THIRD DIVISION

ENRICO S. EULOGIO, Petitioner,

G.R. No. 167884 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, * AZCUNA, CHICO-NAZARIO, and NACHURA, JJ.
[1]

- versus -

SPOUSES APELES,

CLEMENTE

APELES and

LUZ

Promulgated:

Respondents. January 20, 2009 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Petitioner Enrico S. Eulogio (Enrico) filed this instant Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court assailing the Decision dated 20 December 2004 of the Court of Appeals in CA-G.R. CV No. 76933 which reversed the Decision dated 8 October 2002 of the Regional Trial Court (RTC) of Quezon City, Branch 215, in Civil Case No. Q-99-36834. The RTC directed respondents, spouses Clemente and Luz Apeles (spouses Apeles) to execute a Deed of Sale over a piece of real property in favor of Enrico after the latters payment of full consideration therefor.
[3] [2]

The factual and procedural antecedents of the present case are as follows:

The real property in question consists of a house and lot situated at No. 87 Timog Avenue, Quezon City (subject property). The lot has an area of 360.60 square meters, covered by Transfer Certificate of Title No. 253990 issued by the Registry of Deeds of Quezon City in the names of the spouses Apeles.
[4]

In 1979, the spouses Apeles leased the subject property to Arturo Eulogio (Arturo), Enricos father. Upon Arturos death, his son Enrico succeeded as lessor of the subject property. Enrico used the subject property as his residence and place of business. Enrico was engaged in the business of buying and selling imported cars.
[5]

On 6 January 1987, the spouses Apeles and Enrico allegedly entered into a Contract of Lease with Option to Purchase involving the subject property. According to the said lease contract, Luz Apeles was authorized to enter into the same as the attorney-in-fact of her husband, Clemente, pursuant to a Special Power of Attorney executed by the latter in favor of the former on 24 January 1979. The contract purportedly afforded Enrico, before the expiration of the three-year lease period, the option to purchase the subject property for a price not exceeding P1.5 Million. The pertinent provisions of the Contract of Lease are reproduced below: 3. That this Contract shall be effective commencing from January 26, 1987 and shall remain valid and binding for THREE (3) YEARS from the said date. The LESSOR hereby gives the LESSEE under this Contract of Lease the right and option to buy the subject house and lot within the said 3-year lease period. 4. That the purchase price or total consideration of the house and lot subject of this Contract of Lease shall, should the LESSEE exercise his option to buy it on or before the expiration of the 3-year lease period, be fixed or agreed upon by the LESSOR and the LESSEE, Provided, that the said purchase price, as it is hereby agreed, shall not be more than ONE MILLION FIVE HUNDRED THOUSAND PESOS (P1,500,000.00) and, provided further, that the monthly rentals paid by the LESSEE to the LESSOR during the 3-year lease period shall form part of or be deducted from the purchase price or total consideration as may hereafter be mutually fixed or agreed upon by the LESSOR and the LESSEE. 5. That if the LESSEE shall give oral or written notice to the LESSOR on or before the expiry date of the 3-year lease period stipulated herein of his desire to exercise his option to buy or purchase the house and lot herein leased, the LESSOR upon receipt of the purchase price/total consideration as fixed or agreed upon less the total amount of monthly rentals paid the LESSEE during the 3-year lease period shall execute the appropriate Deed to SELL, TRANSFER and CONVEY the house and lot subject of this Contract in favor of the LESSEE, his heirs, successors and assigns, together with all the fixtures and accessories therein, free from all liens and encumbrances.

[6]

Before the expiration of the three-year lease period provided in the lease contract, Enrico exercised his option to purchase the subject property by communicating verbally and in writing to Luz his willingness to pay the agreed purchase price, but the spouses Apeles supposedly ignored Enricos manifestation. This prompted Enrico to seek recourse from the barangay for the enforcement of his right to purchase the subject property, but despite several notices, the spouses Apeles failed to appear before the barangay for settlement proceedings. Hence, the barangay issued to Enrico a Certificate to File Action.
[7]

In a letter dated 26 January 1997 to Enrico, the spouses Apeles demanded that he pay his rental arrears from January 1991 to December 1996 and he vacate the subject property since it would be needed by the spouses Apeles themselves.

