SPOUSES ROMULO DE LA CRUZ and DELIA DE LA CRUZ, and DANIEL

FAJARDO, Petitioners, v. ASIAN CONSUMER AND INDUSTRIAL FINANCE

CORPORATION and the HONORABLE COURT OF APPEALS, Respondents.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; SALE; REMEDIES OF UNPAID SELLER OF
PERSONAL PROPERTY PAYABLE IN INSTALLMENT; RULE. The instant case is
covered by the so-called "Recto Law", now Art. 1484 of the New Civil Code, which
provides: "In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies: (1) Exact
fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale,
should the vendees failure to pay cover two or more installments; (3) Foreclose the
chattel mortgage on the thing sold, if one has been constituted, should the
vendees failure to pay cover two or more installments. In this case, he shall have
no further action against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void." In this jurisdiction, the three (3)
remedies provided for in the "Recto Law" are alternative and not cumulative; the
exercise of one would preclude the other remedies. Consequently, should the
vendee-mortgagor default in the payment of two or more of the agreed
installments, the vendor-mortgagee has the option to avail of any of these three (3)
remedies: either to exact fulfillment of the obligation, to cancel the sale, or to
foreclose the mortgage on the purchased chattel, if one was constituted. (Pacific
Commercial Co. v. De la Rama, 72 Phil. 380 (1941); Manila Motor, Inc. v. Fernandez,
99 Phil. 782 (1956); Radiowealth v. Lavin, L-18563, April 27, 1963, 7 SCRA 804).
2. ID.; ID.; ID.; ID.; EFFECT OF FAILURE OF VENDOR TO FORECLOSE THE
MORTGAGED PROPERTY. It is thus clear that while ASIAN eventually succeeded in
taking possession of the mortgaged vehicle, it did not pursue the foreclosure of the
mortgage as shown by the fact that no auction sale of the vehicle was ever
conducted. As we ruled in Filinvest Credit Corp. v. Phil. Acetylene Co., Inc. (G.R. No.
50449, January 1982, 111 SCRA 421) "Under the law, the delivery of possession
of the mortgaged property to the mortgagee, the herein appellee, can only operate
to extinguish appellants liability if the appellee had actually caused the foreclosure
sale of the mortgaged property when it recovered possession thereof (Northern
Motors, Inc. v. Sapinoso, 33 SCRA 356 [1970]; Universal Motors Corp. v. Dy Hian Tat,
28 SCRA 161 [1969]; Manila Motors Co., Inc. v. Fernandez, 99 Phil. 782 [1956]). It is
worth noting that it is the fact of foreclosure and actual sale of the mortgaged
chattel that bar recovery by the vendor of any balance of the purchasers
outstanding obligation not satisfied by the sale (New Civil Code, par. 3, Article
1484). As held by this Court, if the vendor desisted, on his own initiative, from
consummating the auction sale, such desistance was a timely disavowal of the
remedy of foreclosure, and the vendor can still sue for specific performance"
(Industrial Finance Corp. v. Tobias, 78 SCRA 28 [1977]; Radiowealth, Inc. v. Lavin, L18563, April 27, 1963, 7 SCRA 804; Pacific Commercial Co. v. dela Rama, 72 Phil.
380 [1941]). Consequently, in the case before Us, there being no actual foreclosure
of the mortgaged property, ASIAN is correct in resorting to an ordinary action for
collection
of
the
unpaid
balance
of
the
purchase
price.

3. ID.; ID.; ID.; ID.; ID.; POSSESSION OF MORTGAGED PROPERTY SHOULD BE

RETURNED TO MORTGAGEE-VENDEE UPON PAYMENT OF UNPAID BALANCE; CASE AT
BAR. We note however that the trial court, as well as the Court of Appeals failed
to consider that the vehicle was already in the possession of ASIAN when it directed
petitioners herein to pay P184,466.67 representing the balance of the purchase
price of the mortgaged property. Law and equity will not permit ASIAN to have its
cake and eat it too, so to speak. By allowing ASIAN to retain possession of the
vehicle and then directing petitioners to pay the unpaid balance would certainly
result in unjust enrichment of the former. Accordingly, the ownership and
possession of the vehicle should be returned to petitioners by ASIAN in the condition
that it was when delivered to it, and if this be no longer feasible, to deduct from the
adjudged liability of petitioners the amount of P60,000.00, its corresponding
appraised value.
DECISION
BELLOSILLO, J.:
The pivotal point before Us is whether a chattel mortgagee, after opting to foreclose
the mortgage but failing afterwards to sell the property at public auction, may still
sue
to
recover
the
unpaid
balance
of
the
purchase
price.
On 22 September 1982, the spouses Romulo de la Cruz and Delia de la Cruz, and
one Daniel Fajardo, petitioners herein, purchased on installment basis one (1) unit
Hino truck from Benter Motor Sales Corporation (BENTER for brevity). To secure
payment, they executed in favor of BENTER a chattel mortgage over the vehicle 1
and a promissory note for P282,360.00 payable in thirty (30) monthly installments
of P9,412.00. 2 On the same date, BENTER assigned its rights and interest over the
vehicle in favor of private respondent Asian Consumer and Industrial Finance
Corporation (ASIAN for brevity). 3 Although petitioners initially paid some
installments they subsequently defaulted on more than two (2) installments.
Thereafter, notwithstanding the demand letter of ASIAN, 4 petitioners failed to settle
their
obligation.
On 26 September 1984, by virtue of a petition for extrajudicial foreclosure of chattel
mortgage, the sheriff attempted to repossess the vehicle but was unsuccessful
because of the refusal of the son of petitioner, Rolando de la Cruz to surrender the
same. Hence, the return of the sheriff that the service was not satisfied.chanrobles
law
library
:
red
On 10 October 1984, petitioner Romulo de la Cruz brought the vehicle to the office
of ASIAN and left it there where it was inventoried and inspected. 5
On 27 November 1984, ASIAN filed an ordinary action with the court a quo for
collection of the balance of P196,152.99 of the purchase price, plus liquidated
damages
and
attorneys
fees.
6

After

trial,

the

court

below

rendered

judgment

in

favor

of

ASIAN.

On appeal, the Court of Appeals affirmed the judgment and held that
". . . no extrajudicial foreclosure of chattel mortgage ever transpired in the case at
bar. Undoubtedly, plaintiff had first chosen to extrajudically foreclose the mortgage,
but this did not materialize through no fault of plaintiff, as defendant refused to
surrender the Hino truck. The mere fact that the writ in now in possession of plaintiff
and a Technical and Inspection Report was made in connection therewith is not
conclusive of the extrajudicial foreclosure, for in this kind of foreclosure, possession
of the chattel by the sheriff is necessary, aside from the sale at public
auction."cralaw
virtua1aw
library
"Though the remedy of foreclosure was first chosen, this remedy however proved
ineffectual due to no fault of plaintiff. Therefore, plaintiff may exercise other
remedies such as exact fulfillment of the obligation and thereafter recover the
deficiency. This is the essence of the rule of alternative remedies under Article
1484."
cralawnad
Petitioners take exception. While they do not dispute that where the mortgagee
elects the remedy of foreclosure which, according to them, includes the option to
sell in a public or private sale, commences and pursues it, and in consideration of
which he also performs everything that is incumbent upon him to do to implement
the foreclosure they nevertheless insist that he should not later be allowed to
change course midway in the process, abandon the foreclosure and shift to other
remedies such as collection of the balance, especially after having recovered the
mortgaged chattel from them and while retaining possession thereof.
We

do

not

agree

with

petitioners.

It is not disputed that the instant case is covered by the so-called "Recto Law", now
Art. 1484 of the New Civil Code, which provides:jgc:chanrobles.com.ph
"In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies: (1) Exact
fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale,
should the vendees failure to pay cover two or more installments; (3) Foreclose the
chattel mortgage on the thing sold, if one has been constituted, should the
vendees failure to pay cover two or more installments. In this case, he shall have
no further action against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void."cralaw virtua1aw library
In this jurisdiction, the three (3) remedies provided for in the "Recto Law" are
alternative and not cumulative; the exercise of one would preclude the other
remedies. Consequently, should the vendee-mortgagor default in the payment of
two or more of the agreed installments, the vendor-mortgagee has the option to
avail of any of these three (3) remedies: either to exact fulfillment of the obligation,
to cancel the sale, or to foreclose the mortgage on the purchased chattel, if one was
constituted.
7

The records show that on 14 September 1984 ASIAN initiated a petition for
extrajudicial foreclosure of the chattel mortgage. But the sheriff failed to recover the
motor vehicle from petitioners due to the refusal of the son of petitioners Romulo
and Delia de la Cruz to surrender it. It was not until 10 October 1984, or almost a
month later that petitioners delivered the unit to ASIAN. The action to recover the
balance of the purchase price was instituted on 27 November 1984.chanrobles
virtual
lawlibrary
It is thus clear that while ASIAN eventually succeeded in taking possession of the
mortgaged vehicle, it did not pursue the foreclosure of the mortgage as shown by
the fact that no auction sale of the vehicle was ever conducted. As we ruled in
Filinvest
Credit
Corp.
v.
Phil.
Acetylene
Co.,
Inc.
8

"Under the law, the delivery of possession of the mortgaged property to the
mortgagee, the herein appellee, can only operate to extinguish appellants liability if
the appellee had actually caused the foreclosure sale of the mortgaged property
when it recovered possession thereof (Northern Motors, Inc. v. Sapinoso, 33 SCRA
356 [1970]; Universal Motors Corp. v. Dy Hian Tat, 28 SCRA 161 [1969]; Manila
Motors Co., Inc. v. Fernandez, 99 Phil. 782 [1956]). It is worth noting that it is the
fact of foreclosure and actual sale of the mortgaged chattel that bar recovery by the
vendor of any balance of the purchasers outstanding obligation not satisfied by the
sale (New Civil Code, par. 3, Article 1484). As held by this Court, if the vendor
desisted, on his own initiative, from consummating the auction sale, such
desistance was a timely disavowal of the remedy of foreclosure, and the vendor can
still sue for specific performance" (Industrial Finance Corp. v. Tobias, 78 SCRA 28
[1977]; Radiowealth, Inc. v. Lavin, L-18563, April 27, 1963, 7 SCRA 804; Pacific
Commercial
Co.
v.
dela
Rama,
72
Phil.
380
[1941]).
Consequently, in the case before Us, there being no actual foreclosure of the
mortgaged property, ASIAN is correct in resorting to an ordinary action for collection
of
the
unpaid
balance
of
the
purchase
price.
We note however that the trial court, as well as the Court of Appeals failed to
consider that the vehicle was already in the possession of ASIAN when it directed
petitioners herein to pay P184,466.67 representing the balance of the purchase
price of the mortgaged property. Law and equity will not permit ASIAN to have its
cake and eat it too, so to speak. By allowing ASIAN to retain possession of the
vehicle and then directing petitioners to pay the unpaid balance would certainly
result in unjust enrichment of the former. Accordingly, the ownership and
possession of the vehicle should be returned to petitioners by ASIAN in the condition
that it was when delivered to it, and if this be no longer feasible, to deduct from the
adjudged liability of petitioners the amount of P60,000.00, its corresponding
appraised
value.
9
WHEREFORE, the assailed decision is AFFIRMED, with the MODIFICATION that the
subject vehicle be returned to petitioners or, at their option, they be allowed to
deduct
P60,000.00
from
their
adjudged
liability.
No
costs.
SO

ORDERED.

Grio-Aquino

and

Medialdea,

JJ.,

concur.

Cruz, J., is on leave.

G.R. No. L-25494 June 14, 1972

NICOLAS SANCHEZ,
Appellant.

Plaintiff-Appellee,

vs.

SEVERINA

RIGOS,

Defendant-

Santiago F. Bautista for plaintiff-appellee.

Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
This case admittedly hinges on the proper application of Article 1479 of our Civil
Code, which provides:

ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.chanroblesvirtualawlibrarychanrobles virtual law library
An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under consideration,
"defendant agreed and committed to sell" and "the plaintiff agreed and committed
to buy" the land described in the option, copy of which was annexed to said
pleading as Annex A thereof and is quoted on the margin. 1Hence, 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
2
instrument
form
part
"and
parcel"
of
said
pleading.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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:chanrobles virtual law
library
(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.chanroblesvirtualawlibrarychanrobles virtual law library
(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.chanroblesvirtualawlibrarychanrobles virtual law library

(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as
a special defense, the absence of said consideration for her promise to sell and, by
joining in the petition for a judgment on the pleadings, plaintiff has impliedly
admitted the truth of said averment in defendant's answer. Indeed as early as March
14, 1908, it had been held, in Bauermann v. Casas, 3that:
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 4and Mercy's Incorporated v.
Herminia Verde. 5chanrobles virtual law library
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co., 6from which We quote:
The main contention of appellant is that the option granted to appellee to sell to it
barge No. 10 for the sum of P30,000 under the terms stated above has no legal
effect because it is not supported by any consideration and in support thereof it
invokes article 1479 of the new Civil Code. The article provides:
"ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
It is true that under article 1324 of the new Civil Code, the general rule regarding
offer and acceptance is that, when the offerer gives to the offeree a certain period
to accept, "the offer may be withdrawn at any time before acceptance" except when
the option is founded upon consideration, but this general rule must be interpreted
as modified by the provision of article 1479 above referred to, which applies to "a
promise to buy and sell" specifically. As already stated, this rule requires that a
promise to sell to be valid must be supported by a consideration distinct from the
price.chanroblesvirtualawlibrarychanrobles virtual law library
We are not oblivious of the existence of American authorities which hold that an
offer, once accepted, cannot be withdrawn, regardless of whether it is supported or
not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the
general rule applicable to offer and acceptance as contained in our new Civil Code.
But we are prevented from applying them in view of the specific provision embodied
in article 1479. While under the "offer of option" in question appellant has assumed
a clear obligation to sell its barge to appellee and the option has been exercised in
accordance with its terms, and there appears to be no valid or justifiable reason for
appellant to withdraw its offer, this Court cannot adopt a different attitude because
the law on the matter is clear. Our imperative duty is to apply it unless modified by
Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek,
8
decided later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,
9
saw no distinction between Articles 1324 and 1479 of the Civil Code and applied
the former where a unilateral promise to sell similar to the one sued upon here was
involved, treating such promise as an option which, although not binding as a
contract in itself for lack of a separate consideration, nevertheless generated a
bilateral contract of purchase and sale upon acceptance. Speaking through
Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever
the offeree should decide to exercise his option within the specified time. After
accepting the promise and before he exercises his option, the holder of the option is
not bound to buy. He is free either to buy or not to buy later. In this case, however,
upon accepting herein petitioner's offer a bilateral promise to sell and to buy
ensued, and the respondent ipso facto assumed the obligation of a purchaser. He
did not just get the right subsequently to buy or not to buy. It was not a mere option
then; it was a bilateral contract of sale.chanroblesvirtualawlibrarychanrobles virtual
law library
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.)chanrobles virtual law library
"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.chanroblesvirtualawlibrarychanrobles virtual law library
This view has the advantage of avoiding a conflict between Articles 1324 - on the
general principles on contracts - and 1479 - on sales - of the Civil Code, in line with
the cardinal rule of statutory construction that, in construing different provisions of
one and the same law or code, such interpretation should be favored as will
reconcile or harmonize said provisions and avoid a conflict between the same.
Indeed, the presumption is that, in the process of drafting the Code, its author has
maintained a consistent philosophy or position. Moreover, the decision in
Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10holding that Art.
1324 is modified by 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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.
chanrobles virtual law library
Separate Opinions

ANTONIO, J., concurring:chanrobles virtual law library

I concur in the opinion of the Chief Justice.chanroblesvirtualawlibrarychanrobles
virtual law library
I fully agree with the abandonment of the view previously adhered to in
Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co., 1which holds
that an option to sell can still be withdrawn, even if accepted, if the same is not
supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll
& Co., Inc. vs. Cua Hian Tek, 2holding that "an option implies ... the legal obligation
to keep the offer (to sell) open for the time specified;" that it could be withdrawn
before acceptance, if there was no consideration for the option, but once the "offer
to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree
ipso facto assumes the obligations of a purchaser. In other words, if the option is
given without a consideration, it is a mere offer to sell, which is not binding until
accepted. If, however, acceptance is made before a withdrawal, it constitutes a
binding contract of sale. The concurrence of both acts - the offer and the
acceptance
could
in
such
event
generate
a
contract.chanroblesvirtualawlibrarychanrobles virtual law library
While the law permits the offeror to withdraw the offer at any time before
acceptance even before the period has expired, some writers hold the view, that the
offeror can not exercise this right in an arbitrary or capricious manner. This is upon
the principle that an offer implies an obligation on the part of the offeror to maintain
in such length of time as to permit the offeree to decide whether to accept or not,
and therefore cannot arbitrarily revoke the offer without being liable for damages
which the offeree may suffer. A contrary view would remove the stability and
security of business transactions. 3chanrobles virtual law library
In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had
offered the sum of Pl,510.00 before any withdrawal from the contract has been
made by the Defendant (Severina Rigos)." Since Rigos' offer sell was accepted by
Sanchez, before she could withdraw her offer, a bilateral reciprocal contract - to sell
and to buy - was generated.chanroblesvirtualawlibrarychanrobles virtual law library

Separate Opinions
ANTONIO, J., concurring:
I concur in the opinion of the Chief Justice.
I fully agree with the abandonment of the view previously adhered to in
Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co., 1which holds
that an option to sell can still be withdrawn, even if accepted, if the same is not
supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll
& Co., Inc. vs. Cua Hian Tek, 2holding that "an option implies ... the legal obligation
to keep the offer (to sell) open for the time specified;" that it could be withdrawn

before acceptance, if there was no consideration for the option, but once the "offer
to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree
ipso facto assumes the obligations of a purchaser. In other words, if the option is
given without a consideration, it is a mere offer to sell, which is not binding until
accepted. If, however, acceptance is made before a withdrawal, it constitutes a
binding contract of sale. The concurrence of both acts - the offer and the
acceptance - could in such event generate a contract.
While the law permits the offeror to withdraw the offer at any time before
acceptance even before the period has expired, some writers hold the view, that the
offeror can not exercise this right in an arbitrary or capricious manner. This is upon
the principle that an offer implies an obligation on the part of the offeror to maintain
in such length of time as to permit the offeree to decide whether to accept or not,
and therefore cannot arbitrarily revoke the offer without being liable for damages
which the offeree may suffer. A contrary view would remove the stability and
security of business transactions. 3
In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had
offered the sum of Pl,510.00 before any withdrawal from the contract has been
made by the Defendant (Severina Rigos)." Since Rigos' offer sell was accepted by
Sanchez, before she could withdraw her offer, a bilateral reciprocal contract - to sell
and to buy - was generated.
G.R. No. L-35272 August 26, 1977
FLORENCIA CRONICO, substituted by LUCILLE E. VENTURANZA, petitionerappellant,
vs.
J. M. TUASON & CO., INC., and CLAUDIO R. RAMIREZ, respondents-appellees.
Antonio B. Alcera for appellant.
Araneta, Mendoza & Papa for appellee J. M. Tuason & Co., Inc.
Leonardo Abola for appellee Caludio R. Ramirez.

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

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of

the plaintiff and against the defendants, as follows:
a) Declaring the Contract to Sell No. 10879 Exhibit 3-company,
executed by defendant corporation in favor of its co- defendant
Ramirez on April 2,1962, as NULL and VOID;
b) Ordering the defendant-corporations to execute a Contract to Sell in
favor of the substituted plaintiff Dr. Lucille E. Venturanza over Lot 22,
Block 461 of the Sta. Mesa Heights Subdivision, under the same terms
and conditions of their offer to the plaintiffs as contained in the letter
of Gregorio Araneta, Inc., representative of J. M. Tuason & Co., Inc., to
Florencia Cronico of March 20, 1962 (Exh. H) or under the same terms
given to defendant Ramirez;
c) Declaring as cancelled any and all transfer certificates of title that
might have been issued in favor of defendant Ramirez over said Lot
No. 22;
d) Ordering the defendants, jointly and severally, to pay the plaintiff
(Dr. Lucille E. Venturanza) the sum of P160,000.00, as damages
representing the rents derived from the property in question up to
December 2, 1968, plus the sum of P2,000.00 every month thereafter
until the lot in question is sold and delivered to plaintiff (Dr.
Venturanza);
e) Ordering defendants, jointly and severally, to pay plaintiff (Dr. Lucille
E. Venturanza) the sum of P10,000.00, as attorney's fees;
f) To pay the costs.
IT IS SO ORDERED Quezon City, Philippines, January 25, 1969.
s/t WALFRIDO DE LOS ANGELES J u d g e
(Rollo, p. 69, Joint Record on Appeal, pp. 49-50)
The defendants J. M. Tuason & Co., Inc. and Claudio R. Ramirez appealed to the
Court of Appeals which promulgated its decision on April 21, 1972 reversing the
judgment appealed from and dismissing the complaint with costs against the
plaintiff-appellee. (Rollo, p. 31, Decision in CA-G. R. No. 44479R, p. 19)

The plaintiff, Florencia Cronico substituted by Lucille E. Venturanza, filed with this
Court a petition for certiorari to review the decision of the Court of Appeals *
assigning the following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN- HOLDING THAT
FLORENCIA CRONICO OBTAINED. THE DEFENDANT COMPANY'S LETTEROFFER TO HER DATED MARCH 20, 1962 BY MEANS OF IRREGULAR AND
PREMATURE DELIVERY.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
RECORDS DO NOT SHOW THAT DEFENDANT COMPANY'S LETTER-OFFER
OR UNILATERAL PROMISE TO SELL W AS SUPPORTED BY A
CONSIDERATION OTHER THAN THE SELLING PRICE.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
PLAINTIFF CRONICO IS NOT PRINCIPALLY NOR SUBSIDIARILY OBLIGED
UNDER THE CONTRACT TO SELL (EXH. 3-Company) AND HENCE MAY
NOT BRING SUIT TO ANNUL THE SAME.
IV
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE TRIAL
COURT AND DISMISSING THE COMPLAINT.
(Rollo, p.74, Petitioner's Brief, pp. 1-2)
The facts, as found by the Court of Appeals, are:
Appellant J. M. Tuason & Co. Inc. hereinafter referred to as appellant
company was the registered owner of Lot No. 22, Block 461, Sta. Mesa
Heights Subdivision, located at the Northwestern corner of Quezon
Boulevard and Gregorio Araneta, Quezon City and embraced by
Transfer Certificate of Title No. 49235 of the registry of Deeds of said
city. In March, 1962, plaintiff Florencia Cronico offered to buy the lot
from the appellant company with the help of Mary E. Venturanza. They
personally talked to Benjamin F. Bautista, Manager of the Real Estate
Department of Gregorio Araneta, Inc. the appellant company's
attorney-in-fact, proposing to buy Lot No. 22. She was required to

present proofs to show her rights to the lot. On March 8, 1962,

Florencia Cronico exhibited certain documents showing her priority
rights to buy the lot.
In the first week of March, 1962, defendant-appellant Claudio Ramirez
also learned that the lot in question was being sold by the appellant
company. The occupants thereof who also had priority rights to buy the
land informed Claudio Ramirez, about the intended sale. Juanita
Semilla and Pedro Fernandez, who were the occupants of the said Lot
No. 22 expressed their willingness to waive their rights although-Pedro
Fernandez reserved a condition that a small portion of the land
whereon his house stands be sold to him. In the same month, March,
1962, plaintiff Cronico and defendant- appellant Ramirez sent separate
individual letters to appellant company wherein they expressed their
desire to purchase the land and requested information concerning the
area, the price and other terms and conditions of the contract to sell.
Two others intimated their desire to buying the lot. They were Bonifacio
Chung and Angeles Henson. Both, however, subsequently lost their
interest in said lot. On March 20, 1962, the appellant company sent
separate reply letters to prospective buyers including plaintiff Cronies
and defendant-appellant Ramirez. They were dropped in the Manila
Post Office at 11:00 in the morning of March 21, 1962 by registered
mail. It so happened that plaintiff Cronico went to the appellant
company's office on March 21, 1962, and she was informed that the
reply letter of the appellant company to prospective buyers of the
same lot had been mailed. With this information, plaintiff Cronies and
Mary E. Venturanza went to the post office in Manila and she was able
to get the letter at about 3:30 in the afternoon of the same date. After
she got the letter, plaintiff Cronies and Mary E. Venturanza went
directly to the office of Gregorio Araneta Inc., Escolta, Manila, and
presented the letter to Benjamin Bautista, Head of the Real Estate
Department of said company. Since she had no money, plaintiff Cronies
requested Mary E. Venturanza to issue a check in the amount of
P33,572.00 to cover the down payment for the lot. However, Benjamin
Bautista did not accept the cheek. He advised plaintiff Cronies that it is
Gregorio Araneta II who would decide whose offer to buy may be
accepts after the appellant company receives the registry return cards
attached to the registered letters sent to the offerors.
On March 22, 1962, between 10:00 and 11:00 a.m., appellant Ramirez
received from the post office at San Francisco del Monte, Quezon City,
the reply letter of the appellant company dated March 20, 1962,
wherein it stated that Lot 22, Block 461, Sta. Mesa Heights Subdivision,
was available for sale under the conditions therein set forth and that

the said lot was being offered for sale on a first come first serve basis.
Appellant Ramirez proceeded to the office of Benjamin Bautista in the
same morning stating that he accepted the conditions stated in the
appellant company's letter. Benjamin Bautista advised appellant
Ramirez to wait for the decision of Gregorio Araneta II. The next day,
March 23, 1962, appellant Ramirez presented his letter to the appellant
company confirming his verbal acceptance of the terms and conditions
in connection with the sale. On March 31, 1962, Atty. Jose E. Patangco
in behalf of appellant Ramirez wrote the appellant company requesting
the early execution of the proper contract to sell over Lot No. 22. A
check in the amount of P33,572 was enclosed in the letter to cover the
down payment for said lot. The request was favorably considered.
On April 2, 1962, the J. M. Tuason & Co. Inc., and Claudio R. Ramirez
executed a contract to sell whereby the appellant company agreed to
sell to appellant Ramirez the lot in question for a total price of
P167,896.00 subject to the terms and conditions therein set forth.
Meanwhile, on March 27, 1962, the appellant company received a
letter from Atty. Godofredo Asuncion in behalf of Florencia Cronies
requesting that the lot subject of litigation be 'sold to her. She tendered
a check to cover the down payment which was, however, returned. On
April 4, 1962, the appellant company sent a letter to the plaintiffappellee informing her that it had decided to sell the lot in question to
appellant Ramirez. This triggered the instant suit.
On April 28,1962, plaintiff Florencia Cronico lodged in the Court of First
Instance of Rizal (Quezon City Branch) a complaint against the
defendants-appellants J. M. Tuason & Co., Inc. and Claudio Ramirez.
The main purpose of the said suit is to annul and set aside the contract
to sell executed by and between appellant company and appellant
Ramirez. On May 30, 1962, Gregorio Araneta, representing J. M. Tuason
& Co. Inc., filed its answer to the complaint with cross claim against its
co-defendant Claudio Ramirez and Luisa Patangco. On the part of
defendant Claudio Ramirez, he filed a motion to dismiss on the ground
that the complaint states no cause of action against him. He contends
that the action for the annulment of contract may only be instituted by
those who are parties thereto or those who are thereby obliged
principally or subsidiarily. According to Claudio Ramirez such action to
annul a deed of sale can not prosper against third persons as they are
not principally or subsidiarily obligated thereby. The motion to dismiss
was denied. So Claudio Ramirez filed his answer reiterating in his
affirmative defenses that since the plaintiff-appellee is not a party to
the contract to sell executed by him and the defendant company,

plaintiff Florencia Cronico has no right whatsoever to demand the

annulment of said contract.
On November 19, 1968, plaintiff together with Dr. Lucille E. Venturanza
filed a motion for substitution for party plaintiff whereby plaintiff
Florencia Cronico expressed her willingness to be substituted by Dr.
Lucille E. Venturanza as the former had transferred to the latter
whatever rights and interests which she may have over Lot 22, Block
261, Sta. Mesa Heights Subdivision by virtue of a deed of assignment
she executed on July 5, 1968. The court granted the substitution of the
party plaintiff by Dr. Lucille E. Venturanza. (Rollo, p. 31, Decision of
Court of Appeals, pp. 1- 71)
Anent the first error assigned, the petitioner contends that "No less than the chief of
the general service section of the Manila post office, Gaspar Bautista, speaking on
the regularity of plaintiff Cronico's receipt of the letter, testified before the trial
court that the means by which plaintiff Cronico received her letter is very regular."
(Rollo, p. 74, Petitioner's Brief, p. 18). And that "Anyway, the manner by which the
offerees were to receive their letters was not announced by the offeror to the
contestant such that they could not be bound thereby. Hence, the rule of the fittest
and without lawlessness should govern, and that was Cronies who proved her
diligence and resourcefullness over Claudio Ramirez." (Rollo, p. 74, Petitioner's Brief,
p. 21)
The petitioner also averred that the capability of the plaintiff, Florencia Cronico to
purchase the land in question was not raised as an issue in the answer of the
defendant company and was developed as an afterthought during the trial.
It is a fact that the petitioner, Florencia Cronico upon being tipped by Benjamin
Bautista, head of the Real Estate Department of Gregorio Araneta Inc., that the
reply letters of the appellant company were already placed in the mails on March
21, 1962 at 11:00 o'clock in the morning, immediately went to the Manila post office
and claimed the registered letter addressed to her without waiting for the ordinary
course for registered mails to be delivered. The petitioner took delivery of the
registered letter addressed to her at the entry section of the Manila post office.
While this procedure may be tolerated by the postal authorities, the act of the
petitioner in taking delivery of her letter at the entry section of the Manila post
office without waiting for said letter to be delivered to her in due course of mail is a
violation of the "first come first served" condition imposed by the respondent J. M.
Tuason & Co. Inc., acting through Gregorio Araneta Inc.
The respondent, Claudio R. Ramirez, received on March 22, 1962 in the morning the
reply letter of the respondent company dated March 20, 1962 stating that Lot 22,
Block 461, Sta. Mesa Heights Subdivision was available for sale under the conditions

