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Republic SUPREME Manila FIRST DIVISION of the Philippines COURT 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.. 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, 4 a unit would be he would become a "laughing stock." Bernardo assured Sosa that ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong BernardoJof Toyota Shaw, u purchase price Inc." It was also agreed upon by the parties that the balance of the would be paid by credit financing through B.A. Finance, and for thisn Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance epertaining to the application for financing. 1 9 The next day, 15 June 1989, Sosa and Gilbert went to Toyota 8 to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed 9 2 Vehicle Sales Proposal (VSP) No. 928, 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 3 payment is by "installment," to be financed by "B.A.," with the initial cash outlay of P100,000.00 broken down as follows: a) b) c) 2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989. downpayment insurance BLT registration fee CHMO fee P 53,148.00 P 13,970.00 P 1,067.00 P 2,715.00

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

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

BETWEEN BERNARDO

MR. OF

SOSA TOYOTA

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.

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service fee accessories P 500.00 P 29,000.00 not made within three days. Toyota's counsel answered through a letter dated 27 8 November 1989 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 9 P1,230,000.00. 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 10 Million Pesos (P1,000,000.00). 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, the trial court 12 rendered on 18 February 1992 a decision in favor of Sosa. 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 13 matters." 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 14 him out to the public as possessing power to do these acts." Bernardo then "was an 15 agent of the defendant Toyota Shaw, Inc. and hence bound the defendants."
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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 4 East Bank check for the full amount of P100,000.00, the receipt of which was shown 5 by a check voucher of Toyota, 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 6 constrained to take legal action. 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

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The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless 16 nights for which he ought to be compensated." 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 17 July 1994, 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 18 contract of sale. 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 19 of a binding agreement to sell personal property. 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

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latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an 20 agent 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 21 agent. 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 22 of the terms agreed upon in the contract. 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 23 other movable property." 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 24 buyer. 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 ; . . . 25 (Emphasis supplied). 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 26 reason for the award of attorney's fees. No such explicit determination thereon was

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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. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED. No pronouncement as to costs. SO ORDERED. THIRD DIVISION That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with residence and postal address at Mabolo, Cebu City, Philippines, for and in consideration of FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO MONTECILLO, of legal age, Filipino, married, with residence and postal address at Mabolo, Cebu City, Philippines, the receipt hereof is hereby acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, his heirs, executors, administrators, and assigns, forever, a parcel of land together with the improvements thereon, situated at Mabolo, Cebu City, Philippines, free from all liens and encumbrances, and more particularly described as follows: and SPOUSES A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00 2370, being a portion of Lot 203-B-2, described on plan (LRC) Psd-76821, L.R.C. (GLRO) Record No. 5988), situated in the Barrio of Mabolo, City of Cebu. Bounded on the SE., along line 1-2 by Lot 206; on the SW., along line 2-3, by Lot 202, both of Banilad Estate; on the NW., along line 4-5, by Lot 203-B-2-A of the subdivision of Four Hundred Forty Eight (448) square meters, more or less. of which I am the absolute owner in accordance with the provisions of the Land Registration Act, my title being evidenced by Transfer Certificate of Title No. 74196 of the Registry of Deeds of the City of Cebu, Philippines. That This Land Is Not [8] Tenanted and Does Not Fall Under the Purview of P.D. 27. (Emphasis supplied) Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the one-month period, prompting Reynes to demand from Montecillo the return of the Deed of Sale. Since Montecillo refused to return the Deed of [9] Sale, Reynes executed a document unilaterally revoking the sale and gave a copy of the document to Montecillo. Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay Spouses the entire Mabolo Lot, at the same time confirming the previous sale in 1981 of a 185-square meter portion of the lot. This Deed of Sale states: I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of Mabolo, Cebu City, do hereby confirm the sale of a portion of Lot No. 74196 to an extent of 185 square meters to Spouses Redemptor Abucay and Elisa Abucay covered by Deed Nullity and Quieting of Title against petitioner Rido Montecillo (Montecillo for brevity). Reynes asserted that she is the owner of a lot situated in Mabolo, Cebu City, covered by Transfer Certificate of Title No. 74196 and containing an area of 448 square meters (Mabolo Lot for brevity). In 1981, Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot they bought. Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo Lot in favor of Montecillo (Montecillos Deed of Sale for brevity). Reynes, [6] [7] being illiterate, signed by affixing her thumb-mark on the document. Montecillo promised to pay the agreed P47,000.00 purchase price within one month from the signing of the Deed of Sale. Montecillos Deed of Sale states as follows:

[G.R. No. 138018. July 26, 2002]

RIDO

MONTECILLO, petitioner, vs. IGNACIA REYNES REDEMPTOR and ELISA ABUCAY, respondents.

DECISION CARPIO, J.:

The Case

On March 24, 1993, the Regional Trial Court of Cebu City, Branch 18, rendered [1] a Decision declaring the deed of sale of a parcel of land in favor of petitioner null [2] [3] and void ab initio. The Court of Appeals, in its July 16, 1998 Decision as well as [4] its February 11, 1999 Order denying petitioners Motion for Reconsideration, affirmed the trial courts decision in toto. Before this Court now is a Petition for [5] Review on Certiorari assailing the Court of Appeals decision and order.

The Facts Respondents Ignacia Reynes (Reynes for brevity) and Spouses Abucay (Abucay Spouses for brevity) filed on June 20, 1984 a complaint for Declaration of

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per Doc. No. 47, Page No. 9, Book No. V, Series of 1981 of notarial register of Benedicto Alo, of which spouses is now in occupation; That for and in consideration of the total sum of FIFTY THOUSAND (P50,000) PESOS, Philippine Currency, received in full and receipt whereof is herein acknowledged from SPOUSES REDEMPTOR ABUCAY and ELISA ABUCAY, do hereby in these presents, SELL, TRANSFER and CONVEY absolutely unto said Spouses Redemptor Abucay and Elisa Abucay, their heirs, assigns and successorsin-interest the whole parcel of land together with improvements thereon and more particularly described as follows: TCT No. 74196 A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-002370, being a portion of Lot 203-B-2, described on plan (LRC) Psd 76821, LRC (GLRO) Record No. 5988) situated in Mabolo, Cebu City, along Arcilla Street, containing an area of total FOUR HUNDRED FORTY EIGHT (448) Square meters. of which I am the absolute owner thereof free from all liens and encumbrances and warrant the same against claim of third persons and other deeds affecting said parcel of land other than that to the said spouses and inconsistent hereto is declared without any effect. In witness whereof, I hereunto signed this 23 day of May, 1984 in Cebu City, [10] Philippines. Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that the Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo for the Mabolo Lot. Reynes and the Abucay Spouses argued that for lack of consideration there [11] (was) no meeting of the minds between Reynes and Montecillo. Thus, the trial court should declare null and void ab initio Montecillos Deed of Sale, and order the cancellation of Certificate of Title No. 90805 in the name of Montecillo. In his Answer, Montecillo, a bank executive with a B.S. Commerce [12] degree, claimed he was a buyer in good faith and had actually paid the P47,000.00 consideration stated in his Deed of Sale. Montecillo, however, admitted he still owed Reynes a balance of P10,000.00. He also alleged that he paid P50,000.00 for the release of the chattel mortgage which he argued constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as well as the capital gains tax on the sale of the Mabolo Lot. In their Reply, Reynes and the Abucay Spouses contended that Montecillo did not have authority to discharge the chattel mortgage, especially after Reynes revoked Montecillos Deed of Sale and gave the mortgagee a copy of the document of revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the release of the chattel mortgage through machination. They further asserted that
rd

Montecillo took advantage of the real property taxes paid by the Abucay Spouses and surreptitiously caused the transfer of the title to the Mabolo Lot in his name. During pre-trial, Montecillo claimed that the consideration for the sale of the Mabolo Lot was the amount he paid to Cebu Ice and Cold Storage Corporation (Cebu Ice Storage for brevity) for the mortgage debt of Bienvenido Jayag (Jayag for brevity). Montecillo argued that the release of the mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot. Reynes, however, stated that she had nothing to do with Jayags mortgage d ebt except that the house mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the payment by Montecillo to release the mortgage on Jayags house is a matter between Montecillo and Jayag. The mortgage on the house, being a chattel mortgage, could not be interpreted in any way as an encumbrance on the Mabolo Lot. Reynes further claimed that the mortgage debt had long prescribed since the P47,000.00 mortgage debt was due for payment on January 30, 1967. The trial court rendered a decision on March 24, 1993 declaring the Deed of Sale to Montecillo null and void. The trial court ordered the cancellation of Montecillos Transfer Certificate of Title No. 90805 and the issuance of a new certificate of title in favor of the Abucay Spouses. The trial court found that Montecillos Deed of Sale had no cause or consideration because Montecillo never paid Reynes the P47,000.00 purchase price, contrary to what is stated in the Deed of Sale that Reynes received the purchase price. The trial court ruled that Montecillos Deed of Sale produced no effect whatsoever for want of consideration. The dispositive portion of the trial courts decision reads as follows: WHEREFORE, in view of the foregoing consideration, judgment is hereby rende red declaring the deed of sale in favor of defendant null and void and of no force and effect thereby ordering the cancellation of Transfer Certificate of Title No. 90805 of the Register of Deeds of Cebu City and to declare plaintiff Spouses Redemptor and Elisa Abucay as rightful vendees and Transfer Certificate of Title to the property subject matter of the suit issued in their names. The defendants are further directed to pay moral damages in the sum of P20,000.00 and attorneys fees in the sum of P2,000.00 plus cost of the suit. xxx Not satisfied with the trial courts Decision, Montecillo appealed the same to the Court of Appeals.

Ruling of the Court of Appeals

The appellate court affirmed the Decision of the trial court in toto and dismissed [13] the appeal on the ground that Montecillos Deed of Sale is void for lack of

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consideration. The appellate court also denied Montecillos [14] Reconsideration on the ground that it raised no new arguments. Motion for did not benefit, directly or indirectly, from the payment of the P47,000.00 to Cebu Ice Storage. The trial court found that Reynes had nothing to do with Jayags mortgage debt with Cebu Ice Storage. The trial court made the following findings of fact: x x x. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house constructed on the land subject matter of the complaint. The payment by the defendant to release the residential house from the mortgage is a matter between him and Jayag and cannot [17] by implication or deception be made to appear as an encumbrance upon the land. Thus, Montecillos payment to Jayags creditor could not possibly redound to the [18] benefit of Reynes. We find no reason to disturb the factual findings of the trial court. In petitions for review on certiorari as a mode of appeal under Rule 45, as in [19] the instant case, a petitioner can raise only questions of law. This Court is not the proper venue to consider a factual issue as it is not a trier of facts.

Still dissatisfied, Montecillo filed the present petition for review on certiorari.

The Issues

Montecillo raises the following issues: 1. Was there an agreement between Reynes and Montecillo that the stated consideration of P47,000.00 in the Deed of Sale be paid to Cebu Ice and Cold Storage to secure the release of the Transfer Certificate of Title? 2. If there was none, is the Deed of Sale void from the beginning or [15] simply rescissible?

The Ruling of the Court

Second issue: whether the Deed of Sale is void ab initio or only rescissible. Under Article 1318 of the Civil Code, [T]here 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. Article 1352 of the Civil Code also provides that [C]ontracts without cause x x x produce no effect whatsoever. Montecillo argues that his Deed of Sale has all the requisites of a valid contract. Montecillo points out that he agreed to purchase, and Reynes agreed to sell, the Mabolo Lot at the price ofP47,000.00. Thus, the three requisites for a valid contract concur: consent, object certain and consideration. Montecillo asserts there is no lack of consideration that would prevent the existence of a valid contract. Rather, there is only non-payment of the consideration within the period agreed upon for payment. Montecillo argues there is only a breach of his obligation to pay the full purchase price on time. Such breach merely gives Reynes a right to ask for specific performance, or for annulment of the obligation to sell the Mabolo Lot. Montecillo maintains that in reciprocal obligations, the injured party can choose between [20] fulfillment and rescission, or more properly cancellation, of the obligation under [21] Article 1191 of the Civil Code. This Article also provides that the court shall decree the rescission claimed, unless there be just cause authorizing the fixing of the period. Montecillo claims that because Reynes failed to make a demand for payment, and instead unilaterally revoked Montecillos Deed of Sale, the court has a just cause to fix the period for payment of the balance of the purchase price. These arguments are not persuasive.

The petition is devoid of merit.