Without heeding the demand of the spouses Apeles, Enrico instituted on 23 February 1999 a Complaint for Specific Performance with Damages against the spouses Apeles before the RTC, docketed as Civil Case No. Q-99-

36834. Enricos cause of action is founded on paragraph 5 of the Contract of Lease with Option to Purchase vesting him with the right to acquire ownership of the subject property after paying the agreed amount of consideration.

Following the pre-trial conference, trial on the merits ensued before the RTC.

Enrico himself testified as the sole witness for his side. He narrated that he and Luz entered into the Contract of Lease with Option to Purchase on 26 January 1987, with Luz signing the said Contract at Enricos office in Timog Avenue, Quezon City. The Contract was notarized on the same day as evidenced by the Certification on the Notary Publics Report issued by the Clerk of Court of the RTC of Manila.
[8]

On the other hand, the spouses Apeles denied that Luz signed the Contract of Lease with Option to Purchase, and posited that Luzs signature thereon was a forgery. To buttress their contention, the spouses Apeles offered as evidence Luzs Philippine Passport which showed that on 26 January 1987, the date when Luz allegedly signed the said Contract, she was in the United States of America. The spouses Apeles likewise presented several official documents bearing her genuine signatures to reveal their remarkable discrepancy from the signature appearing in the disputed lease contract. The spouses Apeles maintained that they did not intend to sell the subject property.
[9]

After the spouses Apeles established by documentary evidence that Luz was not in the country at the time the Contract of Lease with Option to Purchase was executed, Enrico, in rebuttal, retracted his prior declaration that the said Contract was signed by Luz on 26 January 1996. Instead, Enrico averred that Luz signed the Contract after she arrived in the Philippines on 30 May 1987. Enrico further related that after Luz signed the lease contract, she took it with her for notarization, and by the time the document was returned to him, it was already notarized.
[10]

On 8 October 2002, the RTC rendered a Decision in Civil Case No. Q-99-36834 in favor of Enrico. Since none of the parties presented a handwriting expert, the RTC relied on its own examination of the specimen signatures submitted to resolve the issue of forgery. The RTC found striking similarity between Luzs genuine signatures in the documents presented by the spouses Apeles themselves and her purportedly forged signature in the Contract of Lease with Option to Purchase. Absent any finding of forgery, the RTC bound the parties to the clear and unequivocal stipulations they made in the lease contract. Accordingly, the RTC ordered the spouses Apeles to execute a Deed of Sale in favor of Enrico upon the latters payment of the agreed amount of consideration. The fallo of the RTC Decision reads:

WHEREFORE, this Court finds [Enricos+ complaint to be substantiated by preponderance of evidence and accordingly orders (1) [The spouses Apeles] to comply with the provisions of the Contract of Lease with Option to Purchase; and upon payment of total consideration as stipulated in the said CONTRACT for [the spouses Apeles] to execute a Deed of Absolute Sale in favor of [Enrico], over the parcel of land and the improvements existing thereon located at No. 87 Timog Avenue, Quezon City. (2) [The spouses Apeles] to pay [Enrico] moral and exemplary damages in the respective amounts of P100,000.00 and P50,000.00. (3) [The spouses Apeles] to pay attorneys fees of P50,000.00 and costs of the suit.
[11]

The spouses Apeles challenged the adverse RTC Decision before the Court of Appeals and urged the appellate court to nullify the assailed Contract of Lease with Option to Purchase since Luzs signature thereon was clearly a forgery. The spouses Apeles argued that it was physically impossible for Luz to sign the said Contract on 26 January 1987 since she was not in the Philippines on that date and returned five months thereafter. The spouses Apeles called attention to Enricos inconsistent declarations as to material details involving the execution of the lease contract, thereby casting doubt on Enricos credibility, as well as on the presumed regularity of the contract as a notarized document.

On 20 December 2004, the Court of Appeals rendered a Decision in CA-G.R. CV No. 76933 granting the appeal of the spouses Apeles and overturning the judgment of the RTC. In arriving at its assailed decision, the appellate court noted that the Notary Public did not observe utmost care in certifying the due execution of the Contract of Lease with Option to Purchase. The Court of Appeals chose not to accord the disputed Contract full faith and credence. The Court of Appeals held, thus: WHEREFORE, the foregoing premises considered, the appealed decision dated October 8, 2002 of the Regional Trial Court of Quezon City, Branch 215 in Civil Case No. Q-99-36834 for specific performance with damages is hereby REVERSED and a new is one entered dismissing [12] *Enricos+ complaint.

Enricos Motion for Reconsideration was denied by the Court of Appeals in a Resolution 2005.

