Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 118114 December 7, 1995

TEODORO ACAP, petitioner, 
vs.
COURT OF APPEALS and EDY DE LOS REYES, respondents.

PADILLA, J.:

This is a petition for review on certiorari of the decision 1 of the Court of Appeals,
2nd Division, in CA-G.R. No. 36177, which affirmed the decision 2 of the Regional
Trial Court of Himamaylan, Negros Occidental holding that private respondent
Edy de los Reyes had acquired ownership of Lot No. 1130 of the Cadastral Survey
of Hinigaran, Negros Occidental based on a document entitled "Declaration of
Heirship and Waiver of Rights", and ordering the dispossession of petitioner as
leasehold tenant of the land for failure to pay rentals.

The facts of the case are as follows:

The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental
was evidenced by OCT No. R-12179. The lot has an area of 13,720 sq. meters. The
title was issued and is registered in the name of spouses Santiago Vasquez and
Lorenza Oruma. After both spouses died, their only son Felixberto inherited the
lot. In 1975, Felixberto executed a duly notarized document entitled "Declaration
of Heirship and Deed of Absolute Sale" in favor of Cosme Pido.

The evidence before the court a quo established that since 1960, petitioner Teodoro
Acap had been the tenant of a portion of the said land, covering an area of nine
thousand five hundred (9,500) meters. When ownership was transferred in 1975 by
Felixberto to Cosme Pido, Acap continued to be the registered tenant thereof and
religiously paid his leasehold rentals to Pido and thereafter, upon Pido's death, to
his widow Laurenciana.
The controversy began when Pido died intestate and on 27 November 1981, his
surviving heirs executed a notarized document denominated as "Declaration of
Heirship and Waiver of Rights of Lot No. 1130 Hinigaran Cadastre," wherein they
declared; to quote its pertinent portions, that:

. . . Cosme Pido died in the Municipality of Hinigaran, Negros

Occidental, he died intestate and without any known debts and
obligations which the said parcel of land is (sic) held liable.

That Cosme Pido was survived by his/her legitimate heirs, namely:

LAURENCIANA PIDO, wife, ELY, ERVIN, ELMER, and
ELECHOR all surnamed PIDO; children;

That invoking the provision of Section 1, Rule 74 of the Rules of

Court, the above-mentioned heirs do hereby declare unto [sic]
ourselves the only heirs of the late Cosme Pido and that we hereby
adjudicate unto ourselves the above-mentioned parcel of land in equal
shares.

Now, therefore, We LAURENCIANA 3, ELY, ELMER, ERVIN and

ELECHOR all surnamed PIDO, do hereby waive, quitclaim all our
rights, interests and participation over the said parcel of land in favor
of EDY DE LOS REYES, of legal age, (f)ilipino, married to
VIRGINIA DE LOS REYES, and resident of Hinigaran, Negros
Occidental, Philippines. . . . 4 (Emphasis supplied)

The document was signed by all of Pido's heirs. Private respondent Edy de los
Reyes did not sign said document.

It will be noted that at the time of Cosme Pido's death, title to the property
continued to be registered in the name of the Vasquez spouses. Upon obtaining the
Declaration of Heirship with Waiver of Rights in his favor, private respondent Edy
de los Reyes filed the same with the Registry of Deeds as part of a notice of an
adverse claimagainst the original certificate of title.

Thereafter, private respondent sought for petitioner (Acap) to personally inform

him that he (Edy) had become the new owner of the land and that the lease rentals
thereon should be paid to him. Private respondent further alleged that he and
petitioner entered into an oral lease agreement wherein petitioner agreed to pay ten
(10) cavans of palay per annum as lease rental. In 1982, petitioner allegedly
complied with said obligation. In 1983, however, petitioner refused to pay any
further lease rentals on the land, prompting private respondent to seek the
assistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran, Negros
Occidental. The MAR invited petitioner to a conference scheduled on 13 October
1983. Petitioner did not attend the conference but sent his wife instead to the
conference. During the meeting, an officer of the Ministry informed Acap's wife
about private respondent's ownership of the said land but she stated that she and
her husband (Teodoro) did not recognize private respondent's claim of ownership
over the land.

On 28 April 1988, after the lapse of four (4) years, private respondent filed a
complaint for recovery of possession and damages against petitioner, alleging in
the main that as his leasehold tenant, petitioner refused and failed to pay the agreed
annual rental of ten (10) cavans of palay despite repeated demands.

During the trial before the court a quo, petitioner reiterated his refusal to recognize
private respondent's ownership over the subject land. He averred that he continues
to recognize Cosme Pido as the owner of the said land, and having been a
registered tenant therein since 1960, he never reneged on his rental obligations.
When Pido died, he continued to pay rentals to Pido's widow. When the latter left
for abroad, she instructed him to stay in the landholding and to pay
the accumulated rentals upon her demand or return from abroad.

Petitioner further claimed before the trial court that he had no knowledge about any
transfer or sale of the lot to private respondent in 1981 and even the following year
after Laurenciana's departure for abroad. He denied having entered into a verbal
lease tenancy contract with private respondent and that assuming that the said lot
was indeed sold to private respondent without his knowledge, R.A. 3844, as
amended, grants him the right to redeem the same at a reasonable price. Petitioner
also bewailed private respondent's ejectment action as a violation of his right to
security of tenure under P.D. 27.

On 20 August 1991, the lower court rendered a decision in favor of private

respondent, the dispositive part of which reads:

WHEREFORE, premises considered, the Court renders judgment in

favor of the plaintiff, Edy de los Reyes, and against the defendant,
Teodoro Acap, ordering the following, to wit:

1. Declaring forfeiture of defendant's preferred right to issuance of a

Certificate of Land Transfer under Presidential Decree No. 27 and his
farmholdings;
 2. Ordering the defendant Teodoro Acap to deliver possession of said
farm to plaintiff, and;

3. Ordering the defendant to pay P5,000.00 as attorney's fees, the sum

of P1,000.00 as expenses of litigation and the amount of P10,000.00
as actual damages. 5

In arriving at the above-mentioned judgment, the trial court stated that the evidence
had established that the subject land was "sold" by the heirs of Cosme Pido to
private respondent. This is clear from the following disquisitions contained in the
trial court's six (6) page decision:

There is no doubt that defendant is a registered tenant of Cosme Pido.

However, when the latter died their tenancy relations changed since
ownership of said land was passed on to his heirs who, by executing
a Deed of Sale, which defendant admitted in his affidavit, likewise
passed on their ownership of Lot 1130 to herein plaintiff (private
respondent). As owner hereof, plaintiff has the right to demand
payment of rental and the tenant is obligated to pay rentals due from
the time demand is made. . . . 6

xxx xxx xxx

Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff

does not of itself extinguish the relationship. There was only a change
of the personality of the lessor in the person of herein plaintiff Edy de
los Reyes who being the purchaser or transferee, assumes the rights
and obligations of the former landowner to the tenant Teodoro Acap,
herein defendant. 7

Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the lower
court when it ruled that private respondent acquired ownership of Lot No. 1130
and that he, as tenant, should pay rentals to private respondent and that failing to
pay the same from 1983 to 1987, his right to a certificate of land transfer under
P.D. 27 was deemed forfeited.

The Court of Appeals brushed aside petitioner's argument that the Declaration of
Heirship and Waiver of Rights (Exhibit "D"), the document relied upon by private
respondent to prove his ownership to the lot, was excluded by the lower court in its
order dated 27 August 1990. The order indeed noted that the document was not
identified by Cosme Pido's heirs and was not registered with the Registry of Deeds
of Negros Occidental. According to respondent court, however, since the
Declaration of Heirship and Waiver of Rights appears to have been duly notarized,
no further proof of its due execution was necessary. Like the trial court, respondent
court was also convinced that the said document stands as prima facie proof of
appellee's (private respondent's) ownership of the land in dispute.

With respect to its non-registration, respondent court noted that petitioner had
actual knowledge of the subjectsale of the land in dispute to private respondent
because as early as 1983, he (petitioner) already knew of private respondent's claim
over the said land but which he thereafter denied, and that in 1982, he (petitioner)
actually paid rent to private respondent. Otherwise stated, respondent court
considered this fact of rental payment in 1982 as estoppel on petitioner's part to
thereafter refute private respondent's claim of ownership over the said land. Under
these circumstances, respondent court ruled that indeed there was deliberate refusal
by petitioner to pay rent for a continued period of five years that merited forfeiture
of his otherwise preferred right to the issuance of a certificate of land transfer.

In the present petition, petitioner impugns the decision of the Court of Appeals as
not in accord with the law and evidence when it rules that private respondent
acquired ownership of Lot No. 1130 through the aforementioned Declaration of
Heirship and Waiver of Rights.

Hence, the issues to be resolved presently are the following:

1. WHETHER OR NOT THE SUBJECT DECLARATION OF

HEIRSHIP AND WAIVER OF RIGHTS IS A RECOGNIZED
MODE OF ACQUIRING OWNERSHIP BY PRIVATE
RESPONDENT OVER THE LOT IN QUESTION.

2. WHETHER OR NOT THE SAID DOCUMENT CAN BE

CONSIDERED A DEED OF SALE IN FAVOR OF PRIVATE
RESPONDENT OF THE LOT IN QUESTION.

Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990,
explicitly excluded the document marked as Exhibit "D" (Declaration of Heirship,
etc.) as private respondent's evidence because it was not registered with the
Registry of Deeds and was not identified by anyone of the heirs of Cosme Pido.
The Court of Appeals, however, held the same to be admissible, it being a
notarized document, hence, a prima facie proof of private respondents' ownership
of the lot to which it refers.
Petitioner points out that the Declaration of Heirship and Waiver of Rights is not
one of the recognized modes of acquiring ownership under Article 712 of the Civil
Code. Neither can the same be considered a deed of sale so as to transfer
ownership of the land to private respondent because no consideration is stated in
the contract (assuming it is a contract or deed of sale).

Private respondent defends the decision of respondent Court of Appeals as in

accord with the evidence and the law. He posits that while it may indeed be true
that the trial court excluded his Exhibit "D" which is the Declaration of Heirship
and Waiver of Rights as part of his evidence, the trial court declared him
nonetheless owner of the subject lot based on other evidence adduced during the
trial, namely, the notice of adverse claim (Exhibit "E") duly registered by him with
the Registry of Deeds, which contains the questioned Declaration of Heirship and
Waiver of Rights as an integral part thereof.

We find the petition impressed with merit.

In the first place, an asserted right or claim to ownership or a real right over a thing
arising from a juridical act, however justified, is not per se sufficient to give rise to
ownership over the res. That right or title must be completed by fulfilling certain
conditions imposed by law. Hence, ownership and real rights are acquired only
pursuant to a legal mode or process. While title is the juridical justification, mode
is the actual process of acquisition or transfer of ownership over a thing in
question. 8

Under Article 712 of the Civil Code, the modes of acquiring ownership are
generally classified into two (2) classes, namely, the original mode (i.e., through
occupation, acquisitive prescription, law or intellectual creation) and thederivative
mode (i.e., through succession mortis causa or tradition as a result of certain
contracts, such as sale, barter, donation, assignment or mutuum).

In the case at bench, the trial court was obviously confused as to the nature and
effect of the Declaration of Heirship and Waiver of Rights, equating the same with
a contract (deed) of sale. They are not the same.