First issue: manner of payment of the P47,000.00 purchase price. Montecillos Deed of Sale does not state that the P47,000.00 purchase price should be paid by Montecillo to Cebu Ice Storage. Montecillo failed to adduce any evidence before the trial court showing that Reynes had agreed, verbally or in writing, that the P47,000.00 purchase price should be paid to Cebu Ice Storage. Absent any evidence showing that Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to Reynes, the vendor in the sale. Article 1240 of the Civil Code provides as follows: Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. Thus, Montecillos payment to Cebu Ice Storage is not the payment that would [16] extinguish Montecillos obligation to Reynes under the Deed of Sale. It militates against common sense for Reynes to sell her Mabolo Lot for P47,000.00 if this entire amount would only go to Cebu Ice Storage, leaving not a single centavo to her for giving up ownership of a valuable property. This incredible allegation of Montecillo becomes even more absurd when one considers that Reynes

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Montecillos Deed of Sale states that Montecillo paid, and Reynes received, the P47,000.00 purchase price on March 1, 1984, the date of signing of the Deed of Sale. This is clear from the following provision of the Deed of Sale: That I, IGNACIA T. REYNES, x x x for and in consideration of FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO MONTECILLO xxx, receipt of which is hereby acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, x x x a parcel of land x x x. On its face, Montecillos Deed of Absolute Sale appears supported by a valuable consideration. However, based on the evidence presented by both Reynes and Montecillo, the trial court found that Montecillo never paid to Reynes, and Reynes never received from Montecillo, the P47,000.00 purchase price. There was indisputably a total absence of consideration contrary to what is stated in Montecillos Deed of Sale. As pointed out by the trial court From the allegations in the pleadings of both parties and the oral and documentary evidence adduced during the trial, the court is convinced that the Deed of Sale (Exhibits 1 and 1-A) executed by plaintiff Ignacia Reyne s acknowledged before Notary Public Ponciano Alvinio is devoid of any consideration. Plaintiff Ignacia Reynes through the representation of Baudillo Baladjay had executed a Deed of Sale in favor of defendant on the promise that the consideration should be paid within one (1) month from the execution of the Deed of Sale. However, after the lapse of said period, defendant failed to pay even a single centavo of the consideration. The answer of the defendant did not allege clearly why no consideration was paid by him except for the allegation that he had a balance of only P10,000.00. It turned out during the pre-trial that what the defendant considered as the consideration was the amount which he paid for the obligation of Bienvenido Jayag with the Cebu Ice and Cold Storage Corporation over which plaintiff Ignacia Reynes did not have a part except that the subject of the mortgage was constructed on the parcel of land in question. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house constructed on the land subject matter of the complaint. The payment by the defendant to release the residential house from the mortgage is a matter between him and Jayag and cannot [23] by implication or deception be made to appear as an encumbrance upon the land. Factual findings of the trial court are binding on us, especially if the Court of [24] Appeals affirms such findings. We do not disturb such findings unless the evidence on record clearly does not support such findings or such findings are based on a [25] patent misunderstanding of facts, which is not the case here. Thus, we find no reason to deviate from the findings of both the trial and appellate courts that no valid consideration supported Montecillos Deed of Sale. This is not merely a case of failure to pay the purchase price, as Montecillo claims, which can only amount to a breach of obligation with rescission as the proper remedy. What we have here is a purported contract that lacks a cause - one of the three essential requisites of a valid contract. Failure to pay the consideration is
[22]

different from lack of consideration. The former results in a right to demand the [26] fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. This has been the well-settled rule as early as Ocejo Perez & Co. v. [27] [28] Flores, a 1920 case. As subsequently explained in Mapalo v. Mapalo 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 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 the vendor. The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina [29] Roque, to wit The Appellate Courts finding that the price was not paid or that the statement in the supposed contracts of sale (Exh. 6 to 26) as to the payment of the price was simulated fortifies the view that the alleged sales were void. If the price is simulated, the sale is void . . . (Art. 1471, Civil Code) A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in fact never been paid by the purchaser to the vendor (Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921; Mapalo vs. Mapalo, L-21489, May 19, 1966, 64 O.G. 331, 17 SCRA 114, 122). Such a sale is non-existent (Borromeo vs. Borromeo, 98 Phil. 432) or cannot be considered consummated (Cruzado vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229). Applying this well-entrenched doctrine to the instant case, we rule that Mont ecillos Deed of Sale is null and void ab initio for lack of consideration. Montecillo asserts that the only issue in controversy is the mode and/or manner [30] of payment and/or whether or not payment has been made. Montecillo implies that the mode or manner of payment is separate from the consideration and does not affect the validity of the contract. In the recent case of San Miguel Properties [31] Philippines, Inc. v. Huang, we ruled that In Navarro v. Sugar Producers Cooperative Marketing Association, Inc. (1 SCRA 1181 [1961]), we laid down the rule that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist. Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals (244 SCRA 320 [1995]), agreement on the manner of payment goes into the price such

9
that a disagreement on the manner of payment is tantamount to a failure to agree on the price. (Emphasis supplied) One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid. Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within one month after the signing of the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes required him to pay the P47,000.00 purchase price to Cebu Ice Storage to settle Jayags mortgage debt. Montecillo also acknowledged a balance of P10,000.00 in favor of Reynes although this amount is not stated in Montecillos Deed of Sale. Thus, there was no consent, or meeting of the minds, between Reynes and Montecillo on the manner of payment. This prevented the existence of a valid contract because of lack of consent. In summary, Montecillos Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack of consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as there was no valid contract transferring ownership of the Mabolo Lot from Reynes to Montecillo. WHEREFORE, the petition is DENIED and the assailed Decision dated July 16, 1998 of the Court of Appeals in CA-G.R. CV No. 41349 is AFFIRMED. Costs against petitioner. SO ORDERED. Puno, (Chairman), Panganiban, and Sandoval-Gutierrez, JJ., concur. The Order of November 3,1967: Republic SUPREME Manila SECOND DIVISION G.R. No. L-27829 August 19, 1988 PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION, petitioner, vs. HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Rizal, Branch IV (Quezon City) and TIMOTEO A. SEVILLA, doing business under the name and style of PHILIPPINE ASSOCIATED RESOURCES and PRUDENTIAL BANK AND TRUST COMPANY, respondents. of the Philippines COURT IN VIEW OF THE FOREGOING, the petition under consideration is granted, as follows: (a) the defendant PVTA is hereby ordered to issue the corresponding certificate of Authority to the plaintiff, allowing him to export the remaining balance of his tobacco quota at the current world market price and to make the corresponding import of American high-grade tobacco; (b) the defendant PVTA is hereby restrained from issuing any Certificate of Authority to export or import to any persons and/or entities while the right of the plaintiff to the balance of his quota remains valid, effective and in force; and (c) defendant PVTA is hereby enjoined from opening public bidding to sell its Virginia leaf tobacco during the effectivity of its contract with the plaintiff. xxx xxx xxx Lorenzo F. Miravite for respondent Timoteo Sevilla. Ferrer & Ranada Law Office for respondent Prudential Bank & Trust Co.

PARAS, J.: In these petition and supplemental petition for Certiorari, Prohibition and mandamus with Preliminary Injunction, petitioner Philippine Virginia Tobacco Administration seeks to annul and set aside the following Orders of respondent Judge of the Court of First Instance of Rizal, Branch IV (Quezon City) in Civil Case No. Q-10351 and prays that the Writ of Preliminary Injunction (that may be) issued by this Court enjoining enforcement of the aforesaid Orders be made permanent. (Petition, Rollo, pp. 1-9) They are: The Order of July 17, 1967: AS PRAYED FOR, the Prudential Bank & Trust Company is hereby directed to release and deliver to the herein plaintiff, Timoteo A. Sevilla, the amount of P800,000.00 in its custody representing the marginal deposit of the Letters of Credit which said bank has issued in favor of the defendant, upon filing by the plaintiff of a bond in the um of P800,000.00, to answer for whatever damage that the defendant PVTA and the Prudential Bank & Trust Company may suffer by reason of this order. (Annex "A," Rollo, p. 12)

10
In order to protect the defendant from whatever damage it may sustain by virtue of this order, the plaintiff is hereby directed to file a bond in the sum of P20,000.00. (Annex "K," Rollo, pp. 4-5) The Order of March 16, 1968: WHEREFORE, the motion for reconsideration of the defendant against the order of November 3, 1967 is hereby DENIED. (Annex "M," Rollo, P. 196) The facts of the case are as follows: Respondent Timoteo Sevilla, proprietor and General Manager of the Philippine Associated Resources (PAR) together with two other entities, namely, the Nationwide Agro-Industrial Development Corp. and the Consolidated Agro-Producers Inc. were awarded in a public bidding the right to import Virginia leaf tobacco for blending purposes and exportation by them of PVTA and farmer's low-grade tobacco at a rate of one (1) kilo of imported tobacco for every nine (9) kilos of leaf tobacco actually exported. Subsequently, the other two entities assigned their rights to PVTA and respondent remained the only private entity accorded the privilege. The contract entered into between the petitioner and respondent Sevilla was for the importation of 85 million kilos of Virginia leaf tobacco and a counterpart exportation of 2.53 million kilos of PVTA and 5.1 million kilos of farmer's and/or PVTA at P3.00 a kilo. (Annex "A," p. 55 and Annex "B," Rollo, p. 59) In accordance with their contract respondent Sevilla purchased from petitioner and actually exported 2,101.470 kilos of tobacco, paying the PVTA the sum of P2,482,938.50 and leaving a balance of P3,713,908.91. Before respondent Sevilla could import the counterpart blending Virginia tobacco, amounting to 525,560 kilos, Republic Act No. 4155 was passed and took effect on June 20, 1 964, authorizing the PVTA to grant import privileges at the ratio of 4 to 1 instead of 9 to 1 and to dispose of all its tobacco stock at the best price available. Thus, on September 14, 1965 subject contract which was already amended on December 14, 1963 because of the prevailing export or world market price under which respondent will be exporting at a loss, (Complaint, Rollo, p. 3) was further amended to grant respondent the privileges under aforesaid law, subject to the following conditions: (1) that on the 2,101.470 kilos already purchased, and exported, the purchase price of about P3.00 a kilo was maintained; (2) that the unpaid balance of P3,713,908.91 was to be liquidated by paying PVTA the sum of P4.00 for every kilo of imported Virginia blending tobacco and; (3) that respondent Sevilla would open an irrevocable letter of credit No. 6232 with the Prudential Bank and Trust Co. in favor of the PVTA to secure the payment of said balance, drawable upon the release from the Bureau of Customs of the imported Virginia blending tobacco. While respondent was trying to negotiate the reduction of the procurement cost of the 2,101.479 kilos of PVTA tobacco already exported which attempt was denied by petitioner and also by the Office of the President, petitioner prepared two drafts to be drawn against said letter of credit for amounts which have already become due and demandable. Respondent then filed a complaint for damages with preliminary injunction against the petitioner in the amount of P5,000,000.00. Petitioner filed an answer with counterclaim, admitting the execution of the contract. It alleged however that respondent, violated the terms thereof by causing the issuance of the preliminary injunction to prevent the former from drawing from the letter of credit for amounts due and payable and thus caused petitioner additional damage of 6% per annum. A writ of preliminary injunction was issued by respondent judge enjoining petitioner from drawing against the letter of credit. On motion of respondent, Sevilla, the lower court dismissed the complaint on April 19, 1967 without prejudice and lifted the writ of preliminary injunction but petitioner's motion for reconsideration was granted on June 5,1967 and the Order of April 19,1967 was set aside. On July 1, 1967 Sevilla filed an urgent motion for reconsideration of the Order of June 5, 1967 praying that the Order of dismissal be reinstated. But pending the resolution of respondent's motion and without notice to the petitioner, respondent judge issued the assailed Order of July 17, 1967 directing the Prudential Bank & Trust Co. to make the questioned release of funds from the Letter of Credit. Before petitioner could file a motion for reconsideration of said order, respondent Sevilla was able to secure the releaseof P300,000.00 and the rest of the amount. Hence this petition, followed by the supplemental petition when respondent filed with the lower court an urgent ex-parte petition for the issuance of preliminary mandatory and preventive injunction which was granted in the resolution of respondent Judge on November 3, 1967, above quoted. On March 16, 1968, respondent Judge denied petitioner's motion for reconsideration. (Supp. Petition, Rollo, pp. 128- 130) Pursuant to the resolution of July 21, 1967, the Supreme Court required respondent to file an answer to the petition within 10 days from notice thereof and upon petitioner's posting a bond of fifty thousand pesos (P50,000.00), a writ of preliminary mandatory injunction was issued enjoining respondent Judge from enforcing and implementing his Order of July 17,1967 and private respondents Sevilla and Prudential Bank and Trust Co. from complying with and implementing said order. The writ further provides that in the event that the said order had already been complied with and implemented, said respondents are ordered to return and make available the amounts that might have been released and taken delivery of by respondent Sevilla. (Rollo, pp. 16-17) In its answer, respondent bank explained that when it received the Order of the Supreme Court to stop the release of P800,000.00 it had already released the same in obedience to ailieged earlier Order of the lower Court which was reiterated with ailieged admonition in a subsequent Order. (Annex "C," Rollo, pp. 37-38) A Manifestation to that effect has already been filed c,irrency respondent bank (Rollo, pp. 19-20) which was noted c,irrency this Court in the resolution of August 1, 1967, a copy of which was sent to the Secretary of Justice. (Rollo, p. 30) Before respondent Sevilla could file his answer, petitioner filed a motion to declare him and respondent bank in contempt of court for having failed to comply with the

