Republic of the Philippines

Supreme Court
Baguio City
THIRD DIVISION
DOMINGO CARABEO,
Petitioner,

G.R. No. 190823

agreed to sell his rights over a 648 square meter parcel

of unregistered land situated in Purok III, Tugatog, Orani,
Bataan to respondents for P38,000.
Respondents tendered their initial payment of P10,000
upon signing of the contract, the remaining balance to be
paid on September 1990.

Present:

Respondents were later to claim that when they were

CARPIO,* J.,
about to hand in the balance of the purchase price,
- versus CARPIO MORALES, petitioner requested them to keep it first as he was yet to
BRION,
settle an on-going squabble over the land.
BERSAMIN, and
SERENO, JJ.
SPOUSES NORBERTO and
Nevertheless, respondents gave petitioner small
SUSAN DINGCO,
Promulgated:
sums of money from time to time which totaled P9,100,
Respondents.
April 4, 2011
on petitioners request according to them; due to
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - respondents
- - - - - - - - - -inability to pay the amount of the remaining
balance in full, according to petitioner.
DECISION
CARPIO MORALES, J.:
On July 10, 1990, Domingo Carabeo (petitioner) entered
into a contract denominated as Kasunduan sa Bilihan ng
Karapatan sa Lupa[1] (kasunduan) with Spouses Norberto
and Susan Dingco (respondents) whereby petitioner

By respondents claim, despite the alleged problem

over the land, they insisted on petitioners acceptance of
the remaining balance of P18,900 but petitioner remained
firm in his refusal, proffering as reason therefor that he
would register the land first.

Page | 1

Sometime in 1994, respondents learned that the

alleged problem over the land had been settled and that
petitioner had caused its registration in his name on
December 21, 1993 under Transfer Certificate of Title No.
161806. They thereupon offered to pay the balance but
petitioner declined, drawing them to file a complaint
before the Katarungan Pambarangay. No settlement was
reached, however, hence, respondent filed a complaint
for specific performance before the Regional Trial Court
(RTC) of Balanga, Bataan.
Petitioner countered in his Answer to the
Complaint that the sale was void for lack of object
certain, the kasunduan not having specified the metes
and bounds of the land.In any event, petitioner alleged
that if the validity of the kasunduan is upheld,
respondents failure to comply with their reciprocal
obligation to pay the balance of the purchase price would
render the action premature. For, contrary to respondents
claim, petitioner maintained that they failed to pay the
balance of P28,000 on September 1990 to thus constrain
him to accept installment payments totaling P9,100.
After the case was submitted for decision or on
January 31, 2001,[2] petitioner passed away. The records
do not show that petitioners counsel informed Branch 1

of the Bataan RTC, where the complaint was lodged, of

his death and that proper substitution was effected in
accordance with Section 16, Rule 3, Rules of Court. [3]
By Decision of February 25, 2001,[4] the trial court
ruled in favor of respondents, disposing as follows:
WHEREFORE,
premises
judgment is hereby rendered ordering:

considered,

1. The defendant to sell his right over 648 square

meters of land pursuant to the contract dated
July 10, 1990 by executing a Deed of Sale
thereof after the payment of P18,900 by the
plaintiffs;
2. The defendant to pay the costs of the suit.
SO ORDERED.[5]

Petitioners counsel filed a Notice of Appeal on

March 20, 2001.
By the herein challenged Decision dated July 20,
2009,[6] the Court of Appeals affirmed that of the trial
court.
Petitioners motion for reconsideration having been
denied by Resolution of January 8, 2010, the present
Page | 2

petition for review was filed by Antonio Carabeo,

petitioners son,[7] faulting the appellate court:
(A)
in holding that the element of a contract, i.e.,
an object certain is present in this case.
(B)
in considering it unfair to expect
respondents who are not lawyers to make judicial
consignation after herein petitioner allegedly refused
to accept payment of the balance of the purchase
price.
(C)
in upholding the validity of the contract,
Kasunduan sa Bilihan ng Karapatan sa Lupa,
despite the lack of spousal consent, (underscoring
supplied)

and proffering that

(D)
[t]he death of herein petitioner causes the dismissal
of the action filed by respondents; respondents
cause
of
action
being
an
action
in
personam. (underscoring supplied)

The petition fails.

The pertinent portion of the kasunduan reads:[8]

xxxx
Na ako ay may isang partial na lupa
na matatagpuan sa Purok 111, Tugatog, Orani
Bataan, na may sukat na 27 x 24 metro kuwadrado,
ang nasabing lupa ay may sakop na dalawang
punong santol at isang punong mangga, kayat ako
ay nakipagkasundo sa mag-asawang Norby Dingco
at Susan Dingco na ipagbili sa kanila ang karapatan
ng nasabing lupa sa halagangP38,000.00.
x x x x (underscoring supplied)

That the kasunduan did not specify the technical

boundaries of the property did not render the sale a
nullity. The requirement that a sale must have for its
object a determinate thing is satisfied as long as, at the
time the contract is entered into, the object of the sale is
capable of being made determinate without the necessity
of a new or further agreement between the parties. [9] As
the above-quoted portion of the kasunduan shows, there
is no doubt that the object of the sale is determinate.
Clutching at straws, petitioner proffers lack of
spousal consent. This was raised only on appeal, hence,
will not be considered, in the present case, in the interest
of fair play, justice and due process.[10]

Page | 3

Respecting the argument that petitioners death rendered

respondents complaint against him dismissible, Bonilla v.
Barcena[11] enlightens:

petitioners legal representatives or successors-ininterest, insofar as his interest in the property subject of
the action is concerned.[13]

The question as to whether an action

survives or not depends on the nature of the action
and the damage sued for. In the causes of action
which survive, the wrong complained [of] affects
primarily and principally property and property rights,
the injuries to the person being merely incidental,
while in the causes of action which do not
survive, the injury complained of isto the person, the
property and rights of property affected being
incidental. (emphasis and underscoring supplied)

In another vein, the death of a client immediately

divests the counsel of authority.[14] Thus, in filing a Notice
of Appeal, petitioners counsel of record had no
personality to act on behalf of the already deceased
client who, it bears reiteration, had not been substituted
as a party after his death. The trial courts decision had
thereby become final and executory, no appeal having
been perfected.

In the present case, respondents are pursuing a

property right arising from the kasunduan, whereas
petitioner is invoking nullity of the kasunduan to protect
his
proprietary
interest. Assuming arguendo,
however, that the kasunduan is deemed void, there is a
corollary obligation of petitioner to return the money paid
by respondents, and since the action involves property
rights,[12] it survives.

WHEREFORE, the petition is DENIED.

SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice

It bears noting that trial on the merits was already

concluded before petitioner died. Since the trial court was
not informed of petitioners death, it may not be faulted for
proceeding to render judgment without ordering his
substitution. Its judgment is thus valid and binding upon
Page | 4

Republic of the Philippines

Supreme Court
Manila
FIRST DIVISION
REYNALDO VILLANUEVA, G.R. NO. 154493
Petitioner,
Present:
PANGANIBAN, C.J.
(Chairperson)
YNARES-SANTIAGO,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
PHILIPPINE NATIONAL BANK
(PNB),
Respondent. Promulgated:
December 6, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------x

DECISION
AUSTRIA-MARTINEZ, J.:

The Petition for Review on Certiorari under Rule

45 before this Court assails the January 29, 2002
Decision[1] and June 27, 2002 Resolution[2] of the Court of
Appeals (CA) in CA-G.R. CV No. 52008[3] which reversed
and set aside the September 14, 1995 Decision [4] of the
Regional Trial Court, Branch 22, General Santos
City (RTC) in Civil Case No. 4553.

As culled from the records, the facts are as

follows:
The Special Assets Management Department (SAMD) of
the Philippine National Bank (PNB) issued an
advertisement for the sale thru bidding of certain PNB
properties inCalumpang, General Santos City, including
Lot No. 17, covered by TCT No. T-15042, consisting of
22,780 square meters, with an advertised floor price
of P1,409,000.00, and Lot No. 19, covered by TCT No. T15036, consisting of 41,190 square meters, with an
advertised floor price of P2,268,000.00.[5] Bidding was
subject to the following conditions: 1) that cash bids be
submitted not later than April 27, 1989; 2) that said bids
be accompanied by a 10% deposit in managers or
cashiers check; and 3) that all acceptable bids be subject
to approval by PNB authorities.
Page | 5

In a June 28, 1990 letter[6] to the Manager, PNBGeneral

Santos
Branch,
Reynaldo
Villanueva
(Villanueva) offered to purchase Lot Nos. 17 and 19
for P3,677,000.00. He also manifested that he was
depositing P400,000.00 to show his good faith but with
the understanding that said amount may be treated as
part of the payment of the purchase price only when his
offer is accepted by PNB. At the bottom of said letter
there appears an unsigned marginal note stating
that P400,000.00 was deposited into Villanuevas account
(Savings Account No. 43612) with PNB-General Santos
Branch. [7]
PNB-General Santos Branch forwarded the June 28,
1990 letter of Villanueva to Ramon Guevara (Guevara),
Vice President, SAMD.[8] On July 6, 1990, Guevara
informed Villanueva that only Lot No. 19 is available and
that the asking price therefor is P2,883,300.00.[9] Guevara
further wrote:

If our quoted price is acceptable to you,

please submit a revised offer to purchase. Sale
shall be subject to our Board of Directors
approval and to other terms and conditions
imposed by the Bank on sale of acquired
assets. [10] (Emphasis ours)

Instead of submitting a revised offer, Villanueva

merely inserted at the bottom of Guevaras letter a July
11, 1990 marginal note, which reads:
C O N F O R M E:
PRICE
OF P2,883,300.00
(downpayment of P600,000.00
and
the
balance
payable
in
two
(2)
years
at
quarterly
[11]
amortizations.)

Villanueva paid P200,000.00 to PNB which issued O.R.

No. 16997 to acknowledge receipt of the partial payment
deposit on offer to purchase.[12] On the dorsal portion of
Official Receipt No. 16997, Villanueva signed a
typewritten note, stating:
This is a deposit made to show the sincerity of my
purchase offer with the understanding that it shall be
returned without interest if my offer is not favorably
considered or be forfeited if my offer is approved but
I fail/refuse to push through the purchase.[13]

Also, on July 24, 1990, P380,000.00 was debited

from Villanuevas Savings Account No. 43612 and
credited to SAMD.[14]

Page | 6

On October 11, 1990, however, Guevara wrote

Villanueva that, upon orders of the PNB Board of
Directors to conduct another appraisal and public bidding
of Lot No. 19,SAMD is deferring negotiations with him
over said property and returning his deposit
of P580,000.00.[15] Undaunted, Villanueva attempted to
deliver postdated checks covering the balance of the
purchase price but PNB refused the same.
Hence, Villanueva filed with the RTC a
Complaint[16] for specific performance and damages
against PNB. In its September 14, 1995 Decision, the
RTC granted the Complaint, thus:
WHEREFORE, judgment is rendered in favor of the
plaintiff and against the defendant directing it to do
the following:
1. To execute a deed of sale in favor of the plaintiff
over Lot 19 comprising 41,190 square meters
situated at Calumpang, General Santos City covered
by TCT No. T-15036 after payment of the balance in
cash in the amount of P2,303,300.00;
2. To pay the plaintiff P1,000,000.00 as
moral damages; P500,000.00 as attorneys fees, plus
litigation expenses and costs of the suit.
SO ORDERED.[17]

The RTC anchored its judgment on the finding that there

existed a perfected contract of sale between PNB and
Villanueva. It found:
The following facts are either admitted or undisputed:
xxx
The defendant through Vice-President Guevara
negotiated with the plaintiff in connection with the
offer of the plaintiff to buy Lots 17 & 19. The offer of
plaintiff to buy, however, was accepted by the
defendant only insofar as Lot 19 is concerned as
exemplified by its letter dated July 6, 1990 where the
plaintiff signified his concurrence after conferring
with the defendants vice-president. The conformity
of the plaintiff was typewritten by the defendants
own people where the plaintiff accepted the price
of P2,883,300.00. The defendant also issued a
receipt to the plaintiff on the same day when the
plaintiff paid the amount of P200,000.00 to complete
the downpayment of P600,000.00 (Exhibit F &
Exhibit I). With this development, the plaintiff was
also given the go signal by the defendant to
improve Lot 19 because it was already in effect sold
to him and because of that the defendant fenced the
lot and completed his two houses on the property.[18]

The
RTC
also
pointed
out
that
Villanuevas P580,000.00 downpayment was actually in
the nature of earnest money acceptance of which by
PNB signified that there was already a sale. [19] The RTC
further cited contemporaneous acts of PNB purportedly
indicating that, as early as July 25, 1990, it
Page | 7

considered Lot 19 already sold, as shown by

Guevaras July 25, 1990 letter (Exh. H)[20] to another
interested buyer.
PNB appealed to the CA which reversed and set aside
the September 14, 1995 RTC Decision, thus:
WHEREFORE,
the
appealed
decision
is
REVERSED and SET ASIDE and another rendered
DISMISSING the complaint.
SO ORDERED.[21]

According to the CA, there was no perfected

contract of sale because the July 6, 1990 letter of
Guevara constituted a qualified acceptance of the June
28, 1990 offer of Villanueva, and to which Villanueva
replied on July 11, 1990 with a modified offer. The CA
held:
In the case at bench, consent, in respect to the price
and manner of its payment, is lacking. The record
shows that appellant, thru Guevaras July 6,
1990 letter,
made
a
qualified
acceptance
ofappellees letter-offer dated June 28, 1990 by
imposing an asking price of P2,883,300.00 in cash
for Lot 19. The letter dated July 6, 1990 constituted a
counter-offer
(Art.
1319,
Civil
Code),
to
which appellee made a new proposal, i.e., to pay the
amount of P2,883,300.00 in staggered amounts, that
is, P600,000.00 as downpayment and the balance
within two years in quarterly amortizations.

A qualified acceptance, or one that involves a new

proposal, constitutes a counter-offer and a rejection
of the original offer (Art. 1319, id.). Consequently,
when something is desired which is not exactly what
is proposed in the offer, such acceptance is not
sufficient to generate consent because any
modification or variation from the terms of the offer
annuls the offer (Tolentino, Commentaries and
Jurisprudence on the Civil Code of the Philippines,
6th ed., 1996, p. 450, cited in ABS-CBN Broadcasting
Corporation v. Court of Appeals, et al., 301 SCRA
572).
Appellees new proposal, which constitutes a
counter-offer, was not accepted by appellant, its
board having decided to have Lot 19 reappraised
and sold thru public bidding.
Moreover, it was clearly stated in Guevaras July 6,
1990 letter that the sale shall be subject to our Board
of Directors approval and to other terms and
conditions imposed by the Bank on sale of acquired
assets.[22]

Villanuevas Motion for Reconsideration [23] was denied by

the CA in its Resolution of June 27, 2002.
Petitioner Villanueva now assails before this Court the
January 29, 2002 Decision and June 27, 2002 Resolution
of the CA. He assigns five issues which may be
condensed into two: first, whether a perfected contract of
sale exists between petitioner and respondent PNB; and
second, whether the conduct and actuation of respondent
Page | 8

constitutes bad faith as to entitle petitioner to moral and

Contracts of sale are perfected by mutual consent

exemplary damages and attorneys fees.

whereby the seller obligates himself, for a price certain,

The Court sustains the CA on both issues.

to deliver and transfer ownership of a specified thing or

right to the buyer over which the latter agrees. [24] Mutual
consent being a state of mind, its existence may only be
inferred from the confluence of two acts of the parties: an
offer certain as to the object of the contract and its
consideration, and an acceptance of the offer which is
absolute in that it refers to the exact object and
consideration embodied in said offer.[25]While it is
impossible to expect the acceptance to echo every
nuance of the offer, it is imperative that it assents to those
points in the offer which, under the operative facts of
each contract, are not only material but motivating as
well. Anything short of that level of mutuality produces not
a contract but a mere counter-offer awaiting acceptance.
[26]

More particularly on the matter of the consideration of

the contract, the offer and its acceptance must be

unanimous both on the rate of the payment and on its
term. An acceptance of an offer which agrees to the rate
but varies the term is ineffective. [27]

Page | 9

To determine whether there was mutual consent between

for, by its express terms, said invitation lapsed on April

the parties herein, it is necessary to retrace each offer

27, 1989.[28] More than that, the April 1989 invitation was

and acceptance they made.

subject to the condition that all sealed bids submitted and

accepted be approved by respondents higher authorities.

Respondent began with an invitation to bid

issued in April 1989 covering several of its acquired

Thus, the June 28, 1990 letter of petitioner was an

assets in Calumpang, General Santos City, including Lot

offer to buy independent of the April 1989 invitation to

No. 19 for which the floor price was P2,268,000.00. The

bid. It was a definite offer as it identified with certainty the

offer was subject to the condition that sealed bids,

properties sought to be purchased and fixed the contract

accompanied by a 10% deposit in managers or cashiers

price.

check, be submitted not later than 10 oclock in the

However, respondent replied to the June 28,

morning of April 27, 1989.

1990 offer with a July 6, 1990 letter that only Lot No. 19
On June 28, 1990, petitioner made an offer to buy

is

available

and

that

the

price

therefor

is

Lot No. 17 and Lot No. 19 for an aggregate price

now P2,883,300.00. As the CA pointed out, this reply was

of P3,677,000.00. It is noted that this offer exactly

certainly not an acceptance of the June 28, 1990 offer

corresponded to the April 1989 invitation to bid issued by

but a mere counter-offer. It deviated from the original

respondent in that the proposed aggregate purchase

offer on three material points: first, the object of the

price for Lot Nos. 17 and 19 matched the advertised floor

proposed

prices for the same properties. However, it cannot be

than Lot Nos. 17 and 19; second, the area of the property

said that the June 28, 1990 letter of petitioner was an

to be sold is still 41,190 sq. m but an 8,797-sq. m portion

effective acceptance of the April 1989 invitation to bid

is now part of a public road; and third, the consideration

sale

is

now

only

Lot

No.

19

rather

Page | 10

is P2,883,300 for one lot rather than P3,677,000.00 for

two lots. More important, this July 6, 1990 counter-offer
imposed two conditions: one, that petitioner submit a
revised offer to purchase based on the quoted price; and
two, that the sale of the property be approved by the
Board of Directors and subjected to other terms and
conditions imposed by the Bank on the sale of acquired
assets.
In reply to the July 6, 1990 counter-offer, petitioner
signed his July 11, 1990 conformity to the quoted price
of P2,883,300.00 but inserted the term downpayment
of P600,000.00 and the balance payable in two years at
quarterly amortization. The CA viewed this July 11, 1990
conformity not as an acceptance of the July 6, 1990
counter-offer but a further counter-offer for, while
petitioner accepted the P2,883,300.00 price for Lot No.
19, he qualified his acceptance by proposing a two-year
payment term.
Petitioner does not directly impugn such reasoning
of the CA. He merely questions it for taking up the issue
of whether his July 11, 1990 conformity modified the July
6, 1990 counter-offer as this was allegedly never
raised during the trial nor on appeal.[29]

Such argument is not well taken. From beginning

to end, respondent denied that a contract of sale with
petitioner was ever perfected.[30] Its defense was broad
enough to encompass every issue relating to the
concurrence of the elements of contract, specifically on
whether it consented to the object of the sale and its
consideration. There was nothing to prevent the CA from
inquiring into the offers and counter-offers of the parties
to determine whether there was indeed a perfected
contract between them.
Moreover, there is merit in the ruling of the CA that
the July 11, 1990 marginal note was a further counteroffer which did not lead to the perfection of a contract of
sale between the parties. Petitioners own June 28,
1990 offer quoted the price of P3,677,000.00 for two lots
but was silent on the term of payment. Respondents July
6, 1990 counter-offer quoted the price of P2,833,300.00
and was also silent on the term of payment. Up to that
point, the term or schedule of payment was not on the
negotiation
table. Thus,when
petitioner
suddenly
introduced a term of payment in his July 11,
1990 counter-offer, he interjected into the negotiations
a new substantial matter on which the parties had no
prior discussion and over which they must yet agree.
Page | 11

[31]

Petitioners July 11, 1990 counter-offer, therefore, did

not usher the parties beyond the negotiation stage of
contract making towards its perfection. He made a
counter-offer that required acceptance by respondent.
As it were, respondent, through its Board of
Directors, did not accept this last counter-offer. As stated
in its October 11, 1990 letter to petitioner, respondent
ordered the reappraisal of the property, in clear
repudiation not only of the proposed price but also the
term of payment thereof.
Petitioner insists, however, that the October 11,
1990 repudiation was belated as respondent had already
agreed to his July 11, 1990 counter-offer when it
accepted
hisdownpayment or
earnest
[32]
money of P580,000.00. He cites Article 1482 of the
Civil
Code
where
it
says
that
acceptance
of downpayment or earnest money presupposes the
perfection of a contract.
Not so. Acceptance of petitioners payments did
not amount to an implied acceptance of his last counteroffer.