In a Contract of Sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other party to pay a price
certain in money or its equivalent. 9

Upon the other hand, a declaration of heirship and waiver of rights operates as a
public instrument when filed with the Registry of Deeds whereby the intestate
heirs adjudicate and divide the estate left by the decedent among themselves as
they see fit. It is in effect an extrajudicial settlement between the heirs under Rule
74 of the Rules of Court. 10

Hence, there is a marked difference between a sale of hereditary rights and

a waiver of hereditary rights. The first presumes the existence of a contract or deed
of sale between the parties. 11 The second is, technically speaking, a mode of
extinction of ownership where there is an abdication or intentional relinquishment
of a known right with knowledge of its existence and intention to relinquish it, in
favor of other persons who are co-heirs in the succession. 12 Private respondent,
being then a stranger to the succession of Cosme Pido, cannot conclusively claim
ownership over the subject lot on the sole basis of the waiver document which
neither recites the elements of either a sale,  13 or a donation, 14 or any other
derivative mode of acquiring ownership.

Quite surprisingly, both the trial court and public respondent Court of Appeals
concluded that a "sale" transpired between Cosme Pido's heirs and private
respondent and that petitioner acquired actual knowledge of said sale when he was
summoned by the Ministry of Agrarian Reform to discuss private respondent's
claim over the lot in question. This conclusion has no basis both in fact and in law.

On record, Exhibit "D", which is the "Declaration of Heirship and Waiver of

Rights" was excluded by the trial court in its order dated 27 August 1990 because
the document was neither registered with the Registry of Deeds nor identified by
the heirs of Cosme Pido. There is no showing that private respondent had the same
document attached to or made part of the record. What the trial court admitted was
Annex "E", a notice of adverse claim filed with the Registry of Deeds which
contained the Declaration of Heirship with Waiver of rights and was annotated at
the back of the Original Certificate of Title to the land in question.

A notice of adverse claim, by its nature, does not however prove private
respondent's ownership over the tenanted lot. "A notice of adverse claim is nothing
but a notice of a claim adverse to the registered owner, the validity of which is yet
to be established in court at some future date, and is no better than a notice of lis
pendenswhich is a notice of a case already pending in court." 15

It is to be noted that while the existence of said adverse claim was duly proven,
there is no evidence whatsoever that a deed of sale was executed between Cosme
Pido's heirs and private respondent transferring the rights of Pido's heirs to the land
in favor of private respondent. Private respondent's right or interest therefore in the
tenanted lot remains an adverse claim which cannot by itself be sufficient to cancel
the OCT to the land and title the same in private respondent's name.

Consequently, while the transaction between Pido's heirs and private

respondent may be binding on both parties, the right of petitioner as a
registered tenant to the land cannot be perfunctorily forfeited on a mere
allegation of private respondent's ownership without the corresponding proof
thereof.

Petitioner had been a registered tenant in the subject land since 1960 and
religiously paid lease rentals thereon. In his mind, he continued to be the registered
tenant of Cosme Pido and his family (after Pido's death), even if in 1982, private
respondent allegedly informed petitioner that he had become the new owner of the
land.

Under the circumstances, petitioner may have, in good faith, assumed such
statement of private respondent to be true and may have in fact delivered 10 cavans
of palay as annual rental for 1982 to private respondent. But in 1983, it is clear that
petitioner had misgivings over private respondent's claim of ownership over the
said land because in the October 1983 MAR conference, his wife Laurenciana
categorically denied all of private respondent's allegations. In fact, petitioner even
secured a certificate from the MAR dated 9 May 1988 to the effect that he
continued to be the registered tenant of Cosme Pido and not of private respondent.
The reason is that private respondent never registered the Declaration of Heirship
with Waiver of Rights with the Registry of Deeds or with the MAR. Instead, he
(private respondent) sought to do indirectly what could not be done directly,i.e.,
file a notice of adverse claim on the said lot to establish ownership thereover.

It stands to reason, therefore, to hold that there was no unjustified or deliberate

refusal by petitioner to pay the lease rentals or amortizations to the
landowner/agricultural lessor which, in this case, private respondent failed to
establish in his favor by clear and convincing evidence. 16

Consequently, the sanction of forfeiture of his preferred right to be issued a

Certificate of Land Transfer under P.D. 27 and to the possession of his
farmholdings should not be applied against petitioners, since private respondent
has not established a cause of action for recovery of possession against petitioner.

WHEREFORE, premises considered, the Court hereby GRANTS the petition and
the decision of the Court of Appeals dated 1 May 1994 which affirmed the
decision of the RTC of Himamaylan, Negros Occidental dated 20 August 1991 is
hereby SET ASIDE. The private respondent's complaint for recovery of possession
and damages against petitioner Acap is hereby DISMISSED for failure to properly
state a cause of action, without prejudice to private respondent taking the proper
legal steps to establish the legal mode by which he claims to have acquired
ownership of the land in question.

SO ORDERED.

Davide, Jr., Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

 

THIRD DIVISION

[G.R. No. 108346. July 11, 2001]

Spouses MARIANO Z. VELARDE and AVELINA D.

VELARDE, petitioners, vs. COURT OF APPEALS, DAVID A.
RAYMUNDO and GEORGE RAYMUNDO, respondents.

DECISION
PANGANIBAN, J.:

A substantial breach of a reciprocal obligation, like failure to pay the price in

the manner prescribed by the contract, entitles the injured party to rescind the
obligation. Rescission abrogates the contract from its inception and requires a
mutual restitution of benefits received.

The Case

Before us is a Petition for Review on Certiorari [1] questioning the Decision[2] of

the Court of Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, as
well as its Resolution[3] dated December 29, 1992 denying petitioners motion for
reconsideration.[4]
The dispositive portion of the assailed Decision reads:

WHEREFORE, the Order dated May 15, 1991 is hereby ANNULLED and SET
ASIDE and the Decision dated November 14, 1990 dismissing the [C]omplaint is
REINSTATED. The bonds posted by plaintiffs-appellees and defendants-
appellants are hereby RELEASED.[5]
The Facts

The factual antecedents of the case, as found by the CA, are as follows:

x x x. David Raymundo [herein private respondent] is the absolute and registered

owner of a parcel of land, together with the house and other improvements thereon,
located at 1918 Kamias St., Dasmarias Village, Makati and covered by TCT No.
142177. Defendant George Raymundo [herein private respondent] is Davids father
who negotiated with plaintiffs Avelina and Mariano Velarde [herein petitioners]
for the sale of said property, which was, however, under lease (Exh. 6, p. 232,
Record of Civil Case No. 15952).

On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. A; Exh. 1,

pp. 11-12, Record) was executed by defendant David Raymundo, as vendor, in
favor of plaintiff Avelina Velarde, as vendee, with the following terms and
conditions:

x x x x x x x x x

That for and in consideration of the amount of EIGHT HUNDRED THOUSAND

PESOS (P800,000.00), Philippine currency, receipt of which in full is hereby
acknowledged by the VENDOR from the VENDEE, to his entire and complete
satisfaction, by these presents the VENDOR hereby SELLS, CEDES,
TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full
warranty of a legal and valid title as provided by law, unto the VENDEE, her heirs,
successors and assigns, the parcel of land mentioned and described above, together
with the house and other improvements thereon.

That the aforesaid parcel of land, together with the house and other improvements
thereon, were mortgaged by the VENDOR to the BANK OF THE PHILIPPINE
ISLANDS, Makati, Metro Manila, to secure the payment of a loan of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, as evidenced by a Real Estate Mortgage signed and executed by the
VENDOR in favor of the said Bank of the Philippine Islands, on______ and which
Real Estate Mortgage was ratified before Notary Public for Makati, _______, as
Doc. No. ____, Page No. ___, Book No. ___, Series of 1986 of his Notarial
Register.

That as part of the consideration of this sale, the VENDEE hereby assumes to pay
the mortgage obligations on the property herein sold in the amount of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, in favor of Bank of the Philippine Islands, in the name of the VENDOR,
and further agrees to strictly and faithfully comply with all the terms and
conditions appearing in the Real Estate Mortgage signed and executed by the
VENDOR in favor of BPI, including interests and other charges for late payment
levied by the Bank, as if the same were originally signed and executed by the
VENDEE.

It is further agreed and understood by the parties herein that the capital gains tax
and documentary stamps on the sale shall be for the account of the VENDOR;
whereas, the registration fees and transfer tax thereon shall be for the account of
the VENDEE. (Exh. A, pp. 11-12, Record).

On the same date, and as part of the above-document, plaintiff Avelina Velarde,
with the consent of her husband, Mariano, executed an Undertaking (Exh. C, pp.
13-14, Record), the pertinent portions of which read, as follows:

x x x x x x x x x

Whereas, as per Deed of Sale with Assumption of Mortgage, I paid Mr. David A.
Raymundo the sum of EIGHT HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, and assume the mortgage obligations on the property with the
Bank of the Philippine Islands in the amount of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in
accordance with the terms and conditions of the Deed of Real Estate Mortgage
dated _________, signed and executed by Mr. David A. Raymundo with the said
Bank, acknowledged before Notary Public for Makati, _____, as Doc. No. ___,
Page No. ___, Book No. __, Series of 1986 of his Notarial Register.

WHEREAS, while my application for the assumption of the mortgage obligations

on the property is not yet approved by the mortgagee Bank, I have agreed to pay
the mortgage obligations on the property with the Bank in the name of Mr. David
A. Raymundo, in accordance with the terms and conditions of the said Deed of
Real Estate Mortgage, including all interests and other charges for late payment.

WHEREAS, this undertaking is being executed in favor of Mr. David A.

Raymundo, for purposes of attesting and confirming our private understanding
concerning the said mortgage obligations to be assumed.

NOW, THEREFORE, for and in consideration of the foregoing premises, and the
assumption of the mortgage obligations of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, with the Bank of the
Philippine islands, I, Mrs. Avelina D. Velarde, with the consent of my husband,
Mariano Z. Velarde, do hereby bind and obligate myself, my heirs, successors and
assigns, to strictly and faithfully comply with the following terms and conditions:

1. That until such time as my assumption of the mortgage obligations on the

property purchased is approved by the mortgagee bank, the Bank of the
Philippine Islands, I shall continue to pay the said loan in accordance with the
terms and conditions of the Deed of Real Estate Mortgage in the name of Mr.
David A. Raymundo, the original Mortgagor.

2. That, in the event I violate any of the terms and conditions of the said Deed of
Real Estate Mortgage, I hereby agree that my downpayment ofP800,000.00, plus
all payments made with the Bank of the Philippine Islands on the mortgage loan,
shall be forfeited in favor of Mr. David A. Raymundo, as and by way of liquidated
damages, without necessity of notice or any judicial declaration to that effect, and
Mr. David A Raymundo shall resume total and complete ownership and possession
of the property sold by way of Deed of Sale with Assumption of Mortgage, and the
same shall be deemed automatically cancelled and be of no further force or effect,
in the same manner as if (the) same had never been executed or entered into.

3. That I am executing this Undertaking for purposes of binding myself, my heirs,

successors and assigns, to strictly and faithfully comply with the terms and
conditions of the mortgage obligations with the Bank of the Philippine Islands, and
the covenants, stipulations and provisions of this Undertaking.

That, David A. Raymundo, the vendor of the property mentioned and identified
above, [does] hereby confirm and agree to the undertakings of the Vendee
pertinent to the assumption of the mortgage obligations by the Vendee with the
Bank of the Philippine Islands. (Exh. C, pp. 13-14, Record).

This undertaking was signed by Avelina and Mariano Velarde and David
Raymundo.