set forth on the basis of "first come first served". The respondent, Claudio R.
Ramirez, proceeded to the office of Benjamin Bautista on the same date and
manifested that he was accepting the conditions stated in the respondent
company's letter. On March 23, 1962, respondent Ramirez presented his letter to
the respondent company confirming his verbal acceptance of the terms and
conditions in connection with the sale.
It was only on March 27, 1962 that the respondent company received a letter from
Atty. Godofredo Asuncion in behalf of petitioner, Florencia Cronies, requesting that
the lot subject of litigation be sold to her. The enclosed cheek to cover the down
payment was returned to petitioner Cronico and on April 4, 1962, the respondent
company wrote said petitioner that it had decided to sell the lot in question to the
respondent Ramirez.
In view of the foregoing circumstances, we concur in the finding of the Court of
Appeals that "Viewing the case from the standpoint of regularity of notice, plaintiffappellee falls short of the yardstick." (Rollo, p. 42, Decision of the Court of Appeal
p.12)
The Court of Appeals entertained serious doubts as to the financial capability of
petitioner Florencia Cronico to purchase the property because she was receiving
only the amount of P150.00 a month as her salary from her employment and there
was no showing that she had sources of income other than her job. In fact, when
petitioner Cronico tried to pay the down payment for the purchase of the land, it
was Mary E. Venturanza who drew the check in the amount of P33,572.00 which was
rejected by the respondent company. It is also to be noted that in the trial court,
Florencia cronico was substituted by her assignee Lucille E. Venturanza, daughter of
Mary E. Venturanza. It is apparent that petitioner, Florencia Cronico, did not have
the capability to pay and that she acted only as a mere front of the Venturanzas. As
correctly pointed out by the Court of Appeals, realtors are given the right to choose
their buyers so as to avoid delinquent payments of monthly installments which may
result in costly court litigations.
The contention of petitioner. Florencia Cronico that the promise to sell is supported
by a consideration as to her because she had established her link as successor of
Gregorio Venturanza who bought the lot from Juan Ramos who in turn acquired said
lot from Pedro Deudor. The petitioner then argues that since Clause Seventh of the
Compromise Agreement between the respondent company and the Deudors, et al.
obligated the respondent company to sell to the buyers of the Deudors 'listed in
Annex B thereof, Exhibit R-1, and Juan Ramos was the purchaser of the lot from
Pedro Deudor with such right to buy from the defendant company under a new
contract with the latter, the said petitioner had established the onerous cause or
consideration apart from the selling price of the lot. Granting, arguendo, that Clause
Seventh of the Compromise Agreement constitutes a valid consideration of the

promise to sell apart from the selling price, it appears that the Compromise
Agreement upon which the petitioner Cronico predicates her right to buy the lot in
question has been rescinded and set aside. (Deudor vs. J.M. Tuason & Co., Inc., 2
SCRA 129 and J. M. Tuason & Co., Inc. vs. Sanvictores 4 SCRA 123, 126) Hence, the
promise of the respondent company to sell the lot in question to the petitioner,
Florencia Cronico has no consideration separate from the selling price of said lot.
In order that a unilateral promise may be binding upon the promisor, Article 1479,
Civil Code of the Philippines, requires the concurrence of the condition that the
promise be "supported by a consideration distinct from the price. Accordingly, the
promisee can not compel the promisor to comply with the promise, unless the
former establishes the existence of said distinct consideration. The promisee has
the burden of proving such consideration. (Sanchez vs. Rigos, 45 SCRA 368, 372373) The petitioner, Florencia Cronies, has not established the existence of a
consideration distinct from the price of the lot in question.
The petitioner cannot claim that she had accepted the promise before it was
withdrawn because, as stated above, she had violated the condition of "first, come,
first served" Moreover, it was only on March 27, 1962 that the respondent company
received a letter from counsel of the petitioner requesting that the lot subject of this
litigation be sold to her. The respondent, Claudio R. Ramirez, had on March 23,
1962, confirmed in writing his verbal acceptance of the terms and conditions of the
sale of the lot in question.
The petitioner maintains that the contract to sell (Exhibit 3) executed by the
respondent company in favor of the respondent, Claudio R. Ramirez, contains a
stipulation for her benefit, which reads:
b) that the buyer Claudio Ramirez has been fully informed by the
company of all the circumstances relative to the offer of Florencia
Cronico to buy said lot and that he agrees and binds himself to hold
the company absolutely free and harmless from all claims and
damages to said Florencia Cronico in connection with this sale of the
lot to him. (Rollo, p. 74, Petitioner's Brief, pp. 31-32)
The foregoing clause cannot ' by any stretch of the imagination be considered as a
clause "pour autrui" or for the benefit of the petitioner. The stipulation does not
confer any right arising from the contract that may be enforced by the petitioner
against any of the parties thereto. Neither does it impose any obligation arising
from the contract that may be enforced by any of the parties thereto against the
petitioner. The petitioner is not "obliged principally or subsidiarily" by the contract
to sell executed between the respondent company and the respondent Claudio R.
Ramirez. The said stipulation is for the benefit of the respondent company.

The contention of the petitioner that she has become the obligee or creditor of the
respondent company because she was the first to comply with the terms of the
letter-offer has no merit. Her so-called acceptance has no effect because she
violated the condition of "first come, first served" by taking delivery of the reply
letter of the respondent company in the entry section of the Manila post office and
of the fact that her formal letter of acceptance was only received by the respondent
company on March 27, 1962.
In view of all the foregoing, we find that the Court of Appeals has not committed
any of the errors assigned in the brief of the petitioner.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. 44479-R is hereby
affirmed, without pronouncement as to costs.
SO ORDERED.
G.R. No. 107207 November 23, 1995
VIRGILIO
R.
ROMERO,
petitioner,
vs.
HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG,
respondents.

VITUG, J.:
The parties pose this question: May the vendor demand the rescission of a contract
for the sale of a parcel of land for a cause traceable to his own failure to have the
squatters on the subject property evicted within the contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of
production, manufacture and exportation of perlite filter aids, permalite insulation
and processed perlite ore. In 1988, petitioner and his foreign partners decided to
put up a central warehouse in Metro Manila on a land area of approximately 2,000
square meters. The project was made known to several freelance real estate
brokers.
A day or so after the announcement, Alfonso Flores and his wife, accompanied by a
broker, offered a parcel of land measuring 1,952 square meters. Located in
Barangay San Dionisio, Paraaque, Metro Manila, the lot was covered by TCT No.
361402 in the name of private respondent Enriqueta Chua vda. de Ongsiong.
Petitioner visited the property and, except for the presence of squatters in the area,
he found the place suitable for a central warehouse.

Later, the Flores spouses called on petitioner with a proposal that should he
advance the amount of P50,000.00 which could be used in taking up an ejectment
case against the squatters, private respondent would agree to sell the property for
only P800.00 per square meter. Petitioner expressed his concurrence. On 09 June
1988, a contract, denominated "Deed of Conditional Sale," was executed between
petitioner and private respondent. The simply-drawn contract read:
DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the Municipality of Makati,
Philippines this 9th day of June, 1988 by and between:
ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age,
widow, Filipino and residing at 105 Simoun St., Quezon
City, Metro Manila, hereinafter referred to as the VENDOR;
-andVIRGILIO R. ROMERO, married to Severina L. Lat, of Legal
age, Filipino, and residing at 110 San Miguel St., Plainview
Subd., Mandaluyong Metro Manila, hereinafter referred to
as the VENDEE:
W I T N E S S E T H : That
WHEREAS, the VENDOR is the owner of One (1) parcel of land with a
total area of ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952)
SQUARE METERS, more or less, located in Barrio San Dionisio,
Municipality of Paraaque, Province of Rizal, covered by TCT No.
361402 issued by the Registry of Deeds of Pasig and more particularly
described as follows:
xxx xxx xxx
WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and
the VENDOR has accepted the offer, subject to the terms and
conditions hereinafter stipulated:
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION
FIVE HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS
(P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE to in to
(sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their

heirs, successors, administrators, executors, assign, all her rights, titles

and interest in and to the property mentioned in the FIRST WHEREAS
CLAUSE, subject to the following terms and conditions:
1. That the sum of FIFTY THOUSAND PESOS (P50,000.00)
ONLY Philippine Currency, is to be paid upon signing and
execution of this instrument.
2. The balance of the purchase price in the amount of
ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX
HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45
days after the removal of all squatters from the above
described property.
3. Upon full payment of the overall purchase price as
aforesaid, VENDOR without necessity of demand shall
immediately sign, execute, acknowledged (sic) and
deliver the corresponding deed of absolute sale in favor of
the VENDEE free from all liens and encumbrances and all
Real Estate taxes are all paid and updated.
It is hereby agreed, covenanted and stipulated by and between the
parties hereto that if after 60 days from the date of the signing of this
contract the VENDOR shall not be able to remove the squatters from
the property being purchased, the downpayment made by the buyer
shall be returned/reimbursed by the VENDOR to the VENDEE.
That in the event that the VENDEE shall not be able to pay the
VENDOR the balance of the purchase price of ONE MILLION FIVE
HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00)
ONLY after 45 days from written notification to the VENDEE of the
removal of the squatters from the property being purchased, the FIFTY
THOUSAND PESOS (P50,000.00) previously paid as downpayment shall
be forfeited in favor of the VENDOR.
Expenses for the registration such as registration fees, documentary
stamp, transfer fee, assurances and such other fees and expenses as
may be necessary to transfer the title to the name of the VENDEE shall
be for the account of the VENDEE while capital gains tax shall be paid
by the VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed those (sic)
presents in the City of Makati MM, Philippines on this 9th day of June,
1988.

(Sgd.) (Sgd.)
VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee Vendor
SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz 1
Alfonso Flores, in behalf of private respondent, forthwith received and
acknowledged a check for P50,000.00 2 from petitioner. 3
Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil
Case No. 7579) against Melchor Musa and 29 other squatter families with the
Metropolitan Trial Court of Paraaque. A few months later, or on 21 February 1989,
judgment was rendered ordering the defendants to vacate the premises. The
decision was handed down beyond the 60-day period (expiring 09 August 1988)
stipulated in the contract. The writ of execution of the judgment was issued, still
later, on 30 March 1989.
In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00
she received from petitioner since, she said, she could not "get rid of the squatters"
on the lot. Atty. Sergio A.F. Apostol, counsel for petitioner, in his reply of 17 April
1989, refused the tender and stated:.
Our client believes that with the exercise of reasonable diligence
considering the favorable decision rendered by the Court and the writ
of execution issued pursuant thereto, it is now possible to eject the
squatters from the premises of the subject property, for which reason,
he proposes that he shall take it upon himself to eject the squatters,
provided, that expenses which shall be incurred by reason thereof shall
be chargeable to the purchase price of the land. 4
Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its
Regional Director for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of
Paraaque for a grace period of 45 days from 21 April 1989 within which to relocate
and transfer the squatter families. Acting favorably on the request, the court
suspended the enforcement of the writ of execution accordingly.

On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45day grace period and his client's willingness to "underwrite the expenses for the
execution of the judgment and ejectment of the occupants." 5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent,
advised Atty. Apostol that the Deed of Conditional Sale had been rendered null and
void by virtue of his client's failure to evict the squatters from the premises within
the agreed 60-day period. He added that private respondent had "decided to retain
the property." 6
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was perfected from the very
moment that there was a meeting of the minds of the parties upon the
subject lot and the price in the amount of P1,561,600.00. Moreover,
the contract had already been partially fulfilled and executed upon
receipt of the downpayment of your client. Ms. Ongsiong is precluded
from rejecting its binding effects relying upon her inability to eject the
squatters from the premises of subject property during the agreed
period. Suffice it to state that, the provision of the Deed of Conditional
Sale do not grant her the option or prerogative to rescind the contract
and to retain the property should she fail to comply with the obligation
she has assumed under the contract. In fact, a perusal of the terms
and conditions of the contract clearly shows that the right to rescind
the contract and to demand the return/reimbursement of the
downpayment is granted to our client for his protection.
Instead, however, of availing himself of the power to rescind the
contract and demand the return, reimbursement of the downpayment,
our client had opted to take it upon himself to eject the squatters from
the premises. Precisely, we refer you to our letters addressed to your
client dated April 17, 1989 and June 8, 1989.
Moreover, it is basic under the law on contracts that the power to
rescind is given to the injured party. Undoubtedly, under the
circumstances, our client is the injured party.
Furthermore, your client has not complied with her obligation under
their contract in good faith. It is undeniable that Ms. Ongsiong
deliberately refused to exert efforts to eject the squatters from the
premises of the subject property and her decision to retain the
property was brought about by the sudden increase in the value of
realties in the surrounding areas.

Please consider this letter as a tender of payment to your client and a

demand to execute the absolute Deed of Sale. 7
A few days later (or on 27 June 1989), private respondent, prompted by petitioner's
continued refusal to accept the return of the P50,000.00 advance payment, filed
with the Regional Trial Court of Makati, Branch 133, Civil Case No. 89-4394 for
rescission of the deed of "conditional" sale, plus damages, and for the consignation
of P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of
execution in Civil Case No. 7579 on motion of private respondent but the squatters
apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8
rendered decision holding that private respondent had no right to rescind the
contract since it was she who "violated her obligation to eject the squatters from
the subject property" and that petitioner, being the injured party, was the party who
could, under Article 1191 of the Civil Code, rescind the agreement. The court ruled
that the provisions in the contract relating to (a) the return/reimbursement of the
P50,000.00 if the vendor were to fail in her obligation to free the property from
squatters within the stipulated period or (b), upon the other hand, the sum's
forfeiture by the vendor if the vendee were to fail in paying the agreed purchase
price, amounted to "penalty clauses". The court added:
This Court is not convinced of the ground relied upon by the plaintiff in
seeking the rescission, namely: (1) he (sic) is afraid of the squatters;
and (2) she has spent so much to eject them from the premises (p. 6,
tsn, ses. Jan. 3, 1990). Militating against her profession of good faith is
plaintiffs conduct which is not in accord with the rules of fair play and
justice. Notably, she caused the issuance of an alias writ of execution
on August 25, 1989 (Exh. 6) in the ejectment suit which was almost
two months after she filed the complaint before this Court on June 27,
1989. If she were really afraid of the squatters, then she should not
have pursued the issuance of an alias writ of execution. Besides, she
did not even report to the police the alleged phone threats from the
squatters. To the mind of the Court, the so-called squatter factor is
simply factuitous (sic). 9
The lower court, accordingly, dismissed the complaint and ordered, instead,
private respondent to eject or cause the ejectment of the squatters from the
property and to execute the absolute deed of conveyance upon payment of
the full purchase price by petitioner.

Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate
court rendered its decision. 10 It opined that the contract entered into by the parties
was subject to a resolutory condition, i.e., the ejectment of the squatters from the
land, the non-occurrence of which resulted in the failure of the object of the
contract; that private respondent substantially complied with her obligation to evict
the squatters; that it was petitioner who was not ready to pay the purchase price
and fulfill his part of the contract, and that the provision requiring a mandatory
return/reimbursement of the P50,000.00 in case private respondent would fail to
eject the squatters within the 60-day period was not a penal clause. Thus, it
concluded.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE,
and a new one entered declaring the contract of conditional sale dated
June 9, 1988 cancelled and ordering the defendant-appellee to accept
the return of the downpayment in the amount of P50,000.00 which was
deposited in the court below. No pronouncement as to costs. 11
Failing to obtain a reconsideration, petitioner filed this petition for review on
certiorari raising issues that, in fine, center on the nature of the contract adverted
to and the P50,000.00 remittance made by petitioner.
A perfected contract of sale may either be absolute or conditional 12 depending on
whether the agreement is devoid of, or subject to, any condition imposed on the
passing of title of the thing to be conveyed or on the obligation of a party thereto.
When ownership is retained until the fulfillment of a positive condition the breach of
the condition will simply prevent the duty to convey title from acquiring an
obligatory force. If the condition is imposed on an obligation of a party which is not
complied with, the other party may either refuse to proceed or waive said condition
(Art. 1545, Civil Code). Where, of course, the condition is imposed upon the
perfection of the contract itself, the failure of such condition would prevent the
juridical relation itself from coming into existence. 13
In determining the real character of the contract, the title given to it by the parties
is not as much significant as its substance. For example, a deed of sale, although
denominated as a deed of conditional sale, may be treated as absolute in nature, if
title to the property sold is not reserved in the vendor or if the vendor is not granted
the
right
to
unilaterally
rescind
the
contract
predicated
on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition.
14

The term "condition" in the context of a perfected contract of sale pertains, in

reality, to the compliance by one party of an undertaking the fulfillment of which
would beckon, in turn, the demandability of the reciprocal prestation of the other
party. The reciprocal obligations referred to would normally be, in the case of

vendee, the payment of the agreed purchase price and, in the case of the vendor,
the fulfillment of certain express warranties (which, in the case at bench is the
timely eviction of the squatters on the property).
It would be futile to challenge the agreement here in question as not being a duly
perfected contract. A sale is at once perfected when a person (the seller) obligates
himself, for a price certain, to deliver and to transfer ownership of a specified thing
or right to another (the buyer) over which the latter agrees. 15
The object of the sale, in the case before us, was specifically identified to be a
1,952-square meter lot in San Dionisio, Paraaque, Rizal, covered by Transfer
Certificate of Title No. 361402 of the Registry of Deeds for Pasig and therein
technically described. The purchase price was fixed at P1,561,600.00, of which
P50,000.00 was to be paid upon the execution of the document of sale and the
balance of P1,511,600.00 payable "45 days after the removal of all squatters from
the above described property."
From the moment the contract is perfected, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law.
Under the agreement, private respondent is obligated to evict the squatters on the
property. The ejectment of the squatters is a condition the operative act of which
sets into motion the period of compliance by petitioner of his own obligation, i.e., to
pay the balance of the purchase price. Private respondent's failure "to remove the
squatters from the property" within the stipulated period gives petitioner the right
to either refuse to proceed with the agreement or waive that condition in
consonance with Article 1545 of the Civil Code. 16 This option clearly belongs to
petitioner and not to private respondent.
We share the opinion of the appellate court that the undertaking required of private
respondent does not constitute a "potestative condition dependent solely on his
will" that might, otherwise, be void in accordance with Article 1182 of the Civil Code
17
but a "mixed" condition "dependent not on the will of the vendor alone but also of
third persons like the squatters and government agencies and personnel
concerned." 18 We must hasten to add, however, that where the so-called
"potestative condition" is imposed not on the birth of the obligation but on its
fulfillment, only the obligation is avoided, leaving unaffected the obligation itself. 19
In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned,
allows the obligee to choose between proceeding with the agreement or waiving the
performance of the condition. It is this provision which is the pertinent rule in the
case at bench. Here, evidently, petitioner has waived the performance of the
condition imposed on private respondent to free the property from squatters. 20

In any case, private respondent's action for rescission is not warranted. She is not
the injured party. 21 The right of resolution of a party to an obligation under Article
1191 of the Civil Code is predicated on a breach of faith by the other party that
violates the reciprocity between them. 22 It is private respondent who has failed in
her obligation under the contract. Petitioner did not breach the agreement. He has
agreed, in fact, to shoulder the expenses of the execution of the judgment in the
ejectment case and to make arrangements with the sheriff to effect such execution.
In his letter of 23 June 1989, counsel for petitioner has tendered payment and
demanded forthwith the execution of the deed of absolute sale. Parenthetically, this
offer to pay, having been made prior to the demand for rescission, assuming for the
sake of argument that such a demand is proper under Article 1592 23 of the Civil
Code, would likewise suffice to defeat private respondent's prerogative to rescind
thereunder.
There is no need to still belabor the question of whether the P50,000.00 advance
payment is reimbursable to petitioner or forfeitable by private respondent, since, on
the basis of our foregoing conclusions, the matter has ceased to be an issue. Suffice
it to say that petitioner having opted to proceed with the sale, neither may
petitioner demand its reimbursement from private respondent nor may private
respondent subject it to forfeiture.
WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED
AND SET ASIDE, and another is entered ordering petitioner to pay private
respondent the balance of the purchase price and the latter to execute the deed of
absolute sale in favor of petitioner. No costs.
SO ORDERED.
Feliciano, Romero, Melo and Panganiban, JJ., concur.
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04
December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force
and effect the orders of execution of the trial court, dated 30 August 1991 and 27
September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the
Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058,
alleging, among others, that plaintiffs are tenants or lessees of
residential and commercial spaces owned by defendants described as
Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied
said spaces since 1935 and have been religiously paying the rental and
complying with all the conditions of the lease contract; that on several
occasions before October 9, 1986, defendants informed plaintiffs that
they are offering to sell the premises and are giving them priority to
acquire the same; that during the negotiations, Bobby Cu Unjieng
offered a price of P6-million while plaintiffs made a counter offer of P5million; that plaintiffs thereafter asked the defendants to put their offer
in writing to which request defendants acceded; that in reply to
defendant's letter, plaintiffs wrote them on October 24, 1986 asking
that they specify the terms and conditions of the offer to sell; that
when plaintiffs did not receive any reply, they sent another letter dated
January 28, 1987 with the same request; that since defendants failed
to specify the terms and conditions of the offer to sell and because of
information received that defendants were about to sell the property,
plaintiffs were compelled to file the complaint to compel defendants to
sell the property to them.
Defendants filed their answer denying the material allegations of the
complaint and interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary
judgment which was granted by the lower court. The trial court found
that defendants' offer to sell was never accepted by the plaintiffs for
the reason that the parties did not agree upon the terms and
conditions of the proposed sale, hence, there was no contract of sale at
all. Nonetheless, the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal. Thus the dispositive
portion of the decision states:

WHEREFORE, judgment is hereby rendered in favor of the

defendants and against the plaintiffs summarily
dismissing the complaint subject to the aforementioned
condition that if the defendants subsequently decide to
offer their property for sale for a purchase price of Eleven
Million Pesos or lower, then the plaintiffs has the option to
purchase the property or of first refusal, otherwise,
defendants need not offer the property to the plaintiffs if
the purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21,
1990 (penned by Justice Segundino G. Chua and concurred in by
Justices Vicente V. Mendoza and Fernando A. Santiago), this Court
affirmed with modification the lower court's judgment, holding:
In resume, there was no meeting of the minds between
the parties concerning the sale of the property. Absent
such requirement, the claim for specific performance will
not lie. Appellants' demand for actual, moral and
exemplary damages will likewise fail as there exists no
justifiable ground for its award. Summary judgment for
defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as to
any material fact and the moving party is entitled to a
judgment as a matter of law (Garcia vs. Court of Appeals,
176 SCRA 815). All requisites obtaining, the decision of
the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but subject
to the following modification: The court a quo in the
aforestated decision gave the plaintiffs-appellants the
right of first refusal only if the property is sold for a
purchase price of Eleven Million pesos or lower; however,
considering the mercurial and uncertain forces in our
market economy today. We find no reason not to grant the
same right of first refusal to herein appellants in the event
that the subject property is sold for a price in excess of
Eleven Million pesos. No pronouncement as to costs.
SO ORDERED.

The decision of this Court was brought to the Supreme Court by

petition for review on certiorari. The Supreme Court denied the appeal
on May 6, 1991 "for insufficiency in form and substances" (Annex H,
Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending
consideration by this Court, the Cu Unjieng spouses executed a Deed
of Sale (Annex D, Petition) transferring the property in question to
herein petitioner Buen Realty and Development Corporation, subject to
the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN
MILLION PESOS (P15,000,000.00), receipt of which in full
is hereby acknowledged, the VENDORS hereby sells,
transfers and conveys for and in favor of the VENDEE, his
heirs, executors, administrators or assigns, the abovedescribed property with all the improvements found
therein including all the rights and interest in the said
property free from all liens and encumbrances of
whatever nature, except the pending ejectment
proceeding;
2. That the VENDEE shall pay the Documentary Stamp
Tax, registration fees for the transfer of title in his favor
and other expenses incidental to the sale of abovedescribed property including capital gains tax and
accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the
Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816
was issued in the name of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property
wrote a letter to the lessees demanding that the latter vacate the
premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that
petitioner brought the property subject to the notice of lis pendens
regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881
in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the
Decision in Civil Case No. 87-41058 as modified by the Court of
Appeals in CA-G.R. CV No. 21123.

On August 30, 1991, respondent Judge issued an order (Annex A,

Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed
by plaintiff represented by Atty. Antonio Albano. Both
defendants Bobby Cu Unjieng and Rose Cu Unjieng
represented by Atty. Vicente Sison and Atty. Anacleto
Magno respectively were duly notified in today's
consideration of the motion as evidenced by the rubber
stamp and signatures upon the copy of the Motion for
Execution.
The gist of the motion is that the Decision of the Court
dated September 21, 1990 as modified by the Court of
Appeals in its decision in CA G.R. CV-21123, and elevated
to the Supreme Court upon the petition for review and
that the same was denied by the highest tribunal in its
resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the
Supreme Court as of June 6, 1991, stating that the
aforesaid modified decision had already become final and
executory.
It is the observation of the Court that this property in
dispute was the subject of the Notice of Lis Pendens and
that the modified decision of this Court promulgated by
the Court of Appeals which had become final to the effect
that should the defendants decide to offer the property
for sale for a price of P11 Million or lower, and considering
the mercurial and uncertain forces in our market economy
today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property
is sold for a price in excess of Eleven Million pesos or
more.
WHEREFORE, defendants are hereby ordered to execute
the necessary Deed of Sale of the property in litigation in
favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur
Go for the consideration of P15 Million pesos in
recognition of plaintiffs' right of first refusal and that a
new Transfer Certificate of Title be issued in favor of the
buyer.

All previous transactions involving the same property

notwithstanding the issuance of another title to Buen
Realty Corporation, is hereby set aside as having been
executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the
dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the
above-entitled case directing the Deputy Sheriff Ramon
Enriquez of this Court to implement said Writ of Execution
ordering the defendants among others to comply with the
aforesaid Order of this Court within a period of one (1)
week from receipt of this Order and for defendants to
execute the necessary Deed of Sale of the property in
litigation in favor of the plaintiffs Ang Yu Asuncion, Keh
Tiong and Arthur Go for the consideration of
P15,000,000.00 and ordering the Register of Deeds of the
City of Manila, to cancel and set aside the title already
issued in favor of Buen Realty Corporation which was
previously executed between the latter and defendants
and to register the new title in favor of the aforesaid
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of
execution (Annex C, Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent,
set aside and declared without force and effect the above questioned orders of the
court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be
held bound by the writ of execution by virtue of the notice of lis pendens, carried
over on TCT No. 195816 issued in the name of Buen Realty, at the time of the
latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to sell.

For ready reference, we might point out some fundamental precepts that may find
some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil
Code). The obligation is constituted upon the concurrence of the essential elements
thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause
established by the various sources of obligations (law, contracts, quasi-contracts,
delicts and quasi-delicts); (b) the object which is the prestation or conduct; required
to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed
from the demandability of the obligation, are the active (obligee) and the passive
(obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a
meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service (Art. 1305, Civil Code). A
contract undergoes various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the period from the
time the prospective contracting parties indicate interest in the contract to the time
the contract is concluded (perfected). The perfection of the contract takes place
upon the concurrence of the essential elements thereof. A contract which is
consensual as to perfection is so established upon a mere meeting of minds, i.e.,
the concurrence of offer and acceptance, on the object and on the cause thereof. A
contract which requires, in addition to the above, the delivery of the object of the
agreement, as in a pledge or commodatum, is commonly referred to as a real
contract. In a solemn contract, compliance with certain formalities prescribed by
law, such as in a donation of real property, is essential in order to make the act
valid, the prescribed form being thereby an essential element thereof. The stage of
consummation begins when the parties perform their respective undertakings under
the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which the
latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where
invariably the ownership of the thing sold is retained until the fulfillment of a
positive suspensive condition (normally, the full payment of the purchase price), the
breach of the condition will prevent the obligation to convey title from acquiring an
obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that,
although denominated a "Deed of Conditional Sale," a sale is still absolute where
the contract is devoid of any proviso that title is reserved or the right to unilaterally
rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive delivery (e.g., by the execution
of a public document) of the property sold. Where the condition is imposed upon the
perfection of the contract itself, the failure of the condition would prevent such
perfection. 3 If the condition is imposed on the obligation of a party which is not
fulfilled, the other party may either waive the condition or refuse to proceed with
the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and compliance
therewith may accordingly be exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to
be paid, when coupled with a valuable consideration distinct and separate from the
price, is what may properly be termed a perfected contract of option. This contract
is legally binding, and in sales, it conforms with the second paragraph of Article
1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee
has the right, but not the obligation, to buy. Once the option is exercised timely, i.e.,
the offer is accepted before a breach of the option, a bilateral promise to sell and to
buy ensues and both parties are then reciprocally bound to comply with their
respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect
promise (policitacion) is merely an offer. Public advertisements or solicitations and
the like are ordinarily construed as mere invitations to make offers or only as
proposals. These relations, until a contract is perfected, are not considered binding
commitments. Thus, at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this stage, may be
withdrawn; the withdrawal is effective immediately after its manifestation, such as

by its mailing and not necessarily when the offeree learns of the withdrawal
(Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which
to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the
offeror is still free and has the right to withdraw the offer before its acceptance, or,
if an acceptance has been made, before the offeror's coming to know of such fact,
by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also
Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural
Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA
368). The right to withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the
Civil Code which ordains that "every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed
perfected, and it would be a breach of that contract to withdraw the offer during the
agreed period. The option, however, is an independent contract by itself, and it is to
be distinguished from the projected main agreement (subject matter of the option)
which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the
offer before its acceptance (exercise of the option) by the optionee-offeree, the
latter may not sue for specific performance on the proposed contract ("object" of
the option) since it has failed to reach its own stage of perfection. The optionerofferor, however, renders himself liable for damages for breach of the option. In
these cases, care should be taken of the real nature of the consideration given, for
if, in fact, it has been intended to be part of the consideration for the main contract
with a right of withdrawal on the part of the optionee, the main contract could be
deemed perfected; a similar instance would be an "earnest money" in a contract of
sale that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale
under Article 1458 of the Civil Code. Neither can the right of first refusal,
understood in its normal concept, per se be brought within the purview of an option
under the second paragraph of Article 1479, aforequoted, or possibly of an offer
under Article 1319 9 of the same Code. An option or an offer would require, among
other things, 10 a clear certainty on both the object and the cause or consideration
of the envisioned contract. In a right of first refusal, while the object might be made
determinate, the exercise of the right, however, would be dependent not only on
the grantor's eventual intention to enter into a binding juridical relation with another
but also on terms, including the price, that obviously are yet to be later firmed up.