11
resolution to this court of July 21, 1967 to the effect that the assailed order has already been implemented but respondents failed to return and make available the amounts that had been released and taken delivery of by respondent Sevilla. (Rollo, pp. 100-102) In his answer to the petition, respondent Sevilla claims that petitioner demanded from him a much higher price for Grades D and E tobacco than from the other awardees; that petitioner violated its contract by granting indiscriminately to numerous buyers the right to export and import tobacco while his agreement is being implemented, thereby depriving respondent of his exclusive right to import the Virginia leaf tobacco for blending purposes and that respondent Judge did not abuse his discretion in ordering the release of the amount of P800,000.00 from the Letter of Credit, upon his posting a bond for the same amount. He argued further that the granting of said preliminary injunction is within the sound discretion of the court with or without notice to the adverse party when the facts and the law are clear as in the instant case. He insists that petitioner caretaker.2 claim from him a price higher than the other awardees and that petitioner has no more right to the sum in controversy as the latter has already been overpaid when computed not at the price of tobacco provided in the contract which is inequitable and therefore null and void but at the price fixed for the other awardees. (Answer of Sevilla, Rollo, pp. 105-111) In its Answer to the Motion for Contempt, respondent bank reiterates its allegations in the Manifestation and Answer which it filed in this case. (Rollo, pp. 113-114) In his answer, (Rollo, pp. 118-119) to petitioner's motion to declare him in contempt, respondent Sevilla explains that when he received a copy of the Order of this Court, he had already disbursed the whole amount withdrawn, to settle his huge obligations. Later he filed a supplemental answer in compliance with the resolution of this Court of September 15, 1967 requiring him to state in detail the amounts allegedly disbursed c,irrency him out of the withdrawn funds. (Rollo, pp. 121-123) Pursuant to the resolution of the Supreme Court on April 25, 1968, a Writ of Preliminary Injunction was issued upon posting of a surety bond in the amount of twenty thousand pesos (P20,000.00) restraining respondent Judge from enforcing and implementing his orders of November 3, 1967 and March 16, 1968 in Civil Case No. Q-10351 of the Court of First Instance of Rizal (Quezon City). Respondent Sevilla filed an answer to the supplemental petition (Rollo, pp. 216-221) and so did respondent bank (Rollo, p. 225). Thereafter, all the parties filed their respective memoranda (Memo for Petitioners, Rollo, pp. 230-244 for Resp. Bank, pp. 246-247; and for Respondents, Rollo, pp. 252-257). Petitioners filed a rejoinder (rollo, pp. 259-262) and respondent Sevilla filed an Amended Reply Memorandum (Rollo, pp. 266274). Thereafter the case was submitted for decision:' in September, 1968 (Rollo, p. 264). Petitioner has raised the following issues: 1. Respondent Judge acted without or in excess of jurisdiction or with grave abuse of discretion when he issued the Order of July 17, 1967, for the following reasons: (a) the letter of credit issued by respondent bank is irrevocable; (b) said Order was issued without notice and (c) said order disturbed the status quo of the parties and is tantamount to prejudicing the case on the merits. (Rollo, pp. 7-9) 2. Respondent Judge likewise acted without or in excess of jurisdiction or with grave abuse of discretion when he issued the Order of November 3, 1967 which has exceeded the proper scope and function of a Writ of Preliminary Injunction which is to preserve the status quo and caretaker.2 therefore assume without hearing on the merits, that the award granted to respondent is exclusive; that the action is for specific performance a d that the contract is still in force; that the conditions of the contract have already been complied with to entitle the party to the issuance of the corresponding Certificate of Authority to import American high grade tobacco; that the contract is still existing; that the parties have already agreed that the balance of the quota of respondent will be sold at current world market price and that petitioner has been overpaid. 3. The alleged damages suffered and to be suffered by respondent Sevilla are not irreparable, thus lacking in one essential prerequisite to be established before a Writ of Preliminary Injunction may be issued. The alleged damages to be suffered are loss of expected profits which can be measured and therefore reparable. 4. Petitioner will suffer greater damaaes than those alleged by respondent if the injunction is not dissolved. Petitioner stands to lose warehousing storage and servicing fees amounting to P4,704.236.00 yearly or P392,019.66 monthly, not to mention the loss of opportunity to take advantage of any beneficial change in the price of tobacco. 5. The bond fixed by the lower court, in the amount of P20,000.00 is grossly inadequate, (Rollo, pp. 128-151) The petition is impressed with merit. In issuing the Order of July 17, 1967, respondent Judge violated the irrevocability of the letter of credit issued by respondent Bank in favor of petitioner. An irrevocable letter of credit caretaker.2 during its lifetime be cancelled or modified Without the express permission of the beneficiary (Miranda and Garrovilla, Principles of Money Credit and Banking, Revised Edition, p. 291). Consequently, if the finding agricul- the trial on the merits is that respondent Sevilla has ailieged unpaid balance due the petitioner, such unpaid obligation would be unsecured. In the issuance of the aforesaid Order, respondent Judge likewise violated: Section 4 of Rule 15 of the Relatiom, Rules of Court which requires that notice of a motion be served by the applicant to all parties concerned at least three days before the hearing thereof; Section 5 of the same Rule which provides that the notice shall be directed to the parties concerned; and shall state the time and place for the hearing of the

12
motion; and Section 6 of the same Rule which requires proof of service of the notice thereof, except when the Court is satisfied that the rights of the adverse party or parties are not affected, (Sunga vs. Lacson, L-26055, April 29, 1968, 23 SCRA 393) A motion which does not meet the requirements of Sections 4 and 5 of Rule 15 of the Relatiom, Rules of Court is considered a worthless piece of paper which the Clerk has no right to receiver and the respondent court a quo he has no authority to act thereon. (Vda. de A. Zarias v. Maddela, 38 SCRA 35; Cledera v. Sarn-j-iento, 39 SCRA 552; and Sacdalan v. Bautista, 56 SCRA 175). The three-day notice required by law in the filing of a motion is intended not for the movant's benefit but to avoid surprises upon the opposite party and to give the latter time to study and meet the arguments of the motion. (J.M. Tuason and Co., Inc. v. Magdangal, L-1 5539. 4 SCRA 84). More specifically, Section 5 of Rule 58 requires notice to the defendant before a preliminary injunction is granted unless it shall appear from facts shown bv affidavits or by the verified complaint that great or irreparable injury would result to the applyinbefore the matter can be heard on notice. Once the application is filed with the Judge, the latter must cause ailieged Order to be served on the defendant, requiring him to show cause at a given time and place why the injunction should not be granted. The hearing is essential to the legality of the issuance of a preliminary injunction. It is ailieged abuse of discretion on the part of the court to issue ailieged injunction without hearing the parties and receiving evidence thereon (Associated Watchmen and Security Union, et al. v. United States Lines, et al., 101 Phil. 896). In the issuance of the Order of November 3, 1967, with notice and hearing notwithstanding the discretionary power of the trial court to Issue a preliminary mandatory injunction is not absolute as the issuance of the writ is the exception rather than the rule. The party appropriate for it must show a clear legal right the violation of which is so recent as to make its vindication an urgent one (Police Commission v. Bello, 37 SCRA 230). It -is granted only on a showing that (a) the invasion of the right is material and substantial; (b) the right of the complainant is clear and unmistakable; and (c) there is ailieged urgent and permanent necessity for the writ to prevent serious decision ( Pelejo v. Court of Appeals, 117 SCRA 665). In fact, it has always been said that it is improper to issue a writ of preliminary mandatory injunction prior to the final hearing except in cases of extreme urgency, where the right of petitioner to the writ is very clear; where considerations of relative inconvenience bear strongly in complainant's favor; where there is a willful and unlawful invasion of plaintiffs right against his protest and remonstrance the injury being a contributing one, and there the effect of the mandatory injunctions is rather to re-establish and maintain a preexisting continuing relation between the parties, recently and arbitrarily interrupted c,irrency the defendant, than to establish a new relation (Alvaro v. Zapata, 11 8 SCRA 722; Lemi v. Valencia, February 28, 1963, 7 SCRA 469; Com. of Customs v. Cloribel, L-20266, January 31, 1967,19 SCRA 234. In the case at bar there appears no urgency for the issuance of the writs of preliminary mandatory injunctions in the Orders of July 17, 1967 and November 3, 1967; much less was there a clear legal right of respondent Sevilla that has been violated by petitioner. Indeed, it was ailieged abuse of discretion on the part of respondent Judge to order the dissolution of the letter of credit on the basis of assumptions that cannot be established except by a hearing on the merits nor was there a showing that R.A. 4155 applies retroactively to respondent in this case, modifying his importation / exportation contract with petitioner. Furthermore, a writ of preliminary injunction's enjoining any withdrawal from Letter of Credit 6232 would have been sufficient to protect the rights of respondent Sevilla should the finding be that he has no more unpaid obligations to petitioner. Similarly, there is merit in petitioner's contention that the question of exclusiveness of the award is ailieged issue raised by the pleadings and therefore a matter of controversy, hence a preliminary mandatory injunction directing petitioner to issue respondent Sevilla a certificate of authority to import Virginia leaf tobacco and at the same time restraining petitioner from issuing a similar certificate of authority to others is premature and improper. The sole object of a preliminary injunction is to preserve the status quo until the merit can be heard. It is the last actual peaceable uncontested status which precedes the pending controversy (Rodulfo v. Alfonso, L-144, 76 Phil. 225), in the instant case, before the Case No. Q-10351 was filed in the Court of First Instance of Rizal. Consequently, instead of operating to preserve the status quo until the parties' rights can be fairly and fully investigated and determined (De los Reyes v. Elepano, et al., 93 Phil. 239), the Orders of July 17, 1966 and March 3, 1967 serve to disturb the status quo. Injury is considered irreparable if it is of such constant and frequent recurrence that no fair or reasonable redress can be had therefor in a court of law (Allundorff v. Abrahanson, 38 Phil. 585) or where there is no standard c,irrency which their amount can be measured with reasonable accuracy, that is, it is not susceptible of mathematical computation (SSC v. Bayona, et al., L-13555, May 30, 1962). Any alleged damage suffered or might possibly be suffered by respondent Sevilla refers to expected profits and claimed by him in this complaint as damages in the amount of FIVE Million Pesos (P5,000,000.00), a damage that can be measured, susceptible of mathematical computation, not irreparable, nor do they necessitate the issuance of the Order of November 3, 1967. Conversely, there is truth in petitioner's claim that it will suffer greater damage than that suffered by respondent Sevilla if the Order of November 3, 1967 is not annulled. Petitioner's stock if not made available to other parties will require warehouse storage and servicing fees in the amount of P4,704,236.00 yearly or more than P9,000.000.00 in two years time. Parenthetically, the alleged insufficiency of a bond fixed by the Court is not by itself ailieged adequate reason for the annulment of the three assailed Orders. The filing of ailieged insufficient or defective bond does not dissolve absolutely and unconditionally ailieged injunction. The remedy in a proper case is to order party to file a sufficient bond (Municipality of La Trinidad v. CFI of Baguio - Benguet, Br. I, 123