To begin with, PNB-General Santos Branch, which

accepted petitioners P380,000.00 payment, and PNBSAMD, which accepted his P200,000.00 payment, had
no authority to bind respondent to a contract of sale with
petitioner.[33] Petitioner is well aware of this. To recall,
petitioner sent his June 28, 1990 offer to PNB-General
Santos Branch. Said branch did not act on his offer
except to endorse it to Guevarra. Thereafter, petitioner
transacted directly with Guevarra. Petitioner then cannot
pretend that PNB-General Santos Branch had authority
to accept his July 11, 1990 counter-offer by merely
accepting his P380,000.00 payment.
Neither did SAMD have authority to bind PNB. In
its April 1989 invitation to bid, as well as its July 6,
1990 counter-offer, SAMD was always careful to
emphasize that whatever offer is made and entertained
will be subject to the approval of respondents higher
authorities. This is a reasonable disclaimer considering
the corporate nature of respondent. [34]
Moreover, petitioners payment of P200,000.00 was with
the clear understanding that his July 11, 1990 counteroffer was still subject to approval by respondent. This is
borne out by respondents Exhibits 2-a and 2-b, which
petitioner never controverted, where it appears on the
dorsal portion of O.R. No. 16997 that petitioner acceded
Page | 12

that the amount he paid was a mere x x x deposit made

to show the sincerity of [his] purchase offer with the
understanding that it shall be returned without interest if
[his] offer is not favorably considered x x x.[35] This was a
clear acknowledgment on his part that there was yet no
perfected contract with respondent and that even with the
payments he had advanced, his July 11, 1990 counteroffer was still subject to consideration by respondent.
Not only that, in the same Exh. 2-a as well as in his June
28, 1990 offer, petitioner referred to his payments as
mere deposits. Even O.R. No. 16997 refers to petitioners
payment as mere deposit. It is only in the debit notice
issued by PNB-General Santos Branch where petitioners
payment is referred to as downpayment. But then, as we
said, PNB-General Santos Branch has no authority to
bind respondent by its interpretation of the nature of the
payment made by petitioner.
In sum, the amounts paid by petitioner were not in the
nature of downpayment or earnest money but were mere
deposits or proof of his interest in the purchase of Lot No.
19. Acceptance of said amounts by respondent does not
presuppose perfection of any contract. [36]

It must be noted that petitioner has expressly admitted

that he had withdrawn the entire amount of P580,000.00
deposit from PNB-General Santos Branch. [37]
With the foregoing disquisition, the Court foregoes
resolution of the second issue as it is evident that
respondent acted well within its rights when it rejected
the last counter-offer of petitioner.
In fine, petitioners petition lacks merit.
WHEREFORE, the petition is DENIED. The Decision
dated January 29, 2002 and Resolution dated June 27,
2002 of the Court of Appeals are AFFIRMED.
No costs.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

Page | 13

G.R. No. 80298

April 26, 1990

sustained by the Regional Trial Court, which was in turn

sustained by the Court of Appeals. The petitioner asks us to
declare that all these courts have erred and should be reversed.
2

EDCA PUBLISHING & DISTRIBUTING CORP., petitioner,

vs.
THE SPOUSES LEONOR and GERARDO SANTOS, doing
business under the name and style of "SANTOS
BOOKSTORE," and THE COURT OF APPEALS, respondents.

This case arose when on October 5, 1981, a person identifying

himself as Professor Jose Cruz placed an order by telephone with
the petitioner company for 406 books, payable on
delivery. EDCA prepared the corresponding invoice and
delivered the books as ordered, for which Cruz issued a personal
check covering the purchase price of P8,995.65. On October 7,
1981, Cruz sold 120 of the books to private respondent Leonor
Santos who, after verifying the seller's ownership from the invoice
he showed her, paid him P1,700.00.
4

Emiliano S. Samson, R. Balderrama-Samson, Mary Anne B.

Samson for petitioner.
Cendana Santos, Delmundo & Cendana for private respondents.

CRUZ, J.:
The case before us calls for the interpretation of Article 559 of the
Civil Code and raises the particular question of when a person
may be deemed to have been "unlawfully deprived" of movable
property in the hands of another. The article runs in full as follows:
Art. 559. The possession of movable property acquired in
good faith is equivalent to a title. Nevertheless, one who
has lost any movable or has been unlawfully deprived
thereof, may recover it from the person in possession of
the same.
If the possessor of a movable lost or of which the owner
has been unlawfully deprived has acquired it in good faith
at a public sale, the owner cannot obtain its return without
reimbursing the price paid therefor.
The movable property in this case consists of books, which were
bought from the petitioner by an impostor who sold it to the
private respondents. Ownership of the books was recognized in
the private respondents by the Municipal Trial Court, which was
1

Meanwhile, EDCA having become suspicious over a second

order placed by Cruz even before clearing of his first check, made
inquiries with the De la Salle College where he had claimed to be
a dean and was informed that there was no such person in its
employ. Further verification revealed that Cruz had no more
account or deposit with the Philippine Amanah Bank, against
which he had drawn the payment check. EDCA then went to the
police, which set a trap and arrested Cruz on October 7, 1981.
Investigation disclosed his real name as Tomas de la Pea and
his sale of 120 of the books he had ordered from EDCA to the
private respondents.
7

On the night of the same date, EDCA sought the assistance of

the police in Precinct 5 at the UN Avenue, which forced their way
into the store of the private respondents and threatened Leonor
Santos with prosecution for buying stolen property. They seized
the 120 books without warrant, loading them in a van belonging to
EDCA, and thereafter turned them over to the petitioner.
9

Protesting this high-handed action, the private respondents sued

for recovery of the books after demand for their return was
rejected by EDCA. A writ of preliminary attachment was issued
and the petitioner, after initial refusal, finally surrendered the
books to the private respondents. As previously stated, the
10

Page | 14

petitioner was successively rebuffed in the three courts below and

now hopes to secure relief from us.
To begin with, the Court expresses its disapproval of the arbitrary
action of the petitioner in taking the law into its own hands and
forcibly recovering the disputed books from the private
respondents. The circumstance that it did so with the assistance
of the police, which should have been the first to uphold legal and
peaceful processes, has compounded the wrong even more
deplorably. Questions like the one at bar are decided not by
policemen but by judges and with the use not of brute force but of
lawful writs.
Now to the merits
It is the contention of the petitioner that the private respondents
have not established their ownership of the disputed books
because they have not even produced a receipt to prove they had
bought the stock. This is unacceptable. Precisely, the first
sentence of Article 559 provides that "the possession of movable
property acquired in good faith is equivalent to a title," thus
dispensing with further proof.
The argument that the private respondents did not acquire the
books in good faith has been dismissed by the lower courts, and
we agree. Leonor Santos first ascertained the ownership of the
books from the EDCA invoice showing that they had been sold to
Cruz, who said he was selling them for a discount because he
was in financial need. Private respondents are in the business of
buying and selling books and often deal with hard-up sellers who
urgently have to part with their books at reduced prices. To
Leonor Santos, Cruz must have been only one of the many such
sellers she was accustomed to dealing with. It is hardly bad faith
for any one in the business of buying and selling books to buy
them at a discount and resell them for a profit.

But the real issue here is whether the petitioner has been
unlawfully deprived of the books because the check issued by the
impostor in payment therefor was dishonored.
In its extended memorandum, EDCA cites numerous cases
holding that the owner who has been unlawfully deprived of
personal property is entitled to its recovery except only where the
property was purchased at a public sale, in which event its return
is subject to reimbursement of the purchase price. The petitioner
is begging the question. It is putting the cart before the horse.
Unlike in the cases invoked, it has yet to be established in the
case at bar that EDCA has been unlawfully deprived of the books.
The petitioner argues that it was, because the impostor acquired
no title to the books that he could have validly transferred to the
private respondents. Its reason is that as the payment check
bounced for lack of funds, there was a failure of consideration
that nullified the contract of sale between it and Cruz.
The contract of sale is consensual and is perfected once
agreement is reached between the parties on the subject matter
and the consideration. According to the Civil Code:
Art. 1475. The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the
object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law
governing the form of contracts.
xxx

xxx

xxx

Art. 1477. The ownership of the thing sold shall be

transferred to the vendee upon the actual or constructive
delivery thereof.

Page | 15

Art. 1478. The parties may stipulate that ownership in the

thing shall not pass to the purchaser until he has fully paid
the price.
It is clear from the above provisions, particularly the last one
quoted, that ownership in the thing sold shall not pass to the
buyer until full payment of the purchase only if there is a
stipulation to that effect. Otherwise, the rule is that such
ownership shall pass from the vendor to the vendee upon the
actual or constructive delivery of the thing sold even if the
purchase price has not yet been paid.
Non-payment only creates a right to demand payment or to
rescind the contract, or to criminal prosecution in the case of
bouncing checks. But absent the stipulation above noted, delivery
of the thing sold will effectively transfer ownership to the buyer
who can in turn transfer it to another.
In Asiatic Commercial Corporation v. Ang, the plaintiff sold some
cosmetics to Francisco Ang, who in turn sold them to Tan Sit Bin.
Asiatic not having been paid by Ang, it sued for the recovery of
the articles from Tan, who claimed he had validly bought them
from Ang, paying for the same in cash. Finding that there was no
conspiracy between Tan and Ang to deceive Asiatic the Court of
Appeals declared:
11

Yet the defendant invoked Article 464 of the Civil Code

providing, among other things that "one who has been
unlawfully deprived of personal property may recover it
from any person possessing it." We do not believe that
the plaintiff has been unlawfully deprived of the cartons of
Gloco Tonic within the scope of this legal provision. It has
voluntarily parted with them pursuant to a contract of
purchase and sale. The circumstance that the price was
not subsequently paid did not render illegal a transaction
which was valid and legal at the beginning.
12

In Tagatac v. Jimenez, the plaintiff sold her car to Feist, who sold
it to Sanchez, who sold it to Jimenez. When the payment check
issued to Tagatac by Feist was dishonored, the plaintiff sued to
recover the vehicle from Jimenez on the ground that she had
been unlawfully deprived of it by reason of Feist's deception. In
ruling for Jimenez, the Court of Appeals held:
13

The point of inquiry is whether plaintiff-appellant Trinidad

C. Tagatac has been unlawfully deprived of her car. At
first blush, it would seem that she was unlawfully deprived
thereof, considering that she was induced to part with it
by reason of the chicanery practiced on her by Warner L.
Feist. Certainly, swindling, like robbery, is an illegal
method of deprivation of property. In a manner of
speaking, plaintiff-appellant was "illegally deprived" of her
car, for the way by which Warner L. Feist induced her to
part with it is illegal and is punished by law. But does this
"unlawful deprivation" come within the scope of Article
559 of the New Civil Code?
xxx

xxx

xxx

. . . The fraud and deceit practiced by Warner L. Feist

earmarks this sale as a voidable contract (Article 1390
N.C.C.). Being a voidable contract, it is susceptible of
either ratification or annulment. If the contract is ratified,
the action to annul it is extinguished (Article 1392, N.C.C.)
and the contract is cleansed from all its defects (Article
1396, N.C.C.); if the contract is annulled, the contracting
parties are restored to their respective situations before
the contract and mutual restitution follows as a
consequence (Article 1398, N.C.C.).
However, as long as no action is taken by the party
entitled, either that of annulment or of ratification, the
contract of sale remains valid and binding. When plaintiffappellant Trinidad C. Tagatac delivered the car to Feist by
virtue of said voidable contract of sale, the title to the car

Page | 16

passed to Feist. Of course, the title that Feist acquired

was defective and voidable. Nevertheless, at the time he
sold the car to Felix Sanchez, his title thereto had not
been avoided and he therefore conferred a good title on
the latter, provided he bought the car in good faith, for
value and without notice of the defect in Feist's title
(Article 1506, N.C.C.). There being no proof on record
that Felix Sanchez acted in bad faith, it is safe to assume
that he acted in good faith.

payment. It did not verify his identity although it was easy enough
to do this. It did not wait to clear the check of this unknown
drawer. Worse, it indicated in the sales invoice issued to him, by
the printed terms thereon, that the books had been paid for on
delivery, thereby vesting ownership in the buyer.

The above rulings are sound doctrine and reflect our own
interpretation of Article 559 as applied to the case before us.

Surely, the private respondent did not have to go beyond that

invoice to satisfy herself that the books being offered for sale by
Cruz belonged to him; yet she did. Although the title of Cruz was
presumed under Article 559 by his mere possession of the books,
these being movable property, Leonor Santos nevertheless
demanded more proof before deciding to buy them.

Actual delivery of the books having been made, Cruz acquired

ownership over the books which he could then validly transfer to
the private respondents. The fact that he had not yet paid for
them to EDCA was a matter between him and EDCA and did not
impair the title acquired by the private respondents to the books.

It would certainly be unfair now to make the private respondents

bear the prejudice sustained by EDCA as a result of its own
negligence. We cannot see the justice in transferring EDCA's
loss to the Santoses who had acted in good faith, and with proper
care, when they bought the books from Cruz.

One may well imagine the adverse consequences if the phrase

"unlawfully deprived" were to be interpreted in the manner
suggested by the petitioner. A person relying on the seller's title
who buys a movable property from him would have to surrender it
to another person claiming to be the original owner who had not
yet been paid the purchase price therefor. The buyer in the
second sale would be left holding the bag, so to speak, and would
be compelled to return the thing bought by him in good faith
without even the right to reimbursement of the amount he had
paid for it.

While we sympathize with the petitioner for its plight, it is clear

that its remedy is not against the private respondents but against
Tomas de la Pea, who has apparently caused all this trouble.
The private respondents have themselves been unduly
inconvenienced, and for merely transacting a customary deal not
really unusual in their kind of business. It is they and not EDCA
who have a right to complain.

It bears repeating that in the case before us, Leonor Santos took
care to ascertain first that the books belonged to Cruz before she
agreed to purchase them. The EDCA invoice Cruz showed her
assured her that the books had been paid for on delivery. By
contrast, EDCA was less than cautious in fact, too trusting in
dealing with the impostor. Although it had never transacted with
him before, it readily delivered the books he had ordered (by
telephone) and as readily accepted his personal check in

Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

1wphi1

WHEREFORE, the challenged decision is AFFIRMED and the

petition is DENIED, with costs against the petitioner.

Page | 17

CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
CORAZON
CAOIBES-PANTOJA,
assisted by her husband CONRADO
PANTOJA,
Respondents.

Promulgated:
July 21, 2006

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

DECISION

CARPIO MORALES, J.:

THIRD DIVISION
JOSE CAOIBES, JR., MELENCIO
CAOIBES and LOIDA CAOIBES,
Petitioners,
- versus -

Petitioners Jose Caoibes, Jr., Melencio Caoibes

and Loida Caoibes, as FIRST PARTY, and respondent
Corazon Caoibes-Pantoja, as SECOND PARTY, forged
on May 10, 1982 an agreement entitled RENUNCIATION
AND TRANSFER OF CLAIMS, RIGHTS, AND
INTERESTS (the agreement) covering a parcel of land,
G.R. No. 162873
Lot 2 of plan Psd-162069 (Lot 2), situated in Calaca,
Batangas containing an area of 54,665 sq. m., the
Present:
pertinent portions of which agreement read:
QUISUMBING, J., Chairperson,
CARPIO,
Page | 18

xxxx
THAT under and by virtue of a court
approved document entitled Compromise
Agreement entered into by the parties in
Special Proceeding No. 857 and Civil Case
No. 861 of the Court of First Instance of
Batangas, Branch VII, in particular Paragraph
4 (b) of aforesaid document, the FIRST
PARTY are to receive, among others, in full
ownership pro indiviso, and free from all liens
and encumbrances, the following described
real property, to wit:
A
parcel
of
land
(Lot 2 of plan Psd-162069),
situated in the sitio of TaklangAnak,
Barrio
of
Calantas, Municipality of Calac
a, Province of Batangas. Bound
ed on the NW., along line 1-2,
by center of Creek and property
of Felimon Las Herras (Lot 1 of
plan Psu-101302); on the SE.,
along lines 2, 3, 4 and 5, by Lot
1 of plan Psu-162069; on the
S., along lines 5, 6, 7, 8 and 9,
by Creek; on the NW., along
lines 9, 10, 11, 12, 13 and 1, by
center of Creek and property of
Felimon Las Herras (Lot 1 of
plan
Psu-101302).x
x
x
containing an area of FIFTYFOUR
THOUSAND
SIX

HUNDRED
SIXTY-FIVE
(54,665) square meters.
THAT issuance to the FIRST PARTY
of the proper title to the aforesaid property is
presently the subject of a land registration
proceeding LRC No. N-411 pending before
the Court of First Instance of Batangas,
Branch VII, acting as a land registration court.
THAT for and in consideration of the
payment by the SECOND PARTY[-herein
respondent Corazon Caoibes-Pantoja] of the
loan
secured
by
a
real
estate
mortgage constituted
on
the
property
described and delineated in Transfer
Certificate of Title No. P-189 of the Registry of
Deeds of Batangas, said loan in the principal
amount of NINETEEN THOUSAND PESOS
(P19,000.00) exclusive of accrued interest
being presently outstanding in the name of
GUILLERMO C. JAVIER with the LEMERY
SAVINGS AND LOAN ASSOCIATION,
Balayan Branch, and the further undertaking
of the SECOND PARTY to forthwith deliver
upon release to the FIRST PARTY aforesaid
TCT No. P-189 free from all liens and
encumbrances, the FIRST PARTYhereby
RENOUNCE, RELINQUISH and ABANDON
whatever rights, interests, or claims said
FIRST PARTY may have over the real
property in paragraph 1 hereof x x x
[illegible]hereby TRANSFER, CEDE, and
CONVEY said rights x x x [illegible]
and claims,
in
a
Page | 19

manner absolute and irrevocable, unto

and in favor of the SECOND PARTY, her
heirs, successors and assigns;

THAT by virtue of aforestated

renunciation
and
transfer, the SECOND
PARTY is hereby subrogated and/or
substituted to whatever rights, interests or
representations the FIRST PARTY may
have in the prosecution of the proper land
registration
proceeding
mentioned
[1]
elsewhere in this instrument.
x x x x (Emphasis and underscoring
supplied)

As reflected in the abovequoted agreement of the

parties, petitioners, as FIRST PARTY, renounced,
relinquished, abandoned and transferred, ceded and
conveyed whatever rights [they] may have over Lot 2 in
favor of respondent, as SECOND PARTY, and on
account of the renunciation and transfer, petitioners
transferred whatever rights . . . [they] may have in the

prosecution of the land registration proceeding, LRC No.

N-411.
About 14 years after the execution of the parties
above-said agreement or in 1996, respondent filed a
motion to intervene and be substituted as applicant in
LRC Case No. N-411. The motion was opposed by
petitioners who denied the authenticity and due execution
of the agreement, they claiming that the same was
without the consent and conformity of their mother, the
usufructuary owner [sic] of the land. The land registration
court, finding for petitioners, denied respondents motion
by Order of March 2, 1999.
Respondent thus filed on March 16, 2000 a
Complaint for Specific Performance and Damages
against petitioners before the Regional Trial Court (RTC)
of Balayan, Batangas, docketed as Civil Case No. 3705,
for the enforcement of petitioners obligation under the
agreement. To the complaint, petitioners filed a motion to
dismiss anchored on prescription, laches and prematurity
of action on account of respondents failure to refer the
case to the barangay lupon for conciliation.
On their defense of prescription, petitioners
argued:
Page | 20

It was clearly alleged in the complaint

that the purported RENUNCIATION AND
TRANSFER OF CLAIMS, RIGHTS AND
INTERESTS was . . . entered into on or
about May 10, 1982 a period of almost 18
LONG YEARS [BEFORE] THE PRESENT
ACTION. Under Article 1144 (1) of the New
Civil Code, it is required that an action
founded upon a written contract must be
brought WITHIN TEN (10) YEARS FROM
THE TIME THE RIGHT OF ACTION
ACCRUES.[2] (Underscoring supplied)

Branch
9
of
the
Balayan
RTC,
by
Resolution[3] dated July 12, 2000, granted petitioners
motion in this wise:
The Court is of the view that immediately after
the
execution of
the
RENUNCIATION
contract, herein defendants were deemed to
have renounced and transferred their rights or
whatever claim they may have on the subject
property and the latter should have at once
acted to make the renunciation effective by
having herself substituted to petitioner in the
land registration proceedings. Her failure to
make immediately effective the terms of the
said RENUNCIATION was constitutive of
what is referred to as the requisite cause of
action on the part of the plaintiff.