[13]

dated 25 April

Enrico is presently before this Court seeking the reversal of the unfavorable judgment of the Court of Appeals, assigning the following errors thereto:

I.

THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN IT BRUSHED ASIDE THE RULING OF THE COURT A QUO UPHOLDING THE VALIDITY OF THE CONTRACT OF LEASE WITH OPTION TO PURCHASE AND IN LIEU THEREOF RULED THAT THE SAID CONTRACT OF LEASE WAS A FORGERY AND THUS, NULL AND VOID. II. THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN CONTRARY TO THE FINDINGS OF THE COURT A QUO IT RULED THAT THE DEFENSE OF FORGERY WAS SUBSTANTIALLY AND CONVINCINGLY PROVEN BY COMPETENT EVIDENCE.

Simply, Enrico faults the Court of Appeals for disturbing the factual findings of the RTC in disregard of the legal aphorism that the factual findings of the trial court should be accorded great weight and respect on appeal.

We do not agree.

Enricos insistence on the infallibility of the findings of the RTC seriously impairs the discretion of the appellate tribunal to make independent determination of the merits of the case appealed before it. Certainly, the Court of Appeals cannot swallow hook, line, and sinker the factual conclusions of the trial court without crippling the very office of review. Although we have indeed held that the factual findings of the trial courts are to be accorded great weight and respect, they are not absolutely conclusive upon the appellate court.
[14]

The reliance of appellate tribunals on the factual findings of the trial court is based on the postulate that the latter had firsthand opportunity to hear the witnesses and to observe their conduct and demeanor during the proceedings. However, when such findings are not anchored on their credibility and their testimonies, but on the assessment of documents that are available to appellate magistrates and subject to their scrutiny, reliance on the trial court finds no application.
[15]

Moreover, appeal by writ of error to the Court of Appeals under Rule 41 of the Revised Rules of Court, the parties may raise both questions of fact and/or of law. In fact, it is imperative for the Court of Appeals to review the findings of fact made by the trial court. The Court of Appeals even has the power to try cases and conduct hearings, receive evidence and perform any and all acts necessary to resolve factual issues raised in cases falling within its original and appellate jurisdiction.
[16]

Enrico assiduously prays before this Court to sustain the validity of the Contract of Lease with Option to Purchase. Enrico asserts that the said Contract was voluntarily entered into and signed by Luz who had it notarized herself. The spouses Apeles should be obliged to respect the terms of the agreement, and not be allowed to renege on their commitment thereunder and frustrate the sanctity of contracts.

Again, we are not persuaded. We agree with the Court of Appeals that in ruling out forgery, the RTC heavily relied on the testimony proffered by Enrico during the trial, ignoring blatant contradictions that destroy his credibility and the veracity of his claims. On direct examination, Enrico testified that Luz signed the Contract of Lease with Option to Purchase on 26 January 1987 in his presence,
[18] [17]

but he recanted his testimony on the matter

after the spouses Apeles established by clear and convincing evidence that Luz was not in the Philippines on that date. In rebuttal, Enrico made a complete turnabout and claimed that Luz signed the Contract in question on 30
[19]

May 1987 after her arrival in the country.

The inconsistencies in Enricos version of events have seriously

impaired the probative value of his testimony and cast serious doubt on his credibility. His contradictory statements on important details simply eroded the integrity of his testimony.

While it is true that a notarized document carries the evidentiary weight conferred upon it with respect to its due execution, and has in its favor the presumption of regularity, this presumption, however, is not absolute. It may be rebutted by clear and convincing evidence to the contrary.
[20]

Enrico himself admitted that Luz took the

document and had it notarized without his presence. Such fact alone overcomes the presumption of regularity since a notary public is enjoined not to notarize a document unless the persons who signed the same are the very same persons who executed and personally appeared before the said notary public to attest to the contents and truth of what are stated therein.

Although there is no direct evidence to prove forgery, preponderance of evidence inarguably favors the spouses Apeles. In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term greater weight of the evidence or g reater weight of the credible evidence. Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is more convincing to the court as worthier of belief than that which is offered in opposition thereto.
[21]

In the case at bar, the spouses Apeles were able to overcome the burden of proof and

prove by preponderant evidence in disputing the authenticity and due execution of the Contract of Lease with Option to Purchase. In contrast, Enrico seemed to rely only on his own self-serving declarations, without asserting any proof of corroborating testimony or circumstantial evidence to buttress his claim.