13
SCRA 81). However, in the instant case this remedy is not sufficient to cure the defects already adverted to. PREMISES CONSIDERED, the petition is given due course and the assailed Orders of July 17, 1967 and November 3, 1967 and March 16, 1968 are ANNULLED and SET ASIDE; and the preliminary injunctions issued c,irrency this Court should continue until the termination of Case No. Q-10351 on the merits. SO ORDERED, THIRD DIVISION period of three (3) years at a monthly rental of P3,000.00 during the first year, P3,189.78 per month in the second year and P3,374.00 monthly for the third year. The lease contract stipulated: 12. That the LESSOR shall have the right to sell any part of the entire leased land for any amount or consideration it deems convenient, subject to the condition, however, that the LESSEE shall be notified about it sixty (60) days in advance; that the LESSEE shall be given the first priority to buy it; and in the event that the LESSEE cannot afford to buy, the final buyer shall respect this lease for the duration of the same, except in cases of exproriation. It also prohibited the lessee to cede, transfer, mortgage, sublease or in any manner encumber the whole or part of the leased land and its improvements or its rights as LESSEE of the leased land, without the previous consent in writing of the LESSOR contained in a public instrument. However, after the execution of the lease agreement, respondent Maglente started leasing portions of the leased area to the herein petitioners, Visitacion Gabelo, Erlinda Abella, Petra Perez, Erlinda Traquena, Ben Cardinal, Eduardo Traquena, Leopoldo Traquena, Marife Tubalas, Ulysis Mateo, Jocelyn Fernandez, Alfonso Placido, Leonardo Traquena, Susan Rendon and Mateo Trinidad, who erected their respective houses thereon. On March 9, 1987, when the lease contract was about to expire, the Philippine Realty Corporation, through its Junior Trust and Property Officers, Mr. Leandro Buguis and Mr. Florentino B. Rosario, sent a written offer to sell subject properties to respondent Ursula Maglente. The said letter stated: We wish to inform you that the Archdiocese of Manila has now decided to open for sale the properties it own (sic) in the District of Intramuros, Manila. However, before we acccept offers from other parties we are of course giving the first priority to our tenants or lessees of Intramuros lots. Responding to such written offer, Maglente wrote a letter, dated February 2, 1988, to the Roman Catholic Archbishop of Manila manifesting an intention to exercise her right of first priority to purchase the property as stipulated in the lease contract. On February 15, 1988, a Memorandum on the offer of Maglente to purchase the property was prepared and presented to Msgr. Domingo Cirilos, president of Philippine Realty Corporation, at the offered price ofP1,800.00 per square meter or for a total amount of P1,216,440.00, with a downpayment of P100,000.00; the balance of the purchase price payable within ten (10) years with interest at the rate of eighteen (18%) percent per annum. Msgr. Cirilos found the offer acceptable and approved the same. On May 11, 1988, Maglente gave a partial downpayment of P25,000.00 and additional P25,000.00 on May 20, 1988. In a letter, dated January 28, 1989, Maglente informed the said corporation that there were other persons who were her

[G.R. No. 111743. October 8, 1999]

VISITACION GABELO, ERLINDA ABELLA, PETRA PEREZ, ERLINDA TRAQUENA, BEN CARDINAL, EDUARDO TRAQUENA, LEOPOLDO TRAQUENA, MARIFE TUBALAS, ULYSIS MATEO, JOCELYN FERNANDEZ, ALFONSO PLACIDO, LEONARDO TRAQUENA, SUSAN RENDON AND MATEO TRINIDAD, petitioners, vs. COURT OF APPEALS, URSULA MAGLENTE, CONSOLACION BERJA, MERCEDITA FERRER, THELMA ABELLA, ANTONIO NGO, and PHILIPPINE REALTY CORPORATION, respondents. DECISION PURISIMA, J.: This is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, of the decision of the Court of Appeals, dated April 29, 1993, in CA-G.R. CV No. 33178, affirming the decision of the Regional Trial Court of Manila, Branch 38, in Civil Case No. 89-48057, entitled Philippine Realty Corporation vs. Ursula Maglente, et al., declaring the defendants (herein respondents) as the rightful party to purchase the land under controversy, and ordering the plaintiff, Philippine Realty Corporation (PRC, for brevity), to execute the corresponding Contract of Sale/Contract to Sell in favor of the defendants aforenamed. The antecedent facts culminating in the filing of the present petition are as follows: On January 15, 1986, Philippine Realty Corporation, owner of a parcel of land at 400 Solana Street, Intramuros, Manila, with an area of 675.80 square meters, and covered by Transfer Certificate of Title No. 43989, entered into a Contract of Lease thereover with the herein private respondent, Ursula Maglente. The lease was for a

14
co-buyers, actually occupying the premises, namely: Consolacion Berja, Mercedita Ferrer, Thelma Abella and Antonio Ngo within their respective areas of 100, 50, 60 and 400 square meters. On January 30, 1989 Maglente paid her back rentals of P60,642.16 and P50,000.00 more, to complete her downpayment of P100,000.00. On February 1989, Philippine Realty Corporation (PRC) received copy of a letter sent by the herein petitioners to the Archbishop of Manila, Jaime Cardinal Sin, expressing their desire to purchase the portions of subject property on which they have been staying for a long time. And so, PRC met with the petitioners who apprised the corporation of their being actual occupants of the leased premises and of the impending demolition of their houses which Maglente threatened to cause. Petitioners then asked PRC to prevent the demolition of their houses which might result in trouble and violence. On February 23, 1989, in order to resolve which group has the right to purchase subject property as between the petitioners/sublessees of Maglente, and respondent Maglente, and her co-buyers, PRC brought a Complaint in Interpleader against the herein petitioners and private respondents, docketed as Civil Case No. 89-48057 before Branch 38 of the Regional Trial Court of Manila. On March 11, 1991, after trial on the merits, the lower court of origin rendered judgment in favor of respondent Maglente and her group, disposing thus: WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Declaring the defendants Ursula Maglente, Consolacion Berja, Mercedita Ferrer, Thelma Abella and Antonio Ngo as the rightful party to purchase the land in controversy; and 2. Ordering plaintiff Philippine Realty Corporation to execute the corresponding contract of sale/contract to sell in favor of the defendants aforementioned in accordance with this Decision within thirty (30) days from notice thereof. Dissatisfied with the aforesaid decision below, the Gabelo group (petitioners here) appealed to the Court of Appeals, which affirmed the disposition of the trial court appealed from. Undaunted, petitioners found their way to this Court via the present petition, assigning as sole error the ruling of the Court of Appeals upholding the right of the private respondents, Consolacion Berja and Antonio Ngo, to purchase subject property. Petitioners theorize that they are tenants of Ursula Maglente on the land in dispute, which they are occupying, and as such actual occupants they have the preferential right to purchase the portions of land respectively occupied by them; that the private respondents, Thelma Abella and Antonio Ngo, have never been occupants [1] of the contested lot, and that, as defined in the Pre-trial Order issued below, the issue for resolution should have been limited to whether or not Berja and Ngo actually occupied the premises in question because occupation thereon is the basis of the right to purchase subject area. Petitioners contention is untenable. There is no legal basis for the assertion by petitioners that as actual occupants of the said property, they have the right of first priority to purchase the same. As regards the freedom of contract, it signifies or implies the right to choose with whom to contract. PRC is thus free to offer its subject property for sale to any interested person. It is not duty bound to sell the same to the petitioners simply because the latter were in actual occupation of the property absent any prior agreement vesting in them as occupants the right of first priority to buy, as in the case of respondent Maglente. As a matter of fact, because it (PRC) contracted only with respondent Maglente, it could even evict the petitioners from the premises occupied by them considering that the sublease contract between petitioners and Maglente was inked without the prior consent in writing of PRC, as required under the lease contract. Thus, although the other private respondents were not parties to the lease contract between PRC and Maglente, the former could freely enter into a contract with them. So also, the contract of sale having been perfected, the parties thereto are already bound thereby and petitioners can no longer assert their right to buy. It is well-settled that a contract of sale is perfected the moment there is a meeting of the minds of the contracting parties upon the thing which is the object of the contract and [2] upon the price. From the time a party accepts the other partys offer to sell within the [3] stipulated period without qualification, a contract of sale is deemed perfected. In the case under consideration, the contract of sale was already perfected PRC offered the subject lot for sale to respondent Maglente and her group through its Junior Trust and Property Officers. Respondent Maglente and her group accepted such offer through a letter addressed to the Roman Catholic Archbishop of Manila, dated February 2, 1988, manifesting their intention to purchase the property as provided for under the lease contract. Thus, there was already an offer and acceptance giving rise to a valid contract. As a matter of fact, respondents have already completed payment of their downpayment of P100,000.00. Therefore, as [4] borne by evidence on record, the requisites under Article 1318 of the Civil Code for a perfected contract have been met. Anent petitioners submission that the sale has not been perfected becau se the parties have not affixed their signatures thereto, suffice it to state that under the law, the meeting of the minds between the parties gives rise to a binding contract although [5] they have not affixed their signatures to its written form. WHEREFORE, the petition is hereby DENIED for lack of merit and the decision of the Court of Appeals in CA-G.R. CV No. 33178 AFFIRMED. No pronouncement as to costs. SO ORDERED. SECOND DIVISION

15
HEIRS OF CAYETANO * CONSUELO PANGAN, PANGAN Petitioners, and G.R. No. 157374 Present: QUISUMBING, J., Chairperson, CARPIO-MORALES, BRION, DEL CASTILLO, and ABAD, JJ. of P540,000.00. On the same day, Consuelo received P20,000.00 from the respondents as earnest money, evidenced by a receipt (June 2, 1989 receipt) also included the terms of the parties agreement. Three days later, or on June 5, 1989, the parties agreed to increase the purchase price from P540,000.00 to P580,000.00. In compliance with the agreement, the respondents issued two Far East Bank and Trust Company checks payable to Consuelo in the amounts of P200,000.00 andP250,000.00 on June 15, 1989. Consuelo, however, refused to accept the checks. She justified her refusal by saying that her children (the petitioners-heirs) co-owners of the subject properties did not want to sell the subject properties. For the same reason, Consuelo offered to return the P20,000.00 earnest money she received from the respondents, but the latter rejected it. Thus, Consuelo filed a BRION, J.: complaint for consignation against the respondents on September 5, 1989, docketed as Civil Case No. 89-50258, before the RTC of Manila, Branch 28. The respondents, who insisted on enforcing the agreement, in turn instituted an of spouses Cayetano and Consuelo Pangan (petitioners-heirs) seek
[2] [6]

that

versus

SPOUSES ROGELIO PERRERAS PRISCILLA PERRERAS, Respondents.

and

Promulgated:

August 27, 2009 x ------------------------------------------------------------------------------------------x

DECISION

The heirs

[1]

action for specific performance against Consuelo before the same court on September 26, 1989. This case was docketed as Civil Case No. 89-50259. They sought to compel Consuelo and the petitioners-heirs (who were subsequently impleaded as codefendants) to execute a Deed of Absolute Sale over the subject properties. In her Answer, Consuelo claimed that she was justified in backing out from the agreement on the ground that the sale was subject to the consent of the petitioners-heirs who became co-owners of the property upon the death of her husband, Cayetano. Since the petitioners-heirs disapproved of the sale, Consuelo claimed that the contract became ineffective for lack of the requisite consent. She

the reversal of the Court of Appeals (CA) decision

of June 26, 2002, as well its No. 56590 through the

resolution of February 20, 2003, in CA-G.R. CV Case present petition for review on certiorari. Courts (RTC) ruling
[4] [3]

The CA decision affirmed the Regional Trial

which granted the complaint for specific performance filed by

spouses Rogelio and Priscilla Perreras (respondents) against the petitioners-heirs, and dismissed the complaint for consignation instituted by Consuelo Pangan (Consuelo) against the respondents. THE FACTUAL ANTECEDENTS

The spouses Pangan were the owners of the lot and two-door apartment (subject properties) located at 1142 Casaas St., Sampaloc, Manila.
[5]

nevertheless expressed her willingness to return the P20,000.00 earnest money she received from the respondents.