It appears that the negotiated terms for the payment of the balance of P1.8 million
was from the proceeds of a loan that plaintiffs were to secure from a bank with
defendants help. Defendants had a standing approved credit line with the Bank of
the Philippine Islands (BPI). The parties agreed to avail of this, subject to BPIs
approval of an application for assumption of mortgage by plaintiffs. Pending BPIs
approval o[f] the application, plaintiffs were to continue paying the monthly
interests of the loan secured by a real estate mortgage.
Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan
secured by the aforementioned mortgage for three (3) months as follows:
September 19, 1986 at P27,225.00; October 20, 1986 at P23,000.00; and
November 19, 1986 at P23,925.00 (Exh. E, H & J, pp. 15, 17 and 18, Record).

On December 15, 1986, plaintiffs were advised that the Application for
Assumption of Mortgage with BPI was not approved (Exh. J, p. 133, Record).This
prompted plaintiffs not to make any further payment.

On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter
that their non-payment to the mortgage bank constitute[d] non-performance of
their obligation (Exh. 3, p. 220, Record).

In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:

This is to advise you, therefore, that our client is willing to pay the balance in cash
not later than January 21, 1987 provided: (a) you deliver actual possession of the
property to her not later than January 15, 1987 for her immediate occupancy; (b)
you cause the release of title and mortgage from the Bank of P.I. and make the title
available and free from any liens and encumbrances; and (c) you execute an
absolute deed of sale in her favor free from any liens or encumbrances not later
than January 21, 1987. (Exhs. K, 4, p. 223, Record).

On January 8, 1987, defendants sent plaintiffs a notarial notice of

cancellation/rescission of the intended sale of the subject property allegedly due to
the latters failure to comply with the terms and conditions of the Deed of Sale with
Assumption of Mortgage and the Undertaking (Exh. 5, pp. 225-226, Record).[6]

Consequently, petitioners filed on February 9, 1987 a Complaint against

private respondents for specific performance, nullity of cancellation, writ of
possession and damages. This was docketed as Civil Case No. 15952 at the
Regional Trial Court of Makati, Branch 149. The case was tried and heard by then
Judge Consuelo Ynares-Santiago (now an associate justice of this Court), who
dismissed the Complaint in a Decision dated November 14, 1990. [7]Thereafter,
petitioners filed a Motion for Reconsideration.[8]
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals
and Judge Salvador S. A. Abad Santos was assigned to the sala she vacated. In an
Order dated May 15, 1991,[9] Judge Abad Santos granted petitioners Motion for
Reconsideration and directed the parties to proceed with the sale. He instructed
petitioners to pay the balance of P1.8 million to private respondents who, in turn,
were ordered to execute a deed of absolute sale and to surrender possession of the
disputed property to petitioners.
Private respondents appealed to the CA.

Ruling of the Court of Appeals

The CA set aside the Order of Judge Abad Santos and reinstated then Judge
Ynares-Santiagos earlier Decision dismissing petitioners Complaint.Upholding the
validity of the rescission made by private respondents, the CA explained its ruling
in this wise:

In the Deed of Sale with Assumption of Mortgage, it was stipulated that as part of
the consideration of this sale, the VENDEE (Velarde) would assume to pay the
mortgage obligation on the subject property in the amount of P1.8 million in favor
of BPI in the name of the Vendor (Raymundo). Since the price to be paid by the
Vendee Velarde includes the downpayment of P800,000.00 and the balance
of P1.8 million, and the balance of P1.8 million cannot be paid in cash, Vendee
Velarde, as part of the consideration of the sale, had to assume the mortgage
obligation on the subject property. In other words, the assumption of the mortgage
obligation is part of the obligation of Velarde, as vendee, under the
contract. Velarde further agreed to strictly and faithfully comply with all the terms
and conditions appearing in the Real Estate Mortgage signed and executed by the
VENDOR in favor of BPI x x x as if the same were originally signed and executed
by the Vendee. (p.2, thereof, p.12, Record). This was reiterated by Velarde in the
document entitled Undertaking wherein the latter agreed to continue paying said
loan in accordance with the terms and conditions of the Deed of Real Estate
Mortgage in the name of Raymundo. Moreover, it was stipulated that in the event
of violation by Velarde of any terms and conditions of said deed of real estate
mortgage, the downpayment of P800,000.00 plus all payments made with BPI or
the mortgage loan would be forfeited and the [D]eed of [S]ale with [A]ssumption
of [M]ortgage would thereby be cancelled automatically and of no force and effect
(pars. 2 & 3, thereof, pp. 13-14, Record).

From these 2 documents, it is therefore clear that part of the consideration of the
sale was the assumption by Velarde of the mortgage obligation of Raymundo in the
amount of P1.8 million. This would mean that Velarde had to make payments to
BPI under the [D]eed of [R]eal [E]state [M]ortgage in the name of Raymundo. The
application with BPI for the approval of the assumption of mortgage would mean
that, in case of approval, payment of the mortgage obligation will now be in the
name of Velarde. And in the event said application is disapproved, Velarde had to
pay in full. This is alleged and admitted in Paragraph 5 of the Complaint. Mariano
Velarde likewise admitted this fact during the hearing on September 15, 1997 (p.
47, t.s.n., September 15, 1987; see also pp. 16-26, t.s.n., October 8, 1989). This
being the case, the non-payment of the mortgage obligation would result in a
violation of the contract. And, upon Velardes failure to pay the agreed price, the[n]
Raymundo may choose either of two (2) actions - (1) demand fulfillment of the
contract, or (2) demand its rescission (Article 1191, Civil Code).

The disapproval by BPI of the application for assumption of mortgage cannot be

used as an excuse for Velardes non-payment of the balance of the purchase
price. As borne out by the evidence, Velarde had to pay in full in case of BPIs
disapproval of the application for assumption of mortgage. What Velarde should
have done was to pay the balance of P1.8 million. Instead, Velarde sent Raymundo
a letter dated January 7, 1987 (Exh. K, 4) which was strongly given weight by the
lower court in reversing the decision rendered by then Judge Ynares-Santiago. In
said letter, Velarde registered their willingness to pay the balance in cash but
enumerated 3 new conditions which, to the mind of this Court, would constitute a
new undertaking or new agreement which is subject to the consent or approval of
Raymundo. These 3 conditions were not among those previously agreed upon by
Velarde and Raymundo. These are mere offers or, at most, an attempt to
novate. But then again, there can be no novation because there was no agreement
of all the parties to the new contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA
493).

It was likewise agreed that in case of violation of the mortgage obligation, the
Deed of Sale with Assumption of Mortgage would be deemed automatically
cancelled and of no further force and effect, as if the same had never been executed
or entered into. While it is true that even if the contract expressly provided for
automatic rescission upon failure to pay the price, the vendee may still pay, he may
do so only for as long as no demand for rescission of the contract has been made
upon him either judicially or by a notarial act (Article 1592, Civil Code). In the
case at bar, Raymundo sent Velarde a notarial notice dated January 8, 1987 of
cancellation/rescission of the contract due to the latters failure to comply with their
obligation. The rescission was justified in view of Velardes failure to pay the price
(balance) which is substantial and fundamental as to defeat the object of the parties
in making the agreement.As adverted to above, the agreement of the parties
involved a reciprocal obligation wherein the obligation of one is a resolutory
condition of the obligation of the other, the non-fulfillment of which entitles the
other party to rescind the contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the
non-payment of the mortgage obligation by appellees Velarde would create a right
to demand payment or to rescind the contract, or to criminal prosecution (Edca
Publishing & Distribution Corporation vs. Santos, 184 SCRA 614). Upon appellees
failure, therefore, to pay the balance, the contract was properly rescinded (Ruiz vs.
IAC, 184 SCRA 720). Consequently, appellees Velarde having violated the
contract, they have lost their right to its enforcement and hence, cannot avail of the
action for specific performance (Voysaw vs. Interphil Promotions, Inc., 148 SCRA
635).[10]

Hence, this appeal.[11]

The Issues

Petitioners, in their Memorandum,[12] interpose the following assignment of

errors:
I.

The Court of Appeals erred in holding that the non-payment of the mortgage
obligation resulted in a breach of the contract.

II.

The Court of Appeals erred in holding that the rescission (resolution) of the
contract by private respondents was justified.

III.

The Court of Appeals erred in holding that petitioners January 7, 1987 letter
gave three new conditions constituting mere offers or an attempt to novate
necessitating a new agreement between the parties.

The Courts Ruling

The Petition is partially meritorious.

First Issue:
Breach of Contract

Petitioners aver that their nonpayment of private respondents mortgage

obligation did not constitute a breach of contract, considering that their request to
assume the obligation had been disapproved by the mortgagee bank. Accordingly,
payment of the monthly amortizations ceased to be their obligation and, instead, it
devolved upon private respondents again.
However, petitioners did not merely stop paying the mortgage obligations; they
also failed to pay the balance of the purchase price. As admitted by both parties,
their agreement mandated that petitioners should pay the purchase price balance
of P1.8 million to private respondents in case the request to assume the mortgage
would be disapproved. Thus, on December 15, 1986, when petitioners received
notice of the banks disapproval of their application to assume respondents
mortgage, they should have paid the balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private respondents offering to
make such payment only upon the fulfillment of certain conditions not originally
agreed upon in the contract of sale. Such conditional offer to pay cannot take the
place of actual payment as would discharge the obligation of a buyer under a
contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and
deliver a determinate thing, and the buyer to pay therefor a price certain in money
or its equivalent.[13] Private respondents had already performed their obligation
through the execution of the Deed of Sale, which effectively transferred ownership
of the property to petitioner through constructive delivery. Prior physical delivery
or possession is not legally required, and the execution of the Deed of Sale is
deemed equivalent to delivery.[14]
Petitioners, on the other hand, did not perform their correlative obligation of
paying the contract price in the manner agreed upon. Worse, they wanted private
respondents to perform obligations beyond those stipulated in the contract before
fulfilling their own obligation to pay the full purchase price.

Second Issue
Validity of the Rescission

Petitioners likewise claim that the rescission of the contract by private

respondents was not justified, inasmuch as the former had signified their
willingness to pay the balance of the purchase price only a little over a month from
the time they were notified of the disapproval of their application for assumption of
mortgage. Petitioners also aver that the breach of the contract was not substantial
as would warrant a rescission. They cite several cases[15]in which this Court
declared that rescission of a contract would not be permitted for a slight or casual
breach. Finally, they argue that they have substantially performed their obligation
in good faith, considering that they have already made the initial payment
of P800,000 and three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by petitioners was not so much
their nonpayment of the mortgage obligations, as their nonperformance of their
reciprocal obligation to pay the purchase price under the contract of sale. Private
respondents right to rescind the contract finds basis in Article 1191 of the Civil
Code, which explicitly provides as follows:

Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission even after he has chosen fulfillment, if the latter should become
impossible.