Prior thereto, it can at best be so described as merely belonging to a class of

preparatory juridical relations governed not by contracts (since the essential
elements to establish the vinculum juris would still be indefinite and inconclusive)
but by, among other laws of general application, the pertinent scattered provisions
of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of a writ
of execution under a judgment that merely recognizes its existence, nor would it
sanction an action for specific performance without thereby negating the
indispensable element of consensuality in the perfection of contracts. 11 It is not to
say, however, that the right of first refusal would be inconsequential for, such as
already intimated above, an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery
for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a "right of first refusal" in favor of petitioners. The consequence of such a
declaration entails no more than what has heretofore been said. In fine, if, as it is
here so conveyed to us, petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy is not a writ of execution
on the judgment, since there is none to execute, but an action for damages in a
proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation,
the alleged purchaser of the property, has acted in good faith or bad faith and
whether or not it should, in any case, be considered bound to respect the
registration of the lis pendens in Civil Case No. 87-41058 are matters that must be
independently addressed in appropriate proceedings. Buen Realty, not having been
impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of
execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in
holding that the writ of execution varies the terms of the judgment in Civil Case No.
87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard,
has observed:
Finally, the questioned writ of execution is in variance with the decision
of the trial court as modified by this Court. As already stated, there was
nothing in said decision 13 that decreed the execution of a deed of sale
between the Cu Unjiengs and respondent lessees, or the fixing of the
price of the sale, or the cancellation of title in the name of petitioner
(Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs.

IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA,
122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could
not have decreed at the time the execution of any deed of sale between the Cu
Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the
questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a
quo. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason,
Puno and Mendoza, JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.
.R. No. 91901

June 3, 1991

SPOUSES LEONCIO G. CIFRA and AURORA R. JONGCO-CIFRA, petitioners,

vs.
COURT OF APPEALS and MANUEL G. YU CHUA, respondents.
Niceforo S. Agaton for petitioners.
Marcelino P. Arias for private respondent.

GANCAYCO, J.:
The interpretation of a contract to sell or a promise to sell real property is in issue in
this case.
On December 27, 1985, petitioners spouses, represented by their attorney-in-fact
Benedicto Catalan, entered into an agreement with private respondent
denominated "Earnest Money" which provides as follows:
EARNEST MONEY
Received from Dr. Manuel G. Yu Chua the cash sum of FIVE THOUSAND
PESOS (P5,000.00) Philippine currency as earnest money for the house
and lot owned by the spouses Leoncio G. Cifra, Jr. and Aurora R. JongcoCifra. The property is located at 665 Boni Avenue, Mandaluyong, Metro-

Manila, Philippines and more particularly described in the Transfer

Certificate of Title (TCT) No. 490040 (6093).
The above property is presently mortgaged with the Social Security
System (SSS) with an outstanding balance of more or less FORTY
THOUSAND PESOS (P40,000.00) as of November, 1985. The agreed
purchase price being ONE MILLION and ONE HUNDRED THOUSAND
PESOS (1.1 M) shall be payable as follows: The sum equivalent to the
above purchase price minus the outstanding mortgage balance with
the SSS and the above earnest money shall be paid by the buyer to the
seller upon the removal of the present tenant or occupant from the
premises and upon the execution of the Deed of Absolute Sale.
It is the understanding of the parties that the buyer shall assume the
mortgage or obligation of the seller with the SSS as of November 1985.
The monthly amortization was last paid by the seller on November 13,
1985 as evidenced by the Official Receipt (OR) No. 988474 K issued by
Bank of the Philippine Islands (BPI), Ayala (Main). Further, the seller
promises to secure at the shortest possible time the certification of
balance or up to date statement of account from the SSS and deliver
the same to the buyer.
If and when the buyer purchases the property according to the terms
and conditions above specified, the herein earnest money shall form a
part of the purchase price otherwise the same shall be forfeited in
favor of the seller.
IN WITNESS, WHEREOF. the parties executed this instrument at the
Municipality of Mandaluyong, Metro-Manila, Philippines, this 27th day
of December 1985.
Earnest money received

Earnest money paid

by the sellers:

by the buyer:

LEONCIO G. CIFRA JR.

and
AURORA R. JONGCO-CIFRA
By:

(s/t) MANUEL G. YU CHUA, M.D.

(s/t) BENEDICTO F. CATALAN

Attorney-in-Fact
SIGNED IN THE PRESENCE OF:
(s/t) LOURDES J. CATALAN (s/t)
Illegible

EARNEST MONEY
(on Page 2)

Addendum:
In the event that the buyer shall fail to purchase the property
after he is formally notified by the seller of the surrender of the
premises by the present tenant or occupant, in addition to the
forfeiture of the earnest money the buyer binds himself to pay
the seller the sum of TWENTY THOUSAND PESOS (P20,000.00)
Philippine currency plus the attorney's fees and other costs for
any court case that may arise.
On the other hand, if the seller shall not make good his promise
to sell the above property even after the present tenant, William
Lim Valencia, shall have surrendered the premises the seller
binds himself to return the earnest money and in addition pay
the buyer the sum of TWENTY THOUSAND PESOS (P20,000.00)
Philippine currency plus the attorney's fees and other costs of
any court case that may arise.

(s/t) BENEDICTO F. CATALAN

(s/t) LOURDES J. CATALAN

<(s/t) MANUEL G. YU CHUA,

M.D.br />
(s/t) Illegible1

On May 25, 1986, Catalan informed private respondent of the desire of

petitioners to rescind the contract by a letter which reads:
May 25, 1986
Dr. Manuel G. Yu Chua
649-D Boni Avenue
Mandaluyong, M.M.
Dear Dr. Yu Chua:
I regret to inform you that my sister-in law, Mrs. Aurora Cifra, has
asked me to request for a rescission of her offer to sell their
property at 665 Born Avenue. The negotiations for the sale of
the house and lot have taken such a long time without your fault
nor their fault and they have now missed the opportunity for
which they wanted to apply the proceeds of the sale.

I intend to see you on May 31, 1986 to return the earnest money
that you gave us. I would like to personally apologize for the way
thing turned out.
Very truly yours,
(s/t) Benedicto F. Catalan2
Atty. Marcelino Arias replied in behalf of private respondent:
MR. BENEDICTO F. CATALAN
12 T. Evangelista, B.F. Homes
Paraaque, Metro Manila
Dear Mr. Catalan:
This is in behalf of my client, Dr. Manuel G. Yu Chua, of 649-D Boni Ave.,
Mandaluyong, Metro Manila.
Your letter dated May 25, 1986 sent through registered mail to my client was
received by my client today, May 29, 1986 and immediately referred the same to
my office for proper legal comment.
My client shall pursue the agreement you have entered into and my client is willing
to buy the property right now at 1.1 Million Pesos minus of course the Five Thousand
(P5,000.00) Pesos earnest money and the outstanding SSS mortgage account over
the premises which my client had assumed to pay.
You have stated of course, that it is not the fault of my client nor the fault of your
principal and there being no fault of any of them, then there is no reason why the
contract of agreement to sell shall not be pushed through.
My client is even willing to pay the amount of 1.1 Million Pesos as per agreement
even if the present tenant in the premises is still occupying the said premises.
Please take note that the contract of lease executed by and between your principal
and the present tenant clearly provides that the tenant shall vacate the premises
within ninety (90) days from notice of the sale of the property in question to any
other third person.
Off hand, my client shall certainly take this matter to court to enforce his right and
should this happen, then we shall be asking for proper damages.
Consequently, we reiterate that we are willing to buy the property now in the
agreed amount as previously agreed upon. [sic]
You are aware also that my client was deprived to buy a cheaper property of 614 sq.
m. located at the corner of Boni and Mayon Sts. also in Mandaluyong for Nine
Hundred Thousand (P900,000.00) Pesos only in order to buy your property at 1.1

Million Pesos. Now, the property at the corner of Boni and Mayon Sts. is no longer
for sale to the damage and prejudice of my client.
Furthermore, my client had deposited the 1.1 Million Pesos in a bank earning only
the usual interest instead of a higher yielding business venture because he was
anticipating for the consummation of your agreement to sell the property to my
client.
I hope we shall not meet in court to enforce my client's right over the premises to
avoid extra unnecessary expenses in court litigation.
Very truly yours,
(s/t) MARCELINO P. ARIAS
(Original reply received May 31, 1986 by (s/t) B.F. Catalan)3
This was followed by another letter:
June 13, 1986
R. BENEDICTO F. CATALAN
12 T. Evangelists, B.F. Homes
Paraaque, Metro Manila
Dear Mr. Catalan:
This is a reiteration of our letter dated May 29, 1986 and received by you on May
31, 1986. Up to now, we have not received any response from you. We will give you
ten (10) days from receipt hereof within which to tell us in clear terms whether you
will still proceed with the sale of the property to my client, Dr. Manuel G. Yu Chua or
not.
Your silence would be interpreted by us to mean that you want us to take this
matter to court to vindicate the rights of our client and should this happen, it will be
an additional unnecessary expenses on your part and on our part, but most of all,
on your part as we will file an action for damages aside from attorney's fees.
I hope we shall not go to court to avoid unnecessary expenses. We shall wait for
your answer.
(s/t) MARCELINO P. ARIAS4
Private respondent himself wrote a letter to Catalan dated June 18, 1986:
MR. & MRS. BENEDICTO CATALAN
12 Evangelista Street BF Homes,
Paraaque, Metro Manila

Dear Mr. & Mrs. Catalan:

At the outset, you knew I disliked attending court trials, that is why to avoid such
possibility with your tenant, I agreed to the stiff price of P1.1 Million for the property
at 665 Boni Avenue, Mandaluyong in exchange for your assurance that you will take
care of ejecting your tenant. We signed our agreement to this effect last Dec. 27,
1985. You gave your tenant a 90-day notice to vacate so that gave him up to the
end of March 1986 to look for another residence. Then suddenly, at the end of the
90-day period, you told me that the tenant had just offered you a better price for
the property and you were considering it. That was bad faith, loud and clear! The
tenant had waived any right to the property to all of us personally during the
negotiations; and again, he confirmed this when he accepted the 90 day notice to
vacate. Without showing my indignation at this trampling of my rights, I told you I
was ready to buy the property even while the tenant was still residing there. In
other words, I was willing now to suffer the inconvenience and added costs of trying
to eject the tenant. You answered that you had to consult with your principal first
and this would take about two weeks. The 2 weeks extended to two (2) months and
last May 29, 1986 1 received your letter rescinding our contract. So any undue
delay has been on your part and deliberately at that. What you kept referring to as
lengthy negotiations were simply delaying tactics on your part.
As I write this letter, you may have received my lawyer's second letter. Now as then,
let me say again that I do not like going to court if I can help it. But I feel you have
done me a grave injustice and a court suit is the only civilized way to get a redress.
My lawyer said the law is on my side and the court can compel you to sell me the
property, aside from making you pay for the trial expenses, the damages and
attorney's fees. At this late stage, I am still hoping you would change your mind and
decide to proceed with the sale without court intervention. Atty. Mar Arias gave you
10 days to reply. You can reach him at his address or at his radio program at DZME,
7:00 to 8:00 A.M., Monday to Friday. Please reply favorably but do it soon.
Sincerely yours,
(s/t) Dr. MANUEL G. YU CHUN5
On June 20,1986, Atty. Narciso Tadeo, representative of petitioners replied thereto:
Dr. Manuel G. Yu Chua
649-D Boni Avenue,
Mandaluyong, Metro Manila
Dear Dr. Yu Chua:
Our clients, Mr. & Mrs. Leoncio Cifra, thru their attorney-in-fact, Mr.
Benedicto F. Catalan have endorsed to us the letter of your lawyer,
Atty. Marcelino P. Arias dated May 29, 1986 relative to the cancellation
of the sale agreement on their property situated at 665 Boni Avenue,
Mandaluyong, Metro Manila.

You will kindly note that you paid on December 27, 1985 an earnest
money of P5,000.00. Under your said agreement, the balance of the
agreed consideration of ONE MILLION ONE HUNDRED THOUSAND
PESOS (P1,100,000.00) shall be paid to the seller (our clients) upon
removal of the present tenant of occupant from the premises and upon
the execution of the Deed of Absolute Sale. As correctly pointed out by
your counsel, the contract of lease between our clients and the present
tenant provides, among others, that the tenant shall vacate the
premises within ninety (90) days from notice of the sale of the property
to any third party.
To date, the tenant of the premises is still occupying the premises in
question. The tenant's refusal to comply with his contractual obligation
to vacate the premises within the said period is certainly not the fault
of our clients nor yourself. However, the unexpected delay had caused
our clients' lost opportunity to apply the proceeds of the sale to a
business venture abroad. This matter was relayed to you by our clients'
attorney-in-fact in his letter dated May 25, 1986.
Under the foregoing circumstances, we believe that the rescission of
our client's offer to sell their said property is reasonable and justified.
Our clients' attorney-in-fact is ready to refund the P5,000.00 earnest
money.
Very truly yours,
(s/t) NARCISO A. TADEO6
On July 3, 1986 private respondent filed an action for specific performance of the
above agreement in the Regional Trial Court at Pasig, Rizal, wherein after the issues
were joined and the trial on the merits a decision was rendered on May 25, 1987,
the dispositive part of which reads:
IN VIEW OF THE FOREGOING, this Court renders judgment in favor of the
plaintiff and against the defendant ordering the said defendants:
a) To execute the corresponding deed of absolute sale in favor of plaintiff
Manuel Yu Chua, over a parcel of land, together with all the improvements
found and existing thereon, located at 665 Boni Avenue, Mandaluyong, Metro
Manila, covered by Transfer Certificate of Title (TCT) No. 490040 of the
Registry of Deeds of Pasig, Metro Manila, upon payment by the plaintiff of the
amount of ONE MILLION ONE HUNDRED THOUSAND PESOS (P1,100,000.00),
minus the earnest money of P5,000.00 and the outstanding mortgage
balance with the Social Security System;
b) Pay to the plaintiff the amount of P100,000.00 by way of moral damages;
c) Pay to the said plaintiff the amount of P50,000.00 as attorney's fees; and

d) Pay the costs of this suit.7

Acting on a motion for reconsideration filed by petitioners the trial court modified its
decision by absolving Catalan, the agent, from paying moral damages, attorney's
fees and costs of the suit.
Petitioners interposed an appeal to the Court of Appeals wherein in due course a
decision was rendered on December 20, 1989 which affirmed the appealed
judgment with the modification deleting the award of moral damages. A motion for
reconsideration filed by petitioners was denied on January 30, 1990.
Hence, this petition for review on certiorari which presents two legal issues:
1) The major legal issue can be framed as follows:
Q DOES CHUA, THE RESPONDENT BUYER, HAVE THE RIGHT TO
DEMAND SPECIFIC PERFORMANCE FROM THE PETITIONERS TO SELL
THE HOUSE AND LOT TO HIM DESPITE THE FACT THAT HE HAD AGREED
TO A WAIVER OF SUCH A RIGHT WHEN HE CONSENTED TO THE
ADDENDUM STIPULATION RECOGNIZING THE RIGHT ON THE PART OF
THE PETITIONERS TO CANCEL OR ABROGATE THE SALE FOR ANY
REASON BY PAYING THE LIQUIDATED DAMAGES AGES STIPULATED
THEREIN?
2) The minor legal issue may be framed as follows:
Q IS THE AWARD OF ATTORNEY'S FEES FOR P50,000.00 PROPER
DESPITE THE FACT THAT THE OBLIGATION TO SELL IS COUPLED WITH A
PENAL CLAUSE IN CASE OF FAILURE TO PERFORM, WHICH PENALTY IS
CONSIDERED IN LAW A SUBSTITUTE FOR THE INDEMNITY OF
WHATEVER KIND OF DAMAGES PURSUANT TO THE EXPRESS
PROVISIONS OF ARTICLE 1226 OF THE CIVIL CODE?8
The petition is impressed with merit.
The provisions of Articles 1370 to 1375 of the Civil Code on the interpretation of
contracts are squarely applicable to this case:
Art. 1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall
control.
If the words appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former.
Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.

Art. 1372. However generally the terms of a contract may be, they shall not
be understood to comprehend things that are distinct and cases that are
different from those upon which the parties intended to agree.
Art. 1373. If some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is most
adequate to render it effectual.
Art. 1374. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them
taken jointly.
Art. 1375. Words which may have different significations shall be understood
in that which is most in keeping with the nature and object of the contract.
A reading of the subject contract which the parties labeled as "Earnest money"
shows that it is an agreement to sell the real property described therein for the
amount of P1.1 M with assumption of the P40,000.00 mortgage, by which P5,000.00
was paid upon signing of the agreement by private respondent to petitioner as
earnest money, which is part of the consideration. The balance of the consideration
shall be paid upon the removal of the tenant or occupant from the premises and
upon the execution of the deed of absolute sale.
In the addendum to the agreement it is stipulated that in case the buyer fails to
purchase the property after the seller formally notified him of the surrender of the
premises by the tenant or occupant, in addition to the forfeiture of the earnest
money, the buyer must pay the seller P20,000.00 plus attorney's fees and other
costs in case of litigation. On the other hand, if the seller does not make good his
promise to sell the property even after the present tenant shall have surrendered
the premises, the seller binds himself to return the earnest money and in addition
pay the buyer P20,000.00 plus the attorney's fees and other costs in case of
litigation.
This is the literal and clear agreement of the parties.1wphi1 From their
contemporaneous and subsequent acts it also appears that the proceeds of the sale
of the property by petitioners were intended to apply to a proposed business
venture of petitioners abroad. As said proposed business did not prosper and the
tenants/occupants of the premises have not yet vacated the premises, petitioners
decided to rescind the contract of sale in accordance with the agreement.
Under the addendum to the same agreement, both parties are given the freedom to
back out of the transaction provided that, in tie case of the seller, he must return
the earnest money in addition to being liable to the buyer for P20,000.00, plus
attorney's fees and other costs in case of litigation; and in case of the buyer, the
earnest money is forfeited, and he is liable to pay the seller P20,000.00 in damages
plus attorneys fees and other costs in case of litigation to the seller. This right which
is afforded to both parties may be availed of by them, irrespective of whether or not
the occupant of the premises had vacated the same. This stipulation is the law
between the parties.

Consequently, the action for specific performance must fail. For the rescission of the
contract, petitioners must return the P5,000.00 earnest money and pay P20,000.00
to the private respondent. However, they are not liable for attorneys fees, for it was
private respondent who brought the case to court as a result of which petitioners
unnecessarily incurred expenses of litigation.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated
December 20, 1989 and its resolution dated January 30, 1990 are hereby REVERSED
and SET ASIDE. Another judgment is hereby rendered dismissing the complaint and
rescinding the subject contract to sell dated December 27, 1985 upon the
petitioners reimbursing to private respondent the P5,000.00 earnest money and
paying them P20,000.00 as damages according to the same agreement. No costs in
this instance.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
G.R. No. L-27136 April 30, 1973
HEIRS OF JOSE A. ARCHES, plaintiffs-appellants,
vs.
MARIA B. VDA. DE DIAZ, defendant-appellee.
Ramon Quisumbing, Jr. and Claro A. Arches for plaintiffs-appellants.
Rafael Declare for defendant-appellee.

MAKALINTAL, Actg. C.J.:

This is an appeal from the order dated September 8, 1966 of the Court of First
Instance of Capiz dismissing the complaint in its Civil Case No. V-2903 and from the
order dated October 3, 1966 denying the motion for reconsideration.
On July 6, 1966 the heirs of Jose A. Arches filed a complaint against Maria B. Vda. de
Diaz in the court a quo, alleging inter alia: that on January 21, 1954 the defendant
executed in favor of the late Jose A. Arches a deed of sale with pacto de retro * over
a parcel of land known as Lot No. 2706 of the Cadastral Survey of Capiz for and in
consideration of P12,500.00 that Jose A. Arches during his lifetime filed a petition on
November 20, 1958 in Cadastral Case No. 6, L.R.C. Record No. 338 of the Court of
First Instance of Capiz, to consolidate ownership over the lot; that the defendant
opposed the petition alleging among other things that the said deed of sale with
pacto de retro did not express the true intention of the parties, which was merely to
constitute a mortgage on the proper security for a loan; that after hearing the case

on the merit trial court, in its order dated March 8, 1960, denied the petition holding
in effect that the contract was an equitable mortgage; that Jose A. Arches appealed
to the Court of Appeals, which on December 29, 1964 rendered judgment affirming
the order of the trial court; that Jose A. Arches filed in this Court a petition for
certiorari to review the decision of the appellate court, but in a resolution dated
March 29, 1965, which became final and executory on May 29, 1965, this Court
dismissed the petition on the ground that the issues involved were factual; that in
addition to the sum of P12,500.00, the consideration mentioned in the deed of sale
a retro, Jose A. Arches spent P1,543.70 in connection with the reconstitution of the
title to Lot No. 2706 in the name of the vendor and in paying the real estate taxes
on said lot for the years 1951 to 1960; that Jose A. Arches died on August 18, 1965,
before he could file an action in court for the collection of the aforestated sums from
the defendant; that on May 31, 1966, the petitioners, as forced heirs of the
deceased Jose A. Arches, demanded by registered letter from defendant the
payment of the sum of P12,500.00, the consideration mentioned in the sale a retro,
and reimbursement of the sum of P1,543.70; and that the defendant failed and
refused to pay. They, therefore, prayed among things that the defendant be ordered
to pay the aforementioned sums, plus damages.
Instead of answering the complaint the defendant moved to dismiss it on the
ground that the first cause of action recovery of the sum of P12,500.00 was barred
by the statute limitations and that the second cause of action for reimbursement of
the sum of P1,543.70, standing alone not within the jurisdiction of the trial court.
The plaintiffs filed their opposition. The court overruled the plea of prescription,
stating that the ten-year prescriptive commenced on August 29, 1965, when the
resolution of this Court dismissing the petition for certiorari filed by the late Jose A.
Arches became final and executory, and not from January 21, 1955, the date the
one-year period of repurchase expired, as claimed by the defendant. The defendant
moved to reconsider, alleging res judicata and multiplicity of suits as additional
grounds for dismissal. In an order dated September 8, 1966, the trial court set aside
its previous order and dismissed the complaint. Said the court:
When an action is barred by a prior judgment, by res judicata and
estoppel, such action in effect is devoid of cause. Failure to specifically
invoke it in the motion to dismiss does not operate as waiver or
abandonment thereof. This should be more so, inasmuch as the facts
are apparent from the complaint itself.
For it appears that when the late Jose A. Arches, father and
predecessor in interest of plaintiffs herein, petitioned this Court on
November 20, 1958, to consolidate in his name ownership and title
over Lot 2706, Capiz Cadastre, by virtue of the alleged sale a retro
executed by defendant herein in his favor on January 21, 1954, with
reservation of vendor's right to repurchase in one year, said Jose A.

Arches, had two remedies, inconsistent though they certainly were

(a) to consolidate title and ownership, and (b) to foreclose in the event
the deed of sale a retro be declared one of equitable mortgage.
Said Jose A. Arches elected to consolidate without alternatively opting
to foreclose. When he opted to consolidate and prosecuted his option
to a final determination he was thereby barred from pursuing the other
alternative and inconsistent remedy of foreclosure of mortgage or
collection of debt.
Having failed to obtain a reconsideration of the order of dismissal, the plaintiffs
instituted the instant appeal.
We find the appeal well taken. In the first place, res judicata as a ground to dismiss
was waived by the appellee when she failed to include it in her motion for that
purpose. Rule 15, Section 8, of the Rules of Court provides that "(A) motion
attacking a pleading or proceeding shall include all objections then available, and all
objections not so included shall be deemed waived." Secondly, the decision of the
cadastral court, holding in effect that the sale with pacto de retro was an equitable
mortgage and consequently dismissing the petition to consolidate ownership, did
not constitute an adjudication of the right to foreclose the mortgage or to collect the
indebtedness. In the case of Correa vs. Mateo and Icasiano, 1 wherein an unrecorded
pacto de retro sale was construed as an equitable mortgage, it was ruled that the
plaintiff had the right "within sixty days after final judgment, for a failure to pay the
amount due and owing him, to foreclose his mortgage in a proper proceeding and
sell all or any part of the ten parcels of land to satisfy his debt." In effect this Court
recognized the right of the plaintiff to enforce his lien in a separate proceeding
notwithstanding the fact that he had failed to obtain judgment declaring him the
sole and absolute owner of the parcels of land in question.
The law abhors injustice. It would be unjust in this case to allow the defendant to
escape payment of his debt and, worse still, to rationalize such a result by his very
claim that he is a debtor and not, as the plaintiff says, a vendor of property in favor
of the latter. Strictly speaking, where the petition of the vendee in a pacto de retro
sale is for a judicial order pursuant to Article 1607 of the Civil Code, so that
consolidation of ownership by virtue of the failure of the vendor to redeem may be
recorded in the Registry of Property, the right of action to foreclose the mortgage or
to collect the indebtedness arises from the judgment of the court declaring the
contract as equitable mortgage. Although an alternative prayer to this effect may
be made in the petition, the same cannot but be conditional, that is, only in the
event such a declaration made, contrary to the plaintiff's claim and the principal
relief he seeks. His failure to make that alternative prayer, and the failure of the
court to grant it in the judgment dismissing the petition, should not be considered
as a bar to collecting the indebtedness in a proper action for that purpose.

Wherefore, the orders appealed from are hereby reversed and the case remanded
to the trial court for further proceedings. Costs against defendant-appellee.
Zaldivar, Fernando, Teehankee, Makasiar, Antonio and Esguerra, JJ., concur.
Castro, J., took no part.

Separate Opinions

BARREDO, J., concurring and dissenting:

Concurs in the result because of the first ground stated in the main opinion. He
reserves his view as to the second ground, since a pacto de retro is usually resorted
to intentionally as a form of security, hence the creditor should be considered as
business ab initio that the transaction is a mortgage.

Separate Opinions
BARREDO, J., concurring and dissenting:
Concurs in the result because of the first ground stated in the main opinion. He
reserves his view as to the second ground, since a pacto de retro is usually resorted
to intentionally as a form of security, hence the creditor should be considered as
business ab initio that the transaction is a mortgage.
G.R. No. L-26096 February 27, 1979
THE DIRECTOR OF LANDS, petitioner,
vs.
SILVERETRA ABABA, ET AL., claimants, JUAN LARRAZABAL, MARTA C. DE
LARRAZABAL, MAXIMO ABAROQUEZ and ANASTACIA CABIGAS, petitionersappellants, ALBERTO FERNANDEZ, adverse claimant-appellee.

Juanito Ll. Abao for petitioners-appellants.

Alberto R Fernandez in his own behalf.

MAKASIAR, J.:
This is an appeal from the order of the Court of First Instance of Cebu dated March
19, 1966 denying the petition for the cancellation of an adverse claim registered by
the adverse claimant on the transfer certificate of title of the petitioners.
The adverse claimant, Atty. Alberto B. Fernandez was retained as counsel by
petitioner, Maximo Abarquez, in Civil Case No. R-6573 of the Court of First Instance
of Cebu, entitled "Maximo Abarquez vs. Agripina Abarquez", for the annulment of a
contract of sale with right of repurchase and for the recovery of the land which was
the subject matter thereof. The Court of First Instance of Cebu rendered a decision
on May 29, 1961 adverse to the petitioner and so he appealed to the Court of
Appeals.
Litigating as a pauper in the lower court and engaging the services of his lawyer on
a contingent basis, petitioner, liable to compensate his lawyer whom he also
retained for his appeal executed a document on June 10, 1961 in the CebuanoVisayan dialect whereby he obliged himself to give to his lawyer one-half (1/2) of
whatever he might recover from Lots 5600 and 5602 should the appeal prosper. The
contents of the document as translated are as follows:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
That I, MAXIMO ABARQUEZ, Plaintiff in Case No. R-6573 of the Court of
First Instance of Cebu, make known through this agreement that for
the services rendered by Atty. Alberto B. Fernandez who is my lawyer
in this case, if the appeal is won up to the Supreme Court, I Promise
and will guarantee that I win give to said lawyer one-half (1/2) of what I
may recover from the estate of my father in Lots No. 5600 and 5602
which are located at Bulacao Pardo, City of Cebu. That with respect to
any money which may be adjudged to me from Agripina Abarquez,
except 'Attorney's Fees', the same shall pertain to me and not to said
lawyer.
IN WITNESS WHEREOF, I have caused my right thumb. mark to be
affixed hereto this 10th of June, 1961, at the City of Cebu.