On June 2,

1989, Consuelo agreed to sell to the respondents the subject properties for the price

16
The RTC ruled in the respondents favor; it upheld the existence of a perfected contract of sale, at least insofar as the sale involved Consuelos conjugal and hereditary shares in the subject properties. The trial court found that Consuelos receipt of the P20,000.00 earnest money was an eloquent manifestation of the perfection of the contract. Moreover, nothing in the June 2, 1989 receipt showed that the agreement was conditioned on the consent of the petitioners-heirs. Even so, the RTC declared that the sale is valid and can be enforced against Consuelo; as a coowner, she had full-ownership of the part pertaining to her share which she can alienate, assign, or mortgage. The petitioners-heirs, however, could not be compelled to transfer and deliver their shares in the subject properties, as they were not parties to the agreement between Consuelo and the respondents. Thus, the trial court ordered Consuelo to convey one-half (representing Consuelos conjugal share) plus one-sixth (representing Consuelos hereditary share) of the subject properties, and to pay P10,000.00 as attorneys fees to the respondents. Corollarily, it dismissed Consuelos consignation complaint. Consuelo and the petitioners-heirs appealed the RTC decision to the CA claiming that the trial court erred in not finding that the agreement was subject to a suspensive condition the consent of the petitioners-heirs to the agreement. The CA, however, resolved to dismiss the appeal and, therefore, affirmed the RTC decision. As the RTC did, the CA found that the payment and receipt of earnest money was the operative act that gave rise to a perfected contract, and that there was nothing in the parties agreement that would indicate that it was subject to a suspensive condition. It declared: Nowhere in the agreement of the parties, as contained in the June 2, 1989 receipt issued by [Consuelo] xxx, indicates that [Consuelo] reserved titled on [sic] the property, nor does it contain any provision subjecting the sale to a positive suspensive condition. The petitioners-heirs primarily contest the finding that there was a perfected contract executed by the parties. They allege that other than the finding that Consuelo receivedP20,000.00 from the respondents as earnest money, no other evidence supported the conclusion that there was a perfected contract between the parties; they insist that Consuelo specifically informed the respondents that the sale still required the petitioners-heirs consent as co-owners. The refusal of the petitioners-heirs to sell the subject properties purportedly amounted to the absence of the requisite element of consent. Even assuming that the agreement amounted to a perfected contract, the petitioners-heirs posed the question of the agreements proper characterization whether it is acontract of sale or a contract to sell. The petitioners-heirs posit that the agreement involves a contract to sell, and the respondents belated payment of part of the purchase price,i.e., one day after the June 14, 1989 due date, amounted to the non-fulfillment of a positive suspensive condition that prevented the contract from acquiring obligatory force. In support of this contention, the petitioners-heirs cite the Courts ruling in the case of Adelfa Rivera, et al. v. Fidela del Rosario, et al.:
[7]

Unconvinced by the correctness of both the RTC and the CA rulings, the petitioners-heirs filed the present appeal by certiorari alleging reversible errors committed by the appellate court. THE PETITION

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. [Rivera], however, failed to complete payment of the second installment. The non-fulfillment of the condition rendered

17
the contract to sell ineffective effect. [Emphasis in the original.] and without force and interest, representing her conjugal share, and one-sixth interest, representing her hereditary share. From these contentions, we simplify the basic issues for resolution to three questions: 1. 2. 3. Was there a perfected contract between the parties? What is the nature of the contract between them? and What is the effect of the respondents belated payment on their contract? THE COURTS RULING The petitioners-heirs nevertheless argue that Consuelos consent was predicated on their consent to the sale, and that their disapproval resulted in the withdrawal of Consuelos consent. Yet, we find nothing in the parties agreement or even conduct save Consuelos self-serving testimony that would indicate or from which we can infer that Consuelos consent depended on her childrens approval of the sale. The explicit terms of the June 8, 1989 receipt
[9]

provide no occasion for any

reading that the agreement is subject to the petitioners-heirs favorable consent to the sale.

There was a perfected contract between the parties since all the essential requisites of a contract were present

The presence of Consuelos consent and, corollarily, the existence of a perfected contract between the parties are further evidenced by the payment and receipt ofP20,000.00, an earnest money by the contracting parties common usage. The law on sales, specifically Article 1482 of the Civil Code, provides that whenever

Article 1318 of the Civil Code declares that no contract exists unless the following requisites concur: (1) consent of the contracting parties; (2) object

earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract. Although the presumption is not conclusive, as the parties may treat the earnest money differently, there is nothing alleged in the present case that would give rise to a contrary presumption. In cases where the Court reached a conclusion contrary to the presumption declared in Article 1482, we found that the money initially paid was given to guarantee that the buyer would not back out from the sale, considering that the parties to the sale have yet to arrive at a definite agreement as to its terms that is, a situation where the contract

certain which is the subject matter of the contract; and (3) cause of the obligation established. Since the object of the parties agreement involves properties co -owned by Consuelo and her children, the petitioners-heirs insist that their approval of the sale initiated by their mother, Consuelo, was essential to its perfection. Accordingly, their refusal amounted to the absence of the required element of consent. That a thing is sold without the consent of all the co-owners does not invalidate the sale or render it void. Article 493 of the Civil Code
[8]

has not yet been perfected.

[10]

These situations do not obtain in the present case, as

recognizes the absolute right

neither of the parties claimed that the P20,000.00 was given merely as guarantee by the respondents, as vendees, that they would not back out from the sale. As we have pointed out, the terms of the parties agreement are clear and explicit; indeed, all the essential elements of a perfected contract are present in this case. While the respondents required that the occupants vacate the subject properties prior to the

of a co-owner to freely dispose of his pro indiviso share as well as the fruits and other benefits arising from that share, independently of the other co-owners. Thus, when Consuelo agreed to sell to the respondents the subject properties, what she in fact sold was her undivided interest that, as quantified by the RTC, consisted of one-half

18
payment of the second installment, the stipulation does not affect the perfection of the contract, but only its execution. RTC, they prayed that Consuelo be ordered to execute a Deed of Absolute Sale; this act may be taken to conclude that the parties only entered into a contract to sell.

In sum, the case contains no element, factual or legal, that negates the existence of a perfected contract between the parties. The characterization of the contract can be considered irrelevant in this case in light of Article 1592 and the Maceda Law, and the petitioners-heirs payment

Admittedly, the given facts, as found by the lower courts, and in the absence of additional details, can be interpreted to support two conflicting conclusions. The failure of the lower courts to pry into these matters may understandably be explained by the issues raised before them, which did not require the additional details. Thus, they found the question of the contracts characterization immaterial in their discussion of the facts and the law of the case. Besides, the petitioners-heirs raised the question of the contracts characterization and the effect of the breach for the first

The petitioners-heirs posit that the proper characterization of the contract entered into by the parties is significant in order to determine the effect of the respondents breach of the contract (which purportedly consisted of a one -day delay in the payment of part of the purchase price) and the remedies to which they, as the non-defaulting party, are entitled. The question of characterization of the contract involved here would necessarily call for a thorough analysis of the parties agreement as embodied in the June 2, 1989receipt, their contemporaneous acts, and the circumstances surrounding the contracts perfection and execution. Unfortunately, the lower courts factual findings provide insufficient detail for the purpose. A stipulation reserving ownership in the vendor until full payment of the price is, under case law, typical in a contract to sell.
[11]

time through the present Rule 45 petition. Points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily will not be, considered by the reviewing court, as they cannot be raised for the first time at the appellate review stage. Basic considerations of fairness and due process require this rule.
[12]

At any rate, we do not find the question of characterization significant to fully pass upon the question of default due to the respondents breach; ultimately, the breach was cured and the contract revived by the respondents payment a day after the due date. In cases of breach due to nonpayment, the vendor may avail of the remedy of rescission in a contract of sale. Nevertheless, the defaulting vendee may defeat the vendors right to rescind the contract of sale if he pays the amount due before he receives a demand for rescission, either judicially or by a notarial act, from the vendor. This right is provided under Article 1592 of the Civil Code: Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the

In this case, the vendor made no reservation on the

ownership of the subject properties. From this perspective, the parties agreement may be considered a contract of sale. On the other hand, jurisprudence has similarly established that the need to execute a deed of absolute sale upon completion of payment of the price generally indicates that it is a contract to sell, as it implies the reservation of title in the vendor until the vendee has completed the payment of the price. When the respondents instituted the action for specific performance before the

19
contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. [Emphasis supplied.] xxxx Nonpayment of the purchase price in contracts to sell, however, does not constitute a breach; rather, nonpayment is a condition that prevents the obligation from acquiring obligatory force and results in its cancellation. We stated in Ong v. CA
[13]

entitled to the following rights in case he defaults in the payment of succeeding installments:

that: In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring obligatory force. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. [Emphasis supplied.]

Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than 60 days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from the receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by notarial act. [Emphasis supplied.]

Significantly, the Court has consistently held that the Maceda Law covers not only sales on installments of real estate, but also financing of such acquisition; its Section 3 is comprehensive enough to include both contracts of sale and contracts to sell, provided that the terms on payment of the price require at least two installments.

As in the rescission of a contract of sale for nonpayment of the price, the defaulting vendee in a contract to sell may defeat the vendors right to cancel by invoking the rights granted to him under Republic Act No. 6552 or the Realty Installment Buyer Protection Act (also known as the Maceda Law); this law provides for a 60-day grace period within which the defaulting vendee (who has paid less than two years of installments) may still pay the installments due. Only after the lapse of the grace period with continued nonpayment of the amounts due can the actual cancellation of the contract take place. The pertinent provisions of the Maceda Law provide: xxxx Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is

The contract entered into by the parties herein can very well fall under the Maceda Law. Based on the above discussion, we conclude that the respondents payment on June 15, 1989 of the installment due on June 14, 1989 effectively defeated the petitioners-heirs right to have the contract rescinded or cancelled. Whether the parties agreement is characterized as one of sale or to sell is not relevant in light of the respondents payment within the grace period provided under Article 1592 of the Civil Code and Section 4 of the Maceda Law. The petitioners-heirs obligation to accept the payment of the price and to convey Consuelos conjugal and hereditary shares in the subject properties subsists. WHEREFORE, we DENY the petitioners-heirs petition for review

on certiorari, and AFFIRM the decision of the Court of Appeals dated June 24, 2002 and its resolution dated February 20, 2003 in CA-G.R. CV Case No. 56590. Costs against the petitioners-heirs. SO ORDERED.

20
ARTURO D. BRION Associate Justice 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 attorneyin-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 defendantsspouses 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

Republic SUPREME Manila THIRD DIVISION

of

the

Philippines COURT

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 Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated December 16, 1981, denying defendantappellant'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 plaintiffappellant, 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

21
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.

22
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.

23
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. Kindly acknowledge receipt of the earnest money. When the term of existence of BARRETTO & SONS expired, all its assets and liabilities including the property located in Quiapo were transferred to respondent Pio Barretto Realty Development, Inc. (BARRETTO REALTY). Petitioners offer to buy the property resulted in its agreement with respondent BARRETTO REALTY that petitioner would pay the following amounts: (a) P24.5 million representing the outstanding obligations of BARRETTO REALTY with UCPB on 30 June 1988, the deadline set by the bank for payment; and, (b) P20 million which was the balance of the purchase price of the property to be paid in installments within a 3-year period with interest at 18% per annum. BELLOSILLO, J.: In the absence of a specific stipulation, may the seller of real estate keep the earnest money to answer for damages in the event the sale fails due to the fault of the prospective buyer? Pio Barretto and Sons, Inc. (BARRETTO & SONS) owned forty-three (43) parcels of registered land with a total area of 18,500 square meters located at Carlos Palanca St., Quiapo, Manila, which were mortgaged with the United Coconut Planters Bank (UCPB). In 1988, the obligation of the corporation with UCPB remained unpaid making foreclosure of the mortgage imminent. Goldenrod, Inc. (GOLDENROD), offered to buy the property from BARRETTO & SONS. On 25 May 1988, through its president Sonya G. Mathay, petitioner wrote respondent Anthony Que, President of respondent BARRETTO & SONS, as follows: Thank you for your reply to our letter offering to buy your property in Echague (C. Palanca) Quiapo. We are happy that you have accepted our offer except the two amendments concerning the payment of interest which should be monthly instead of semi-annually and the period to remove the trusses, steel frames etc. which shall be 180 days instead of 90 days only. Please be advised that we agree to your amendments. As to your other query, we prefer that the lots be reconsolidated back to its (sic) mother titles. Enclosed is the earnest money of P1 million which shall form part of the purchase price. Payment of the agreed total consideration shall be effected in accordance with our offer as you have accepted and upon execution of the necessary documents of sale to be implemented after the said reconsolidation of the lots.