The right of rescission of a party to an obligation under Article 1191 of the

Civil Code is predicated on a breach of faith by the other party who violates the
reciprocity between them.[16] The breach contemplated in the said provision is the
obligors failure to comply with an existing obligation. [17]When the obligor cannot
comply with what is incumbent upon it, the obligee may seek rescission and, in the
absence of any just cause for the court to determine the period of compliance, the
court shall decree the rescission.[18]
In the present case, private respondents validly exercised their right to rescind
the contract, because of the failure of petitioners to comply with their obligation to
pay the balance of the purchase price. Indubitably, the latter violated the very
essence of reciprocity in the contract of sale, a violation that consequently gave
rise to private respondents right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase
price one month after it became due; however, this was not equivalent to actual
payment as would constitute a faithful compliance of their reciprocal
obligation. Moreover, the offer to pay was conditioned on the performance by
private respondents of additional burdens that had not been agreed upon in the
original contract. Thus, it cannot be said that the breach committed by petitioners
was merely slight or casual as would preclude the exercise of the right to rescind.
Misplaced is petitioners reliance on the cases [19] they cited because the factual
circumstances in those cases are not analogous to those in the present one. In Song
Fo there was, on the part of the buyer, only a delay of twenty (20) days to pay for
the goods delivered. Moreover, the buyers offer to pay was unconditional and was
accepted by the seller. In Zepeda, the breach involved a mere one-week delay in
paying the balance of P1,000, which was actually paid. In Tan, the alleged breach
was private respondents delay of only a few days, which was for the purpose of
clearing the title to the property; there was no reference whatsoever to the
nonpayment of the contract price.
In the instant case, the breach committed did not merely consist of a slight
delay in payment or an irregularity; such breach would not normally defeat the
intention of the parties to the contract. Here, petitioners not only failed to pay
the P1.8 million balance, but they also imposed upon private respondents new
obligations as preconditions to the performance of their own obligation. In effect,
the qualified offer to pay was a repudiation of an existing obligation, which was
legally due and demandable under the contract of sale. Hence, private respondents
were left with the legal option of seeking rescission to protect their own interest.

Mutual Restitution
Required in Rescission

As discussed earlier, the breach committed by petitioners was the

nonperformance of a reciprocal obligation, not a violation of the terms and
conditions of the mortgage contract. Therefore, the automatic rescission and
forfeiture of payment clauses stipulated in the contract does not apply.Instead,
Civil Code provisions shall govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the
Civil Code, mutual restitution is required to bring back the parties to their original
situation prior to the inception of the contract. Accordingly, the initial payment
of P800,000 and the corresponding mortgage payments in the amounts
of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners
should be returned by private respondents, lest the latter unjustly enrich themselves
at the expense of the former.
Rescission creates the obligation to return the object of the contract. It can be
carried out only when the one who demands rescission can return whatever he may
be obliged to restore.[20] To rescind is to declare a contract void at its inception and
to put an end to it as though it never was. It is not merely to terminate it and release
the parties from further obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions as if no contract has
been made.[21]

Third Issue
Attempt to Novate

In view of the foregoing discussion, the Court finds it no longer necessary to

discuss the third issue raised by petitioners. Suffice it to say that the three
conditions appearing on the January 7, 1987 letter of petitioners to private
respondents were not part of the original contract. By that time, it was already
incumbent upon the former to pay the balance of the sale price. They had no right
to demand preconditions to the fulfillment of their obligation, which had become
due.
WHEREFORE, the assailed Decision is hereby AFFIRMED with
the MODIFICATION that private respondents are ordered to return to petitioners
the amount of P874,150, which the latter paid as a consequence of the rescinded
contract, with legal interest thereon from January 8, 1987, the date of
rescission. No pronouncement as to costs.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-9935             February 1, 1915

YU TEK and CO., plaintiff-appellant, 

vs.
BASILIO GONZALES, defendant-appellant.

Beaumont, Tenney and Ferrier for plaintiff. 

Buencamino and Lontok for defendant.

TRENT, J.:

The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of
which follow:

1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of

P3,000 Philippine currency from Messrs. Yu Tek and Co., and that in
consideration of said sum be obligates himself to deliver to the said Yu Tek
and Co., 600 piculs of sugar of the first and second grade, according to the
result of the polarization, within the period of three months, beginning on
the 1st day of January, 1912, and ending on the 31st day of March of the
same year, 1912.

2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said
Messrs. Yu Tek and Co., of this city the said 600 piculs of sugar at any place
within the said municipality of Santa Rosa which the said Messrs. Yu Tek
and Co., or a representative of the same may designate.

3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu
Tek and Co. the 600 piculs of sugar within the period of three months,
referred to in the second paragraph of this document, this contract will be
rescinded and the said Mr. Basilio Gonzales will then be obligated to return
to Messrs. Yu Tek and Co. the P3,000 received and also the sum of P1,200
by way of indemnity for loss and damages.
Plaintiff proved that no sugar had been delivered to it under this contract nor had it
been able to recover the P3,000. Plaintiff prayed for judgment for the P3,000 and,
in addition, for P1,200 under paragraph 4, supra. Judgment was rendered for
P3,000 only, and from this judgment both parties appealed.

The points raised by the defendant will be considered first. He alleges that the
court erred in refusing to permit parol evidence showing that the parties intended
that the sugar was to be secured from the crop which the defendant raised on his
plantation, and that he was unable to fulfill the contract by reason of the almost
total failure of his crop. This case appears to be one to which the rule which
excludes parol evidence to add to or vary the terms of a written contract is
decidedly applicable. There is not the slightest intimation in the contract that the
sugar was to be raised by the defendant. Parties are presumed to have reduced to
writing all the essential conditions of their contract. While parol evidence is
admissible in a variety of ways to explain the meaning of written contracts, it
cannot serve the purpose of incorporating into the contract additional
contemporaneous conditions which are not mentioned at all in the writing, unless
there has been fraud or mistake. In an early case this court declined to allow parol
evidence showing that a party to a written contract was to become a partner in a
firm instead of a creditor of the firm. (Pastor vs. Gaspar, 2 Phil. Rep., 592.) Again,
in Eveland vs. Eastern Mining Co. (14 Phil. Rep., 509) a contract of employment
provided that the plaintiff should receive from the defendant a stipulated salary and
expenses. The defendant sought to interpose as a defense to recovery that the
payment of the salary was contingent upon the plaintiff's employment redounding
to the benefit of the defendant company. The contract contained no such condition
and the court declined to receive parol evidence thereof.

In the case at bar, it is sought to show that the sugar was to be obtained exclusively
from the crop raised by the defendant. There is no clause in the written contract
which even remotely suggests such a condition. The defendant undertook to
deliver a specified quantity of sugar within a specified time. The contract placed no
restriction upon the defendant in the matter of obtaining the sugar. He was equally
at liberty to purchase it on the market or raise it himself. It may be true that
defendant owned a plantation and expected to raise the sugar himself, but he did
not limit his obligation to his own crop of sugar. Our conclusion is that the
condition which the defendant seeks to add to the contract by parol evidence
cannot be considered. The rights of the parties must be determined by the writing
itself.
The second contention of the defendant arises from the first. He assumes that the
contract was limited to the sugar he might raise upon his own plantation; that the
contract represented a perfected sale; and that by failure of his crop he was relieved
from complying with his undertaking by loss of the thing due. (Arts. 1452, 1096,
and 1182, Civil Code.) This argument is faulty in assuming that there was a
perfected sale. Article 1450 defines a perfected sale as follows:

The sale shall be perfected between vendor and vendee and shall be binding

on both of them, if they have agreed upon the thing which is the object of the
contract and upon the price, even when neither has been delivered.

Article 1452 reads: "The injury to or the profit of the thing sold shall, after the
contract has been perfected, be governed by the provisions of articles 1096 and
1182."

This court has consistently held that there is a perfected sale with regard to the
"thing" whenever the article of sale has been physically segregated from all other
articles Thus, a particular tobacco factory with its contents was held sold under a
contract which did not provide for either delivery of the price or of the thing until a
future time. McCullough vs. Aenlle and Co. (3 Phil. Rep., 295). Quite similar was
the recent case of Barretto vs. Santa Marina(26 Phil. Rep., 200) where specified
shares of stock in a tobacco factory were held sold by a contract which deferred
delivery of both the price and the stock until the latter had been appraised by an
inventory of the entire assets of the company. In Borromeo vs. Franco (5 Phil.
Rep., 49) a sale of a specific house was held perfected between the vendor and
vendee, although the delivery of the price was withheld until the necessary
documents of ownership were prepared by the vendee. In Tan Leonco vs. Go
Inqui (8 Phil. Rep., 531) the plaintiff had delivered a quantity of hemp into the
warehouse of the defendant. The defendant drew a bill of exchange in the sum of
P800, representing the price which had been agreed upon for the hemp thus
delivered. Prior to the presentation of the bill for payment, the hemp was
destroyed. Whereupon, the defendant suspended payment of the bill. It was held
that the hemp having been already delivered, the title had passed and the loss was
the vendee's. It is our purpose to distinguish the case at bar from all these cases.

In the case at bar the undertaking of the defendant was to sell to the plaintiff 600
piculs of sugar of the first and second classes. Was this an agreement upon the
"thing" which was the object of the contract within the meaning of article
1450, supra? Sugar is one of the staple commodities of this country. For the
purpose of sale its bulk is weighed, the customary unit of weight being
denominated a "picul." There was no delivery under the contract. Now, if called
upon to designate the article sold, it is clear that the defendant could only say that it
was "sugar." He could only use this generic name for the thing sold. There was no
"appropriation" of any particular lot of sugar. Neither party could point to any
specific quantity of sugar and say: "This is the article which was the subject of our
contract." How different is this from the contracts discussed in the cases referred to
above! In the McCullough case, for instance, the tobacco factory which the parties
dealt with was specifically pointed out and distinguished from all other tobacco
factories. So, in the Barretto case, the particular shares of stock which the parties
desired to transfer were capable of designation. In the Tan Leonco case, where a
quantity of hemp was the subject of the contract, it was shown that that quantity
had been deposited in a specific warehouse, and thus set apart and distinguished
from all other hemp.

A number of cases have been decided in the State of Louisiana, where the civil law
prevails, which confirm our position. Perhaps the latest is Witt Shoe
Co. vs. Seegars and Co. (122 La., 145; 47 Sou., 444). In this case a contract was
entered into by a traveling salesman for a quantity of shoes, the sales having been
made by sample. The court said of this contract:

But it is wholly immaterial, for the purpose of the main question, whether
Mitchell was authorized to make a definite contract of sale or not, since the
only contract that he was in a position to make was an agreement to sell or
an executory contract of sale. He says that plaintiff sends out 375 samples of
shoes, and as he was offering to sell by sample shoes, part of which had not
been manufactured and the rest of which were incorporated in plaintiff's
stock in Lynchburg, Va., it was impossible that he and Seegars and Co.
should at that time have agreed upon the specific objects, the title to which
was to pass, and hence there could have been no sale. He and Seegars and
Co. might have agreed, and did (in effect ) agree, that the identification of
the objects and their appropriation to the contract necessary to make a sale
should thereafter be made by the plaintiff, acting for itself and for Seegars
and Co., and the legend printed in red ink on plaintiff's billheads ("Our
responsibility ceases when we take transportation Co's. receipt `In good
order'" indicates plaintiff's idea of the moment at which such identification
and appropriation would become effective. The question presented was
carefully considered in the case of State vs. Shields, et al. (110 La., 547, 34
Sou., 673) (in which it was absolutely necessary that it should be decided),
and it was there held that in receiving an order for a quantity of goods, of a
kind and at a price agreed on, to be supplied from a general stock,
 warehoused at another place, the agent receiving the order merely enters into
an executory contract for the sale of the goods, which does not divest or
transfer the title of any determinate object, and which becomes effective for
that purpose only when specific goods are thereafter appropriated to the
contract; and, in the absence of a more specific agreement on the subject,
that such appropriated takes place only when the goods as ordered are
delivered to the public carriers at the place from which they are to be
shipped, consigned to the person by whom the order is given, at which time
and place, therefore, the sale is perfected and the title passes.