THUMBMARK
MAXIMO
ABARQUEZ
(p. 5, Petitioner-Appellant's Brief, p. 26, rec.)
The real Property sought to be recovered in Civil Case No. R6573 was actually the
share of the petitioner in Lots 5600 and 5602, which were part of the estate of his
deceased parents and which were partitioned the heirs which included petitioner
Maximo Abarquez and his elder sister Agripina Abarquez, the defendant in said civil
case.
This partition was made pursuant to a project of partition approved by the Court
which provided am other that Lots Nos. 5600 and 5602 were to be divided into three
equal Parts, one third of which shall be given to Maximo Abarquez. However,
Agripina Abarquez the share of her brother stating that the latter executed an
instrument of pacto de retro prior to the partition conveying to her any or all rights
in the estate of their parents. Petitioner discovered later that the claim of his sister
over his share was based on an instrument he was believe all along to be a mere
acknowledgment of the receipt of P700.00 which his sister gave to him as a
consideration for g care of their father during the latter's illness and never an
instrument of pacto de retro. Hence, he instituted an action to annul the alleged
instrument of pacto de retro.
The Court of Appeals in a decision promulgated on August 27, 1963 reversed the
decision of the lower court and annulled the dead of pacto de retro. Appellee
Agripina Abarquez filed a motion for reconsideration but the same was denied in a
resolution dated January 7, 1964 (p. 66, Record on Appeal; p. 13, Rec.) and the
judgment became final and executory on January 22,1964.
Subsequently, Transfer Certificate of Title No. 31841 was issued on May 19,1965 in
the name of Maximo Abarquez, married to Anastacia Cabigas, over his adjudged
share in Lots Nos. 5600 and 5602 containing an area of 4,085 square meters (p.
110, ROA; p. 13, rec.). These parcels of land later by the subject matter of the
adverse claim filed by the claimant.
The case having been resolved and title having been issued to petitioner, adverse
claimant waited for petitioner to comply with ha obligation under the document
executed by him on June 10, 1961 by delivering the one-half () portion of the said
parcels of land.
Petitioner refused to comply with his obligation and instead offered to sell the whole
parcels of land covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and
Marta C. de Larrazabal. Upon being informed of the intention of the petitioner,

adverse t claimant immediately took stops to protect his interest by filing with the
trial court a motion to annotate Ins attorney's lien on TCT No. 31841 on June 10,
1965 and by notifying the prospective buyers of his claim over the one-half portion
of the parcels of land.
Realizing later that the motion to annotate attorney's lien was a wrong remedy, as it
was not within the purview of Section 37, rule 138 of the Revised Rule of Court, but
before the same was by the trial court, adverse t by an affidavit of adverse claim on
July 19, 1965 with the Register of Deeds of Cebu (p. 14, ROA; p. 13, rec.). By virtue
of the petition of mid affidavit the adverse claim for one-half () of the lots covered
by the June 10, 1961 document was annotated on TCT No. 31841.
Notwithstanding the annotation of the adverse claim, petitioner-spouse Maximo
Abarquez and Anastacia Cabigas conveyed by deed of absolute sale on July 29,
1965 two-thirds (2/3) of the lands covered by TCT No. 31841 to petitioner-spouses
Juan Larrazabal and Marta C. de Larrazabal. When the new transfer certificate of
title No. 32996 was issued, the annotation of adverse claim on TCT No. 31841
necessarily had to appear on the new transfer certificate of title. This adverse claim
on TCT No. 32996 became the subject of cancellation proceedings filed by herein
petitioner-spouses on March 7, 1966 with the Court of First Instance of Cebu (p. 2
ROA; p. 13, rec.). The adverse claimant, Atty. Alberto B. Fernandez, filed his
opposition to the petition for cancellation on March 18, 1966 (p. 20, ROA; p. 13
rec.). The trial court resolved the issue on March 19, 1966, when it declared that:
...the petition to cancel the adverse claim should be denied. The
admission by the petitioners that the lawyers (Attys. Fernandez and
Batiguin) are entitled to only one-third of the lot described in Transfer
Certificate of Title No. 32966 is the best proof of the authority to
maintain said adverse claim (p. 57, ROA; p. 13, rec.).
Petitioner-spouses decided to appeal the order of dismissal to this Court and
correspondingly filed the notice of appeal on April 1, 1966 with the trial court. On
April 2, 1966, petitioner-spouses filed the appeal bond and subsequently filed the
record on appeal on April 6, 1966. The records of the case were forwarded to this
Court through the Land Registration Commission of Manila and were received by
this Court on May 5, 1966.
Counsel for the petitioner-spouses filed the printed record on appeal on July 12,
1966. Required to file the appellants' brief, counsel filed one on August 29, 1966
while that of the appellee was filed on October 1, 1966 after having been granted
an extension to file his brief.
The case was submitted for decision on December 1, 1966. Counsel for the
petitioners filed a motion to expunge appellees' brief on December 8, 1966 for

having been filed beyond the reglementary period, but the same was denied by this
Court in a resolution dated February 13, 1967.
The pivotal issue to be resolved in the instant case is the validity or nullity of the
registration of the adverse claim of Atty. Fernandez, resolution of which in turn
hinges on the question of whether or not the contract for a contingent fee, basis of
the interest of Atty. Fernandez, is prohibited by the Article 1491 of the New Civil
Code and Canon 13 of the Canons of Professional Ethics.
Petitioners contend that a contract for a contingent fee violates Article 1491
because it involves an assignment of a property subject of litigation. That article
provides:
Article 1491. The following persons cannot acquire by purchase even at
a public or judicial auction, either in person or through the petition of
another.
xxx xxx xxx
(5) Justices, judges, prosecuting attorneys, clerks of superior and
inferior and other o and employees connected with the administration
of justice, the property and rights in litigation or levied upon an
execution before the court within whose jurisdiction or territory they
exercise their respective functions; this prohibition includes the act of
acquiring by assignment and shall apply to lawyers, with respect to the
property and rights which may be the object of any litigation in which
they may take part by virtue of their profession (Emphasis supplied).
This contention is without merit. Article 1491 prohibits only the sale or assignment
between the lawyer and his client, of property which is the subject of litigation. As
WE have already stated. "The prohibition in said article a only to applies stated: "
The prohibition in said article applies only to a sale or assignment to the lawyer by
his client of the property which is the subject of litigation. In other words, for the
prohibition to operate, the sale or t of the property must take place during the
pendency of the litigation involving the property" (Rosario Vda. de Laig vs. Court of
Appeals, et al., L-26882, November 21, 1978).
Likewise, under American Law, the prohibition does not apply to "cases where after
completion of litigation the lawyer accepts on account of his fee, an interest the
assets realized by the litigation" (Drinker, Henry S., Legal Ethics, p. 100 [1953],
citing App. A, 280; N.Y. Ciu 714). "There is a clear distraction between such cases
and one in which the lawyer speculates on the outcome of the matter in which he is
employed" (Drinker, supra, p. 100 citing A.B.A. Op. 279).

A contract for a contingent fee is not covered by Article 1491 because the tranfer or
assignment of the property in litigation takes effect only after the finality of a
favorable judgment. In the instant case, the attorney's fees of Atty. Fernandez,
consisting of one-half (1/2) of whatever Maximo Abarquez might recover from his
share in the lots in question, is contingent upon the success of the appeal. Hence,
the payment of the attorney's fees, that is, the transfer or assignment of one-half
(1/2) of the property in litigation will take place only if the appeal prospers.
Therefore, the tranfer actually takes effect after the finality of a favorable judgment
rendered on appeal and not during the pendency of the litigation involving the
property in question. Consequently, the contract for a contingent fee is not covered
by Article 1491.
While Spanish civilists differ in their views on the above issue whether or not a
contingent fee contract (quota litis agreement) is covered by Article 1491 with
Manresa advancing that it is covered, thus:
Se ha discutido si en la incapacidad de Ion Procumdam y Abogados
asta o el pecto de quota litis. Consiste este, como es sabido, en la
estipulacion de que el Abogado o el Procurador ban de hacer suyos una
parte alicuota de In cona que se li m la son es favorable. Con es te
concepto a la vista, es para nosortros que el articulo que comentamos
no menciona ese pacto; pero como la incapacidad de los Abogados y
Procuradores se extinede al acto de adquirir por cesion; y la
efectividad del pacto de quota litis implica necesariamente una cesion,
estimamos que con solo el num. 5 del articulo 1459 podria con exito la
nulidad de ese pacto tradicionalmente considerado como ilicito.
xxx xxx xxx
Debe tenerse tambien en cuenta, respecto del ultimo parrafo del
articulo 1459, la sentencia del Tribunal Supreme de 25 Enero de 1902,
que delcara que si bien el procurador no puede adquirir para si los
bienes, en cuanto a los cuales tiene incapacidad, puede adquirirlos
para otra persona en quien no concurra incapacidad alguna (Manresa,
Comentarios al Codigo Civil Espaol, Tomo X, p. 110 [4a ed., 1931]
emphasis supplied).
Castan, maintaining that it is not covered, opines thus;
C. Prohibiciones impuestas a las personas encargadas, mas o menos
directamente, de la administracion de justicia.El mismo art. 1,459 del
Codigo civil prohibe a los Magistrados, Jueces, individuos del Minesterio
fiscal, Secretarios de Tribunales y Juzgados y Oficiales de Justicia
adquirir por compra (aunque sea en subasta publica o judicial, por si ni

por persona alguna intermedia). 'Los bienes y derechos que estuviesen

en litigio ante el Tribunal en cuya jurisdicion on teritorio ejercieran sus
respectivas funciones, extendiendo se esta prohibicion al acto de
adquirir por cesion', y siendo tambien extensiva ' Alos Abogados y
Procuradores respecto a los bienes y derecho que fueran objeto del un
litigio en que intervengan pos su profession y oficio.'
El fundamento de esta prohibicion es clarismo. No solo se tratadice
Manresade quitar la ocasion al fraude; persiguese, ademas, el
proposito de rodear a las personas que intervienen en la
administracion de justicia de todos los prestigios que necesitan para
ejercer su ministerio, librando los de toda sospecha, que, aunque fuere
infundada, redundaria en descredito de la institucion.
Por no dor lugar a recelos de ninguna clase, admite el Codigo (en el
apartado penutimo del art. 1.459) algunos casos en que, por
excepcion, no se aplica el pricipio prohibitivo de que venimos
hablando. Tales son los de que se trate de acciones hereditarias entre
coheredero, de cesion en pago de creditos, o de garantia de los bienes
que posean los funcionarios de justicia.
Algunos autores (Goyena, Manresa, Valverde) creen que
en la prohibicion del art. 1.459 esta comprendido el pacto
de quota litis (o sea el convenio por el cual se concede al
Abogado o Procurador, para el caso de obtener sentencia
favorable una parte alicuota de la cosa o cantidad que se
litiga), porque dicho pacto supone la venta o cesion de
una parte de la cosa o drecho que es objecto del litigio.
Pero Mucius Scaevola oberva, conrazon, que en el
repetido pacto no hay propiamente caso de compraventa
ni de cesion de derechos, y bastan para estimario nulo
otros preceptos del Codigo como los relativos a la ilicitud
de la causa (Castan, Derecho Civil Espol, Tomo 4, pp. 6869, [9a ed., 1956], emphasis supplied).
The Supreme Court of Spain, in its sentencia of 12 November 1917, has ruled that
Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code) does not apply
to a contract for a contingent fee because it is not contrary to morals or to law,
holding that:
... que no es susceptible de aplicarse el precepto contenido en el num.
5 del art. 1.459 a un contrato en el que se restrigen los honorarios de
un Abogado a un tanto por ciento de lo que se obtuviera en el litigio,

cosa no repudiada por la moral ni por la ley (Tolentino, Civil Code of the
Philippines, p. 35, Vol. V [1959]; Castan, supra; Manresa, supra).
In the Philippines, among the Filipino commentators, only Justice Capistrano
ventured to state his view on the said issue, thus:
The incapacity to purchase or acquire by assignment, which the law
also extends to lawyers with t to the property and rights which may be
the object of any litigation in which they may take part by virtue of
their profession, also covers contracts for professional services quota
litis. Such contracts, however, have been declared valid by the
Supreme Court" (Capistrano, Civil Code of the Philippines, p. 44, Vol. IV
[1951]).
Dr. Tolentino merely restated the views of Castan and Manresa as well as the state
of jurisprudence in Spain, as follows:
Attorneys-at-lawSome writers, like Goyena, Manresa and Valverde
believe that this article covers quota litis agreements, under which a
lawyer is to be given an aliquot part of the property or amount in
litigation if he should win the case for his client. Scaevola and Castan,
however, believe that such a contract does not involve a sale or
assignment of right but it may be void under other articles of the Code,
such as those referring to illicit cause- On the other hand the Spanish
Supreme Court has held that this article is not applicable to a contract
which limits the fees of a lawyer to a certain percentage of what may
be recovered in litigation, as this is not contrary to moral or to law.
(Tolentino, Civil Code of the Philippines, p. 35, Vol. V [1959]; Castan,
supra, Emphasis supplied).
Petitioners her contend that a contract for a contingent fee violates the Canons of
Professional Ethics. this is likewise without merit This posture of petitioners
overlooked Canon 13 of the Canons which expressly contingent fees by way of
exception to Canon 10 upon which petitioners relied. For while Canon 10 prohibits a
lawyer from purchasing ...any interest in the subject matter of the litigation which
he is conducting", Canon 13, on the other hand, allowed a reasonable contingent
fee contract, thus: "A contract for a con. tangent fee where sanctioned by law,
should be reasonable under all the circumstances of the ca including the risk and
uncertainty of the compensation, but should always be subject to the supervision of
a court, as to its reasonableness." As pointed out by an authority on Legal Ethics:
Every lawyer is intensely interested in the successful outcome of his
case, not only as affecting his reputation, but also his compensation.
Canon 13 specifically permits the lawyer to contract for a con tangent

fee which of itself, negatives the thought that the Canons preclude the
lawyer's having a stake in his litigation. As pointed out by Professor
Cheatham on page 170 n. of his Case Book, there is an inescapable
conflict of interest between lawyer and client in the matter of fees. Nor
despite some statements to the con in Committee opinions, is it
believed that, particularly in view of Canon 13, Canon 10 precludes in
every case an arrangement to make the lawyer's fee payable only out
of the results of the litigation. The distinction is between buying an
interest in the litigation as a speculation which Canon 10 condemns
and agreeing, in a case which the lawyer undertakes primarily in his
professional capacity, to accept his compensation contingent on the
outcome (Drinker, Henry S Legal Ethics, p. 99, [1953], Emphasis
supplied).
These Canons of Professional Ethics have already received "judicial recognition by
being cited and applied by the Supreme Court of the Philippines in its opinion"
Malcolm, Legal and Judicial Ethics, p. 9 [1949]). And they have likewise been
considered sources of Legal Ethics. More importantly, the American Bar Association,
through Chairman Howe of the Ethics Committee, opined that "The Canons of
Professional Ethics are legislative expressions of professional opinion ABA Op. 37
[1912])" [See footnote 25, Drinker, Legal Ethics, p. 27]. Therefore, the Canons have
some binding effect
Likewise, it must be noted that this Court has already recognized this type of a
contract as early as the case of Ulanday vs. Manila Railroad Co. (45 PhiL 540
[1923]), where WE held that "contingent fees are not prohibited in the Philippines,
and since impliedly sanctioned by law 'Should be under the supervision of the court
in order that clients may be protected from unjust charges' (Canons of Profession 1
Ethics)". The same doctrine was subsequently reiterated in Grey vs. Insular Lumber
Co. (97 PhiL 833 [1955]) and Recto vs. Harden (100 PhiL 427 [1956]).
In the 1967 case of Albano vs. Ramos (20 SCRA 171 [19671), the attorney was
allowed to recover in a separate action her attomey's fee of one-third (1/3) of the
lands and damages recovered as stipulated in the contingent fee contract. And this
Court in the recent case of Rosario Vda de Laig vs. Court of Appeals, et al. (supra),
which involved a contingent fee of one-half () of the property in question, held
than ,contingent fees are recognized in this i jurisdiction (Canon 13 of the Canons of
Professional Ethics adopted by the Philippine Bar association in 1917 [Appendix B,
Revised Rules of Court)), which contingent fees may be a portion of the property in
litigation."
Contracts of this nature are permitted because they redound to the benefit of the
poor client and the lawyer "especially in cases where the client has meritorious
cause of action, but no means with which to pay for legal services unless he can,

with the sanction of law, make a contract for a contingent fee to be paid out of the
proceeds of the litigation" (Francisco, Legal Ethics, p. 294 [1949], citing Lipscomb
vs. Adams 91 S.W. 1046, 1048 [1949]). Oftentimes, contingent fees are the only
means by which the poor and helpless can redress for injuries sustained and have
their rights vindicated. Thus:
The reason for allowing compensation for professional services based
on contingent fees is that if a person could not secure counsel by a
promise of large fees in case of success, to be derived from the subject
matter of the suit, it would often place the poor in such a condition as
to amount to a practical denial of justice. It not infrequently happens
that person are injured through the negligence or willful misconduct of
others, but by reason of poverty are unable to employ counsel to
assert their rights. In such event their only means of redress lies in
gratuitous service, which is rarely given, or in their ability to find some
one who will conduct the case for a contingent fee. That relations of
this king are often abused by speculative attorneys or that suits of this
character are turned into a sort of commercial traffic by the lawyer,
does not destroy the beneficial result to one who is so poor to employ
counsel (id, at p. 293, citing Warvelle, Legal Ethics, p. 92, Emphasis
supplied).
Justice George Malcolm, writing on contingent fees, also stated that:
... the system of contingent compensation has the merit of affording to
certain classes of persons the opportunity to procure the prosecution of
their claims which otherwise would be beyond their means. In many
cases in the United States and the Philippines, the contingent fee is
socially necessary (Malcolm, Legal and Judicial Ethics, p. 55 [1949],
emphasis supplied).
Stressing further the importance of contingent fees, Professor Max Radin of the
University of California, said that:
The contingent fee certainly increases the possibility that vexatious
and unfounded suits will be brought. On the other hand, it makes
possible the enforcement of legitimate claims which otherwise would
be abandoned because of the poverty of the claimants. Of these two
possibilities, the social advantage seems clearly on the side of the
contingent fee. It may in fact be added by way of reply to the first
objection that vexations and unfounded suits have been brought by
men who could and did pay substantial attorney's fees for that purpose
(Radin, Contingent Fees in California, 28 Cal. L. Rev. 587, 589 [1940],
emphasis supplied).

Finally, a contingent fee contract is always subject to the supervision of the courts
with respect to the stipulated amount and may be reduced or nullified. So that in
the event that there is any undue influence or fraud in the execution of the contract
or that the fee is excessive, the client is not without remedy because the court will
amply protect him. As held in the case of Grey vs. Insular Lumber Co., supra, citing
the case of Ulanday vs. Manila Railroad Co., supra:
Where it is shown that the contract for a contingent fee was obtained
by any undue influence of the attorney over the client, or by any fraud
or imposition, or that the compensation is so clearly excessive as to
amount to extortion, the court win in a proper case protect the
aggrieved party.
In the present case, there is no iota of proof to show that Atty. Fernandez had
exerted any undue influence or had Perpetrated fraud on, or had in any manner
taken advantage of his client, Maximo Abarquez. And, the compensation of one-half
of the lots in question is not excessive nor unconscionable considering the
contingent nature of the attorney's fees.
With these considerations, WE find that the contract for a contingent fee in question
is not violative of the Canons of Professional Ethics. Consequently, both under the
provisions of Article 1491 and Canons 10 and 13 of the Canons of Profession Ethics,
a contract for a contingent fee is valid
In resolving now the issue of the validity or nullity for the registration of the adverse
claim, Section 110 of the Land Registration Act (Act 496) should be considered.
Under d section, an adverse claim may be registered only by..
Whoever claims any part or interest in registered land adverse to the
registered owner, arising subsequent to the date of the o
registration ... if no other provision is made in this Act for registering
the same ...
The contract for a contingent fee, being valid, vested in Atty Fernandez an interest
or right over the lots in question to the extent of one-half thereof. Said interest
became vested in Atty. Fernandez after the case was won on appeal because only
then did the assignment of the one-half () portion of the lots in question became
effective and binding. So that when he filed his affidavit of adverse claim his
interest was already an existing one. There was therefore a valid interest in the lots
to be registered in favor of Atty. Fernandez adverse to Mo Abarquez.
Moreover, the interest or claim of Atty. Fernandez in the lots in question arose long
after the original petition which took place many years ago. And, there is no other
provision of the Land Registration Act under which the interest or claim may be

registered except as an adverse claim under Section 110 thereof. The interest or
claim cannot be registered as an attorney's charging lien. The lower court was
correct in denying the motion to annotate the attomey's lien. A charging lien under
Section 37, Rule 138 of the Revised Rules of Court is limited only to money
judgments and not to judgments for the annulment of a contract or for delivery of
real property as in the instant case. Said Section provides that:
Section 37. An attorney shall have a lien upon the funds, documents
and papers of his client which have lawfully come into his oppossession
and may retain the same until his lawful fees and disbursements have
been paid, and may apply such funds to the satisfaction thereof. He
shall also have a lien to the same extent upon all judgments, for the
payment of money, and executions issued in pursuance of such
judgments, which he has secured in a litigation of his client ...
(emphasis supplied).
Therefore, as an interest in registered land, the only adequate remedy open to Atty.
Fernandez is to register such interest as an adverse claim. Consequently, there
being a substantial compliance with Section 110 of Act 496, the registration of the
adverse claim is held to be valid. Being valid, its registration should not be
cancelled because as WE have already stated, "it is only when such claim is found
unmeritorious that the registration thereof may be cancelled" (Paz Ty Sin Tei vs. Jose
Lee Dy Piao 103 Phil. 867 [1958]).
The one-half () interest of Atty. Fernandez in the lots in question should therefore
be respected. Indeed, he has a better right than petitioner-spouses, Juan Larrazabal
and Marta C. de Larrazabal. They purchased their two-thirds (2/3) interest in the lots
in question with the knowledge of the adverse claim of Atty. Fernandez. The adverse
claim was annotated on the old transfer certificate of title and was later annotated
on the new transfer certificate of title issued to them. As held by this Court:
The annotation of an adverse claim is a measure designed to protect
the interest of a person over a piece of real property where the
registration of such interest or right is not otherwise provided for by
the Land Registration Act, and serves as a notice and warning to third
parties dealing with said property that someone is claiming an interest
on the same or a better right than the registered owner thereof
(Sanchez, Jr. vs. Court of Appeals, 69 SCRA 332 [1976]; Paz Ty Sin Tei
vs. Jose Le Dy Piao supra).
Having purchased the property with the knowledge of the adverse claim, they are
therefore in bad faith. Consequently, they are estopped from questioning the
validity of the adverse claim.

WHEREFORE, THE DECISION OF THE LOWER COURT DENYING THE PETITION FOR
THE CANCELLATION OF THE ADVERSE CLAIM SHOULD BE, AS IT IS HEREBY
AFFIRMED, WITH COSTS AGAINST PETITIONER-APPELLANTS JUAN LARRAZABAL AND
MARTA C. DE LARRAZABAL.
SO ORDERED.

ROSARIO VDA. DE LAIG, ROMEO, JOSE, NESTOR and BENITO, JR., all
surnamed LAIG, minors, assisted by Rosario Vda. de Laig, Their Guardian
Ad Litem, petitioners,
vs.
COURT OF APPEALS, CARMEN VERZO, PETRE GALERO, THE REGISTER OF
DEEDS OF CAMARINES NORTE, THE DIRECTOR OF LANDS, AND THE
SECRETARY OF AGRICULTURE AND NATURAL RESOURCES, respondents.
Gelasio L. Dimaano for petitioners.
Pedro A. Venida for private respondents.
Office of the Solicitor General for respondents The Director of Lands, etc., et al.

MAKASIAR, J.:
Appeal by certiorari from the decision of respondent Court of Appeals which
affirmed the judgment of the Court of First Instance of Camarines Norte in Civil Case
No. 577 entitled "Rosario Vda. de Laig, et al. vs. Carmen Verzo, et al.," dismissing
herein petitioners' complaint for the reconveyance of a parcel of land with damages,
and declaring herein respondent Carmen Verzo as the lawful owner of the land in
issue.
It appears that on March 27, 1939, one Petre Galero obtained rained from the
Bureau of Lands Homestead Patent No. 53-176 covering 219,949 square meters of
land located at Barrio Pinagtambangan, Labo, Camarines Norte, for which Original
Certificate of Title No. 1097 was issued in Galero's name.
On June 25, 1940, Galero sold the land to a certain Mario Escuta for P300.00. Escuta
in turn, sold the same land to Florencio Caramoan in December, 1942, Later,
however, Petre Galero, through proper court action, and with Atty. Benito K. Laig
the deceased husband of herein petitioner Rosario Vda. de Laig as counsel
recovered the land, the court having been convinced that its alienation violated
Section 118 of the Public Land Act, which reads:

No alienation, transfer, or conveyance of any homestead after five

years and before twenty-five years after issuance of title shall be valid
without the approval of the Secretary of Agriculture and Commerce,
which approval shall not be denied except on constitutional and legal
grounds (Sec. 118, CA No. 141, as amended by CA No. 456).
On June 1, 1948, a deed of sale was executed by and between Petre Galero as
vendor and Atty. Benito K. Laig as vendee, whereby the former sold to the latter the
land in question with its improvements, for P1,500.00 plus attorney's fees due Atty.
Laig for his legal services as counsel for Galero in the successful reconveyance case
(p. 87, rec.; People vs. Petre Galero, CA-G.R. No. 12043-R). This deed of sale was
executed in the house of Carmen Verzo and witnessed by one Claudio Muratalla and
Rosario Verzo Villarente (p. 87, back, rec., People vs. Petre Galero, supra), sister of
herein respondent Carmen Verzo, who was living with her in the same house at that
time.
Original Certificate of Title No. 1097 was delivered by Galero to Atty. Laig (Exh. J and
Annex B, p. 6, CA Brief for Petitioners, p. 137, back, rec.).
Unfortunately, vendee Atty. Benito K. Laig failed to solicit the approval of the
Secretary of Agriculture and Natural Resources (then Secretary of Agriculture and
Commerce), as required by Section 118 of the Public Land Act, as amended. It was
only after Atty. Laig's death in 1951 that his wife, herein petitioner Rosario, noticed
the deficiency.
On November 5, 1951, herein petitioner Vda. de Laig wrote the then Register of
Deeds of Camarines Norte, respondent Baldomero M. Lapak, stating that the
disputed parcel of land covered by original Certificate of Title No. 1097 in the same
of Petre Galero, had been sold to her late husband, requesting that she be informed
of any claim of ownership by other parties so that she could take the necessary
steps, and serving notice of her claim over the said property as surviving spouse of
the late Atty. Laig and as natural guardian of their children.
On November 12, 1951, Register of Deeds Lapak replied that Original Certificate of
Title No. 1097 was still intact and took note of her letter.
On March 29, 1952, petitioner Vda. de Laig filed with the Bureau of Lands an
affidavit together with copy of the deed of sale in her husband's favor. Said affidavit
stated that she wanted to have the ownership over the land transferred to her
husband's name.
On August 14, 1952, the Bureau of Lands forwarded the said affidavit of Vda. de
Laig, together with the deed of sale, to the Office of the Secretary of Agriculture and
Natural Resources with a recommendation that the said deed of sale be approved as

the same does not violate any pertinent provisions of the Public Land Act or the
corresponding rules and regulations thereunder promulgated. On the same day, the
Office of the Secretary of Agriculture and Natural Resources, thru then
Undersecretary Jose S. Camus, approved the deed of sale. And also on the same
day, the Office of the Director of Lands, thru Vicente Tordesillas, Chief of the
Publication Lands Division, addressed a letter to Atty. Benito Laig informing him of
the approval of the deed of sale executed by and between him and Petre Galero.
Meanwhile, however, on July 15, 1952, Petre Galero, with the assistance of Atty. Jose
L. Lapak, son of respondent Register of Deeds Baldomero M. Lapak sought in court
the issuance of a second owner's duplicate copy of OCT No. 1097, claiming that his
first duplicate of said OCT was lost during World War 11.
On July 19, 1952 or in a span of only four days - a second owner's duplicate copy
of OCT No. 1097 was issued by respondent Register of Deeds Baldomero M. Lapak in
favor of Petre Galero. And right on that same day, Galero executed in favor of
respondent Carmen Verzo a deed of sale of the land in issue for the sum of P600.00.
It was claimed that previously, the additional consideration of P500.00 in Japanese
war notes was received by Galero from Carmen Verzo, although this amount, or
anything to that effect, was not mentioned in the deed of sale executed by and
between them.
Upon being informed that the sale necessitates the approval of the Secretary of
Agriculture and Natural Resources before it could be registered in the Register of
Deeds, herein respondent Carmen Verzo, on July 30, 1952, addressed a letter to the
Secretary of Agriculture and Natural Resources, through the Director of Lands,
seeking the former's required approval Enclosed in the letter was a copy of the deed
of sale in Verzo's favor, and an affidavit that the land in point was sold to Verzo by
homestead grantee Petre Galero.
On August 30, 1952, Assistant Director of Lands Zoilo Castrillo forwarded Verzo's
papers to the Secretary of Agriculture and Natural Resources and recommended
that the sale, not being violative of the pertinent provisions of the Public Land Act
nor the rules and regulations promulgated thereunder, be approved.
On September 12, 1952, Acting Secretary of Agriculture Jose S. Camus approved the
sale in favor of Carmen Verzo.
On September 27, 1952, the office of the Director of Lands notified Carmen Verzo of
such approval. Whereupon, on October 13, 1952, Verzo declared the land in her
name for taxation purposes, and since then, had been paying the realty taxes
thereon.