G.R. No. 126812. November 24, 1998]

GOLDENROD, INC., petitioner vs. COURT OF APPEALS, PIO BARRETTO & SONS, INC., PIO BARRETTO REALTY DEVELOPMENT, INC., and ANTHONY QUE, respondents. DECISION

24
Petitioner did not pay UCPB the P24.5 million loan obligation of BARRETTO REALTY on the deadline set for payment; instead, it asked for an extension of one (1) month or up to 31 July 1988 to settle the obligation, which the bank granted. On 31 July 1988, petitioner requested another extension of sixty (60) days to pay the loan. This time the bank demurred. In the meantime BARRETTO REALTY was able to cause the reconsolidation of the forty-three (43) titles covering the property subject of the purchase into two (2) titles covering Lots 1 and 2, which were issued on 4 August 1988. The reconsolidation of the titles was made pursuant to the request of petitioner in its letter to private respondents on 25 May 1988. Respondent BARRETTO REALTY allegedly incurred expenses for the reconsolidation amounting to P250,000.00. On 25 August 1988 petitioner sought reconsideration of the denial by the bank of its request for extension of sixty (60) days by asking for a shorter period of thirty (30) days. This was again denied by UCPB. On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and Development Corporation (LOGARTA REALTY), which acted as agent and broker of petitioner, wrote private respondent Anthony Que informing him on behalf of petitioner that it could not go through with the purchase of the property due to circumstances beyond its fault, i.e., the denial by UCPB of its request for extension of time to pay the obligation. In the same letter, Logarta also demanded the refund of the earnest money of P1 million which petitioner gave to respondent BARRETTO REALTY. On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld Trade Center Phils., Inc. (ASIAWORLD), Lot 2, one of the two (2) consolidated lots, for the price of P23 million. On 13 October 1988 respondent BARRETTO REALTY executed a deed transferring by way of dacion the property reconsolidated as Lot 1 in favor of UCPB, which in turn sold the property to ASIAWORLD for P24 million. On 12 December 1988 Logarta again wrote respondent Que demanding the return of the earnest money to GOLDENROD. On 7 February 1989 petitioner through its lawyer reiterated its demand, but the same remained unheeded by private respondents. This prompted petitioner to file a complaint with the Regional Trial Court of Manila against private respondents for the return of the amount of P1 million and the payment of damages including lost interests or profits. In their answer, private respondents contended that it was the agreement of the parties that the earnest money of P1 million would be forfeited to answer for losses and damages that might be suffered by private respondents in case of failure by petitioner to comply with the terms of their purchase agreement. On 15 March 1991 the trial court rendered a decision ordering private respondents jointly and severally to pay petitioner P1,000,000.00 with legal interest from 9 February 1989 until fully paid, P50,000.00 representing unrealized profits and P10,000.00 as attorneys fees. The trial court found that there was no written agreement between the parties concerning forfeiture of the earnest money if the sale did not push through. It further declared that the earnest money given by petitioner to respondent BARRETTO REALTY was intended to form part of the purchase price; thus, the refusal of the latter to return the
[1]

money when the sale was not consummated violated Arts. 22 and 23 of the Civil Code against unjust enrichment. Obviously dissatisfied with the decision of the trial court, private respondents appealed to the Court of Appeals which reversed the trial court and ordered the dismissal of the complaint; hence, this petition. Petitioner alleges that the Court of Appeals erred in disregarding the finding of the trial court that the earnest money given by petitioner to respondent BARRETTO REALTY should be returned to the former. The absence of an express stipulation that the same shall be forfeited in favor of the seller in case the buyer fails to comply with his obligation is compelling. It argues that the forfeiture of the money in favor of respondent BARRETTO REALTY would amount to unjust enrichment at the expense of petitioner. We sustain petitioner. Under Art. 1482 of the Civil Code, whenever earnest money is given in a contract of sale, it shall be considered as part of the purchase price and as proof of the perfection of the contract. Petitioner clearly stated without any objection from private respondents that the earnest money was intended to form part of the purchase price. It was an advance payment which must be deducted from the total price. Hence, the parties could not have intended that the earnest money or advance payment would be forfeited when the buyer should fail to pay the balance of the price, especially in the absence of a clear and express agreement thereon. By reason of its failure to make payment petitioner, through its agent, informed private respondents that it would no longer push through with the sale. In other words, petitioner resorted to extrajudicial rescission of its agreement with private respondents. In University of the Philippines v. de los Angeles, the right to rescind contracts is not absolute and is subject to scrutiny and review by the proper court. We held [3] further, in the more recent case of Adelfa Properties, Inc. v. Court of Appeals, that rescission of reciprocal contracts may be extrajudicially rescinded unless successfully impugned in court. If the party does not oppose the declaration of rescission of the other party, specifying the grounds therefor, and it fails to reply or protest against it, its silence thereon suggests an admission of the veracity and validity of the rescinding party's claim. Private respondents did not interpose any objection to the rescission by petitioner of the agreement. As found by the Court of Appeals, private respondent BARRETTO REALTY even sold Lot 2 of the subject consolidated lots to another buyer, ASIAWORLD, one day after its President Anthony Que received the broker's letter rescinding the sale. Subsequently, on 13 October 1988 respondent BARRETTO REALTY also conveyed ownership over Lot 1 to UCPB which, in turn, sold the same to ASIAWORLD. Article 1385 of the Civil Code provides that rescission creates the obligation to return the things which were the object of the contract together with their fruits and interest. The vendor is therefore obliged to return the purchase price paid to him by the buyer if the latter rescinds the [4] sale, or when the transaction was called off and the subject property had already [5] been sold to a third person, as what obtained in this case. Therefore, by virtue of the
[2]

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extrajudicial rescission of the contract to sell by petitioner without opposition from private respondents who, in turn, sold the property to other persons, private respondent BARRETTO REALTY, as the vendor, had the obligation to return the earnest money of P1,000,000.00 plus legal interest from the date it received notice of rescission from petitioner, i.e., 30 August 1988, up to the date of the return or payment. It would be most inequitable if respondent BARRETTO REALTY would be allowed to retain petitioners payment of P1,000,000.00 and at the same time [6] appropriate the proceeds of the second sale made to another. WHEREFORE, the Petition is GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE. Private respondent Pio Barretto Realty Development, Inc. (BARRETTO REALTY), its successors and assigns are ordered to return to petitioner Goldenrod, Inc. (GOLDENROD), the amount of P1,000,000.00 with legal interest thereon from 30 August 1988, the date of notice of extrajudicial rescission, until the amount is fully paid, with costs against private respondents. SO ORDERED. Republic SUPREME Manila EN BANC of the Philippines COURT 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: G.R. No. L-25494 June 14, 1972 NICOLAS vs. SEVERINA RIGOS, defendant-appellant. Santiago F. Bautista for plaintiff-appellee. Jesus G. Villamar for defendant-appellant. SANCHEZ, plaintiff-appellee, 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 1 Annex A thereof and is quoted on the margin. 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 2 "and parcel" of said pleading.

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.

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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, 3 it had been held, in Bauermann v. Casas, 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 and Mercy's Incorporated v. 5 Herminia Verde. Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific 6 Co., from which We quote:
4

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

27
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 8 Tek, decided later thatSouthwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific 9 Co., 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 10 in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. , 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 the Southwestern Sugar & Molasses Co. case should be deemed abandoned or modified. WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant Severina Rigos. It is so ordered. Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur. Castro, J., took no part.

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Two years later, on March 31, 1969 , Mayfair entered into a second contract of lease with Carmelo for the lease of another portion of Carmelos property, to wit: A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,064 square meters. THE TWO (2) STORE SPACES AT THE GROUND FLOOR and MEZZANINE of the two-storey building situated at C.M. Recto Avenue, Manila, with a floor area of 300 square meters and bearing street numbers 1871 and 1875,
1

[ G.R. No. 106063. November 21, 1996 EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., Petitioners, v. MAYFAIR THEATER, INC., Respondent. DECISION HERMOSISIMA, JR., J.: Before us is a petition for review of the decision of the Court of 2 Appeals involving questions in the resolution of which the respondent appellate court analyzed and interpreted particular provisions of our laws on contracts and sales. In its assailed decision, the respondent court reversed the 3 trial court which, in dismissing the complaint for specific performance with 4 damages and annulment of contract, found the option clause in the lease contracts entered into by private respondent Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of performance and unsupported by a consideration and the subsequent sale of the subject property to petitioner Equatorial Realty Development, Inc. (hereafter, Equatorial) to have been made without any breach 5 of or prejudice to, the said lease contracts. crlwvirtualibrry We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost verbatim the basis of the statement of facts as rendered by the petitioners in their pleadings: "Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon located at Claro M. Recto Avenue , Manila , and covered by TCT No. 18529 issued in its name by the Register of Deeds ofManila . On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latters lease of a portion of Carmelos property particularly described, to wit: A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters. THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 150 square meters, for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair thereafter constructed on the leased property a movie house known as Maxim Theatre .

for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up another movie house known as Miramar Theatre on this leased property. Both contracts of lease provides (sic) identically worded paragraph 8, which reads: That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair , through a telephone conversation that Carmelo was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the property for Six to Seven Million Pesos. Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974 , Mayfair replied through a letter stating as follows: It appears that on August 19, 1974 your Mr. Henry Pascal informed our clients Mr. Henry Yang through the telephone that your company desires to sell your above-mentioned C.M. Recto Avenue property. Under your companys two lease contracts with our client, it is uniformly provided: 8. That if the LESSOR should desire to sell the leased premises the LESSEE shall be given 30-days exclusive option to purchase the same. In the event,

29
however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it is (sic) herebinds (sic) and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions hereof (sic). Carmelo did not reply to this letter. On September 18, 1974 , Mayfair sent another letter to Carmelo purporting to express interest in acquiring not only the leased premises but the entire building and other improvements if the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter. Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which included the leased premises housing the Maxim and Miramar theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00. In September 1978, Mayfair instituted the action a quo for specific performance and annulment of the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as special and affirmative defense (a) that it had informed Mayfair of its desire to sell the entire C.M. Recto Avenue property and offered the same to Mayfair, but the latter answered that it was interested only in buying the areas under lease, which was impossible since the property was not a condominium; and (b) that the option to purchase invoked by Mayfair is null and void for lack of consideration. Equatorial, in its Answer, pleaded as special and affirmative defense that the option is void for lack of considertion (sic) and is unenforceable by reason of its impossibility of performance because the leased premises could not be sold separately from the other portions of the land and building. It counterclaimed for cancellation of the contracts of lease, and for increase of rentals in view of alleged supervening extraordinary devaluation of the currency. Equatorial likewise cross-claimed against codefendant Carmelo for indemnification in respect of Mayfair s claims. During the pre-trial conference held on January 23, 1979 , the parties stipulated on the following: 1. That there was a deed of sale of the contested premises by the defendant Carmelo x x x in favor of defendant Equatorial x x x; 2. That in both contracts of lease there appear (sic) the stipulation granting the plaintiff exclusive option to purchase the leased premises should the lessor desire to sell the same (admitted subject to the contention that the stipulation is null and void); 3. That the two buildings erected on this land are not of the condominium plan; 6. That there was no consideration specified in the option to buy embodied in the contract; 7. That Carmelo & Bauermann owned the land and the two buildings erected thereon; 8. That the leased premises constitute only the portions actually occupied by the theaters; and 9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty is the land and the two buildings erected thereon. xxx xxx xxx After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion of which reads as follows: WHEREFORE, judgment is hereby rendered: (1) Dismissing the complaint with costs against the plaintiff; (2) Ordering plaintiff to pay defendant Bauermann P40,000.00 by way of attorneys counterclaim; Carmelo fees on & its 4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of the contracts of lease constitute the consideration for the plaintiffs occupancy of the leased premises, subject of the same contracts of lease, Exhibits A and B; xxx xxx xxx

(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per month as reasonable compensation for the use of areas not covered by the contract (sic) of lease from July 31, 1979 until plaintiff vacates said area (sic) plus legal interest from July 31, 1978; P70,000.00 per month as reasonable compensation for the use of the premises covered by the contracts (sic) of lease dated (June 1, 1967 from June 1, 1987 until plaintiff vacates the premises plus legal interest from June 1, 1987; P55,000.00 per month as reasonable compensation for the use of the premises covered by the contract of lease dated March 31, 1969 from March 30, 1989 until plaintiff vacates the premises plus legal interest from March 30, 1989; and P40,000.00 as attorneys fees;

30
(4) Dismissing defendant Equatorials defendant Carmelo & Bauermann. crossclaim against words, the promisee has the burden of proving the consideration. The consideration cannot be presumed as in Article 1354: Although the cause is not stated in the contract, it is presumed that it exists and is lawful unless the debtor proves the contrary. where consideration is legally presumed to exists. Article 1354 applies to contracts in general, whereas when it comes to an option it is governed particularly and more specifically by Article 1479 whereby the promisee has the burden of proving the existence of consideration distinct from the price. Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said: (1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to sales in particular, and, more specifically, to an accepted unilateral promise to buy or to sell. In other words, Article 1479 is controlling in the case at bar. (2) In order that said unilateral promise may be binding upon the promissor, Article 1479 requires the concurrence of a condition, namely, that the promise be supported by a consideration distinct from the price. Accordingly, the promisee cannot compel the promissor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint. [7crlwvirtualibrry It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M. Recto property to the former." Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent Court of Appeals. Respondent appellate court reversed the court a quo and rendered judgment: "1. Reversing and setting aside the appealed Decision; 2. Directing the plaintiff-appellant Mayfair Theater, Inc. to pay and return to Equatorial the amount ofP11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering Equatorial Realty Development, Inc. to accept such payment; 3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc. to execute the deeds and documents necessary for the issuance and transfer of ownership to Mayfair of the lot registered under TCT Nos. 17350, 118612, 60936, and 52571; and