A cause of action arises when that which

should have been done is not done, or that
which should not have been done is done,
and in cases where there is no special
provision for such computation, recourse
must be had to the rule that the period must
be counted from the day on which the
corresponding action could have been
instituted (Central Philippine University vs.
CA, 246 SCRA 511).
The fact, that, from the day immediately
following
the
execution
of
the
RENUNCIATION contract up to the present,
with the defendants still continuing the land
registration
proceedings
without
any
substitution of plaintiff, could only be
interpreted as a clear manifestation of
defendants willful violation of the claimed
RENUNCIATION contract. It is quite incorrect,
therefore, to say that the violation happened
only when the defendants objected that they
be substituted by plaintiff in an intervention
proceedings filed by the latter.
The added fact that plaintiff did not raise this
glaring violation earlier is something that
eludes the comprehension of this Court. What
separates the execution of the contract and
the filing of this case is a period of almost
EIGHTEEN (18) long years way beyond the
prescriptive period set by law.[4] (Underscoring
supplied)

Page | 21

On appeal by respondent, the Court of Appeals, by

Decision[5] of December 4, 2003 subject of the present
petition for review on certiorari, reversed the trial courts
Resolution, it holding that prescription had not yet set
in. The Court of Appeals reasoned:
x x x It is not from the date of the instrument
but from the date of the breach that the period
of prescription of action starts. Since, it was
only in 1996 when plaintiff-appellant moved to
intervene and be substituted as the applicant
in the land registration proceeding involving
the subject property that defendantsappellees raised the issue of genuineness
and due execution of the instrument, it is only
from this date that the cause of action of
plaintiff-appellant accrued. The period should
not be made to retroact to the date of the
execution of the instrument on May 10, 1982
as claimed by the defendants-appellees for at
that time, there would be no way for the
plaintiff-appellant to know of the violation of
her rights.[6] (Underscoring supplied)

The appellate court thus ordered the remand of

the case to the trial court for further proceedings.
Petitioners motion for reconsideration of the
decision of the appellate court having been denied, the

present petition for review on certiorari was filed, faulting

said court to have
I.

. . . ERRED IN REVERSING THE TRIAL

COURT AND LABOR[ING] UNDER A
GROSS
MISAPPREHENSION
OF
FACTS IN HOLDING THAT THE
ACTION OF RESPONDENT HAS NOT
YET PRESCRIBED.

II.

. . . ERRED IN RULING THAT

RESPONDENTS CAUSE OF ACTION
ACCRUED ONLY IN 1996 WHEN SHE
MOVED TO INTERVENE AND BE
SUBSTITUTED AS AN APPLICANT, IN
LIEU OF PETITIONERS IN THE LAND
REGISTRATION PROCEEDING (LRC
N-411) BEFORE THE REGIONAL
TRIAL COURT, BRANCH 11 OF
BALAYAN, BATANGAS.

III.

. . . COMMITTED REVERSIBLE
ERROR IN HOLDING THAT THE
PERIOD OF PRESCRIPTION SHOULD
NOT BE MADE TO RETROACT TO
THE DATE OF THE EXECUTION OF
THE INSTRUMENT ON MAY 10, 1982.

IV. . . . ERRED IN NOT DISMISSING THE

COMPLAINT JUST THE SAME BY NOT
FINDING
THAT
LACHES
HAD
ALREADY SET IN.[7]

Page | 22

By the earlier-quoted pertinent portions of the

agreement, petitioners renounced and transferred
whatever rights, interests, or claims they had over Lot 2 in
favor of respondent for and in consideration of her
payment of the therein mentioned loan in the principal
amount of P19,000 which was outstanding in the name of
one Guillermo C. Javier.
Articles 1458, 1498 and 1307 of the Civil Code
which are pertinent to the resolution of the petition
provide:
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.

xxxx
Art. 1498. When the sale is made through a
public instrument, the execution thereof shall
be equivalent to the delivery of the thing which is the
object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred.

Book, by the rules governing the most

analogous nominate contracts, and by the
customs of the place.
(Emphasis and underscoring supplied)

The agreement of the parties is analogous to a

deed of sale in favor of respondent, it having transferred
ownership for and in consideration of her payment of the
loan in the principal amount of P19,000 outstanding in the
name of one Guillermo C. Javier. The agreement having
been made through a public instrument, the execution
was equivalent to the delivery of the property to
respondent.[8]
In respondents complaint for specific performance,
she seeks to enforce the agreement for her to be
subrogated and/or substituted as applicant in the land
registration proceeding over Lot 2. The agreement is of
course in consonance with Sec. 22 of P.D. 1529 (Property
Registration Decree which became effective on June 11,
1978) reading:

xxxx

Art. 1307. Innominate contracts shall

be regulated by the stipulations of the parties,
by the provisions of Title I and II of this
Page | 23

SEC. 22. Dealings with land pending

original registration. After the filing of the
application and before the issuance of the
decree of registration, the land therein
described may still be the subject of dealings
in whole or in part, in which case the
interested party shall present to the court the
pertinent instruments together with the
subdivision plan approved by the Director of
Lands in case of transfer of portions thereof,
and the court, after notice to the parties, shall
order such land registered subject to the
conveyance or encumbrance created by said
instruments, or order that the decree of
registration be issued in the name of the
person to whom the property has been
conveyed by said instruments. (Underscoring
supplied)

In Mendoza v. Court of Appeals,[9] this Court,

passing on Sec. 29 of Art. No. 496, as amended (Land
Registration Act), which is substantially incorporated in the
immediately-quoted Sec. 22 of the Property Registration
Decree, held:
The law does not require that the
application for registration be amended by
substituting the buyer or the person to whom
the property has been conveyed for the
applicant. Neither does it require that the
buyer or the person to whom the property

has been conveyed be a party to the

case. He may thus be a total stranger to the
land registration proceedings. The only
requirements of the law are: (1) that the
instrument be presented to the court by the
interested party together with a motion that
the same be considered in relation with the
application; and (2) that prior notice be given
to the parties to the case. x x x (Emphasis
supplied)

In light of the law and jurisprudence, the

substitution by respondent of petitioners as applicant in
the land registration case over Lot 2 is not even
necessary. All respondent has to do is to comply with the
requirements under the above-quoted Sec. 22 of the
Property Registration Decree. Ergo, it was unnecessary
for respondent to file the case for specific performance
subject of the present petition against petitioners to honor
their agreement allowing her to be substituted in their
stead as applicant in the land registration proceeding.
WHEREFORE, the assailed decision of the Court
of Appeals is REVERSED and SET ASIDE. The complaint
of respondent, docketed by the Regional Trial Court of
Balayan, Batangas as Civil Case No. 3705, Corazon
Caoibes-Pantoja
is, in
light
of
the
foregoing
ratiocination, DISMISSED.
Page | 24

JOSE TONGSON, JR.,

SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice

RAUL TONGSON, CARPIO, J., Chairperson,

TITA TONGSON, BRION,
GLORIA TONGSON DEL CASTILLO,
ALMA TONGSON, ABAD, and
Petitioners, PEREZ, JJ.

- versus -

EMERGENCY PAWNSHOP BULA, Promulgated:

INC. and DANILO R. NAPALA,
SECOND DIVISION

Respondents. January 15, 2010

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

SPOUSES CARMEN S. TONGSON G.R. No. 167874

and JOSE C. TONGSON
substituted by his children namely: Present:

DECISION

Page | 25

CARPIO, J.:

The Case

Before the Court is a petition for review [1] of the 31 August

2004 Decision[2] and 10 March 2005 Resolution [3] of the
Court of Appeals in CA-G.R. CV No. 58242. In the 31
August 2004 Decision, the Court of Appeals partially
granted the appeal filed by Emergency Pawnshop Bula,
Inc. (EPBI) and Danilo R. Napala (Napala) by modifying
the decision of the trial court. In the 10 March 2005
Resolution, the Court of Appeals denied the motion for
partial reconsideration filed by the Spouses Jose C.
Tongson and Carmen S. Tongson (Spouses Tongson).

The Facts

In May 1992, Napala offered to purchase from the

Spouses Tongson their 364-square meter parcel of land,
situated in Davao City and covered by Transfer
Certificate
of
Title
(TCT)
No.
143020,
for P3,000,000. Finding the offer acceptable, the
Spouses Tongson executed with Napala a Memorandum
of Agreement[4] dated 8 May 1992.

On 2 December 1992, respondents lawyer Atty. Petronilo

A. Raganas, Jr. prepared a Deed of Absolute
Sale[5] indicating the consideration as
only P400,000. When Carmen Tongson noticed that the
consideration was very low, she [complained] and called
the attention of Napala but the latter told her not to worry
as he would be the one to pay for the taxes and she
would receive the net amount of P3,000,000.[6]

To conform with the consideration stated in the Deed of

Absolute Sale, the parties executed another
Memorandum of Agreement, which allegedly replaced
the first Memorandum of Agreement,[7] showing that the
selling price of the land was only P400,000.[8]

Upon signing the Deed of Absolute Sale, Napala

paid P200,000 in cash to the Spouses Tongson and
Page | 26

issued a postdated Philippine National Bank (PNB) check

in the amount ofP2,800,000,[9] representing the remaining
balance of the purchase price of the subject
property. Thereafter, TCT No. 143020 was cancelled and
TCT No. T-186128 was issued in the name of EPBI. [10]

When presented for payment, the PNB check was

dishonored for the reason Drawn Against Insufficient
Funds. Despite the Spouses Tongson's repeated
demands to either pay the full value of the check or to
return the subject parcel of land, Napala failed to do
either. Left with no other recourse, the Spouses Tongson
filed with the Regional Trial Court, Branch 16, Davao City
a Complaint for Annulment of Contract and Damages
with a Prayer for the Issuance of a Temporary Restraining
Order and a Writ of Preliminary Injunction. [11]

In their Answer, respondents countered that Napala had

already delivered to the Spouses Tongson the amount
of P2,800,000 representing the face value of the PNB
check, as evidenced by a receipt issued by the Spouses
Tongson. Respondents pointed out that the Spouses
Tongson never returned the PNB check claiming that it
was misplaced.Respondents asserted that the payment
they made rendered the filing of the complaint baseless.

At the pre-trial, Napala admitted, among others, issuing

the postdated PNB check in the sum of P2,800,000.
[13]
The Spouses Tongson, on the other hand, admitted
issuing a receipt which showed that they received the
PNB check from Napala. Thereafter, trial ensued.

The Ruling of the Trial Court

The trial court found that the purchase price of the

subject property has not been fully paid and that Napalas
assurance to the Spouses Tongson that the PNB check
would not bounce constituted fraud that induced the
Spouses Tongson to enter into the sale. Without such
assurance, the Spouses Tongson would not have agreed
to the contract of sale. Accordingly, there was fraud within
the ambit of Article 1338 of the Civil Code, [14] justifying the
annulment of the contract of sale, the award of damages
and attorneys fees, and payment of costs.

[12]

Page | 27

0
0

The dispositive portion of the 9 December 1996 Decision

of the trial court reads:

a
s

WHEREFORE, judgment is hereby rendered

m
o
r
a
l

I Annulling the contract entered into by the

plaintiffs with the defendants;
II Declaring the writs of
injunctions issued permanent;

preliminary

d
a
m
a
g
e
s
;

III Ordering defendants to:

1) reconvey the
property
subject matter
of the case to
the plaintiffs;

b) P50,000
as
exemplary
damages;

2) pay plaintiffs:
a)
P
1
0
0
,
0

c) P20,000
as
attorneys fees;
and
d) P35,602.50
cost of suit
Page | 28

broken down
as follows:
P70.00 bond fee

The Ruling of the Court of Appeals

P60.00 lis pendens fee

P902.00 docket fee
P390.00 docket fee
P8.00 summons fee
P12.00 SDF
P178.50 Xerox
P9,000 Sidcor Insurance Bond fee
P25,000 Sidcor Insurance Bond fee

or the total sum of P205,602.50.

It is further ordered that the monetary award be offsetted

[sic] to defendants downpayment of P200,000 thereby
leaving a balance of P5,602.50.[15]

The Court of Appeals agreed with the trial courts finding

that Napala employed fraud when he misrepresented to
the Spouses Tongson that the PNB check in the amount
ofP2,800,000 would be properly funded at its
maturity. However, the Court of Appeals found that the
issuance and delivery of the PNB check and fraudulent
representation made by Napala could not be considered
as the determining cause for the sale of the subject
parcel of land. Hence, such fraud could not be made the
basis for annulling the contract of sale. Nevertheless, the
fraud employed by Napala is a proper and valid basis for
the entitlement of the Spouses Tongson to the balance of
the purchase price in the amount ofP2,800,000 plus
interest at the legal rate of 6% per annum computed from
the date of filing of the complaint on 11 February 1993.

Finding the trial courts award of damages

unconscionable, the Court of Appeals reduced the moral
Respondents appealed to the Court of Appeals.
Page | 29

on 11 February 1993, until the

finality
of
the
assailed
decision;
thereafter,
the
interest due shall be at the
legal rate of 12% per annum
until fully paid;

damages from P100,000 to P50,000 and the exemplary

damages from P50,000to P25,000.

The dispositive portion of the 31 August 2004 Decision of

the Court of Appeals reads:

b) P50,000 as moral damages;

WHEREFORE, the instant appeal is
PARTIALLY
GRANTED. The
assailed
decision of the Regional Trial Court,
11th Judicial Region, Branch 16, Davao City, in
Civil Case No. 21,858-93, is hereby
MODIFIED, to read:

WHEREFORE, judgment is hereby

rendered ordering defendants to pay
plaintiffs:

a) the sum of P2,800,000.00

representing the balance of
the purchase price of the
subject parcel of land, plus
interest at the legal rate of 6%
per annum computed from the
date of filing of the complaint

c) P25,000 as exemplary damages;

d) P20,000 as attorneys fees; and
e) The costs of suit in the total amount of P35,602.50.

It is understood, however, that plaintiffs entitlement to items

a to d, is subject to the condition that they have not received
the same or equivalent amounts in criminal case for
Violation of Batas Pambansa Bilang 22, docketed as
Criminal Case No. 30508-93, before the Regional Trial
Court of Davao City, Branch 12, instituted against the
defendant Danilo R. Napala by plaintiff Carmen S. Tongson.

SO ORDERED.[16]

Page | 30

The Spouses Tongson filed a partial motion for

reconsideration which was denied by the Court of
Appeals in its Resolution dated 10 March 2005.

The Ruling of the Court

The Issues
The petition has merit.

The Spouses Tongson raise the following issues:

On the existence of fraud

1. WHETHER THE CONTRACT OF SALE

CAN BE ANNULLED BASED ON THE
FRAUD EMPLOYED BY NAPALA; and

2. WHETHER THE COURT OF APPEALS

ERRED IN REDUCING THE AMOUNT
OF DAMAGES AWARDED BY THE
TRIAL COURT.

A contract is a meeting of the minds between two

persons, whereby one is bound to give something or to
render some service to the other.[17] A valid contract
requires the concurrence of the following essential
elements: (1) consent or meeting of the minds, that is,
consent to transfer ownership in exchange for the price;
(2) determinate subject matter; and (3) price certain in
money or its equivalent.[18]

Page | 31

In the present case, there is no question that the subject

matter of the sale is the 364-square meter Davao lot
owned by the Spouses Tongson and the selling price
agreed upon by the parties is P3,000,000. Thus, there is
no dispute as regards the presence of the two requisites
for a valid sales contract, namely, (1) a determinate
subject matter and (2) a price certain in money.

The problem lies with the existence of the remaining

element, which is consent of the contracting parties,
specifically, the consent of the Spouses Tongson to sell
the property to Napala. Claiming that their consent was
vitiated, the Spouses Tongson point out that Napalas
fraudulent representations of sufficient funds to pay for
the property induced them into signing the contract of
sale. Such fraud, according to the Spouses Tongson,
renders the contract of sale void.

On the contrary, Napala insists that the Spouses Tongson

willingly consented to the sale of the subject property
making the contract of sale valid. Napala maintains that
no fraud attended the execution of the sales contract.

The trial and appellate courts had conflicting findings on

the question of whether the consent of the Spouses
Tongson was vitiated by fraud. While the Court of
Appeals agreed with the trial courts finding that Napala
employed fraud when he assured the Spouses Tongson
that the postdated PNB check was fully funded when it
fact it was not, the Court of Appeals disagreed with the
trial courts ruling that such fraud could be the basis for
the annulment of the contract of sale between the
parties.

Under Article 1338 of the Civil Code, there is fraud when,

through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed
to. In order that fraud may vitiate consent, it must be the
causal (dolo causante), not merely the incidental (dolo
incidente), inducement to the making of the contract.
[19]
Additionally, the fraud must be serious.[20]

Page | 32

We find no causal fraud in this case to justify the

annulment of the contract of sale between the parties. It
is clear from the records that the Spouses Tongson
agreed to sell their 364-square meter Davao property to
Napala who offered to pay P3,000,000 as purchase price
therefor. Contrary to the Spouses Tongsons belief that
the fraud employed by Napala was already operational at
the time of the perfection of the contract of sale, the
misrepresentation by Napala that the postdated PNB
check would not bounce on its maturity hardly equates
to dolo causante. Napalas assurance that the check he
issued was fully funded was not the principal inducement
for the Spouses Tongson to sign the Deed of Absolute
Sale. Even before Napala issued the check, the parties
had already consented and agreed to the sale
transaction. The Spouses Tongson were never tricked
into selling their property to Napala. On the contrary, they
willingly accepted Napalas offer to purchase the property
at P3,000,000. In short, there was a meeting of the minds
as to the object of the sale as well as the consideration
therefor.

Some of the instances where this Court found the

existence of causal fraud include: (1) when the seller,
who had no intention to part with her property, was
tricked into believing that what she signed were papers
pertinent to her application for the reconstitution of her

burned certificate of title, not a deed of sale; [21] (2) when

the signature of the authorized corporate officer was
forged;[22] or (3) when the seller was seriously ill, and died
a week after signing the deed of sale raising doubts on
whether the seller could have read, or fully understood,
the contents of the documents he signed or of the
consequences of his act.[23] Suffice it to state that nothing
analogous to these badges of causal fraud exists in this
case.

However, while no causal fraud attended the execution of

the sales contract, there is fraud in its general sense,
which involves a false representation of a fact, [24] when
Napala inveigled the Spouses Tongson to accept the
postdated PNB check on the representation that the
check would be sufficiently funded at its maturity. In other
words, the fraud surfaced when Napala issued the
worthless check to the Spouses Tongson, which is
definitely not during the negotiation and perfection stages
of the sale. Rather, the fraud existed in the
consummation stage of the sale when the parties are in
the process of performing their respective obligations
under the perfected contract of sale. In Swedish Match,

Page | 33

AB v. Court of Appeals,[25] the Court explained the three

stages of a contract, thus:

I n general, contracts undergo three distinct

stages, to wit: negotiation; perfection or birth;
and consummation. Negotiation begins from
the time the prospective contracting parties
manifest their interest in the contract and
ends at the moment of agreement of the
parties. Perfection or birth of the contract
takes place when the parties agree upon the
essential
elements
of
the
contract.
Consummation occurs when the parties fulfill
or perform the terms agreed upon in the
contract, culminating in the extinguishment
thereof.

Indisputably, the Spouses Tongson as the sellers had

already performed their obligation of executing the Deed
of Sale, which led to the cancellation of their title in favor
of EPBI. Respondents as the buyers, on the other hand,
failed to perform their correlative obligation of paying the
full amount of the contract price. While Napala
paid P200,000 cash to the Spouses Tongson as partial

payment, Napala issued an insufficiently funded PNB

check to pay the remaining balance of P2.8 million.
Despite repeated demands and the filing of the
complaint, Napala failed to pay the P2.8 million until the
present. Clearly, respondents committed a substantial
breach of their reciprocal obligation, entitling the Spouses
Tongson to the rescission of the sales contract. The law
grants this relief to the aggrieved party, thus:

Article 1191 of the Civil Code provides:

Article 1191. The power to rescind obligations

is implied in reciprocal ones, in case one of
the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with payment of damages in
either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become
impossible.

Page | 34

Article 1385 of the Civil Code provides the effects of

rescission, viz:
ART.
1385. Rescission
creates
the
obligation to return the things which were
the object of the contract, together with their
fruits, and the price with its interest;
consequently, it can be carried out only
when he who demands rescission can
return whatever he may be obliged to
restore.
Neither shall rescission take place when the things which
are the object of the contract are legally in the possession
of third persons who did not act in bad faith.

While they did not file an action for the rescission of the
sales contract, the Spouses Tongson specifically prayed
in their complaint for the annulment of the sales contract,
for the immediate execution of a deed of reconveyance,
and for the return of the subject property to them. [26] The
Spouses Tongson likewise prayed for such other reliefs
which may be deemed just and equitable in the
premises. In view of such prayer, and considering

respondents substantial breach of their obligation under

the sales contract, the rescission of the sales contract is
but proper and justified. Accordingly, respondents must
reconvey the subject property to the Spouses Tongson,
who in turn shall refund the initial payment ofP200,000
less the costs of suit.

Napalas claims that rescission is not proper and that he

should be given more time to pay for the unpaid
remaining
balance
of P2,800,000
cannot
be
countenanced. Having acted fraudulently in performing
his obligation, Napala is not entitled to more time to pay
the remaining balance of P2,800,000, and thereby erase
the default or breach that he had deliberately incurred.
[27]
To do otherwise would be to sanction a deliberate and
reiterated infringement of the contractual obligations
incurred by Napala, an attitude repugnant to the stability
and obligatory force of contracts.[28]

The Court notes that the selling price indicated in the

Deed of Absolute Sale was only P400,000, instead of the
true purchase price of P3,000,000. The undervaluation of
the selling price operates to defraud the government of
Page | 35

the taxes due on the basis of the correct purchase

price. Under the law,[29] the sellers have the obligation to
pay the capital gains tax. In this case, Napala undertook
to advance the capital gains tax, among other fees,
under the Memorandum of Agreement, thus:

ATTY. ALABASTRO:

Q Is it not a fact that you were the one who paid for the
capital gains tax?
A No, I only advanced the money.