Even assuming for the sake of argument that we agree with Enrico that Luz voluntarily entered into the Contract of Lease with Option to Purchase and personally affixed her signature to the said document, the provision on the option to purchase the subject property incorporated in said Contract still remains unenforceable.

There is no dispute that what Enrico sought to enforce in Civil Case No. Q-99-36834 was his purported right to acquire ownership of the subject property in the exercise of his option to purchase the same under the

Contract of Lease with Option to Purchase. He ultimately wants to compel the spouses Apeles to already execute the Deed of Sale over the subject property in his favor.

An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the formers property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale.
[22]

An option is not of itself a purchase, but merely

secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of the 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, i.e., the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer.
[23]

It is also sometimes called an unaccepted offer and is sanctioned by Article 1479 of the Civil Code: 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.

The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports it.
[24]

In the landmark case of Southwestern Sugar and Molasses Company v. Atlantic Gulf and Pacific Co., declared that for an option contract to bind the promissor, it must be supported by consideration: There is no question that under Article 1479 of the new Civil Code an option to sell, or a promise to buy or to sell, as used in said article, to be valid must be supported by a consideration distinct from the price. This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration. In other words, an accepted unilateral promise can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee. (Emphasis supplied.)

[25]

we

The doctrine requiring the payment of consideration in an option contract enunciated in Southwestern Sugar is resonated in subsequent cases and remains controlling to this day. Without consideration that is separate and distinct from the purchase price, an option contract cannot be enforced; that holds true even if the unilateral promise is already accepted by the optionee.

The consideration is the why of the contracts, the essential reason which moves the contracting parties to enter into the contract. This definition illustrates that the consideration contemplated to support an option contract need not be monetary. Actual cash need not be exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous contract for which the consideration must be something of value, although its kind may vary.
[26]

We have painstakingly examined the Contract of Lease with Option to Purchase, as well as the pleadings submitted by the parties, and their testimonies in open court, for any direct evidence or evidence aliunde to prove the existence of consideration for the option contract, but we have found none. The only consideration agreed upon by the parties in the said Contract is the supposed purchase price for the subject property in the amount not exceeding P1.5 Million, which could not be deemed to be the same consideration for the option contract since the law and jurisprudence explicitly dictate that for the option contract to be valid, it must be supported by a consideration separate and distinct from the price .
[27]

In Bible Baptist Church v. Court of Appeals,

we stressed that an option contract needs to be supported

by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the option contract. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause.

In the present case, it is indubitable that no consideration was given by Enrico to the spouses Apeles for the option contract. The absence of monetary or any material consideration keeps this Court from enforcing the rights of the parties under said option contract.

WHEREFORE, in view of the foregoing, the instant Petition is DENIED. The Decision dated 20 December 2004 and Resolution dated 25 April 2005 of the Court of Appeals in CA-G.R. CV No. 76933are hereby AFFIRMED. No costs. SO ORDERED.

G.R. No. 97332 October 10, 1991 Villamor vs. CA

FACTS: Macaria sold 300 square meters from her 600 square meter lot to the spouses Villamor which is located at Baesa, Caloocan City, for the total amount of P21,000.00. Earlier, Macaria borrowed P2,000.00 from the spouses which amount was deducted from the total purchase price of the 300 square meter lot sold. Macaria executed a "Deed of Option" in favor of Villamor in which the remaining 300 square meter portion (TCT No. 39934) of the lot would be sold to Villamor under the conditions stated therein. Included in the Deed of Option is: That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor, agreed to buy the said onehalf portion at the above-stated price of about P70.00 per square meter, is because I, and my husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half portion still owned by me and now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan, whenever the need of such sale arises, either on our part or on the part of the spouses (Julio) Villamor and Marina V. Villamor, at the same price of P70.00 per square meter, excluding whatever improvement may be found the thereon; In 1984, when the husband of Macaria retired, wanted to repurchased the said 300 square meter of lot from the petitioners. However, petitioners rejected the said offer and expresses their desire to purchase the remaining half of the lot. Trial Court rendered judgment in favor of Villamor. Court of Appeals reversed the decision premised on the finding of respondent court that the Deed of Option is void for lack of consideration. ISSUE: Whether or not the Deed of Option is valid? HELD: NO. As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract." The cause or the impelling reason on the part of private respondent executing the deed of option as appearing in the deed itself is the petitioner's having agreed to buy the 300 square meter portion of private respondents' land at P70.00 per square meter "which was greatly higher than the actual reasonable prevailing price." The respondent appellate court failed to give due consideration to petitioners' evidence which shows that in 1969 the Villamor spouses bough an adjacent lot from the brother of Macaria Labing-isa for only P18.00 per square