This case and State vs. Shields, referred to in the above quotation are amply
illustrative of the position taken by the Louisiana court on the question before us.
But we cannot refrain from referring to the case of Larue and Prevost vs. Rugely,
Blair and Co. (10 La. Ann., 242) which is summarized by the court itself in the
Shields case as follows:

. . . It appears that the defendants had made a contract for the sale, by
weight, of a lot of cotton, had received $3,000 on account of the price, and
had given an order for its delivery, which had been presented to the
purchaser, and recognized by the press in which the cotton was stored, but
that the cotton had been destroyed by fire before it was weighed. It was held
that it was still at the risk of the seller, and that the buyer was entitled to
recover the $3,000 paid on account of the price.

We conclude that the contract in the case at bar was merely an executory
agreement; a promise of sale and not a sale. At there was no perfected sale, it is
clear that articles 1452, 1096, and 1182 are not applicable. The defendant having
defaulted in his engagement, the plaintiff is entitled to recover the P3,000 which it
advanced to the defendant, and this portion of the judgment appealed from must
therefore be affirmed.

The plaintiff has appealed from the judgment of the trial court on the ground that it
is entitled to recover the additional sum of P1,200 under paragraph 4 of the
contract. The court below held that this paragraph was simply a limitation upon the
amount of damages which could be recovered and not liquidated damages as
contemplated by the law. "It also appears," said the lower court, "that in any event
the defendant was prevented from fulfilling the contract by the delivery of the
sugar by condition over which he had no control, but these conditions were not
sufficient to absolve him from the obligation of returning the money which he
received."
The above quoted portion of the trial court's opinion appears to be based upon the
proposition that the sugar which was to be delivered by the defendant was that
which he expected to obtain from his own hacienda and, as the dry weather
destroyed his growing cane, he could not comply with his part of the contract. As
we have indicated, this view is erroneous, as, under the contract, the defendant was
not limited to his growth crop in order to make the delivery. He agreed to deliver
the sugar and nothing is said in the contract about where he was to get it.

We think is a clear case of liquidated damages. The contract plainly states that if
the defendant fails to deliver the 600 piculs of sugar within the time agreed on, the
contract will be rescinded and he will be obliged to return the P3,000 and pay the
sum of P1,200 by way of indemnity for loss and damages. There cannot be the
slightest doubt about the meaning of this language or the intention of the parties.
There is no room for either interpretation or construction. Under the provisions of
article 1255 of the Civil Code contracting parties are free to execute the contracts
that they may consider suitable, provided they are not in contravention of law,
morals, or public order. In our opinion there is nothing in the contract under
consideration which is opposed to any of these principles.

For the foregoing reasons the judgment appealed from is modified by allowing the
recovery of P1,200 under paragraph 4 of the contract. As thus modified, the
judgment appealed from is affirmed, without costs in this instance.

Arellano, C.J., Torres, Carson and Araullo, JJ., concur. 

Johnson, J., dissents.
 FIRST DIVISION

[G.R. No. 125531. February 12, 1997]

JOVAN LAND, petitioner, vs. COURT OF APPEALS and EUGENIO

QUESADA, INC., respondents.

DECISION
HERMOSISIMA, JR. J.:

This is a petition for review on certiorari to reverse and set aside the decision
of the Court of Appeals in C.A.-G.R. CV No. 47515.
Petitioner Jovan Land, Inc. is a corporation engaged in the real estate
business. Its President and Chairman of the Board of Directors is one Joseph Sy.
Private respondent Eugenio Quesada is the owner of the Q Building located on
an 801 sq. m. lot at the corner of Mayhaligue Street and Rizal Avenue, Sta. Cruz,
Manila. The property is covered by TCT No. 77796 of the Registry of Deeds of
Manila.
Petitioner learned from co-petitioner Consolacion P. Mendoza that private
respondent was selling the aforesaid Mayhaligue property.Thus, petitioner through
Joseph Sy made a written offer, dated July 27, 1987 for P10.25 million. This first
offer was not accepted by Conrado Quesada, the General Manager of private
respondent. Joseph Sy sent a second written offer dated July 31, 1989 for the same
price but inclusive of an undertaking to pay the documentary stamp tax, transfer
tax, registration fees and notarial charges. Check No. 247048, dated July 31, 1989,
for one million pesos drawn against the Philippine Commercial and Industrial
Bank (PCIB) was enclosed therewith as earnest money. This second offer, with
earnest money, was again rejected by Conrado Quesada. Undaunted, Joseph Sy, on
August 10, 1989, sent a third written offer for twelve million pesos with a similar
check for one million pesos as earnest money. Annotated on this third letter-offer
was the phrase "Received original, 9-4-89" beside which appears the signature of
Conrado Quesada.
On the basis of this annotation which petitioner insists is the proof that there
already exists a valid, perfected agreement to sell the Mayhaligue property,
petitioner filed with the trial court, a complaint for specific performance and
collection of sum of money with damages.However, the trial court held that:
"x x x the business encounters between Joseph Sy and Conrado Quesada
had not passed the negotiation stage relating to the intended sale by the
defendant corporation of the property in question. x x x As the court finds,
there is nothing in the record to point that a contract was ever perfected. In
fact, there is nothing in writing which is indispensably necessary in order
that the perfected contract could be enforced under the Statute of Frauds."[1]
Since the trial court dismissed petitioner's complaint for lack of cause of action,
petitioner appealed[2] to respondent Court of Appeals before which it assigned the
following errors:
"1. The Court a quo failed to appreciate that there was already a perfected
contract of sale between Jovan Land, Inc. and the private respondent];
2. The Court a quo erred in its conclusion that there was no implied
acceptance of the offer by appellants to appellee [private respondent];
3. The Court a quo was in error where it concluded that the contract of sale
was unenforceable;
4.The Court a quo failed to rule that appellant [petitioner] Mendoza is
entitled to her broker's commission."[3]
Respondent court placed petitioner to task on their assignment of errors and
concluded that not any of them justifies a reversal of the trial court decision.
We agree.
In the case of Ang Yu Asuncion v. Court of Appeals,[4] we held that:
"xxx [A] contract (Art. 1157, Civil Code), x x x 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 xxx. A contract undergoes
various stages that include its negotiation or preparation, its perfection and,
finally, its consummation. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract to the time
the contract is concluded xxx. The perfection of the contract takes place
upon the concurrence of the essential elements thereof."
Moreover, it is a fundamental principle that before contract of sale can be
valid, the following elements must be present, viz: (a) consent or meeting of the
minds; (b) determinate subject matter; (3) price certain in money or its
equivalent. Until the contract of sale is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation between the parties.
In the case at bench, petitioner, anchors its main argument on the annotation on
its third letter-offer of the phrase "Received original, 9-4-89," beside which
appears the signature of Conrado Quesada. It also contends that the said annotation
is evidence to show that there was already a perfected agreement to sell as
respondent can be said to have accepted petitioner's payment in the form of a check
which was enclosed in the third letter.
However, as correctly elucidated by the Court of Appeals:
"Sy insisted in his testimony that this offer of P12M was accepted by
Conrado Quesada but there is nothing written or documentary to show that
such offer was accepted by Conrado Quesada. While Sy claimed that the
acceptance could be gleaned from the notation in the third written offer, the
court is not impressed thereon however because the notation merely states
as follows: "Received Original, (S)-Conrado Quesada" and below this
signature is "9-4-89". As explained by Conrado Quesada in his testimony
what was received by him was the original of the written offer.
The court cannot believe that this notation marked as Exhibit D-2 would
signify the acceptance of the offer. Neither does it signify, as Sy had
testified that the check was duly received on said date. If this were true Sy,
who appears to be an intelligent businessman could have easily asked
Conrado Quesada to indicate on Exhibit D the alleged fact of acceptance of
said check. And better still, Sy could have asked Quesada the acceptance in
writing separate of the written offer if indeed there was an agreement as to
the price of the proposed sale of the property in question."[5]
Clearly then, a punctilious examination of the receipt reveals that the same can
neither be regarded as a contract of sale nor a promise to sell. Such an annotation
by Conrado Quesada amounts to neither a written nor an implied acceptance of the
offer of Joseph Sy. It is merely a memorandum of the receipt by the former of the
latter's offer. The requisites of a valid contract of sale are lacking in said receipt
and therefore the "sale" is neither valid nor enforceable.
Although there was a series of communications through letter-offers and
rejections as evident from the facts of this case, still it is undeniable that no written
agreement was reached between petitioner and private respondent with regard to
the sale of the realty. Hence, the alleged transaction is unenforceable as the
requirements under the Statute of Frauds have not been complied with. Under the
said provision, an agreement for the sale of real property or of an interest therein,
to be enforceable, must be in writing and subscribed by the party charged or by an
agent thereof
Petitioner also asseverates that the failure of Conrado Quesada to return the
check for one million pesos, translates to implied acceptance of its third letter-
offer. It, however, does not rebut the finding of the trial court that private
respondent was returning the check but petitioner refused to accept the same and
that when Conrado Quesada subsequently sent it back to petitioner through
registered mail, the latter failed to claim its mail from the post office.
Finally, we fittingly apply here the oft-repeated doctrine that the factual
findings of the trial court, especially as regards the credibility of witnesses, are
conclusive upon this court, unless the case falls under the jurisprudentially
established exceptions. But this is a case that tenders no exceptional
circumstance; rather, we find the observations of the trial court to be legally sound
and valid:
"x x x Joseph Sy's testimony is not impressive because of several
inconsistencies herein pointed out. On the matter of earnest money, the
same appears to be the idea solely of the [petitioner], assuming that he had
intended to bind the [petitioner] corporation. In the written second offer x x
x he had stated that the check of P1M had been enclosed (attached)
therewith. The same check x x x was again mentioned to be enclosed
(attached) in the third written offer under date August 10, 1989 x x x. Sy
testified in his direct examination that he had personally given this check to
Conrado Quesada. But on cross examination, he reversed himself by saying
that the check was given thru his [co-petitioner] Mendoza.Examining the
third written offer, it appears that when it was first typewritten, this P11M
was noted to have been corrected, and that as per his testimony, Sy had
increased it to P12M. This is the reason according to Sy why there was a
superimposition of the number '12' over the number '11' to mean P12M as
the revised consideration for the sale of the property in question."[6]
Respondent court thus concluded that:
"x x x [since] the matter of evaluation of the credibility of witness[es] is
addressed to the trial court and unless clearly contrary to the records before
Us, the findings of the said court are entitled to great respondent on appeal,
x x x it was Joseph Sy's idea to offer the earnest money, and the evidence to
show that Joseph Sy accepted the same, is wanting. x x x"[7]
and accordingly affirmed the trial court judgment appealed from.
 As shown elucidated above, we agree with the findings and conclusions of the
trial court and the respondent court. Neither has petitioner posited any new issues
in the instant petition that warrant the further exercise by this court of its review
powers.
WHEREFORE, premises considered, this petition is DENIED.
Costs against petitioner.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.
 THIRD DIVISION

[G.R. No. 132415. January 30, 2002]

MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA

and LEOPOLDO BALGUMA, JR., petitioners, vs. BRAULIO
KATIPUNAN, JR., respondent.

