the intervenors the rights may be fully protected in a separate proceeding. The petitioner in the instant case positively authorized to a separate action against any of all the respondents. But considering that the resolution of the issues raised in and enjoined by the pleadings in the main case, would virtally affect the rights not only the original parties but also of the berein petitioner: that far from unduly delaying or prejudicing the adjudication of the rights of the original parties or bringing about confusion in the original case, the adnission of the complaint in intervention would help clarify the vital issue of the true and real ownership of the materials involved, besides preventing an abhorrent munltiplicity of suit, we believe that the motion to intervene should be given due to cause. We find no reason for disturbing the foregoing pronouncements. The Government argues that "Price . . . is always paid in terms of money and the supposed payment beeing in kind, it is no payment at all, "citing Article 1458 of the new Civil Code. However, the same Article provides that the purschaser may pay "a price certain in money or its equivalent," which means that they meant of the price need not be in money. Whether the G.I. sheets, black sheets, M. S. Plates, round bars and G. I. pipes claimed by the respondent corporation to belong to it and delivered to the Bureau of Prison by Macario Apostol in payment of his account is sufficient payment therefore, is for the court to pass upon and decide after hearing all the parties in the case. Should the trial court hold that it is as to credit Apostol with the value or price of the materials delivered by him, certainly the herein respondent corporation would be affected adversely if its claim of ownership of such sheets, plates, bars and pipes is true. The Government reiterates in its original stand that counsel appearing for the respondent corporation has no authority to represent it or/and sue in its behalf, the Court of Appeals held that: Respondents aver also that petitioner lacks legal capacity to sue and that its counsel is acting merely in an individual capacity without the benefit of the corporate act authorizing him to bring sue. In this connection, respondents invoked among others section 20 of Rule 127 which provision, in our opinion, squarely disproves their claim as by virtue thereof, the authority of petitioner's counsel is pressumed. Withal, the claim of the counsel for the petitioner that a resolution to proceed against Apostol, had been unanonimously adopted by the stockholders of the corporation, has not been refuted.

Evidently, petitioner is a duly organized corporation with offices at the Samanillo Building and that as such, it is endowed with a personality distinct and separate from that of its president or stockholders. It has the right to bring suit to safeguard its interests and ordinarily, such right is exercised at the instance of the president. However, under the circumstance now obtaining, such right properly devolves upon the other officers of the corporations as said right is sought to be exercised against the president himself who is the very object of the intended suit. The power of a corporation to sue and be sued in any court1 is lodged in the board of directors which exercises it corporater powers,2 and not in the president, as contended by the Government. The "motion for admission of complaint in intervention" (Annex C) and the "complaint in intervention" attached thereto, signed by counsel and filed in the Court of First Instance begin with the following statement: "COMES NOW the above-name Intervenor, by its undersigned counsel, . . . , "and underneath his typewritten name is affixed the description" Counsel for the Intervenor." As counsels authority to appeal for the respondent corporation was newer questioned in the Court of First Instance, it is to be pressumed that he was properly authorized to file the complaint in intervention and appeal for his client.1 It was only in the Court of Appeals where his authority to appear was questioned. As the Court of Appeals was satisfied that counsel was duly authorized by his client to file the complaint does in intervention and to appear in its behalf, hte resolution of the Court of Appeals on this point should not be disturbed. Granting that counsel has not been actually authorized by the board of directors to appear for and in behalf of the respondent corporation, the fact that counsel is the secretary treasurer of the respondent corporation and member of the board of directors; and that the other members of the board, namely, Macario Apostol, the president, and his wife Pacita R. Apostol, who shuold normally initiate the action to protect the corporate properties and in interest are the ones to be adversely affected thereby, a single stockholder under such circumstances may sue in behalf of the corporation.2 Counsel as a stockholder and director of the respondent corporation may sue in its behalf and file the complaint in intervention in the proper court. The judgment under review is affirmed, without pronouncements as to costs. Bengzon, Paras, C.J., Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concur. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-38498 August 10, 1989 ISAAC BAGNAS, ENCARNACION BAGNAS, SILVESTRE BAGNAS MAXIMINA BAGNAS, SIXTO BAGNAS and AGATONA ENCARNACION, petitioners, vs. HON. COURT OF APPEALS, ROSA L. RETONIL TEOFILO ENCARNACION, and JOSE B. NAMBAYANrespondents. Beltran, Beltran & Beltran for petitioners. Jose M. Legaspi for private respondents.

NARVASA, J.:

The facts underlying this appeal by certiorari are not in dispute. Hilario Mateum of Kawit, Cavite, died on March 11, 1964, single, without ascendants or descendants, and survived only by collateral relatives, of whom petitioners herein, his first cousins, were the nearest. Mateum left no will, no debts, and an estate consisting of twenty-nine parcels of land in Kawit and Imus, Cavite, ten of which are involved in this appeal. 1 On April 3, 1964, the private respondents, themselves collateral relatives of Mateum though more remote in degree than the petitioners, 2 registered with the Registry of Deeds for the Province of Cavite two deeds of sale purportedly executed by Mateum in their (respondents') favor covering ten parcels of land. Both deeds were in Tagalog, save for the English descriptions of the lands conveyed under one of them; and each recited the reconsideration of the sale to be" ... halagang ISANG PISO (Pl.00), salaping Pilipino, at mga naipaglingkod, ipinaglilingkod sa aking kapakanan ..." ("the sum of ONE PESO Pl.00), Philippine Currency, and services rendered, being rendered and to be rendered for my benefit"). One deed was dated February 6,1963 and covered five parcels of land, and the other was dated March 4, 1963, covering five other parcels, both, therefore, antedating Mateum's death by more than a year. 3 It is asserted by the petitioners, but denied by the respondents, that said sales notwithstanding, Mateum continued in the possession of the lands purportedly conveyed until his death, that he remained the declared owner thereof and that the tax payments thereon continued to be paid in his name. 4 Whatever the truth, however, is not crucial. What is not disputed is that on the strength of the deeds of sale, the respondents were able to secure title in their favor over three of the ten parcels of land conveyed thereby. 5 On May 22,1964 the petitioners commenced suit against the respondents in the Court of First Instance of Cavite, seeking annulment of the deeds of sale as fictitious, fraudulent or falsified, or, alternatively, as donations void for want of acceptance embodied in a public instrument. Claiming ownership pro indiviso of the lands subject of the deeds by virtue of being intestate heirs of Hilario Mateum, the petitioners prayed for recovery of ownership and possession of said lands, accounting of the fruits thereof and damages. Although the complaint originally sought recovery of all the twenty-nine parcels of land left by Mateum, at the pre-trial the parties agreed that the controversy be limited to the ten parcels subject of the questioned sales, and the Trial Court ordered the exclusion of the nineteen other parcels from the action. 6 Of the ten parcels which remained in litigation, nine were assessed for purposes of taxation at values aggregating P10,500 00. The record does not disclose the assessed value of the tenth parcel, which has an area of 1,443 square meters. 7 In answer to the complaint, the defendants (respondents here) denied the alleged fictitious or fraudulent character of the sales in their favor, asserting that said sales were made for good and valuable consideration; that while "... they may have the effect of donations, yet the formalities and solemnities of donation are not required for their validity and effectivity, ... that defendants were collateral relatives of Hilario Mateum and had done many good things for him, nursing him in his last illness, which services constituted the bulk of the consideration of the sales; and (by way of affirmative defense) that the plaintiffs could not question or seek annulment of the sales because they were mere collateral relatives of the deceased vendor and were not bound, principally or subsidiarily, thereby.8 After the plaintiffs had presented their evidence, the defendants filed a motion for dismissal in effect, a demurrer to the evidence reasserting the defense set up in their answer that the plaintiffs, as mere collateral relatives of Hilario Mateum, had no light to impugn the latter's disposition of his properties by means of the questioned conveyances and submitting, additionally, that no evidence of fraud maintaining said transfers had been presented. 9 The Trial Court granted the motion to dismiss, holding (a) on the authority of Armentia vs. Patriarca, 10 that the plaintiffs, as mere collateral relatives, not forced heirs, of Hilario Mateum, could not legally question the disposition made by said deceased during his lifetime, regardless of whether, as a matter of objective reality, said dispositions were valid or not; and (b) that the

plaintiffs evidence of alleged fraud was insufficient, the fact that the deeds of sale each stated a consideration of only Pl.00 not being in itself evidence of fraud or simulation. 11 On appeal by the plaintiffs to the Court of Appeals, that court affirmed, adverting with approval to the Trial Court's reliance on the Armentia ruling which, it would appear, both courts saw as denying, without exception, to collaterals, of a decedent, not forced heirs, the right to impugn the latter's dispositions inter vivos of his property. The Appellate Court also analyzed the testimony of the plaintiffs' witnesses, declared that it failed to establish fraud of any kind or that Mateum had continued paying taxes on the lands in question even after executing the deeds conveying them to the defendants, and closed with the statement that "... since in duly notarized and registered deeds of sale consideration is presumed, we do not and it necessary to rule on the alternative allegations of the appellants that the said deed of sale were (sic) in reality donations. 12 One issue clearly predominates here. It is whether, in view of the fact that, for properties assuredly worth in actual value many times over their total assessed valuation of more than P10,000.00, the questioned deeds of sale each state a price of only one peso (P1.00) plus unspecified past, present and future services to which no value is assigned, said deeds were void or inexistent from the beginning ("nulo") or merely voidable, that is, valid until annulled. If they were only voidable, then it is a correct proposition that since the vendor Mateum had no forced heirs whose legitimes may have been impaired, and the petitioners, his collateral relatives, not being bound either principally or subsidiarily to the terms of said deeds, the latter had and have no actionable right to question those transfers. On the other hand, if said deeds were void ab initio because to all intents and purposes without consideration, then a different legal situation arises, and quite another result obtains, as pointed out by the eminent civil law authority, Mr. Justice J.B.L. Reyes who, in his concurring opinion in Armentia, said: I ... cannot bring myself to agree to the proposition that the heirs intestate would have no legal standing to contest the conveyance made by the deceased if the same were made without any consideration, or for a false and fictitious consideration. For under the Civil Code of the Philippines, Art. 1409, par. 3, contracts with a cause that did not exist at the time of the transaction are inexistent and void from the beginning. The same is true of contracts stating a false cause (consideration) unless the persons interested in upholding the contract should prove that there is another true and lawful consideration therefor. (lbid., Art. 1353). If therefore the contract has no causa or consideration, or the causa is false and fictitious (and no true hidden causa is proved) the property allegedly conveyed never really leaves the patrimony of the transferor, and upon the latter's death without a testament, such property would pass to the transferor's heirs intestate and be recoverable by them or by the Administrator of the transferor's estate. In this particular regard, I think Concepcion vs. Sta. Ana, 87 Phil. 787 and Sobs vs. Chua Pua Hermanos, 50 Phil. 536, do not correctly state the present law, and must be clarified. To be sure the quoted passage does not reject and is not to be construed as rejecting the Concepcion and Solisrulings 13 as outrightly erroneous, far from it. On the contrary, those rulings undoubtedly read and applied correctly the law extant in their time: Art. 1276 of the Civil Code of 1889 under which the statement of a false cause in a contract rendered it voidable only, not void ab initio. In observing that they "... do not correctly state the present law and must be clarified," Justice Reyes clearly had in mind the fact that the law as it is now (and already was in the time Armentia) no longer deems contracts with a false cause, or which are absolutely simulated or fictitious, merely voidable, but declares them void, i.e., inexistent ("nulo") unless it is shown that they are supported by another true and lawful cause or consideration. 14 A logical consequence of that change is the juridical status of contracts without, or with a false, cause is

that conveyances of property affected with such a vice cannot operate to divest and transfer ownership, even if unimpugned. If afterwards the transferor dies the property descends to his heirs, and without regard to the manner in which they are called to the succession, said heirs may bring an action to recover the property from the purported transferee. As pointed out, such an action is not founded on fraud, but on the premise that the property never leaves the estate of the transferor and is transmitted upon his death to heirs, who would labor under no incapacity to maintain the action from the mere fact that they may be only collateral relatives and bound neither principally or subsidiarily under the deed or contract of conveyance. In Armentia the Court determined that the conveyance questioned was merely annullable not void ab initio, and that the plaintiff s action was based on fraud vitiating said conveyance. The Court said: Hypothetically admitting the truth of these allegations (of plaintiffs complaint), the conclusion is irresistible that the sale is merely voidable. Because Marta Armentia executed the document, and this is not controverted by plaintiff. Besides, the fact that the vendees were minors, makes the contract, at worst, annullable by them, Then again, inadequacy of consideration does not imply total want of consideration. Without more, the parted acts of Marta Armentia after the sale did not indicate that the said sale was void from the being. The sum total of all these is that, in essence, plaintiffs case is bottomed on fraud, which renders the contract voidable. It therefore seems clear that insofar as it may be considered as setting or reaffirming precedent, Armentia only ruled that transfers made by a decedent in his lifetime, which are voidable for having been fraudulently made or obtained, cannot be posthumously impugned by collateral relatives succeeding to his estate who are not principally or subsidiarily bound by such transfers. For the reasons already stated, that ruling is not extendible to transfers which, though made under closely similar circumstances, are void ab initio for lack or falsity of consideration. The petitioners here argue on a broad front that the very recitals of the questioned deeds of sale reveal such want or spuriousness of consideration and therefore the void character of said sales. They: 1. advert to a decision of the Court of Appeals in Montinola vs. Herbosa (59 O.G. No. 47, pp, 8101, 8118) holding that a price of P l.00 for the sale of things worth at least P20,000.00 is so insignificant as to amount to no price at all, and does not satisfy the law which, while not requiring for the validity of a sale that the price be adequate, prescribes that it must be real, not fictitious, stressing the obvious parallel between that case and the present one in stated price and actual value of the property sold; 2. cite Manresa to the same effect: that true price, which is essential to the validity of a sale, means existent, real and effective price, that which does not consist in an insignificant amount as, say, P.20 for a house; that it is not the same as the concept of a just price which entails weighing and measuring, for economic equivalence, the amount of price against all the factors that determine the value of the thing sold; but that there is no need of such a close examination when the immense disproportion between such economic values is patent a case of insignificant or ridiculous price, the unbelievable amount of which at once points out its inexistence; 15 3. assert that Art. 1458 of the Civil Code, in prescribing that a sale be for a ... price certain in money or its equivalent ... requires that "equivalent" be something representative of money, e.g., a check or draft, again citing Manresa 16 to the effect that services are not the equivalent of money insofar as said requirement is concerned and that a contract is not a true sale where the price consists of services or prestations;

4. once more citing Manresa 17 also point out that the "services" mentioned in the questioned deeds of sale are not only vague and uncertain, but are unknown and not susceptible of determination without the necessity of a new agreement between the parties to said deeds. Without necessarily according all these assertions its full concurrence, but upon the consideration alone that the apparent gross, not to say enormous, disproportion between the stipulated price (in each deed) of P l.00 plus unspecified and unquantified services and the undisputably valuable real estate allegedly sold worth at least P10,500.00 going only by assessments for tax purposes which, it is well-known, are notoriously low indicators of actual value plainly and unquestionably demonstrates that they state a false and fictitious consideration, and no other true and lawful cause having been shown, the Court finds both said deeds, insofar as they purport to be sales, not merely voidable, but void ab initio. Neither can the validity of said conveyances be defended on the theory that their true causa is the liberality of the transferor and they may be considered in reality donations 18 because the law 19 also prescribes that donations of immovable property, to be valid, must be made and accepted in a public instrument, and it is not denied by the respondents that there has been no such acceptance which they claim is not required. 20 The transfers in question being void, it follows as a necessary consequence and conformably to the concurring opinion in Armentia, with which the Court fully agrees, that the properties purportedly conveyed remained part of the estate of Hilario Mateum, said transfers notwithstanding, recoverable by his intestate heirs, the petitioners herein, whose status as such is not challenged. The private respondents have only themselves to blame for the lack of proof that might have saved the questioned transfers from the taint of invalidity as being fictitious and without ilicit cause; proof, to be brief, of the character and value of the services, past, present, and future, constituting according to the very terms of said transfers the principal consideration therefor. The petitioners' complaint (par. 6) 21 averred that the transfers were "... fraudulent, fictitious and/or falsified and (were) ... in reality donations of immovables ...," an averment that the private respondents not only specifically denied, alleging that the transfers had been made "... for good and valuable consideration ...," but to which they also interposed the affirmative defenses that said transfers were "... valid, binding and effective ...," and, in an obvious reference to the services mentioned in the deeds, that they "... had done many good things to (the transferor) during his lifetime, nursed him during his ripe years and took care of him during his previous and last illness ...," (pars. 4, 6, 16 and 17, their answer). 22 The onus, therefore, of showing the existence of valid and illicit consideration for the questioned conveyances rested on the private respondents. But even on a contrary assumption, and positing that the petitioners initially had the burden of showing that the transfers lacked such consideration as they alleged in their complaint, that burden was shifted to the private respondents when the petitioners presented the deeds which they claimed showed that defect on their face and it became the duty of said respondents to offer evidence of existent lawful consideration.
lwph1.t

As the record clearly demonstrates, the respondents not only failed to offer any proof whatsoever, opting to rely on a demurrer to the petitioner's evidence and upon the thesis, which they have maintained all the way to this Court, that petitioners, being mere collateral relatives of the deceased transferor, were without right to the conveyances in question. In effect, they gambled their right to adduce evidence on a dismissal in the Trial Court and lost, it being the rule that when a dismissal thus obtained is reversed on appeal, the movant loses the right to present evidence in his behalf. 23 WHEREFORE, the appealed Decision of the Court of Appeals is reversed. The questioned transfers are declared void and of no force or effect. Such certificates of title as the private respondents may have obtained over the properties subject of said transfers are hereby annulled, and said respondents are ordered to return to the petitioners possession of an the properties involved in tills action, to account to the petitioners for the fruits thereof during the period of their

possession, and to pay the costs. No damages, attorney's fees or litigation expenses are awarded, there being no evidence thereof before the Court. SO ORDERED. Cruz, Gancayco, Gri;o-Aquino and Medialdea, JJ., concur.

Footnotes 1 Rollo, pp. 3, 50, 51. 2 id.; two of the respondents are neph Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-11840 December 10, 1963

ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants, vs. WASHINGTON Z. SYCIP, ET AL., defendants-appellees. Norberto J. Quisumbing and Sycip, Salazar and Associates for defendants-appellees. Jose C. Calayco for plaintiffs-appellants.. RESOLUTION REYES, J.B.L., J.: The matter now pending is the appellant's motion for reconsideration of our main decision, wherein we have upheld the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the widow of the managing partner, Tan Sin An (Executed in her dual capacity as Administratrix of the husband's estate and as partner in lieu of the husband), in favor of the buyers Washington Sycip and Betty Lee for the following consideration: Cash paid Debts assumed by purchaser: To Yutivo To Sing Yee Cuan & Co., TOTAL 62,415.91 54,310.13 P153,726.04 P37,000.00

Appellant Goquiolay, in his motion for reconsideration, insist that, contrary to our holding, Kong Chai Pin, widow of the deceased partner Tan Sin An, never became more than a limited partner, incapacitated by law to manage the affairs of partnership; that the testimony of her witness Young and Lim belies that she took over the administration of the partnership property; and that, in any

event, the sale should be set aside because it was executed with the intent to defraud appellant of his share in the properties sold. Three things must be always held in mind in the discussion of this motion to reconsider, being basic and beyond controversy: (a) That we are dealing here with the transfer of partnership property by one partner, acting in behalf of the firm, to a stranger. There is no question between partners inter se, and this aspect to the case was expressly reserved in the main decision of 26 July 1960; (b) That partnership was expressly organized: "to engage in real estate business, either by buying and selling real estate". The Articles of co-partnership, in fact, expressly provided that: IV. The object and purpose of the copartnership are as follows: 1. To engage in real estate business, either by buying and selling real estates; to subdivide real estates into lots for the purpose of leasing and selling them.; (c) That the properties sold were not part of the contributed capital (which was in cash) but land precisely acquired to be sold, although subject to a mortgage in favor of the original owners, from whom the partnership had acquired them. With these points firmly in mind, let us turn to the points insisted upon by appellant. It is first averred that there is "not one iota of evidence" that Kong Chai Pin managed and retained possession of the partnership properties. Suffice it to point out that appellant Goquiolay himself admitted that ... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the properties (as) she had no other means of income. Then I said, because I wanted to help Mrs. Kong Chai Pin, she could just do it and besides I am not interested in agricultural lands. I allowed her to take care of the properties in order to help her and because I believe in God and wanted to help her. Q So the answer to my question is you did not take any steps? A I did not. Q And this conversation which you had with Mrs. Yu Eng Lai was few months after 1945? A In the year 1945. (Emphasis supplied). The appellant subsequently ratified this testimony in his deposition of 30 June 1956, pages 8-9, wherein he stated: that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course they are receiving quiet a lot benefit from the plantation. Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled to greater weight than those of Hernando Young and Rufino Lim, having been made against the party's own interest.