The contracts of lease dated June 1, 1967 and March 31, 1969 are declared expired and all persons claiming rights under these contracts are directed to 6 vacate the premises." crlwvirtualibrry The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to be an option clause which however cannot be deemed to be binding on Carmelo because of lack of distinct consideration therefor. The court a quo ratiocinated: "Significantly, during the pre-trial, it was admitted by the parties that the option in the contract of lease is not supported by a separate consideration. Without a consideration, the option is therefore not binding on defendant Carmelo & Bauermann to sell the C.M. Recto property to the former. The option invoked by the plaintiff appears in the contracts of lease x x x in effect there is no option, on the ground that there is no consideration. Article 1352 of the Civil Code, provides: Contracts without cause or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good custom, public order or public policy. Contracts therefore without consideration produce no effect whatsoever. Article 1324 provides: When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. in relation with Article 1479 of the same Code: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. The plaintiff cannot compel defendant Carmelo to comply with the promise unless the former establishes the existence of a distinct consideration. In other

31
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as adjudged, declaring the Deed of Absolute Sale between the defendants-appellants Carmelo & Bauermann, Inc. and Equatorial Realty Development, Inc. as valid and binding upon all the parties." [8crlwvirtualibrry Rereading the law on the matter of sales and option contracts, respondent Court of Appeals differentiated between Article 1324 and Article 1479 of the Civil Code, analyzed their application to the facts of this case, and concluded that since paragraph 8 of the two lease contracts does not state a fixed price for the purchase of the leased premises, which is an essential element for a contract of sale to be perfected, what paragraph 8 is, must be a right of first refusal and not an option contract. It explicated: "Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second paragraph, of the Civil Code. Article 1324 speaks of an offer made by an offeror which the offeree may or may not accept within a certain period. Under this article, the offer may be withdrawn by the offeror before the expiration of the period and while the offeree has not yet accepted the offer. However, the offer cannot be withdrawn by the offeror within the period if a consideration has been promised or given by the offeree in exchange for the privilege of being given that period within which to accept the offer. The consideration is distinct from the price which is part of the offer. The contract that arises is known as option. In the case of Beaumont vs. Prieto, 41 Phil. 670, the Supreme Court, citing Bouvier, defined an option as follows: A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from or selling to B, certain securities or properties within a limited time at a specified price. (pp. 686-7). Article 1479, second paragraph, on the other hand, contemplates of an accepted unilateral promise to buy or to sell a determinate thing for a price within (which) is binding upon the promisee if the promise is supported by a consideration distinct from the price. That unilateral promise to buy or to sell a determinate thing for a price certain is called an offer. An offer, in law, is a proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the proposal must be certain as to the object, the price and other essential terms of the contract (Art. 1319, Civil Code). Based on the foregoing discussion, it is evident that the provision granting Mayfair 30-days exclusive option to purchase the leased premises is NOT AN OPTION in the context of Arts. 1324 and 1479, second paragraph, of the Civil Code. Although the provision is certain as to the object (the sale of the leased premises) the price for which the object is to be sold is not stated in the provision. Otherwise stated, the questioned stipulation is not, by itself, an option or the offer to sell because the clause does not specify the price for the subject property. Although the provision giving Mayfair 30-days exclusive option to purchase cannot be legally categorized as an option, it is, nevertheless, a valid and binding stipulation. What the trial court failed to appreciate was the intention of the parties behind the questioned proviso. xxx xxx xxx The provision in question is not of the pro-forma type customarily found in a contract of lease. Even appellees have recognized that the stipulation was incorporated in the two Contracts of Lease at the initiative and behest of Mayfair . Evidently, the stipulation was intended to benefit and protect Mayfair in its rights as lessee in case Carmelo should decide, during the term of the lease, to sell the leased property. This intention of the parties is achieved in two ways in accordance with the stipulation. The first is by giving Mayfair 30-days exclusive option to purchase the leased property. The second is, in case Mayfair would opt not to purchase the leased property, that the purchaser (the new owner of the leased property) shall recognize the lease and be bound by all the terms and conditions thereof. In other words, paragraph 8 of the two Contracts of Lease, particularly the stipulation giving Mayfair 30-days exclusive option to purchase the (leased premises), was meant to provide Mayfair the opportunity to purchase and acquire the leased property in the event that Carmelo should decide to dispose of the property. In order to realize this intention, the implicit obligation of Carmelo once it had decided to sell the leased property, was not only to notify Mayfair of such decision to sell the property, but, more importantly, to make an offer to sell the leased premises to Mayfair, giving the latter a fair and reasonable opportunity to accept or reject the offer, before offering to sell or selling the leased property to third parties. The right vested in Mayfair is analogous to the right of first refusal, which means that Carmelo should have offered the sale of the leased premises to Mayfair before offering it to other parties, or, if Carmelo should receive any offer from third parties to purchase the leased premises, then Carmelo must first give Mayfair the opportunity to match that offer. In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he made the telephone call to Mr. Yang in 1974. Mr. Pascal thus testified: Q. Can you tell this Honorable Court how you made the offer to Mr. Henry Yang by telephone?

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A. I have an offer from another party to buy the property and having the offer we decided to make an offer to Henry Yang on a first-refusal basis. (TSN, November 8, 1983, p. 12.). and on cross-examination: Q. When you called Mr. Yang on August 1974 can you remember exactly what you have told him in connection with that matter, Mr. Pascal? A. More or less, I told him that I received an offer from another party to buy the property and I was offering him first choice of the entire property. (TSN, November 29, 1983, p. 18). We rule, therefore, that the foregoing interpretation best renders effectual the intention of the parties." [9crlwvirtualibrry Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the requirement of distinct consideration indispensable in an option contract, has no application, respondent appellate court also addressed the claim of Carmelo and Equatorial that assuming arguendo that the option is valid and effective, it is impossible of performance because it covered only the leased premises and not the entire Claro M. Recto property, while Carmelos offer to sell pertained to the entire property in question. The Court of Appeals ruled as to this issue in this wise: "We are not persuaded by the contentions of the defendants-appellees. It is to be noted that the Deed of Absolute Sale between Carmelo and Equatorial covering the whole Claro M. Recto property, made reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571. Based on the information submitted by Mayfair in its appellants Brief (pp. 5 and 46) which has not been controverted by the appellees, and which We, therefore, take judicial notice of the two theaters stand on the parcels of land covered by TCT No. 17350 with an area of 622.10 sq. m. and TCT No. 118612 with an area of 2,100.10 sq. m. The existence of four separate parcels of land covering the whole Recto property demonstrates the legal and physical possibility that each parcel of land, together with the buildings and improvements thereon, could have been sold independently of the other parcels. At the time both parties executed the contracts, they were aware of the physical and structural conditions of the buildings on which the theaters were to be constructed in relation to the remainder of the whole Recto property. The peculiar language of the stipulation would tend to limit Mayfairs right under paragraph 8 of the Contract of Lease to the acquisition of the leased areas only. Indeed, what is being contemplated by the questioned stipulation is a departure from the customary situation wherein the buildings and improvements are included in and form part of the sale of the subjacent land. Although this situation is not common, especially considering the non-condominium nature of the buildings, the sale would be valid and capable of being performed. A sale limited to the leased premises only, if hypothetically assumed, would have brought into operation the provisions of co-ownership under which Mayfair would have become the exclusive owner of the leased premises and at the same time a co-owner with Carmelo of the subjacent land in proportion to Mayfairs interest over the premises sold to it." [10crlwvirtualibrry Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the decision of respondent Court of Appeals on the basis of the following assigned errors: "I THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR STIPULATION OF FACTS. II WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS ERRED IN DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS FROM NOTICE. III THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE COMPLAINT. IV THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE MOTIONS IN THE COMPLETION PROCESS AND TO STILL RESOLVE THE MERITS OF THE CASE IN THE DECISION STAGE." [11crlwvirtualibrry

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We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this case in the Court of Appeals. Suffice it to say 12 that in our Resolution, dated December 9, 1992, we already took note of this matter and set out the proper applicable procedure to be the following: "On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a letter-complaint to this Court alleging certain irregularities and infractions committed by certain lawyers, and Justices of the Court of Appeals and of this Court in connection with case CA-G.R. CV No. 32918 (now G.R. No. 106063). This partakes of the nature of an administrative complaint for misconduct against members of the judiciary. While the letter-complaint arose as an incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the disposition thereof should be separate and independent from Case G.R. No. 106063. However, for purposes of receiving the requisite pleadings necessary in disposing of the administrative complaint, this Division shall continue to have control of the case. Upon completion thereof, the same shall be referred to the Court En Banc for proper disposition." [13crlwvirtualibrry This court having ruled the procedural irregularities raised in the fourth assigned error of Carmelo and Equatorial, to be an independent and separate subject for an administrative complaint based on misconduct by the lawyers and justices implicated therein, it is the correct, prudent and consistent course of action not to pre-empt the administrative proceedings to be undertaken respecting the said irregularities. Certainly, a discussion thereupon by us in this case would entail a finding on the merits as to the real nature of the questioned procedures and the true intentions and motives of the players therein. In essence, our task is two-fold: (1) to define the true nature, scope and efficacy of paragraph 8 stipulated in the two contracts of lease between Carmelo and Mayfair in the face of conflicting findings by the trial court and the Court of Appeals; and (2) to determine the rights and obligations of Carmelo and Mayfair, as well as Equatorial, in the aftermath of the sale by Carmelo of the entire Claro M. Recto property to Equatorial. Both contracts of lease in question provide the identically worded paragraph 8, which reads: "That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof." [14crlwvirtualibrry We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal. As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was our characterization of an option contract as one necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price. "It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of three months and for its assessed valuation, a grant which necessarily implied the offer or obligation on the part of the defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned, x x x. 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, x x x 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 priceis neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or option of the other party. The second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of value; that is, the right to call for and receive lands if he elects. The owner parts with his right to sell his lands, except to the second party, for a limited period. The second party receives this right, or, rather, from his point of view, he receives the right to elect to buy.
15

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But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to the case where there was cause or consideration for the obligation, the subject of the agreement made by the parties; while in the case at bar there was no such cause or consideration." [16 (Underscoring ours.) The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in order to be valid and enforceable, must, among other things, indicate the definite price at which the person granting the option, is willing to sell. Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per square meter upon failure to make the purchase 17 within the time specified; in one other case we freed the landowner from her promise to sell her land if the prospective buyer could raise P4,500.00 in three 18 weeks because such option was not supported by a distinct consideration; in the same vein in yet one other case, we also invalidated an instrument entitled, "Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack 19 of consideration; and as an exception to the doctrine enumerated in the two preceding cases, in another case, we ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not without consideration for in reciprocal contracts, like lease, the obligation or promise of 20 each party is the consideration for that of the other. In all these cases, the selling price of the object thereof is always predetermined and specified in the option clause in the contract or in the separate deed of option. We elucidated, 21 thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals that: "x x x. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. When the sale is not absolute but conditional, such as in a Contract to Sell where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. x x x. An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz: ART. 1479. x x x. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price (1451a). Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules generally govern: (1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offerors coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc. vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