DECISION
SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari[1] assailing the Decision[2] of the

Court of Appeals dated July 31, 1997 in CA-GR CV No. 45928, Braulio
Katipunan, Jr. vs. Miguel Katipunan, Inocencio Valdez, Atty. Leopoldo Balguma,
Sr., Edgardo Balguma and Leopoldo Balguma, Jr. which set aside the Decision of
the Regional Trial Court (RTC) of Manila, Branch 28, in Civil Case No. 87-39891
for annulment of a Deed of Absolute Sale.
The antecedents are:
Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot and a
five-door apartment constructed thereon located at 385-F Matienza St., San
Miguel, Manila. The lot is registered in his name under TCT No. 109193 [3] of the
Registry of Deeds of Manila. The apartment units are occupied by lessees.
On December 29, 1985, respondent, assisted by his brother, petitioner Miguel
Katipunan, entered into a Deed of Absolute Sale [4] with brothers Edgardo Balguma
and Leopoldo Balguma, Jr. (co-petitioners), represented by their father Atty.
Leopoldo Balguma, Sr., involving the subject property for a consideration
of P187,000.00. Consequently, respondents title to the property was cancelled and
in lieu thereof, TCT No. 168394 [5] was registered and issued in the names of the
Balguma brothers. In January, 1986, Atty. Balguma, then still alive, started
collecting rentals from the lessees of the apartments.
On March 10, 1987, respondent filed with the RTC of Manila, Branch 21, [6] a
complaint for annulment of the Deed of Absolute Sale, docketed as Civil Case No.
87-39891.[7] He averred that his brother Miguel, Atty. Balguma and Inocencio
Valdez (defendants therein, now petitioners) convinced him to work abroad. They
even brought him to the NBI and other government offices for the purpose of
securing clearances and other documents which later turned out to be falsified.
Through insidious words and machinations, they made him sign a document
purportedly a contract of employment, which document turned out to be a Deed of
Absolute Sale. By virtue of the said sale, brothers Edgardo and Leopoldo, Jr. (co-
defendants), were able to register the title to the property in their names.
Respondent further alleged that he did not receive the consideration stated in the
contract. He was shocked when his sister Agueda Katipunan-Savellano told him
that the Balguma brothers sent a letter to the lessees of the apartment informing
them that they are the new owners. Finally, he claimed that the defendants, now
petitioners, with evident bad faith, conspired with one another in taking advantage
of his ignorance, he being only a third grader.
In their answer, petitioners denied the allegations in the complaint, alleging
that respondent was aware of the contents of the Deed of Absolute Sale and that he
received the consideration involved; that he also knew that the Balguma brothers
have been collecting the rentals since December, 1985 but that he has not objected
or confronted them; and that he filed the complaint because his sister, Agueda
Savellano, urged him to do so.[8]
Twice respondent moved to dismiss his complaint (which were granted) on the
grounds that he was actually instigated by his sister to file the same; and that the
parties have reached an amicable settlement after Atty. Balguma, Sr. paid him
P2,500.00 as full satisfaction of his claim. In granting his motions for
reconsideration, the trial court was convinced that respondent did not sign the
motions to dismiss voluntarily because of his poor comprehension, as shown by the
medical report of Dr. Annette Revilla, a Resident Psychiatrist at the Philippine
General Hospital. Besides, the trial court noted that respondent was not assisted by
counsel in signing the said motions, thus it is possible that he did not understand
the consequences of his action.[9]
Eventually the trial court set the case for pre-trial. The court likewise granted
respondents motion to appoint Agueda Savellano as his guardian ad litem.[10]
After hearing, the trial court dismissed the complaint, holding that respondent
failed to prove his causes of action since he admitted that: (1) he obtained loans
from the Balgumas; (2) he signed the Deed of Absolute Sale; and (3) he
acknowledged selling the property and that he stopped collecting the rentals.
Upon appeal by respondent, the Court of Appeals, on July 31, 1997, rendered
the assailed Decision, the dispositive portion of which reads:

WHEREFORE, the judgment appealed from is hereby REVERSED and SET

ASIDE, and a new one entered annulling the Deed of Sale. Consequently, TCT No.
168394 is hereby declared null and void and of no force and effect. The Register of
Deeds of Manila is directed to cancel the same and restore TCT No. 109193 in the
name of Braulio Katipunan.

SO ORDERED.

In reversing the RTC Decision, the Court of Appeals ruled:

Upon close scrutiny of all the evidence on record, plaintiff-appellants contention

finds support in the certification dated August 4, 1987 issued by Dr. Ana Marie
Revilla, a psychiatrist at the UP-PGH, who was presented as an expert witness. Her
findings explained the reason why plaintiff-appellant showed a lot of
inconsistencies when he was put on the stand. It supports the fact that plaintiff-
appellant is slow in comprehension and has a very low IQ. Based on such findings,
the trial court was faulted for its wrong assessment of appellants mental condition.
It arbitrarily disregarded the testimony of a skilled witness and made an
unsupported finding contrary to her expert opinion.

Admittedly, expert witnesses when presented to the court must be construed to

have been presented not to sway the court in favor of any of the parties, but to
assist the court in the determination of the issue before it (Espiritu vs. Court of
Appeals, 242 SCRA 362). Expert opinions are not ordinarily conclusive. They are
generally regarded as purely advisory in character; the court may place whatever
weight they choose upon such testimony and may reject it if they find it
inconsistent with the facts in the case or otherwise unreasonable (Basic Evidence
by Ricardo J. Francisco, pp. 202).

The trial court whose decision is now under review refused to admit the experts
testimony and prefer to base its decision on its findings that contrary to the
allegation of the appellant, he is nonetheless capable of responding to the questions
expounded to him while on the stand. In short, the court was swayed by its own
observation of appellants demeanor on the stand. Of course, the rule is to accord
much weight to the impressions of the trial judge, who had the opportunity to
observe the witnesses directly and to test their credibility by their demeanor on the
stand (People vs. Errojo, 229 SCRA 49). Such impression however, is not per
se the basis of a conclusion, for it needs conformity with the findings of facts
relevant to the case.

We find it indispensable to give credit to the findings of Dr. Ana Marie Revilla,
whose testimony remains unshaken and unimpeached. The tests she made are
revealing and unrebutted and has a bearing on facts of the case.
It is a proven fact that Braulio reached only Grade III due to his very low IQ; that
he is illiterate; and that he can not read and is slow in comprehension. His mental
age is only that of a six-year old child. On the other hand, the documents presented
by the appellees in their favor, i.e., the deeds of mortgage and of sale, are all in
English. There is no showing that the contracts were read and/or explained to
Braulio nor translated in a language he understood.

Article 1332 of the Civil Code provides:

Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained
to the former.

Furthermore, if Braulio has a mental state of a six year old child, he can not be
considered as fully capacitated. He falls under the category of incompetent as
defined in Section 2, Rule 92 of the Rules of Court, which reads:

Sec. 2. Meaning of Word Incompetent - Under this rule, the word incompetent
includes persons suffering the penalty of civil interdiction or who are hospitalized
lepers, prodigals, deaf and dumb who are unable to read and write, those who are
of unsound mind, even though they have lucid intervals, and persons not being of
unsound mind, but by reason of age, disease, weak mind, and other similar causes,
can not, without outside aid, take care of themselves and manage their property,
becoming thereby an easy prey for deceit and exploitation.

We also note the admission of defendant-appellee Miguel Katipunan, that he and

Braulio received the considerations of the sale, although he did not explain what
portion went to each other of them. Anyway, there is no reason why Miguel should
receive part of the consideration, since he is not a co-owner of the property.
Everything should have gone to Braulio. Yet, Miguel did not refute that he was
giving him only small amounts (coins).

As to the allegation of the scheme utilized in defrauding Braulio, neither Miguel

nor Atty. Balguma refuted the statement of Braulio that he was being enticed to go
abroad - which was the alleged reason for the purported sale. Nothing was
explained about the alleged trip to NBI, the fake passport, etc., nor of Miguels own
plans to go abroad. It is then most probable that it was Miguel who wanted to go
abroad and needed the money for it.
In view of the foregoing, it is apparent that the contract entered into by Braulio and
Atty. Balguma is voidable, pursuant to the provisions of Article 1390 of the Civil
Code, to wit:

Art. 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue

influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court,
they are susceptible of ratification.[11]