Q What is the amount in the Deed of Absolute

Sale?
A It was only Four Hundred Thousand. And he told me not
to worry because x x x the BIR and not to worry because he
will pay me what was agreed the amount of Three Million
and he will be paying all these expenses so I was thinking,
if that is the case, anyway he paid me the Two Hundred
Thousand cash and a subsequent Two Point Eight Million
downpayment check so I really thought that he was paying
the whole amount.

Q To whom?
A To BIR.

COURT:

Q You were the one who went to the BIR to pay the capital
gains tax?
A It is embodied
agreement.[30]

While Carmen Tongson protested against the very low

consideration, she eventually agreed to the reduced
selling price indicated in the Deed of Absolute since
Napala assured her not to worry about the taxes and
expenses, as he had allegedly made arrangements with
the Bureau of Internal Revenue (BIR) regarding the
payment of the taxes, thus:

in

the

memorandum

COURT:

Proceed.
Page | 36

ATTY. LIZA:

Q So you eventually agreed that this consideration be

reduced to Four Hundred Thousand Pesos and to be
reflected in the Deed of Absolute Sale?
A Yes, but when I was complaining to him why it is so
because I was worried why that was like that but Mr. Napala
told me dont worry because [he] can remedy this. And I
asked him how can [he] remedy this? And he told me we
can make another Memorandum of Agreement.

COURT:

Q Before you signed the Deed of Absolute Sale, you found

out the amount?
A Yes, sir.

Q And you complained?

A Yes.[31]

Considering that the undervaluation of the selling price of

the subject property, initiated by Napala, operates to
defraud the government of the correct amount of taxes
due on the sale, the BIR must therefore be informed of
this Decision for its appropriate action.

On the award of damages

Citing Article 1338 of the Civil Code, the trial court

awarded P100,000
moral
damages
and P50,000
exemplary damages to the Spouses Tongson. While
agreeing with the trial court on the Spouses Tongsons
entitlement to moral and exemplary damages, the Court
of Appeals reduced such awards for being
unconscionable. Thus, the moral damages was reduced
from P100,000 to P50,000, and the exemplary damages
was reduced from P50,000 to P25,000.

As discussed above, Napala defrauded the Spouses

Tongson in his acts of issuing a worthless check and
representing to the Spouses Tongson that the check was
funded, committing in the process a substantial breach of
his obligation as a buyer. For such fraudulent acts, the
Page | 37

law, specifically the Civil Code, awards moral damages to

the injured party, thus:

ART. 2220. Willful injury to property may be

a legal ground for awarding moral damages
if the court should find that, under the
circumstances, such damages are justly
due. The same rule applies to breaches
of contract where the defendant acted
fraudulently or in bad faith. (Emphasis
supplied)

Article 2234. When the amount of the

exemplary damages need not be proved, the
plaintiff must show that he is entitled to
moral,
temperate
or
compensatory
damages before the court may consider
the question of whether or not exemplary
damages would be awarded. In case
liquidated damages have been agreed upon,
although no proof of loss is necessary in
order that such liquidated damages may be
recovered, nevertheless, before the court
may consider the question of granting
exemplary in addition to the liquidated
damages, the plaintiff must show that he
would be entitled to moral, temperate or
compensatory damages were it not for the
stipulation for liquidated damages. (Emphasis
supplied)

Considering that the Spouses Tongson are entitled to

moral damages, the Court may also award exemplary
damages, thus:
ART. 2232. In contracts and quasi-contracts,
the court may award exemplary damages if
the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.

Accordingly, we affirm the Court of Appeals awards of

moral and exemplary damages, which we find equitable
under the circumstances in this case.

Page | 38

WHEREFORE, we PARTIALLY GRANT the petition.

We SET ASIDE the 31 August 2004 Decision and 10
March 2005 Resolution of the Court of Appeals in CAG.R. CV No. 58242, except as to the award of moral and
exemplary damages, and ORDER the rescission of the
contract of sale between the Spouses Tongson and
Emergency Pawnshop Bula, Inc.

Petitioner,
Present:

CORONA, J., Chairperson,

CARPIO,*
- v e r s u s - VELASCO, JR.,
NACHURA and
PERALTA, JJ.
BENITA T. ONG.[1],
Respondent. Promulgated:
February 2,
2010

Let a copy of this Decision be forwarded to the Bureau of

Internal Revenue for its appropriate action.

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

SO ORDERED.

THIRD DIVISION

DECISION
CORONA, J.:

RAYMUNDO S. DE LEON, G.R. No. 170405

Page | 39

On March 10, 1993, petitioner Raymundo S. de Leon

sold three parcels of land [2] with improvements situated in
Antipolo, Rizal to respondent Benita T. Ong. As these

1. That upon full payment of [respondent]

of the amount of FOUR HUNDRED
FIFTEEN THOUSAND FIVE HUNDRED
(P415,000), [petitioner] shall execute
and sign a deed of assumption of
mortgage in favor of [respondent]
without any further cost whatsoever;

properties were mortgaged to Real Savings and Loan

Association,

Incorporated

(RSLAI),

petitioner

and

respondent executed a notarized deed of absolute sale

with assumption of mortgage[3] stating:
xxxxxxxxx

That for and in consideration of the sum of ONE MILLION

ONE HUNDRED THOUSAND PESOS (P1.1 million),
Philippine currency, the receipt whereof is hereby
acknowledged from [RESPONDENT] to the entire
satisfaction of [PETITIONER], said [PETITIONER] does
hereby sell, transfer and convey in a manner absolute
and irrevocable, unto said[RESPONDENT], his heirs
and assigns that certain real estate together with the
buildings and other improvements existing thereon,
situated in [Barrio] Mayamot, Antipolo, Rizal under the
following terms and conditions:

2. That [respondent] shall assume payment

of the outstanding loan of SIX
HUNDRED EIGHTY FOUR THOUSAND
FIVE HUNDRED PESOS (P684,500)
with REAL SAVINGS AND LOAN,
[4]
Cainta, Rizal (emphasis supplied)

xxxxxxxxx

Pursuant

to

this

deed,

respondent

gave

petitioner P415,500 as partial payment. Petitioner, on the

other hand, handed the keys to the properties and wrote
a letter informing RSLAI of the sale and authorizing it to
accept payment from respondent and release the
certificates of title.
Page | 40

Thereafter, respondent undertook repairs and

On June 18, 1993, respondent filed a complaint for

made improvements on the properties. [5] Respondent

specific performance, declaration of nullity of the second

likewise informed RSLAI of her agreement with petitioner

sale and damages[6] against petitioner and Viloria in the

for her to assume petitioners outstanding loan. RSLAI

Regional Trial Court (RTC) of Antipolo, Rizal, Branch 74.

required her to undergo credit investigation.

She claimed that since petitioner had previously sold the

properties to her on March 10, 1993, he no longer had

Subsequently, respondent learned that petitioner

again sold the same properties to one Leona Viloria after

the right to sell the same to Viloria. Thus, petitioner

fraudulently deprived her of the properties.

March 10, 1993 and changed the locks, rendering the

Petitioner, on the other hand, insisted that

keys he gave her useless. Respondent thus proceeded

respondent did not have a cause of action against him

to RSLAI to inquire about the credit investigation.

and consequently prayed for the dismissal of the

However, she was informed that petitioner had already

complaint. He claimed that since the transaction was

paid the amount due and had taken back the certificates

subject to a condition (i.e., that RSLAI approve the

of title.

assumption of mortgage), they only entered into a

contract to sell. Inasmuch as respondent did apply for a
loan
Respondent persistently contacted petitioner but

her efforts proved futile.

from

RSLAI,

the

condition

did

not

arise.

Consequently, the sale was not perfected and he could

freely dispose of the properties. Furthermore, he made a
Page | 41

counter-claim for damages as respondent filed the

complaint allegedly with gross and evident bad faith.

Aggrieved, respondent appealed to the Court of

Appeals (CA),[8] asserting that the court a quo erred in
dismissing the complaint.

Because respondent was a licensed real estate

broker, the RTC concluded that she knew that the validity

The CA found that the March 10, 2003 contract

of the sale was subject to a condition. The perfection of a

executed by the parties did not impose any condition on

contract of sale depended on RSLAIs approval of the

the sale and held that the parties entered into a contract

assumption of mortgage. Since RSLAI did not allow

of sale. Consequently, because petitioner no longer

respondent to assume petitioners obligation, the RTC

owned the properties when he sold them to Viloria, it

held that the sale was never perfected.

declared the second sale void. Moreover, it found

petitioner liable for moral and exemplary damages for

In a decision dated August 27, 1999,[7] the RTC

fraudulently depriving respondent of the properties.

dismissed the complaint for lack of cause of action and

ordered respondent to pay petitioner P100,000 moral
damages,P20,000 attorneys fees and the cost of suit.

In a decision dated July 22, 2005, [9] the CA upheld

the sale to respondent and nullified the sale to Viloria. It
likewise

ordered

respondent

to

reimburse

petitioner P715,250 (or the amount he paid to RSLAI).

Petitioner, on the other hand, was ordered to deliver the
Page | 42

certificates of titles to respondent and pay her P50,000

ownership of the subject properties upon the execution of

moral damages and P15,000 exemplary damages.

the deed.

Petitioner moved for reconsideration but it was denied in

a resolution dated November 11, 2005. [10] Hence, this

We modify the decision of the CA.

petition,[11] with the sole issue being whether the parties

entered into a contract of sale or a contract to sell.

Petitioner insists that he entered into a contract to sell

since the validity of the transaction was subject to a
suspensive condition, that is, the approval by RSLAI of
respondents assumption of mortgage. Because RSLAI
did not allow respondent to assume his (petitioners)
obligation,

the

condition

never

CO
NTR
ACT
OF
SAL
E
OR
CO
NTR
ACT
TO
SEL
L?

materialized.

Consequently, there was no sale.

The RTC and the CA had conflicting interpretations of the
Respondent, on the other hand, asserts that they entered

March 10, 1993 deed. The RTC ruled that it was a

into a contract of sale as petitioner already conveyed full

Page | 43

contract to sell while the CA held that it was a contract of

The deed executed by the parties (as previously quoted)

sale.

stated that petitioner sold the properties to respondent in

a manner absolute and irrevocable for a sum of P1.1
In a contract of sale, the seller conveys ownership

of the property to the buyer upon the perfection of the

contract. Should the buyer default in the payment of the
purchase price, the seller may either sue for the
collection thereof or have the contract judicially resolved
and set aside. The non-payment of the price is therefore
a negative resolutory condition.[12]

million.[14] With regard to the manner of payment, it

required respondent to pay P415,500 in cash to petitioner
upon

the

execution

of

the

deed,

with

the

balance[15] payable directly to RSLAI (on behalf of

petitioner) within a reasonable time.[16] Nothing in said
instrument implied that petitioner reserved ownership of
the properties until the full payment of the purchase price.
[17]

On the contrary, the terms and conditions of the deed

only affected the manner of payment, not the immediate

On the other hand, a contract to sell is subject to a

transfer of ownership (upon the execution of the

positive suspensive condition. The buyer does not

notarized contract) from petitioner as seller to respondent

acquire ownership of the property until he fully pays the

as buyer. Otherwise stated, the said terms and conditions

purchase price. For this reason, if the buyer defaults in

pertained to the performance of the contract, not the

the payment thereof, the seller can only sue for

perfection thereof nor the transfer of ownership.

damages.[13]

Page | 44

Settled is the rule that the seller is obliged to transfer title

Furthermore, even assuming arguendo that the

over the properties and deliver the same to the buyer.

agreement of the parties was subject to the condition that

[18]

Civil

RSLAI had to approve the assumption of mortgage, the

Code[19] provides that, as a rule, the execution of a

said condition was considered fulfilled as petitioner

notarized deed of sale is equivalent to the delivery of a

prevented its fulfillment by paying his outstanding

thing sold.

obligation and taking back the certificates of title without

In

this

regard,

Article

1498

of

the

even notifying respondent. In this connection, Article 1186

In this instance, petitioner executed a notarized

of the Civil Code provides:

deed of absolute sale in favor of respondent. Moreover,

Article 1186. The condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment.

not only did petitioner turn over the keys to the properties
to respondent, he also authorized RSLAI to receive
payment from respondent and release his certificates of
title to her. The totality of petitioners acts clearly indicates
that he had unqualifiedly delivered and transferred
ownership of the properties to respondent. Clearly, it was
a contract of sale the parties entered into.

V
O
I
D
S

Page | 45

A
L
E

This case involves a double sale as the disputed

properties were sold validly on two separate occasions

O
R

by the same seller to the two different buyers in good

faith.

D
O
U
B
L
E

Article 1544 of the Civil Code provides:

S
A
L
E
?

Article 1544. If the same thing should have

been sold to different vendees, the ownership shall
be transferred to the person who may have first
taken possession thereof in good faith, if it should be
movable property.

Petitioner sold the same properties to two buyers,

first to respondent and then to Viloria on two separate
occasions.[20] However, the second sale was not void for

Should it be immovable property, the ownership

shall belong to the person acquiring it who in
good faith first recorded it in the Registry of
Property.

the sole reason that petitioner had previously sold the

same properties to respondent. On this account, the CA
erred.

Should there be no inscription, the ownership

shall pertain to the person who in good faith was
first in the possession; and, in the absence
thereof, to the person who presents the oldest

Page | 46

title, provided there is good faith. (emphasis

supplied)

Was respondent a purchaser in good faith? Yes.

Respondent purchased the properties, knowing

This provision clearly states that the rules on double or
multiple sales apply only to purchasers in good faith.
Needless to say, it disqualifies any purchaser in bad faith.

they were encumbered only by the mortgage to RSLAI.

According to her agreement with petitioner, respondent
had the obligation to assume the balance of petitioners
outstanding

obligation

to

RSLAI.

Consequently,

A purchaser in good faith is one who buys the

respondent informed RSLAI of the sale and of her

property of another without notice that some other person

assumption of petitioners obligation. However, because

has a right to, or an interest in, such property and pays a

petitioner surreptitiously paid his outstanding obligation

full and fair price for the same at the time of such

and took back her certificates of title, petitioner himself

purchase, or before he has notice of some other persons

rendered respondents obligation to assume petitioners

claim or interest in the property.[21] The law requires, on

indebtedness to RSLAI impossible to perform.

the part of the buyer, lack of notice of a defect in the title

of the seller and payment in full of the fair price at the

Article 1266 of the Civil Code provides:

time of the sale or prior to having notice of any defect in

the sellers title.

Article 1266. The debtor in obligations to do shall

be released when the prestation become legally or
physically impossible without the fault of the obligor.

Page | 47

good faith. Hence, the rules on double sale are

Since respondents obligation to assume petitioners

applicable.

outstanding balance with RSLAI became impossible

Article 1544 of the Civil Code provides that when

without her fault, she was released from the said

neither buyer registered the sale of the properties with

obligation. Moreover, because petitioner himself willfully

the registrar of deeds, the one who took prior possession

prevented the condition vis--vis the payment of the

of the properties shall be the lawful owner thereof.

remainder of the purchase price, the said condition is

considered fulfilled pursuant to Article 1186 of the Civil
Code. For purposes, therefore, of determining whether
respondent was a purchaser in good faith, she is deemed
to have fully complied with the condition of the payment
of the remainder of the purchase price.

In this instance, petitioner delivered the properties

to

respondent

when

he

executed

the

notarized

deed[22] and handed over to respondent the keys to the

properties. For this reason, respondent took actual
possession and exercised control thereof by making
repairs and improvements thereon. Clearly, the sale was

Respondent was not aware of any interest in or a

claim on the properties other than the mortgage to RSLAI

perfected and consummated on March 10, 1993. Thus,

respondent became the lawful owner of the properties.

which she undertook to assume. Moreover, Viloria bought

the properties from petitioner after the latter sold them to
respondent. Respondent was therefore a purchaser in

Nonetheless, while the condition as to the

payment of the balance of the purchase price was
Page | 48

deemed fulfilled, respondents obligation to pay it

respondent Benita T. Ong is ordered to pay petitioner

subsisted. Otherwise, she would be unjustly enriched at

Raymundo de Leon P684,500 representing the balance

the expense of petitioner.

of the purchase price as provided in their March 10, 1993

agreement.

Therefore,

respondent

must

pay

petitioner P684,500, the amount stated in the deed. This

Costs against petitioner.

is because the provisions, terms and conditions of the

contract

constitute

the

law

between

the

parties.

Moreover, the deed itself provided that the assumption of

SO ORDERED.

mortgage was without any further cost whatsoever.

Petitioner, on the other hand, must deliver the certificates
of title to respondent. We likewise affirm the award of
damages.

WHEREFORE, the July 22, 2005 decision and

November 11, 2005 resolution of the Court of Appeals in
CA-G.R.

CV

No.

59748

hereby AFFIRMED withMODIFICATION insofar

are
as
Page | 49

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 142310

September 20, 2004

ARRA REALTY CORPORATION and SPOUSES CARLOS

ARGUELLES and REMEDIOS DELA RAMA
ARGUELLES, petitioners,
vs.
GUARANTEE DEVELOPMENT CORPORATION AND
INSURANCE AGENCY and ENGR. ERLINDA
EALOZA,respondents.
DECISION
CALLEJO, SR., J.:
Arra Realty Corporation (ARC) was the owner of a parcel of land,
located in Alvarado Street, Legaspi Village, Makati City, covered
by Transfer Certificate of Title (TCT) No. 112269 issued by the
Register of Deeds.1 Through its president, Architect Carlos D.
Arguelles, the ARC decided to construct a five-story building on
its property and engaged the services of Engineer Erlinda
Pealoza as project and structural engineer. In the process,
Pealoza and the ARC, through Carlos Arguelles, agreed on
November 18, 1982 that Pealoza would share the purchase
price of one floor of the building, consisting of 552 square meters
for the price of P3,105,838: P901,738, payable within sixty (60)
days from November 20, 1982, and the balance payable in twenty
(20) equal quarterly installments of P110,205. The parties further
agreed that the payments of Pealoza would be credited to her
account in partial payment of her stock subscription in the ARCs

capital stock.2 Sometime in May 1983, Pealoza took possession

of the one-half portion of the second floor, with an area of 552
square meters3 where she put up her office and operated the St.
Michael International Institute of Technology. Unknown to her,
ARC had executed a real estate mortgage over the lot and the
entire building in favor of the China Banking Corporation as
security for a loan on May 12, 1983.4 The deed was annotated at
the dorsal portion of TCT No. 112269 on June 3, 1983.5From
February 23, 1983 to May 31, 1984, Pealoza
paid P1,175,124.59 for the portion of the second floor of the
building she had purchased from the ARC.6 She learned that the
property had been mortgaged to the China Banking Corporation
sometime in July 1984. Thereafter, she stopped paying the
installments due on the purchase price of the property.
Pealoza wrote the China Banking Corporation on August 1,
1984 informing the bank that the ARC had conveyed a portion of
the second floor of the building to her, and that she had
paid P1,175,124.59 out of the total price ofP3,105,838. She
offered to open an account with the bank in her name in the
amount of P300,000, and to make monthly deposits of P50,000
each, to serve as payments of the equivalent loan of the ARC
upon the execution of the appropriate documents. She also
proposed for the bank to assist her in requesting the ARC to
execute a deed of absolute sale over the portion of the second
floor she had purchased and the issuance of the title in her name
upon the payment of the purchase price.7 However, the bank
rejected her proposal.8 She then wrote the ARC on August 31,
1984 informing it of China Banking Corporations rejection of her
offer to assume its equivalent loan from the bank and reminded it
that it had conformed to her proposal to assume the payment of
its loan from the bank up to the equivalent amount of the balance
of the purchase price of the second floor of the building as agreed
upon, and the consequent execution by the ARC of a deed of
absolute sale over the property in her favor.9 Pealoza then sent
a copy of a deed of absolute sale with assumption of mortgage
for the ARCs consideration, and informed the latter that, in the
meantime, she was withholding installment payments.10 On