On October 14, 1952, the deed of sale in Verzo's favor was registered, and Transfer
Certificate of Title No. T-1055, in lieu of OCT No. 1097, which was cancelled, was
issued in her name.
On January 26, 1953, petitioner Vda. de Laig, thru counsel, her brother Atty.
Dimaano, inquired from the Register of Deeds of Camarines Norte if it was true that
OCT No. 1097 in favor of Galero had already been cancelled and a transfer
certificate of title had been issued in favor of another person. Respondent Register
of Deeds Lapak replied in the affirmative.
In no time at all, petitioners called the attention of the Director of Lands to the
existence of two deeds of sale, one in favor of Atty. Benito Laig, and another in favor
of Carmen Verzo.
On February 25, 1953, the Director of Lands requested Petre Galero to explain
within 30 days such double sale, and ordered the Provincial Land Officer in Daet,
Camarines Norte to investigate the matter and immediately submit findings
thereon.
On March 12, 1953, in reply to the Director of Land's request, Petre Galero denied
having sold the land in issue to Atty. Benito K. Laig.
On March 15, 1953, the Bureau of Lands in Camarines Norte reported to the Director
of Lands that second vendee Carmen Verzo had already successfully obtained a
transfer certificate of title over the land in question, with the recommendation that
the heirs of the first vendee, Benito K. Laig, seek their remedy in court as the status
of the property at that stage does not anymore fall within the jurisdiction of the
Bureau of Lands.
Petre Galero was charged in Criminal Case No. 533 before the Court of First Instance
of Camarines with estafa thru falsification of public documents in connection with
the sale in favor of Carmen Verzo of the land in point. Galero was convicted on
October 29, 1953, which conviction was later affirmed by the Court of Appeals in
People vs. Petre Galero (CA-G.R. No. 12043-R, December 2, 1954).
On April 13, 1954, petitioner Vda. de Laig, together with her minor children, filed the
present action, docketed as Civil Case No. 577 in the Court of First Instance of
Camarines Norte against respondents Carmen Verzo, Petre Galero, the Director of
Lands, the Register of Deeds of Camarines Norte and the Secretary of Agriculture
and Natural Resources praying for the annulment of the sale in favor of Carmen
Verzo and the cancellation of the second owner's duplicate of Original Certificate of
Title No. 1097 and Transfer Certificate of Title No. T-1055 by declaring the first OCT
No. 1097 valid and effective or in the alternative, by ordering Carmen Verzo to
reconvey the land in question to petitioners, plus P5,000.00 by way of damages.

Sometime in 1958, Galero died while serving his sentence at the National
Penitentiary, and was, on November 11, 1958, substituted by his wife, Perpetua Dar,
as party defendant (p. 27, ROA; p. 114, rec.).
On November 21, 1961, the trial court, in a decision, dismissed the complaint and
declared that the land described in TCT No. 1055 to be rightfully owned by Carmen
Verzo. The lower court also found Baldomero M. Lapak, then the Register of Deeds
of Camarines Norte, guilty of negligence, but exempted him from any liability; found
the Director of Lands and the Secretary of Agriculture and Natural Resources
likewise guilty of negligence, but exempted them from any liability on the theory
that they are not responsible for the acts of their subordinates; held that the
approval of two deeds of sale in favor of two different vendees in a space of less
than one month is but a ministerial duty which exculpates the Director of Lands and
the Secretary of Agriculture and Natural Resources from liability, and that plaintiffsappellants slept on their rights in not having the first deed of sale in favor of Atty.
Laig registered in the Registry of property, and therefore, have only themselves to
blame for losing the land; and exempted Galero from liability (pp. 88-97, ROA; pp.
119-124, rec.).
On April 12, 1962, petitioners appealed the decision of the lower court to the Court
of Appeals.
On September 28, 1966 (p. 32, rec.), the Fifth Division of the Court of Appeals, thru
Justice Jesus Y. Perez, affirmed the decision of the Court of First Instance of
Camarines Norte.
The case unveils a couple of issues to resolve, to wit:
1. Who between petitioner Vda. de Laig and respondent Carmen Verzo should be
considered as the rightful owner of the land in question; and
2. Should the respondents register of deeds, Director of Lands and the Secretary of
Agriculture and Natural Resources, together with respondent Carmen Verzo, be held
liable for damages for approving the sale of one and the same piece of land in favor
of two different persons?
I
As in the present case of Rosario Carbonell vs. Hon. Court of Appeals, et al.
(L-29972, Jan. 26, 1976), the first issue calls for the application of Article 1544,
paragraph 2, of the New Civil Code regarding double sale.
The above-said provision reads:

Should it be immovable property, the ownership shall belong to the

person acquiring it who in good faith recorded it in the Register of
Property (emphasis supplied).
In the Carbonell case, supra, WE held that to be under the protective umbrella of
paragraph 2, Article 1544, of the New Civil Code, it is essential that the vendee of
the immovable must act in good faith in registering his deed of sale. In other words,
good faith must characterize the vendee's act of prior registration.
To this effect was Our ruling in a 1918 case that
The force and effect given by law to an inscription in a public record
presupposes the good faith of him who enters such inscription; and
rights created by statute, which are predicated upon an inscription in a
public registry, do not and cannot accrue under an inscription 'in bad
faith,' to the benefit of the person who thus makes the inscription
(Leung Yee vs. F.L. Strong Machinery Co. and Williamson, No. 11658,
Feb. 15, 1918, 37 Phil. 644, 649).
The records reveal that respondent Carmen Verzo was not in good faith when she
facilitated the registration of her deed of sale. The following indicia of bad faith
characterized NOT ONLY her act of registering her deed of sale, BUT ALSO her
purchase of the disputed realty:
1. At the time of the sale of the land in question by Petre Galero to Atty. Benito K.
Laig in 1948, the latter was a boarder of Carmen Verzo in her house. As a matter of
fact, Atty. Laig maintained his law office, and received his clients (among whom was
Petre Galero) therein [p. 81, t.s.n., session of Aug. 23, 1961 ].
Atty. Benito K. Laig, as her boarder, must have mentioned to Carmen Verzo, his
landlady, the land sold to him by Galero. By the same token, Carmen Verzo must
have known such sale; because transactions of this sort in the rural areas do not
escape the knowledge of persons living under one roof with a party to the
document, more especially when there exists between such persons and party the
peculiarly intimate relationship of landlady and boarder in a small town.
2. One of the witnesses to the deed of sale executed by and between Atty. Laig and
Petre Galero was Rosario Verzo Villarente, Carmen Verzo's very own sister who was
at that time living with her in her house, where Atty. Laig then boarded.
Rosario Verzo Villarente, being in the household of her sister Carmen Verzo, must
have likewise informed the latter about the deed of sale executed by Petre in favor
of Atty. Laig which she signed as witness. A formal act, such as witnessing a deed of
sale, is not a common daily experience. Laymen, especially rural folk like Rosario

Verzo Villarente, who participate in the same, ordinarily regard the same as a
memorable event. It is not therefore unreasonable to assume that her significant
role as an instrumental witness to the deed of sale between Atty. Laig and Petre
Galero must have moved Rosario to confide to her sister Carmen the fact of her
participation therein.
3. Petre Galero was able to procure another copy of the duplicate of Original
Certificate of Title No. 1097 covering the disputed land through the aid of Atty. Jose
Lapak who is the son of the respondent register of deeds, Baldomero Lapak, under
clearly dubious circumstances. For one, it was done without observing the required
formalities of notice and hearing (Sec. 117, Act No. 496). Secondly, it was an over in
a record-setting period of ONLY four [41 days. Add to this the fact that respondent
register of deeds Baldomero Lapak issued said duplicate of OCT 1097 despite his
having received about eight months earlier and taken note on November 12, 1951
of the letter of petitioner Rosario Vda. de Laig inquiring about the status of the title
to the questioned land which was purchased by her husband from Petre Galero; and
the process, indeed, reeks with an unpleasant scent. If Atty. Jose Lapak were not the
son of respondent Baldomero Lapak, the latter as register of deeds would not have
facilitated the issuance of the duplicate copy of the title with such "scandalous
haste." He should have informed his son, Atty. Lapak, and Petre Galero about the
previous inquiry of petitioner as early as November 5, 1951, to which he replied on
November 12, 1951 that OCT No. 1097 was still intact.
Moreover, the expeditious disposal of the land in litigation by Petre Galero to
Carmen Verzo was done immediately after the death of Atty. Benito Laig, and during
the time that his wife Rosario Vda. de Laig, who was residing in faraway Manila, was
seeking all legal means to have the title over the property transferred to her name.
Such bad faith on the part of respondent Carmen Verzo and Baldomero Lapak is
further underscored by the fact that Atty. Jose Lapak himself (a) was the notary
public before whom the deed of sale executed by and between Petre Galero and
Carmen Verzo was acknowledged, and (b) was the same lawyer who assisted
Carmen Verzo in writing the Director of Lands and the Secretary of Agriculture and
Natural Resources, enclosing therewith an affidavit also sworn before said Atty.
Lapak, praying that the deed of sale be approved.
This conspiracy among Petre Galero, register of deeds Baldomero Lapak, his son
Atty. Jose Lapak, and Carmen Verzo, could not have been known to petitioner
Rosario Vda. de Laig, who was then as now, residing in Manila.
4. Carmen Verzo was familiar with the property in dispute and with the previous
legal battle over the same. In fact in her special defense (par. 2, p. 47, ROA), she
stated that she gave sums of money to Petre Galero to enable him to institute Civil
Case No. 164-R-14 entitled "Petre Galero vs. Macario Escuta and Florendo

Caramoan," for the recovery of said parcel of land. Knowing that said case was for
the reconveyance from defendants therein of the land in issue and that Atty. Laig
was the counsel of Petre Galero, Carmen Verzo must have known likewise that a
torrens title to the same was existing and intact and the same was delivered by
Petre to Atty. Laig as the buyer of the land. And if she inquired from the wife of Atty.
Laig, which was incumbent upon her as she was aware of the antecedent
circumstances, she would have been told by petitioner Rosario Vda. de Laig that the
owner's copy of the original certificate of title was then in her possession
Respondent Carmen Verzo could not pretend that she believed that said owner's
duplicate was lost during the war because Civil Case No. 164-R-14 involving the land
in point was instituted only AFTER the war and the owner 's duplicate copy of the
title was intact and returned to Petre after he won in 1948 the suit for
reconveyance. She could have also asked about said title the first buyer, Florencio
Caramoan, who was ordered by the court to reconvey the land and return the
owner's duplicate of the to title.
5. Prior to the sale in her favor, Carmen Verzo knew that the disputed property
belongs to Atty. Laig, because whenever Atty. Laig was in Manila, Carmen Verzo
attended to said property and communicated with Atty. Laig in Manila about his
share of the harvest from the land (pp. 33-34, t.s.n., session of Aug. 4, 1964). How
can Carmen Verzo speak of Atty. Laig's share of the harvest without first knowing
that the land from where the crop was harvested was owned by Atty. Benito Laig?
Bad faith can be demonstrated, not ONLY by direct proof, but also by substantial
evidence.
Bad faith is a state of mind indicated by acts and circumstances and is
provable by CIRCUMSTANTIAL ... evidence (Zumwalt v. Utilities Ins. Co.,
228 S.W. 2d 750, 754, 360 Mo. 362; Words and Phrases Permanent Ed.,
Vol. 5, p. 261).
Logically, therefore, since, as has already been earlier shown, respondent Carmen
Verzo was not a purchaser in good faith, she could never have been a registrant in
good faith of the deed of sale of said land in her favor. Consequently, she cannot
claim the protection accorded to a registrant in good faith by paragraph 2, Article
1544 of the New Civil Code.
Finally, since there is no valid inscription to speak of in the present case, the
applicable provision of law is paragraph 3, Article 1544, New Civil Code (Carbonell
vs. Hon. Court of Appeals, supra), which states:
Should there be no insciption, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the ab
thereat to the person who presents the oldest title, provided there is
good faith (emphasis supplied).

In the present case, the fact of Atty. Benito Laig's having been the first possessor in
good faith of the property in issue was never disputed by respondent Carmen Verzo.
Moreover, the deed of sale in favor of the late Atty. Benito Laig was executed on
June 1, 1948, over 4 years earlier than the deed of sale executed on July 19, 1952 in
favor of respondent Carmen Verzo.
It is Our view that the offices of the Secretary of Agriculture and Natural Resources
and the Director of Lands should be cleared of any liability. It is not difficult to see
that the reason why separate approvals concerning two separate sale of the same
piece of land were had was the fact that two sets of officials took charge of both
requests. But no malice can be gleaned from this fact. It should be borne in mind
that both officials daily attend to thousands upon thousands of papers. It is also
possible that their assistants failed to notice that two deeds of sale covered the
same parcel of land or failed to advise these two officials of such fact.
As heretofore indicated, the malicious participation of respondent register of deeds
Baldomero Lapak and his son Atty. Lapak is evident.
Knowing of the existence in his records of the original of OCT No. 1097, Baldomero
Lapak effected the issuance of the second duplicate of OCT No. 1097 to Petre Galero
in just four (4) days, dispensing with the requirements of notice and hearing to
interested parties. The law in this regard is Section 109 of Act No. 496, which reads:
If the duplicate certificate is lost or destroyed, or cannot be produced
by a grantee, heir, devisee, assignee, or other person applying for the
entry of a new certificate to him ..., a suggestion may be filed by the
registered owner or other person in interest and registered. The court
(the Court of First Instance acting as land registration court) may
thereupon, upon the petition of the registered owner or other person in
interest, AFTER NOTICE AND HEARING, direct the issue of a new
duplicate certificate, which shall contain a memorandum of the fact
that it is issued in place of the lost duplicate certificate, but shall in all
respects be entitled to like faith and credit as the original duplicate,
and shall thereafter be regarded as the original duplicate for all the
purposes of this Act (Ocampo vs. Garcia, L-11260, April 29, 1959, 105
Phil. 553).
For his malicious involvement, WE find Baldomero Lapak liable under the following
provision of the Land Registration Act:
Whoever fraudulently procures, or assists in fraudulently procuring or
is privy to the fraudulent procurement of any certificate of title or
owner's duplicate certificate, shall be fined not exceeding five

thousand dollars (ten thousand pesos) or imprisoned not exceeding

five years, or both, in the discretion of the court (Sec. 117, Act No.
496).
Baldomero Lapak likewise stands liable under Article 27 of the New Civil Code,
which states:
Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official
duty may file an action for damages and other relief against the latter,
without prejudice to any disciplinary administrative action that may be
taken.
For in essence, his refusal to follow the directive of law (Act No. 496) was a conduct
injurious to the petitioner. Thus a chief of police is liable under Article 27 of the New
Civil Code for refusal to give assistance to the complainants which was his official
duty as an officer of the law (Amarro, et al. vs. Sumanggit, L-14986, July 31, 1962, 5
SCRA 707, 708-9). Similarly, a municipal mayor incurs the same liability for
neglecting to perform his official functions (Javellana vs. Tayo, L-18919, Dec. 29,
1962, 6 SCRA 1042, 1051).
WE also find Atty. Jose L. Lapak liable under the abovequoted Section 117 of Act No.
496 (Land Registration Act), for which he should be, not only prosecuted but also,
disciplined as a member of the Bar.
Moreover, both Baldomero Lapak and his son Atty. Jose Lapak are likewise civilly
liable for failure to observe honesty and good faith in the performance of their
duties as public officer and as a member of the Bar (Art. 19, New Civil Code) or for
wilfully or negligently causing damage to another (Art. 20, New Civil Code), or for
wilfully causing loss or injury to another in a manner that is contrary to morals, good
customs and/or public policy (Art. 21, New Civil Code).
WHEREFORE, THE DECISION APPEALED FROM IS HEREBY REVERSED AND
I. THE REGISTER OF DEEDS OF CAMARINES NORTE IS HEREBY DIRECTED
(A) TO CANCEL TCT NO. T-1055; AND
(B) TO ISSUE IN LIEU THEREOF A NEW TRANSFER CERTIFICATE OF TITLE IN FAVOR OF
THE HEIRS OF THE LATE BENITO K. LAIG; AND
II. ALL THE RESPONDENTS HEREIN, EXCEPT THE DIRECTOR OF LANDS AND THE
SECRETARY OF AGRICULTURE AND NATURAL RESOURCES, ARE HEREBY ORDERED TO
PAY JOINTLY AND SEVERALLY PETITIONERS IN THE AMOUNT OF TEN THOUSAND

(P10,000.00) PESOS AS MORAL DAMAGES; THE SUM OF FIVE THOUSAND (P5,000.00)

PESOS AS ATTORNEY'S FEES; AND THE COSTS:
SO ORDERED.
G.R. No. L-45510 May 27, 1986
BERNARDO B. LEGASPI, petitioner,
vs.
COURT OF APPEALS and LEONARDO B. SALCEDO, respondents.

GUTIERREZ, JR., J.:

This is an appeal by way of certiorari from the decision of the then Court of Appeals
in CA-G.R. No. 53947-R and from the resolution denying the petitioner's motion for
reconsideration.
On February 8, 197 1, the plaintiff now petitioner filed a complaint with the Court of
First Instance of Cavite, docketed as Civil Case No. N-1595 for reconveyance to
enforce his right to repurchase two parcels of land, Lots Nos. 3962 and 3963 of the
Imus Estate covered by TCT Nos. T-4388 and T-4389, respectively, which he sold to
the defendant, now private respondent, pursuant to a sale with pacto de retro as
evidenced by a Deed of Sale with the Right to Repurchase dated October 15, 1965
and marked as Exhibit "A".
The complaint alleged, among others, that Bernardo B. Legaspi is the registered
owner of the aforementioned two parcels of land which he sold to his son-in-law,
Leonardo B. Salcedo, on October 15, 1965 for the sum of P25,000.00 with the right
to repurchase the same within five years from the execution of the deed of sale;
that before the expiry date of the repurchase period which was on October 15,
1970, Legaspi offered and tendered to Salcedo the sum of P25,000.00 for the
repurchase of the two parcels of land; that the tender of payment was refused by
Salcedo without justifiable or legal cause; that Salcedo refused to convey the
properties to Legaspi as requested by the latter; that on October 15, 1970, Legaspi
deposited in the Office of the Clerk of Court of First Instance of Cavite City the
amount of P25,125.00 as evidenced by Official Receipt No. 2698797-k marked as
Exhibit "B"; that despite earnest efforts towards a compromise after consignation of
the repurchase money had been made, Salcedo refused to reconvey the properties
in question.
In his answer with compulsory counterclaim, Salcedo alleged, among others, that he
denies that Legaspi ever offered and tendered to him the sum of P25,000.00 or

requested the execution of the corresponding deed of reconveyance; that what

actually transpired on October 15, 1970 was that Legaspi asked for an extension of
one year within which to repurchase the two parcels of land bringing with him a
document entitled "Extension Period to Repurchase" marked as Exhibit "1" which
Salcedo declined to sign; and that Salcedo also denies that earnest efforts towards
a compromise were pursued by Legaspi for the latter merely proposed for an
extension of one year of the right to repurchase. By way of special defense, Salcedo
claimed that Legaspi was no longer entitled to repurchase the properties in question
for failure to exercise his right within the stipulated period in accordance with Article
1250 of the Civil Code under which Salcedo maintained he was entitled to the
payment of P42,250.00 instead of only P25,000.00. Article 1250 of the Civil Code
provides as follows:
In case an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary.
The lower court, after trial, rendered a decision, the dispositive portion of which
reads:
WHEREFORE, judgment is for the plaintiff who retains ownership of Lots
Nos. 3962 and 3963 of the Imus Estate covered by TCT Nos. T-3488
and T-3489, respectively, of the Registry of Deeds for the Province of
Cavite by automatic operation of law when payment of the obligation
has been effected by depositing the whole amount with the Clerk of
Court in spite of the refusal to receive the same under the allegation
that the plaintiff must be obliged to pay P17,250.00 by way of interest
or devaluation where in a case of this nature, sale with right to
repurchase, interest has no place in its scheme; and the defendant is
hereby ordered to deliver these two lots immediately upon receipt of
this decision to the plaintiff as they should have done on October 15,
1970 which in bad faith they have been avoiding using all kinds of
tricks to frustrate the payment of the said obligation and for which
they should be made to answer for damages as consequences of bad
faith; the defendant to pay unto the plaintiff the sum of P10,500.00
yearly from October 15, 1970 until the delivery of these two lots to the
plaintiff value of the produce of the said two lots which have been
retained by the defendant, yearly, from October 15, 1970 when they
should have made physical delivery of these two lots by reason of the
payment of the price of the said two lots appearing in the deed of sale
with right to repurchase; defendant further to pay to the plaintiff by
way of moral, punitive, exemplary, and corrective damages in the
amount of P20,000.00; P2,000.00 for attorney's fees, plus the costs of

this proceedings. The counterclaim is hereby dismissed; and the

Register of Deeds, Cavite Province is hereby ordered to cancel the
annotation of the sale with pacto de retro dated October 1, 1965 upon
the ground that the repurchase therein mentioned was effected legally
on October 15, 1970, inspite of defendant's refusal to allow plaintiff to
exercise his right to repurchase reserved to plaintiff in the document.
On appeal, the Court of Appeals reversed the decision and dismissed the complaint
holding that:
... [T]he appellee never made a valid tender of payment that amounted
to a lawful exercise of the right to repurchase the property involved in
the instant case. Neither was a valid consignation made seasonably in
court of the amount of P25,000.00 with which to make the repurchase.
A motion for reconsideration was denied. Hence, this appeal by certiorari.
The petitioner assails the decision of the Court of Appeals first, on the ground that
the respondent court departed from the accepted and usual course of judicial
proceedings contrary to the well-settled rule that as to the matter of credibility of
witnesses, the appellate court cannot substitute its own discretion with that of the
lower court for the latter court is in a better position to gauge such credibility of
witnesses; and secondly on the ground that the respondent court committed a
patent error in law and jurisprudence by virtue of its conclusion that "no valid
consignation was seasonably made of the amount of P25,000.00 with which to
make the repurchase" despite the Official Receipt of the Clerk of Court evidencing
the deposit of said amount on the last day of the repurchase period, that is, on
October 15, 1970.
The only issue crucial to the present appeal is whether or not the petitioner validly
exercised his right to repurchase the properties within the five-year period as
stipulated in the sale with pacto de retro entered into between the petitioner as
vendor a retro and private respondent as vendee a retro. To resolve this issue, we
determine whether it was correct for the respondent court to disturb the findings of
fact made by the trial court in its conclusion that there was tender of payment
within the redemption period.
Tender of payment is the manifestation made by the debtor to the creditor of his
desire to comply with his obligation, with the offer of immediate performance.
(Tolentino, Civil Code of the Phil....ippines, Vol. IV [1985]). Generally, it is an act
preparatory to consignation as an attempt to make a private settlement before
proceeding to the solemnities of consignation. (8 Manresa 325). Consignation is the
act of depositing the thing due with the court or judicial authorities whenever the
creditor cannot accept or refuses to accept payment and it generally requires a

prior tender of payment. (Limkako v. Teodoro, 74 Phil..... 313). In instances where no

debt is due and owing, consignation is not proper. (Asturias Sugar Central vs. Pure
Cane Molasses Co., 60 Phil..... 255) We have early held that:
Consignation is not required to preserve the right of repurchase as a
mere tender of payment is enough if made on time as a basis for an
action to compel the vendee a retro to resell the property. (Villegas vs.
Capistrano, 9 Phil..... 416; Resales vs. Reyes, et al. 25 Phil..... 495;
Paez, et al., vs. Magno, 46 O.G. p. 5425).
Since the case at bar involves the exercise of the right to repurchase, a showing
that petitioner made a valid tender of payment is sufficient. It is enough that a
sincere or genuine tender of payment and not a mock or deceptive one was made.
The fact that he deposited the amount of the repurchase money with the Clerk of
Court was simply an additional security for the petitioner. It was not an essential act
that had to be performed after tender of payment was refused by the private
respondent although it may serve to indicate the veracity of the desire to comply
with the obligation.
On the issue of whether or not the tender of payment in the manner described by
the petitioner resulted in the exercise of the right to repurchase, we rule that it was
erroneous on the part of the respondent court to reverse the factual finding of the
trial court that a valid tender of payment was made seasonably. The records do not
show that this finding is grounded entirely on speculation, surmises, or conjectures.
One reason emphasized by the respondent for reversing the factual findings of the
trial court was a discrepancy regarding the time the consignation was made. Was it
made at 10:00 o'clock in the morning or 3:00 o'clock in the afternoon? The
discrepancy is not substantial. It is plausible that either the petitioner or the court
employee could not correctly recall the exact time, about one year later, when an
official transaction was performed on a given day. There is no discrepancy in the
date that consignation was effected. Moreover, there is an official receipt evidencing
the transaction. We apply the following:
Sec. 20. Public and private writing The following writings are public:
(a) The written acts or records of the acts of the sovereign authority, of
official bodies and tribunals, and of public officers, legislative, judicial
and executive, whether of the Phil....ippines, or of a foreign country;
xxx xxx xxx
(Rule 132, Rules of Court.)

xxx xxx xxx

... [A]ny instrument authorized by a competent official with the
solemnities required by law is a public document.... [A]n official receipt
printed in accordance with the standard forms required by the
government is a public document. (U.S. vs. Asensi 34 Phil..... 750, 757,
758, citing Cacnio v. Baens 5 Phil.... 742; and U.S. vs. Vy Guico, 12
Phil..... 209).
The evidentiary nature of public documents must be sustained in the
absence of strong, complete and conclusive proof of its falsity or
nullity. (Martin, Rules of Court, with Notes and Comments, Vol. V,
[1974], citing Robinson vs. Villafuerte, 18 Phil.... 171; Sy Tiangco vs.
Pablo, 59 Phil..... 119; De Jesus v. Grey, 59 Phil..... 834; El Hogar Filipino
vs. Olviga 60 Phil..... 17).
The law reposes a particular confidence in public officers that it
presumes they will discharge their several trusts with accuracy and
fidelity; and, therefore, whatever acts they do in the discharge of their
public duty may be given in evidence and shall be taken to be true
under such a degree of caution as the nature and circumstances of
each case may appear to require. (Antillon vs. Barcelona, 37 Phil....
148,152).
The alleged correction in the official receipt was not made by the petitioner but by
the cashier of the Court of First Instance who received the money. The wife of the
private respondent also testified that on October 12, 1970 or three days before the
expiry date, the petitioner and his son went to the respondent's house to
repurchase the lots. The respondent's letter to the petitioner's lawyer on November
3, 1970 shows that the offer to repurchase the property was rejected because the
petitioner could not pay an additional P17,250.00 on top of the repurchase price.
Paragraph 6 of the respondent's answer to the complaint states as an Affirmative
and Special Defense, the following:
xxx xxx xxx
6. That if at all plaintiff would be entitled to repurchase the said
properties, he should pay the defendant the sum of P42,250.00 in
accordance with Art. 1250 of the New Civil Code and upon failure to do
so, defendant is entitled to an order of this Honorable Court to have his
ownership over the said properties consolidated and the said
properties registered in his name in accordance with Art. 1607 of the
New Civil Code.

The records, therefore, show that the right of repurchase was seasonably exercised.
The records clearly manifest that the petitioner was able to make a valid tender of
payment on the 14th of October 1970 by offering personally the amount of
P25,000.00 to the private respondent who refused to accept it claiming that the
money was devalued. Thereafter, the petitioner informed the private respondent
that he would be depositing the same amount with the proper court. (tsn., pp. 6 &
9, February 8, 1972 hearing). The trial court correctly ruled that there was proper
exercise of the right to repurchase within the five-year period not for the reason that
the deposit of the repurchase money amounted to a tender of payment but for what
the evidence submitted before it proved. The appellate court erred when it did not
apply the well-accepted doctrine that:
Conclusions and findings of fact by the trial court are entitled to great
weight on appeal and should not be disturbed unless for strong and
cogent reasons because the trial court is in a better position to
examine real evidence, as well as to observe the demeanor of the
witnesses while testifying in the case. (Chase vs. Buencamino, Sr., 130
SCRA 365)
As regards the award of moral, punitive, exemplary and corrective damages in the
amount of P20,000.00 made by the trial court, the award is deleted for want of
sufficient proof to justify it. The mere refusal to accept the repurchase money on the
ground that the value of the peso had devalued did not amount to bad faith which
would warrant the payment of these damages by the private respondent.
WHEREFORE, the decision of the former Court of Appeals is hereby REVERSED and
SET ASIDE. The decision of the Court of First Instance of Cavite, 7th Judicial District,
Branch III is REINSTATED but MODIFIED by the deletion of the award of P20,000.00
for moral, punitive, exemplary and corrective damages. In all other respects, the
trial court's decision is AFFIRMED. No costs.
SO ORDERED.
G.R. No. 72873 May 28, 1987
CARLOS
ALONZO
and
CASIMIRA
ALONZO,
petitioners,
vs.
INTERMEDIATE APPELLATE COURT and TECLA PADUA, respondents.
Perpetuo L.B. Alonzo for petitioners.
Luis R. Reyes for private respondent.