meter which the private respondents did not rebut. Thus, expressed in terms of money, the consideration for the deed of option is the difference between the purchase price of the 300 square meter portion of the lot in 1971 (P70.00 per sq.m.) and the prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though not specifically stated in the deed of option, was ascertainable. Petitioner's allegedly paying P52.00 per square meter for the option may, as opined by the appellate court, be improbable but improbabilities does not invalidate a contract freely entered into by the parties The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an optional contract is a privilege existing in one person, for which he had paid a consideration and which gives him the right to buy, for example, certain merchandise or certain specified property, from another person, if he chooses, at any time within the agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of option" signed by the parties, We will notice that the first part covered the statement on the sale of the 300 square meter portion of the lot to Spouses Villamor at the price of P70.00 per square meter "which was higher than the actual reasonable prevailing value of the lands in that place at that time (of sale)." The second part stated that the only reason why the Villamor spouses agreed to buy the said lot at a much higher price is because the vendor (Reyeses) also agreed to sell to the Villamors the other half-portion of 300 square meters of the land. Had the deed stopped there, there would be no dispute that the deed is really an ordinary deed of option granting the Villamors the option to buy the remaining 300 square meter-half portion of the lot in consideration for their having agreed to buy the other half of the land for a much higher price. But, the "deed of option" went on and stated that the sale of the other half would be made "whenever the need of such sale arises, either on our (Reyeses) part or on the part of the Spouses Julio Villamor and Marina V. Villamor. It appears that while the option to buy was granted to the Villamors, the Reyeses were likewise granted an option to sell. In other words, it was not only the Villamors who were granted an option to buy for which they paid a consideration. The Reyeses as well were granted an option to sell should the need for such sale on their part arise. A contract of sale is, under Article 1475 of the Civil Code, "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 perform of contracts." Since there was, between the parties, a meeting of minds upon the object and the price, there was already a perfected contract of sale. What was, however, left to be done was for either party to demand from the other their respective undertakings under the contract. It may be demanded at any time either by the private respondents, who may compel the petitioners to pay for the property or the petitioners, who may compel the private respondents to deliver the property. However, the Deed of Option did not provide for the period within which the parties may demand the performance of their respective undertakings in the instrument. The parties could not have contemplated that the delivery of the property and the payment thereof could be made indefinitely and render uncertain the status of the land. The failure of either parties to demand performance of the obligation of the other for an unreasonable length of time renders the contract ineffective. Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within ten (10) years. The Deed of Option was executed on November 11, 1971. The acceptance, as already mentioned, was also accepted in the same instrument. The complaint in this case was filed by the petitioners on July 13, 1987, seventeen (17) years from the time of the execution of the contract. Hence, the right of action had prescribed. There were allegations by the petitioners that they demanded from the private respondents as early as 1984 the enforcement of their rights under the contract. Still, it was beyond the ten (10) years period prescribed by the Civil Code. Bible Baptist Church vs CA

Subject: Sales Doctrine: Option Contract Facts: On June 7, 1985, petitioner Bible Baptist Church entered into a contract of lease with respondents Mr. & Mrs. Elmer Tito Medina Villanueva who own the subject property located at No. 2436 Leon Guinto St., Malate, Manila. The pertinent stipulations in the lease contract were: 2. That the lease shall take effect on June 7, 1985 and shall be for the period of Fifteen (15) years. 4. That upon signing of the LEASE AGREEMENT, the LESSEE shall pay the sum of Eighty Four Thousand Pesos (P84,000.00) Philippine Currency. Said sum is to be paid directly to the Rural Bank, Valenzuela, Bulacan for the purpose of redemption of said property which is mortgaged by the LESSOR. 8. That the LESSEE has the option to buy the leased premises during the Fifteen (15) years of the lease. If the LESSEE decides to purchase the premises the terms will be: A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency. B) A down payment agreed upon by both parties. C) The balance of the selling price may be paid at the rate of One Hundred Twenty Thousand Pesos (P120,000.00), Philippine Currency, per year.