Page | 50

October 3, 1984, Pealoza transferred the school to another

building she had purchased, but retained her office therein. She
later discovered that her office had been padlocked. 11 She had the
office reopened and continued holding office thereat. To protect
her rights as purchaser, she executed on November 26, 1984 an
affidavit of adverse claim over the property which was annotated
at the dorsal portion of TCT No. 112269 on November 27,
1984.12 However, the adverse claim was cancelled on February
11, 1985.13
When the ARC failed to pay its loan to China Banking
Corporation, the subject property was foreclosed extrajudicially,
and, thereafter, sold at public auction to China Banking
Corporation on August 13, 1986 forP13,953,171.07.14 On April 29,
1987, the ARC and the Guarantee Development Corporation and
Insurance Agency (GDCIA) executed a deed of conditional sale
covering the building and the lot for P22,000,000, part of which
was to be used to redeem the property from China Banking
Corporation.15 With the money advanced by the GDCIA, the
property was redeemed on May 4, 1987.16 On May 14, 1987, the
petitioner executed a deed of absolute sale over the lot and
building in favor of the GDCIA for P22,000,000.17 The ARC
obliged itself under the deed to deliver possession of the property
without any occupants therein. The Register of Deeds, thereafter,
issued TCT No. 147846 in favor of the GDCIA over the property
without any liens or encumbrances on May 15, 1987.18 Of the
purchase price of P22,000,000, the GDCIA retained P1,000,000
to answer for any damages arising from any suits of the
occupants of the building.
On May 28, 1987, Pealoza filed a complaint against the ARC,
the GDCIA, and the Spouses Arguelles, with the Regional Trial
Court of Makati, Branch 61, for "specific performance or
damages" with a prayer for a writ of preliminary injunction.
Pealoza prayed for the following reliefs:

WHEREFORE, it is most respectfully prayed of this

Honorable Court that
1.- Before hearing, a temporary restraining order
immediately issue;
2.- After notice and hearing, and the filing of an
injunction bond, a preliminary injunction be issued
forthwith enjoining and restraining the defendant
Register of Deeds for Makati, Metro Manila, from
receiving and registering any document
transferring, conveying, encumbering or,
otherwise, alienating the land and edifice covered
by Transfer Certificate of Title No. 112269 of said
Registry of Deeds and from issuing a new title
therefor;
3.- After hearing and trial
(a) Ordering defendants ARRA and
Arguelles to execute a deed of sale in
favor of plaintiff over the second floor of
that 5-storey edifice built on 119 Alvarado
Street, Legaspi Village, Makati, Metro
Manila, simultaneously with the tender of
the remaining balance on the purchase
price thereon;
(b) Ordering defendants ARRA and
Arguelles, jointly and severally, to pay the
plaintiff such moral damages as may be
proved during the trial;
(c) Ordering defendants ARRA and
Arguelles, jointly and severally, to pay the
plaintiff exemplary damages in such
amount as may be deem (sic) just,

Page | 51

sufficient and equitable as exempary (sic)

damages;
(d) Ordering defendants ARRA and
Arguelles, jointly and severally, to pay the
plaintiff an amount equivalent to 20% of
whatever she may recover herein as and
for attorneys fees;P500.00 per
appearance of counsel in Court; and
miscellaneous litigation expenses and
cost of suit;
4.- On the Alternative Cause of Action, in the
event that specific performance cannot be
effected for any reason, to render judgment in
favor of the plaintiff and against the defendants
(a) Ordering the defendants, jointly and
reveraaly (sic), to restitute to the plaintiff
the sum ofP1,444,124.59 with interest
thereon at bank borrowing rate from
August 1984 until the same is finally
wholly returned;
(b) Ordering the defendants, jointly and
severally, to pay the plaintiff the difference
between the selling price on the second
floor of the 5-storey edifice after
deducting P1,444,124.59 therefrom;
(c) Directing defendant Guarantee
Development Corporation & Insurance
Agency to deposit with the Honorable
Court any amount still in its possession on
the purchase price of the land and the 5storey edifice in question;

(d) Ordering the defendants, jointly and

severally, to pay the plaintiff moral and
exemplary damages as may be proved
during the trial and/or as this Honorable
Court may deem just, adequate and
equitable in the premises;
(e) Ordering the defendants, jointly and
severally, to pay the plaintiff an amount
equivalent to 20% of whatever she may
recover from the defendants in this suit as
and for attorneys fees, litigation expenses
and costs.
PLAINTIFF further prays for such other reliefs and
remedies as may be just and equitable in the premises19
On her first cause of action, Pealoza alleged, inter alia:
2.- That on or about November 18, 1982, the plaintiff and
defendant ARRA represented by its President and
General Manager, defendant Arguelles, entered into an
agreement whereby for and in consideration of the
amount of P3,105,828.00 on a deferred payment plan
payable in five (5) years, defendants ARRA and Arguelles
agreed to sell to the plaintiff one (1) whole floor of a
prospective 5-storey building which said defendants
planned to build on a 992 square meter lot located at 119
Alvarado Street, Legaspi Village, Makati, Metro Manila,
covered by Transfer Certificate of Title No. 112269 of the
Registry of Deeds for Makati, Metro Manila, copy of which
agreement is hereto attached as Annex "A" and made
integral part hereof ;
3.- That consonant with the aforementioned agreement
between the plaintiff and defendants ARRA and Arguelles,
the former paid to said defendants the total amount

Page | 52

of P1,377,124.59 as evidenced by receipts and cash

vouchers copies of which are hereto attached as Annexes
"B," "B-1" to "B-10" and made integral parts hereof;

interest over the same shall have been adequately and

properly secured, copy of said letter is hereto attached as
Annex "D" hereof;

4.- That upon completion of the 5-storey edifice on May

31, 1984, the plaintiff made her choice of the second floor
thereof as the subject matter or object of the sale in her
favor, and with the express knowledge and consent of
defendants ARRA and Arguelles, she immediately took
possession and occupied the same as contained in a
certification to said effect of the defendants, and where
they further certified that the certificate of condominium
corresponding to the second floor "is presently under
process," copy of said certification is hereto attached as
Annex "C" hereof;

7.- That in order to facilitate the transaction and

expeditious execution of the sale over the second floor in
her favor, the plaintiff had a Deed of Sale with Assumption
of Mortgage prepared and forwarded the same to
defendants ARRA and Arguelles for their consideration
and signature with an accompanying letter therefor dated
September 25, 1984, copy of said draft of a deed of sale
with assumption of mortgage and the accompanying letter
therefor are hereto attached as Annexes "E" and"E-1,"
respectively;

5.- That sometime in August 1984, the plaintiff learned

that the defendants ARRA and Arguelles, conspiring with
one another in a clear and unmistakeably (sic) scheme to
defraud the plaintiff of her investment on the second floor
of the 5-storey edifice, mortgaged the land and the
building covered by Transfer Certificate of Title No.
112269 of the Registry of Deeds for Makati, Metro Manila,
with the China Banking Corporation in order to secure the
payment of their loan in the total sum of P6,500,000.00
without the knowledge and/or consent of the plaintiff;
6.- That after verifying the fact of mortgage with the China
Banking Corporation and realizing the risk of loss of her
investment of P1,377,124.59 she had so far paid on the
purchase price of the second floor of the 5-storey edifice,
the plaintiff wrote the defendants ARRA and Arguelles on
August 31, 1984 proposing to defendants ARRA and
Arguelles the execution of a deed of sale with assumption
of mortgage in her favor of the portion of the loan
corresponding to the second floor of the said edifice and
informing them of her resolve to hold further payments on
the purchase price of the second floor until her rights and

8.- That by reason of the unjustified, unwarranted and

malicious inaction and/or refusal and failure of the
defendants ARRA and Arguelles to comply with plaintiffs
perfectly valid and legal demand for the execution of a
document of sale over the second floor of the 5-storey
edifice, and in order to protect her rights and interest in
said transaction, the plaintiff caused to be prepared and
executed an affidavit of Adverse Claim and effected the
annotation thereof on Transfer Certificate of Title No.
112269 of the Registry of Deeds for Makati, M.M., copy of
said Adverse Claim is hereto attached as Annex "F"
hereof.20
On her second cause of action, Pealoza alleged, as follows:
9.- That after her occupation and taking possession of the
second floor of the said 5-storey edifice, the plaintiff
caused the installation of a water tank and water pumps
thereto;
10.- That the water tank installed on the second floor of
the 5-storey edifice involved an outlay ofP15,000.00 as

Page | 53

evidenced by Cash Vouchers, copies of which are hereto

attached as Annexes "G" and "G-1," while the water
pumps involved the disbursement of P52,000.00 from the
funds of the plaintiff as evidenced by Cash Vouchers,
copies of which are hereto attached as Annexes "H," "H1" hereof;
11.- That when the defendants ARRA and Arguelles
mortgaged with (sic) land and the 5-storey edifice to the
China Banking Corporation, the mortgage included the
water tank and water pumps servicing the second floor
thereof installed by the plaintiff;21
Pealoza caused the annotation of the notice of lis pendens at
the dorsal portion of TCT No. 112269.
The GDCIA interposed the following affirmative and special
defenses in its answer to the complaint:
26. Guarantee acquired clean title to the Property, as
evidenced by the transfer certificate of title attached as
Annex 4 hereof.

which is a collateral attack on the title to the Property in

question, cannot be allowed by the Court.
31. The complaint (para. 6) admits that plaintiff was
unable to pay the purchase price for the portion of the
building which she allegedly bought under the letter
agreement with Arra dated November 18, 1982 (Annex
"A," Complaint). Assuming plaintiffs agreement with Arra
to be valid and enforceable, her failure to discharge her
part of the agreement bars her from now attempting to
compel performance from Arra and Arguelles.
32. Plaintiffs remedy, should her claim, indeed, be
meritorious, is a personal action for damages against Arra
and Arguelles.22
The GDCIA prayed that, after due proceedings, judgment be
rendered in its favor, thus:
WHEREFORE, it is respectfully prayed that, after due
hearing, judgment be rendered:
(i) Dismissing the complaint for lack of merit;

27. Guarantee was an innocent purchaser for value and

in good faith of the Property who: (i) verified that the title
to the Property in the Registry of Deeds of Makati was
absolutely free and clear of any encumbrances, liens or
claims other than the mortgage to China Banking
Corporation; and, (ii) even obtained explicit confirmation
of that fact from Arra and Arguelles.

30. Consequently, Guarantee could rely, as it did, on the

absence of any annotation of encumbrance on the title to
the Property. By clear provision of law, the present action,

(ii) Ordering plaintiff to pay attorneys fees in such

amount as may be proven in the course of trial;
(iii) Ordering plaintiff to pay to Guarantee the
amount of P500,000.00 as moral damages;
or, in the alternative, should plaintiffs claim be
adjudged meritorious,
(iv) Ordering defendants Arra and Arguelles,
solidarily, to return the purchase price of the
Property with interest as stated in the Deed of
Conditional Sale;

Page | 54

(v) Ordering defendants Arra and Arguelles,

solidarily, to pay to Guarantee the amount
ofP1,000,000.00 as punitive and exemplary
damages;
(vi) Ordering defendants Arra and Arguelles to pay
attorneys fees in such amount as may be proven
in the course of trial;
(vii) Ordering defendants Arra and Arguelles to
pay to Guarantee the amount of P500,000.00 as
moral damages.
Other just and equitable reliefs are prayed for.23
The ARC and the Spouses Arguelles interposed the following
special and affirmative defenses:
10. Plaintiff has no cause of action against answering
defendants; her complaint is definitely a nuisance suit;
11. When answering defendants decided to erect a 5storey building on their lot in 1982, plaintiff and answering
defendants agree that plaintiff will share in the
construction of any one (1) floor thereof; hence, the
agreement between them (Annex "A");
12. Plaintiff not only refused and failed to comply with her
Agreement despite repeated demands but also grossly
violated said agreement as she paid only an initial amount
of P200,000.00 on February 7, 1982 in contrary to the
specific, express decisive stipulation in Annex "A" which
was synchronized with the agreement of Answering
Defendants with the contractor of the building, Pyramid
Construction & Engineering Corp., who was committed to
finish the building in a period of five (5) months;

13. Having committed to construct the 5-storey edifice on

their lot, answering defendants has (sic) to raise the
required initial amount to start the construction and for
this reason, they were constrained to borrow the rest of
the amount necessary for the completion of the building
and they used their own land and the building itself as
collateral to enable defendant Arguelles to finish the
building plus his own funding in the amount
of P7,000,000.00;
14. Despite her non-compliance with her agreement,
plaintiff, on her own and without the consent of answering
defendants, occupied the second floor of the building and
converted the same into a school the St. Michael
International School and other business establishments
whereby she earned no less thanP3,000,000.00 in a
period of four (4) years of her occupancy as a squatter
thereof without paying the rentals to answering
defendants;
15. Due to plaintiffs persistent requests for the issuance
in her favor of a certification of her occupancy of the
second floor to enable her to secure a loan in the amount
of P3,105,838.00 to complete payment of her obligation,
defendant Carlos Arguelles, always a kind and
understanding person, issued Annex "C" with the
expectation that plaintiff could, indeed, comply with her
agreement within a period of three (3) months as she
promised;
16. Having failed to fulfill her promise and to comply with
her obligation as mentioned in the immediately preceding
paragraph hereof, plaintiff voluntarily vacated the second
floor of the said building on (sic) May 1986;
17. As a consequence of plaintiffs violation of her written
agreement, answering defendants naturally defaulted in
their mortgage obligation with China Banking Corporation

Page | 55

and answering defendants lot and building were,

therefore, foreclosed by said bank and having no means
of redeeming the mortgaged properties within the
redemption period, answering defendants were compelled
to negotiate for the sale of the foreclosed properties which
sale was monitored to the plaintiff together with her
statement of account;
18. That the negotiation for the sale of the building took
almost a year and during such period, plaintiff was
cooperative in showing the second floor which she was
then occupying to prospective buyers;
19. Whatever right plaintiff may have acquired over the
second floor of the subject 5-storey building has been
extinguished upon her failure to comply with her
obligation, which was the payment of the total amount
of P3,105,838.00 within the specific period expressly
provided as the essence of the agreement.24
The ARC and the Spouses Arguelles also interposed
counterclaims against the GDCIA, while the latter secured a writ
of preliminary attachment against its co-defendants and
garnished their funds. On April 17, 1995, the trial court rendered
judgment in favor of Pealoza and the GDCIA, and against the
ARC and the Spouses Arguelles, thus:
WHEREFORE, premises above considered, judgment is
hereby rendered as prayed for by plaintiff PEALOZA in
the case for SUM OF MONEY as against defendants
ARRA and SPOUSES CARLOS D. ARGUELLES and
REMEDIOS DELA RAMA-ARGUELLES, who are hereby
ORDERED as follows:
1. TO PAY plaintiff the amount of P1,444,124.59
with interest of 12 per centum per annum from
August 1984 until fully paid;

2. TO PAY the amount of P150,000.00 for and as

attorneys fees; and
3. TO PAY the Costs of the proceedings.
The case for SPECIFIC PERFORMANCE and prayer for
PRELIMINARY INJUNCTION are considered as
DISMISSED on grounds that this case for this alternative
relief was filed after the Transfer Certificate of Title of the
property was already issued by defendant Register of
Deeds in the name of GUARANTEE.
The case as against DEFENDANT Guarantee
Development Corporation & Insurance Agency
(GUARANTEE) is hereby DISMISSED for insufficiency of
evidence.
The counterclaims of DEFENDANTS are hereby
DISMISSED for insufficiency of evidence.
SO ORDERED.25
Pealoza, as well as the ARC and the Spouses Arguelles,
appealed the decision to the Court of Appeals (CA). The ARC and
the Spouses Arguelles alleged that the Regional Trial Court
(RTC) erred as follows:
I IN NOT ANNULLING OR RESCINDING THE
CONDITIONAL DEED OF SALE OF REALTY DATED
APRIL 29, 1987 AND DEED OF ABSOLUTE SALE
DATED MAY 14, 1999;
II IN NOT ORDERING THE DEFENDANT GUARANTEE
DEVELOPMENT AND INSURANCE AGENCY TO PAY
DEFENDANTS-APPELLANTS FOR THE MALICIOUS
AND UNFOUNDED FILING OF WRIT OF ATTACHMENT
AND GARNISHMENT; AND

Page | 56

III IN NOT DIRECTING PACES TO PAY ARRA REALTY

AND SPOUSES ARGUELLES ARREARS IN RENTALS
PLUS INTERESTS AND DISMISSING THE ORIGINAL
AND AMENDED COMPLAINTS.26
The CA rendered judgment, on September 30, 1998, affirming
with modification the appealed decision. The fallo reads:
WHEREFORE, the appeals of both ARRA Realty
Corporation and plaintiff Engineer Erlinda Pealoza are
hereby DISMISSED, and the Decision of the lower court
is hereby AFFIRMED but the award ofP150,000.00 as
attorneys fees in favor of said plaintiff is deleted. The
Register of Deeds of Makati City is hereby ordered to
cancel the Notice of Lis Pendens annotated on Transfer
Certificate of Title No. 147845 registered in the name of
Guarantee Development Corporation and Insurance
Agency.27
The ARC and the Spouses Arguelles filed a motion for
reconsideration of the decision of the CA on the following
grounds:
1.) THIS HONORABLE COURT OF APPEALS ERRED IN
NOT RULING THAT PEALOZAS ACTION WAS
TANTAMOUNT TO FORFEITURE OR WAIVER OF HER
RIGHTS.
2.) THIS HONORABLE COURT OF APPEALS ERRED IN
NOT APPRECIATING THE EVIDENCE OF CODEFENDANTS ARRA/ARGUELLES ESPECIALLY THE
ARREARS IN RENTALS/OUT OF POCKET ADVANCES
WITH THE RESULTANT UNJUST ENRICHMENT ON
THE PART OF PEALOZA.28
However, the appellate court denied the said motion. Pealoza
filed a petition for review on certiorari with this Court docketed as

G.R. No. 136876, wherein she made the following assignment of

errors:
I
The Court of Appeals gravely erred in finding respondent
Guarantee an innocent purchaser for value and in good
faith contrary to settled jurisprudence that a buyer of a
parcel of land who did not pay the purchase price in full
and who could not have failed to know or discover that
the land sold to him was in the adverse possession of
another is a buyer in bad faith.
II
The Court of Appeals gravely erred in finding that
petitioner, who had established her legal right for sum of
money against respondents Arra and the Arguelles
spouses, may be effectively barred from pursuing her
alternative remedy for recovery of title against respondent
Guarantee contrary to Section 2, Rule 8 of the Rules of
Court.
III
The Court of Appeals gravely erred in not awarding
damages and attorneys fees despite violation of the
rights of the petitioner on the wrongful or fraudulent action
on the part of the respondents.29

WHEREFORE, premises considered, it is respectfully

prayed that the Decision of the Court of Appeals in CAG.R. CV No. 52911 dated September 30, 1998 as well as
its Resolution dated December 23, 1998 be reversed and
set aside and that a Decision be rendered:

Page | 57

1. Declaring as null and void the title of Guarantee

(TCT No. 147845) over the subject property
located at No. 119 Alvarado St., Legaspi Village,
Makati, Metro Manila.
2. Ordering respondents to execute a Deed of
Sale in favor of the petitioner covering the subject
second floor of the subject property
simultaneously with the tender of the remaining
balance on the purchase price.
3. Ordering respondents, jointly and severally, to
pay petitioner moral and exemplary damages of
One Million Pesos (P1,000,000.00).
4. Ordering respondents, jointly and severally, to
pay petitioner attorneys fees of ten (10%) percent
of the amount involved.
On the alternative cause of action, in the event that
specific performance cannot be affected, to render
judgment:
1. Ordering respondents, jointly and severally, to
pay petitioner the sum of P1,944,124.59 with
interest of twelve (12%) percent from August 1984
until fully paid.
2. Ordering respondents, jointly and severally, to
pay moral and exemplary damages of One Million
Pesos (P1,000,000.00).
3. Ordering respondents, jointly and severally, to
pay attorneys fees of ten (10%) percent of the
amount involved.

Such other reliefs just and proper are, likewise, prayed

for.30
On March 15, 1999, the Court resolved to deny due course to the
petition for failure of the petitioner therein to show any reversible
error committed by the CA in its decision. Entry of judgment was
made of record on April 14, 1999.31
For their part, the ARC and the Spouses Arguelles, now the
petitioner, filed their petition for review with this Court, contending
that:
I
THE HONORABLE COURT OF APPEALS COMMITTED
A SERIOUS ERROR OF LAW IN NOT HOLDING THAT
NO PERFECTED CONTRACT EXISTS BETWEEN ARRA
REALTY CORPORATION AND ENGINEER ERLINDA
PEALOZA.
II
THE HONORABLE COURT OF APPEALS COMMITTED
A SERIOUS ERROR OF LAW IN NOT HOLDING THAT
GUARANTEE DEVELOPMENT CORPORATION IS NOT
AN INNOCENT PURCHASER FOR VALUE AND THAT
AUTOMATIC RESCISSION IS PRESENT.32
III
THE HONORABLE COURT OF APPEALS COMMITTED
A SERIOUS ERROR OF LAW IN NOT HOLDING THAT
ENGINEER ERLINDA PEALOZA IS GUILTY OF
FRAUD AND IS IN BAD FAITH. HENCE, LIABLE FOR
DAMAGES.