Moreover, the appellant's reference to the testimony of Hernando Young, that the witness found the properties "abandoned and undeveloped", omits to mention that said part of the testimony started with the question: Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. Kong Chai Pin there in Davao at that time? Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership were undeveloped, and the family of the widow (Kong Chai Pin) did not receive any income from the partnership properties, was given in answer to the question: According to Mr. Goquiolay, during the Japanese occupation Tan Sin an and his family lived on the plantation of the partnership and derived their subsistence from that plantation. What can you say to that? (Dep. 19 July 1956, p. 8). And also What can you say as to the development of these other properties of the partnership which you saw during the occupation? (Dep. p. 13, Emphasis supplied). to which witness gave the following answer: I saw the properties in Mamay still undeveloped. The third property which is in Tigato is about eleven (11) hectares and planted with abaca seedlings planted by Mr. Sin An. When I went there with Hernando Youngwe saw all the abaca destroyed. The place was occupied by the Japanese Army. They planted camotes and vegetables to feed the Japanese Army. Of course they never paid any money to Tan Sin An or his family. (Dep., Lim, pp. 13-14. Emphasis supplied). Plainly, both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission that he told Mr. Yu Eng Lai that the widow "could just do it" (i.e., continue to manage the properties). Witnesses Lim and Young referred to the period of Japanese occupation; but Goquiolay's authority was, in fact, given to the widow in 1945,after the occupation. Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no acts of management during the Japanese occupation (1942-1944) does not mean that she did not do so from 1945 to 1949. We thus find that Goquiolay did not merely rely on reports from Lim and Young; he actually manifested his willingness that the widow should manage the partnership properties. Whether or not she complied with this authority is a question between her and the appellant, and is not here involved. But the authority was given, and she did have it when she made the questioned sale, because it was never revoked. It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the property, and that it did not include the power to alienate, citing Article 1713 of the Civil Code of 1889. What this argument overlooks is that the widow was not a mere agent, because she had become a partner upon her husband's death, as expressly provided by the articles of copartnership. Even more, granting that by succession to her husband, Tan Sin An, the widow only became a limited partner, Goquiolay's authorization to manage the partnership property was proof that he considered and recognized her as general partner, at least since 1945. The reason is plain: Under the law (Article 148, last paragraph, Code of Commerce), appellant could not empower the widow, if she were only a limited partner, to administer the properties of the firm, even as a mere agent:

Limited partners may not perform any act of administration with respect to the interests of the copartnership, not even in the capacity of agents of the managing partners. (Emphasis supplied). By seeking authority to manage partnership property, Tan Sin An's widow showed that she desired to be considered a general partner. By authorizing the widow to manage partnership property (which a limited partner could not be authorized to do), Goquiolay recognized her as such partner, and is now in estoppel to deny her position as a general partner, with authority to administer and alienate partnership property. Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say "necessarily") becomes a limited partner for his own protection, because he would normally prefer to avoid any liability in excess of the value of the estate inherited so as not to jeopardize his personal assets. But this statutory limitation of responsibility being designed to protect the heir, the latter may disregard it and instead elect to become a collective or general partner, with all the rights and privileges of one, and answering for the debts of the firm not only with the inheritance but also with the heir's personal fortune. This choice pertains exclusively to the heir, and does not require the assent of the surviving partner. It must be remember that the articles of co-partnership here involved expressly stipulated that: In the event of the death of any of the partners at any time before the expiration of said term, the co-partnership shall not be dissolved but will have to be continued and the deceased partner shall be represented by his heirs or assigns in said co-partnership (Art. XII, Articles of Co-Partnership). The Articles did not provide that the heirs of the deceased would be merely limited partners; on the contrary, they expressly stipulated that in case of death of either partner "the co-partnership ... will have to be continued" with the heirs or assigns. It certainly could not be continued if it were to be converted from a general partnership into a limited partnership, since the difference between the two kinds of associations is fundamental; and specially because the conversion into a limited association would have the heirs of the deceased partner without a share in the management. Hence, the contractual stipulation does actually contemplate that the heirs would becomegeneral partners rather than limited ones. Of course, the stipulation would not bind the heirs of the deceased partner should they refuse to assume personal and unlimited responsibility for the obligations of the firm. The heirs, in other words, can not be compelled to become general partners against their wishes. But because they are not so compellable, it does not legitimately follow that they may not voluntarily choose to become general partners, waiving the protective mantle of the general laws of succession. And in the latter event, it is pointless to discuss the legality of any conversion of a limited partner into a general one. The heir never was a limited partner, but chose to be, and became, a general partner right at the start. It is immaterial that the heir's name was not included in the firm name, since no conversion of status is involved, and the articles of co-partnership expressly contemplated the admission of the partner's heirs into the partnership. It must never be overlooked that this case involved the rights acquired by strangers, and does not deal with the rights existing between partners Goquiolay and the widow of Tan Sin An. The issues between the partners inter sewere expressly reserved in our main decision. Now, in determining what kind of partner the widow of partner Tan Sin an Had elected to become, strangers had to be guided by her conduct and actuations and those of appellant Goquiolay. Knowing that by law a limited partner is barred from managing the partnership business or property, third parties (like the purchasers) who found the widow possessing and managing the firm property with the acquiescence (or at least without apparent opposition) of the surviving partners were perfectly

justified in assuming that she had become a general partner, and, therefore, in negotiating with her as such a partner, having authority to act for, and in behalf of the firm. This belief, be it noted, was shared even by the probate court that approved the sale by the widow of the real property standing in the partnership name. That belief was fostered by the very inaction of appellant Goquiolay. Note that for seven long years, from partner Tan Sin An's death in 1942 to the sale in 1949, there was more than ample time for Goquiolay to take up the management of these properties, or at least ascertain how its affairs stood. For seven years Goquiolay could have asserted his alleged rights, and by suitable notice in the commercial registry could have warned strangers that they must deal with him alone, as sole general partner. But he did nothing of the sort, because he was not interested (supra), and he did not even take steps to pay, or settle the firm debts that were overdue since before the outbreak of the last war. He did not even take steps, after Tan Sin An died, to cancel, or modify, the provisions of the partnership articles that he (Goquiolay) would have no intervention in the management of the partnership. This laches certainly contributed to confirm the view that the widow of Tan Sin An had, or was given, authority to manage and deal with the firm's properties apart from the presumption that a general partner dealing with partnership property has to requisite authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in our main decision, p. 11). The stipulation in the articles of partnership that any of the two managing partners may contract and sign in the name of the partnership with the consent of the other, undoubtedly creates on obligation between the two partners, which consists in asking the other's consent before contracting for the partnership. This obligation of course is not imposed upon a third person who contracts with the partnership. Neither it is necessary for the third person to ascertain if the managing partner with whom he contracts has previously obtained the consent of the other. A third person may and has a right to presume that the partner with whom he contracts has, in the ordinary and natural course of business, the consent of his copartner; for otherwise he would not enter into the contract. The third person would naturally not presume that the partner with whom he enters into the transaction is violating the articles of partnership, but on the contrary is acting in accordance therewith. And this finds support in the legal presumption that the ordinary course of business has been followed (No. 18, section 334, Code of Civil Procedure), and that the law has been obeyed (No. 31, section 334). This last presumption is equally applicable to contracts which have the force of law between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil. 409, 516). (Emphasis supplied.) It is next urged that the widow, even as a partner, had no authority to sell the real estate of the firm. This argument is lamentably superficial because it fails to differentiate between real estate acquired and held as stock-in-tradeand real estate held merely as business site (Vivante's "taller o banco social") for the partnership. Where the partnership business is to deal in merchandise and goods, i.e., movable property, the sale of its real property (immovables) is not within the ordinary powers of a partner, because it is not in line with the normal business of the firm. But where the express and avowed purpose of the partnership is to buy and sell real estate (as in the present case), the immovables thus acquired by the firm from part of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes, hence within the ordinary powers of the partner. This distinction is supported by the opinion of Gay de Montella1 , in the very passage quoted in the appellant's motion for reconsideration: La enajenacion puede entrar en las facultades del gerante, cuando es conforme a los fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los objetos de comercio o a los productos de la fabrica para explotacion de los cuales se ha constituido la Sociedad.Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario. (Montella) (Emphasis supplied). The same rule obtains in American law.

In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held: a partnership to deal in real estate may be created and either partner has the legal right to sell the firm real estate. In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550: And hence, when the partnership business is to deal in real estate, one partner has ample power, as a general agent of the firm, to enter into an executory contract for the sale of real estate. And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83: If the several partners engaged in the business of buying and selling real estate can not bind the firm by purchases or sales of such property made in the regular course of business, then they are incapable of exercising the essential rights and powers of general partners and their association is not really a partnership at all, but a several agency. Since the sale by the widow was in conformity with the express objective of the partnership, "to engage ... in buying and selling real estate" (Art. IV, No. 1 Articles of Copartnership), it can not be maintained that the sale was made in excess of her power as general partner. Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the facts of that case are vastly different from the one before us. In the McGrath case, the Court expressly found that: The firm was then, and for some time had been, insolvent, in the sense that its property was insufficient to pay its debts, though it still had good credit, and was actively engaged in the prosecution of its business. On that day, which was Saturday, the plaintiff caused to be prepared, ready for execution, the four chattel mortgages in question, which cover all the tangible property then belonging to the firm, including the counters, shelving, and other furnishings and fixtures necessary for, and used in carrying on, its business, and signed the same in this form: "In witness whereof, the said Cowen & McGrath, a firm, and Owen McGrath, surviving partner, of said firm, and Owen McCrath, individually, have hereunto set their hands, this 20th day of May, A.D. 1893. Cowen & Mcgrath, by Owen McGrath. Owen McGrath, Surviving partner of Cowen & McGrath. Owen McGrath." At the same time, the plaintiff had prepared, ready for filing, the petitionfor the dissolution of the partnership and appointment of a receiver which he subsequently filed, as hereinafter stated. On the day the mortgages were signed, they were placed in the hands of the mortgagees, which was the first intimation to them that there was any intention to make them. At the timenone of the claims secured by the mortgages were due, except, it may be, a small part of one of them, andnone of the creditors to whom the mortgages were made had requested security, or were pressing for the payment of their debts. ... The mortgages appear to be without a sufficient condition of defiance, and contain a stipulation authorizing the mortgagees to take immediate possession of the property, which they did as soon as the mortgages were filed through the attorney who then represented them, as well as the plaintiff; and the stores were at once closed, and possession delivered by them to the receiver appointed upon the filing of the petition. The avowed purposes of the plaintiff, in the course pursued by him, was to terminate the partnership, place its properly beyond the control of the firm, and insure the preference of the mortgagees, all of which was known to them at the time; .... (Cas cit., p. 343, Emphasis supplied). It is natural that form these facts the Supreme Court of Ohio should draw the conclusion that the conveyances were made with intent to terminate the partnership, and that they were not within the powers of McGrath as a partner. But there is no similarity between those acts and the sale by the widow of Tan Sin An. In the McGrath case, the sale included even the fixtures used in the

business; in our case, the lands sold were those acquired to be sold. In the McGrath case, none of the creditors were pressing for payment; in our case, the creditors had been unpaid for more than seven years, and their claims had been approved by the probate court for payment. In the McGrath case, the partnership received nothing beyond the discharge of its debts; in the present case, not only were its debts assumed by the buyers, but the latter paid, in addition, P37,000.00 in cash to the widow, to the profit of the partnership. Clearly, the McGrath ruling is not applicable. We will now turn to the question of fraud. No direct evidence of it exists; but appellant point out, as indicia thereof, the allegedly low price paid for the property, and the relationship between the buyers, the creditors of the partnership, and the widow of Tan Sin An. First, as to the price: As already noted, this property was actually sold for a total of P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts assumed by the purchaser. These debts (62,415.91 to Yutivo, and P54,310.13 to Sing Ye Cuan & Co.) are not questioned; they were approved by the court, and its approval is now final. The claims were, in fact, for the balance on the original purchase price of the land sold (sue first to La Urbana, later to the Banco Hipotecario) plus accrued interests and taxes, redeemed by the two creditors-claimants. To show that the price was inadquate, appellant relies on the testimony of the realtor Mata, who is 1955, six years after the sale in question, asserted that the land was worth P312,000.00. Taking into account the continued rise of real estate values since liberation, and the fact that the sale in question was practically a forced sale because the partnership had no other means to pay its legitimate debts, this evidence certainly does not show such "gross inadequacy" as to justify recission of the sale. If at the time of the sale (1949) the price of P153,726.04 was really low, how is it that appellant was not able to raise the amount, even if the creditor's representative, Yu Khe Thai, had already warned him four years before (1945) that the creditors wanted their money back, as they were justly entitled to? It is argued that the land could have been mortgaged to raise the sum needed to discharge the debts. But the lands were already mortgaged, and had been mortgaged since 1940, first to La Urbana, and then to the Banco Hipotecario. Was it reasonable to expect that other persons would loan money to the partnership when it was unable even to pay the taxes on the property, and the interest on the principal since 1940? If it had been possible to find lenders willing to take a chance on such a bad financial record, would not Goquiolay have taken advantage of it? But the fact is clear on the record that since liberation until 1949 Goquiolay never lifted a finger to discharge the debts of the partnership. Is he entitled now to cry fraud after the debts were discharged with no help from him. With regard to the relationship between the parties, suffice it to say that the Supreme Court has ruled that relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil. 243; also Hermandad del Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original buyers, Washington Sycip and Betty Lee, were without independent means to purchase the property. That the Yutivos should be willing to extend credit to them, and not to appellant, is neither illegal nor immoral; at the very least, these buyers did not have a record of inveterate defaults like the partnership "Tan Sin An & Goquiolay". Appellant seeks to create the impression that he was the victim of a conspiracy between the Yutivo firm and their component members. But no proof is adduced. If he was such a victim, he could have easily defeated the conspirators by raising money and paying off the firm's debts between 1945 and 1949; but he did not; he did not even care to look for a purchaser of the partnership assets. Were it true that the conspiracy to defraud him arose (as he claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai asked him to do so, it is certainly strange that the conspirators should wait 4 years, until 1949, to have the sale effected by the widow of Tan Sin An, and that the sale should have been routed through the probate court taking cognizance of Tan Sin An's estate, all of which increased the risk that the supposed fraud should be detected.

Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in proceedings for the settlement of the estate of Tan Sin An. This for two reasons: First, Tan Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (Joint and several)debtors (Exhibits "N", mortgage to the Banco Hipotecario), and Rule 87, section 6 is the effect that: Where the obligation of the decedent is joint and several with another debtor, the claim shall be filed against the decedent as if he were the only debtor, without prejudice to the right of the estate to recover contribution from the other debtor. (Emphasis supplied). Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the partnership and those of Tan Sim An personally, and a mortgage is indivisible, in the sense that each and every parcel under mortgage answers for the totality of the debt (Civ. Code of 1889, Article 1860; New Civil Code, Art. 2089). A final and conclusive consideration: The fraud charged not being one used to obtain a party's consent to a contract (i.e., not being deceit or dolus in contrahendo), if there is fraud at al, it can only be a fraud of creditorsthat gives rise to a rescission of the offending contract. But by express provision of law (Article 1294, Civil Code of 1889; Article 1383, New Civil Code) "the action for rescission is subsidiary; it can not be instituted except when the party suffering damage has no other legal means to obtain reparation for the same". Since there is no allegation, or evidence, that Goquiolay can not obtain reparation from the widow and heirs of Tan Sin An, the present suit to rescind the sale in question is not maintainable, even if the fraud charged actually did exist. PREMISES CONSIDERED, the motion for reconsideration is denied. Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur. Regala, J., took no part.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-55999 August 24, 1984 SPOUSES SALVACION SERRANO LADANGA and AGUSTIN S. LADANGA, petitioners, vs. COURT OF APPEALS and BERNARDO S. ASENETA, as Guardian of the Incompetent CLEMENCIA A. ASENETA, respondents. Venusto P. France and Ambrosia Padilla, Mempia, Reyes & Equidez Law Office for petitioners. Agrava, Lucero & Gineta for private respondents.

AQUINO, J.: The spouses Salvacion Serrano and Doctor Agustin S. Ladanga appealed from the decision of the Court of Appeals (affirming the decision of the Manila Court of First Instance), declaring void the sale to Salvacion by her aunt, Clemencia A. Aseneta, of the 166-square-meter lot with a

house located at 1238 Sison Street, Paco, Manila for non-payment of the price of P26,000. It ordered the register of deeds of Manila to issue a new title to Clemencia. The said spouses were further ordered to pay to Clemencia's estate P21,000 as moral and exemplary damages and attorney's fees and to render to Bernardo an accounting of the rentals of the property from April 6, 1974. The Appellate Court and Judge Jose C. Colayco found that Clemencia, a spinster who retired as division superintendent of public schools at 65 in 1961, had a nephew named Bernardo S. Aseneta, the child of her sister Gloria, and a niece named Salvacion, the daughter of her sister Flora. She legally adopted Bernardo in 1961 (Exh. B). On a single date, April 6, 1974 (when Clemencia was about 78 years old), she signed nine deeds of sale in favor of Salvacion for various real properties. One deed of sale concerned the said Paco property (administered by the Ladanga spouses) which purportedly was sold to Salvacion for P26,000 (Exh. C). The total price involved in the nine deeds of sale and in the tenth sale executed on November 8, 1974 was P92,200. On the witness stand, Clemencia denied having "received even one centavo" of the price of P26,000 (15, 16, 32 tsn August 16, 1976), much less the P92,000. She considered the allegation that she received the price as a he, exclaiming on the witness stand: "Susmaryosep! P92,000!" (15, 28-30 tsn August 16, 1976). This testimony was corroborated by Soledad L. Maninang, 69, a dentist with whom Clemencia had lived for more than thirty years in Kamuning, Quezon City. The notary testified that the deed of sale for the Paco property was signed in the office of the Quezon City registry of deeds. He did not see Salvacion giving any money to Clemencia. In May, 1975, Bernardo as guardian of Clemencia, filed an action for reconveyance of the Paco property, accounting of the rentals and damages. Clemencia was not mentally incompetent but she was placed under guardianship because she was an easy prey for exploitation and deceit. Parenthetically, it should be stated that she died on May 21, 1977 at the age of 80. She allegedly bequeathed her properties in a holographic will dated November 23, 1973 to Doctor Maninang. In that will she disinherited Bernardo. The will was presented for probate (Exh. 22-A and 22-C). The testate case was consolidated with the intestate proceeding filed by Bernardo in the sala of Judge Ricardo L. Pronove at Pasig, Rizal. He dismissed the testate case. He appointed Bernardo as administrator in the intestate case (p. 23, Bernardo's brief). As already stated, in the instant case, the trial court and the Appellate Court declared void the sale of the Paco property. The Ladanga spouses contend that the Appellate Court disregarded the rule on burden of proof. This contention is devoid of merit because Clemencia herself testified that the price of P26,000 was not paid to her. The burden of the evidence shifted to the Ladanga spouses. They were not able to prove the payment of that amount. The sale was fictitious. The Ladanga spouses argue that the Appellate Court erred in not considering that inadequacy of price may indicate a donation or some other contract; in disregarding the presumption that the sale was fair and regular and for a sufficient consideration; in overlooking important facts and in not holding that Bernardo had no right to file a complaint to annul the sale. As a rule, only important legal issues, as contemplated in section 4, Rule 45 of the Rules of Court, may be raised in a review of the Appellate Court's decision. This case does not fall within any of the exceptions to that rule (2 Moran's Comments on the Rules of Court, 1979 Ed. p. 475; Ramos vs. Pepsi-Cola Bottling Co., 125 Phil. 701).