Petitioner seeks to buy the leased premises from the spouses Villanueva, under the option given to them. Petitioners claim that they (Baptist Church) agreed to advance the large amount needed for the rescue of the property but, in exchange, it asked the Villanuevas to grant it a long term lease and an option to buy the property for P1.8 million. However, the respondents did not agree saying that there is no separate consideration. In this hand, the petitioners argue that there is a consideration the consideration supporting the option was their agreement to pay off the Villanuevas P84,000 loan with the bank, thereby freeing the subject property from the mortgage encumbrance. That they would not have agreed to advance such a large amount as it did to rescue the property from bank foreclosure had it not been given an enforceable option to buy that went with the lease agreement. The Baptist Church states that [t]rue, the Baptist Church did not pay a separate and specific sum of money to cover the option alone. But the P84,000 it paid the Villanuevas in advance should be deemed consideration for the one contract they entered into the lease with option to buy. Petitioners further insist that a consideration need not be a separate sum of money. They posit that their act of advancing the money to rescue the property from mortgage and impending foreclosure, should be enough consideration to support the option. On the other hand, Respondents argue that the amount of P84,000 has been fully exhausted and utilized by their occupation of the premises and there is no separate consideration to speak of which could support the option. The RTC and CA agree with the respondent.

ISSUE: WON there is a separate consideration that would render the option contract valid and binding.

HELD: An option contract, to be valid and binding, needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause. Petitioners cannot insist that the P84,000 they paid in order to release the Villanuevas property from the mortgage should be deemed the separate consideration to support the contract of option. It must be pointed out that said amount was in fact apportioned into monthly rentals spread over a period of one year, at P7,000 per month. Thus, for the entire period of June 1985 to May 1986, petitioner Baptist Churchs monthly rent had already been paid for, such that it only again commenced paying the rentals in June 1986. This is shown by the testimony of petitioner Pastor Belmonte where he states that the P84,000 was advance rental equivalent to monthly rent of P7,000 for one year, such that for the entire year from 1985 to 1986 the Baptist Church did not pay monthly rent.

First, this Court cannot find that petitioner Baptist Church parted with anything of value, aside from the amount of P84,000 which was in fact eventually utilized as rental payments. Second, there is no document that contains an agreement between the parties that petitioner Baptist Churchs supposed rescue of the mortgaged property was the consideration which the parties contemplated in support of the option clause in the contract. As previously stated, the amount advanced had been fully utilized as rental payments over a period of one year. While the Villanuevas may have them to thank for extending the payment at a time of need, this is not the separate consideration contemplated by law. This Court also notes that in the present case both the Regional Trial Court and the Court of Appeals agree that the option was not founded upon a separate and distinct consideration and that, hence, respondents Villanuevas cannot be compelled to sell their property to petitioner Baptist Church. Having found that the option to buy granted to the petitioner Baptist Church was not founded upon a separate consideration, and hence, not enforceable against respondents, this Court finds no need to discuss whether a price certain had been fixed as the purchase price.

Ong v. CA Facts:

Petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K. Robles and Alejandra Robles, on the other hand, executed an "Agreement of Purchase and Sale" respecting two parcels of land situated at Barrio Puri, San Antonio, Quezon. On May 15, 1983, petitioner Ong took possession of the subject parcels of land together with the piggery, building, ricemill, residential house and other improvements thereon. For failure of the vendee to pay the price as agreed upon, a complaint for rescission of contract and recovery of properties with damages. Later, while the case was still pending with the trial court, petitioner introduced major improvements on the subject properties. These prompted the respondent spouses to ask for a writ of preliminary injunction. The trial court granted the application and enjoined petitioner from introducing improvements on the properties except for repairs. Eventually, the trial court ordered the rescission of the contract. Issues: (1) whether the contract entered into by the parties may be validly rescinded under Article 1191 of the New Civil Code (2) whether the parties had novated their original contract as to the time and manner of payment Held: Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the nature of a contract to sell, as distinguished from a contract of sale. 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. The nonfulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor's failure to comply with an obligation. Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor's obligation to convey title from acquiring binding force. Hence, the agreement of the parties in the case at bench may be set aside, but not because of a breach on the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of respondent spouses to convey title from acquiring an obligatory force. Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between the old and the new obligation. In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the

extinguishment of the old contract; and (4) there must be the validity of the new contract. The aforesaid requisites are not found in the case at bench. The subsequent acts of the parties hardly demonstrate their intent to dissolve the old obligation as a consideration for the emergence of the new one.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 139173 February 28, 2007