Page | 58

At the outset, it must be pointed out that the issues raised by the
parties in their respective pleadings in this Court have already
been resolved in G.R. No. 136876, where we denied due course
to Pealozas petition for review. Nonetheless, considering that
the sole petitioner in the said case was Pealoza, whereas the
petitioners in the petition at bar are the ARC and the Spouses
Arguelles, we shall resolve the petition on its merits. Furthermore,
since the issues raised by the petitioners in their assignment of
errors are interrelated, the Court shall delve into and resolve the
same simultaneously.
The petitioners posit that no contract of sale over the subject
property was perfected between the petitioner ARC, on the one
hand, and respondent Pealoza, on the other, because the latter
failed to pay the balance of the total purchase price of a portion of
the second floor of the building as provided in their November 18,
1982 agreement. They aver that respondent Pealoza bound and
obliged herself to pay the downpayment of P901,738 on or before
January 1983, and the balance in twenty (20) equal quarterly
payments of P110,205. However, the petitioners aver, respondent
Pealoza was able to complete the downpayment only on March
4, 1983 and managed to pay only three quarterly installments,
and part of the fourth quarterly installment. They assert that, in
violation of the November 18, 1982 agreement, respondent
Pealoza used the property as a school instead of an office, and
later abandoned the same without prior notice to the petitioner
ARC. The petitioners assert that respondent Pealoza failed to
pay for the advances extended to her, amounting to P302,753.06
inclusive of interests, as well as rentals for her occupancy of the
property in the total amount of P2,177,935. The petitioners
contend that, even if the payments of respondent Pealoza
amounting to P1,735,500 would be deducted from the agreed
purchase price, she would still end up owing the petitioner ARC
the net amount of P930,815.56, excluding interests. They aver
that respondent Pealoza should be ordered to pay damages
under Article 19 of the New Civil Code because she acted in bad
faith, and pray that the payments she made to the petitioner ARC

for the purchase of the said portion of the building be forfeited in

its favor.
The petitioners further contend that respondent GDCIA was a
purchaser of the property in bad faith because it purchased the lot
and building despite its presumed knowledge of the claims of
respondent Pealoza and the fact that the building was occupied
by private individuals and/or corporations. The petitioners aver
that they even offered to return the P21,000,000 paid by the
respondent GDCIA for the property, less the retained P1,000,000,
but that the latter rejected the offer. Hence, the deed of absolute
sale executed by the petitioner ARC and the respondent GDCIA
over the property was automatically rescinded.
In her comment on the petition, respondent Pealoza averred that
her November 18, 1982 agreement with the petitioner ARC is a
perfected contract of sale. She asserts that the CA erred in
holding that she was barred from recovering the property from the
respondent GDCIA and in not finding that the latter is not an
innocent purchaser in good faith because, by its own admission, it
purchased the building although it was still occupied. In fact, she
notes, the respondent GDCIA retained P1,000,000 of the
purchase price of the property to answer for any claims for
damages of the said occupants. She prayed, thus:
WHEREFORE, premises considered, it is respectfully
prayed that the petition be denied and that the Decision of
the Court of Appeals in CA-G.R. CV No. 52911 dated
September 30, 1998 as well as its Resolution dated
February 21, 2000 be modified in that:
1. Declaring as null and void the title of Guarantee
(TCT No. 147845) over the subject property
located at No. 119 Alvarado St., Legaspi Village,
Makati, Metro Manila.

Page | 59

2. Ordering petitioners and respondent Guarantee

to execute a Deed of Sale in favor of the petitioner
covering the subject second floor of the subject
property simultaneously with the tender of the
remaining balance on the purchase price.

In its comment on the petition, the respondent GDCIA avers that

the issues raised by the petitioners and respondent Pealoza in
her Comment had already been resolved by this Court in G.R.
No. 136876, when the petition therein was denied due course.
We rule against the petitioners.

3. Ordering petitioners and respondent

Guarantee, jointly and severally, to pay Pealoza
moral and exemplary damages of One Million
Pesos (P1,000,000.00).
4. Ordering petitioners and respondent
Guarantee, jointly and severally, to pay Pealoza
attorneys fees of ten (10%) percent of the amount
involved.
In the alternative, in the event that specific performance
cannot be affected, to render judgment:
1. Ordering petitioners and respondent
Guarantee, jointly and severally, to pay petitioner
the sum ofP1,944,124.59 with interest of twelve
(12%) percent from August 1984 until fully paid.
2. Ordering petitioners and respondent
Guarantee, jointly and severally, to pay moral and
exemplary damages of One Million Pesos
(P1,000,000.00).
3. Ordering petitioners and respondent
Guarantee, jointly and severally, to pay attorneys
fees of ten (10%) percent of the amount involved.
Such other reliefs just and proper are, likewise, prayed
for.33

Central to the issue is the November 18, 1982 letter-agreement of

the parties, which reads:
Ms. Erlinda Pealoza
5th Flr. ODC Intl. Plaza Bldg.
Salcedo St., Legaspi Village
Makati, Metro Manila
Dear Linda:
I would like to review the arrangement arrived at
our meeting yesterday afternoon. You shall share
one (1) floor of the proposed 5-storey office
building to be constructed on a 992 sq. mt. lot
owned by ARRA Realty Corporation located at
Alvarado St., Legaspi Village, Makati, Metro Mla.
The consideration for which you shall own one (1)
floor is THREE MILLION ONE HUNDRED FIVE
THOUSAND EIGHT HUNDRED THIRTY-EIGHT
PESOS (P3,105,838.00) on a deferred payment
plan. The initial payment of NINE HUNDRED
ONE THOUSAND SEVEN HUNDRED THIRTYEIGHT PESOS (P901,738.00) shall be paid within
sixty (60) days from November 20, 1982 and the
balance payable in 20 equal quarterly payments
of ONE HUNDRED TEN THOUSAND TWO
HUNDRED FIVE PESOS (P110,205.00). Every
payment that you make, ARRA shall credit your
account by way of partial payment to your stock
subscriptions of ARRAs capital stock. As soon as

Page | 60

our contractor, Pyramid Construction and

Engineering Corporation, complete its
commitment with us, which is not more than five
(5) months, you shall immediately take
possession of the floor of your choice. Further, as
soon as practicable, the Title corresponding to the
floor that you own shall be transferred to your
name.
However, should you pay in full at the end of the
fourth quarter or at any time prior to the 5-year
arrangement, the price shall be adjusted
accordingly.
I believe that this accurately summarizes our
understanding. If you have any questions or if I
have not properly stated our agreement, please
let me know, otherwise, you may signify your
conformity by signing the duplicate copy of this
letter.
Very truly yours,
(Sgd.)
CARLOS D. ARGUELLES
President & General Manager

CONFORME:
(Sgd.)

PL:FP:ccr

ERLINDA PEALOZA
Date: __________34

As gleaned from the agreement, the petitioner ARC, as vendor,

and respondent Pealoza, as vendee, entered into a contract of
sale over a portion of the second floor of the building yet to be
constructed for the price ofP3,105,838 payable in installments,
the first installment of P901,738 to be paid within sixty (60) days

from November 20, 1982 or on or before January 20, 1983, and

the balance payable in twenty (20) equal quarterly payments
of P110,205. As soon as the second floor was constructed within
five (5) months, respondent Pealoza would take possession of
the property, and title thereto would be transferred to her name.
The parties had agreed on the three elements of subject matter,
price, and terms of payment. Hence, the contract of sale was
perfected, it being consensual in nature, perfected by mere
consent, which, in turn, was manifested the moment there was a
meeting of the minds as to the offer and the acceptance
thereof.35 The perfection of the sale is not negated by the fact that
the property subject of the sale was not yet in existence. This is
so because the ownership by the seller of the thing sold at the
time of the perfection of the contract of sale is not an element of
its perfection. A perfected contract of sale cannot be challenged
on the ground of non-ownership on the part of the seller at the
time of its perfection. What the law requires is that the seller has
the right to transfer ownership at the time the thing is delivered.
Perfection per se does not transfer ownership which occurs upon
the actual or constructive delivery of the thing sold. 36
In May 1983, respondent Pealoza took possession of a portion
of the second floor of the building sold to her with an area of 552
square meters. She put up her office and operated the St.
Michael International Institute of Technology. Thenceforth,
respondent Pealoza became the owner of the property,
conformably to Article 1477 of the New Civil Code which reads:
Art. 1477. The ownership of the thing sold shall be transferred to
the vendee upon the actual or constructive delivery thereof.
In a contract of sale, until and unless the contract is resolved or
rescinded in accordance with law, the vendor cannot recover the
thing sold even if the vendee failed to pay in full the initial
payment for the property. The failure of the buyer to pay the
purchase price within the stipulated period does not by itself bar
the transfer of ownership or possession of the property sold, nor
ipso facto rescind the contract.37 Such failure will merely give the

Page | 61

vendor the option to rescind the contract of sale judicially or by

notarial demand as provided for by Article 1592 of the New Civil
Code:
Art. 1592. In the sale of immovable property, even though
it may have been stipulated that upon failure to pay the
price at the time agreed upon the rescission of the
contract shall of right take place, the vendee may pay,
even after the expiration of the period, as long as no
demand for rescission of the contract has been made
upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term.
Admittedly, respondent Pealoza failed to pay the downpayment
on time. But then, the petitioner ARC accepted, without any
objections, the delayed payments of the respondent; hence, as
provided in Article 1235 of the New Civil Code, the obligation of
the respondent is deemed complied with:
Art. 1235. When the obligee accepts the performance,
knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is
deemed fully complied with.
The respondent cannot be blamed for suspending further
remittances of payment to the petitioner ARC because when she
pushed for the issuance of her title to the property after taking
possession thereof, the ARC failed to comply. She was aghast
when she discovered that in July 1984, even before she took
possession of the property, the petitioner ARC had already
mortgaged the lot and the building to the China Banking
Corporation; when she offered to pay the balance of the purchase
price of the property to enable her to secure her title thereon, the
petitioner ARC ignored her offer. Under Article 1590 of the New
Civil Code, a vendee may suspend the payment of the price of
the property sold:

Art. 1590. Should the vendee be disturbed in the

possession or ownership of the thing acquired, or should
he have reasonable grounds to fear such disturbance, by
a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has
caused the disturbance or danger to cease, unless the
latter gives security for the return of the price in a proper
case, or it has been stipulated that, notwithstanding any
such contingency, the vendee shall be bound to make the
payment. A mere act of trespass shall not authorize the
suspension of the payment of the price.
Respondent Pealoza was impelled to cause the annotation of an
adverse claim at the dorsal portion of TCT No. 112269. Her
testimony is quoted, thus:
Q: And did you finally acquire the certificate of title to the
2nd floor of the said building?
A: No, Sir.
Q: Why not?
A: Because the said building was mortgaged by ARRA
Realty and Architect Arguelles with China Banking
Corporation and subsequently sold to Guaranty (sic)
Development Corporation.
Q: When, for the first time, did you learn about the
mortgage of the building to China Banking Corp.?
A: It was sometime in July of 1984.
Q: How did you learn about it?
A: Since I took possession of the 2nd floor and made
payments thereon, I asked Architect Arguelles every now

Page | 62

and then about the execution of a Deed of Sale to the 2nd

floor.

Q: Did ARRA reply to your letter?

A: ARRA and Arguelles ignored the said letter.

Q: What was the reply of Arguelles?

Q: What did you do then?
A: He told me that he had to work out yet the titling of the
2nd floor as a condominium unit.
Q: Was Arguelles able to have the 2nd floor titled as a
condominium unit?
A: No, Sir.
Q: Why not?
A: Because he did not take any steps about it.
Q: When Arguelles did not take steps about it, what did
you do?
A: I inquired why Arguelles was not doing anything about
the titling of the 2nd floor and the sale thereof to me. That
was how I discovered that Arguelles mortgaged the same
to the China Banking Corp.38

Q: With those letters, what did you do?

A: On August 31, 1984, I wrote a letter to ARRA
requesting them to execute a deed of sale with the
assumption of mortgage in my favor. I attached a copy of
the deed of sale and assumption of mortgage to the said
letter, may I request this letter be marked as Exh. "U" and
the deed of sale attached to it with the assumption of
mortgage as Exh. "U-1."

A: On September 25, 1984, I wrote a letter to ARRA which

I request to be marked as Exh. "V" reiterating the signing
of the deed of sale and at the same time telling him that I
was suspending my payments on the 2nd floor unless
and until he signs that Deed of Sale. I offered to pay the
full amount so I can get the certificate of title, because I
had more than sufficient money to pay him at the time.
Here are copies of my bank deposits from 1982 to 1986
which show my liquidity. I request that they be marked as
Exh. "W" and "W-1" to "W-59" inclusive.
Q: What did ARRA do with that letter?
A: ARRA and Arguelles ignored the said letter.
Q: What steps did you take?
A: Upon [the] advise of my lawyer, I filed a Notice of
Adverse Claim dated November 26, 1984, which I request
to be marked as Exh. "X" which was inscribed the next
day, November 7, 1984, at the back of the Certificate of
Title No. 112269, which I request to be marked as Exh.
"Y" and the inscription of the Notice of Adverse Claim to
be bracketed and marked as Exh. "Y-1."39
Contrary to the claim of the petitioners, respondent Pealoza did
not waive her right to enforce the letter-agreement or abandon
the property she had purchased from the petitioner ARC. While
she transferred the school to another location, the respondent
maintained her office in the subject property, only to discover that
the petitioner had had her office padlocked. Nevertheless, she

Page | 63

had her office reopened and continued holding office thereat for a
year or so, thereafter:

Q: Were you able to enter the office?

A: No, Sir.

Q: In the meantime, did you continue holding office and

holding classes for St. Michael on the 2nd floor?
A: Sometime in April of 1986 when classes ended I
transferred the St. Michael School to a building which I
purchased at Yakal St. also in Makati.
Q: Why did you transfer the St. Michael School at that
building in Yakal St.?
A: Because after three years of operation the St. Michael
School has grown too big for the 2nd floor of that building
at 119 Alvarado.
Q: How about your Engineering Office?
A: My Engineering Office has also grown bigger, just right
for that space at the 2nd floor, so it remained there.
Q: So the office of Pealoza Engineering retained the
Alvarado office?
A: Yes, Sir.
Q: After St. Michael left it, were you able to hold office
there peacefully?
A: No, Sir.
Q: Why not?
A: One Monday, I went to our office at the 2nd floor at 119
Alvarado for work.

Q: Why not?
A: Because the padlock that I placed there had been
changed.
Q: How did you discover that?
A: Because when I was using my key to my padlock, it
would not fit.
Q: What did you do?
A: I went to the office of Engr. Arguelles at ARRA Realty
Corp. at the upper floor and asked them why they
changed the padlock. Nobody wanted to explain to me
why the padlock was changed but they gave me the key
and I had it duplicated for my use, so I continued holding
office there. I held office in the said premises continuously
for about a year. Later on, it was padlocked.40
Respondent Pealoza turned over the possession of the property
to the petitioner ARC on October 7, 1986 and, shortly thereafter,
filed her complaint against the petitioner ARC. The bare fact that
the respondent filed her complaint shortly after vacating the
property is evidence of her determination to pursue her claims
against the petitioners.
In view of the failure of the petitioner ARC to transfer the title of
the property to her name because of the mortgage thereof to
China Banking Corporation and the subsequent sale thereof to
the GDCIA, respondent Pealoza is entitled to the refund of the
amount she paid to the petitioner ARC, conformably to Article
1398 of the New Civil Code, which reads:

Page | 64

Art. 1398. An obligation having been annulled, the

contracting parties shall restore to each other the things
which have been the subject matter of the contract, with
their fruits, and the price with its interest, except in cases
provided by law.

in an amount equivalent to the balance of the purchase price of

the subject property, which the petitioner ARC rejected. In fine,
respondent Pealoza acted in accord with law and in utmost good
faith. Hence, she is not liable for damages to the petitioners under
Article 19 of the New Civil Code.

In obligations to render service, the value thereof shall be

the basis for damages.

The law is that men, singly or in combination, may use any lawful
means to accomplish a lawful purpose, although the means
adopted may cause injury to another.42 When a person is doing a
lawful thing in a lawful way, his conduct is not actionable though it
may result in damages to another; for, though the damage
caused is undoubted, no legal right of another is invaded; hence,
it is said to be damnum absque injuria.43

We reject the petitioners claim that respondent Pealoza

is liable for P2,177,935 by way of advances and unpaid
rentals. We note that in their answer to the amended
complaint of respondent Pealoza, the petitioners did not
interpose any counterclaims for actual damages in the
form of unpaid rentals. Neither did the petitioners assign
as error in their brief in the CA the failure of the trial court
to award P302,753.06 to them for advances. It was only
when they moved for the reconsideration of the decision
of the CA did they claim, for the first time on appeal, their
entitlement to P302,753.06 as refund for advances. The
petitioner ARC is, thus, barred from raising the said issue
in this Court.41
Likewise barren of factual and legal basis is the petitioners claim
for damages against the respondent based on Article 19 of the
New Civil Code, which reads:
Art. 19. Every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
In this case, respondent Pealoza suspended the payment of the
balance of the purchase price of the property because she had
the right to do so. While she failed to pay the purchase price on
time, the petitioner ARC nevertheless accepted such delayed
payments. The respondent even proposed to assume the loan
account of the petitioner ARC with the China Banking Corporation

The elements of abuse of rights are the following: (a) the

existence of a legal right or duty, (b) which is exercised in bad
faith; and (c) for the sole intent of prejudicing or injuring another.
Malice or bad faith is at the core of said provision.44 Good faith is
presumed and he who alleges bad faith has the duty to prove the
same.45 Good faith refers to the state of the mind which is
manifested by the acts of the individual concerned. It consists of
the intention to abstain from taking an unconscionable and
unscrupulous advantage of another.46 Bad faith, on the other
hand, does not simply connote bad judgment to simple
negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of known duty
due to some motive or interest or ill-will that partakes of the
nature of fraud.47 Malice connotes ill-will or spite and speaks not
in response to duty. It implies an intention to do ulterior and
unjustifiable harm. The petitioners failed to adduce evidence of
bad faith or malice on the part of respondent Pealoza. This
cannot be said of the petitioner ARC. It mortgaged the property to
China Banking Corporation even after having sold the same to
respondent Pealoza, and, thereafter, sold the same anew to
GDCIA; respondent Pealoza was, thus, left holding the
proverbial bag.

Page | 65

On the last issue, the petitioners contend that the deed of

conditional sale and deed of absolute sale executed by them and
the respondent GDCIA were automatically nullified because the
latter had actual or personal knowledge that the property sold had
tenants. Furthermore, the respondent GDCIA
retained P1,000,000 on account of the claims of respondent
Pealoza, Paces Industrial Development Corporation, and
Emeterio Samson over the portions of the property.
The contention of the petitioners has no merit.
First. The petitioners did not file a counterclaim against the
respondent GDCIA for the rescission of the aforesaid
decision.48 Moreover, the petitioners did not adduce evidence to
prove bad faith on the part of the respondent GDCIA. Additionally,
the petitioners warranted in the aforesaid deeds in favor of the
said respondent, that:
d) It is hereby agreed, convenanted and stipulated by and
between the parties hereto that the VENDOR will execute
and deliver to the VENDEE a definite or absolute Deed of
Sale upon the full payment by the VENDEE of the unpaid
balance of the purchase price hereinabove stipulated.

and void and the VENDEE shall be entitled to enforce its

right under Section 8 of the Deed of Conditional Sale. 50
Second. The respondent GDCIA relied on the representations of
the petitioners. However, the respondent received claims for
ownership of portions of the property from tenants of the building,
including respondent Pealoza, which impelled it to
retain P1,000,000 of the purchase price to answer for said claims.
There is, thus, no factual and legal basis for the plea of the
petitioners that the trial court and the CA erred in not rendering
judgment in their favor declaring the said deeds rescinded.
On the claim of respondent Pealoza against the petitioners and
her co-respondent GDCIA, we agree with the latter that the same
is barred by the resolution of this Court in G.R. No. 136876,
denying due course to her petition for review of the decision of
the CA on the ground that no reversible error was committed by
the said court, which resolution has become final and executory.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
The assailed decision and resolution of the Court of Appeals
are AFFIRMED. Costs against the petitioners.
SO ORDERED.

1. The VENDOR undertakes and commits to deliver the

Property, including all floors of the building, as entirely
vacant to the VENDEE not later than May 15, 1987.
Physical possession, however, of the first and second
floors of the Building can be turned over to the VENDEE
at any time convenient to them.49

The VENDOR undertakes to perform, fulfill and comply

with the representations, warranties and undertaking
stated in the Deed of Conditional Sale. Should the
VENDOR fail to do so, this agreement shall become null

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 107207 November 23, 1995

Page | 66

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 simplydrawn 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

Page | 67

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:

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.

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.