The questions ventilated by the Ladangas in their briefs and in their comment of April 3, 1984 may be reduced to the issue of the validity of the sale which the vendor Clemencia herself assailed in her testimony on August 16 and December 3, 1976 when she was eighty years old. Her testimony and that of the notary leave no doubt that the price of P26,000 was never paid. A contract of sale is void and produces no effect whatsoever where the price, which appears therein as paid, has in fact never been paid by the purchaser to the vendor (Meneses Vda. de Catindig vs. Heirs of Catalina Roque, L-25777, November 26, 1976, 74 SCRA 83, 88; Mapalo vs. Mapalo, 123 Phil. 979, 987; Syllabus, Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921). Such a sale is inexistent and cannot be considered consummated (Borromeo' vs. Borromeo, 98 Phil. 432; Cruzado vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229). It was not shown that Clemencia intended to donate the Paco property to the Ladangas. Her testimony and the notary's testimony destroyed any presumption that the sale was fair and regular and for a true consideration. Judge Colayco concluded that the Ladangas abused Clemencia's confidence and defrauded her of properties with a market value of P393,559.25 when she was already 78 years old. The contention that Bernardo had no right to institute the instant action because he was not a compulsory heir of Clemencia cannot be sustained. Bernardo was Clemencia's adopted son. Moreover, Clemencia, by testifying in this case, tacitly approved the action brought in her behalf. But the moral damages awarded by the trial court is not sanctioned by articles 2217 to 2220 of the Civil Code. Clemencia's own signature in the deed brought about the mess within which she was entangled. WHEREFORE, the judgment of the Appellate Court is affirmed with the modification that the adjudication for moral and exemplary damages is discarded. No costs. SO ORDERED. Concepcion, Jr., Guerrero, Escolin and Cuevas, JJ., concur. Makasiar, J., (Chairman) and Abad Santos, JJ., took no part. SUPREME COURT Manila FIRST DIVISION G.R. No. L-59952 August 31, 1984 RUBY H. GARDNER and FRANK GARDNER, JR., petitioners, vs. COURT OF APPEALS, DEOGRACIAS R. NATIVIDAD and JUANITA A. SANCHEZ, respondents. Mayor, Manalang, Reyes & Associates for petitioners. Joanes Caacbay for private respondents.

MELENCIO-HERRERA, J.: This is a Petition for the review of the Resolutions, dated April 24, 1980 and December 24, 1980, respectively, of the then Court of Appeals in CA-G.R. No. 52729-R entitled "Ruby H. Gardner, et al. versus Deogracias R. Natividad, et al," whereby the original Decision of said Court, promulgated on January 11, 1979, affirming in toto the judgment of the Court of First Instance of Laguna, Branch I, Bian in Civil Case No. B-774, was reconsidered and the appealed judgment reversed in so far as private respondents herein are concerned. A chain of successive transfers of real property, five in all, is involved. Petitioner Ruby H. GARDNER, married to Frank Gardner, Jr. an American (the GARDNERS, for short), was the registered owner of two adjoining parcels of agricultural land situated at Calamba, Laguna, designated as Lot No. 1426-new and Lot No. 4748- new, with an aggregate area of 93,688 square meters more or less, and covered by TCT Nos. T-20571 and T-20573, respectively, of the Registry of Property of Laguna (Exhibits "A" & "B", Folio of Exhibits). On November 27, 1961, the GARDNERS and the spouses Ariosto C. SANTOS and Cirila Serrano (the SANTOSES) entered into an agreement for the subdivision of the two parcels, with the SANTOSES binding themselves to advance to the GARDNERS the amount of P93,000.00 in installments. For the protection of both parties they executed the following documents all on the same date and referring to the same parcels of land: (1) Absolute Deed of Sale in favor of the SANTOSES (the First Transfer, considering the nature of the document); (2) Subdivision Joint Venture Agreement; and (3) Supplemental Agreement (Exhibits "C", "D" and "E", Ibid.). Despite the "sale,", the GARDNERS were still denominated in the Subdivision Joint Venture Agreement and in the Supplemental Agreement as "owners" and Ariosto SANTOS merely as "broker". It appears from the evidence that the sale to the SANTOSES was one "in trust" for the protection of the SANTOSES who had obligated themselves to give cash advances to the GARDNERS from time to time (Exhibits "E-2" to "E-88" incl.) On December 5, 1961, new titles were issued in favor of the SANTOSES ( Exhibits " F " & " G ", Ibid.). Unknown to the GARDNERS, on June 10, 1964, the SANTOSES transferred Lot No. 1426-New to Jose Cuenca, married to Amanda Relova (the JOSE CUENCAS) (Exhibit "H", Ibid.), and on June 15, 1964, Lot No. 4748-New to Juan Cuenca, married to Soledad Advincula (the JUAN CUENCAS) (Exhibit "I", Ibid.) (jointly, the Second Transfer). Titles were thereafter issued in their respective names (Exhibits "L" & "M", Ibid.). Upon learning of the Transfer of the properties to the CUENCAS, petitioner 'Ruby GARDNER, caused the inscription of an Adverse Claim on the titles of the CUENCAS with the Register of Deeds of Laguna on December 2, 1965, Her Affidavit stated in part: 2. My adverse claim arose from the facts that sometime in the middle part of 1961, I and Mr. Ariosto Santos of 2162 Apolinario, Bangkal St., Makati, Rizal had an understanding and have agreed that we would subdivide my aforedescribed properties then covered by TCT Nos. T-20571 and T-20573 for Lot No. 1426-New and 4748-New, respectively, under the condition that he would advance to me a total amount of P93,000.00, which I could withdraw little by little and from time to time; that he would improve the aforesaid land by constructing paved roads sewers, water, other facilities that may be required by the authorities concerned and other requirements of the subdivision laws until he shall have invested for these purposes the sum of P234,220.00; that he assured me that the construction of these paved roads, etc. would commence immediately; 3. We (I and Mr. Ariosto Santos) have agreed that in order to protect his (Mr. Santos) interest to the sum of P93,000.00, to be withdrawn by me little by little

and from time to time, I would transfer to his name my aforementioned titles in trust; xxx xxx xxx 5. In the absolute Deed of Sale it was stated that I received from Mr. Santos the sum of P70,266.00 and in consideration of said amount, I have sold, transferred and conveyed my aforedescribed parcels of land to Mr. Santos; but these statements were and are not true, that is why we have the other two more documents the Subdivision Joint Venture Agreement and the Supplemental Agreement. It is stated in the Subdivision Joint Venture Agreement, which contains our true agreement that Mr. Ariosto Santos is only my Broker, so far as the aforedescribed parcels of land are concerned, as can be gleaned from Page 2, paragraphs 2 and 3 of the said Subdivision Joint Venture Agreement, ... On October 19, 1966 and November 4, 1966, the JUAN CUENCAS and the JOSE CUENCAS, respectively, transferred the lots to Michael C. VERROYA (Exhibits "P" & Ibid.) an office assistant of Ariosto SANTOS (the Third transfer). Titles were issued in VERROYA's name with the adverse Claim carried over. On March 29, 1967, VERROYA constituted a mortgage on both lots in favor of Anita Nolasco and Rosario Dalina, which encumbrance was registered on the existing titles. On June 29, 1967, VERROYA ARROYA executed a deed of transfer of the properties to respondent Deogracias Natividad, married to Juanita Sanchez (the NATIVIDADS) (Exhibits "V", "V-4", Ibid.) (the Fourth Transfer). On September 30, 1967, the NATIVIDADS transferred the lots to Ignacio Bautista and Encarnacion de los Santos (the BAUTISTAS) (Exhibits "14", "15" [Natividad], "JJ-2", Ibid.) (the Fifth Transfer). No titles were issued to the BAUTISTAS. It should be noted that from the titles of the CUENCAS (the Second Transferees) to the titles of the NATIVIDADS (the Fourth Transferee), the Adverse Claim of the GARDNERS continued to be carried, and that throughout the successive transfers, or over a span of approximately six years, the GARDNERS continued to remain in possession, cultivation and occupation of the disputed properties. Aggrieved by the series of transfers, the GARDNERS filed suit on July 8, 1969 for "Declaration of Nullity, Rescission and Damages" against the Five Transferees, including the mortgagees, Anita Nolasco and Rosario Dalina, before the Court of First Instance of Laguna, Branch I (Civil Case No. B-774), praying for the declaration of nullity of all the Five Transfers and the cancellation of all titles issued pursuant thereto on the ground that they were all simulated, fictitious, and without consideration. In their Answer, the SANTOSES claimed, in brief, that the sale to them was conditional in the sense that the properties were to be considered as the investment of the GARDNERS in the subdivision venture and that in the event that this did not materialize they were to reconvey the lots to the GARDNERS upon reimbursement by the latter of all sums advanced to them; and that the deed of sale was to be registered for the protection of the SANTOSES considering the moneys that the latter would be advancing. For their part, respondents NATIVIDADS contended that they were purchasers in good faith notwithstanding the adverse claim as the titles were not shown to them by VERROYA at the time of the sale, and that they had paid good and valuable consideration.

The mortgagees, Anita Nolasco and Rosario Dalima, denied the allegations in the Complaint and counterclaimed for damages, which the GARDNERS answered. After the lifting of the Order of default against them, the CUENCAS filed their Answer contending that their transfer to VERROYA of the properties in question was not simulated and was supported by valuable consideration. VERROYA, Juanita Sanchez (wife of Deogracias Natividad), and the BAUTISTAS were declared in default for their failure to seasonably file their responsive pleadings. 1 The GARDNERS, aside from their documentary evidence, adduced in their favor the testimonies of Ruby GARDNER herself, Jose Infante, an employee of the Register of Deeds of Laguna, and defendant Ariosto SANTOS who was presented as an adverse witness. Of the eight answering defendants, only respondent Deogracias NATIVIDAD testified on his behalf. Defendant Ariosto SANTOS merely adopted as his own evidence the declaration he had given as an adverse witness. The JOSE CUENCAS and the JUAN CUENCAS neither presented any testimonial evidence but just adopted the testimony of Ariosto SANTOS. Defendants Anita Nolasco and Rosario Dalima, the mortgagees, submitted their case after the genuineness of the deed of mortgage executed in their favor by VERROYA was admitted by the parties. 2 On January 15, 1972, the Trial Court rendered judgment in favor of the GARDNERS declaring as null and void the five Transfers; rescinding the Subdivision Joint Venture Agreement (Exhibit "D") as well as the Supplemental Agreement (Exhibits "E"; ordering the GARDNERS to reimburse the SANTOSES the total cash advances of P36,712.80 which theGARDNERS had received; authorizing the cancellation of the corresponding titles issued pursuant to the deeds of sale and the issuance of new ones in favor of the GARDNERS; ordering the deletion from the titles of the mortgage executed by VERROYA; and requiring the Five Transferees but not mortgagees, Anita Nolasco and Rosario Dalima, to pay the GARDNERS P90,000.00 actual damages, P5,000.00 exemplary damages, and to pay the costs. The respondents NATIVIDADS appealed (notwithstanding that the wife was declared in default) to the then Court of Appeals, which, on January 11, 1979 affirmed in toto the judgment of the Trial Court. 3 The NATIVIDADS received the Decision of affirmance on January 16, 1979. On January 29, 1979, the NATIVIDADS asked for a 30-day extension from January 31, 1979 or up to March 2, 1979, within which to file a Motion for Reconsideration, which was granted by respondent Court. 4 On March 2, 1979, the NATIVIDADS filed their Motion for Reconsideration but the same was denied on November 7, 1979. 5 On December 4, 1979, a "Very Urgent Manifestation and Motion for Leave to File a Second Motion for Reconsideration" was filed by the NATIVIDADS. The pleading was signed by Deogracias NATIVIDAD himself. Respondent Court denied leave on December 28, 1979. 6 However, on the same date of December 28, 1979, the NATIVIDADS filed their Second Motion for Reconsideration. On April 24, 1980, respondent Court reconsidered its Resolution of "January 7, 1980" denying respondents' "Motion for Leave to File Second Motion for Reconsideration', and admitted said second Motion 7 (The resolution of January 7,1980 refers to the resolution of December 28, 1979 which was released on January 7, 1980). On December 24, 1980, respondent Court 8 issued the questioned Resolution reversing its Decision of January 11, 1979 insofar as the NATIVIDADS are concerned, declaring as valid the sale of the land to them as well as the titles issued pursuant thereto. On January 20, 1981, the GARDNERS sought to set aside the questioned Resolution and moved for entry of judgment averring that said Resolution was null and void for having been issued without jurisdiction as the Decision of January 11, 1979 had already become final and executory. The Motion was denied for lack of merit on March 4, 1982. 9

Petitioners now seek to set aside the Appellate Court's Resolutions of April 24, 1980 (granting leave to file a 2nd Motion for Reconsideration) and December 24, 1980 (reversing the original judgment), and assigning to respondent Court the following errors: I The Court of Appeals erred in promulgating its resolution of April 24, 1980, because it has already lost jurisdiction to act on the case since the decision of January 11, 1979 had already become then final and executory. II The Court of Appeals erred in promulgating its resolution of December 24, 1980, because it had already then lost jurisdiction to act on the case, much more so, to reverse through its resolution of December 24, 1980 its decision of January 11, 1979 that has already become final and executory. III Assuming arguendo that it has still jurisdiction to promulgate its resolution of December 24, 1980, the Court of Appeals erred in not holding that the defendantappellant Deogracias Natividad's second motion for reconsideration, just like the first motion for reconsideration, is unquestionably pro-forma, hence did not suspend the running of the reglementary period of time. IV Assuming arguendo that it has still jurisdiction to promulgate its resolution of December 24, 1980, the Court of Appeals erred in holding that the testimonies of Ariosto Santos under oath on the witness stand cannot prevail over the allegations in Santos' answer (not verified and only signed by Ariosto Santos' counsel) and, regarding which there is no substantial conflict or variance. V Assuming arguendo, it has still jurisdiction to promulgate its resolution of December 24, 1980, the Court of Appeals erred in reversing absolutely without valid justification, its findings in its decision of January 11, 1979 and resolution of November 7, 1979, both holding that defendant-appellant Deogracias Natividad was not a buyer in good faith and for value. VI Assuming arguendo that it has still jurisdiction to promulgate its resolution of December 24, 1980, the Court of Appeals erred in reversing, absolutely without valid justification, its findings in its decision of January 11, 1979 and resolution of November 7, 1979 both holding that the sales of the questioned properties from Ruby Gardner and spouse Frank Gardner, Jr., to Ariosto Santos and spouse Cirila Serrano, to Jose Cuenca and Juan Cuenca and their spouses Amanda Relova and Soledad Advincula, respectively, to Michael Verroya, to Deogracias Natividad and spouse Juanita Sanchez, to Ignacio Bautista and spouse Encarnacion delos Santos are null and void ab initio. VII

The Court of Appeals erred in holding that it will not hesitate to consider and hear defendant-appellant Deogracias Natividad's second motion for reconsideration (even if it was received when the decision of January 11, 1979 was already final and executory) upon the groundless claim that Deogracias Natividad was abandoned by his counsel, who received the resolution denying Natividad's first motion for reconsideration. Upon the facts and the evidence, we rule that respondent Court had lost jurisdiction to entertain the second Motion for Reconsideration because its Decision of January 11, 1979 had already become final and executory as the following chronological data before respondent Court will show: Jan 16, 1979 Receipt by respondents of CA Decision dated Jan. 11, 1979. Jan. 29, 1979 Private respondents filed motion for extension of 30 days from Jan, 31, 1979 to file motion for reconsideration. This was granted. Due Mar. 2, 1979. Mar. 2, 1979 Motion for Reconsideration filed (on the last day). Nov. 7, 1979 Reconsideration was denied. Nov. 19, 1979 Receipt by private respondents of above resolution. Dec. 28, 1979 Motion for Leave to file Second Motion for Reconsideration denied. Dec. 28, 1979 Second Motion for Reconsideration filed by private respondent. Jan. 8, 1980 Motion for Reconsideration of Resolution of Dec. 28, 1979 filed by private respondents. April 24, 1980 Resolution reconsidering denial of Motion for Leave, and Second Motion for Reconsideration admitted. This is one of the admitted. This is one of the disputed Resolutions. Dec. 24, 1980 Resolution reversing Decision of January 11, 1979. This is other Resolution assailed. Section 1, Rule 52 of the Rules of Court, provides: Section 1. Motion for re-hearing. A motion for re- hearing or reconsideration shall be made ex-parteand filed within fifteen (15) days from notice of final order or judgment. No more than one motion for re-hearing or reconsideration shall be filed without express leave of court. A second motion for reconsideration may be presented within fifteen (15) days from notice of the order or judgment deducting the time in which the first motion has been pending. Evidently, the Second Motion for Reconsideration was filed beyond the reglementary, period. The NATIVIDADS erroneously thought that they had another 15-day period from the date of receipt of denial of the first Motion for Reconsideration on November 7, 1979 within which to file a second Motion for Reconsideration. That would be the rule for appeals by certiorari to the Supreme Court from an Appellate Court judgment pursuant to Section 1 of Rule 45.10 However, under the

aforequoted provision, which is the applicable rule, the time in which the first Motion has been pending has to be deducted. As it was, all of the fifteen days had been used up when the first Motion for Reconsideration was filed on March 2, 1979. The Decision of January 11, 1979, therefore, had already attained finality on March 3, 1979 so that respondent Court no longer had jurisdiction to act on the "Very Urgent Motion for Leave to File Second Motion for Reconsideration" submitted by the NATIVIDADS on November 28, 1979, much less to grant the same. It is well settled that once a Decision has become final and executory, it is removed from the power and jurisdiction of the Court which rendered it to further alter or amend it, much less to revoke it. The subsequent filing of a motion for reconsideration cannot disturb the finality of the judgment, nor restore jurisdiction to the court. 11 Although the granting or denial of a motion for reconsideration involves the exercise of discretion, 12 the same should not be exercise whimsically, capriciously or arbitrarily, but prudently in conformity with law, justice, reason and equity. We likewise find reversible error in the reversal of respondent Court's original Decision of January 11, 1979. In its Resolution of reversal, dated December 24, 1980, respondent Court had stated in part:
The presence of the adverse claim in appellant's (Deogracias Natividad) title does not make him a buyer in bad faith The validity of the adverse claim has to be determined by the Court. Until the validity of such claim is determined judicially, the same cannot be considered as a flaw in his vendor's title. The adverse claim first appearance in the titles of the Cuencas, the second buyers. It was carried on to the titles of subsequent transferees. The title of Santos appeared clean This makes the title of Santos' vendee clean. The subsequent annotation of the adverse claim therein would not make the Cuencas buyers in bad faith. If the Cuencas were buyers in good faith, we do not see any reason why subsequent buyers could not enjoy the same status. Good faith is presumed while bad faith must be proved. ... 13

However, as set forth in the original Decision of the Appellate Court, upholding the findings of the Trial Court, the evidence preponderantly shows that all Five Transfer were null and void for having been simulated and fictitious. The First Transfer in favor of the SANTOSES was "indubitably established" to have been without consideration and is, therefore, void and inexistent. 14 That sale was executed merely as a means of protection to the SANTOSES for their promised cash advances to the GARDNERS in one year in the sum of P93,000.00. Added to this is the admission against his own interest by Ariosto SANTOS that the GARDNERS did not receive from him any consideration, 15 thereby corroborating the declarations of the GARDNERS. The Subdivision Joint Venture Agreement (Exhibit "D") and the Supplemental Agreement (Exhibit "E") eloquently express that the true and real nature of the agreement between the GARDNERS and the SANTOSES was for a subdivision and not a sale transaction. The evidence also establishes that the Second Transfer to the CUENCAS was fictitious and simulated for not having been supported with any consideration. By his own admission, Ariosto SANTOS transferred to the CUENCAS, who are his "compadres", the disputed properties, together with others that he owned, merely to conceal his ownership and "to protect them from persons who had filed suits against him and were running after the properties registered in his name." It was SANTOS who had caused the execution of those deeds of sale (Exhibits "H" & "I") and had them notarized by his own counsel. 16 No wonder then that the CUENCAS did not even dispute the validity of the adverse claim pursuant to Section 110 of the Land Registration Act, and during the trial they merely adopted SANTOS' testimony. Under the circumstances surrounding their transaction they knew that their title was flawed and they were not, and cannot be considered, buyers in good faith, having paid no consideration for the sale. The subsequent

registration of the adverse claim on their titles, therefore, could not but serve as notice and warning to all subsequent buyers that someone was claiming an interest in the properties or a better right than the registered owners. The Third Transfer in favor of VERROYA was similarly without consideration and, therefore, void ab initio. The evidence on record shows that Ariosto SANTOS himself caused the execution of the deeds of sale (Exhibits "P" & "Q") in favor of VERROYA, who is SANTOS' office manager in his brokerage business. The only purpose of the transfer was to enable VERROYA to secure for SANTOS a loan with the Veterans Bank so much so that when the documents of sale were signed by the CUENCAS in their respective houses in favor of VERROYA, the latter was not even present. 17 Also significant is the ' fact that Verroya was declared in default and had not even bothered to resist the suit, which he would have done if the sale transaction were genuine. On equal footing is the Fourth Transfer from VERROYA VERROYA to private respondents NATIVIDADS. It was SANTOS who had caused the preparation of the deed of sale in favor of the NATIVIDADS after sensing that VERROYA was not inclined to return the title to the properties. Deogracias NATIVIDAD was SANTOS' close and trusted I 6 compadre who agreed to put the titles in his (NATIVIDAD's) name because of the pending cases against SANTOS. The amount of P 80,000.00 stated in the document of sale was not actually paid by the NATIVIDADS to VERROYA, according to SANTOS' own testimony. The latter further declared that VERROYA was only coerced to sign the deeds (Exhibits "V" & ("V-4") after he was boxed by NATIVIDAD in SANTOS' office at the Escolta. That coercion did exist is shown by VERROYA's telegram to the Register of Deeds of Laguna to dishonor any transaction involving the subject properties. 18 The Fifth Transfer to the BAUTISTAS partook of the same nature a simulated and fictitious transaction, for being without consideration, as shown by the evidence. They too, were declared in default and made no attempt to answer or dispute the allegations in the Complaint against them. The mortgage of the properties by VERROYA in favor of Anita Nolasco and Rosario Dalima was executed after the inscription of the adverse claim on the titles so that they can neither be considered as innocent mortgagees for value. Added proof of the fictitiousness of the chain of transfers is that fact that, notwithstanding the same, the GARDNERS remained in actual possession, cultivation and occupation of the disputed lots throughout the entire series of transactions. As concluded in the original Decision of respondent Court, all Five Transfers starting from that of the SANTOSES down to the NATIVIDADS, were absolutely simulated and fictitious and were, therefore, void ab initio and inexistent. 19 Contracts of sale are void and produce no effect whatsoever where the price, which appears therein as paid, has, in fact, never been paid by the purchaser to the vendor. 20 Such sales are inexistent and cannot be considered consummated. 21 In its Resolution reversing the original Decision, respondent Court discredited the testimony of Ariosto SANTOS for being at variance with the allegations in his Answer. The fact, however, that the allegations made by Ariosto SANTOS in his pleadings and in his declarations in open Court differed win not militate against the findings herein made nor support the reversal by respondent Court. As a general rule, facts alleged in a party's pleading are deemed admissions of that party and binding upon it, but this is not an absolute and inflexible rule. 22 An Answer is a mere statement of fact which the party filing it expects to prove, but it is not evidence. 23 As Ariosto SANTOS himself, in open Court, had repudiated the defenses he had raised in his Answer and against his own interest, his testimony is deserving of weight and credence. Both the Trial Court and the Appellate Court believed in his credibility and we find no reason to overturn their findings thereon.