CRUZ, J.:

The question is sometimes asked, in serious inquiry or in curious conjecture,

whether we are a court of law or a court of justice. Do we apply the law even if it is
unjust or do we administer justice even against the law? Thus queried, we do not
equivocate. The answer is that we do neither because we are a court both of law
and of justice. We apply the law with justice for that is our mission and purpose in
the scheme of our Republic. This case is an illustration.
Five brothers and sisters inherited in equal pro indiviso shares a parcel of land
registered in 'the name of their deceased parents under OCT No. 10977 of the
Registry of Deeds of Tarlac. 1
On March 15, 1963, one of them, Celestino Padua, transferred his undivided share of
the herein petitioners for the sum of P550.00 by way of absolute sale. 2 One year
later, on April 22, 1964, Eustaquia Padua, his sister, sold her own share to the same
vendees, in an instrument denominated "Con Pacto de Retro Sale," for the sum of P
440.00. 3
By virtue of such agreements, the petitioners occupied, after the said sales, an area
corresponding to two-fifths of the said lot, representing the portions sold to them.
The vendees subsequently enclosed the same with a fence. In 1975, with their
consent, their son Eduardo Alonzo and his wife built a semi-concrete house on a
part of the enclosed area. 4
On February 25, 1976, Mariano Padua, one of the five coheirs, sought to redeem the
area sold to the spouses Alonzo, but his complaint was dismissed when it appeared
that he was an American citizen . 5 On May 27, 1977, however, Tecla Padua, another
co-heir, filed her own complaint invoking the same right of redemption claimed by
her brother. 6
The trial court * also dismiss this complaint, now on the ground that the right had
lapsed, not having been exercised within thirty days from notice of the sales in 1963
and 1964. Although there was no written notice, it was held that actual knowledge
of the sales by the co-heirs satisfied the requirement of the law. 7
In truth, such actual notice as acquired by the co-heirs cannot be plausibly denied.
The other co-heirs, including Tecla Padua, lived on the same lot, which consisted of
only 604 square meters, including the portions sold to the petitioners . 8 Eustaquia
herself, who had sold her portion, was staying in the same house with her sister
Tecla, who later claimed redemption petition. 9 Moreover, the petitioners and the
private respondents were close friends and neighbors whose children went to school
together. 10
It is highly improbable that the other co-heirs were unaware of the sales and that
they thought, as they alleged, that the area occupied by the petitioners had merely
been mortgaged by Celestino and Eustaquia. In the circumstances just narrated, it
was impossible for Tecla not to know that the area occupied by the petitioners had

been purchased by them from the other. co-heirs. Especially significant was the
erection thereon of the permanent semi-concrete structure by the petitioners' son,
which was done without objection on her part or of any of the other co-heirs.
The only real question in this case, therefore, is the correct interpretation and
application of the pertinent law as invoked, interestingly enough, by both the
petitioners and the private respondents. This is Article 1088 of the Civil Code,
providing as follows:
Art. 1088. Should any of the heirs sell his hereditary rights to a stranger before the
partition, any or all of the co-heirs may be subrogated to the rights of the purchaser
by reimbursing him for the price of the sale, provided they do so within the period of
one month from the time they were notified in writing of the sale by the vendor.
In reversing the trial court, the respondent court ** declared that the notice required
by the said article was written notice and that actual notice would not suffice as a
substitute. Citing the same case of De Conejero v. Court of Appeals 11 applied by
the trial court, the respondent court held that that decision, interpreting a like rule
in Article 1623, stressed the need for written notice although no particular form was
required.
Thus, according to Justice J.B.L. Reyes, who was the ponente of the Court, furnishing
the co-heirs with a copy of the deed of sale of the property subject to redemption
would satisfy the requirement for written notice. "So long, therefore, as the latter
(i.e., the redemptioner) is informed in writing of the sale and the particulars
thereof," he declared, "the thirty days for redemption start running. "
In the earlier decision of Butte v. UY, 12 " the Court, speaking through the same
learned jurist, emphasized that the written notice should be given by the vendor
and not the vendees, conformably to a similar requirement under Article 1623,
reading as follows:
Art. 1623. The right of legal pre-emption or redemption shall not be exercised
except within thirty days from the notice in writing by the prospective vendor, or by
the vendors, as the case may be. The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by an affidavit of the vendor that he has
given written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of the adjoining owners.
As "it is thus apparent that the Philippine legislature in Article 1623 deliberately
selected a particular method of giving notice, and that notice must be deemed
exclusive," the Court held that notice given by the vendees and not the vendor
would not toll the running of the 30-day period.
The petition before us appears to be an illustration of the Holmes dictum that "hard
cases make bad laws" as the petitioners obviously cannot argue against the fact

that there was really no written notice given by the vendors to their co-heirs. Strictly
applied and interpreted, Article 1088 can lead to only one conclusion, to wit, that in
view of such deficiency, the 30 day period for redemption had not begun to run,
much less expired in 1977.
But as has also been aptly observed, we test a law by its results; and likewise, we
may add, by its purposes. It is a cardinal rule that, in seeking the meaning of the
law, the first concern of the judge should be to discover in its provisions the in tent
of the lawmaker. Unquestionably, the law should never be interpreted in such a way
as to cause injustice as this is never within the legislative intent. An indispensable
part of that intent, in fact, for we presume the good motives of the legislature, is to
render justice.
Thus, we interpret and apply the law not independently of but in consonance with
justice. Law and justice are inseparable, and we must keep them so. To be sure,
there are some laws that, while generally valid, may seem arbitrary when applied in
a particular case because of its peculiar circumstances. In such a situation, we are
not bound, because only of our nature and functions, to apply them just the same,
in slavish obedience to their language. What we do instead is find a balance
between the word and the will, that justice may be done even as the law is obeyed.
As judges, we are not automatons. We do not and must not unfeelingly apply the
law as it is worded, yielding like robots to the literal command without regard to its
cause and consequence. "Courts are apt to err by sticking too closely to the words
of a law," so we are warned, by Justice Holmes again, "where these words import a
policy that goes beyond them." 13 While we admittedly may not legislate, we
nevertheless have the power to interpret the law in such a way as to reflect the will
of the legislature. While we may not read into the law a purpose that is not there,
we nevertheless have the right to read out of it the reason for its enactment. In
doing so, we defer not to "the letter that killeth" but to "the spirit that vivifieth," to
give effect to the law maker's will.
The spirit, rather than the letter of a statute determines its construction, hence, a
statute must be read according to its spirit or intent. For what is within the spirit is
within the letter but although it is not within the letter thereof, and that which is
within the letter but not within the spirit is not within the statute. Stated differently,
a thing which is within the intent of the lawmaker is as much within the statute as if
within the letter; and a thing which is within the letter of the statute is not within
the statute unless within the intent of the lawmakers. 14
In requiring written notice, Article 1088 seeks to ensure that the redemptioner is
properly notified of the sale and to indicate the date of such notice as the starting
time of the 30-day period of redemption. Considering the shortness of the period, it
is really necessary, as a general rule, to pinpoint the precise date it is supposed to

begin, to obviate any problem of alleged delays, sometimes consisting of only a day
or two.
The instant case presents no such problem because the right of redemption was
invoked not days but years after the sales were made in 1963 and 1964. The
complaint was filed by Tecla Padua in 1977, thirteen years after the first sale and
fourteen years after the second sale. The delay invoked by the petitioners extends
to more than a decade, assuming of course that there was a valid notice that tolled
the running of the period of redemption.
Was there a valid notice? Granting that the law requires the notice to be written,
would such notice be necessary in this case? Assuming there was a valid notice
although it was not in writing. would there be any question that the 30-day period
for redemption had expired long before the complaint was filed in 1977?
In the face of the established facts, we cannot accept the private respondents'
pretense that they were unaware of the sales made by their brother and sister in
1963 and 1964. By requiring written proof of such notice, we would be closing our
eyes to the obvious truth in favor of their palpably false claim of ignorance, thus
exalting the letter of the law over its purpose. The purpose is clear enough: to make
sure that the redemptioners are duly notified. We are satisfied that in this case the
other brothers and sisters were actually informed, although not in writing, of the
sales made in 1963 and 1964, and that such notice was sufficient.
Now, when did the 30-day period of redemption begin?
While we do not here declare that this period started from the dates of such sales in
1963 and 1964, we do say that sometime between those years and 1976, when the
first complaint for redemption was filed, the other co-heirs were actually informed of
the sale and that thereafter the 30-day period started running and ultimately
expired. This could have happened any time during the interval of thirteen years,
when none of the co-heirs made a move to redeem the properties sold. By 1977, in
other words, when Tecla Padua filed her complaint, the right of redemption had
already been extinguished because the period for its exercise had already expired.
The following doctrine is also worth noting:
While the general rule is, that to charge a party with laches in the assertion of an
alleged right it is essential that he should have knowledge of the facts upon which
he bases his claim, yet if the circumstances were such as should have induced
inquiry, and the means of ascertaining the truth were readily available upon inquiry,
but the party neglects to make it, he will be chargeable with laches, the same as if
he had known the facts. 15
It was the perfectly natural thing for the co-heirs to wonder why the spouses Alonzo,
who were not among them, should enclose a portion of the inherited lot and build

thereon a house of strong materials. This definitely was not the act of a temporary
possessor or a mere mortgagee. This certainly looked like an act of ownership. Yet,
given this unseemly situation, none of the co-heirs saw fit to object or at least
inquire, to ascertain the facts, which were readily available. It took all of thirteen
years before one of them chose to claim the right of redemption, but then it was
already too late.
We realize that in arriving at our conclusion today, we are deviating from the strict
letter of the law, which the respondent court understandably applied pursuant to
existing jurisprudence. The said court acted properly as it had no competence to
reverse the doctrines laid down by this Court in the above-cited cases. In fact, and
this should be clearly stressed, we ourselves are not abandoning the De Conejero
and Buttle doctrines. What we are doing simply is adopting an exception to the
general rule, in view of the peculiar circumstances of this case.
The co-heirs in this case were undeniably informed of the sales although no notice
in writing was given them. And there is no doubt either that the 30-day period
began and ended during the 14 years between the sales in question and the filing of
the complaint for redemption in 1977, without the co-heirs exercising their right of
redemption. These are the justifications for this exception.
More than twenty centuries ago, Justinian defined justice "as the constant and
perpetual wish to render every one his due." 16 That wish continues to motivate
this Court when it assesses the facts and the law in every case brought to it for
decision. Justice is always an essential ingredient of its decisions. Thus when the
facts warrants, we interpret the law in a way that will render justice, presuming that
it was the intention of the lawmaker, to begin with, that the law be dispensed with
justice. So we have done in this case.
WHEREFORE, the petition is granted. The decision of the respondent court is
REVERSED and that of the trial court is reinstated, without any pronouncement as to
costs. It is so ordered.
G.R. No. L-15499

February 28, 1962

ANGELA
M.
BUTTE,
vs.
MANUEL UY and SONS, INC., defendant-appellee.
Delgado,
Flores
and
Macapagal
Pelaez and Jalandoni for defendant-appellee.

plaintiff-appellant,

for

plaintiff-appellant.

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

Appeal from a decision of the Court of First instance of Manila dismissing the action
for legal redemption filed by plaintiff-appellant.

It appears that Jose V. Ramirez, during his lifetime, was a co-owner of a house and
lot located at Sta. Cruz, Manila, as shown by Transfer Certificate of Title No. 52789,
issued in the name of the following co-owners: Marie Garnier Vda. de Ramirez, 1/6;
Jose V. Ramirez, 1/6; Jose E. Ramirez, 1/6; Rita de Ramirez, 1/6; and Jose Ma.
Ramirez, 1/6.
On October 20, 1951, Jose V. Ramirez died. Subsequently, Special Proceeding No.
15026 was instituted to settle his estate, that included the one-sixth (1/6) undivided
share in the aforementioned property. And although his last will and testament,
wherein he bequeathed his estate to his children and grandchildren and one-third
(1/3) of the free portion to Mrs. Angela M. Butte, hereinafter referred to as plaintiffappellant, has been admitted to probate, the estate proceedings are still pending up
to the present on account of the claims of creditors which exceed the assets of the
deceased. The Bank of the Philippine Islands was appointed judicial administrator.
Meanwhile, on December 9, 1958, Mrs. Marie Garnier Vda. de Ramirez, one of the
co-owners of the late Jose V. Ramirez in the Sta. Cruz property, sold her undivided
1/6 share to Manuel Uy & Sons, Inc. defendant-appellant herein, for the sum of
P500,000.00. After the execution by her attorney-in-fact, Mrs. Elsa R. Chambers, of
an affidavit to the effect that formal notices of the sale had been sent to all possible
redemptioners, the deed of sale was duly registered and Transfer Certificate of Title
No. 52789 was cancelled in lieu of which a new one was issued in the name of the
vendee and the other-co-owners.
On the same day (December 9, 1958), Manuel Uy & Sons, Inc. sent a letter to the
Bank of the Philippine Islands as judicial administrator of the estate of the late Jose
V. Ramirez informing it of the above-mentioned sale. This letter, together with that
of the bank, was forwarded by the latter to Mrs. Butte c/o her counsel Delgado,
Flores & Macapagal, Escolta, Manila, and having received the same on December
10, 1958, said law office delivered them to plaintiff-appellant's son, Mr. Miguel Papa,
who in turn personally handed the letters to his mother, Mrs. Butte, on December
11 and 12, 1958. Aside from this letter of defendant-appellant, the vendor, thru her
attorney-in-fact Mrs. Chambers, wrote said bank on December 11, 1958 confirming
vendee's letter regarding the sale of her 1/6 share in the Sta. Cruz property for the
sum of P500,000.00. Said letter was received by the bank on December 15, 1958
and having endorsed it to Mrs. Butte's counsel, the latter received the same on
December 16, 1958. Appellant received the letter on December 19, 1958.
On January 15, 1959, Mrs. Angela M. Butte, thru Atty. Resplandor Sobretodo, sent a
letter and a Philippine National Bank cashier's check in the amount of P500,000.00
to Manuel Uy & Sons, Inc. offering to redeem the 1/6 share sold by Mrs. Marie
Garnier Vda. de Ramirez. This tender having been refused, plaintiff on the same day
consigned the amount in court and filed the corresponding action for legal
redemption. Without prejudice to the determination by the court of the reasonable
and fair market value of the property sold which she alleged to be grossly excessive,

plaintiff prayed for conveyance of the property, and for actual, moral and exemplary
damages.
After the filing by defendant of its answer containing a counterclaim, and plaintiff's
reply thereto, trial was held, after which the court rendered decision on May 13,
1959, dismissing plaintiff's complaint on the grounds that she has no right to
redeem the property and that, if ever she had any, she exercised the same beyond
the statutory 30-day period for legal redemptions provided by the Civil Code. The
counterclaim of defendant for damages was likewise dismissed for not being
sufficiently established. Both parties appealed directly to this Court.
Based on the foregoing facts, the main issues posed in this appeal are: (1) whether
or not plaintiff-appellant, having been bequeathed 1/3 of the free portion of the
estate of Jose V. Ramirez, can exercise the right of legal redemption over the 1/6
share sold by Mrs. Marie Garnier Vda. de Ramirez despite the presence of the
judicial administrator and pending the final distribution of her share in the testate
proceedings; and (2) whether or not she exercised the right of legal redemption
within the period prescribed by law.
The applicable law involved in the present case is contained in Articles 1620, p. 1,
and 1623 of the Civil Code of the Philippines, which read as follows:
ART. 1620. A co-owner of a thing may exercise the right of redemption in case the
shares of all the other-co-owners or of any of them, are sold to a third person. If the
price of the alienation is grossly excessive, the redemptioner shall pay only a
reasonable one.
Should two or more co-owners desire to exercise the right of redemption, they may
only do so in proportion to the share they may respectively have in the thing owned
in common. (1522a)
ART. 1623. The right of legal predemption or redemption shall not be exercised
except within thirty days from the notice in writing by the respective vendor, or by
the vendor, as the case may be. The deed of sale shall not be accorded in the
Registry of Property, unless accompanied by an affidavit of the vendor that he has
given written notice thereof at all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners. (1524a)
That the appellant Angela M. Butte is entitled to exercise the right of legal
redemption is clear. As testamentary heir of the estate of J.V. Ramirez, she and her
co-heirs acquired an interest in the undivided one-sixth (1/6) share owned by her
predecessor (causante) in the Santa Cruz property, from the moment of the death
of the aforesaid co-owner, J.V. Ramirez. By law, the rights to the succession of a
deceased persons are transmitted to his heirs from the moment of his death, and

the right of succession includes all property rights and obligations that survive the
decedent.
ART. 776. The inheritance includes all the property, rights and obligations of a
person which are not extinguished by his death. (659)
ART. 777. The rights to the succession are transmitted from the moment of the
death of the decedent. (657a)
ART. 947. The legatee or devisee acquires a right to the pure and simple legacies or
devisees from the death of the testator, and transmits it to his heirs. (881a)
The principle of transmission as of the time of the predecessor's death is basic in
our Civil Code, and is supported by other related articles. Thus, the capacity of the
heir is determined as of the time the decedent died (Art. 1034); the legitime is to be
computed as of the same moment(Art. 908), and so is the in officiousness of the
donation inter vivos (Art. 771). Similarly, the legacies of credit and remission are
valid only in the amount due and outstanding at the death of the testator (Art.
935),and the fruits accruing after that instant are deemed to pertain to the legatee
(Art. 948).
As a consequence of this fundamental rule of succession, the heirs of Jose V.
Ramirez acquired his undivided share in the Sta. Cruz property from the moment of
his death, and from that instant, they became co-owners in the aforesaid property,
together with the original surviving co-owners of their decedent (causante). A coowner of an undivided share is necessarily a co-owner of the whole. Wherefore, any
one of the Ramirez heirs, as such co-owner, became entitled to exercise the right of
legal redemption (retracto de comuneros) as soon as another co-owner (Maria
Garnier Vda. de Ramirez) had sold her undivided share to a stranger, Manuel Uy &
Sons, Inc. This right of redemption vested exclusively in consideration of the
redemptioner's share which the law nowhere takes into account.
The situation is in no wise altered by the existence of a judicial administrator of the
estate of Jose V. Ramirez while under the Rules of Court the administrator has the
right to the possession of the real and personal estate of the deceased, so far as
needed for the payment of the decedent's debts and the expenses of administration
(sec. 3, Rule 85), and the administrator may bring or defend actions for the recovery
or protection of the property or rights of the deceased (sec. 2, Rule 88), such rights
of possession and administration do not include the right of legal redemption of the
undivided share sold to Uy & Company by Mrs. Garnier Ramirez. The reason is
obvious: this right of legal redemption only came into existence when the sale to Uy
& Sons, Inc. was perfected, eight (8) years after the death of Jose V. Ramirez, and
formed no part of his estate. The redemption right vested in the heirs originally, in
their individual capacity, they did not derivatively acquire it from their decedent, for
when Jose V. Ramirez died, none of the other co-owners of the Sta. Cruz property
had as yet sold his undivided share to a stranger. Hence, there was nothing to

redeem and no right of redemption; and if the late Ramirez had no such right at his
death, he could not transmit it to his own heirs. Much less could Ramirez acquire
such right of redemption eight years after his death, when the sale to Uy & Sons,
Inc. was made; because death extinguishes civil personality, and, therefore, all
further juridical capacity to acquire or transmit rights and obligations of any kind
(Civil Code of the Phil., Art. 42).
It is argued that the actual share of appellant Mrs. Butte in the estate of Jose V.
Ramirez has not been specifically determined as yet, that it is still contingent; and
that the liquidation of estate of Jose V. Ramirez may require the alienation of the
decedent's undivided portion in the Sta. Cruz property, in which event Mrs. Butte
would have no interest in said undivided portion. Even if it were true, the fact would
remain that so long as that undivided share remains in the estate, the heirs of Jose
V. Ramirez own it, as the deceased did own it before his demise, so that his heirs are
now as much co-owners of the Sta. Cruz property as Jose V. Ramirez was himself a
co-owner thereof during his lifetime. As co-owners of the property, the heirs of Jose
V. Ramirez, or any one of them, became personally vested with right of legal
redemption as soon as Mrs. Garnier sold her own pro-indiviso interest to Uy & Sons.
Even if subsequently, the undivided share of Ramirez (and of his heirs) should
eventually be sold to satisfy the creditors of the estate, it would not destroy their
ownership of it before the sale, but would only convey or transfer it as in turn sold
(of it actually is sold) to pay his creditors. Hence, the right of any of the Ramirez
heirs to redeem the Garnier share will not be retroactively affected. All that the law
requires is that the legal redemptioner should be a co-owner at the time the
undivided share of another co-owner is sold to a stranger. Whether or not the
redemptioner will continue being a co-owner after exercising the legal redemptioner
is irrelevant for the purposes of law.
Nor it can be argued that if the original share of Ramirez is sold by the
administrator, his heirs would stand in law as never having acquired that share. This
would only be true if the inheritance is repudiated or the heir's quality as such is
voided. But where the heirship is undisputed, the purchaser of hereditary property is
not deemed to have acquired the title directly from the deceased Ramirez, because
a dead man can not convey title, nor from the administrator who owns no part of
the estate; the purchaser can only derive his title from the Ramirez heirs,
represented by the administrator, as their trustee or legal representative.
The right of appellant Angela M. Butte to make the redemption being established,
the next point of inquiry is whether she had made or tendered the redemption price
within the 30 days from notices as prescribed by law. This period, be it noted, is
peremptory, because the policy of the law is not to leave the purchaser's title in
uncertainty beyond the established 30-day period. In considering whether or not the
offer to redeem was timely, we think that the notice given by the vendee (buyer)
should not be taken into account. The text of Article 1623 clearly and expressly
prescribes that the thirty days for making the redemption are to be counted from

notice in writing by the vendor. Under the old law (Civ. Code of 1889, Art. 1524), it
was immaterial who gave the notice; so long as the redeeming co-owner learned of
the alienation in favor of the stranger, the redemption period began to run. It is thus
apparent that the Philippine legislature in Article 1623 deliberately selected a
particular method of giving notice, and that method must be deemed exclusive (39
Am. Jur., 237; Payne vs. State, 12 S.W. [2d] 528). As ruled in Wampler vs. Lecompte,
150 Atl. 458 (affd. in 75 Law Ed. [U.S.] 275)
Why these provisions were inserted in the statute we are not informed, but we may
assume until the contrary is shown, that a state of facts in respect thereto existed,
which warranted the legislature in so legislating.
The reasons for requiring that the notice should be given by the seller, and not by
the buyer, are easily divined. The seller of an undivided interest is in the best
position to know who are his co-owners that under the law must be notified of the
sale. Also, the notice by the seller removes all doubts as to the fact of the sale, its
perfection; and its validity, the notice being a reaffirmation thereof, so that the
party need not entertain doubt that the seller may still contest the alienation. This
assurance would not exist if the notice should be given by the buyer.
The notice which became operative is that given by Mrs. Chambers, in her capacity
as attorney-in-fact of the vendor Marie Garnier Vda. de Ramirez. Under date of
December 11, 1958, she wrote the Administrator Bank of the Philippine Islands that
her principal's one-sixth (1/6) share in the Sta. Cruz property had been sold to
Manuel Uy & Sons, Inc. for P500,000.00. The Bank received this notice on December
15, 1958, and on the same day endorsed it to Mrs. Butte, care of Delgado, Flores
and Macapagal (her attorneys), who received the same on December 16, 1958. Mrs.
Butte tendered redemption and upon the vendee's refusal, judicially consigned the
price of P500,000.00 on January 15, 1959. The latter date was the last one of the
thirty days allowed by the Code for the redemption, counted by excluding
December 16, 1958 and including January 15, 1959, pursuant to Article 13 of the
Civil Code. Therefore, the redemption was made in due time.
The date of receipt of the vendor's notice by the Administrator Bank (December 15)
can not be counted as determining the start of thirty days; for the Administrator of
the estate was not a proper redemptioner, since, as previously shown, the right to
redeem the share of Marie Garnier did not form part of the estate of Jose V. Ramirez.
We find no jurisdiction for appellant's claim that the P500,000,00. paid by Uy &
Sons, Inc. for the Garnier share is grossly excessive. Gross excess cannot be
predicated on mere individual estimates of market price by a single realtor.
The redemption and consignation having been properly made, the Uy counterclaim
for damages and attorney's fees predicated on the assumption that plaintiff's action
was clearly unfounded, becomes untenable.

PREMISES CONSIDERED, the judgment appealed from is hereby reversed and set
aside, and another one entered:
(a) Declaring the consignation of P500,000,00 made by appellant Angela M. Butte
duly and properly made;
(b) Declaring that said appellant properly exercised in due time the legal
redemption of the one-sixth (1/6) undivided portion of the land covered by
Certificate of Title No. 59363 of the Office of the Register of Deeds of the City of
Manila, sold on December 9, 1958 by Marie Garnier Vda. de Ramirez to appellant
Manuel Uy & Sons, Inc.
(c) Ordering appellant Manuel Uy & Sons, Inc. to accept the consigned price and to
convey to Angela M. Butte the undivided portion above referred to, within 30 days
from the time our decision becomes final, and subsequently to account for the
rentals and fruits of the redeemed share from and after January 15, 1958, until its
conveyance; and.
(d) Ordering the return of the records to the court of origin for further proceedings
conformable to this opinion.
Without finding as to costs.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera and Dizon, JJ.,
concur.
Paredes and De Leon, JJ., took no part.

G.R. No. L-21812

April 29, 1966

PAZ TORRES DE CONEJERO and ENRIQUE CONEJERO, petitioners,

vs.
COURT OF APPEALS, VISITACION A. DE RAFFIAN and ENRIQUE TORRES,
respondents.
Recto Law Offices for petitioners.
Quintin Paredes and Nicolas Belmonte for respondents.
REYES, J.B.L., J.:
Petitioners, spouses Paz Torres and Enrique Conejero, petitioned for the review and setting aside
a decision rendered by the Court of Appeals, in its Case CA-G.R. No. 19634-R, dismissing their
action to compel respondents Miguel Raffian and his wife, Visitacion A. de Raffian, to permit
redemption of an undivided half interest in a property in Cebu City which had been sold to said
respondents by their co-respondent, Enrique Torres, brother and co-owner of petitioner Paz
Torres de Conejero.

Shorn of unessentials, the facts found by the Court of Appeals, in its decision under review, are
that Paz Torres and Enrique Torres were co-owners pro indiviso of a lot and building in Cebu
City, covered by Transfer Certificate of Title No. 197-A1230 (T-3827), that both had inherited
from their deceased parents. As of September 15, 1949, Enrique Torres sold his half interest to
the Raffian spouses for P13,000, with right to repurchase within one year. Subsequent advances
by the vendees a retro increased their claims against Enrique Torres, and finally, on April 3, 1951
(six months after the expiration of the right to repurchase), said Enrique executed a deed of
absolute sale of the same half interest in the property in favor of the Raffians for P28,000. This
deed of absolute sale (Exhibit "3-A") had not been brought to the attention of Enrique's sister and
co-owner, Paz Torres de Conejero, nor of her husband, until August 19, 1952, when Enrique
Torres showed his brother-in-law, Enrique Conejero1, a copy of the deed of absolute sale (Exhibit
"C") of his share of the property in favor of the Raffians. Conejero forthwith went to the buyers,
offering to redeem his brother-in-law's share, which offer he latter raised to P29,000.00 and
afterwards to P34,000.
Amicable settlement not having been attained, the Conejeros filed, on October 4, 1952, a
complaint in the Court of First Instance of Cebu, seeking to be declared entitled to redeem the
half interest of Enrique Torres; to which the Raffians made answer, claiming absolute title to the
property in dispute and pleading that plaintiffs lost their right of redemption because they failed
to exercise it within the statutory period.
The court of first instance found the deed of sale to be an equitable mortgage, and declared the
plaintiffs Conejero entitled to redeem Enrique's half interest for P34,000. Upon appeal by the
defendants, the Court of Appeals reversed the decision of the court of first instance, found that
the deed in favor of the Raffians was a true sale, and declared as follows:
The pertinent provision of the law reads:
"The right of legal re-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective vendor, or by the vendor,
as the case may be. The deed of sale shall not be recorded in the Registry of
Property, unless accompanied by an affidavit of the vendor that he has given
written notice thereof to all possible redemptioners.
"The right of redemption of co-owners excludes that of adjoining owners" (Art.
1623).
Appellants claim appellees denying that a written notice of the sale had been sent to the
latter. We will concede that the evidence does not sufficiently show that a written notice was in
fact given to the appellees; but this point is not decisive for the reason that ultimately, according
to appellees, themselves, they came to know of the sale on August 19, 1952, on which date they

immediately made an offer to redeem the property. Appellees argue that their offer to redeem the
property on the first day they came to know of the sale on August 19, 1952, and subsequently on
September 7 and 8, 1952, has preserved their right of legal redemption as the 30-day period
provided for by law had not lapsed. On the other hand, the appellants claim that as early as April
3, 1951, the date of the absolute sale of the property by Enrique Torres in favor of the Raffians,
the appellees already know of the sale, so that when the offer to redeem was made on August 19,
1952, the 30-day period provided by law had already lapsed. Taken together, all the
circumstances we find in the case indeed will guide us into forming the conclusion that while
appellees might not have received a written notice they could not have failed to have actual and
personal knowledge of the sale much earlier than August 19, 1952. But in view of our opinion
directed at another phase of the question involved, we will not rule on their respective claims as
to whether or not there was notice within the 30-day period. To us, this point is inconsequential.
Under the circumstances, what is more substantial and decisive is was there a valid and
effective offer to redeem? The law grants unto the co-owner of a property the right of
redemption. But in so granting that right, the law intended that the offer must be valid and
effective, accompanied by an actual tender of an acceptable redemption price. In the case at bar,
the evidence shows that the appellees had offered only P10,000.00 in check with which to
redeem the property with a promise to pay the balance by means of a loan which they would
apply for and obtain from the bank. We hold that the offer was not in pursuance of a legal and
effective exercise of the right of redemption as contemplated by law; hence, refusal of the offer
on the part of the appellants is justified. The conditions precedent for the valid exercise of the
right do not exist.
We are now asked by petitioners Conejero to reverse and set aside the foregoing decision of the
Court of Appeals, on the basis of two propositions advanced by them, to wit: (a) that no written
notice of the sale to the Raffians having been given by Enrique Torres to his sister and coowner, Paz T. de Conejero, the latter's light to exercise legal redemption has not expired, in fact,
it has not even started to run; and (b) that in legal redemption no tender of the redemption price
is required, mere demand to allow redemption being sufficient to preserve the redemptioner's
right.
With regard to the written notice, we agree with petitioners that such notice is indispensable, and
that, in view of the terms in which Article of the Philippine Civil Code is couched, mere
knowledge of the sale, acquired in some other manner by the redemptioner, does not satisfy the
statute. The written notice was obviously exacted by the Code to remove all uncertainty as to the
sale, its terms and its validity, and to quiet any doubts that the alienation is not definitive. The
statute not having provided for any alternative, the method of notification prescribed remains
exclusive.