SPOUSES ONNIE SERRANO AND AMPARO HERRERA, Petitioners vs. GODOFREDO CAGUIAT, Respondent. DECISION SANDOVAL-GUTIERREZ, J.: Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, 1 assailing the Decision of the Court of Appeals dated January 29, 1999 and its Resolution dated July 14, 1999 in CAG.R. CV No. 48824. Spouses Onnie and Amparo Herrera, petitioners, are the registered owners of a lot located in Las Pias, Metro Manila covered by Transfer Certificate of Title No. T-9905. Sometime in March 1990, Godofredo Caguiat, respondent, offered to buy the lot. Petitioners agreed to sell it atP1,500.00 per square meter. Respondent then gave petitioners P100,000.00 as partial payment. In turn, petitioners gave respondent the corresponding receipt stating that respondent promised to pay the balance of the purchase price on or before March 23, 1990, thus: Las Pias, Metro Manila March 19, 1990 RECEIPT FOR PARTIAL PAYMENT OF LOT NO. 23 COVERED BY TCT NO. T-9905, LAS PIAS, METRO MANILA RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS. MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE. SIGNED THIS 19th DAY OF MARCH, 1990 AT LAS PIAS, M.M. (SGD) AMPARO HERRERA (SGD) ONNIE SERRANO"
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On March 28, 1990, respondent, through his counsel Atty. Ponciano Espiritu, wrote petitioners informing them of 3 his readiness to pay the balance of the contract price and requesting them to prepare the final deed of sale. On April 4, 1990, petitioners, through Atty. Ruben V. Lopez, sent a letter to respondent stating that petitioner Amparo Herrera is leaving for abroad on or before April 15, 1990 and that they are canceling the transaction. Petitioners also informed respondent that he can recover the earnest money of P100,000.00 anytime. Again, on April 6, 1990, petitioners wrote respondent stating that they delivered to his counsel Philippine National Bank Managers Check No. 790537 dated April 6, 1990 in the amount of P100,000.00 payable to him. In view of the cancellation of the contract by petitioners, respondent filed with the Regional Trial Court, Branch 63, 6 Makati City a complaint against them for specific performance and damages, docketed as Civil Case No. 90-1067. On June 27, 1994, after hearing, the trial court rendered its Decision finding there was a perfected contract of sale between the parties and ordering petitioners to execute a final deed of sale in favor of respondent. The trial court held: xxx In the evaluation of the evidence presented by the parties as to the issue as to who was ready to comply with his obligation on the verbal agreement to sell on March 23, 1990, shows that plaintiffs position deserves more weight and credibility. First, the P100,000.00 that plaintiff paid whether as downpayment or earnest money showed that there was already a perfected contract. Art. 1482 of the Civil Code of the Philippines, reads as follows, to wit: Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. Second, plaintiff was the first to react to show his eagerness to push through with the sale by sending defendants the letter dated March 25, 1990. (Exh. D) and reiterated the same intent to pursue the sale in a letter dated April 6, 1990. Third, plaintiff had the balance of the purchase price ready for payment (Exh. C). Defendants mere allegation that it was plaintiff who did not appear on March 23, 1990 is unavailing. Defendants letters (Exhs. 2 and 5) appear to be mere afterthought. On appeal, the Court of Appeals, in its assailed Decision of January 29, 1999, affirmed the trial courts judgment. Forthwith, petitioners filed their motion for reconsideration but it was denied by the appellate court in its 8 Resolution dated July 14, 1999. Hence, the present recourse. The basic issue to be resolved is whether the document entitled "Receipt for Partial Payment" signed by both parties earlier mentioned is a contract to sell or a contract of sale. Petitioners contend that the Receipt is not a perfected contract of sale as provided for in Article 1458 in relation 10 to Article 1475 of the Civil Code. The delivery to them of P100,000.00 as down payment cannot be considered as 11 proof of the perfection of a contract of sale under Article 1482 of the same Code since there was no clear agreement between the parties as to the amount of consideration . Generally, the findings of fact of the lower courts are entitled to great weight and should not be disturbed except for cogent reasons.14 Indeed, they should not be changed on appeal in the absence of a clear showing that the trial court overlooked, disregarded, or misinterpreted some facts of weight and significance, which if considered
9 7 5 4