Lastly, the statement of respondent Court in its Resolution of reversal that "until the validity of an adverse claim is determined judicially it cannot be considered a flaw in the vendor's title, contradicts the very essence of adverse claims. The annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property, and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or has a better right than the registered owner thereof.24 A subsequent sale of the property cannot prevail over the adverse claim which was previously annotated in the certificate of title of the property. 25 While one who buys from the registered owner need not have to look behind the certificate of title, 26 he is nevertheless bound by the liens and encumbrances annotated thereon. 27 One who buys without checking the vendor's title takes all the risks and losses consequent to such failure. 28 WHEREFORE, the assailed Resolutions of respondent Court of Appeals (now the Intermediate Appellate Court), dated April 24, 1980 and December 24, 1980, respectively, are hereby REVERSED and SET ASIDE, and its Decision of January 11, 1979 affirming in toto the judgment of the then Court of First Instance of Laguna, Branch 1, in Civil Case No. B-774, is hereby reinstated. Costs against private respondents. SO ORDERED. Teehankee, Actg. C.J., Plana, Gutierrez, Jr. and De la Fuente, JJ., concur. Relova, J., took no part. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 73564 March 25, 1988 CORNELIA CLANOR VDA. DE PORTUGAL, FRANCISCO C. PORTUGAL, PETRONA C. PORTUGAL, CLARITA PORTUGAL, LETICIA PORTUGAL, and BENEDICTO PORTUGAL, JR., petitioners, vs. INTERMEDIATE APPELLATE COURT and HUGO C. PORTUGAL, respondents.

SARMIENTO, J.: Seeking the reversal of the decision 1 dated October 21, 1985 of the former Intermediate Appellate Court in CA-G.R. CV No. 70247, entitled "Cornelia Clanor Vda. de Portugal, et al. vs. Hugo Portugal, and the reinstatement of the decision 2 in their favor, dated June 30, 1980, of the Court of First Instance of Cavite in Civil Case No. NC-699 entitled "Cornelia Vda. de Portugal, et al. vs. Hugo Portugal," the petitioners now come to us by way of this petition for review by certiorari. The factual background that gave rise to the present controversy is summarized as follows: Petitioner Cornelia Clanor and her late husband Pascual Portugal, during the lifetime of the latter, were able to accumulate several parcels of real property. Among these were a parcel of

residential land situated in Poblacion, Gen. Trias, Cavite, designated as Lot No. 3201, consisting of 2,069 square meters, more or less, and covered by T.C.T. No. RT-9355, in their names, and an agricultural land located at Pasong Kawayan, Gen. Trias, Cavite, with an area of 43,587 square meters, more or less, known as Lot No. 2337, and also registered in their names under T.C.T. No. RT-9356 of the Registry of Deeds for the Province of Cavite. Sometime in January, 1967, the private respondent Hugo Portugal, a son of the spouses, borrowed from his mother, Cornelia, the certificates of title to the above-mentioned parcels of land on the pretext that he had to use them in securing a loan that he was negotiating. Cornelia, the loving and helpful mother that she was, assented and delivered the titles to her son. The matter was never again brought up until after Pascual Portugal died on November 17, 1974. (Cornelia herself died on November 12, 1987.) When the other heirs of the deceased Pascual Portugal, the petitioners herein, for the purposes of executing an extra-judicial partition of Pascual's estate, wished to have all the properties of the spouses collated, Cornelia asked the private respondent for the return of the two titles she previously loaned, Hugo manifested that the said titles no longer exist. When further questioned, Hugo showed the petitioners Transfer Certificate of Title T.C.T. No. 23539 registered in his and his brother Emiliano Portugal's names, and which new T.C.T. cancelled the two previous ones. This falsification was triggered by a deed of sale by which the spouses Pascual Portugal and Cornelia Clanor purportedly sold for P8,000.00 the two parcels of land adverted to earlier to their two sons, Hugo and Emiliano. Confronted by his mother of this fraud, Emiliano denied any participation. And to show his good faith, Emiliano caused the reconveyance of Lot No. 2337 previously covered by TCT No. RT-9356 and which was conveyed to him in the void deed of sale. Hugo, on the other hand, refused to make the necessary restitution thus compelling the petitioners, his mother and his other brothers and sisters, to institute an action for the annulment of the controversial deed of sale and the reconveyance of the title over Lot No. 3201 (the residential land). After hearing, the trial court rendered its decision, the dispositive portion of which reads: xxx xxx xxx WHEREFORE, under our present perspectives, judgment is hereby rendered; and the Court hereby declares inoperative the Deed of Sale (Exhibit A and Exhibit 1) and all its appertaining and subsequent documents corresponding with Transfer Certificate of Title No. T-23539 of the Register of Deeds for the Province of Cavite, as well as all subsequent Transfer Certificates of Title which may have been produced corresponding to the parcels of land, subject matter hereof. SO ORDERED. 3 From this decision, Hugo Portugal, the private respondent herein and the defendant in the trial court, appealed to the respondent appellate court which reversed, hence the present petition. The issues raised by the petitioners are: 1. Whether or not the present action has prescribed; 2. Whether or not the respondent court was justified in disturbing the trial court's findings on the credibility of the witnesses presented during the trial; and 3. Whether or not the appellate court could entertain the defense of prescription which was not raised by the private respondents in their answer to the complaint nor in a motion to dismiss. We find the petition meritorious. There is really nothing novel in this case as an the issues raised had been, on several occasions, ruled upon by the Court. Apropos the first issue, which is the timeliness of the action, the trial court correctly ruled that the action instituted by the petitioners has not yet prescribed. Be that as

it may, the conclusion was reached through an erroneous rationalization, i.e., the case is purely for reconveyance based on an implied or constructive trust. Obviously, the trial court failed to consider the lack of consideration or cause in the purported deed of sale by which the residential lot was allegedly transferred to the private respondent by his parents. On the other hand, the respondent Intermediate Appellate Court held that since the action for reconveyance was fathered by a fraudulent deed of sale, Article 1391 of the Civil Code which lays down the rule that an action to annul a contract based on fraud prescribes in four years, applies. Hence, according to the respondent court, as more than four years had elapsed from January 23, 1967 when the assailed deed was registered and the petitioners' cause of action supposedly accrued, the suit has already become stale when it was commenced on October 26, 1976, in the Court of First Instance of Cavite. For reasons shortly to be shown, we can not give our imprimatur to either view. The case at bar is not purely an action for reconveyance based on an implied or constructive trust. Neither is it one for the annullment of a fraudulent contract. A closer scrutiny of the records of the case readily supports a finding that fraud and mistake are not the only vices present in the assailed contract of sale as held by the trial court. More than these, the alleged contract of sale is vitiated by the total absence of a valid cause or consideration. The petitioners in their complaint, assert that they, particularly Cornelia, never knew of the existence of the questioned deed of sale. They claim that they came to know of the supposed sale only after the private respondent, upon their repeated entreaties to produce and return the owner's duplicate copy of the transfer certificate of title covering the two parcels of land, showed to them the controversial deed. And their claim was immeasurably bolstered when the private respondent's co-defendant below, his brother Emiliano Portugal, who was allegedly his co-vendee in the transaction, disclaimed any knowledge or participation therein. If this is so, and this is not contradicted by the decisions of the courts below, the inevitable implication of the allegations is that contrary to the recitals found in the assailed deed, no consideration was ever paid at all by the private respondent. Applying the provisions of Articles 1350, 1352, and 1409 of the new Civil Code in relation to the indispensable requisite of a valid cause or consideration in any contract, and what constitutes a void or inexistent contract, we rule that the disputed deed of sale is void ab initio or inexistent, not merely voidable. And it is provided in Article 1410 of the Civil Code, that '(T)he action or defense for the declaration of the inexistence of a contract does not prescribe. But even if the action of the petitioners is for reconveyance of the parcel of land based on an implied or constructive trust, still it has been seasonably filed. For as heretofore stated, it is now settled that actions of this nature prescribe in ten years, the point of reference being the date of registration of the deed or the date of the issuance of the certificate of titIe over the property. 4 In this case, the petitioner commenced the instant action for reconveyance in the trial court on October 26, 1976, or less than ten years from January 23, 1967 when the deed of sale was registered with the Register of Deeds. 5 Clearly, even on this basis alone, the present action has not yet prescribed. On the credibility of witnesses presented in court, there is no doubt that the trial court's findings on this score deserves full respect and we do not have any reason to disturb it here now. 6 After all, the trial court judge is in a better position to make that appreciation for having heard personally the witnesses and observed their deportment and manner of testifying during the trial. 7 The exceptions to this time honored policy are: when the trial court plainly overlooked certain facts of substantial import and value which if only correctly considered by the court might change the outcome of the case; 8 and, if the judge who rendered the decision was not the one who heard the evidence. 9 Neither of these exceptions is present here. Therefore, the respondent appellate court's ruling questioning the credibility of petitioner Cornelia Clanor Vda. de Portugal must be reversed. Anent the last issue raised by the petitioner, we have already ruled that the defense of prescription although not raised by the defendant may nevertheless be passed upon by the court when its presence is plainly apparent on the face of the complaint itself. 10 At any rate, in view of our earlier finding that the deed of sale in controversy is not simply fraudulent but void ab initio or

inexistent our ruling on this third issue would not have any material bearing on the overall outcome of this petition. The petitioner's action remains to be seasonably instituted. WHEREFORE, the petition is hereby GRANTED; the Decision dated October 21, 1985 and the Resolution dated January 24, 1986 of the Intermediate Appellate Court are hereby REVERSED and SET ASIDE; the deed of sale dated January 23, 1967 evidencing the sale of Lot No. 3201 to private respondent Hugo Portugal is declared VOID AB INITIO; and the private respondent is ORDERED to reconvey to petitioners the title over the said Lot No. 3201 which is now under TCT No. T-23539. Costs against the private respondent. SO ORDERED. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 163687 March 28, 2006

GAUDENCIO VALERIO for himself and as attorney-in-fact of BIENVENIDO VALERIO, CONRADO VALERIO, DIONISIO VALERIO, EFEPANIA VALERIO and CARLOTA DE LEON VALENZUELA, Petitioners, vs. VICENTA REFRESCA, MARIANO1 REFRESCA, DOMINGO REFRESCA, REMEDIOS REFRESCA, OLY REFRESCA, LALET REFRESCA and BENITO REFRESCA, Respondents. DECISION PUNO, J.: Narciso Valerio, married to Nieves Valerio, owned two (2) adjacent agricultural lots in Calamba, Laguna, with a total area of 6.5 hectares. One of these lots, Lot 428, was a four-hectare land. A portion thereof, consisting of 511 sq. m. and known as Lot 428-A, is the subject of the petition in the case at bar. It is undisputed that as early as 1963, spouses Alejandro and Vicenta Refresca started cultivating the 6.5-hectare land as tenants. In 1968, Narciso Valerio acquired ownership over the land. The tenancy relations between the Valerios and Refrescas were established and their harmonious relations continued uninterrupted. In 1974, the Valerios entered into a leasehold contract2with tenant Alejandro Refresca whereby the latter was allowed to continue tilling the 6.5-hectare land in exchange for fixed rentals. On February 10, 1975, Narciso Valerio, with the consent of his wife Nieves, executed a Deed of Sale whereby he sold his 6.5-hectare landholding to his heirs, namely: Susana de Leon, Leslie de Leon, petitioners Carlota de Leon Valenzuela, and Bienvenido, Dionisio, Conrado, Gaudencio, and Efepania, all surnamed Valerio. Narciso likewise conveyed 511 sq. m. of his landholding, known as Lot 428-A, in favor of his tenant Alejandro Refresca in recognition of his long service and cultivation of the subject land. On February 15, 1975, Narciso Valerio died. On December 13, 1982, the parties to the Deed of Sale, as co-owners, subdivided the 6.5hectare land and executed a Deed of Agreement of Subdivision.3The same 511 sq. m. of land was granted to tenant Alejandro Refresca. Individual titles over the apportioned areas were subsequently issued to the vendees.

Nieves Valerio, widow of Narciso, entered into another leasehold agreement with the Refrescas over the 6.5-hectare landholding for the period 1984-1985 in exchange for the latters payment of rentals. On March 4, 1987, petitioners mother, Nieves Valerio, died. After tenant Alejandros demise in 1994, his widow, respondent Vicenta Refresca, succeeded him by operation of law in tilling the land. Thereafter, petitioners demanded that the respondents vacate the land. They alleged that the 511 sq. m. lot was given to the respondents on the condition that they will surrender their tenancy rights over the entire land but respondents failed to do so. In 1995, the Department of Agrarian Reform (DAR), Legal Division, in Sta. Cruz, Laguna, issued a Resolution recognizing the right of respondent Vicenta Refresca, widow of tenant Alejandro, to continue her peaceful possession and cultivation of the 6.5-hectare land. In 1998, despite the DAR ruling, petitioners sent a demand letter to respondents to vacate the land. Respondents refused. Petitioners filed a complaint4before the Regional Trial Court (RTC) of Calamba, Laguna, against respondents -- widow and children of Alejandro Refresca -- for the annulment of documents of transfer and title of Alejandro. They alleged that the cause or consideration for the transfer of the 511 sq. m. lot to the Refrescas was an agreement between Narciso and Alejandro that conveyance of said portion would serve as disturbance compensation in favor of the latter, i.e., the 511 sq. m. lot was granted to the Refrescas in exchange for the surrender of their tenancy rights over the entire 6.5-hectare land; that Alejandro allegedly obliged himself to return the 6.5-hectare land he was tilling as a tenant; that Alejandro failed to fulfill his promise and instead continued to till the land until his death; that respondents succeeded in cultivating the entire land; that as the cause for the cession of the land was not complied with, the transfer of the 511 sq. m. lot to Alejandro should be declared void as a contract without cause or consideration produced no effect. In their Answer,5respondents maintained that the 511 sq. m. lot was granted by Narciso to tenant Alejandro as a homelot due to the generosity of the Valerio spouses with whom they had always maintained good relations; that the lot was given to them in recognition of their long years of cultivating the land; that in the 1975 Deed of Sale, Narciso apportioned his 6.5-hectare land among petitioners as his heirs and Alejandro Refresca as his tenant; that as co-owners, petitioners and Alejandro subdivided the land in order that separate titles may be issued to them; that, thereafter, respondent Vicenta succeeded her husband in tilling the 6.5-hectare land; that as tenant, she paid lease rentals to petitioners who initially accepted them; and, that upon the death of petitioners mother, Nieves Valerio, petitioners demanded the Refrescas to return the 511 sq. m. land as the former intended to sell the entire land which shall then be converted to commercial use. Respondents likewise invoked prescription and estoppel in their defense. At the pre-trial conference, the parties stipulated that the transfer of the 511 sq. m. lot to Alejandro was without monetary consideration. At the trial, petitioners themselves admitted that they did not pay monetary consideration for the transfer of the specific portions of the land to them. After the trial, the RTC ruled in favor of petitioners.6It held that as the Deed of Sale executed by Narciso Valeriois absolutely simulated or fictitious and, as both parties were in pari delicto, petitioners could not demand the surrender of the 511 sq. m. lot nor could respondents retain possession thereof. The RTC ordered that the 511 sq. m. lot be reverted to the estate of the deceased Valerio spouses. The dispositive portion reads: ACCORDINGLY, judgment is hereby rendered as follows: a) the Deed of Absolute Sale and its resultant document, the Deed of Agreement of Subdivision[,] are hereby declared null and void and with no further force and effect;

b) Transfer Certificate of Title No. T-151186 covering lot no. 428 of the Calamba Friar Land Estate with an area of five hundred eleven (511) square meters issued in the name of Alejandro Refresca married to Vicenta Refresca is likewise declared null and void; c) the said 511[-]square meter lot is ordered reverted to the estate of the deceased Narciso Valerio and Nieves Valerio. The prayer for damages by the plaintiffs and the counterclaim interposed by defendants are likewise ordered DISMISSED for lack of merit. With costs against plaintiffs and defendants. SO ORDERED.7 On appeal, the Court of Appeals reversed the decision of the RTC. It ruled that the Deed of Sale was not absolutely, but relatively simulated as the parties intended to be bound by it. On the issue of consideration, the Court of Appeals held that although the Deed of Sale was not supported by monetary consideration, a cause exists although the parties could not agree on what it was, i.e., while petitioners maintained that the lot was granted to Alejandro in exchange for his tenancy rights, respondents claimed that the lot was granted to them out of the generosity of the Valerio spouses. It also ruled that the remedy of petitioners for breach of contract was to either ask for rescission of the sale or specific performance within ten (10) years from the alleged breach of contract. However, as petitioners action was filed thirteen (13) years after the alleged breach, their present action has prescribed. In any case, it ruled that petitioners were estopped from assailing the deed of sale after they have agreed to subdivide the land as co-owners, thus acknowledging its provision transferring ownership of the 511 sq. m. lot to respondents.8 In this appeal, petitioners impugn the Decision of the Court of Appeals on the following grounds: THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN NOT HOLDING [THAT] THE AGREEMENT DATED FEBRUARY 10, 1975 BY AND BETWEEN NARCISO VALERIO AND ALEJANDRO REFRESCA [IS] ABSOLUTELY SIMULATED AND FICTITIOUS. THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN DECLARING THAT PETITIONERS ACTION [HAS] ALREADY PRESCRIBED. On the first issue, petitioners contend the 1975 Deed of Sale between Narciso and Alejandro is absolutely simulated or fictitious and produced no legal effect as there was no monetary consideration involved.9Petitioners further argue that as the Deed of Sale is void, it cannot be ratified by the subsequent execution of a deed of partition among the parties. Petitioners arguments fail to impress. Article 1345 of the Civil Code10provides that the simulation of a contract may either be absolute or relative. Inabsolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties.11As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract. However, if the parties state a false cause in the contract to conceal their real agreement, the contract is relatively simulated and the parties are still bound by their real agreement.Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest.12