Petitioners filed a motion for reconsideration but was denied. Hence, this
petition.
Petitioners, in seeking the reversal of the Court of Appeals Decision, rely
heavily on the rule that findings of fact by the trial courts are entitled to full faith
and credence by the Appellate Court. Petitioners contend that the Court of Appeals
erred when it overturned the factual findings of the trial court which are amply
supported by the evidence on record.
The petition is devoid of merit.
While it may be true that findings of a trial court, given its peculiar vantage
point to assess the credibility of witnesses, are entitled to full faith and credit and
may not be disturbed on appeal, this rule is not infallible, for it admits of certain
exceptions. One of these exceptions is when there is a showing that the trial court
had overlooked, misunderstood or misapplied some fact or circumstance of weight
and substance, which, if considered, could materially affect the result of the case.
[12] 
Also, when the factual findings of the trial court contradict those of the appellate
court, this Court is constrained to make a factual review of the records and make
its own assessment of the case.[13]The instant case falls within the said exception.
A contract of sale is born from the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. [14] This meeting of
the minds speaks of the intent of the parties in entering into the contract respecting
the subject matter and the consideration thereof.[15] Thus, the elements of a contract
of sale are consent, object, and price in money or its equivalent. [16] Under Article
1330 of the Civil Code, consent may be vitiated by any of the following: (a)
mistake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud.[17] The
presence of any of these vices renders the contract voidable.
Here, as borne by the facts on hand, respondent signed the deed without the
remotest idea of what it was, thus:
ATTY. SARMIENTO:
Q After Miguel received that money which amount you do not remember
how much, do you remember having signed a document purported to
be sale of property that which you owned?
A Yes, I signed something because they forced me to sign.
COURT (To the witness)
Q Do you know how to affix your signature?
A Yes, Your Honor.
Q You sign your name here. (witness is given a piece of paper by the court
wherein he was made to sign his name)
ATTY. SARMIENTO:
Q You said that you remember you have signed a document. Did you
come to know what kind of document was that which you signed at
that time?
A I do not know.
Q Where did you sign that document?
A I signed that document in the house of Sencio.
Q Where is this house of Sencio?
A It is just behind our house at San Miguel.
Q Nobody informed you what document you were signing?
A Nobody informed me what document I was signing.
Q Who asked you to sign that document?
A My brother Miguel and Sencio asked me to sign that document.
Q You never bothered to ask your brother Miguel why you were signing
that document?
A According to them, if I will not sign, something will happen.
 Q Who particularly told you that if you will not sign that document
something will happen?
A Atty. Balguma. (witness pointing to Atty. Balguma)
Q You want to tell the court that Atty. Balguma at that time you signed that
document was present?
A Yes, sir, he was there.
Q What if any did Atty. Balguma do when you were asked to sign that
document?
A He was asking me also to sign.
COURT (To the witness)
Q Were you threatened with a gun or any instrument?
A No, Your Honor.
Q How were you threatened?
A I was shoved aside by Sencio and Miguel and I was surprised why
they made me sign.
Q Did you fall down when you were shoved?
A I was made to move to the side.
Q And because of that you signed that document that you were being
forced to sign?
A Yes, sir.
Q What kind of paper did you sign?
A A coupon bond paper.
Q Was there something written?
A There was something written on it, but I do not know.
Q Was it typewritten?
A There was something typewritten when it was shown to me but I do not
know what it was.[18] (Underscoring supplied)
The circumstances surrounding the execution of the contract manifest a vitiated
consent on the part of respondent. Undue influence was exerted upon him by his
brother Miguel and Inocencio Valdez (petitioners) and Atty. Balguma. It was his
brother Miguel who negotiated with Atty. Balguma. However, they did not explain
to him the nature and contents of the document. Worse, they deprived him of a
reasonable freedom of choice. It bears stressing that he reached only grade three.
Thus, it was impossible for him to understand the contents of the contract written
in English and embellished in legal jargon. Even the trial court, in reinstating the
case which it earlier dismissed, took cognizance of the medical finding of Dr.
Revilla (presented by respondents counsel as expert witness) who testified during
the hearing of respondents motion for reconsideration of the first order dismissing
the complaint. According to her, based on the tests she conducted, she found that
respondent has a very low IQ and a mind of a six-year old child. [19] In fact, the trial
court had to clarify certain matters because Braulio was either confused, forgetful
or could not comprehend.[20] Thus, his lack of education, coupled with his mental
affliction, placed him not only at a hopelessly disadvantageous position vis--
vis petitioners to enter into a contract, but virtually rendered him incapable of
giving rational consent. To be sure, his ignorance and weakness made him most
vulnerable to the deceitful cajoling and intimidation of petitioners. The trial court
obviously erred when it disregarded Dr. Revillas testimony without any reason at
all. It must be emphasized that petitioners did not rebut her testimony.
Even the consideration, if any, was not shown to be actually paid to
respondent. Extant from the records is the fact that Miguel profited from the entire
transaction and gave only small amounts of money to respondent, thus:
Q Do you know how much money was given to Miguel and from whom
did that money come from?
A I do not know how much, but the money came from Atty. Balguma.
Q You do not know how much amount was given by Atty. Balguma
and for what consideration was the money given you are not aware
of that?
A I am not aware because I was not there, I do not know anything.
Q You want to tell the court that despite that it is you being the owner
of this property it was Miguel who negotiated the asking of money
from Atty. Balguma?
A Yes, it is like that.
Q Were you consulted by your brother Miguel when he asked money from
Atty. Balguma?
A No, sir, in the beginning he kept it a secret then later on he told us.
 Q You want to tell this court that it was only when your brother
Miguel gave (you) money that he told you that we have now the
money from Atty. Balguma?
A No, sir, I did not even know where that money came from. He was
about to leave for abroad when he told me that he received money
from Atty. Balguma.
Q Did you receive any amount from Miguel every time he was given by
Atty. Balguma? You received also money from Miguel every time
he was given by Atty. Balguma?
A Yes, he would give me small denominations, barya.
Q When you said "barya, would you be able to tell the court how much this
barya you are referring to is?
A May be twenty pesos, may be ten pesos, but they are all loose
change.
Q Tell us how many times did Miguel receive money from Atty. Balguma
as much as you can recall?
A I do not know because every time my brother Miguel and Atty.
Balguma would transact business, I was not present.
x x x
Q Before or after the signing of this piece of paper were you given any
big amount of money by your brother Miguel or Atty. Balguma or
Sencio?
A After signing that document, Atty. Balguma gave me several loose
change barya, no paper bills. A just handful of coins. [21]
(Underscoring supplied)
We are convinced that respondent was telling the truth that he did not receive
the purchase price. His testimony on this point was not controverted by Miguel.
Moreover, Atty. Balguma admitted that it was Miguel who received the money
from him.[22] What Miguel gave respondent was merely loose change or barya-
barya, grossly disproportionate to the value of his property. We agree with the
conclusion of the Court of Appeals that it is then most probable that it was Miguel
who wanted to go abroad and needed the money for it.
In the case of Archipelago Management and Marketing Corp. vs. Court of
Appeals,[23] penned by Justice Artemio V. Panganiban, this Court sustained the
decision of the Court of Appeals annulling the deed of sale subject thereof. In that
case, Rosalina (the owner) was convinced by her second husband to sign several
documents, purportedly an application for the reconstitution of her burned
certificate of title. However, said documents turned out to be a Deed of Absolute
Sale where it was stipulated that she sold her property for P 1,200,000.00, a
consideration which she did not receive. The Court ruled that Rosalina, who was
quite old at that time she signed the deed, was tricked by her own husband, who
employed fraud and deceit, into believing that what she was signing was her
application for reconstitution of title.
A contract where one of the parties is incapable of giving consent or where
consent is vitiated by mistake, fraud, or intimidation is not void ab initio but only
voidable and is binding upon the parties unless annulled by proper Court action.
The effect of annulment is to restore the parties to the status quo ante insofar as
legally and equitably possible-- this much is dictated by Article 1398 of the Civil
Code. As an exception however to the principle of mutual restitution, Article 1399
provides that when the defect of the contract consists in the incapacity of one of the
parties, the incapacitated person is not obliged to make any restitution, except
when he has been benefited by the things or price received by him. Thus, since the
Deed of Absolute Sale between respondent and the Balguma brothers is voidable
and hereby annulled, then the restitution of the property and its fruits to respondent
is just and proper. Petitioners should turn over to respondent all the amounts they
received starting January, 1986 up to the time the property shall have been returned
to the latter. During the pre-trial and as shown by the Pre-Trial Order, the
contending parties stipulated that the Balguma brothers received from the lessees
monthly rentals in the following amounts:
PERIOD AMOUNT OF RENTALS
January, 1986 to
December, 1987 P 481.00 per month

January, 1988 to
December, 1988 P2,100.00 per month

January, 1989 to
present P3,025.00 per month
Article 24 of the Civil Code enjoins courts to be vigilant for the protection of a
party to a contract who is placed at a disadvantage on account of his ignorance,
mental weakness or other handicap, like respondent herein. We give substance to
this mandate.
 WHEREFORE, the petition is DENIED. The assailed Decision of the Court
of Appeals dated July 3, 1997 in CA-GR CV No. 45928 is AFFIRMED with
MODIFICATION in the sense that petitioners Edgardo Balguma and Leopoldo
Balguma, Jr., are ordered to turn over to respondent Braulio Katipunan, Jr. the
rentals they received for the five-door apartment corresponding to the period from
January, 1986 up to the time the property shall have been returned to him, with
interest at the legal rate. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Carpio, JJ., concur.
 FIRST DIVISION

[G.R. No. 122544. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA,

ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND
A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners,
vs.COURT OF APPEALS and OVERLAND EXPRESS LINES,
INC., respondents.

[G.R. No. 124741. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA,

ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND
A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners,
vs.COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and
OVERLAND EXPRESS LINES, INC.,respondents.

DECISION
MARTINEZ, J.:

Two consolidated petitions were filed before us seeking to set aside and annul
the decisions and resolutions of respondent Court of Appeals. What seemed to be a
simple ejectment suit was juxtaposed with procedural intricacies which finally
found its way to this Court.

G. R. NO. 122544:

On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee)
entered into a Contract of Lease with Option to Buy with petitioners [1](lessors)
involving a 1,755.80 square meter parcel of land situated at corner MacArthur
Highway and South "H" Street, Diliman, Quezon City. The term of the lease was
for one (1) year commencing from May 16, 1974 up to May 15, 1975. During this
period, private respondent was granted an option to purchase for the amount
of P3,000.00 per square meter. Thereafter, the lease shall be on a per month basis
with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of P8,000.00 per
month effective June 1976, petitioners filed an action for ejectment (Civil Case No.
VIII-29155) on November 10, 1976 before the then City Court (now Metropolitan
Trial Court) of Quezon City, Branch VIII. On November 22, 1982, the City Court
rendered judgment[2] ordering private respondent to vacate the leased premises and
to pay the sum of P624,000.00 representing rentals in arrears and/or as damages in
the form of reasonable compensation for the use and occupation of the premises
during the period of illegal detainer from June 1976 to November 1982 at the
monthly rental of P8,000.00, less payments made, plus 12% interest per annum
from November 18, 1976, the date of filing of the complaint, until fully paid, the
sum of P8,000.00 a month starting December 1982, until private respondent fully
vacates the premises, and to pay P20,000.00 as and by way of attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of a
restraining order enjoining the enforcement of said judgment and dismissal of the
case for lack of jurisdiction of the City Court.
On September 26, 1984, the then Intermediate Appellate Court [3] (now Court of
Appeals) rendered a decision[4] stating that:

"x x x, the alleged question of whether petitioner was granted an

extension of the option to buy the property; whether such option, if any,
extended the lease or whether petitioner actually paid the
alleged P300,000.00 to Fidela Dizon, as representative of private
respondents in consideration of the option and, whether petitioner thereafter
offered to pay the balance of the supposed purchase price, are all merely
incidental and do not remove the unlawful detainer case from the jurisdiction
of respondent court. In consonance with the ruling in the case of Teodoro, Jr.
vs. Mirasol (supra), the above matters may be raised and decided in the
unlawful detainer suit as, to rule otherwise, would be a violation of the
principle prohibiting multiplicity of suits. (Original Records, pp. 38-39)."

The motion for reconsideration was denied. On review, this Court dismissed
the petition in a resolution dated June 19, 1985 and likewise denied private
respondent's subsequent motion for reconsideration in a resolution dated
September 9, 1985.[5]
 On October 7, 1985, private respondent filed before the Regional Trial Court
(RTC) of Quezon City (Civil Case No. Q-45541) an action for Specific
Performance and Fixing of Period for Obligation with prayer for the issuance of a
restraining order pending hearing on the prayer for a writ of preliminary
injunction. It sought to compel the execution of a deed of sale pursuant to the
option to purchase and the receipt of the partial payment, and to fix the period to
pay the balance. In an Order dated October 25, 1985, the trial court denied the
issuance of a writ of preliminary injunction on the ground that the decision of the
then City Court for the ejectment of the private respondent, having been affirmed
by the then Intermediate Appellate Court and the Supreme Court, has become final
and executory.
Unable to secure an injunction, private respondent also filed before the RTC of
Quezon City, Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a
complaint for Annulment of and Relief from Judgment with injunction and
damages. In its decision[6] dated May 12, 1986, the trial court dismissed the
complaint for annulment on the ground of res judicata, and the writ of preliminary
injunction previously issued was dissolved. It also ordered private respondent to
pay P3,000.00 as attorney's fees. As a consequence of private respondent's motion
for reconsideration, the preliminary injunction was reinstated, thereby restraining
the execution of the City Court's judgment on the ejectment case.
The two cases were thereafter consolidated before the RTC of Quezon City,
Branch 77. On April 28, 1989, a decision[7] was rendered dismissing private
respondent's complaint in Civil Case No. Q-45541 (specific performance case) and
denying its motion for reconsideration in Civil Case No. 46487 (annulment of the
ejectment case). The motion for reconsideration of said decision was likewise
denied.
On appeal,[8] respondent Court of Appeals rendered a decision[9] upholding the
jurisdiction of the City Court of Quezon City in the ejectment case. It also
concluded that there was a perfected contract of sale between the parties on the
leased premises and that pursuant to the option to buy agreement, private
respondent had acquired the rights of a vendee in a contract of sale. It opined that
the payment by private respondent of P300,000.00 on June 20, 1975 as partial
payment for the leased property, which petitioners accepted (through Alice A.
Dizon) and for which an official receipt was issued, was the operative act that gave
rise to a perfected contract of sale, and that for failure of petitioners to deny receipt
thereof, private respondent can therefore assume that Alice A. Dizon, acting as
agent of petitioners, was authorized by them to receive the money in their
behalf. The Court of Appeals went further by stating that in fact, what was entered
into was a "conditional contract of sale" wherein ownership over the leased
property shall not pass to the private respondent until it has fully paid the purchase
price. Since private respondent did not consign to the court the balance of the
purchase price and continued to occupy the subject premises, it had the obligation
to pay the amount of P1,700.00 in monthly rentals until full payment of the
purchase price. The dispositive portion of said decision reads:

"WHEREFORE, the appealed decision in Case No. 46487 is

AFFIRMED. The appealed decision in Case No. 45541 is, on the other hand,
ANNULLED and SET ASIDE. The defendants-appellees are ordered to
execute the deed of absolute sale of the property in question, free from any
lien or encumbrance whatsoever, in favor of the plaintiff-appellant, and to
deliver to the latter the said deed of sale, as well as the owner's duplicate of
the certificate of title to said property upon payment of the balance of the
purchase price by the plaintiff-appellant. The plaintiff-appellant is ordered to
pay P1,700.00 per month from June 1976, plus 6% interest per annum, until
payment of the balance of the purchase price, as previously agreed upon by
the parties.