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(2) If the period has a separate consideration, a contract of option is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optionerofferor withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract (object of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. x x x." In the light of the foregoing disquisition and in view of the wording of the questioned provision in the two lease contracts involved in the instant case, we so hold that no option to purchase in contemplation of the second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said lease contracts. Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal to Mayfair and is not an option contract. It also correctly reasoned that as such, the requirement of a separate consideration for the option, has no applicability in the instant case. There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts which would bring them into the ambit of the usual offer or option requiring an independent consideration. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be 22 supported by consideration. In the instant case, the right of first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal obligations of the parties. To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by Article 1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render ineffectual or "inutile" the provisions on right of first refusal so commonly inserted in leases of real estate nowadays. The Court of Appeals is correct in stating that Paragraph 8 was incorporated into the contracts of lease for the benefit of Mayfair which wanted to be assured that it shall be given the first crack or the first option to buy the property at the price which Carmelo is willing to accept. It is not also correct to say that there is no consideration in an agreement of right of first refusal. The stipulation is part and parcel of the entire contract of lease. The consideration for the lease includes the consideration for the right of first refusal. Thus, Mayfair is in effect stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that, should it sell the leased property, then, Mayfair shall be given the right to match the offered purchase price and to buy the property at that price. As stated in Vda. De Quirino vs. Palarca, in reciprocal contract, the obligation or promise of each party is the consideration for that of the other. The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph 8 to be that of a contractual grant of the right of first refusal to Mayfair. We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and Equatorial. The different facts and circumstances in this case call for an amplification of 24 the precedent in Ang Yu Asuncionvs. Court of Appeals. crlwvirtualibrry First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile." What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfairs right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial. Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies. "x x x Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease.
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According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferent right created by the contract. Rescission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith. Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner cannot be deemed a purchaser in good faith for the record shows that it categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than presumed notice by registration. A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice its own interests. The petitioner insists that it was not aware of the right of first priority granted by the Contract of Lease. Assuming this to be true, we nevertheless agree with the observation of the respondent court that: If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which includes Par. 20 on priority right given to the Bonnevies, it had only itself to blame. Having known that the property it was buying was under lease, it behooved it as a prudent person to have required Reynoso or the broker to show to it the Contract 25 contained." crlwvirtualibrry of Lease in which Par. 20 is

Petitioners assert the alleged impossibility of performance because the entire property is indivisible property. It was petitioner Carmelo which fixed the limits of the property it was leasing out. Common sense and fairness dictate that instead of nullifying the agreement on that basis, the stipulation should be given effect by including the indivisible appurtenances in the sale of the dominant portion under the right of first refusal. A valid and legal contract where the ascendant or the more important of the two parties is the landowner should be given effect, if possible, instead of being nullified on a selfish pretext posited by the owner. Following the arguments of petitioners and the participation of the owner in the attempt to strip Mayfair of its rights, the right of first refusal should include not only the property specified in the contracts of lease but also the appurtenant portions sold to Equatorial which are claimed by petitioners to be indivisible. Carmelo acted in bad faith when it sold the entire property to Equatorial without informing Mayfair, a clear violation of Mayfairs rights. While there was a series of exchanges of letters evidencing the offer and counter-offers between the parties, Carmelo abandoned the negotiations without giving Mayfair full opportunity to negotiate within the 30-day period. Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be authorized to exercise its right of first refusal under the contract to include the entirety of the indivisible property. The boundaries of the property sold should be the boundaries of the offer under the right of first refusal. As to the remedy to enforce Mayfairs right, the Court disagrees to a certain extent with the concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of Appealsshould be modified, if not amplified under the peculiar facts of this case. As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to the sale. Equatorials knowledge of the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests. Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded. All of these matters are now before us and so there should be no piecemeal determination of this case and leave festering sores to deteriorate into endless litigation. The facts of the case and considerations of justice and equity require that we order rescission here and now. Rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred right by the 26 contract. The sale of the subject real property by Carmelo to Equatorial should now be rescinded considering that Mayfair, which had substantial

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interest over the subject property, was prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity 27 to negotiate within the 30-day stipulated period. crlwvirtualibrry This Court has always been against multiplicity of suits where all remedies according to the facts and the law can be included. Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price at which Mayfair could have purchased the property is, therefore, fixed. It can neither be more nor less. There is no dispute over it. The damages which Mayfair suffered are in terms of actual injury and lost opportunities. The fairest solution would be to allow Mayfair to exercise its right of first refusal at the price which it was entitled to accept or reject which is P11,300,000.00. This is clear from the records. To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the latter of the disputed property would be unjust and unkind to Mayfair because it is once more compelled to litigate to enforce its right. It is not proper to give it an empty or vacuous victory in this case. From the viewpoint of Carmelo, it is like asking a fish if it would accept the choice of being thrown back into the river. Why should Carmelo be rewarded for and allowed to profit from, its wrongdoing? Prices of real estate have skyrocketed. After having sold the property for P11,300,000.00, why should it be given another chance to sell it at an increased price? Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to execute because a contract over the right of first refusal belongs to a class of preparatory juridical relations governed not by the law on contracts but by the codal provisions on human relations. This may apply here if the contract is limited to the buying and selling of the real property. However, the obligation of Carmelo to first offer the property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of first refusal which created the obligation. It should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human relations. The latter remedy encourages multiplicity of suits. There is something to execute and that is for Carmelo to comply with its obligation to the property under the right of the first refusal according to the terms at which they should have been offered then to Mayfair, at the price when that offer should have been made. Also, Mayfair has to accept the offer. This juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8 of the two leases can be executed according to their terms. On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in mind that both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a contract entered into with Mayfair. It sold the property to Equatorial with purpose and intend to withhold any notice or knowledge of the sale coming to the attention of Mayfair. All the circumstances point to a calculated and contrived plan of noncompliance with the agreement of first refusal. On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious advantage of Mayfair. Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the grant of interests. The vendor received as payment from the vendee what, at the time, was a full and fair price for the property. It has used the P11,300,000.00 all these years earning income or interest from the amount. Equatorial, on the other hand, has received rents and otherwise profited from the use of the property turned over to it by Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the property. Mayfair is under no obligation to pay any interests arising from this judgment to either Carmelo or Equatorial. W HEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; petitioner Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the purchase price. The latter is directed to execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots forP11,300,000.00. SO ORDERED. THIRD DIVISION G.R. No. 104373 December 22, 1994 LUZ ARDENA SALAME AND RAMON A. SALAME, Petitioners, vs. COURT OF APPEALS AND SPOUSES ATILA BALGOS AND TEODORICA ASIS, Respondents. Escolin & Associates for petitioner.chanrobles virtual law library J. O. Villanueva Law Office for private respondent. ROMERO, J.: chanrobles virtual law library This is a petition for review on certiorari of the Decision, of the Court of Appeals affirming the decision of the Regional Trial Court, Roxas City, Branch 19, which dismissed the amended complaint of plaintiff for reconveyance and damages and the
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counterclaim of defendants for lack of merit.chanroblesvirtualawlibrary chanrobles virtual law library The following are the facts: chanrobles virtual law library Petitioners are the heirs and successors-in-interest of their mother, Vicenta Acevedo (Vicenta) who died in 1968. Vicenta and private respondents, the spouses Atila Balgos and Teodorica Asis, were the registered owners pro-indiviso of a parcel of agricultural land located in Barrio Banica, Roxas City. Onehalf of the said property belonged to Vicenta and the other half to the private respondents.chanroblesvirtualawlibrary chanrobles virtual law library On November 10, 1962, Vicenta executed a "Contract of Sale of Undivided Share by Installment with Right of Repurchase" in favor of respondent spouses on her one-half share, in consideration of the amount of P5,300.00 with a stipulation on the seller's right to repurchase said property within eight years, and with an automatic grace period of another two years from the expiration of the eight-year period.chanroblesvirtualawlibrary chanrobles virtual law library On December 24, 1964, Vicenta executed a "Deed of Absolute Sale" whereby she sold her 1/2 share for P9,000 to private respondents.chanroblesvirtualawlibrary chanrobles virtual law library On January 1, 1967, the respondent spouses executed a "Promise to Sell" whereby they promised to sell the 1/2 portion to Vicenta within the years 1973 to 1974, ending on December 31, 1974.chanroblesvirtualawlibrary chanrobles virtual law library Vicenta died on January 20, 1968. In December 1974, petitioners asked to be allowed to repurchase the property for the amount of P9,000.00, but private respondents refused on the ground that they were now the legal and absolute owners of the said property.chanroblesvirtualawlibrary chanrobles virtual law library Petitioners then filed a complaint with the Regional Trial Court of Roxas City for "Reconveyance and Damages" against private respondents.chanroblesvirtualawlibrary chanrobles virtual law library In its Decision, the trial court dismissed petitioner's complaint and defendant's counterclaim for lack of merit.chanroblesvirtualawlibrary chanrobles virtual law library Petitioners appealed the case to the Court of Appeals which affirmed the trial court's decision in toto.chanroblesvirtualawlibrary chanrobles virtual law library Hence, this petition.chanroblesvirtualawlibrary chanrobles virtual law library
2

Petitioners contend that the three transactions between Vicenta and respondent spouses were, in reality, a single transaction starting with the Contract of Sale by Installment with Right to Repurchase [marked Exh. "A" during the trial], continuing with the Deed of Absolute Sale [Exh. "B"] and ending with the Promise to Sell [Exhibit "C"]. Since the transactions involved the same property and the same parties, 3 4 petitioners claim that pursuant to Article 1604 in relation to Article 1602 of the Civil Code, it may be presumed to be an equitable mortgage because the real intention of the parties is to secure the payment of a debt obtained by Vicenta from private respondents. Furthermore, the said transaction has all the earmarks of an equitable mortgage, namely: 1. the price of the sale is inadequate; chanrobles virtual law library 2. after the expiration of the period to exercise the right of repurchase under Exh. "A," another document, Exh. "C" extending the period of redemption or granting a new period was executed, and chanrobles virtual law library 3. private respondents retained a part of the purchase price. We find petitioners contentions to be unmeritorious. All the three documents presented are separate and independent from each other although they refer to a common property. Having been duly acknowledged before a notary public the same have in their favor the presumption of regularity. To contradict the same, there must 5 be evidence that is clear, convincing and more than merely preponderant. However, the records in this case do not show even a preponderance of evidence in favor of petitioners claim that Exhibits "A," "B," and "C" all constituted a single transaction. We have had occasion to state: A notarial document is evidence of the facts in clear unequivocal manner therein 6 expressed. chanrobles virtual law library No evidence is presented by petitioners to prove their contention that it was the parties' intention to enter into an equitable mortgage agreement, other than the documents themselves.chanroblesvirtualawlibrary chanrobles virtual law library Furthermore, under the Parol Evidence Rule, the three documents in question must be taken as containing all the terms of the agreement between Vicenta and respondent spouses, there appearing to be no ambiguity in the language of the said documents nor any failure to express the true intent and agreement of the said parties.chanroblesvirtualawlibrary chanrobles virtual law library We find the terms and conditions of all three documents clear, free from any ambiguity, and expressive of the real intent and agreement of the parties.chanroblesvirtualawlibrary chanrobles virtual law library
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In Exh. "A," Vicenta sold, for P5,300.00, her one-half share reserving for herself and her successors-in-interest the right to repurchase the same within eight years, extendible for another two. This conditional sale was converted into an absolute sale under the terms of Exh. "B," whereby Vicenta sold, for P9,000.00, her one-half share "free from any liens or encumbrances" or without any stipulation regarding a right to repurchase on the vendor's part.chanroblesvirtualawlibrary chanrobles virtual law library Under the terms of Exh. "C," private respondents promised to sell the said one-half share to Vicenta and her successors-in-interest within the years 1973-1974, ending on December 31, 1974, after which upon failure to purchase the property, the promise to sell would cease to have any effect.chanroblesvirtualawlibrary chanrobles virtual law library When Exh. "B" was executed, the right of repurchase given to Vicenta was terminated and her successors-in-interest could no longer exercise the same after her death in 1968.chanroblesvirtualawlibrary chanrobles virtual law library Clearly, the "Promise to Sell" was a separate transaction, distinct from the right of repurchase under Exh. "A." chanrobles virtual law library Moreover, we find that it was a unilateral promise to sell governed by Article 1479 of the Civil Code which requires that, in order that such a promise may be binding upon the promisor, (1) it be for a price certain and (2) it must be supported by a consideration separate from the price.chanroblesvirtualawlibrary chanrobles virtual law library The record shows that Exh. "C" was unilaterally executed, signed and delivered by the promisors, herein private respondents, without the participation of Vicenta and her heirs. Exh. "C" does not indicate the selling price of the property; nor does it show that the unilateral promise to sell is supported by a consideration distinct and separate from that of the price.chanroblesvirtualawlibrary chanrobles virtual law library In Falcon v. Orobia, we stated that: Where, as in this case, defendants offered to buy the land but did not mention in their offer the price therefor, an "Option to Re-Sell" in their favor, requiring that the price must be determined when the resale is made, cannot be enforced, there being failure to agree on the price. Also, in Sanchez v. Rigos
10 9 8

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. Exh. "C," failing to satisfy the requirements for a valid unilateral promise to sell, petitioners may not now enforce the same.chanroblesvirtualawlibrary chanrobles virtual law library WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of Appeals is hereby AFFIRMED in toto. Bidin, Melo and Vitug, JJ., concur.chanroblesvirtualawlibrary chanrobles virtual law library

we explained that:

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 cannot compel the