In the case at bar, the records reveal that the clear intent of Narciso Valerio in executing the 1975 Deed of Sale was to transfer ownership of the apportioned areas of his 6.5-hectare land to petitioners as his heirs and to his tenant Alejandro. Although no monetary consideration was received by landowner Narciso from any of the vendees, it cannot be said that the contract was not supported by a cause or consideration or that Narciso never intended to transfer ownership thereof. Indeed, the primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties.13In the case at bar, the circumstances reveal that when landowner Narciso executed the 1975 Deed of Sale, he intended to transfer ownership of his entire 6.5-hectare landholding and apportion the area among Alejandro and the petitioners. Neither he nor his wife, during their lifetime, exerted effort to evict respondents when the latter allegedly failed to comply with the condition to surrender their tenancy rights after the sale. That petitioners and tenant Alejandro then took possession of their respective portions of the land additionally shows that Narciso divested himself of his title and control over the property. Truly, one of the most striking badges of absolute simulation is the complete absence of any attempt on the part of a vendee to assert his right of dominion over the property.14In the case at bar, petitioners and respondents were not amiss in claiming their right over their respective lots. Petitioners urge that the transfer of the lot to Alejandro was subject to the condition that the latter shall waive his tenancy rights over the 6.5-hectare land. They now impugn the transfer of ownership as the Refrescas allegedly failed to abide by the condition. Respondents, on the other hand, assert that it was generosity that motivated Narciso to cede the 511 sq. m. land to Alejandro Refresca, as an acknowledgment of his long years of cultivating the land as tenant. As the contract is one of pure beneficence, the respondents contend that the cause or consideration therefor is the liberality of the benefactor Narciso Valerio. We find that the transfer of the lot to petitioners and Alejandro is supported by a cause or consideration. If, as alleged by petitioners, the transfer was conditioned on the surrender of respondents of their tenancy rights, said condition is the consideration for the contract. If no such condition was imposed by Narciso prior to the execution of the deed of sale, the cause for the transfer of the lot to Alejandro is clearly the liberality or generosity of landowner Narciso. In either case, we agree with the ruling of the Court of Appeals that there was a cause or consideration for the transfer of the land although the parties cannot agree on what it is. On the issue of consideration, the Court is more inclined to give credence to respondents claim that the cause of the contract is the generosity of Narciso Valerio who intended to divest himself of ownership over the land. The alleged condition imposed by Narciso on respondents, i.e., for the latter to surrender their tenancy rights in exchange for the transfer of the 511 sq. m. lot to them, is belied by the records. Respondents testified that no such condition attached to the transfer as after the execution of the Deed of Sale and even after Alejandros death, respondents were allowed to continue cultivating the entire land as tenants. The records show that after the 1975 Deed of Sale, Nieves Valerio, widow of Narciso, executed a leasehold contract in favor of Vicenta Refresca, widow of Alejandro, allowing her to continue tilling the land in exchange for payment of the rentals. In fact, the tenancy right of the respondents to succeed Alejandro in tilling the land has been recognized by the DAR. Petitioners themselves admitted that Narciso transferred ownership of the 511 sq. m. land to Alejandro and the other apportioned lots to them out of the liberality of Narciso as neither the petitioners nor Alejandro paid monetary consideration therefor.15Clearly, Narciso was motivated by generosity when he divested himself of ownership over the land. This was the true intent of the parties although they tried to conceal it with the execution of a deed of sale, when the contract is in reality one of donation inter vivos. We likewise agree with the findings of the Court of Appeals that petitioners are estopped in impugning the sale as they overtly recognized the validity of the transfer of the

apportioned lot to tenant Alejandro.Indeed, subsequent to the execution of the Deed of Sale, petitioners and Alejandro, as co-owners, voluntarily partitioned the 6.5-hectare lot which became the basis for the issuance of separate titles in their names.16By this explicit act, petitioners clearly intended to be bound by the 1975 Deed of Sale which transferred the subdivided lots to each of the parties. Thus, we rule that the 1975 Deed of Sale between the parties is a relatively simulated contract as the clear intent was to transfer ownership over the land. Hence, the contract binds the parties to their true agreement,i.e., to cause the transfer of the specific apportioned areas to Alejandro and petitioners. Petitioners failed to discharge the burden of proving their allegation that the 1975 Deed of Sale is a void contract for being absolutely simulated. As this Court has ruled on the validity of the 1975 Deed of Sale, we find no reason to pass upon the issue of prescription raised by petitioners. IN VIEW WHEREOF, the petition is dismissed. No pronouncement as to costs. SO ORDERED. REYNATO S. PUNO

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari assailing the November 26, 2004 Decision[1] and June 29, 2005 Resolution[2] of the Court of Appeals (CA) in CA-G.R. CV No. 71831. The CA had affirmed with modification the Decision[3] of the Regional Trial Court (RTC), Branch 24, of Echague, Isabela, in Civil Case No. 24-0495 entitled Josephine De Guzman vs. Spouses Jose and Milagros Villaceran, et al. The antecedent facts follow: Josephine De Guzman filed a Complaint[4] with the RTC of Echague, Isabela against the spouses Jose and Milagros Villaceran and Far East Bank & Trust Company (FEBTC), Santiago City Branch, for declaration of nullity of sale, reconveyance, redemption of mortgage and damages with preliminary injunction. The complaint was later amended to include annulment of foreclosure and Sheriffs Certificate of Sale.

In her Amended Complaint,[5] De Guzman alleged that she is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-236168,[6] located in Echague, Isabela, having an area of 971 square meters and described as Lot 8412-B of the Subdivision Plan Psd-93948. On April 17, 1995, she mortgaged the lot to the Philippine National Bank (PNB) of Santiago City to secure a loan of P600,000. In order to secure a bigger loan to finance a business venture, De Guzman asked Milagros Villaceran to obtain an additional loan on her behalf. She executed a Special Power of Attorney in favor of Milagros. Considering De Guzmans unsatisfactory loan record with the PNB, Milagros suggested that the title of the property be transferred to her and Jose Villaceran and they would obtain a bigger loan as they have a credit line of up to P5,000,000 with the bank. On June 19, 1996, De Guzman executed a simulated Deed of Absolute Sale[7] in favor of the spouses Villaceran. On the same day, they went to the PNB and paid the amount of P721,891.67 using the money of the spouses Villaceran. The spouses Villaceran registered the Deed of Sale and secured TCT No. T-257416[8] in their names. Thereafter, they mortgaged the property with FEBTC Santiago City to secure a loan of P1,485,000. However, the spouses Villaceran concealed the loan release from De Guzman. Later, when De Guzman learned of the loan release, she asked for the loan proceeds less the amount advanced by the spouses Villaceran to pay the PNB loan. However, the spouses Villaceran refused to give the money stating that they are already the registered owners of the property and that they would reconvey the property to De Guzman once she returns the P721,891.67 they paid to PNB.[9] De Guzman offered to pay P350,000 provided that the spouses Villaceran would execute a deed of reconveyance of the property. In view of the simulated character of their transaction, the spouses Villaceran executed a Deed of Absolute Sale[10] dated September 6, 1996 in favor of De Guzman. They also promised to pay their mortgage debt with FEBTC to avoid exposing the property to possible foreclosure and auction sale. However, the spouses Villaceran failed to settle the loan and subsequently the property was extrajudicially foreclosed. A Sheriffs Certificate of Sale was issued in favor of FEBTC for the amount of P3,594,000. De Guzman asserted that the spouses Villaceran should

be compelled to redeem their mortgage so as not to prejudice her as the real owner of the property.[11] On the other hand, the spouses Villaceran and FEBTC, in their Amended Answer,[12] averred that in 1996 De Guzman was introduced to Milagros by a certain Digna Maranan. Not long afterwards, De Guzman requested Milagros to help her relative who had a loan obligation with the PNB in the amount ofP300,000. As a consideration for the accommodation, De Guzman would convey her property located at Maligaya, Echague, Isabela which was then being held in trust by her cousin, Raul Sison. Because of this agreement, Milagros paid De Guzmans obligation with the PNB in the amount of P300,000. When Milagros asked for the title of the lot, De Guzman explained that her cousin would not part with the property unless he is reimbursed the amount ofP200,000 representing the amount he spent tilling the land. Milagros advanced the amount of P200,000 but De Guzmans cousin still refused to reconvey the property. In order for De Guzman to settle her obligation, she offered to sell her house and lot in Echague, Isabela. At first, Milagros signified her non-interest in acquiring the same because she knew that it was mortgaged with the PNB Santiago for P600,000. De Guzman proposed that they will just secure a bigger loan from another bank using her house and lot as security. The additional amount will be used in settling De Guzmans obligation with PNB. Later, De Guzman proposed that she borrow an additional amount from Milagros which she will use to settle her loan with PNB. To this request, Milagros acceded. Hence, they went to the PNB and paid in full De Guzmans outstanding obligation with PNB which already reached P880,000.[13] Since De Guzmans total obligation already reached P1,380,000, the spouses Villaceran requested her to execute a deed of absolute sale over the subject property in their favor. Thus, the Deed of Absolute Sale is supported by a valuable consideration, and the spouses Villaceran became the lawful owners of the property as evidenced by TCT No. 257416 issued by the Office of the Register of Deeds of Isabela. Later, they mortgaged the property to FEBTC for P1,485,000.

The spouses Villaceran denied having executed a deed of conveyance in favor of De Guzman relative to the subject property and asserted that the signatures appearing on the September 6, 1996 Deed of Sale, which purported to sell the subject property back to De Guzman, are not genuine but mere forgeries.[14] After due proceedings, the trial court rendered its decision on September 27, 2000. The RTC ruled that the Deed of Sale dated June 19, 1996 executed by De Guzman in favor of the spouses Villaceran covering the property located in Echague, Isabela was valid and binding on the parties. The RTC ruled that the said contract was a relatively simulated contract, simulated only as to the purchase price, but nonetheless binding upon the parties insofar as their true agreement is concerned. The RTC ruled that De Guzman executed the Deed of Absolute Sale dated June 19, 1996 so that the spouses Villaceran may use the property located in Echague, Isabela as collateral for a loan in view of De Guzmans need for additional capital to finance her business venture. The true consideration for the sale, according to the RTC, was the P300,000 the spouses Villaceran gave to De Guzman plus the P721,891.67 they paid to PNB in order that the title to the subject property may be released and used to secure a bigger loan in another bank. The RTC also found that although the spouses Villaceran had already mortgaged the subject property with FEBTC and the title was already in the possession of FEBTC -- which facts were known to De Guzman who even knew that the loan proceeds amounting to P1,485,000 had been released -- the spouses Villaceran were nonetheless still able to convince De Guzman that they could still reconvey the subject property to her if she pays the amount they had paid to PNB. The RTC found that the Deed of Sale dated September 6, 1996 was actually signed by the spouses Villaceran although De Guzman was able to pay onlyP350,000, which amount was stated in said deed of sale as the purchase price. The RTC additionally said that the spouses Villaceran deceived De Guzman when the spouses Villaceran mortgaged the subject property with the understanding that the proceeds would go to De Guzman less the amounts the spouses had paid to

PNB. Hence, according to the RTC, the spouses Villaceran should return to De Guzman (1) the P350,000 which she paid to them in consideration of the September 6, 1996 Deed of Sale, which sale did not materialize because the title was in the possession of FEBTC; and (2) the amount of P763,108.33 which is the net proceeds of the loan after deducting the P721,891.67 that the spouses paid to PNB. Thus, the decretal portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered as follows: a) declaring the Deed of Sale, dated June 1996 (Exhibit B) as valid and binding; b) ordering defendants Villaceran to pay to plaintiff the amount of P763,108.33 and P350,000.00 or the total amount of P1,113,108.33 plus the legal rate of interest starting from the date of the filing of this case; c) declaring the Extrajudicial Foreclosure and the Certificate of Sale as valid; d) ordering defendants Villaceran to pay attorneys fees in the amount of P20,000.00 and to pay the costs of suit. SO ORDERED.[15]

Aggrieved, the spouses Villaceran appealed to the CA arguing that the trial court erred in declaring the June 19, 1996 Deed of Sale as a simulated contract and ordering them to pay De Guzman P1,113,108.33 plus legal rate of interest and attorneys fees.[16] On November 26, 2004, the CA rendered its Decision, the dispositive portion of which reads as follows:
IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby AFFIRMED with MODIFICATION, to read as follows: WHEREFORE, judgment is hereby rendered as follows: 1. Declaring the Deed of Sale dated June 16, 1996 (Exh. B) and September 6, 1996, as not reflective of the

true intention of the parties, as the same were merely executed for the purpose of the loan accommodation in favor of the plaintiff-appellee by the defendants-appellants; 2. Ordering defendants-appellants Villaceran to pay plaintiff-appellee the difference between the FEBTC loan of P1,485,000.00 less P721,891.67 (used to redeem the PNBloan), plus legal interest thereon starting from the date of the filing of this case; 3. Declaring the extrajudicial foreclosure and certificate of sale in favor of FEBTC, as valid; and 4. For the appellants to pay the costs of the suit. SO ORDERED.[17]

The CA ruled that the RTC was correct in declaring that there was relative simulation of contract because the deeds of sale did not reflect the true intention of the parties. It found that the evidence established that the documents were executed for the purpose of an agency to secure a higher loan whereby the spouses Villaceran only accommodated De Guzman. However, the CA did not find any evidence to prove that De Guzman actually parted away with the P350,000 as consideration of the reconveyance of the property. Thus, it held the trial court erred in ordering the spouses Villaceran to return the P350,000 to De Guzman. Furthermore, the CA observed that the spouses Villaceran were the ones who redeemed the property from the mortgage with PNB by paying P721,891.67 so that De Guzmans title could be released. Once registered in their name, the spouses Villaceran mortgaged the property with FEBTC for P1,485,000. With the loan proceeds of P1,485,000, there was no need for the spouses Villaceran to demand for the return of the P721,891.67 they paid in releasing the PNB loan before the property is reconveyed to De Guzman. All they had to do was to deduct the amount of P721,891.67 from the P1,485,000 FEBTC loan proceeds. Hence, the CA ruled that only the balance of the P1,485,000 loan proceeds from FEBTC minus the P721,891.67 used to redeem the PNB loan should be paid by the spouses Villaceran to De

Guzman. The CA also deleted the grant of attorneys fees for lack of factual, legal or equitable justification. On December 22, 2004, the spouses Villaceran filed a motion for reconsideration of the foregoing decision. Said motion, however, was denied for lack of merit by the CA in its Resolution dated June 29, 2005. Hence, this appeal. In their petition for review on certiorari, the spouses Villaceran allege that:
1. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN DECLARING THE DEED OF SALE DATED JUNE 19, 1996 AS SIMULATED AND THAT THE SAME WAS MERELY EXECUTED FOR THE PURPOSE OF THE LOAN ACCOMODATION OF PETITIONERS VILLACERAN IN FAVOR OF THE RESPONDENT DE GUZMAN INSTEAD OF DECLARING SAID DEED AS A VALID DEED OF ABSOLUTE SALE, THE CONTENTS OF WHICH ARE CLEARLY REFLECTIVE OF THEIR TRUE INTENTION TO ENTER INTO A CONTRACT OF SALE AND NOT OTHERWISE, IN DIRECT CONTRAVENTION OF THE RULES ON EVIDENCE AND OF THE ADMISSIONS OF THE PARTIES AND THE HONORABLE COURTS RULINGS OR JURISPRUDENCE ON THE MATTER; AND 2. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN ORDERING PETITIONERS VILLACERAN TO PAY RESPONDENT DE GUZMAN THE DIFFERENCE BETWEEN THE FAR EAST BANK AND TRUST COMPANY (FEBTC) LOAN OF PHP1,485,000.00 LESS P721,891.67 (USED TO PAY THE PHILIPPINE NATIONAL BANK [PNB] LOAN) PLUS LEGAL INTEREST THEREON AND TO PAY THE COSTS OF SUIT.[18]

Essentially, the issue for our resolution is whether the CA erred in ruling that the Deed of Sale dated June 19, 1996 is a simulated contract and not a true sale of the subject property.

Petitioners contend that the previous loans they extended to De Guzman in the amounts of P300,000, P600,000 and P200,000 should have been considered by the CA. When added to the P721,891.67 used to settle the PNB loan, De Guzmans total loan obtained from them would amount to P1,821,891.67. Thus, it would clearly show that the Deed of Sale dated June 19, 1996, being supported by a valuable consideration, is not a simulated contract. We do not agree. Article 1345[19] of the Civil Code provides that the simulation of a contract may either be absolute or relative. In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties.[20] As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract. However, if the parties state a false cause in the contract to conceal their real agreement, the contract is only relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest.[21] The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties.[22] In the case at bar, there is a relative simulation of contract as the Deed of Absolute Sale dated June 19, 1996 executed by De Guzman in favor of petitioners did not reflect the true intention of the parties. It is worthy to note that both the RTC and the CA found that the evidence established that the aforesaid document of sale was executed only to enable petitioners to use the property as collateral for a bigger

loan, by way of accommodating De Guzman. Thus, the parties have agreed to transfer title over the property in the name of petitioners who had a good credit line with the bank. The CA found it inconceivable for De Guzman to sell the property for P75,000 as stated in the June 19, 1996 Deed of Sale when petitioners were able to mortgage the property with FEBTC for P1,485,000. Another indication of the lack of intention to sell the property is when a few months later, on September 6, 1996, the same property, this time already registered in the name of petitioners, was reconveyed to De Guzman allegedly for P350,000. As regards petitioners assertion that De Guzmans previous loans should have been considered to prove that there was an actual sale, the Court finds the same to be without merit. Petitioners failed to present any evidence to prove that they indeed extended loans to De Guzman in the amounts of P300,000, P600,000 and P200,000. We note that petitioners tried to explain that on account of their close friendship and trust, they did not ask for any promissory note, receipts or documents to evidence the loan. But in view of the substantial amounts of the loans, they should have been duly covered by receipts or any document evidencing the transaction. Consequently, no error was committed by the CA in holding that the June 19, 1996 Deed of Absolute Sale was a simulated contract. The issue of the genuineness of a deed of sale is essentially a question of fact. It is settled that this Court is not duty-bound to analyze and weigh again the evidence considered in the proceedings below. This is especially true where the trial courts factual findings are adopted and affirmed by the CA as in the present case. Factual findings of the trial court, affirmed by the CA, are final and conclusive and may not be reviewed on appeal.[23] The Court has time and again ruled that conclusions and findings of fact of the trial court are entitled to great weight and should not be disturbed on appeal, unless strong and cogent reasons dictate otherwise. This is because the trial court is in a better position to examine the real evidence, as well as to observe the demeanor of the witnesses while testifying in the case.[24] In sum, the Court finds that there exists no reason to disturb the findings of the CA.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated November 26, 2004 and Resolution dated June 29, 2005 of the Court of Appeals in CA-G.R. CV No. 71831 are AFFIRMED. With costs against the petitioners.
SUPREME COURT Manila THIRD DIVISION G.R. No. 144735 October 18, 2001

YU BUN GUAN, petitioner, vs. ELVIRA ONG, respondent. PANGANIBAN, J.: A simulated deed of sale has no legal effect, and the transfer certificate of title issued in consequence thereof should be cancelled. Pari delicto does not apply to simulated sales. Statement of the Case Before us is a Petition for Review under rule 45 of the Rules of Court, assailing the April 25, 2000 Decision1 and the August 31, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 61364. The decretal portion of the Decision reads as follows: "We cannot see any justification for the setting aside of the contested Decision. "THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED."4 The assailed Resolution denied petitioner's "Supplemental Motion for Reconsideration with Leave to Submit [Newly] Discovered Evidence." The CA sustained the Decision of the Regional Trial Court (RTC) of Makati City (Branch 60), which had disposed as follows:5 "23. WHEREFORE, the Court hereby renders judgment as follows: 23.1 The Deed of Sale dated July 24, 1992 (Exh. EE on Exh. 3) is declared VOID. 23.2 The plaintiff ELVIRA ONG is declared the OWNER of the property covered by Transfer Certificate of Title No. 217614, Registry of Deeds, Makati (Exh. DD). 23.3 The Register of Deeds, City of Makati is ordered to: 23.2.1. Cancel Transfer Certificate of Title No. 181033 (Exh. HH); and 23.2.2. Issue in lieu thereof, a transfer certificate of title in the name of ELVIRA A. ONG, of legal age, single, Filipino';

23.[4]. The defendant YU BUN GUAN is ordered to pay to the said plaintiff, the following: 23.[4].1. P48,631.00 As reimbursement of the capital gains tax (Exh. FF); 23.[4].2. Six (6) percent of P48,631.00 per annum from November 23, 1993, until the said P48,631.00 is paid as damages; 23.[4].3. P100,000.00 as moral damages; 23.[4].4. P50,000.00 as exemplary damages; 23.[4].5. P100,000.00 as attorney's fees. 23.[5]. The COUNTERCLAIM is DISMISSED. 23.[6]. Cost is taxed against the defendant. "24. In Chambers, City of Makati, June 23, 1998. The Facts The antecedents of the case are succinctly summarized by the Court of Appeals in this wise: '[Herein respondent] said that she and [petitioner] are husband and wife, having been married according to Chinese rites on April 30, 1961. They lived together until she and her children were abandoned by [petitioner] on August 26, 1992, because of the latter's 'incurable promiscuity, volcanic temper and other vicious vices'; out of the reunion were born three (3) children, now living with her [respondent]. "She purchased on March 20, 1968, out of her personal funds, a parcel of land, then referred to as the Rizal property, from Aurora Seneris, and supported by Title No. 26795, then subsequently registered on April 17, 1968, in her name.
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"Also during their marriage, they purchased, out of their conjugal funds, a house and lot, in 1983, thereafter, registered in their names, under Title No. 118884. 'Before their separation in 1992, she 'reluctantly agreed' to the [petitioner's] 'importunings' that she execute a Deed of Sale of the J.P. Rizal property in his favor, but on the promise that he would construct a commercial building for the benefit of the children. He suggested that the J.P. Rizal property should be in his name alone so that she would not be involved in any obligation. The consideration for the 'simulated sale' was that, after its execution in which he would represent himself as single, a Deed of Absolute Sale would be executed in favor of the three (3) children and that he would pay the Allied Bank, Inc. the loan he obtained. "Because of the 'glib assurances' of [petitioner], [respondent] executed a Deed of Absolute Sale in 1992, but then he did not pay the consideration of P200,000.00, supposedly the 'ostensible' valuable consideration. On the contrary, she paid for the capital gains tax and all the other assessments even amounting to not less than P60,000.00, out of her personal funds.