Upon the other hand, Article 1623 does not prescribe any particular form of notice, nor any
distinctive method for notifying the redemptioner. So long, therefore, as the latter is informed in
writing of the sale and the particulars thereof, the 30 days for redemption start running, and the
redemptioner has no real cause to complain. In the case at bar, the redemptioners (now
petitioners) admit that on August 19, 1952 the co-owner-vendor, Enrique Torres, showed and
gave Enrique Conejero (who was acting for and on behalf of his wife, Paz Torres) a copy of the
1951 deed of sale in favor of respondents Raffian. The furnishing of this copy was equivalent to
the giving of written notice required by law: it came from the vendor and made available in
writing the details and finality of the sale. In fact, as argued for the respondents at bar, it served
all the purposes of the written notice, in a more authentic manner than any other writing could
have done. As a necessary consequence, the 30-day period for the legal redemption by co-owner
Paz Torres (retracto de comuneros) began to run its coursed from and after August 19, 1952,
ending on September 18, of the same year.
The next query is: did petitioners effectuate all the steps required for the redemption? We agree
with the Court of Appeals that they did not, for they failed to make a valid tender of the price of
the sale paid by the Raffians within the period fixed by law. Conejero merely offered a check
for P10,000, which was not even legal tender and which the Raffians rejected, in lieu of the
price of P28,000 recited by the deed of sale. The factual finding of the Court of Appeals to this
effect is final and conclusive. Nor were the vendees obligated to accept Conejero's promise to
pay the balance by means of a loan to be obtained in future from a bank. Bona fide redemption
necessarily imports a seasonable and valid tender of the entire repurchase price, and this was not
done. There is no cogent reason for requiring the vendee to accept payment by installments from
a redemptioner, as it would ultimately result in an indefinite extension of the 30-day redemption
period, when the purpose of the law in fixing a short and definite term is clearly to avoid
prolonged and anti-economic uncertainty as to ownership of the thing sold (Cf. Torrijos vs.
Crisologo, et al., G.R. No. L-1773, Sept. 29, 1962).
Petitioners Conejero urge that, under the provisions of the Civil Code of the Philippines, a valid
tender of the redemption (or repurchase) price is not required, citing De la Cruz vs. Marcelino,
84 Phil. 709, and Torio vs. Rosario, 93 Phil. 800. Close scrutiny of these cases reveals that the
Supreme Court held therein that a judicial demand, by action filed within the redemption period
and accompanied by consignation in Court of the redemption price, can take the place of a
personal tender to the vendee of the redemption money under the Civil Code of 1889, because
the nine-day redemption period allowed thereunder was so short as to render it impractical that in
every case the redemptioner should be required to seek out and offer the redemption price
personally to the buyer. Under the present Civil Code, the urgency is greatly lessened by the
prolongation of the redemption period to 30 days, instead of the 9 previously allowed; and the
petitioners herein have neither filed suit within the 30-day redemption period nor made
consignation of the price. While they received copy of the deed of sale on August 19, 1952,
complaint was only filed on October 4, 1952.

It is, likewise, argued that tender of the price is excused because Article 1620 of the new Civil
Code allows the redemptioner to pay only a reasonable price if the price of alienation is grossly
excessive, and that the reasonableness of the price to be paid can only be determined by the
courts. We think that the right of a redemptioner to pay a reasonable price under Article 1620
does not excuse him from the duty to make proper tender of the price that can be honestly
deemed reasonable under the circumstances, without prejudice to final arbitration by the courts;
nor does it authorize said redemptioner to demand that the vendee accept payment by
installments, as petitioners have sought to do. At any rate, the petitioners, in making their offer to
redeem, never contested the reasonableness of the price recited in the deed of sale. In fact, they
even offered more, and were willing to pay as much as P34,000.
It is not difficult to discern why the redemption price should either be fully offered in legal
tender or else validly consigned in court. Only by such means can the buyer become certain that
the offer to redeem is one made seriously and in good faith. A buyer can not be expected to
entertain an offer of redemption without attendant evidence that the redemptioner can, and is
willing to accomplish the repurchase immediately. A different rule would leave the buyer open to
harassment by speculators or crackpots, as well as to unnecessary prolongation of the redemption
period, contrary to the policy of the law. While consignation of the tendered price is not always
necessary because legal redemption is not made to discharge a pre-existing debt (Asturias Sugar
Central vs. Cane Molasses Co., 60 Phil. 253), a valid tender is indispensable, for the reasons
already stated. Of course, consignation of the price would remove all controversy as to the
redemptioner's ability to pay at the proper time.1wph1.t
We find no substantial error in the decision appealed from, and the same is hereby affirmed.
Petitioners Conejero shall pay the costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Barrera, Dizon, Regala, Makalintal, Bengzon, J.P.,
Zaldivar and Sanchez, JJ., concur.
RESOLUTION
June 30, 1966.
REYES, J.B.L., J.:
Petitioners, Paz Torres and Enrique Conejero, by motion of June 4, 1966, have asked this Court
to reconsider and set aside its decision April 29, 1966, upon various grounds.
1. It is argued that this Court committed error in that it "considered the 30-day period provided
for in Article 1623 of the new Civil Code" as a period of prescription. This assertion is gratuitous
and unfounded. Nowhere in its decision has this court expressed or implied that the loss of

petitioners' right of redemption was due to the bar of the Statute of Limitation, or that it was a
result of their failure to commence action within the 30-day periods. If on page 7 of the main
decision reference was made to petitioners' failure to file action it was merely to show that,
unlike in the case cited by them. (Cruz vs. Marcelino, 84 PHIL. 709; Torio vs. Rosario, 93 Phil.
800), they has failed to take the action therein considered as equivalent to the timely tender of the
entire redemption price. This is readily apparent form a reading of paragraph 2 in said page 7 of
the decision.
What was repeatedly asserted and ruled in our main decision is that the petitioners' right of
redemption was lost because they failed to make a valid tender of the entire redemption money
within the period allotted by law; hence, the invoked doctrine in Sempio vs. Del Rosario, 44 Phil.
1, while correct law, is totally inapplicable. A decent regard for the Court on the part of counsel
requires that the latter should not attempt to distort this Court's rulings.
2. While the co-owner's right of legal redemption (retracto legal de comuneras) is a substantial
right, it is exceptional in nature, limited in its duration and subject to strict compliance with the
legal requirements. One of theses is that the redemptioner should tender payment of the
redemption money within 30 days from written notice of the sale by the co-owner, and, as we
have ruled, the buyer of the co-owner's share can not be compelled, nor is he obligated, to accept
payment in installments. Otherwise, the 30-day limitation fixed by law for the exercise of the
right to redeem would be nullified, or be indefinitely evaded. If a partial payment can bind the
purchaser, by what rule can the payment of the balance be determined?
3. Whether or not the petitioners exercised diligence in asserting their willingness to pay is
irrelevant. Redemption by the co-owners of the vendor within 30 days is not a matter of intent,
but is effectuated only by payment, or valid tender, of the price within said period. How the
redemptioners raise the money is immaterial; timeliness and completeness of payment or tender
are the things that matter.
4. The offer of the redemption price is not bona fide where it is shown that the offerer
could not have made payment in due time if the offer had been accepted. Note that the
co-owner's right to redeem, being granted by law, is binding on the purchaser of the
undivided share by operation of law, and the latter's consent or acceptance is not required
for the existence of the right of redemption. The only matter to be investigated by the
courts, therefore, is the timely of the right, and the only way to exercise it is by a valid
payment or tender within the 30 days prefixed by the Civil Code.
Wherefore, the motion for reconsideration is denied..
Concepcion, C.J., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez,
JJ., concur.

G.R. No. L-45349 August 15, 1988

NEWTON
JISON
and
SALVACION
I.
JOSUE
petitioners,
vs.
COURT OF APPEALS and ROBERT 0. PHILLIPS & SONS, INC., respondents.
Ledesma, Saludo & Associates for petitioners.
Domicador L. Reyes and Magtanggol C. Gunigundo for respondents.

CORTES, J.:
The instant petition for review of the decision of the Court of Appeals poses the
issue of the validity of the rescission of a contract to sell a subdivision lot due to the
failure of the lot buyer to pay monthly installments on their due dates and the
forfeiture of the amounts already paid.
The case is not one of first impression, and neither is it exceptional. On the
contrary, it unambiguous. the common plight of countless subdivision lot buyers.
Petitioners, the spouses Newton and Salvacion Jison, entered into a Contract to Sell
with private respondent, Robert O. Phillips & Sons, Inc., whereby the latter agreed to
sell to the former a lot at the Victoria Valley Subdivision in Antipolo, Rizal for the
agreed price of P55,000.00, with interest at 8,1965 per annum, payable on an
installment basis.
Pursuant to the contract, petitioners paid private respondents a down payment of
P11,000.00 on October 20, 1961 and from October 27, 1961; to May 8, 1965 a
monthly installment of P533.85.
Thereafter, due to the failure of petitioners to build a house as provided in the
contract, the stipulated penalty of P5.00 per square meter was imposed to the
effect that the monthly amortization was increased to P707.24.
On January 1, 1966, February 1, 1966 and March 1, 1966, petitioners failed to pay
the monthly installments due on said dates although petitioners subsequently paid
the amounts due and these were accepted by private respondent.
Again on October 1, 1966, November 1, 1966, December 1, 1966 and January 1,
1967, petitioners failed to pay. On January 11, 1967, private respondent sent a letter
(Exh. "3") to petitioners calling their attention to the fact that their account was four
months overdue. This letter was followed up by another letter dated February 27,
1967 (Exh. "3") where private respondent reminded petitioner of the automatic
rescission clause of the contract. Petitioners eventually paid on March 1, 1967.

Petitioners again failed to pay the monthly installments due on February 1, 1967,
March 1, 1967 and April 1, 1967. Thus, in a letter dated April 6, 1967 (Exh. "D"),
private respondent returned petitioners' check and informed them that the contract
was cancelled when on April 1, 1987 petitioners failed to pay the monthly
installment due, thereby making their account delinquent for three months.
On April 19, 1967, petitioners tendered payment for all the installments already due
but the tender was refused. Thus, petitioners countered by filing a complaint for
specific performance with the Court of First Instance of Rizal on May 4, 1967 and
consigning the monthly installments due with the court.
Following the hearing of the case, wherein the parties entered into a stipulation of
facts, the trial court on January 9, 1969 rendered judgment in favor of private
respondent, dismissing the complaint and declaring the contract cancelled and all
payments already made by petitioner franchise. ordering petitioners to pay
P1,000.00 as and for attorney's fees; and declaring the consignation and tender of
payment made by petitioners as not amounting to payment of the corresponding
monthly installments.
Not satisfied with the decision of the trial court, petitioners appealed to the Court of
Appeals. Agreeing with the findings and conclusions of the trial court, the Court of
Appeals on November 4, 1976 affirmed the former's decision.
Thus, the instant petition for review.
In assailing the decision of the Court of Appeals, petitioners attributed the following
errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS
HAVE SUBSTANTIALLY, COMPLIED WITH THE TERMS OF THEIR AGREEMENT WITH
PRIVATE RESPONDENTS.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE CONTRACT TO
SELL MAY BE AUTOMATICALLY RESCINDED AND PRIVATE RESPONDENT MAY
UNILATERALLY RESCINDED SAID CONTRACT AND REJECT THE CONSIGNATION OF
PAYMENTS MADE BY PETITIONERS, WHICH ACTIONS OF PRIVATE RESPONDENT ARE
HIGHLY INIQUITOUS AND UNCONSCIONABLE.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE
RESPONDENT'S ACT OF FORFEITING ALL PREVIOUS PAYMENTS MADE BY

PETITIONERS IS CONTRARY TO LAW, HIGHLY INIQUITOUS AND UNCONSCIONABLE.

[Petitioners' Brief, pp. 13-27.]
As stated at the outset, the principal issue in this case is the legality of the
rescission of the contract and the forfeiture of the payments already made by
petitioners.
To support the rescission and forfeiture private respondent falls back on paragraph 3
of the contract which reads:
This contract shall be considered automatically rescinded and cancelled and of no
further force and effect, upon the failure of the Vendee to pay when due Three (3) or
more consecutive monthly installments mentioned in Paragraph 2 of this Contract,
or to comply with any of the terms and conditions hereof, in which case the Vendor
shall have the right to resell the said parcel of land to any Vendee and any amount
derived from the sale on account hereof shall be forfeited in favor of the Vendor as
liquidated damages for the breach of the Contract by the Vendee, the latter hereby
renouncing and reconveying absolutely and forever in favor of the Vendor all rights
and claims to and for all the amount paid by the Vendee on account of the Contract,
as well as to and for all compensation of any kind, hereby also agreeing in this
connection, to forthwith vacate the said property or properties peacefully without
further advise of any kind.
Since the contract was executed and cancelled prior to the effectivity of Republic
Act No. 65856, (the Realty Installment Buyers', Protection Act) and Presidential
Decree No. 957 (the Subdivision and Condominium Buyers' Protective Decree), it
becomes necessary to resort to jurisprudence and the general provisions of law to
resolve the controversy.
The decision in the recent case of Palay, Inc. v. Clave [G.R. No. L-56076, September
21, 1983, 124 SCRA 7,1969, factions the resolution of the controversy. In deciding
whether the rescission of the contract to sell a subdivision lot after the lot buyer has
failed to pay several installments was valid, the Court said:
Well settled is the rule, as held in previous k.- [Torralba v. De los Angeles, 96 SCRA
69, Luzon Brokerage Co., Inc. v. Maritime Building Co., 43 SCRA 93 and 86 SCRA
305; Lopez v. Commissioner of Customs, 37 SCRA 327; U.P. v. De los Angeles, 35
SCRA 102; Ponce Enrile v. CA, 29 SCRA 504; Froilan v. Pan Oriental Shipping Co., 12
SCRA 276; Taylor v. Uy Tieng Piao; 43 Phil. 896, that judicial action for the rescission
of a contract is not necessary where the contract provides that it may be cancelled
for violation of any of its terms and conditions. However, even in the cited cases,
there was at least a written notice sent to the degeneration, informing him of the
rescission. As stressed in University of the Philippines v. Walfrido de los Angeles [35
SCRA 102] the act of a party in treating a contract as cancelled should be made
known to the other....

xxx xxx xxx

In other words, resolution of reciprocal contracts may be made extrajudicially unless
successfully impugned in Court. If the debtor impugns the declaration it shall be
subject to judicial determination.
In this case, private respondent has denied that rescission is justified and has
resorted to judicial action. It is now for the Court to determine whether resolution of
the contract by petitioner was warranted.
We hold that resolution by petitioners of the contract was ineffective and
inoperative against private respondent for lack of notice of resolution, as held in the
U.P. v. Angeles case, supra.
xxx xxx xxx
The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 65856, entitled "An Act to Provide Protection to
Buyers of Real Estate on Installment Payments." which took effect on September 1415). when it specifically provided:
Sec. 3 (b) ... the actual cataract, of the contract shall take place thirty days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash surrender value to the
buyer.
There is no denying that in the instant case the resolution or rescission of the
Contract to Sell was valid. Neither can it be said that the cancellation of the contract
was ineffective for failure of private respondents to give petitioners notice thereof
as petitioners were informed cancelled private respondent that the contract was
cancelled in the letter dated April 6, 1967 (Exh. "D"). As R.A. No. 65856, was not yet
effective, the notice of cancellation need not be by notarial act, private
respondent's letter being sufficient compliance with the legal requirement.
The facts of 'fee instant case should be distinguished from those in the Palay Inc.
case, as such distinction will explain why the Court in said case invalidated the
resolution of the contract. In said case, the subdivision developer, without informing
the buyer of the cancellation of the contract, resold the lot to another person. The
lot buyer in said case was only informed of the resolution of the contract some six
years later after the developer, rejected his request for authority to assign his rights
under the contract. Such a situation does not obtain illness: the instant case. In fact,
petitioners were informed of the cancellation of their contract in April 1967, when
private respondent wrote them the letter dated April 6, 1967 (Exh. "D"), and within
a month they were able to file a complaint against Private respondent.
While the resolution of the contract and the forfeiture of the amounts already paid
are valid and binding upon petitioners, the Court is convinced that the forfeiture of

the amount of P5.00 although it includes the accumulated fines for petitioners'
failure to construct a house as required by the contract, is clearly iniquitous
considering that the contract price is only P6,173.15 The forfeiture of fifty percent
(50%) of the amount already paid, or P3,283.75 appears to be a fair settlement. In
arriving at this amount the Court gives weight to the fact that although petitioners
have been delinquent in paying their amortizations several times to the prejudice of
private respondent, with the cancellation of the contract the possession of the lot
review.... to private respondent who is free to resell it to another party. Also, had
R.A. No. 65856, been applicable to the instant case, the same percentage of the
amount already paid would have been forfeited [Torralba 3(b).]
The Court's decision to reduce the amount forfeited finds support in the Civil Code.
As stated in paragraph 3 of the contract, in case the contract is cancelled, the
amounts already paid shall be forfeited in favor of the vendor as liquidated
damages. The Code provides that liquidated damages, whether intended as an
indemnity or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable [Art. 2227.]
Further, in obligations with a penal clause, the judge shall equitably reduce the
penalty when the principal obligation has been partly or irregularly complied with by
the debtor [Art. 1229; Hodges v. Javellana, G.R. No. L-17247, April 28, 1962, 4 SCRA
1228]. In this connection, the Court said:
It follows that, in any case wherein there has been a partial or irregular compliance
with the provisions in a contract for special indemnification in the event of failure to
comply with its terms, courts will rigidly apply the doctrine of strict construction and
against the enforcement in its entirety of the industry.' where it is clear from the
terms of the contract that the amount or character of the indemnity is fixed without
regard to the probable damages which might be anticipated as a result of a breach
of the terms of the contract; or, in other words, where the indemnity provided for is
essentially a mere penalty having for its principal object the enforcement of
compliance with the corporations; (Laureano v. Kilayco, 32 Phil. 194 (1943).
This principle was reiterated in Makati Development Corp. v. Empire Insurance Co.
[G.R. No. L-21780, June 30, 1967, 20 SCRA 557] where the Court affirmed the
judgment of the Court of First Instance reducing the subdivision lot buyer's liability
from the stipulated P12,000.00 to Plaintiffs after finding that he had partially
performed his obligation to complete at least fifty percent (50%) of his house within
two (2) years from March 31, 1961, fifty percent (50%) of the house having been
completed by the end of April 1961.
WHEREFORE, the Decision of the Court of Appeals is hereby MODIFIED as to the
amount forfeited which is reduced to fifty percent (50%) of the amount already paid
or P23,656.32 and AFFIRMED as to all other respects.

Private respondent is ordered to refund to petitioners the excess of P23,656.32

within thirty (30) days from the date of finality of this judgment.
SO ORDERED.

G.R. No. 167680

November 30, 2006

SAMUEL PARILLA, CHINITA PARILLA and DEODATO PARILLA, Petitioners,

vs.
DR. PROSPERO PILAR, Respondent.
DECISION
CARPIO MORALES, J.:
Assailed via Petition for Review on Certiorari is the Court of Appeals Decision1 of January 19,
2005 reversing that of the Regional Trial Court (RTC) of Vigan City, Branch 202 which affirmed
the Decision3 of February 3, 2003 of the Municipal Trial Court (MTC) of Bantay, Ilocos Sur.
Petitioner-spouses Samuel and Chinita Parilla and their co-petitioner-son Deodato Parilla, as
dealers4 of Pilipinas Shell Petroleum Corporation (Pilipinas Shell), have been in possession of a
parcel of land (the property) located at the poblacion of Bantay, Ilocos Sur which was leased to it
by respondent Dr. Prospero Pilar under a 10-year Lease Agreement5 entered into in 1990.
When the lease contract between Pilipinas Shell and respondent expired in 2000, petitioners
remained in possession of the property on which they built improvements consisting of a billiard
hall and a restaurant, maintained a sari-sari store managed by Leonardo Dagdag, Josefina
Dagdag and Edwin Pugal, and allowed Flor Pelayo, Freddie Bringas and Edwin Pugal to use a
portion thereof as parking lot.6
Despite demands to vacate, petitioners7 and the other occupants8 remained in the property.
Hence, respondent who has been residing in the United States,9 through his attorney-in-fact
Marivic Paz Padre, filed on February 4, 2002 a complaint for ejectment before the Bantay MTC
with prayer for the issuance of a writ of preliminary injunction with damages10 against petitioners
and the other occupants of the property.
After trial, the MTC, by Decision of February 3, 2003, ordered herein petitioners and their codefendants and all persons claiming rights under them to vacate the property and to pay the
plaintiff-herein respondent the amount of P50,000.00 as reasonable compensation for the use of
the property and P10,000.00 as attorneys fees and to pay the cost of suit. And it ordered the
plaintiff-herein respondent to reimburse defendants Samuel Parilla, Chinita Parilla and Deodato

Parilla the amount of Two Million Pesos (P2,000,000.00) representing the value of the
improvements introduced on the property.
Respondent appealed to the RTC of Vigan City that portion of the trial courts decision ordering
him to reimburse petitioners the amount of Two Million Pesos. The RTC affirmed the MTC
Decision, however.11
On respondents petition for review, the Court of Appeals set aside the questioned order for
respondent to reimburse petitioners Two Million Pesos.12 In setting aside the questioned order,
the appellate court, applying Article 546 of the New Civil Code which provides:
ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in
good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding the
amount of the expenses or of paying the increase in value which the thing may have acquired by
reason thereof[,]
held that "[herein petitioners] tolerated occupancy . . . could not be interpreted to mean . . . that
they are builders or possessors in good faith"13 and that for one to be a builder in good faith, it is
assumed that he claims title to the property which is not the case of petitioners.
Hence, the present petition which faults the appellate court to have erred
I
. . . WHEN IT SET ASIDE THE DECISIONS OF THE TRIAL COURTS WHICH
ORDERED THE RESPONDENT TO REIMBURSE PETITIONERS THE AMOUNT
OF TWO MILLION (P2,000,000.00) PESOS FOR THE SUBSTANTIAL
IMPROVEMENTS INTRODUCED BY THEM ON THE SUBJECT PREMISES.
II
. . . IN NOT HOLDING THAT PETITIONERS ARE BUILDERS IN GOOD FAITH OF
THE SUBSTANTIAL IMPROVEMENTS THEY HAD INTRODUCED ON THE
PREMISES, HENCE, THEY ARE ENTITLED TO REIMBURSEMENT OF SUCH
IMPROVEMENTS.
III

. . . IN NOT HOLDING THAT THE BUILDING WHICH PETITIONERS ERECTED

ON THE PREMISES WAS WORTH, AND THAT THE PETITIONERS ACTUALLY
SPENT, THE AMOUNT OF TWO MILLION (P2,000,000.00) PESOS.
IV
. . . IN NOT HOLDING THAT PETITIONERS HAVE THE RIGHT OF RETENTION
OF THE PREMISES UNTIL THEY ARE REIMBURSED OF THE SAID AMOUNT
ADJUDGED IN THEIR FAVOR BY THE COURTS A QUO.14
Petitioners, proffering that neither respondent nor his agents or representatives performed any act
to prevent them from introducing the improvements,15 contend that the appellate court should
have applied Article 453 of the New Civil Code which provides that "[i]f there was bad faith not
only on the part of the person who built, planted or sowed on the land of another, but also on the
part of the owner of such land, the rights of one and the other shall be the same as though both
had acted in good faith."16
Petitioners thus conclude that being builders in good faith, until they are reimbursed of the Two
Million Peso-value of the improvements they had introduced on the property, they have the right
of retention or occupancy thereof pursuant to Article 448, in relation to Article 546, of the New
Civil Code,17 otherwise, respondent would be unjustly enriched at their expense.
The petition fails in light of the following discussions.
The evidence shows that in 1960, a lease contract over the property was forged between Shell
Company of the Philippines Limited and respondents predecessors-in-interest. In 1990, the lease
contract was renewed by Pilipinas Shell and respondent.
Petitioners, being dealers of Pilipinas Shells petroleum products, were allowed to occupy the
property. Petitioners are thus considered agents18 of Pilipinas Shell. The factual milieu of the
instant case calls then for the application of the provisions on lease under the New Civil Code.
The right of the lessor upon the termination of a lease contract with respect to useful
improvements introduced on the leased property by a lessee is covered by Article 1678 which
reads:
Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use
for which the lease is intended, without altering the form or substance of the property leased, the
lessor upon the termination of the lease shall pay the lessee one-half of the value of the
improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may
remove the improvements, even though the principal thing may suffer damage thereby. He shall
not, however, cause any more impairment upon the property leased than is necessary.

x x x x (Emphasis supplied)
The foregoing provision is a modification of the old Code under which the lessee had no right at
all to be reimbursed for the improvements introduced on the leased property, he being entitled
merely to the rights of a usufructuary right of removal and set-off, but not of reimbursement.19
The modification introduced in the above-quoted paragraph of Article 1678 on partial
reimbursement was intended to prevent unjust enrichment of the lessor which now has to pay
one-half of the value of the improvements at the time the lease terminates because the lessee has
already enjoyed the same, whereas the lessor could enjoy them indefinitely thereafter.20
As the law on lease under the New Civil Code has specific rules concerning useful
improvements introduced by a lessee on the property leased, it is erroneous on the part of
petitioners to urge this Court to apply Article 448, in relation to Article 546, regarding their claim
for reimbursement and to invoke the right of retention before reimbursement is made. Article 448
and Article 546 read:
ART. 448. The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after payment
of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to
pay the price of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than that of the
building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after proper indemnity. The parties shall agree upon
the terms of the lease and in case of disagreement, the court shall fix the terms thereof.
ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in
good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding the
amount of the expenses or of paying the increase in value which the thing may have acquired by
reason thereof.
Jurisprudence is replete with cases21 which categorically declare that Article 448 covers only
cases in which the builders, sowers or planters believe themselves to be owners of the land or, at
least, have a claim of title thereto, but not when the interest is merely
that of a holder, such as a mere tenant, agent or usufructuary. A tenant cannot be said to be a
builder in good faith as he has no pretension to be owner.22

In a plethora of cases,23 this Court has held that Articles 448 of the Civil Code, in relation to
Article 546 of the same Code, which allows full reimbursement of useful improvements and
retention of the premises until reimbursement is made, applies only to a possessor in good faith,
i.e., one who builds on land with the belief that he is the owner thereof. It does not apply where
ones only interest is that of a lessee under a rental contract; otherwise, it would always be in the
power of the tenant to "improve" his landlord out of his property. 24 (Underscoring supplied)
Sia v. Court of Appeals,25 which cites Cabangis v. Court of Appeals,26 exhaustively explains the
applicability of Article 1678 on disputes relating to useful improvements introduced by a lessee
on leased premises, viz:
xxxx
Second. Petitioner stubbornly insists that he may not be ejected from private respondent's land
because he has the right, under Articles 448 and 546 of the New Civil Code, to retain possession
of the leased premises until he is paid the full fair market value of the building constructed
thereon by his parents. Petitioner is wrong, of course. The Regional Trial Court and the Court of
Appeals correctly held that it is Article 1678 of the New Civil Code that governs petitioner's
right vis-a-vis the improvements built by his parents on private respondent's land.
In the 1991 case of Cabangis v. Court of Appeals where the subject of the lease contract was also
a parcel of land and the lessee's father constructed a family residential house thereon, and the
lessee subsequently demanded indemnity for the improvements built on the lessor's land based
on Articles 448 and 546 of the New Civil Code, we pointed out that reliance on said legal
provisions was misplaced.
"The reliance by the respondent Court of Appeals on Articles 448 and 546 of the Civil Code of
the Philippines is misplaced. These provisions have no application to a contract of lease which is
the subject matter of this controversy. Instead, Article 1678 of the Civil Code applies. . . .
xxxx
On the other hand, Article 448 governs the right of accession while Article 546 pertains to effects
of possession. The very language of these two provisions clearly manifest their inapplicability to
lease contracts. . . .
xxxx
Thus, the improvements that the private respondent's father had introduced in the leased premises
were done at his own risk as lessee. The right to indemnity equivalent to one-half of the value of
the said improvements the house, the filling materials, and the hollow block fence or wall
is governed, as earlier adverted to, by the provisions of Art. 1678, first paragraph of the Civil

Code above quoted. But this right to indemnity exists only if the lessor opts to appropriate the
improvements (Alburo v. Villanueva, supra, note 10 at 279-280; Valencia v. Ayala de Roxas,
supra, note 10 at 46). The refusal of the lessor to pay the lessee one-half of the value of the useful
improvements gives rise to the right of removal. On this score, the commentary of Justice Paras
is enlightening.
'Note that under the 1st paragraph of Art. 1678, the law on the right of REMOVAL says that
'should the lessor refuse to reimburse said amount, the lessee may remove the improvements,
even though the principal thing may suffer thereby.' While the phrase 'even though' implies that
Art. 1678 always applies regardless of whether or not the improvements can be removed without
injury to the leased premises, it is believed that application of the Article cannot always be done.
The rule is evidently intended for cases where a true accession takes place as when part of the
land leased is, say, converted into a fishpond; and certainly not where as easily removable
thing (such as a wooden fence) has been introduced. There is no doubt that in a case involving
such a detachable fence, the lessee can take the same away with him when the lease expires (5 E.
Paras, Civil Code of the Philippines Annotated 345 [11th ed., 1986]).'
xxxx
Clearly, it is Article 1678 of the New Civil Code which applies to the present case.1wphi1
Petitioners claim for reimbursement of the alleged entire value of the improvements does not
thus lie under Article 1678. Not even for one-half of such alleged value, there being no
substantial evidence, e.g., receipts or other documentary evidence detailing costs of construction.
Besides, by petitioners admission, of the structures they originally built the billiard hall,
restaurant, sari-sari store and a parking lot, only the "bodega-like" sari-sari store and the
parking lot now exist.27
At all events, under Article 1678, it is the lessor who is given the option, upon termination of the
lease contract, either to appropriate the useful improvements by paying one-half of their value at
that time, or to allow the lessee to remove the improvements. This option solely belongs to the
lessor as the law is explicit that "[s]hould the lessor refuse to reimburse said amount, the lessee
may remove the improvements, even though the principal thing may suffer damage thereby." It
appears that the lessor has opted not to reimburse.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision of January 19, 2005 is
AFFIRMED in light of the foregoing discussions.
Costs against petitioners.
SO ORDERED.