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

Page | 68

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

Page | 69

Meanwhile, the Presidential Commission for the Urban Poor

("PCUD"), through its Regional Director for Luzon, Farley O.
Viloria, asked the Metropolitan Trial Court of Paraaque for a
grace period of 45 days from 21 April 1989 within which to
relocate and transfer the squatter families. Acting favorably on the
request, the court suspended the enforcement of the writ of
execution accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on
the expiry of the 45-day grace period and his client's willingness
to "underwrite the expenses for the execution of the judgment
and ejectment of the occupants." 5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel
for private respondent, advised Atty. Apostol that the Deed of
Conditional Sale had been rendered null and void by virtue of his
client's failure to evict the squatters from the premises within the
agreed 60-day period. He added that private respondent had
"decided to retain the property." 6
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was
perfected from the very moment that there was a
meeting of the minds of the parties upon the
subject lot and the price in the amount of
P1,561,600.00. Moreover, the contract had
already been partially fulfilled and executed upon
receipt of the downpayment of your client. Ms.
Ongsiong is precluded from rejecting its binding
effects relying upon her inability to eject the
squatters from the premises of subject property
during the agreed period. Suffice it to state that,

the provision of the Deed of Conditional Sale do

not grant her the option or prerogative to rescind
the contract and to retain the property should she
fail to comply with the obligation she has assumed
under the contract. In fact, a perusal of the terms
and conditions of the contract clearly shows that
the right to rescind the contract and to demand
the return/reimbursement of the downpayment is
granted to our client for his protection.
Instead, however, of availing himself of the power
to rescind the contract and demand the return,
reimbursement of the downpayment, our client
had opted to take it upon himself to eject the
squatters from the premises. Precisely, we refer
you to our letters addressed to your client dated
April 17, 1989 and June 8, 1989.
Moreover, it is basic under the law on contracts
that the power to rescind is given to the injured
party. Undoubtedly, under the circumstances, our
client is the injured party.
Furthermore, your client has not complied with her
obligation under their contract in good faith. It is
undeniable that Ms. Ongsiong deliberately
refused to exert efforts to eject the squatters from
the premises of the subject property and her
decision to retain the property was brought about
by the sudden increase in the value of realties in
the surrounding areas.

Page | 70

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 nonoccurrence 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

Page | 71

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

Page | 72

days after the removal of all squatters from the above described
property."

of the condition imposed on private respondent to free the

property from squatters. 20

From the moment the contract is perfected, the parties are bound
not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law. Under the
agreement, private respondent is obligated to evict the squatters
on the property. The ejectment of the squatters is a condition the
operative act of which sets into motion the period of compliance
by petitioner of his own obligation, i.e., to pay the balance of the
purchase price. Private respondent's failure "to remove the
squatters from the property" within the stipulated period gives
petitioner the right to either refuse to proceed with the agreement
or waive that condition in consonance with Article 1545 of the
Civil Code. 16This option clearly belongs to petitioner and not to
private respondent.

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.

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

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.

Page | 73

[G.R. No. 103577. October 7, 1996]

SO ORDERED.

ROMULO A. CORONEL, ALARICO A. CORONEL,

ANNETTE A. CORONEL, ANNABELLE C.
GONZALES (for herself and on behalf of
Floraida C. Tupper, as attorney-in-fact),
CIELITO
A.
CORONEL,
FLORAIDA A.
ALMONTE,
and
CATALINA
BALAIS
MABANAG, petitioners, vs. THE COURT OF
APPEALS, CONCEPCION D. ALCARAZ and
RAMONA PATRICIA ALCARAZ, assisted by
GLORIA
F.
NOEL
as
attorney-infact, respondents.
DECISION
MELO, J.:

The petition before us has its roots in a complaint for

specific performance to compel herein petitioners (except
the last named, Catalina Balais Mabanag) to consummate
the sale of a parcel of land with its improvements located
along Roosevelt Avenue in Quezon City entered into by the
parties sometime in January 1985 for the price
of P1,240,000.00.
The undisputed facts of the case were summarized by
respondent court in this wise:

THIRD DIVISION

On January 19, 1985, defendants-appellants Romulo

Coronel, et. al. (hereinafter referred to as Coronels)
Page | 74

executed a document entitled Receipt of Down Payment

(Exh. A) in favor of plaintiff Ramona Patricia Alcaraz
(hereinafter referred to as Ramona) which is reproduced
hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 - Total amount
50,000.00 - Down payment
-----------------------------------------P1,190,000.00 - Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog,
Quezon City, the sum of Fifty Thousand Pesos purchase
price of our inherited house and lot, covered by TCT No.
119627 of the Registry of Deeds of Quezon City, in the total
amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from
our deceased father, Constancio P. Coronel, the transfer
certificate of title immediately upon receipt of the down
payment above-stated.
On our presentation of the TCT already in or name, We will
immediately execute the deed of absolute sale of said
property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of theP1,190,000.00.

Clearly, the conditions appurtenant to the sale are the

following:
1. Ramona will make a down payment of Fifty Thousand
(P50,000.00) pesos upon execution of the document
aforestated;
2. The Coronels will cause the transfer in their names of the
title of the property registered in the name of their deceased
father upon receipt of the Fifty Thousand (P50,000.00)
Pesos down payment;
3. Upon the transfer in their names of the subject property,
the Coronels will execute the deed of absolute sale in favor
of Ramona and the latter will pay the former the whole
balance of One Million One Hundred Ninety Thousand
(P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee
Concepcion D. Alcaraz (hereinafter referred to as
Concepcion), mother of Ramona, paid the down payment of
Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh. 2).
On February 6, 1985, the property originally registered in
the name of the Coronels father was transferred in their
names under TCT No. 327043 (Exh. D; Exh 4)
On February 18, 1985, the Coronels sold the property
covered by TCT No. 327043 to intervenor-appellant
Catalina B. Mabanag (hereinafter referred to as Catalina)
for One Million Five Hundred Eighty Thousand
Page | 75

(P1,580,000.00) Pesos after the latter has paid Three

Hundred Thousand (P300,000.00) Pesos (Exhs. F-3; Exh.
6-C)
For this reason, Coronels canceled and rescinded the
contract (Exh. A) with Ramona by depositing the down
payment paid by Concepcion in the bank in trust for
Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et. al., filed a complaint
for a specific performance against the Coronels and caused
the annotation of a notice of lis pendens at the back of TCT
No. 327403 (Exh. E; Exh. 5).
On April 2, 1985, Catalina caused the annotation of a notice
of adverse claim covering the same property with the
Registry of Deeds of Quezon City (Exh. F; Exh. 6).
On April 25, 1985, the Coronels executed a Deed of
Absolute Sale over the subject property in favor of Catalina
(Exh. G; Exh. 7).
On June 5, 1985, a new title over the subject property was
issued in the name of Catalina under TCT No. 351582 (Exh.
H; Exh. 8).
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court
(Branch 83, RTC, Quezon City) the parties agreed to submit
the case for decision solely on the basis of documentary

exhibits.Thus, plaintiffs therein (now private respondents)

proffered their documentary evidence accordingly marked
as Exhibits A through J, inclusive of their corresponding
submarkings. Adopting these same exhibits as their own,
then defendants (now petitioners) accordingly offered and
marked them as Exhibits 1 through 10, likewise inclusive of
their corresponding submarkings.Upon motion of the
parties, the trial court gave them thirty (30) days within
which to simultaneously submit their respective
memoranda, and an additional 15 days within which to
submit their corresponding comment or reply thereto, after
which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for
resolution before Judge Reynaldo Roura, who was then
temporarily detailed to preside over Branch 82 of the RTC
of Quezon City. OnMarch 1, 1989, judgment was handed
down by Judge Roura from his regular bench at Macabebe,
Pampanga for the Quezon City branch, disposing as
follows:
WHEREFORE, judgment for specific performance is hereby
rendered ordering defendant to execute in favor of plaintiffs
a deed of absolute sale covering that parcel of land
embraced in and covered by Transfer Certificate of Title No.
327403 (now TCT No. 331582) of the Registry of Deeds for
Quezon City, together with all the improvements existing
thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of
sale to plaintiffs and upon receipt thereof, the plaintiffs are
ordered to pay defendants the whole balance of the
Page | 76

purchase price amounting toP1,190,000.00 in

cash. Transfer Certificate of Title No. 331582 of the Registry
of Deeds for Quezon City in the name of intervenor is
hereby canceled and declared to be without force and
effect. Defendants and intervenor and all other persons
claiming under them are hereby ordered to vacate the
subject property and deliver possession thereof to
plaintiffs. Plaintiffs claim for damages and attorneys fees, as
well as the counterclaims of defendants and intervenors are
hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioners
before the new presiding judge of the Quezon City RTC but
the same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the
decision and to render anew decision by the undersigned
Presiding Judge should be denied for the following
reasons: (1) The instant case became submitted for
decision as of April 14, 1988 when the parties terminated
the presentation of their respective documentary evidence
and when the Presiding Judge at that time was Judge
Reynaldo Roura. The fact that they were allowed to file

memoranda at some future date did not change the fact that
the hearing of the case was terminated before Judge Roura
and therefore the same should be submitted to him for
decision; (2) When the defendants and intervenor did not
object to the authority of Judge Reynaldo Roura to decide
the case prior to the rendition of the decision, when they
met for the first time before the undersigned Presiding
Judge at the hearing of a pending incident in Civil Case No.
Q-46145 on November 11, 1988, they were deemed to have
acquiesced thereto and they are now estopped from
questioning said authority of Judge Roura after they
received the decision in question which happens to be
adverse to them; (3) While it is true that Judge Reynaldo
Roura was merely a Judge-on-detail at this Branch of the
Court, he was in all respects the Presiding Judge with full
authority to act on any pending incident submitted before
this Court during his incumbency. When he returned to his
Official Station at Macabebe, Pampanga, he did not lose his
authority to decide or resolve cases submitted to him for
decision or resolution because he continued as Judge of
the Regional Trial Court and is of co-equal rank with the
undersigned Presiding Judge. The standing rule and
supported by jurisprudence is that a Judge to whom a case
is submitted for decision has the authority to decide the
case notwithstanding his transfer to another branch or
region of the same court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the
Decision dated March 1, 1989 rendered in the instant case,
resolution of which now pertains to the undersigned
Presiding Judge, after a meticulous examination of the
Page | 77

documentary evidence presented by the parties, she is

convinced that the Decision of March 1, 1989 is supported
by evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the Motion for
Reconsideration and/or to Annul Decision and Render Anew
Decision by the Incumbent Presiding Judge dated March
20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but
on December 16, 1991, the Court of Appeals (Buena,
Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its
decision fully agreeing with the trial court.

The heart of the controversy which is the ultimate key in

the resolution of the other issues in the case at bar is the
precise determination of the legal significance of the
document entitled Receipt of Down Payment which was
offered in evidence by both parties. There is no dispute as
to the fact that the said document embodied the binding
contract between Ramona Patricia Alcaraz on the one
hand, and the heirs of Constancio P. Coronel on the other,
pertaining to a particular house and lot covered by TCT No.
119627, as defined in Article 1305 of the Civil Code of the
Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two
persons whereby one binds himself, with respect to the
other, to give something or to render some service.

Hence, the instant petition which was filed on March 5,

1992. The last pleading, private respondents Reply
Memorandum, was filed on September 15, 1993. The case
was, however, re-raffled to undersigned ponente only
on August 28, 1996, due to the voluntary inhibition of the
Justice to whom the case was last assigned.

While, it is the position of private respondents that the

Receipt of Down Payment embodied a perfected contract of
sale, which perforce, they seek to enforce by means of an
action for specific performance, petitioners on their part
insist that what the document signified was a mere
executory contract to sell, subject to certain suspensive
conditions, and because of the absence of Ramona P.
Alcaraz, who left for the United States of America, said
contract could not possibly ripen into a contract of absolute
sale.

While we deem it necessary to introduce certain

refinements in the disquisition of respondent court in the
affirmance of the trial courts decision, we definitely find the
instant petition bereft of merit.

Plainly, such variance in the contending parties

contention is brought about by the way each interprets the
terms and/or conditions set forth in said private
instrument. Withal, based on whatever relevant and
Page | 78

admissible evidence may be available on record, this Court,

as were the courts below, is now called upon to adjudge
what the real intent of the parties was at the time the said
document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract
because it is perfected by mere consent. The essential
elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to
transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be
considered as a Contract of Sale because the first essential
element is lacking. In a contract to sell, the prospective
seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not
as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the happening of
an event, which for present purposes we shall take as the

full payment of the purchase price. What the seller agrees

or obliges himself to do is to fulfill his promise to sell the
subject property when the entire amount of the purchase
price is delivered to him. In other words the full payment of
the purchase price partakes of a suspensive condition, the
non-fulfillment of which prevents the obligation to sell from
arising and thus, ownership is retained by the prospective
seller without further remedies by the prospective
buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court
had occasion to rule:
Hence, We hold that the contract between the petitioner and
the respondent was a contract to sell where the ownership
or title is retained by the seller and is not to pass until the
full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach,
casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring
binding force.
Stated positively, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
the prospective sellers obligation to sell the subject property
by entering into a contract of sale with the prospective
buyer becomes demandable as provided in Article 1479 of
the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for
a price certain is reciprocally demandable.

Page | 79

An accepted unilateral promise to buy or to sell a

determinate thing for a price certain is binding upon the
promissor of the promise is supported by a consideration
distinct from the price.
A contract to sell may thus be defined as a bilateral
contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite
delivery thereof to the prospective buyer, binds himself to
sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, that is, full
payment of the purchase price.
A contract to sell as defined hereinabove, may not even
be considered as a conditional contract of sale where the
seller may likewise reserve title to the property subject of
the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element of
consent is present, although it is conditioned upon the
happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated
(cf. Homesite and Housing Corp. vs. Court of Appeals, 133
SCRA 777 [1984]). However, if the suspensive condition is
fulfilled, the contract of sale is thereby perfected, such that if
there had already been previous delivery of the property
subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law
without any further act having to be performed by the seller.

In a contract to sell, upon the fulfillment of the

suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to
the buyer although the property may have been previously
delivered to him. The prospective seller still has to convey
title to the prospective buyer by entering into a contract of
absolute sale.
It is essential to distinguish between a contract to sell
and a conditional contract of sale specially in cases where
the subject property is sold by the owner not to the party the
seller contracted with, but to a third person, as in the case
at bench. In a contract to sell, there being no previous sale
of the property, a third person buying such property despite
the fulfillment of the suspensive condition such as the full
payment of the purchase price, for instance, cannot be
deemed a buyer in bad faith and the prospective buyer
cannot seek the relief of reconveyance of the
property. There is no double sale in such case. Title to the
property will transfer to the buyer after registration because
there is no defect in the owner-sellers title per se, but the
latter, of course, may be sued for damages by the intending
buyer.
In a conditional contract of sale, however, upon the
fulfillment of the suspensive condition, the sale becomes
absolute and this will definitely affect the sellers title
thereto. In fact, if there had been previous delivery of the
subject property, the sellers ownership or title to the
property is automatically transferred to the buyer such that,
the seller will no longer have any title to transfer to any third
Page | 80

person. Applying Article 1544 of the Civil Code, such

second buyer of the property who may have had actual or
constructive knowledge of such defect in the sellers title, or
at least was charged with the obligation to discover such
defect, cannot be a registrant in good faith. Such second
buyer cannot defeat the first buyers title. In case a title is
issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now
proceed to the task of deciphering the real nature of the
contract entered into by petitioners and private
respondents.
It is a canon in the interpretation of contracts that the
words used therein should be given their natural and
ordinary meaning unless a technical meaning was intended
(Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus,
when petitioners declared in the said Receipt of Down
Payment that they -Received from Miss Ramona Patricia Alcaraz of 146 Timog,
Quezon City, the sum of Fifty Thousand Pesos purchase
price of our inherited house and lot, covered by TCT No.
1199627 of the Registry of Deeds of Quezon City, in the
total amount of P1,240,000.00.
without any reservation of title until full payment of the entire
purchase price, the natural and ordinary idea conveyed is
that they sold their property.

When the Receipt of Down payment is considered in its

entirety, it becomes more manifest that there was a clear
intent on the part of petitioners to transfer title to the buyer,
but since the transfer certificate of title was still in the name
of petitioners father, they could not fully effect such transfer
although the buyer was then willing and able to immediately
pay the purchase price. Therefore, petitioners-sellers
undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a
new certificate of title in their names from that of their father,
after which, they promised to present said title, now in their
names, to the latter and to execute the deed of absolute
sale whereupon, the latter shall, in turn, pay the entire
balance of the purchase price.
The agreement could not have been a contract to sell
because the sellers herein made no express reservation of
ownership or title to the subject parcel of land. Furthermore,
the circumstance which prevented the parties from entering
into an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names)
and not the full payment of the purchase price. Under the
established facts and circumstances of the case, the Court
may safely presume that, had the certificate of title been in
the names of petitioners-sellers at that time, there would
have been no reason why an absolute contract of sale
could not have been executed and consummated right
there and then.
Moreover, unlike in a contract to sell, petitioners in the
case at bar did not merely promise to sell the property to
Page | 81

private respondent upon the fulfillment of the suspensive

condition. On the contrary, having already agreed to sell the
subject property, they undertook to have the certificate of
title change to their names and immediately thereafter, to
execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to
sell where the sellers, after compliance by the buyer with
certain terms and conditions, promised to sell the property
to the latter.What may be perceived from the respective
undertakings of the parties to the contract is that petitioners
had already agreed to sell the house and lot they inherited
from their father, completely willing to transfer ownership of
the subject house and lot to the buyer if the documents
were then in order. It just so happened, however, that the
transfer certificate of title was then still in the name of their
father. It was more expedient to first effect the change in the
certificate of title so as to bear their names. That is why they
undertook to cause the issuance of a new transfer of the
certificate of title in their names upon receipt of the down
payment in the amount of P50,000.00. As soon as the new
certificate of title is issued in their names, petitioners were
committed to immediately execute the deed of absolute
sale. Only then will the obligation of the buyer to pay the
remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which
is most commonly entered into so as to protect the seller
against a buyer who intends to buy the property in
installment by withholding ownership over the property until
the buyer effects full payment therefor, in the contract

entered into in the case at bar, the sellers were the ones
who were unable to enter into a contract of absolute sale by
reason of the fact that the certificate of title to the property
was still in the name of their father. It was the sellers in this
case who, as it were, had the impediment which prevented,
so to speak, the execution of an contract of absolute sale.
What is clearly established by the plain language of the
subject document is that when the said Receipt of Down
Payment was prepared and signed by petitioners Romulo A.
Coronel,et. al., the parties had agreed to a conditional
contract of sale, consummation of which is subject only to
the successful transfer of the certificate of title from the
name of petitioners father, Constancio P. Coronel, to their
names.
The Court significantly notes that this suspensive
condition was, in fact, fulfilled on February 6, 1985 (Exh. D;
Exh. 4). Thus, on said date, the conditional contract of sale
between petitioners and private respondent Ramona P.
Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property by
means of the execution of the deed of absolute sale in a
public instrument, which petitioners unequivocally
committed themselves to do as evidenced by the Receipt of
Down Payment.
Article 1475, in correlation with Article 1181, both of the
Civil Code, plainly applies to the case at bench. Thus,

Page | 82

Art. 1475. The contract of sale is perfected at the moment

there is a meeting of minds upon the thing which is the
object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing
the form of contracts.
Art. 1181. In conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the
event which constitutes the condition.
Since the condition contemplated by the parties which
is the issuance of a certificate of title in petitioners names
was fulfilled on February 6, 1985, the respective obligations
of the parties under the contract of sale became mutually
demandable, that is, petitioners, as sellers, were obliged to
present the transfer certificate of title already in their names
to private respondent Ramona P. Alcaraz, the buyer, and to
immediately execute the deed of absolute sale, while the
buyer on her part, was obliged to forthwith pay the balance
of the purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in
page 9 of their petition, petitioners conclusively admitted
that:

3. The petitioners-sellers Coronel bound themselves to effect the

transfer in our names from our deceased father Constancio P.
Coronel, the transfer certificate of title immediately upon
receipt of the downpayment above-stated". The sale was still
subject to this suspensive condition. (Emphasis supplied.)

(Rollo, p. 16)
Petitioners themselves recognized that they entered
into a contract of sale subject to a suspensive
condition. Only, they contend, continuing in the same
paragraph, that:
. . . Had petitioners-sellers not complied with this condition
of first transferring the title to the property under their
names, there could be no perfected contract of
sale. (Emphasis supplied.)
(Ibid.)
not aware that they have set their own trap for themselves,
for Article 1186 of the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that
what is more controlling than these mere hypothetical
arguments is the fact that the condition herein referred to
was actually and indisputably fulfilled on February 6,
1985, when a new title was issued in the names of

Page | 83

petitioners as evidenced by TCT No. 327403 (Exh. D; Exh.

4).
The inevitable conclusion is that on January 19, 1985,
as evidenced by the document denominated as Receipt of
Down Payment (Exh. A; Exh. 1), the parties entered into a
contract of sale subject to the suspensive condition that the
sellers shall effect the issuance of new certificate title from
that of their fathers name to their names and that, on
February 6, 1985, this condition was fulfilled (Exh. D; Exh.
4).
We, therefore, hold that, in accordance with Article 1187
which pertinently provides Art. 1187. The effects of conditional obligation to give, once
the condition has been fulfilled, shall retroact to the day of
the constitution of the obligation . . .
In obligations to do or not to do, the courts shall determine,
in each case, the retroactive effect of the condition that has
been complied with.
the rights and obligations of the parties with respect to the
perfected contract of sale became mutually due and
demandable as of the time of fulfillment or occurrence of the
suspensive condition on February 6, 1985. As of that point
in time, reciprocal obligations of both seller and buyer
arose.