would have altered the result of the case.1awphi1.net In the present case, we find that both the trial court and the Court of Appeals interpreted some significant facts resulting in an erroneous resolution of the issue involved. In holding that there is a perfected contract of sale, both courts mainly relied on the earnest money given by respondent to petitioners. They invoked Article 1482 of the Civil Code which provides that "Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract." We are not convinced. In San Miguel Properties Philippines, Inc. v. Spouses Huang, we held that the stages of a contract of sale are: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale, which is the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. With the above postulates as guidelines, we now proceed to determine the real nature of the contract entered into by the parties. It is a canon in the interpretation of contracts that the words used therein should be given their natural and 14 ordinary meaning unless a technical meaning was intended. Thus, when petitioners declared in the said "Receipt for Partial Payment" that they RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS. MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE. there can be no other interpretation than that they agreed to a conditional contract of sale, consummation of which is subject only to the full payment of the purchase price. A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive 15 condition is commonly full payment of the purchase price . The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As early as 1951, 16 in Sing Yee v. Santos, we held that: x x x [a] distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell x x x where by agreement the ownership is reserved in the seller and is not to pass until the full payment, of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract.
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In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the buyer until full 17 payment of the price. In this case, the "Receipt for Partial Payment" shows that the true agreement between the parties is a contract to sell. First, ownership over the property was retained by petitioners and was not to pass to respondent until full payment of the purchase price. Thus, petitioners need not push through with the sale should respondent fail to remit the balance of the purchase price before the deadline on March 23, 1990. In effect, petitioners have the right to rescind unilaterally the contract the moment respondent fails to pay within 18 the fixed period. Second, the agreement between the parties was not embodied in a deed of sale. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, 19 but only a transfer after full payment of the purchase price. Third, petitioners retained possession of the certificate of title of the lot. This is an additional indication that the agreement did not transfer to respondent, either by actual or constructive delivery, ownership of 20 the property. It is true that Article 1482 of the Civil Code provides that "Whenever 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." However, this article speaks ofearnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase 21 price. Now, since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale, does not apply. As previously discussed, the suspensive condition (payment of the balance by respondent) did not take place. Clearly, respondent cannot compel petitioners to transfer ownership of the property to him. WHEREFORE, we GRANT the instant Petition for Review. The challenged Decision of the Court of Appeals isREVERSED and respondents complaint is DISMISSED. SO ORDERED. ANGELINA SANDOVAL-GUTIERREZ Associate Justice WE CONCUR:

Ong vs. Court of Appeals 4 07 2010 ONG vs. Court of Appeals G.R. No. 97347 July 6, 1999

Facts:

Petitioner Jaime Ong and Respondent spouses Robles an Agreement of Purchase and Sale (Nota Bene: Contract to Sell) with regards two parcels of land with a rice mill and piggery situated at Quezon for P2M. As part of the terms and conditions, petitioner shall advance downpayment of 300K, shall pay the loan of the spouses of the bank, and will pay the balance of the purchase price quarterly. Petitioner was able to pay the downpayment and subsequently occupied the property. However, he gave the spouses postdated checks which were dishonored due to insufficient funds. To make it worse, he was not able to fully pay the loan of the spouses in the bank. The bank threatened to foreclose the mortgage, so what the spouses did was to sell three of the transformers of the rice mill in order to satisfy the loan obligation. Respondents now want to rescind the contract on account of Ongs non -fulfillment of obligation and seek to recover the property with damages. RTC upheld the rescission and ordered mutual restitution as well as awarded exemplary damages. The CA deleted the award of exemplary damages.

Issue: 1. WON the respondent spouses may rescind the contract? YES, but rescind through 1191 and not 1381.

Held:

The Robles spouses bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full payment by the buyer of the purchase price of P2,000,000.00 (since it is a contract to sell diba?) This

promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the petitioner. Petitioner, however, failed to complete payment of the purchase price. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect.

It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation. Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendors obligation to convey title from acquiring binding force. Hence, the agreement of the parties in the case at bench may be set aside, but not because of a breach on the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of respondent spouses to convey title from acquiring an obligatory force. 1191 vs. 1381 Although both presuppose contracts validly entered into and subsisting and both require mutual restitution when proper, they are not entirely identical. Articles 1380 is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by restoration of things to their condition at the moment prior to the celebration of the contract. It implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to someone. Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Rescission under Article 1191 is a principal action which is based on breach of a party, while rescission under Article 1381 is a subsidiary action limited to cases of rescissible contracts.