G.R. No. 171891

February 24, 2009

HERNANIA "LANI" LOPEZ, Petitioner,

vs.
GLORIA UMALE-COSME, Respondent.
DECISION
PUNO, C.J.:
Before us is a petition for review on certiorari under Rule 45 seeking a review of the Decision1
and Resolution2 of the Court of Appeals (CA) in CA G.R. SP No. 82808 reversing the decision3
of the Regional Trial Court (RTC), Branch 218, Quezon City.
Respondent Gloria Umale-Cosme is the owner of an apartment building at 15 Sibuyan Street,
Sta. Mesa Heights, Quezon City, while the petitioner is a lessee of one of the units therein. She
was paying a monthly rent of P1,340.00 as of 1999.
On April 19, 1999, respondent filed a complaint for unlawful detainer against petitioner before
Branch 43 of the Metropolitan Trial Court (MeTC) of Quezon City on the grounds of expiration
of contract of lease and nonpayment of rentals from December 1998. In her answer, petitioner
denied that she defaulted in the payment of her monthly rentals, claiming that respondent did not
collect the rentals as they fell due in order to make it appear that she was in arrears. Petitioner
also alleged that she had been depositing her monthly rentals in a bank in trust for respondent
since February 1999.
On March 19, 2003, the MeTC, Branch 43, rendered judgment in favor of respondent, the
dispositive portion of which reads:
WHEREFORE, premises considered, the Court finds for the plaintiff and the defendant Hernania
"Lani" B. Lopez and all persons claiming rights under her or instructions are hereby ordered:
1. to vacate the leased premises located at 15-1, Sibuyan Street, Sta. Mesa Heights,
Quezon City Quezon City (sic), Metro Manila;
2. to pay the plaintiff monthly rent in the amount of P1,340.00 starting December, 1998
up to the time that they shall have vacated and surrendered the leased premises to the
plaintiff;
3. to pay the plaintiff the amount of P20,000.00 as and be (sic) way of attorneys fees;
and

4. costs of suit.4
On appeal, the RTC reversed the decision of the MeTC and ruled that the contract of lease
between respondent and petitioner lacked a definite period. According to the RTC, the lessee
may not be ejected on the ground of termination of the period until the judicial authorities have
fixed such period. It ratiocinated:
Under the law, there is a noticeable change on the grounds for judicial ejectment as to expiration
of the period. Paragraph (f) of Section 5, only speaks of expiration of the period of lease contract,
deleting the phrase "of a written lease contract." However, under its Sec. 6, it provides:
SECTION 6. Application of the Civil Code and Rules of Court of the Philippines. Except when
the lease is for a definite period, the provisions of paragraph (1) of Article 1673 of the Civil Code
of the Philippines, insofar as they refer to residential units covered by this Act, shall be
suspended during the effectivity of this Act, but other provisions of the Civil Code and the Rules
of Court on lease contracts, insofar as they are not in conflict with the provisions of this Act shall
apply.
BP Blg. 877 was extended by RA No. 6643, RA No. 6828, RA No. 7644, and RA No. 8437
approved 22 December 1997 extending the law up to 31 December 2001, without changed (sic)
in the provision of the law except as to the period of maximum increase allowable.
The condition about the expiration of the period as provided for under Act 877 was never change
(sic) despite the several extensionary (sic) laws to it.
The law is so perspicuous to allow other (sic) interpretation. It suspends the provisions of the
first paragraph of Article 1673 of the Civil Code, except when the lease is for a definite period.
Thus, if the lease has no period but to be fixed yet by the judicial authorities, the lessee may not
be ejected on ground of termination of the period.lawphil.net
This particular provision compliments the very purpose of the law prohibiting increase in rentals
more than the rates provided therefor.
If they could be ejected with ease just the same by simply interpreting that if a lessee is paying
his rentals monthly, the lease is considered month to month, and month to month lease contract is
with a definite period, then what part of Article 1673 was suspended?
The amendatory provisions of the Rent Control Law, which the lawmakers had deemed proper to
extend everytime (sic) it is about to expire, is nothing but illusory!

In light of the above reasoning, plaintiff-appellees ground based on the expiration of the lease
contract must fail. BP Blg. 877 as amended suspends the ejectment of lessees based on the
expiration of lease contract where there was no agreement as to a definite lease period.
Finally, the plaintiff has, in effect, abandoned her other ground of non-payment of rental having
stipulated on the consignation by defendant of the back rental from December 1998 to September
2002 during the pre-trial.
WHEREFORE, premises considered, the assailed decision is REVERSED and SET ASIDE. The
case is DISMISSED.
SO ORDERED.5
Respondents motion for reconsideration was denied by the RTC in a Resolution dated February
2, 2004.
Aggrieved, respondent repaired to the CA, which found merit in her appeal, thus:
It is worthy to note that in her answer, respondent admitted the allegations in paragraph 5 of the
complaint that the apartment unit was leased to her by petitioner on a month to month basis.
Article 1673 (1) of the Civil Code provides that the lessor may judicially eject the lessee when
the period agreed upon, or that which is fixed for the duration of leases under articles 1682 and
1687, has expired. Article 1687 of the same Code provides that if the period for the lease has not
been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month
to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the
rent is to be paid daily.
On the other hand, Section 6 of Batas Pambansa Bilang 877 reads:
Sec. 6: Application of the Civil Code and Rules of Court of the Philippines. Except when the
lease is for a definite period, the provisions of paragraph (1) of Article 1673 of the Civil Code of
the Philippines, insofar as they refer to residential units covered by this Act, shall be suspended
during the effectivity of this Act, but other provisions of the Civil Code and the Rules of Court
on lease contracts, insofar as they are not in conflict with the provisions of the Act shall apply.
In Acab v. Court of Appeals, it was held that Section 6 of B.P. Blg. 877 does not suspend the
effects of Article 1687 of the Civil Code. Lease agreements with no specified period, but in
which rentals are paid monthly, are considered to be on a month-to-month basis. They are for a
definite period and expire after the last day of any given thirty-day period, upon proper demand
and notice by the lessor to vacate. In the case at bench, petitioner had shown that written notices
of termination of lease and to vacate were sent by her to respondent, but the latter refused to

acknowledge receipt thereof. In view thereof, he caused the posting of said notice on the leased
premises in the presence of the barangay security officers on March 1, 1999.6
The CA denied petitioners Motion for Reconsideration in a resolution dated March 13, 2006. As
a consequence, petitioner filed the instant petition for review, where she argues that the CA
gravely erred when it ruled that she may be ejected on the ground of termination of lease
contract.
The petition is utterly bereft of merit.
It is well settled that where a contract of lease is verbal and on a monthly basis, the lease is one
with a definite period which expires after the last day of any given thirty-day period.7 In the
recent case of Leo Wee v. De Castro where the lease contract between the parties did not stipulate
a fixed period,8 we ruled:
The rentals being paid monthly, the period of such lease is deemed terminated at the end of each
month. Thus, respondents have every right to demand the ejectment of petitioners at the end of
each month, the contract having expired by operation of law. Without a lease contract, petitioner
has no right of possession to the subject property and must vacate the same. Respondents, thus,
should be allowed to resort to an action for ejectment before the MTC to recover possession of
the subject property from petitioner.
Corollarily, petitioners ejectment, in this case, is only the reasonable consequence of his
unrelenting refusal to comply with the respondents demand for the payment of rental increase
agreed upon by both parties. Verily, the lessors right to rescind the contract of lease for nonpayment of the demanded increased rental was recognized by this Court in Chua v. Victorio:
The right of rescission is statutorily recognized in reciprocal obligations, such as contracts of
lease. x x x under Article 1659 of the Civil Code, the aggrieved party may, at his option, ask for
(1) the rescission of the contract; (2) rescission and indemnification for damages; or (3) only
indemnification for damages, allowing the contract to remain in force. Payment of the rent is one
of a lessees statutory obligations, and, upon non-payment by petitioners of the increased rental
in September 1994, the lessor acquired the right to avail of any of the three remedies outlined
above. (citations omitted)
In the case at bar, it has been sufficiently established that no written contract existed between the
parties and that rent was being paid by petitioner to respondent on a month-to-month basis. As
the CA noted, petitioner admitted the lack of such written contract in her complaint.9 Moreover,
in the instant petition for review, petitioner herself alleged that she has been occupying the leased
premises and paying the monthly rentals without fail since 1975.10 Hence, petitioners argument
that the contract of lease between her and respondent lacked a definite periodand that

corollarily, she may not be ejected on the ground of termination of perioddoes not hold water.
Petitioner was merely grasping at straws when she imputed grave error upon the CAs decision to
eject her from the leased premises.
IN VIEW WHEREOF, the instant petition is DENIED. The decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
G.R. No. 155227-28

February 9, 2011

EMILIANA G. PEA, AMELIA C. MAR, and CARMEN REYES, Petitioners,

vs.
SPOUSES ARMANDO TOLENTINO AND LETICIA TOLENTINO, Respondents.
DECISION
BERSAMIN, J.:
By petition for review on certiorari, the petitioners appeal the adverse decision promulgated by
the Court of Appeals (CA) on March 31, 2000, 1 and the resolution issued on August 28, 2002
(denying their motion for reconsideration).2
Antecedents
The petitioners are lessees of three distinct and separate parcels of land owned by the
respondents, located in the following addresses, to wit: Carmen Reyes, 1460 Velasquez, Tondo,
Manila; for Amelia Mar, 479 Perla, Tondo, Manila; and for Emiliana Pea, 1461 Sta. Maria,
Tondo, Manila.
Based on the parties oral lease agreements, the petitioners agreed to pay monthly rents, pegged
as of October 9, 1995 at the following rates, namely: for Carmen Reyes, P570.00; for Amelia
Mar, P840.00; and for Emiliana Pea, P480.00.
On August 15, 1995, the respondents wrote a demand letter to each of the petitioners, informing
that they were terminating the respective month-to-month lease contracts effective September 15,
1995; and demanding that the petitioners vacate and remove their houses from their respective
premises, with warning that should they not heed the demand, the respondents would charge
them P3,000.00/month each as reasonable compensation for the use and occupancy of the
premises from October 1, 1995 until they would actually vacate.

After the petitioners refused to vacate within the period allowed, the respondents filed on
October 9, 1995 three distinct complaints for ejectment against the petitioners in the
Metropolitan Trial Court (MeTC) of Manila. The three cases were consolidated upon the
respondents motion.
In their respective answers, the petitioners uniformly contended that the respondents could not
summarily eject them from their leased premises without circumventing Presidential Decree
(P.D.) No. 20 and related laws.
During the preliminary conference, the parties agreed on the following issues:3
1. Whether or not each of the petitioners could be ejected on the ground that the verbal
contract of lease had expired; and
2. Whether or not the reasonable compensation demanded by the respondents was
exorbitant or unconscionable.
Ruling of the MeTC
On May 17, 1996, the MeTC ruled in favor of the respondents,4 viz:
WHEREFORE, judgment is rendered in favor of the plaintiff spouses:
1. Ordering defendant Emiliana Pea in Civil Case No. 149598-CV to immediately
vacate the lot located at 1461 Sta. Maria, Tondo, Manila, and surrender the possession
thereof to the plaintiff spouses; to pay the latter the amount of P2,000.00 a month as
reasonable compensation for the use and occupancy of the premises from 1 October 1995
until the same is finally vacated; to pay the plaintiff spouses the amount of P5,000.00 as
attorneys fees; and to pay the costs of suit;
2. Ordering the defendant Amelia Mar in Civil Case No. 149599-CV to immediately
vacate the lot situated at 479 Perla St., Tondo, Manila, and surrender possession thereof
to the plaintiff spouses; to pay the latter the amount of P2,500.00 per month as reasonable
compensation for the use and occupancy of the premises from 1 October 1995 until the
same is finally vacated; to pay the plaintiff spouses the amount of P5,000.00 as attorneys
fees; and to pay the costs of suit; and
3. Ordering the defendant Carmen Reyes in Civil Case No. 149601-CV to immediately
vacate the lot with address at 1460 Velasquez Street, Tondo, Manila, and surrender
possession thereof to the plaintiff spouses; to pay the latter the amount of P2,0500.00 a
month as reasonable compensation for the use and occupancy of the leased premises from

1 October 1995 until the same is finally vacated; to pay the plaintiff-spouses the amount
of P5,000.00 as attorneys fees; and to pay the costs of suit; and
SO ORDERED.
The MeTC explained in its decision:
Defendants themselves categorically state that the rentals on the respective lots leased to them
were paid every month. xxx Pertinent to the cases, thus, is the Supreme Court ruling in the case
of Acab, et. al. vs Court of Appeals (G.R. No. 112285, 21 February 1995) that lease agreements
with no specified period, but in which rentals are paid monthly, are considered to be on a monthto-month basis. They are for a definite period and expire after the last day of any given thirty day
period of lease, upon proper demand and notice of lessor to vacate, and in which case, there is
sufficient cause for ejectment under Sec. 5(f) of Batas Pambansa 877, that is, the expiration of
the period of the lease contract.
Ruling of the RTC
On appeal, the Regional Trial Court (RTC) modified the MeTCs decision,5 viz:
WHEREFORE, premises considered, judgment is hereby rendered modifying the decision
appealed from as follows:
a. Defendants having stayed in the leased premises for not less than thirty (30) years,
instead of being on a month-to-month basis, the lease is fixed for a term of two (2) years
reckoned from the date of this decision.
b. Upon expiration of the term of the lease, defendants shall demolish their respective
houses at their own expense and vacate the leased premises;
c. The lease being covered by the Rent Control Law, defendants shall continue to pay the
old monthly rental to be gradually increased in accordance with said law;
d. Both parties shall pay their respective counsels the required attorney's fees; and
e. To pay the costs of the suit.
SO ORDERED.
The RTC affirmed the MeTCs holding that the leases expired at the end of every month, upon
demand to vacate by the respondents; but decreed based on the authority of the court under
Article 1687 of the Civil Code to fix a longer term that the leases were for two years reckoned

from the date of its decision, unless extended by the parties pursuant to the law and in keeping
with equity and justice, considering that the respondents had allowed the petitioners to construct
their own houses of good materials on the premises, and that the petitioners had been occupants
for over 30 years.
Ruling of the CA
Both parties appealed by petition for review.6
The petitioners petition for review was docketed as C.A.-G.R. SP NO. 44172; that of the
respondents was docketed as C.A.-G.R. SP No. 44192. Nonetheless, the separate appeals were
consolidated on November 20, 1997.7
On March 31, 2000, the CA promulgated its decision,8 thus:
WHEREFORE, judgment is rendered SETTING ASIDE the decision of the RTC, Branch 26,
Manila and REINSTATING the decision of the MTC, Branch 3, Manila with the modification
that the defendants shall pay their respective agreed rentals which may be gradually increased in
accordance with the Rent Control Law for the use and occupancy of the premises from 1 October
1995 until the same is finally vacated.
SO ORDERED.
The petitioners sought reconsideration, but the CA denied their motion for reconsideration on
August 28, 2002, and granted the respondents motion for execution pending appeal and ordered
the MeTC to issue a writ of execution to enforce the judgment pending appeal.
Issues
Hence, this appeal to the Court, whereby the petitioners urge the following grounds,9 to wit:
I. THE EJECTMENT OF HEREIN PETITIONERS FROM THE SAID LEASED
PREMISES IS VIOLATIVE OF P.D. NO. 20
II. HEREIN PETITIONER CANNOT BE EJECTED FROM THE SUBJECT LEASED
PROPERTY WITHOUT CLEARLY VIOLATING THE URBAN LAND REFORM
CODE (P.D. 1517) AND R.A. 3516.
Ruling of the Court
The petition lacks merit.

1.
Were the contracts of lease
for an indefinite period?
The petitioners contend that their lease contracts were covered by P.D. No. 20,10 which
suspended paragraph 1 of Article 1673,11 Civil Code; that as a result, the expiration of the period
of their leases was no longer a valid ground to eject them; and that their leases should be deemed
to be for an indefinite period.
In refutation, the respondents argue that P.D. 20 suspended only Article 1673, not Article 1687,12
Civil Code; that under Article 1687, a lease on a month-to-month basis was a lease with a
definite period; and that the petitioners could be ejected from the leased premises upon the
expiration of the definite period, particularly as a demand to that effect was made.
The petitioners contention is erroneous.
First of all, the petitioners reliance on P.D. 20 is futile and misplaced because that law had no
application to their cause. They ignored that Batas Pambansa Blg. 25,13 approved on April 10,
1979 and effective immediately, had expressly repealed P.D. 20 pursuant to its Section 10.14
For the enlightenment of the petitioners in order to dispel their confusion, the following brief
review of the rental laws that came after P.D. 20 and B.P. Blg. 25 is helpful.
B.P. Blg. 25 remained in force for five years, after which P.D. 191215 and B.P. Blg. 867 were
enacted to extend the effectivity of B.P. Blg. 25 for eight months and six months, respectively.
When the extension of B.P. Blg. 25 ended on June 30, 1985, a new rental law, B.P. Blg. 877,16
was enacted on July 1, 1985. B.P. Blg. 877, although initially effective only until December 31,
1987, came to be extended up to December 31, 1989 by Republic Act No. 6643.17 Subsequently,
Congress passed R.A. No. 764418 to further extend the effectivity of B.P. Blg. 877 by three years.
Finally, R.A. No. 843719 extended the rent control period provided in B.P. Blg. 877 from January
1, 1998 up to December 31, 2001.
It is clear, therefore, that B.P. Blg. 877 was the controlling rental law when the complaints
against the petitioners were filed on October 9, 1995.
We note that on January 1, 2002, R.A. No. 916120 took effect. Its Section 7(e) provided that the
expiration of the period of the lease contract was still one of the grounds for judicial ejectment.
Also, its Section 10 provided for the suspension of paragraph 1 of Article 1673 of the Civil Code,
which was similar to Section 6 of B.P. Blg. 877, quoted hereunder:

Sec. 6 Application of the Civil Code and Rules of Court of the Philippines Except when the
lease is for a definite period, the provisions of paragraph (1) of Article 1673 of the Civil Code of
the Philippines, insofar as they refer to residential units covered by this Act shall be suspended
during the effectivity of this Act, but other provisions of the Civil Code and the Rules of Court
on lease contracts, insofar as they are not in conflict with the provisions of the Act shall apply.
In several rulings,21 the Court held that Section 6 of B.P. Blg. 877 did not suspend the effects of
Article 1687 of the Civil Code; and that the only effect of the suspension of paragraph 1, Article
1673 of the Civil Code was that, independently of the grounds for ejectment enumerated in B.P.
Blg. 877, the owner/lessor could not eject the tenant by reason of the expiration of the period of
lease as fixed or determined under Article 1687 of the Civil Code. Consequently, the
determination of the period of the lease could still be made in accordance with Article 1687.
Under Section 5 (f) of B.P. Blg. 877,22 the expiration of the period of the lease is among the
grounds for judicial ejectment of a lessee. In this case, because no definite period was agreed
upon by the parties, their contracts of lease being oral, the leases were deemed to be for a definite
period, considering that the rents agreed upon were being paid monthly, and terminated at the
end of every month, pursuant to Article 1687.23 In addition, the fact that the petitioners were
notified of the expiration of the leases effective September 15, 1995 brought their right to stay in
their premises to a definite end as of that date.24
2
May petitioners validly raise their
alleged rights under P.D. 1517, R.A. 3516
and P.D. 2016 for the first time on appeal?
The petitioners contend that the decisions of the MeTC, RTC, and CA were contrary to law; that
they held the right of first refusal to purchase their leased premises pursuant to Sections 6 of P.D.
1517,25 because they had resided on the leased lots for almost 40 years, even before the
respondents purchased the properties from the former owners, and because they had erected their
own apartments on the leased lots; that under Section 5 of R.A. No. 3516,26 a lessor was
prohibited from selling the leased premises to any person other than his lessee, without securing
the latters written renunciation of his right of first refusal to purchase the leased property; and
that Section 2 of P.D. 201627 likewise protected them.
The respondents counter that the petitioners could not validly raise the applicability of the cited
laws for the first time in this Court, without violating their right to due process.
In reply, the petitioners posit that the provisions of P.D. 1517 and R.A. No. 3516, although cited
for the first time only on appeal, were always presumed to be part of their affirmative or special

defenses; that the lower courts were bound to take judicial notice of and should render decisions
consistent with said provisions of law; that the Court was also clothed with ample authority to
review matters even if not assigned as errors on appeal if it found that their consideration was
necessary to arrive at a just determination of a case; and that Section 8 of Rule 51 of the Rules of
Court authorizes the Court to consider and resolve a plain error, although not specifically
assigned, for, otherwise, substance may be sacrificed for technicalities.
We cannot side with the petitioners.
Firstly, the petitioners appear to have known of their supposed right of first refusal even before
the respondents came to acquire the leased premises by purchase. They implied so in their
petition for review filed on May 30, 1997 in the CA:28
xxx It must also be borne in mind herein that the said petitioners had started occupying the said
property even before the same was purchased by the herein private respondents. In fact, the said
sale should even be considered as illegal if not null and void from the very beginning because the
herein petitioners were not even properly informed of the said sale considering that under the
Urban Land Reform Code they even have the right of first refusal over the said property. The
public respondent should also consider the said fact in resolving to give a longer period of lease
to the herein petitioners and certainly not for two (2) years only. Of course it would be a different
matter if the public respondent himself (RTC) had at least convinced if not goaded the herein
private respondents to compensate the petitioners for the value of the improvements introduced
on the said leased premises in the interest of equity, fairness and justice. We submit to this
Honorable Court that the herein petitioners should be allowed to enjoy their said improvements
for a period of at least five (5) years before they can be ejected from the said leased premises.
Yet, the petitioners did not invoke their supposed right of first refusal from the time when the
respondents filed their complaints for ejectment against them on October 9, 1995 until they
brought the present recourse to this Court. Neither did they offer any explanation for their failure
to do so. It is notable that the only defense they raised is that their eviction from the premises on
the sole ground of expiration of the lease contract violated R.A. No. 9161.
Moreover, the petitioners did not also assert their supposed right of first refusal despite the
respondents informing them (through their position paper filed in the MeTC on March 21,
1996)29 that they had terminated the petitioners leases because they were intending to sell the
premises to a third person. In fact, as the records bear out, the only reliefs the petitioners prayed
for in the MTC, RTC, and CA were the extension of their leases, and the reimbursement by the
respondents of the values of their improvements.30 It is inferable from the petitioners silence,
therefore, that they had neither the interest nor the enthusiasm to assert the right of first refusal.

Secondly, the petitioners are precluded from invoking their supposed right of first refusal at this
very late stage after failing to assert it within a reasonable time from the respondents purchase of
the respective properties where their premises were respectively located. The presumption that
they had either abandoned or declined to assert their rights becomes fully warranted.31
Thirdly, it is clear that the petitioners are changing their theory of the case on appeal. That
change is impermissible on grounds of its elemental unfairness to the adverse parties, who would
now be forced to adapt to the change and to incur additional expense in doing so. Besides, such a
change would effectively deprive the lower courts of the opportunity to decide the merits of the
case fairly. It is certainly a basic rule in appellate procedure that the trial court should be allowed
the meaningful opportunity not only to consider and pass upon all the issues but also to avoid or
correct any alleged errors before those issues or errors become the basis for an appeal.32 In that
regard, the Court has observed in Carantes v. Court of Appeals:331avvphil
The settled rule is that defenses not pleaded in the answer may not be raised for the first time on
appeal. A party cannot, on appeal, change fundamentally the nature of the issue in the case.
When a party deliberately adopts a certain theory and the case is decided upon that theory in the
court below, he will not be permitted to change the same on appeal, because to permit him to do
so would be unfair to the adverse party.
Indeed, the settled rule in this jurisdiction, according to Mon v. Court of Appeals,34 is that a party
cannot change his theory of the case or his cause of action on appeal. This rule affirms that
"courts of justice have no jurisdiction or power to decide a question not in issue." Thus, a
judgment that goes beyond the issues and purports to adjudicate something on which the court
did not hear the parties is not only irregular but also extrajudicial and invalid.35 The legal theory
under which the controversy was heard and decided in the trial court should be the same theory
under which the review on appeal is conducted. Otherwise, prejudice will result to the adverse
party. We stress that points of law, theories, issues, and arguments not adequately brought to the
attention of the lower court will not be ordinarily considered by a reviewing court, inasmuch as
they cannot be raised for the first time on appeal.36 This would be offensive to the basic rules of
fair play, justice, and due process.37
Lastly, the issue of whether the leased premises were covered by P. D. 1517 or not is truly a
factual question that is properly determined by the trial court, not by this Court due to its not
being a trier of facts.
3
CAs reinstatement of MeTCs decision
on the ejectment of petitioners is sustained,
subject to modification on rentals

Although the CA correctly reinstated the MeTCs decision as far as it ordered the petitioners
ejectment from the leased premises, we cannot uphold its modification by requiring the
petitioners instead to pay their "respective agreed rentals which shall be gradually increased in
accordance with the Rent Control Law for the use and occupancy of the premises from 1 October
1995 until the same is finally vacated" without any elucidation of the reasons for ordering the
payment of agreed rentals for the use and occupancy of the premises in lieu of the MeTCs
requiring the petitioners to pay reasonable compensation.
It is true that the MeTC had not also given any justification for fixing reasonable compensation
in the respective amounts found in the dispositive portion of its decision, instead of rentals.
However, we discern that the MeTC had taken off from the demand letters of the respondents to
each of the petitioners, which included the warning to them that should they refuse to vacate as
demanded they would each be charged P3,000.00/month as reasonable compensation for the use
and occupancy of the premises from October 1, 1995 until they would actually vacate. We opt
not to disturb the MeTCs holding on reasonable compensation, in lieu of agreed rentals,
considering that the petitioners did not raise any issue against it, and considering further that the
CA did not find any error committed by the MeTC as to that. At any rate, it is worthy to note that
the award of reasonable compensation, not rentals, is more consistent with the conclusion of the
MeTC that the leases of the petitioners had expired. Indeed, to peg the respondents monetary
recovery to the unadjusted rentals, instead of reasonable compensation, is not fair.
Accordingly, we modify the CAs decision by reinstating the MeTCs decision without
qualification.
WHEREFORE, we modify the decision promulgated on March 31, 2000 by the Court of Appeals
by reinstating the decision dated May 17, 1996 by the Metropolitan Trial Court in Manila
without qualification.
Costs of suit to be paid by the petitioners.
SO ORDERED.