Petitioners also argue there could been no perfected

contract on January 19, 1985 because they were then not
yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a
mode of transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of
which the property, rights and obligations to the extent and
value of the inheritance of a person are transmitted through
his death to another or others by his will or by operation of
law.
Petitioners-sellers in the case at bar being the sons and
daughters of the decedent Constancio P. Coronel are
compulsory heirs who were called to succession by
operation of law.Thus, at the point their father drew his last
breath, petitioners stepped into his shoes insofar as the
subject property is concerned, such that any rights or
obligations pertaining thereto became binding and
enforceable upon them. It is expressly provided that rights
to the succession are transmitted from the moment of death
of the decedent (Article 777, Civil Code; Cuison vs.
Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners claim that succession
may not be declared unless the creditors have been paid is
rendered moot by the fact that they were able to effect the

Page | 84

transfer of the title to the property from the decedents name

to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising
their supposed lack of capacity to enter into an agreement
at that time and they cannot be allowed to now take a
posture contrary to that which they took when they entered
into the agreement with private respondent Ramona P.
Alcaraz. The Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation
is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying
thereon.
Having represented themselves as the true owners of the
subject property at the time of sale, petitioners cannot claim
now that they were not yet the absolute owners thereof at
that time.
Petitioners also contend that although there was in fact
a perfected contract of sale between them and Ramona P.
Alcaraz, the latter breach her reciprocal obligation when she
rendered impossible the consummation thereof by going to
the United States of America, without leaving her address,
telephone number, and Special Power of Attorney
(Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43),
for which reason, so petitioners conclude, they were correct
in unilaterally rescinding the contract of sale.

We do not agree with petitioners that there was a valid

rescission of the contract of sale in the instant case. We
note that these supposed grounds for petitioners rescission,
are mere allegations found only in their responsive
pleadings, which by express provision of the rules, are
deemed controverted even if no reply is filed by the plaintiffs
(Sec. 11, Rule 6, Revised Rules of Court). The records are
absolutely bereft of any supporting evidence to substantiate
petitioners allegations. We have stressed time and again
that allegations must be proven by sufficient evidence (Ng
Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs.
Embisan, 2 SCRA 598 [1961]). Mere allegation is not an
evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was
in the United States of America on February 6, 1985, we
cannot justify petitioners-sellers act of unilaterally and
extrajudicially rescinding the contract of sale, there being no
express stipulation authorizing the sellers to extrajudicially
rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA
375 [1988]; Taguba vs. Vda. De Leon, 132 SCRA 722
[1984])
Moreover, petitioners are estopped from raising the
alleged absence of Ramona P. Alcaraz because although
the evidence on record shows that the sale was in the name
of Ramona P. Alcaraz as the buyer, the sellers had been
dealing with Concepcion D. Alcaraz, Ramonas mother, who
had acted for and in behalf of her daughter, if not also in her
own behalf. Indeed, the down payment was made by
Concepcion D. Alcaraz with her own personal Check (Exh.
Page | 85

B; Exh. 2) for and in behalf of Ramona P. Alcaraz. There is

no evidence showing that petitioners ever questioned
Concepcions authority to represent Ramona P. Alcaraz
when they accepted her personal check. Neither did they
raise any objection as regards payment being effected by a
third person. Accordingly, as far as petitioners are
concerned, the physical absence of Ramona P. Alcaraz is
not a ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed
to be in default, insofar as her obligation to pay the full
purchase price is concerned. Petitioners who are precluded
from setting up the defense of the physical absence of
Ramona P. Alcaraz as above-explained offered no proof
whatsoever to show that they actually presented the new
transfer certificate of title in their names and signified their
willingness and readiness to execute the deed of absolute
sale in accordance with their agreement. Ramonas
corresponding obligation to pay the balance of the purchase
price in the amount of P1,190,000.00 (as buyer) never
became due and demandable and, therefore, she cannot be
deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a
contract involving reciprocal obligations may be considered
in default, to wit:
Art. 1169. Those obliged to deliver or to do something,
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation.

xxx
In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From
the moment one of the parties fulfill his obligation, delay by
the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind
the contract of sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other
petitioner, Catalina B. Mabanag, gave rise to a case of
double sale where Article 1544 of the Civil Code will apply,
to wit:
Art. 1544. If the same thing should have been sold to
different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in
good faith, if it should be movable property.
Should it be immovable property, the ownership shall
belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain
to the person who in good faith was first in the possession;
and, in the absence thereof to the person who presents the
oldest title, provided there is good faith.

Page | 86

The record of the case shows that the Deed of Absolute

Sale dated April 25, 1985 as proof of the second contract of
sale was registered with the Registry of Deeds of Quezon
City giving rise to the issuance of a new certificate of title in
the name of Catalina B. Mabanag on June 5, 1985. Thus,
the second paragraph of Article 1544 shall apply.

June 1984, 129 SCRA 656), it was held that it is essential,

to merit the protection of Art. 1544, second paragraph, that
the second realty buyer must act in good faith in registering
his deed of sale (citing Carbonell vs. Court of Appeals, 69
SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02
September 1992).

The above-cited provision on double sale presumes title

or ownership to pass to the buyer, the exceptions being: (a)
when the second buyer, in good faith, registers the sale
ahead of the first buyer, and (b) should there be no
inscription by either of the two buyers, when the second
buyer, in good faith, acquires possession of the property
ahead of the first buyer. Unless, the second buyer satisfies
these requirements, title or ownership will not transfer to
him to the prejudice of the first buyer.

(J. Vitug, Compendium of Civil Law and Jurisprudence,

1993 Edition, p. 604).

In his commentaries on the Civil Code, an accepted

authority on the subject, now a distinguished member of the
Court, Justice Jose C. Vitug, explains:

Petitioners point out that the notice of lis pendens in the

case at bar was annotated on the title of the subject
property only on February 22, 1985, whereas, the second
sale between petitioners Coronels and petitioner Mabanag
was supposedly perfected prior thereto or on February 18,
1985. The idea conveyed is that at the time petitioner
Mabanag, the second buyer, bought the property under a
clean title, she was unaware of any adverse claim or
previous sale, for which reason she is a buyer in good faith.
We are not persuaded by such argument.

The governing principle is prius tempore, potior jure (first in

time, stronger in right). Knowledge by the first buyer of the
second sale cannot defeat the first buyers rights except
when the second buyer first registers in good faith the
second sale (Olivares vs. Gonzales, 159 SCRA
33). Conversely, knowledge gained by the second buyer of
the first sale defeats his rights even if he is first to register,
since knowledge taints his registration with bad faith (see
also Astorga vs. Court of Appeals, G.R. No. 58530, 26
December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22

In a case of double sale, what finds relevance and

materiality is not whether or not the second buyer in good
faith but whether or not said second buyer registers such
second sale in good faith, that is, without knowledge of any
defect in the title of the property sold.
As clearly borne out by the evidence in this case,
petitioner Mabanag could not have in good faith, registered
the sale entered into on February 18, 1985 because as
Page | 87

early as February 22, 1985, a notice of lis pendens had

been annotated on the transfer certificate of title in the
names of petitioners, whereas petitioner Mabanag
registered the said sale sometime in April, 1985. At the time
of registration, therefore, petitioner Mabanag knew that the
same property had already been previously sold to private
respondents, or, at least, she was charged with knowledge
that a previous buyer is claiming title to the same
property. Petitioner Mabanag cannot close her eyes to the
defect in petitioners title to the property at the time of the
registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers the sale after he has
acquired knowledge that there was a previous sale of the
same property to a third party or that another person claims
said property in a previous sale, the registration will
constitute a registration in bad faith and will not confer upon
him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978];
citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan
vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43
Phil. 581.)
Thus, the sale of the subject parcel of land between
petitioners and Ramona P. Alcaraz, perfected on February
6, 1985, prior to that between petitioners and Catalina B.
Mabanag on February 18, 1985, was correctly upheld by
both the courts below.

Although there may be ample indications that there was

in fact an agency between Ramona as principal and
Concepcion, her mother, as agent insofar as the subject
contract of sale is concerned, the issue of whether or not
Concepcion was also acting in her own behalf as a cobuyer is not squarely raised in the instant petition, nor in
such assumption disputed between mother and
daughter. Thus, We will not touch this issue and no longer
disturb the lower courts ruling on this point.
WHEREFORE, premises considered, the instant
petition is hereby DISMISSED and the appealed judgment
AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-59266 February 29, 1988

Page | 88

SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,

vs.
HON. COURT OF APPEALS and ATILANO G.
JABIL, respondents.

BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of
the: (1) Decision * of the 9th Division, Court of Appeals dated July 31,1981, affirming
with modification the Decision, dated August 25, 1972 of the Court of First Instance ** of
Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela
Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and
Jovita L. de Cabigas; and (2) its Resolution dated December 16, 1981, denying defendantappellant's (Petitioner's) motion for reconsideration, for lack of merit.

The undisputed facts as found by the Court of Appeals are as

follows:
The Dignos spouses were owners of a parcel of
land, known as Lot No. 3453, of the cadastral
survey of Opon, Lapu-Lapu City. On June 7, 1965,
appellants (petitioners) Dignos spouses sold the
said parcel of land to plaintiff-appellant
(respondent Atilano J. Jabil) for the sum of
P28,000.00, payable in two installments, with an
assumption of indebtedness with the First Insular
Bank of Cebu in the sum of P12,000.00, which
was paid and acknowledged by the vendors in the
deed of sale (Exh. C) executed in favor of plaintiffappellant, and the next installment in the sum of
P4,000.00 to be paid on or before September 15,
1965.

On November 25, 1965, the Dignos spouses sold

the same land in favor of defendants spouses,
Luciano Cabigas and Jovita L. De Cabigas, who
were then U.S. citizens, for the price of
P35,000.00. A deed of absolute sale (Exh. J, also
marked Exh. 3) was executed by the Dignos
spouses in favor of the Cabigas spouses, and
which was registered in the Office of the Register
of Deeds pursuant to the provisions of Act No.
3344.
As the Dignos spouses refused to accept from
plaintiff-appellant the balance of the purchase
price of the land, and as plaintiff- appellant
discovered the second sale made by defendantsappellants to the Cabigas spouses, plaintiffappellant brought the present suit. (Rollo, pp. 2728)
After due trial, the Court of first Instance of Cebu rendered its
Decision on August 25,1972, the decretal portion of which reads:
WHEREFORE, the Court hereby declares the
deed of sale executed on November 25, 1965 by
defendant Isabela L. de Dignos in favor of
defendant Luciano Cabigas, a citizen of the
United States of America, null and void ab initio,
and the deed of sale executed by defendants
Silvestre T. Dignos and Isabela Lumungsod de
Dignos not rescinded. Consequently, the plaintiff
Atilano G. Jabil is hereby ordered to pay the sum,
of Sixteen Thousand Pesos (P16,000.00) to the
defendants-spouses upon the execution of the

Page | 89

Deed of absolute Sale of Lot No. 3453, Opon

Cadastre and when the decision of this case
becomes final and executory.
The plaintiff Atilano G. Jabil is ordered to
reimburse the defendants Luciano Cabigas and
Jovita L. de Cabigas, through their attorney-infact, Panfilo Jabalde, reasonable amount
corresponding to the expenses or costs of the
hollow block fence, so far constructed.
It is further ordered that defendants-spouses
Silvestre T. Dignos and Isabela Lumungsod de
Dignos should return to defendants-spouses
Luciano Cabigas and Jovita L. de Cabigas the
sum of P35,000.00, as equity demands that
nobody shall enrich himself at the expense of
another.
The writ of preliminary injunction issued on
September 23, 1966, automatically becomes
permanent in virtue of this decision.
With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and
defendants-spouss (petitioners herein) appealed to the Court of
Appeals, which appeal was docketed therein as CA-G.R. No.
54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of
the lower court except as to the portion ordering Jabil to pay for
the expenses incurred by the Cabigas spouses for the building of

a fence upon the land in question. The disposive portion of said

decision of the Court of Appeals reads:
IN VIEW OF THE FOREGOING
CONSIDERATIONS, except as to the modification
of the judgment as pertains to plaintiff-appellant
above indicated, the judgment appealed from is
hereby AFFIRMED in all other respects.
With costs against defendants-appellants.
SO ORDERED.
Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the
defendants- appellants (petitioners) Dignos spouses, but on
December 16, 1981, a resolution was issued by the Court of
Appeals denying the motion for lack of merit.
Hence, this petition.
In the resolution of February 10, 1982, the Second Division of this
Court denied the petition for lack of merit. A motion for
reconsideration of said resolution was filed on March 16, 1982. In
the resolution dated April 26,1982, respondents were required to
comment thereon, which comment was filed on May 11, 1982 and
a reply thereto was filed on July 26, 1982 in compliance with the
resolution of June 16,1 982. On August 9,1982, acting on the
motion for reconsideration and on all subsequent pleadings filed,
this Court resolved to reconsider its resolution of February 10,
1982 and to give due course to the instant petition. On
September 6, 1982, respondents filed a rejoinder to reply of

Page | 90

petitioners which was noted on the resolution of September 20,

1982.

JURISPRUDENCE AS TO WARRANT THE AWARD OF

DAMAGES AND ATTORNEY'S FEES TO PETITIONERS.

Petitioners raised the following assignment of errors:

IV

PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE

SHOULD HAVE BEEN DISMISSED, HE HAVING COME TO
COURT WITH UNCLEAN HANDS.

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF

LAW IN GROSSLY, INCORRECTLY INTERPRETING THE
TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS AN
ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP
OVER THE PROPERTY IN QUESTION TO THE RESPONDENT
AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO
SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE
1371 AS WARRANTING READING OF THE AGREEMENT,
EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE
CLARITY OF THE TERMS THEREOF SHOWING IT IS A
CONTRACT OF PROMISE TO SELL.
II
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW
IN INCORRECTLY APPLYING AND OR IN MISAPPLYING
ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING
THE ERRONEOUS CONCLUSION THAT THE NOTICE OF
RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT
BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.

V
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN
ERROR IN AFFIRMING WITH MODIFICATION THE DECISION
OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION,
MISAPPLICATION AND MISAPPREHENSION OF THE TERMS
OF THE QUESTIONED CONTRACT AND THE LAW
APPLICABLE THERETO.
The foregoing assignment of errors may be synthesized into two
main issues, to wit:
I. Whether or not subject contract is a deed of
absolute sale or a contract Lot sell.
II. Whether or not there was a valid rescission
thereof.
There is no merit in this petition.

III
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW
IN REJECTING THE APPLICABILITY OF ARTICLES 2208,2217
and 2219 OF THE NEW CIVIL CODE AND ESTABLISHED

It is significant to note that this petition was denied by the Second

Division of this Court in its Resolution dated February 1 0, 1 982
for lack of merit, but on motion for reconsideration and on the

Page | 91

basis of all subsequent pleadings filed, the petition was given due
course.
I.
The contract in question (Exhibit C) is a Deed of Sale, with the
following conditions:
1. That Atilano G..Jabilis to pay the amount of
Twelve Thousand Pesos P12,000.00) Phil.
Philippine Currency as advance payment;
2. That Atilano G. Jabil is to assume the balance
of Twelve Thousand Pesos (P12,000.00) Loan
from the First Insular Bank of Cebu;
3. That Atilano G. Jabil is to pay the said spouses
the balance of Four. Thousand Pesos (P4,000.00)
on or before September 15,1965;
4. That the said spouses agrees to defend the
said Atilano G. Jabil from other claims on the said
property;
5. That the spouses agrees to sign a final deed of
absolute sale in favor of Atilano G. Jabil over the
above-mentioned property upon the payment of
the balance of Four Thousand Pesos. (Original
Record, pp. 10-11)
In their motion for reconsideration, petitioners reiterated their
contention that the Deed of Sale (Exhibit "C") is a mere contract
to sell and not an absolute sale; that the same is subject to two

(2) positive suspensive conditions, namely: the payment of the

balance of P4,000.00 on or before September 15,1965 and the
immediate assumption of the mortgage of P12,000.00 with the
First Insular Bank of Cebu. It is further contended that in said
contract, title or ownership over the property was expressly
reserved in the vendor, the Dignos spouses until the suspensive
condition of full and punctual payment of the balance of the
purchase price shall have been met. So that there is no actual
sale until full payment is made (Rollo, pp. 51-52).
In bolstering their contention that Exhibit "C" is merely a contract
to sell, petitioners aver that there is absolutely nothing in Exhibit
"C" that indicates that the vendors thereby sell, convey or transfer
their ownership to the alleged vendee. Petitioners insist that
Exhibit "C" (or 6) is a private instrument and the absence of a
formal deed of conveyance is a very strong indication that the
parties did not intend "transfer of ownership and title but only a
transfer after full payment" (Rollo, p. 52). Moreover, petitioners
anchored their contention on the very terms and conditions of the
contract, more particularly paragraph four which reads, "that said
spouses has agreed to sell the herein mentioned property to
Atilano G. Jabil ..." and condition number five which reads, "that
the spouses agrees to sign a final deed of absolute sale over the
mentioned property upon the payment of the balance of four
thousand pesos."
Such contention is untenable.
By and large, the issues in this case have already been settled by
this Court in analogous cases.
Thus, it has been held that a deed of sale is absolute in nature
although denominated as a "Deed of Conditional Sale" where

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nowhere in the contract in question is a proviso or stipulation to

the effect that title to the property sold is reserved in the vendor
until full payment of the purchase price, nor is there a stipulation
giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period Taguba v.
Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v.
Maritime Building Co., Inc., 86 SCRA 305).
A careful examination of the contract shows that there is no such
stipulation reserving the title of the property on the vendors nor
does it give them the right to unilaterally rescind the contract upon
non-payment of the balance thereof within a fixed period.
On the contrary, all the elements of a valid contract of sale under
Article 1458 of the Civil Code, are present, such as: (1) consent
or meeting of the minds; (2) determinate subject matter; and (3)
price certain in money or its equivalent. In addition, Article 1477 of
the same Code provides that "The ownership of the thing sold
shall be transferred to the vendee upon actual or constructive
delivery thereof." As applied in the case of Froilan v. Pan Oriental
Shipping Co., et al. (12 SCRA 276), this Court held that in the
absence of stipulation to the contrary, the ownership of the thing
sold passes to the vendee upon actual or constructive delivery
thereof.
While it may be conceded that there was no constructive delivery
of the land sold in the case at bar, as subject Deed of Sale is a
private instrument, it is beyond question that there was actual
delivery thereof. As found by the trial court, the Dignos spouses
delivered the possession of the land in question to Jabil as early
as March 27,1965 so that the latter constructed thereon Sally's
Beach Resort also known as Jabil's Beach Resort in March,
1965; Mactan White Beach Resort on January 15,1966 and

Bevirlyn's Beach Resort on September 1, 1965. Such facts were

admitted by petitioner spouses (Decision, Civil Case No. 23-L;
Record on Appeal, p. 108).
Moreover, the Court of Appeals in its resolution dated December
16,1981 found that the acts of petitioners, contemporaneous with
the contract, clearly show that an absolute deed of sale was
intended by the parties and not a contract to sell.
Be that as it may, it is evident that when petitioners sold said land
to the Cabigas spouses, they were no longer owners of the same
and the sale is null and void.
II.
Petitioners claim that when they sold the land to the Cabigas
spouses, the contract of sale was already rescinded.
Applying the rationale of the case of Taguba v. Vda. de Leon
(supra) which is on all fours with the case at bar, the contract of
sale being absolute in nature is governed by Article 1592 of the
Civil Code. It is undisputed that petitioners never notified private
respondents Jabil by notarial act that they were rescinding the
contract, and neither did they file a suit in court to rescind the
sale. The most that they were able to show is a letter of Cipriano
Amistad who, claiming to be an emissary of Jabil, informed the
Dignos spouses not to go to the house of Jabil because the latter
had no money and further advised petitioners to sell the land in
litigation to another party (Record on Appeal, p. 23). As correctly
found by the Court of Appeals, there is no showing that Amistad
was properly authorized by Jabil to make such extra-judicial
rescission for the latter who, on the contrary, vigorously denied
having sent Amistad to tell petitioners that he was already waiving

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his rights to the land in question. Under Article 1358 of the Civil
Code, it is required that acts and contracts which have for their
object the extinguishment of real rights over immovable property
must appear in a public document.
Petitioners laid considerable emphasis on the fact that private
respondent Jabil had no money on the stipulated date of payment
on September 15,1965 and was able to raise the necessary
amount only by mid-October 1965.
It has been ruled, however, that "where time is not of the essence
of the agreement, a slight delay on the part of one party in the
performance of his obligation is not a sufficient ground for the
rescission of the agreement" (Taguba v. Vda. de Leon, supra).

Considering that private respondent has only a balance of

P4,000.00 and was delayed in payment only for one month,
equity and justice mandate as in the aforecited case that Jabil be
given an additional period within which to complete payment of
the purchase price.
WHEREFORE, the petition filed is hereby Dismissed for lack of
merit and the assailed decision of the Court of Appeals is Affirmed
in toto.
SO ORDERED.

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