"Because of the sale, a new title (TCT No. 181033) was issued in his name, but to 'insure' that he would comply with his commitment, she did not deliver the owner's copy of the title to him. "Because of the refusal of [petitioner] to perform his promise, and also because he insisted on delivering to him the owner's copy of the title [to] the JP Rizal property, in addition to threats and physical violence, she decided executing an Affidavit of Adverse Claim. Also to avoid burdening the JP Rizal property with an additional loan amount, she wrote the Allied Bank, Inc. on August 25, 1992, withdrawing her authority for [petitioner] to apply for additional loans. "To save their marriage, she even sought the help of relatives in an earnest effort [at] reconciliation, not to mention a letter to [petitioner] on November 3, 1992. "[Petitioner], on the other hand, filed with the RTC, Makati, in 1993 (Case No. M-2905), a 'Petition for Replacement' of an owner's duplicate title. "Attached to the Petition was the Affidavit of Loss dated March 26, 1993, in which he falsely made it appear that the owner's copy of the title was lost or misplaced, and that was granted by the court in an Order dated September 17, 1993, following which a new owner's copy of the title was issued to [petitioner]. "Upon discovery of the 'fraudulent steps' taken by the [petitioner], [respondent] immediately executed an Affidavit of Adverse Claim on November 29, 1993. "She precisely asked the court that the sale of the JP Rizal property be declared as null and void; for the title to be cancelled; payment of actual, moral and exemplary damages; and attorney's fees. "It was, on the other hand, the version of [petitioner] that sometime in 1968 or before he became a Filipino, 'through naturalization' the JP Rizal property was being offered to him for sale. Because he was not a Filipino, he utilized [respondent] as his 'dummy' and agreed to have the sale executed in the name of [respondent], although the consideration was his own and from his personal funds. "When he finally acquired a Filipino citizenship in 1972, he purchased another property being referred to as the 'Juno lot' out of his own funds. If only to reflect the true ownership of the JP Rizal property, a Deed of Sale was then executed in 1972. Believing in good faith that his owner's copy of the title was lost and not knowing that the same was surreptitiously 'concealed' by [respondent], he filed in 1993 a petition for replacement of the owner's copy of the title, in court. "[Petitioner] added that [respondent] could not have purchased the property because she had no financial capacity to do so; on the other hand, he was financially capable although he was financially capable although he was disqualified to acquire the property by reason of his nationality. [Respondent] was in pari delicto being privy to the simulated sale. "Before the court a quo, the issues were: who purchased the JP Rizal property? [W]as the Deed of Sale void? and damages.6 Ruling of the Trial Court

After examining the evidence adduced by both parties, the RTC found that the JP Rizal property was the paraphernal property of the respondent, because (1) the title had been issued in her name; (2) petitioner had categorically admitted that the property was in her name; (3) petitioner was estopped from claiming otherwise, since he had signed the Deed of Absolute Sale that stated that she was the "absolute and registered owner"; (4) she had paid the real property taxes thereon.7 The trial court further held that the in pari delicto rule found in Articles 1411 and 1412 of the Civil Code was not applicable to the present case, because it would apply only to existing contracts with an illegal cause or object, not to simulated or fictitious contracts or to those that were inexistent due to lack of an essential requisite such as cause or consideration.8 It likewise voided the Deed of Absolute Sale of the JP Rizal property for having been simulated and executed during the marriage of the parties.9 Ruling of the Court of Appeals The Court of Appeals upheld the trial court's findings that the JP Rizal property had been acquired by respondent alone, out of her own personal funds. It ruled thus: "x x x [T]he JP Rizal property was purchased by the [respondent] alone; therefore it is a paraphernal property. As a matter of fact, the title was issued in her name, Exh. 'DD' This was even admitted by [petitioner] in the Answer that the sale was executed in her name alone. He also signed the sale mentioning [respondent] to be an absolute owner; therefore he should be estopped from claiming otherwise. She alone likewise did the payment of the taxes.10 The CA debunked the contention of petitioner that he had purchased the property out of his own funds and merely used respondent as his dummy.11 It also held that the latter was not in pari delicto with him, because the contract was simulated or fictitious due to the lack of consideration. The contract was deemed void for having been executed during the couple's marriage.12 The CA likewise affirmed the award of actual, moral and exemplary damages to respondent.13 Hence, this Petition.14 Issues In his Memorandum, petitioner raises the following issues for the Court's consideration: I "Whether or not the Court of Appeals gravely erred in not applying [the] rules on coownership under Article 144 of the New Civil Code in determining the proprietary rights of the parties herein even as respondent herself expressly declared that the money with which she allegedly bought the property in question in 1968 came from her funds, salaries and savings at the time she and petitioner already lived as husband and wife. II "Whether or not the Court of Appeals likewise palpably erred in declaring the sale of the subject property to herein petitioner in 1992 to be fictitious, simulated and inexistent. III "Whether or not the Court of Appeals further erred in not applying the '[in] pari delicto' rule to the sale of the subject property in favor of the petitioner in 1992 contrary to the express

declaration to that effect in the very same case it cited (Rodriguez v. Rodriguez; 20 SCRA 908) in the decision herein sought to be reviewed. IV "Whether or not the Court of Appeals gravely erred in annul[l]ing the title (TCT No. 181033) to the subject property in the name of herein petitioner in the absence of actual fraud."15 (Underscoring in the original.) This Court's Ruling The Petition is devoid of merit. First Issue: Nature of the Property Petitioner contends that the JP Rizal property should be deemed as co-owned, considering that respondent testified during trial that the money she used in purchasing it had come from her income, salaries and savings, which are conjugal in nature. On the other hand, respondent maintains that the finding of the two lower courts that the property was acquired using funds solely owned by her is binding and supported by evidence. She further argues that the two defenses of petitioner are contradictory to each other because, if the property is co-owned, he cannot claim to own it in its entirety. We find no reason to disturb the findings of the RTC and the CA that the source of the money used to acquire the property was paraphernal. This issue is factual in nature. It is axiomatic that "factual findings of the trial court, especially when affirmed by the Court of Appeals, as in this case, are binding and conclusive on the Supreme Court. It is not the function of this Court to reexamine the lower courts' findings of fact. While there are exceptions to this rule, petitioner has not shown its entitlement to any of them."16 The testimony of petitioner as to the source of the money he had supposedly used to purchase the property was at best vague and unclear. At first he maintained that the money came from his own personal funds. Then he said that it came from his mother; and next, from his father. Time and time again, "we [have] held that the unnatural and contradictory testimony of a witness, x x x makes him unreliable x x x."17 His statement that the JP Rizal property was bought with his own money can hardly be believed, when he himself was unsure as to the source of those funds. On the other hand, the capacity of respondent to purchase the subject property cannot be questioned. It was sufficiently established during trial that she had the means to do so. In fact, her testimony that she had purchased several other lots using her personal funds was not disputed. Equally without merit is the contention of petitioner that, because he was a Chinese national at the time, respondent was merely used as a dummy in acquiring the property; thus, she could not have legally acquired title thereto. He testified that sometime during the last month of 1968, he had consulted a certain Atty. Flores, who advised him that the property be registered in the name of respondent. However, TCT No. 217614 had been issued earlier on April 17, 1968. Thus, it appears that the subject property had already been bought and registered in the name of respondent, long before Atty. Flores allegedly advised him to have the property registered in her name. We therefore agree with the CA's affirmation of the RTC's findings that the property had been acquired using respondent's paraphernal property. The CA rule thus:

"The fact however, is that Yu never refuted Elvira's testimony that: (a) the money with which she acquired the JP Rizal property came from": (1) her income as a cashier in the Hong Kiat Hardware: a (2) income from her paraphernal property a lot in Guadalupe; (3) her savings from the money which her parents gave her while she was still a student; and (4) the money which her sister gave her for helping her run the beauty parlor; (b) her parents were well off they had stores, apartments and beauty parlors from which they derived income; (c) before her marriage she bought lots in different places (p. 8, TSN, Jan. 26, 1998; pp. 22-23, TSN March 10, 1998)."18 Second Issue: Fictitious, Simulated and Inexistent Sale Next, petitioner argues that there was a valid sale between the parties, and that the consideration consisted of his promise to construct a commercial building for the benefit of their three children and to pay the loan he had obtained from Allied Bank. We disagree. In Rongavilla v. Court of Appeals,19 the Court declared that a deed of sale, in which the stated consideration had not in fact been paid, is null and void: "The 'problem' before the Court is whether a deed which states a consideration that in fact did not exist, is a contract, without consideration, and therefore void ab initio, or a contract with a false consideration, and therefore, at least under the Old Civil Code, voidable. x x x." "In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil. 921[,] is squarely applicable herein. In that case we ruled that a contract of purchase and sale is null and null and void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price which appears thereon as paid has in fact never been paid by the purchaser to vendor."20 In the present case, it is clear from the factual findings of both lower courts that the Deed of Sale was completely simulated and, hence, void and without effect. No portion of the P200,000 consideration stated in the Deed was ever paid. And, from the facts of the case, it is clear that neither party had any intention whatsoever to pay that amount. Instead, the Deed of Sale was executed merely to facilitate the transfer of the property to petitioner pursuant to an agreement between the parties to enable him to construct a commercial building and to sell the Juno property to their children. Being merely a subterfuge, that agreement cannot be taken as the consideration for the sale. Third Issue: Inapplicability of the in Pari Delicto Principle The principle of in pari delicto provides that when two parties are equally at fault, the law leaves them as they are and denies recovery by either one of them. However, this principle does not apply with respect to inexistent and void contracts. Said this Court in Modina v. Court of Appeals:21 "The principle of in pari delicto non oritur actio denies all recovery to the guilty parties inter se. It applies to cases where the nullity arises from the illegality of the consideration or the purpose of the contract. When two persons are equally at fault, the law does not relieve them. The exception to this general rule is when the principle is invoked with respect to inexistent contracts."22

Fourth Issue: Cancellation of TCT Finally, based on the foregoing disquisition, it is quite obvious that the Court of Appeals did not err in ordering the cancellation of TCT No. 181033, because the Deed of Absolute Sale transferring ownership to petitioner was completely simulated, void and without effect. In fact, there was no legal basis for the issuance of the certificate itself.
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WHEREFORE, the Petition is hereby DENIED and the assailed. Decision AFFIRMED. Costs against petitioner. SO ORDERED. Melo, and Sandoval-Gutierrez, JJ., concur. Vitug, J. On Official Leave. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-20871 April 30, 1971 KER & CO., LTD., petitioner, vs. JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent. Ross, Selph and Carrascoso for petitioner. Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Atty. Balbino Gatdula, Jr. for respondent.

FERNANDO, J.: Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea, notwithstanding the vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable stands in the way. The decision under review conforms to and is in accordance with the controlling doctrine announced in the recent case of Commissioner of Internal Revenue v. Constantino. 1 The decisive test, as therein set forth, is the retention of the ownership of the goods delivered to the possession of the dealer, like herein petitioner, for resale to customers, the price and terms remaining subject to the control of the firm consigning such goods. The facts, as found by respondent Court, to which we defer, unmistakably indicate that such a situation does exist. The juridical consequences must inevitably follow. We affirm. It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and compromise penalty for the period from July 1, 1949 to December 31, 1953.

There was a request on the part of petitioner for the cancellation of such assessment, which request was turned down. As a result, it filed a petition for review with the Court of Tax Appeals. In its answer, the then Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a commercial broker. In the decision now under review, promulgated on October 19, 1962, the Court of Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount due from it being fixed at P19,772.33. Such liability arose from a contract of petitioner with the United States Rubber International, the former being referred to as the Distributor and the latter specifically designated as the Company. The contract was to apply to transactions between the former and petitioner, as Distributor, from July 1, 1948 to continue in force until terminated by either party giving to the other sixty days' notice. 2 The shipments would cover products "for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao", petitioner, as Distributor, being precluded from disposing such products elsewhere than in the above places unless written consent would first be obtained from the Company. 3 Petitioner, as Distributor, is required to exert every effort to have the shipment of the products in the maximum quantity and to promote in every way the sale thereof. 4 The prices, discounts, terms of payment, terms of delivery and other conditions of sale were subject to change in the discretion of the Company. 5 Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the Distributor will receive, accept and/or hold upon consignment the products specified under the terms of this agreement in such quantities as in the judgment of the Company may be necessary for the successful solicitation and maintenance of business in the territory, and the Distributor agrees that responsibility for the final sole of all goods delivered shall rest with him. All goods on consignment shall remain the property of the Company until sold by the Distributor to the purchaser or purchasers, but all sales made by the Distributor shall be in his name, in which the sale price of all goods sold less the discount given to the Distributor by the Company in accordance with the provision of paragraph 13 of this agreement, whether or not such sale price shall have been collected by the Distributor from the purchaser or purchasers, shall immediately be paid and remitted by the Distributor to the Company. It is further agreed that this agreement does not constitute Distributor the agent or legal representative 4 of the Company for any purpose whatsoever. Distributor is not granted any right or authority to assume or to create any obligation or responsibility, express or implied, in behalf of or in the name of the Company, or to bind the Company in any manner or thing whatsoever." 6 All specifications for the goods ordered were subject to acceptance by the Company with petitioner, as Distributor, required to accept such goods shipped as well as to clear the same through customs and to arrange for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from the stocks carried by the Company's neighboring branches, subsidiaries or other sources of Company's brands. 7 Shipments were to be invoiced at prices to be agreed upon, with the customs duties being paid by petitioner, as Distributor, for account of the Company. 8 Moreover, all resale prices, lists, discounts and general terms and conditions of local resale were to be subject to the approval of the Company and to change from time to time in its discretion. 9 The dealer, as Distributor, is allowed a discount of ten percent on the net amount of sales of merchandise made under such agreement. 10 On a date to be determined by the Company, the petitioner, as Distributor, was required to report to it data showing in detail all sales during the month immediately preceding, specifying therein the quantities, sizes and types together with such information as may be required for accounting purposes, with the Company rendering an invoice on sales as described to be dated as of the date of inventory and sales report. As Distributor, petitioner had to make payment on such invoice or invoices on due date with the Company being privileged at its option to terminate and cancel the agreement forthwith upon the failure to comply with this obligation. 11 The Company, at its own expense, was to keep the consigned stock fully insured against loss or damage by fire or as a result of fire, the policy of such insurance to be payable to it in the event of loss. Petitioner, as Distributor, assumed full responsibility with reference to the stock and its safety at all times; and upon request of the Company at any time, it was to render inventory of the existing stock which could be subject to change. 12 There was furthermore this equally tell-tale covenant: "Upon the termination or any

cancellation of this agreement all goods held on consignment shall be held by the Distributor for the account of the Company, without expense to the Company, until such time as provision can be made by the Company for disposition." 13 The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is one of vendor and vendee or of broker and principal. Not that there would have been the slightest doubt were it not for the categorical denial in the contract that petitioner was not constituted as "the agent or legal representative of the Company for any purpose whatsoever." It would be, however, to impart to such an express disclaimer a meaning it should not possess to ignore what is manifestly the role assigned to petitioner considering the instrument as a whole. That would be to lose sight altogether of what has been agreed upon. The Court of Tax Appeals was not misled in the language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an agent of U.S. Rubber International is borne out by the facts that petitioner can dispose of the products of the Company only to certain persons or entities and within stipulated limits, unless excepted by the contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon consignment the products, which remain properties of the latter company (Par. 8); that every effort shall be made by petitioner to promote in every way the sale of the products (Par. 3); that sales made by petitioner are subject to approval by the company (Par. 12); that on dates determined by the rubber company, petitioner shall render a detailed report showing sales during the month (Par. 14); that the rubber company shall invoice the sales as of the dates of inventory and sales report (Par. 14); that the rubber company agrees to keep the consigned goods fully insured under insurance policies payable to it in case of loss (Par. 15); that upon request of the rubber company at any time, petitioner shall render an inventory of the existing stock which may be checked by an authorized representative of the former (Par. 15); and that upon termination or cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the account of the rubber company until their disposition is provided for by the latter (Par. 19). All these circumstances are irreconcilably antagonistic to the idea of an independent merchant." 14 Hence its conclusion: "However, upon analysis of the contract, as a whole, together with the actual conduct of the parties in respect thereto, we have arrived at the conclusion that the relationship between them is one of brokerage or agency." 15 We find ourselves in agreement, notwithstanding the able brief filed on behalf of petitioner by its counsel. As noted at the outset, we cannot heed petitioner's plea for reversal. 1. According to the National Internal Revenue Code, a commercial broker "includes all persons, other than importers, manufacturers, producers, or bona fide employees, who, for compensation or profit, sell or bring about sales or purchases of merchandise for other persons or bring proposed buyers and sellers together, or negotiate freights or other business for owners of vessels or other means of transportation, or for the shippers, or consignors or consignees of freight carried by vessels or other means of transportation. The term includes commission merchants." 16 The controlling decision as to the test to be followed as to who falls within the above definition of a commercial broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the language of Justice J. B. L. Reyes, who penned the opinion: "Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support of such a view follows: " 'The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made.' "20 The opinion relied on the work of Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote treatises on Sales, were likewise referred to.

Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity or presence of these mutual requirements and obligations on any theory other than that of a contract of agency. Salisbury was to furnish the mill and put the timber owned by him into a marketable condition in the form of lumber; Brooks was to furnish the funds necessary for that purpose, sell the manufactured product, and account therefor to Salisbury upon the specific terms of the agreement, less the compensation fixed by the parties in lieu of interest on the money advanced and for services as agent. These requirements and stipulations are in tent with any other conception of the contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be ignored. They were placed there for some purpose, doubtless as the result of definite antecedent negotiations therefore, consummated by the final written expression of the agreement." 21 Hence the Constantino opinion could categorically affirm that the mere disclaimer in a contract that an entity like petitioner is not "the agent or legal representative for any purpose whatsoever" does not suffice to yield the conclusion that it is an independent merchant if the control over the goods for resale of the goods consigned is pervasive in character. The Court of Tax Appeals decision now under review pays fealty to such an applicable doctrine. 2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals. Neither did such Court fail to appreciate in its true significance the act and conduct pursued in the implementation of the contract by both the United States Rubber International and petitioner, as was contended in the second assignment of error. Petitioner ought to have been aware that there was no need for such an inquiry. The terms of the contract, as noted, speak quite clearly. There is lacking that degree of ambiguity sufficient to give rise to serious doubt as to what was contemplated by the parties. A reading thereof discloses that the relationship arising therefrom was not one of seller and purchaser. If it were thus intended, then it would not have included covenants which in their totality would negate the concept of a firm acquiring as vendee goods from another. Instead, the stipulations were so worded as to lead to no other conclusion than that the control by the United States Rubber International over the goods in question is, in the language of the Constantino opinion, "pervasive". The insistence on a relationship opposed to that apparent from the language employed might even yield the impression that such a mode of construction was resorted to in order that the applicability of a taxing statute might be rendered nugatory. Certainly, such a result is to be avoided. Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has developed an expertise in view of its function being limited solely to the interpretation of revenue laws, this Court is not prepared to substitute its own judgment unless a grave abuse of discretion is manifest. It would be to frustrate the objective for which administrative tribunals are created if the judiciary, absent such a showing, is to ignore their appraisal on a matter that forms the staple of their specialized competence. While it is to be admitted that counsel for petitioner did scrutinize with care the decision under review with a view to exposing what was considered its flaws, it cannot be said that there was such a failure to apply what the law commands as to call for its reversal. Instead, what cannot be denied is that the Court of Tax Appeals reached a result to which the Court in the recent Constantino decision gave the imprimatur of its approval. WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs against petitioner. Concepcion C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

Footnotes Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION G.R. No. 128120 October 20, 2004

SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL SANTOS, BETH FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ, NICANOR ESCALANTE, PETER HODGSON, SAMUEL PARTOSA, HERMINDA ASUNCION, JUANITO HERRERA, JACOBUS NICOLAAS, JOSEPH PEKELHARING (now Representing himself without court sanction as "JOOST PEKELHARING)," MASSIMO ROSSI and ED ENRIQUEZ, petitioners, vs. COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION and ANTONIO K. LITONJUA,respondents. DECISION TINGA, J.: Petitioners seek a reversal of the twin Orders1 of the Court of Appeals dated 15 November 19962 and 31 January 1997,3 in CA-G.R. CV No. 35886, entitled "ALS Management et al., v. Swedish Match, AB et al." The appellate court overturned the trial courts Order4 dismissing the respondents complaint for specific performance and remanded the case to the trial court for further proceedings. Swedish Match AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not doing business in the Philippines. SMAB, however, had three subsidiary corporations in the Philippines, all organized under Philippine laws, to wit: Phimco Industries, Inc. (Phimco), Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc. Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of Sweden and the latters worldwide match, lighter and shaving products operation to Eemland Management Services, now known as Swedish Match NV of Netherlands, (SMNV), a corporation organized and existing under the laws of Netherlands. STORA, however, retained for itself the packaging business. SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself the shaving business. SMNV adopted a two-pronged strategy, the first being to sell its shares in Phimco Industries, Inc. and a match company in Brazil, which proposed sale would stave-off defaults in the loan covenants of SMNV with its syndicate of lenders. The other move was to sell at once or in one package all the SMNV companies worldwide which were engaged in match and lighter operations thru a global deal (hereinafter, global deal). Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)the management company of the Swedish Match groupwas commissioned and granted full powers to negotiate by SMNV, with the resulting transaction, however, made subject to final approval by the board. Enriquez was held under strict instructions that the sale of Phimco shares should be executed on or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez came to the Philippines in November 1989 and informed the Philippine financial and business circles that the Phimco shares were for sale. Several interested parties tendered offers to acquire the Phimco shares, among whom were the AFP Retirement and Separation Benefits System, herein respondent ALS Management & Development Corporation and respondent Antonio Litonjua (Litonjua), the president and general manager of ALS.

In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the latters shares in Phimco and all of Phimcos shares in Provident Tree Farm, Inc. and OTT/Louie (Phils.), Inc. for the sum ofP750,000,000.00.5 Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1 December 1989, thanked respondents for their interest in the Phimco shares. Rossi informed respondents that their price offer was below their expectations but urged them to undertake a comprehensive review and analysis of the value and profit potentials of the Phimco shares, with the assurance that respondents would enjoy a certain priority although several parties had indicated their interest to buy the shares.6 Thereafter, an exchange of correspondence ensued between petitioners and respondents regarding the projected sale of the Phimco shares. In his letter dated 21 May 1990, Litonjua offered to buy the disputed shares, excluding the lighter division for US$30.6 million, which per another letter of the same date was increased to US$36 million.7Litonjua stressed that the bid amount could be adjusted subject to availability of additional information and audit verification of the company finances. Responding to Litonjuas offer, Rossi sent his letter dated 11 June 1990, informing the former that ALS should undertake a due diligence process or pre-acquisition audit and review of the draft contract for the Match and Forestry activities of Phimco at ALS convenience. However, Rossi made it clear that at the completion of the due diligence process, ALS should submit its final offer in US dollar terms not later than 30 June 1990, for the shares of SMAB corresponding to ninetysix percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in case the "global deal" presently under negotiation for the Swedish Match Lights Group would materialize, SMAB would reimburse up to US$20,000.00 of ALS costs related to the due diligence process.8 Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in SMABs approach to the bidding process. He pointed out that in their 4 June 1990 meeting, he was advised that one final bidder would be selected from among the four contending groups as of that date and that the decision would be made by 6 June 1990. He criticized SMABs decision to accept a new bidder who was not among those who participated in the 25 May 1990 bidding. He informed Rossi that it may not be possible for them to submit their final bid on 30 June 1990, citing the advice to him of the auditing firm that the financial statements would not be completed until the end of July. Litonjua added that he would indicate in their final offer more specific details of the payment mechanics and consider the possibility of signing a conditional sale at that time.9 Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that they would be unable to submit the final offer by 30 June 1990, considering that the acquisition audit of Phimco and the review of the draft agreements had not yet been completed. He said, however, that they would be able to finalize their bid on 17 July 1990 and that in case their bid would turn out better than any other proponent, they would remit payment within ten (10) days from the execution of the contracts.10 Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other parties in view of Litonjuas failure to make a firm commitment for the shares of Swedish Match in Phimco by 30 June 1990.11 In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a conditional contract with a local group for the disposal of Phimco. He told Litonjua that his bid would no longer be considered unless the local group would fail to consummate the transaction on or before 15 September1990.12 Apparently irked by SMABs decision to junk his bid, Litonjua promptly responded by letter dated 4 July 1990. Contrary to his prior manifestations, he asserted that, for all intents and purposes, the US$36 million bid which he submitted on 21 May 1990 was their final bid based on the

financial statements for the year 1989. He pointed out that they submitted the best bid and they were already finalizing the terms of the sale. He stressed that they were firmly committed to their bid of US$36 million and if ever there would be adjustments in the bid amount, the adjustments were brought about by SMABs subsequent disclosures and validated accounts, such as the aspect that only ninety-six percent (96%) of Phimco shares was actually being sold and not onehundred percent (100%).13 More than two months from receipt of Litonjuas last letter, Enriquez sent a fax communication to the former, advising him that the proposed sale of SMABs shares in Phimco with local buyers did not materialize. Enriquez then invited Litonjua to resume negotiations with SMAB for the sale of Phimco shares. He indicated that SMAB would be prepared to negotiate with ALS on an exclusive basis for a period of fifteen (15) days from 26 September 1990 subject to the terms contained in the letter. Additionally, Enriquez clarified that if the sale would not be completed at the end of the fifteen (15)-day period, SMAB would enter into negotiations with other buyers.14 Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms and conditions for the sale of the Phimco shares. He emphasized that the new offer constituted an attempt to reopen the already perfected contract of sale of the shares in his favor. He intimated that he could not accept the new terms and conditions contained therein.15 On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of Pasig a complaint for specific performance with damages, with a prayer for the issuance of a writ of preliminary injunction, against defendants, now petitioners. The individual defendants were sued in their respective capacities as officers of the corporations or entities involved in the aborted transaction. Aside from the averments related to their principal cause of action for specific performance, respondents alleged that the Phimco management, in utter bad faith, induced SMAB to violate its contract with respondents. They contended that the Phimco management took an interest in acquiring for itself the Phimco shares and that petitioners conspired to thwart the closing of such sale by interposing various obstacles to the completion of the acquisition audit.16 Respondents claimed that the Phimco management maliciously and deliberately delayed the delivery of documents to Laya Manabat Salgado & Co. which prevented them from completing the acquisition audit in time for the deadline on 30 June 1990 set by petitioners.17 Respondents added that SMABs refusal to consummate the perfected sale of the Phimco shares amounted to an abuse of right and constituted conduct which is contrary to law, morals, good customs and public policy.18 Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares, or otherwise implementing the sale or transfer thereof, in favor of any person or entity other than respondents, and that any such sale to third parties be annulled and set aside. Respondents also asked that petitioners be ordered to execute all documents or instruments and perform all acts necessary to consummate the sales agreement in their favor. Traversing the complaint, petitioners alleged that respondents have no cause of action, contending that no perfected contract, whether verbal or written, existed between them. Petitioners added that respondents cause of action, if any, was barred by the Statute of Frauds since there was no written instrument or document evidencing the alleged sale of the Phimco shares to respondents. Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of Frauds, which the trial court granted. Both parties agreed to adopt as their evidence in support of or against the motion to dismiss, as the case may be, the evidence which they adduced in support of their respective positions on the writ of preliminary injunction incident.

In its Order dated 17 April 1991, the RTC dismissed respondents complaint.19 It ruled that there was no perfected contract of sale between petitioners and respondents. The court a quo said that the letter dated 11 June 1990, relied upon by respondents, showed that petitioners did not accept the bid offer of respondents as the letter was a mere invitation for respondents to conduct a due diligence process or pre-acquisition audit of Phimcos match and forestry operations to enable them to submit their final offer on 30 June 1990. Assuming that respondents bid was favored by an oral acceptance made in private by officers of SMAB, the trial court noted, such acceptance was merely preparatory to a formal acceptance by the SMABthe acceptance that would eventually lead to the execution and signing of the contract of sale. Moreover, the court noted that respondents failed to submit their final bid on the deadline set by petitioners. Respondents appealed to the Court of Appeals, assigning the following errors: A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT ERRED PROCEDURALLY IN MOTU PROPIO (sic) DISMISSING THE COMPLAINT IN ITS ENTIRETY FOR "LACK OF A VALID CAUSE OF ACTION" WITHOUT THE BENEFIT OF A FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS. B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS CAUSE OF ACTION BASED ON TORT WHICH, HAVING BEEN SUFFICIENTLY PLEADED, INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL. C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS CAUSE OF ACTION BASED ON PROMISSORY ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY PLEADED, WARRANTED A FULL-BLOWN TRIAL, INDEPENDENTLY FOR THE OTHER CAUSES OF ACTION. D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO FAVOR DEFENDANTS-APPELLEES BY MAKING UNFOUNDED FINDINGS, ALL IN VIOLATION OF PLAINTIFFS-APPELLANTS RIGHT TO DUE PROCESS.20 After assessing the respective arguments of the parties, the Court of Appeals reversed the trial courts decision. It ruled that the series of written communications between petitioners and respondents collectively constitute a sufficient memorandum of their agreement under Article 1403 of the Civil Code; thus, respondents complaint should not have been dismissed on the ground that it was unenforceable under the Statute of Frauds. The appellate court opined that any document or writing, whether formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose which satisfies all the Statutes requirements as to contents and signature would be sufficient; and, that two or more writings properly connected could be considered together. The appellate court concluded that the letters exchanged by and between the parties, taken together, were sufficient to establish that an agreement to sell the disputed shares to respondents was reached. The Court of Appeals clarified, however, that by reversing the appealed decision it was not thereby declaring that respondents are entitled to the reliefs prayed for in their complaint, but only that the case should not have been dismissed on the ground of unenforceability under the Statute of Frauds. It ordered the remand of the case to the trial court for further proceedings. Hence, this petition. Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds requires not just the existence of any note or memorandum but that such note or memorandum should evidence an agreement to sell; and, that in this case, there was no word, phrase, or

statement in the letters exchanged between the two parties to show or even imply that an agreement had been reached for the sale of the shares to respondent. Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were merely tentative and still subject to further negotiations between him and the seller. They point out that there was no meeting of the minds on the essential terms and conditions of the sale because SMAB did not accept respondents offer that consideration would be paid in Philippine pesos. Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at the same time stating that the broad terms and conditions described in their meeting were inadequate for them to make a response at that time so much so that he would have to await the corresponding specifics. Petitioners argue that the foregoing circumstances prove that they failed to reach an agreement on the sale of the Phimco shares. In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute of Frauds does not apply to the instant case. Respondents assert that the sale of the subject shares to them was perfected as shown by the following circumstances, namely: petitioners assured them that should they increase their bid, the sale would be awarded to them and that they did in fact increase their previous bid of US$30.6 million to US$36 million; petitioners orally accepted their revised offer and the acceptance was relayed to them by Rene Dizon; petitioners directed them to proceed with the acquisition audit and to submit a comfort letter from the United Coconut Planters Bank (UCPB); petitioner corporation confirmed its previous verbal acceptance of their offer in a letter dated 11 June 1990; with the prior approval of petitioners, respondents engaged the services of Laya, Manabat, Salgado & Co., an independent auditing firm, to immediately proceed with the acquisition audit; and, petitioner corporation reiterated its commitment to be bound by the result of the acquisition audit and promised to reimburse respondents cost to the extent of US$20,000.00. All these incidents, according to respondents, overwhelmingly prove that the contract of sale of the Phimco shares was perfected. Further, respondents argued that there was partial performance of the perfected contract on their part. They alleged that with the prior approval of petitioners, they engaged the services of Laya, Manabat, Salgado & Co. to conduct the acquisition audit. They averred that petitioners agreed to be bound by the results of the audit and offered to reimburse the costs thereof to the extent of US$20,000.00. Respondents added that in compliance with their obligations under the contract, they have submitted a comfort letter from UCPB to show petitioners that the bank was willing to finance the acquisition of the Phimco shares.21 The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial courts decision dismissing the complaint for being unenforceable under the Statute of Frauds; and (2) whether there was a perfected contract of sale between petitioners and respondents with respect to the Phimco shares. The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code22 requires certain contracts enumerated therein to be evidenced by some note or memorandum in order to be enforceable. The term "Statute of Frauds" is descriptive of statutes which require certain classes of contracts to be in writing. The Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable.23 Evidence of the agreement cannot be received without the writing or a secondary evidence of its contents. The Statute, however, simply provides the method by which the contracts enumerated therein may be proved but does not declare them invalid because they are not reduced to writing. By law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract

be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable.24 Consequently, the effect of noncompliance with the requirement of the Statute is simply that no action can be enforced unless the requirement is complied with.25 Clearly, the form required is for evidentiary purposes only. Hence, if the parties permit a contract to be proved, without any objection, it is then just as binding as if the Statute has been complied with.26 The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.27 However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot rest partly in writing and partly in parol. The note or memorandum must contain the names of the parties, the terms and conditions of the contract, and a description of the property sufficient to render it capable of identification.28 Such note or memorandum must contain the essential elements of the contract expressed with certainty that may be ascertained from the note or memorandum itself, or some other writing to which it refers or within which it is connected, without resorting to parol evidence.29 Contrary to the Court of Appeals conclusion, the exchange of correspondence between the parties hardly constitutes the note or memorandum within the context of Article 1403 of the Civil Code. Rossis letter dated 11 June 1990, heavily relied upon by respondents, is not complete in itself. First, it does not indicate at what price the shares were being sold. In paragraph (5) of the letter, respondents were supposed to submit their final offer in U.S. dollar terms, at that after the completion of the due diligence process. The paragraph undoubtedly proves that there was as yet no definite agreement as to the price. Second, the letter does not state the mode of payment of the price. In fact, Litonjua was supposed to indicate in his final offer how and where payment for the shares was planned to be made.30 Evidently, the trial courts dismissal of the complaint on the ground of unenforceability under the Statute of Frauds is warranted.31 Even if we were to consider the letters between the parties as a sufficient memorandum for purposes of taking the case out of the operation of the Statute the action for specific performance would still fail. A contract is defined as a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another, or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.32 There can be no contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; (c) cause of the obligation which is established.33Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.34 Specifically, in the case of a contract of sale, required is the concurrence of three elements, to wit: (a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) determinate subject matter, and (c) price certain in money or its equivalent.35 Such contract is born from the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.36 In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the

contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.37 A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and pave the way for the celebration of a future contract. An imperfect promise (policitacion), on the other hand, is a mere unaccepted offer.38 Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. At any time prior to the perfection of the contract, either negotiating party may stop the negotiation.39 The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal.40 An offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. Consent in a contract of sale should be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.41 Quite obviously, Litonjuas letter dated 21 May 1990, proposing the acquisition of the Phimco shares for US$36 million was merely an offer. This offer, however, in Litonjuas own words, "is understood to be subject to adjustment on the basis of an audit of the assets, liabilities and net worth of Phimco and its subsidiaries and on the final negotiation between ourselves."42 Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not. Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by 30 June 1990.43With indubitable inconsistency, respondents later claimed that for all intents and purposes, the US$36 million was their final bid. If this were so, it would be inane for Litonjua to state, as he did, in his letter dated 28 June 1990 that they would be in a position to submit their final bid only on 17 July 1990. The lack of a definite offer on the part of respondents could not possibly serve as the basis of their claim that the sale of the Phimco shares in their favor was perfected, for one essential element of a contract of sale was obviously wantingthe price certain in money or its equivalent. The price must be certain, otherwise there is no true consent between the parties.44 There can be no sale without a price.45 Quite recently, this Court reiterated the long-standing doctrine that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist since the agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.46 Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a mere offer in the absence of evidence of its acceptance. To produce a contract, there must be acceptance, which may be express or implied, but it must not qualify the terms of the offer.47 The acceptance of an offer must be unqualified and absolute to perfect the contract.48 In other words, it must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.49 Respondents attempt to prove the alleged verbal acceptance of their US$36 million bid becomes futile in the face of the overwhelming evidence on record that there was in the first place no meeting of the minds with respect to the price. It is dramatically clear that the US$36 million was not the actual price agreed upon but merely a preliminary offer which was subject to adjustment after the conclusion of the audit of the company finances. Respondents failure to submit their final bid on the deadline set by petitioners prevented the perfection of the contract of sale. It was not perfected due to the absence of one essential element which was the price certain in money or its equivalent.

At any rate, from the procedural stand point, the continuing objections raised by petitioners to the admission of parol evidence50 on the alleged verbal acceptance of the offer rendered any evidence of acceptance inadmissible. Respondents plea of partial performance should likewise fail. The acquisition audit and submission of a comfort letter, even if considered together, failed to prove the perfection of the contract. Quite the contrary, they indicated that the sale was far from concluded. Respondents conducted the audit as part of the due diligence process to help them arrive at and make their final offer. On the other hand, the submission of the comfort letter was merely a guarantee that respondents had the financial capacity to pay the price in the event that their bid was accepted by petitioners. The Statute of Frauds is applicable only to contracts which are executory and not to those which have been consummated either totally or partially.51 If a contract has been totally or partially performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits already derived by him from the transaction in litigation, and at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby.52 This rule, however, is predicated on the fact of ratification of the contract within the meaning of Article 1405 of the Civil Code either (1) by failure to object to the presentation of oral evidence to prove the same, or (2) by the acceptance of benefits under them. In the instant case, respondents failed to prove that there was partial performance of the contract within the purview of the Statute. Respondents insist that even on the assumption that the Statute of Frauds is applicable in this case, the trial court erred in dismissing the complaint altogether. They point out that the complaint presents several causes of action. A close examination of the complaint reveals that it alleges two distinct causes of action, the first is for specific performance53 premised on the existence of the contract of sale, while the other is solely for damages, predicated on the purported dilatory maneuvers executed by the Phimco management.54 With respect to the first cause of action for specific performance, apart from petitioners alleged refusal to honor the contract of salewhich has never been perfected in the first place respondents made a number of averments in their complaint all in support of said cause of action. Respondents claimed that petitioners were guilty of promissory estoppel,55 warranty breaches56 and tortious conduct57 in refusing to honor the alleged contract of sale. These averments are predicated on or at least interwoven with the existence or perfection of the contract of sale. As there was no such perfected contract, the trial court properly rejected the averments in conjunction with the dismissal of the complaint for specific performance. However, respondents second cause of action due to the alleged malicious and deliberate delay of the Phimco management in the delivery of documents necessary for the completion of the audit on time, not being based on the existence of the contract of sale, could stand independently of the action for specific performance and should not be deemed barred by the dismissal of the cause of action predicated on the failed contract. If substantiated, this cause of action would entitle respondents to the recovery of damages against the officers of the corporation responsible for the acts complained of. Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents an opportunity to substantiate their allegations with respect to its cause of action for damages against the officers of Phimco based on the latters alleged self-serving dilatory maneuvers.

WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby MODIFIED insofar as it declared the agreement between the parties enforceable under the Statute of Frauds. The complaint before the trial court is ordered DISMISSED insofar as the cause of action for specific performance is concerned. The case is ordered REMANDED to the trial court for further proceedings with respect to the cause of action for damages as above specified. SO ORDERED. Puno, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 152411 September 29, 2004

UNIVERSITY OF THE PHILIPPINES, petitioner, vs. PHILAB INDUSTRIES, INC., respondent. DECISION CALLEJO, SR., J.: Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 44209, as well as its Resolution2 denying the petitioners motion for the reconsideration thereof. Themo1 mo2Court of Appeals set aside the Decision3 of Branch 150 of the Regional Trial Court (RTC) of Makati City, which dismissed the complaint of the respondent against the petitioner for sum of money and damages. The Facts of the Case Sometime in 1979, the University of the Philippines (UP) decided to construct an integrated system of research organization known as the Research Complex. As part of the project, laboratory equipment and furniture were purchased for the National Institute of Biotechnology and Applied Microbiology (BIOTECH) at the UP Los Baos. Providentially, the Ferdinand E. Marcos Foundation (FEMF) came forward and agreed to fund the acquisition of the laboratory furniture, including the fabrication thereof. Renato E. Lirio, the Executive Assistant of the FEMF, gave the go-signal to BIOTECH to contact a corporation to accomplish the project. On July 23, 1982, Dr. William Padolina, the Executive Deputy Director of BIOTECH, arranged for Philippine Laboratory Industries, Inc. (PHILAB), to fabricate the laboratory furniture and deliver the same to BIOTECH for the BIOTECH Building Project, for the account of the FEMF. Lirio directed Padolina to give the go-signal to PHILAB to proceed with the fabrication of the laboratory furniture, and requested Padolina to forward the contract of the project to FEMF for its approval. On July 13, 1982, Padolina wrote Lirio and requested for the issuance of the purchase order and downpayment for the office and laboratory furniture for the project, thus:

1. Supply and Installation of Laboratory furniture for the BIOTECH Building Project Amount Supplier Attention Downpayment : P2,934,068.90 : Philippine Laboratory Furniture Co., College, Laguna : Mr. Hector C. Navasero President : 40% or P1,173,627.56

2. Fabrication and Supply of office furniture for the BIOTECH Building Project Amount Supplier : P573,375.00 : Trans-Oriental Woodworks, Inc. 1st Avenue, Bagumbayan Tanyag, Taguig, Metro Manila : 50% or P286,687.504

Downpayment

Padolina assured Lirio that the contract would be prepared as soon as possible before the issuance of the purchase orders and the downpayment for the goods, and would be transmitted to the FEMF as soon as possible. In a Letter dated July 23, 1982, Padolina informed Hector Navasero, the President of PHILAB, to proceed with the fabrication of the laboratory furniture, per the directive of FEMF Executive Assistant Lirio. Padolina also requested for copies of the shop drawings and a sample contract5 for the project, and that such contract and drawings had to be finalized before the down payment could be remitted to the PHILAB the following week. However, PHILAB failed to forward any sample contract. Subsequently, PHILAB made partial deliveries of office and laboratory furniture to BIOTECH after having been duly inspected by their representatives and FEMF Executive Assistant Lirio. On August 24, 1982, FEMF remitted P600,000 to PHILAB as downpayment for the laboratory furniture for the BIOTECH project, for which PHILAB issued Official Receipt No. 253 to FEMF. On October 22, 1982, FEMF made another partial payment of P800,000 to PHILAB, for which the latter issued Official Receipt No. 256 to FEMF. The remittances were in the form of checks drawn by FEMF and delivered to PHILAB, through Padolina. On October 16, 1982, UP, through Emil Q. Javier, the Chancellor of UP Los Baos and FEMF, represented by its Executive Officer, Rolando Gapud, executed a Memorandum of Agreement (MOA) in which FEMF agreed to grant financial support and donate sums of money to UP for the construction of buildings, installation of laboratory and other capitalization for the project, not to exceed P29,000,000.00. The obligations of FEMF under the MOA are the following: ARTICLE II OBLIGATIONS OF THE FOUNDATION 2.1. The FOUNDATION, in carrying out its principal objectives of promoting philantrophic and scientific projects through financial support to such projects that will contribute to the countrys economic development, shall grant such financial support and donate such sums of money to the RESEARCH COMPLEX as may be necessary for the construction of buildings, installation of laboratories, setting up of offices and physical plants and facilities and other capital investment of the RESEARCH COMPLEX and/or any of its

component Research Institutes not to exceed P29 Million. For this purpose, the FOUNDATION shall: (a) Acquire and donate to the UNIVERSITY the site for the RESEARCH COMPLEX; and (b) Donate or cause to be donated to the UNIVERSITY the sum of TWENTYNINE MILLION PESOS (P29,000,000.00) for the construction of the buildings of the National Institutes of Biotechnology and Applied Microbiology (BIOTECH) and the installation of their laboratories and their physical plants and other facilities to enable them to commence operations. 2.2. In addition, the FOUNDATION shall, subject to the approval of the Board of Trustees of the FOUNDATION, continue to support the activities of the RESEARCH COMPLEX by way of recurrent additional grants and donations for specific research and development projects which may be mutually agreed upon and, from time to time, additional grants and donations of such amounts as may be necessary to provide the RESEARCH COMPLEX and/or any of its Research Institutes with operational flexibility especially with regard to incentives to staff purchase of equipment/facilities, travel abroad, recruitment of local and expatriate staff and such other activities and inputs which are difficult to obtain under usual government rules and regulations.6 The Board of Regents of the UP approved the MOA on November 25, 1982.7 In the meantime, Navasero promised to submit the contract for the installation of laboratory furniture to BIOTECH, by January 12, 1983. However, Navasero failed to do so. In a Letter dated February 1, 1983, BIOTECH reminded Navasero of the need to submit the contract so that it could be submitted to FEMF for its evaluation and approval.8Instead of submitting the said contract, PHILAB submitted to BIOTECH an accomplishment report on the project as of February 28, 1983, and requested payment thereon.9 By May 1983, PHILAB had completed 78% of the project, amounting to P2,288,573.74 out of the total cost of P2,934,068.90. The FEMF had already paid forty percent (40%) of the total cost of the project. On May 12, 1983, Padolina wrote Lirio and furnished him the progress billing from PHILAB.10 On August 11, 1983, the FEMF made another partial payment of P836,119.52 representing the already delivered laboratory and office furniture after the requisite inspection and verification thereof by representatives from the BIOTECH, FEMF, and PHILAB. The payment was made in the form of a check, for which PHILAB issued Official Receipt No. 202 to FEMF through Padolina.11 On July 1, 1984, PHILAB submitted to BIOTECH Invoice No. 01643 in the amount of P702,939.40 for the final payment of laboratory furniture. Representatives from BIOTECH, PHILAB, and Lirio for the FEMF, conducted a verification of the accomplishment of the work and confirmed the same. BIOTECH forwarded the invoice to Lirio on December 18, 1984 for its payment.12 Lirio, in turn, forwarded the invoice to Gapud, presumably sometime in the early part of 1985. However, the FEMF failed to pay the bill. PHILAB reiterated its request for payment through a letter on May 9, 1985.13 BIOTECH again wrote Lirio on March 21, 1985, requesting the payment of PHILABs bill.14 It sent another letter to Gapud, on November 22, 1985, again appealing for the payment of PHILABs bill.15In a Letter to BIOTECH dated December 5, 1985, PHILAB requested payment of P702,939.40 plus interest thereon of P224,940.61.16 There was, however, no response from the FEMF. On February 24, 1986, PHILAB wrote BIOTECH, appealing for the payment of its bill even on installment basis.17 President Marcos was ousted from office during the February 1986 EDSA Revolution. On March 26, 1986, Navasero wrote BIOTECH requesting for its much-needed assistance for the payment of the balance already due plus interest of P295,234.55 for its fabrication and supply of laboratory furniture.18

On April 22, 1986, PHILAB wrote President Corazon C. Aquino asking her help to secure the payment of the amount due from the FEMF.19 The letter was referred to then Budget Minister Alberto Romulo, who referred the letter to then UP President Edgardo Angara on June 9, 1986. On September 30, 1986, Raul P. de Guzman, the Chancellor of UP Los Baos, wrote then Chairman of the Presidential Commission on Good Government (PCGG) Jovito Salonga, submitting PHILABs claim to be officially entered as "accounts payable" as soon as the assets of FEMF were liquidated by the PCGG.20 In the meantime, the PCGG wrote UP requesting for a copy of the relevant contract and the MOA for its perusal.21 Chancellor De Guzman wrote Navasero requesting for a copy of the contract executed between PHILAB and FEMF. In a Letter dated October 20, 1987, Navasero informed De Guzman that PHILAB and FEMF did not execute any contract regarding the fabrication and delivery of laboratory furniture to BIOTECH. Exasperated, PHILAB filed a complaint for sum of money and damages against UP. In the complaint, PHILAB prayed that it be paid the following: (1) PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY NINE & 40/100 (P702,939.40) plus an additional amount (as shall be determined during the hearing) to cover the actual cost of money which at the time of transaction the value of the peso was eleven to a dollar (P11.00:$1) and twenty seven (27%) percent interest on the total amount from August 1982 until fully paid; (2) PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages; (3) FIFTY THOUSAND [PESOS] (P50,000.00) as and for attorneys fees; and (4) Cost of suit.22 PHILAB alleged, inter alia, that: 3. Sometime in August 1982, defendant, through its officials, particularly MR. WILLIAM PADOLINA, Director, asked plaintiff to supply and install several laboratory furnitures and equipment at BIOTECH, a research laboratory of herein defendant located at its campus in College, Laguna, for a total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (P2,939,058.90); 4. After the completion of the delivery and installation of said laboratory furnitures and equipment at defendants BIOTECH Laboratory, defendant paid three (3) times on installment basis: a) P600,000.00 as per Official Receipt No. 253 dated August 24, 1982; b) P800,000.00 as per Official Receipt No. 256 dated October 22, 1982; c) P836,119.52 as per Official Receipt No. 202 dated August 11, 1983; thus leaving a balance of PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY-NINE & 40/100 (P702,939.40). 5. That notwithstanding repeated demands for the past eight years, defendant arrogantly and maliciously made plaintiff believe that it was going to pay the balance aforestated, that was why plaintiffs President and General Manager himself, HECTOR C.

NAVASERO, personally went to and from UP Los Baos to talk with defendants responsible officers in the hope of expecting payment, when, in truth and in fact, defendant had no intention to pay whatsoever right from the start on a misplaced ground of technicalities. Some of plaintiffs demand letters since year 1983 up to the present are hereto attached as Annexes A, B, C, D, E, F, G, and H hereof; 6. That by reason of defendants malicious, evil and unnecessary misrepresentations that it was going to pay its obligation and asking plaintiff so many red tapes and requirements to submit, compliance of all of which took plaintiff almost eight (8) years to finish, when, in truth and in fact, defendant had no intention to pay, defendant should be ordered to pay plaintiff no less than PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages, so that other government institutions may be warned that they must not unjustly enrich themselves at the expense of the people they serve.23 In its answer, UP denied liability and alleged that PHILAB had no cause of action against it because it was merely the donee/beneficiary of the laboratory furniture in the BIOTECH; and that the FEMF, which funded the project, was liable to the PHILAB for the purchase price of the laboratory furniture. UP specifically denied obliging itself to pay for the laboratory furniture supplied by PHILAB. After due proceedings, the trial court rendered judgment dismissing the complaint without prejudice to PHILABs recourse against the FEMF. The fallo of the decision reads: WHEREFORE, this case is hereby DISMISSED for lack of merit without prejudice to plaintiff's recourse to the assets of the Marcos Foundation for the unpaid balance of P792,939.49. SO ORDERED.24 Undaunted, PHILAB appealed to the Court of Appeals (CA) alleging that the trial court erred in finding that: 1. the contract for the supply and installation of subject laboratory furniture and equipment was between PHILAB and the Marcos Foundation; and, 2. the Marcos Foundation, not the University of the Philippines, is liable to pay the respondent the balance of the purchase price.25 The CA reversed and set aside the decision of the RTC and held that there was never a contract between FEMF and PHILAB. Consequently, PHILAB could not be bound by the MOA between the FEMF and UP since it was never a party thereto. The appellate court ruled that, although UP did not bind itself to pay for the laboratory furniture; nevertheless, it is liable to PHILAB under the maxim: "No one should unjustly enrich himself at the expense of another." The Present Petition Upon the denial of its motion for reconsideration of the appellate courts decision, UP, now the petitioner, filed its petition for review contending that: I. THE COURT OF APPEALS ERRED WHEN IT FAILED TO APPLY THE LAW ON CONTRACTS BETWEEN PHILAB AND THE MARCOS FOUNDATION. II. THE COURT OF APPEALS ERRED IN APPLYING THE LEGAL PRINCIPLE OF UNJUST ENRICHMENT WHEN IT HELD THAT THE UNIVERSITY, AND NOT THE MARCOS FOUNDATION, IS LIABLE TO PHILAB.26

Prefatorily, the doctrinal rule is that pure questions of facts may not be the subject of appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as this mode of appeal is generally restricted to questions of law.27However, this rule is not absolute. The Court may review the factual findings of the CA should they be contrary to those of the trial court.28 Correspondingly, this Court may review findings of facts when the judgment of the CA is premised on a misapprehension of facts.29 On the first assigned error, the petitioner argues that the CA overlooked the evidentiary effect and substance of the corresponding letters and communications which support the statements of the witnesses showing affirmatively that an implied contract of sale existed between PHILAB and the FEMF. The petitioner furthermore asserts that no contract existed between it and the respondent as it could not have entered into any agreement without the requisite public bidding and a formal written contract. The respondent, on the other hand, submits that the CA did not err in not applying the law on contracts between the respondent and the FEMF. It, likewise, attests that it was never privy to the MOA entered into between the petitioner and the FEMF. The respondent adds that what the FEMF donated was a sum of money equivalent toP29,000,000, and not the laboratory equipment supplied by it to the petitioner. The respondent submits that the petitioner, being the recipient of the laboratory furniture, should not enrich itself at the expense of the respondent. The petition is meritorious. It bears stressing that the respondents cause of action is one for sum of money predicated on the alleged promise of the petitioner to pay for the purchase price of the furniture, which, despite demands, the petitioner failed to do. However, the respondent failed to prove that the petitioner ever obliged itself to pay for the laboratory furniture supplied by it. Hence, the respondent is not entitled to its claim against the petitioner. There is no dispute that the respondent is not privy to the MOA executed by the petitioner and FEMF; hence, it is not bound by the said agreement. Contracts take effect only between the parties and their assigns.30 A contract cannot be binding upon and cannot be enforced against one who is not a party to it, even if he is aware of such contract and has acted with knowledge thereof.31 Likewise admitted by the parties, is the fact that there was no written contract executed by the petitioner, the respondent and FEMF relating to the fabrication and delivery of office and laboratory furniture to the BIOTECH. Even the CA failed to specifically declare that the petitioner and the respondent entered into a contract of sale over the said laboratory furniture. The parties are in accord that the FEMF had remitted to the respondent partial payments via checks drawn and issued by the FEMF to the respondent, through Padolina, in the total amount of P2,288,573.74 out of the total cost of the project ofP2,934,068.90 and that the respondent received the said checks and issued receipts therefor to the FEMF. There is also no controversy that the petitioner did not pay a single centavo for the said furniture delivered by the respondent that the petitioner had been using ever since. We agree with the petitioner that, based on the records, an implied-in-fact contract of sale was entered into between the respondent and FEMF. A contract implied in fact is one implied from facts and circumstances showing a mutual intention to contract. It arises where the intention of the parties is not expressed, but an agreement in fact creating an obligation. It is a contract, the existence and terms of which are manifested by conduct and not by direct or explicit words between parties but is to be deduced from conduct of the parties, language used, or things done by them, or other pertinent circumstances attending the transaction. To create contracts implied in fact, circumstances must warrant inference that one expected compensation and the other to pay.32 An implied-in-fact contract requires the parties intent to enter into a contract; it is a true contract.33 The conduct of the parties is to be viewed as a reasonable man would view it, to determine the existence or not of an implied-in-fact contract.34The totality of the acts/conducts of the parties must be considered to determine their intention. An implied-in-fact contract will not arise unless the meeting of minds is indicated by some intelligent conduct, act or sign.35

In this case, the respondent was aware, from the time Padolina contacted it for the fabrication and supply of the laboratory furniture until the go-signal was given to it to fabricate and deliver the furniture to BIOTECH as beneficiary, that the FEMF was to pay for the same. Indeed, Padolina asked the respondent to prepare the draft of the contract to be received by the FEMF prior to the execution of the parties (the respondent and FEMF), but somehow, the respondent failed to prepare one. The respondent knew that the petitioner was merely the donee-beneficiary of the laboratory furniture and not the buyer; nor was it liable for the payment of the purchase price thereof. From the inception, the FEMF paid for the bills and statement of accounts of the respondent, for which the latter unconditionally issued receipts to and under the name of the FEMF. Indeed, witness Lirio testified: Q: Now, did you know, Mr. Witness, if PHILAB Industries was aware that it was the Marcos Foundation who would be paying for this particular transaction for the completion of this particular transaction? A: I think they are fully aware. Q: What is your basis for saying so? A: First, I think they were appraised by Dr. Padolina. Secondly, there were occasions during our inspection in Los Baos, at the installation site, there were occasions, two or three occasions, when we met with Mr. Navasero who is the President, I think, or manager of PHILAB, and we appraised him that it was really between the foundation and him to which includes (sic) the construction company constructing the building. He is fully aware that it is the foundation who (sic) engaged them and issued the payments.36 The respondent, in its Letter dated March 26, 1986, informed the petitioner and sought its assistance for the collection of the amount due from the FEMF: Dear Dr. Padolina: May we request for your much-needed assistance in the payment of the balance still due us on the laboratory furniture we supplied and installed two years ago? Business is still slow and we will appreciate having these funds as soon as possible to keep up our operations. We look forward to hearing from you regarding this matter. Very truly yours, PHILAB INDUSTRIES, INC.37 The respondent even wrote former President Aquino seeking her assistance for the payment of the amount due, in which the respondent admitted it tried to collect from her predecessor, namely, the former President Ferdinand E. Marcos: YOUR EXCELLENCY: At the instance of the national government, subject laboratory furnitures were supplied by our company to the National Institute of Biotechnology & Applied Microbiology (BIOTECH), University of the Philippines, Los Baos, Laguna, in 1984. Out of the total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (P2,939,058.90), the previous administration had so

far paid us the sum ofP2,236,119.52 thus leaving a balance of PESOS: ONE MILLION FOUR HUNDRED TWELVE THOUSAND SEVEN HUNDRED FORTY-EIGHT & 61/100 (P1,412.748.61) inclusive of interest of 24% per annum and 30% exchange rate adjustment. On several occasions, we have tried to collect this amount from your predecessor, the latest of which was subject invoice (01643) we submitted to DR. W. PADOLINA, deputy director of BIOTECH. But this, notwithstanding, our claim has remained unacted upon up to now. Copy of said invoice is hereto attached for easy reference. Now that your excellency is the head of our government, we sincerely hope that payment of this obligation will soon be made as this is one project the Republic of the Philippines has use of and derives benefit from.38 Admittedly, the respondent sent to the petitioner its bills and statements of accounts for the payments of the laboratory furniture it delivered to the petitioner which the petitioner, through Padolina, transmitted to the FEMF for its payment. However, the FEMF failed to pay the last statement of account of the respondent because of the onset of the EDSA upheaval. It was only when the respondent lost all hope of collecting its claim from the government and/or the PCGG did it file the complaint against the petitioner for the collection of the payment of its last delivery of laboratory furniture. We reject the ruling of the CA holding the petitioner liable for the claim of the respondent based on the maxim that no one should enrich itself at the expense of another. Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.39 Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitled and that the state of affairs are such that it would be unjust for the person to keep the benefit.40 Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request.41 Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of restitution.42 Article 22 of the New Civil Code reads: Every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. (Boldface supplied) In order that accion in rem verso may prosper, the essential elements must be present: (1) that the defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the defendant is without just or legal ground, and (4) that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict.43 An accion in rem verso is considered merely an auxiliary action, available only when there is no other remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action under any other institution of positive law, that action must be resorted to, and the principle of accion in rem verso will not lie.44 The essential requisites for the application of Article 22 of the New Civil Code do not obtain in this case. The respondent had a remedy against the FEMF via an action based on an implied-in-fact

contract with the FEMF for the payment of its claim. The petitioner legally acquired the laboratory furniture under the MOA with FEMF; hence, it is entitled to keep the laboratory furniture. IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of Appeals isREVERSED AND SET ASIDE. The Decision of the Regional Trial Court, Makati City, Branch 150, is REINSTATED. No costs. SO ORDERED. Puno, Austria-Martinez, Tinga, and Chico-Nazario*, JJ., concur. Footnotes
*

On leave.