SO ORDERED."

Upon denial of the motion for partial reconsideration (Civil Case No. Q-45541)
by respondent Court of Appeals,[10] petitioners elevated the case viapetition
for certiorari questioning the authority of Alice A. Dizon as agent of petitioners in
receiving private respondent's partial payment amounting toP300,000.00 pursuant
to the Contract of Lease with Option to Buy. Petitioners also assail the propriety of
private respondent's exercise of the option when it tendered the said amount on
June 20, 1975 which purportedly resulted in a perfected contract of sale.

G. R. NO. 124741:

Petitioners filed with respondent Court of Appeals a motion to remand the

records of Civil Case No. 38-29155 (ejectment case) to the Metropolitan Trial
Court (MTC), then City Court of Quezon City, Branch 38, for execution of the
judgment[11] dated November 22, 1982 which was granted in a resolution dated
June 29, 1992. Private respondent filed a motion to reconsider said resolution
which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition with
preliminary injunction and/or restraining order with this Court (G.R. Nos. 106750-
51) which was dismissed in a resolution dated September 16, 1992 on the ground
that the same was a refiled case previously dismissed for lack of merit. On
November 26, 1992, entry of judgment was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of
the decision in Civil Case No. 38-29155 with the MTC of Quezon City, Branch
38. On September 13, 1993, the trial court ordered the issuance of a third alias writ
of execution. In denying private respondent's motion for reconsideration, it ordered
the immediate implementation of the third writ of execution without delay.
On December 22, 1993, private respondent filed with the Regional Trial Court
(RTC) of Quezon City, Branch 104 a petition for certiorari and prohibition with
preliminary injunction/restraining order (SP. PROC. No. 93-18722) challenging
the enforceability and validity of the MTC judgment as well as the order for its
execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an
order[12] granting the issuance of a writ of preliminary injunction upon private
respondent's posting of an injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial
reconsideration, petitioners filed a petition[13] for certiorari and prohibition with a
prayer for a temporary restraining order and/or preliminary injunction with the
Court of Appeals. In its decision,[14] the Court of Appeals dismissed the petition
and ruled that:

"The avowed purpose of this petition is to enjoin the public

respondent from restraining the ejectment of the private respondent. To
grant the petition would be to allow the ejectment of the private
respondent. We cannot do that now in view of the decision of this Court
in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to eject private
respondent has been demonstrated to be without basis in the said civil
case. The petitioners have been shown, after all, to have no right to eject
private respondents.

WHEREFORE, the petition is DENIED due course and is accordingly

DISMISSED.

SO ORDERED."[15]

Petitioners' motion for reconsideration was denied in a resolution [16] by the

Court of Appeals stating that:
 "This court in its decision in CA-G.R. CV Nos. 25153-54 declared that
the plaintiff-appellant (private respondent herein) acquired the rights of a
vendee in a contract of sale, in effect, recognizing the right of the private
respondent to possess the subject premises. Considering said decision, we
should not allow ejectment; to do so would disturb the status quo of the
parties since the petitioners are not in possession of the subject property. It
would be unfair and unjust to deprive the private respondent of its
possession of the subject property after its rights have been established in a
subsequent ruling.

WHEREFORE, the motion for reconsideration is DENIED for lack of

merit.

SO ORDERED."[17]

Hence, this instant petition.

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

This is a reasonable construction of the provision, which is based on the

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

Third. There was no perfected contract of sale between petitioners and private

respondent. Private respondent argued that it delivered the check ofP300,000.00 to
Alice A. Dizon who acted as agent of petitioners pursuant to the supposed
authority given by petitioner Fidela Dizon, the payee thereof.Private respondent
further contended that petitioners filing of the ejectment case against it based on
the contract of lease with option to buy holds petitioners in estoppel to question the
authority of petitioner Fidela Dizon. It insisted that the payment of P300,000.00 as
partial payment of the purchase price constituted a valid exercise of the option to
buy.
Under Article 1475 of the New Civil Code, the contract of sale is perfected at
the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the form of
contracts. Thus, the elements of a contract of sale are consent, object, and price in
money or its equivalent. It bears stressing that the absence of any of these essential
elements negates the existence of a perfected contract of sale. Sale is a consensual
contract and he who alleges it must show its existence by competent proof.[25]
In an attempt to resurrect the lapsed option, private respondent
gave P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous
presumption that the said amount tendered would constitute a perfected contract of
sale pursuant to the contract of lease with option to buy. There was no valid
consent by the petitioners (as co-owners of the leased premises) on the supposed
sale entered into by Alice A. Dizon, as petitioners alleged agent, and private
respondent. The basis for agency is representation and a person dealing with an
agent is put upon inquiry and must discover upon his peril the authority of the
agent.[26] As provided in Article 1868 of the New Civil Code, [27] there was no
showing that petitioners consented to the act of Alice A. Dizon nor authorized her
to act on their behalf with regard to her transaction with private respondent. The
most prudent thing private respondent should have done was to ascertain the extent
of the authority of Alice A. Dizon. Being negligent in this regard, private
respondent cannot seek relief on the basis of a supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals,[28] we explained the rule in
dealing with an agent:

Every person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent. If he does not make such inquiry, he is chargeable
with knowledge of the agents authority, and his ignorance of that authority will not
be any excuse. Persons dealing with an assumed agent, whether the assumed
agency be a general or special one, are bound at their peril, if they would hold the
principal, to ascertain not only the fact of the agency but also the nature and extent
of the authority, and in case either is controverted, the burden of proof is upon
them to establish it.
 For the long years that private respondent was able to thwart the execution of
the ejectment suit rendered in favor of petitioners, we now write finis to this
controversy and shun further delay so as to ensure that this case would really attain
finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The
decision dated March 29, 1994 and the resolution dated October 19, 1995 in CA-
G.R. CV No. 25153-54, as well as the decision dated December 11, 1995 and the
resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals
are hereby REVERSED and SET ASIDE.
Let the records of this case be remanded to the trial court for immediate
execution of the judgment dated November 22, 1982 in Civil Case No. VIII-29155
of the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII
as affirmed in the decision dated September 26, 1984 of the then Intermediate
Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985
of this Court.
However, petitioners are ordered to REFUND to private respondent the amount
of P300,000.00 which they received through Alice A. Dizon on June 20, 1975.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Melo, Kapunan and Pardo, JJ., concur.
 

SECOND DIVISION

[G.R. No. 137290. July 31, 2000]

SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES

ALFREDO HUANG and GRACE HUANG,respondents.

DECISION

MENDOZA, J.:

This is a petition for review of the decision, [1] dated April 8, 1997, of the Court of
Appeals which reversed the decision of the Regional Trial Court, Branch 153,
Pasig City dismissing the complaint brought by respondents against petitioner for
enforcement of a contract of sale.

The facts are not in dispute.

Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation

engaged in the purchase and sale of real properties. Part of its inventory are two
parcels of land totalling 1, 738 square meters at the corner of Meralco Avenue and
General Capinpin Street, Barrio Oranbo, Pasig City, which are covered by TCT
Nos. PT-82395 and PT-82396 of the Register of Deeds of Pasig City.

On February 21, 1994, the properties were offered for sale for P52,140,000.00 in
cash. The offer was made to Atty. Helena M. Dauz who was acting for respondent
spouses as undisclosed principals. In a letter[2] dated March 24, 1994, Atty. Dauz
signified her clients interest in purchasing the properties for the amount for which
they were offered by petitioner, under the following terms: the sum of P500,000.00
would be given as earnest money and the balance would be paid in eight equal
monthly installments from May to December, 1994. However, petitioner refused
the counter-offer.

On March 29, 1994, Atty. Dauz wrote another letter [3] proposing the following
terms for the purchase of the properties, viz:

This is to express our interest to buy your-above-mentioned property

with an area of 1, 738 sq. meters. For this purpose, we are enclosing
 herewith the sum of P1,000,000.00 representing earnest-deposit
money, subject to the following conditions.

1. We will be given the exclusive option to purchase the property

within the 30 days from date of your acceptance of this offer.

2. During said period, we will negotiate on the terms and conditions of

the purchase; SMPPI will secure the necessary Management and
Board approvals; and we initiate the documentation if there is mutual
agreement between us.

3. In the event that we do not come to an agreement on this

transaction, the said amount of P1,000,000.00 shall be refundable to
us in full upon demand. . . .

Isidro A. Sobrecarey, petitioners vice-president and operations manager for

corporate real estate, indicated his conformity to the offer by affixing his signature
to the letter and accepted the "earnest-deposit" of P1 million. Upon request of
respondent spouses, Sobrecarey ordered the removal of the "FOR SALE" sign
from the properties.

Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on
April 8, 1994, Sobrecarey informed Atty. Dauz that petitioner was willing to sell
the subject properties on a 90-day term. Atty. Dauz countered with an offer of six
months within which to pay.

On April 14, 1994, the parties again met during which Sobrecarey informed Atty.
Dauz that petitioner had not yet acted on her counter-offer. This prompted Atty.
Dauz to propose a four-month period of amortization.

On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29,
1994 to June 13, 1994 within which to exercise her option to purchase the
property, adding that within that period, "[we] hope to finalize [our] agreement on
the matter."[4] Her request was granted.

On July 7, 1994, petitioner, through its president and chief executive officer,
Federico Gonzales, wrote Atty. Dauz informing her that because the parties failed
to agree on the terms and conditions of the sale despite the extension granted by
petitioner, the latter was returning the amount of P1 million given as "earnest-
deposit."[5]
On July 20, 1994, respondent spouses, through counsel, wrote petitioner
demanding the execution within five days of a deed of sale covering the properties.
Respondents attempted to return the "earnest-deposit" but petitioner refused on the
ground that respondents option to purchase had already expired.

On August 16, 1994, respondent spouses filed a complaint for specific

performance against petitioner before the Regional Trial Court, Branch 133, Pasig
City where it was docketed as Civil Case No. 64660.

Within the period for filing a responsive pleading, petitioner filed a motion to
dismiss the complaint alleging that (1) the alleged "exclusive option" of respondent
spouses lacked a consideration separate and distinct from the purchase price and
was thus unenforceable and (2) the complaint did not allege a cause of action
because there was no "meeting of the minds" between the parties and, therefore, no
perfected contract of sale. The motion was opposed by respondents.

On December 12, 1994, the trial court granted petitioners motion and dismissed the
action. Respondents filed a motion for reconsideration, but it was denied by the
trial court. They then appealed to the Court of Appeals which, on April 8, 1997,
rendered a decision[6] reversing the judgment of the trial court. The appellate court
held that all the requisites of a perfected contract of sale had been complied with as
the offer made on March 29, 1994, in connection with which the earnest money in
the amount of P1 million was tendered by respondents, had already been accepted
by petitioner. The court cited Art. 1482 of the Civil Code which provides that
"[w]henever earnest money is given in a contract of sale, it shall be considered as
part of the price and as proof of the perfection of the contract." The fact the parties
had not agreed on the mode of payment did not affect the contract as such is not an
essential element for its validity. In addition, the court found that Sobrecarey had
authority to act in behalf of petitioner for the sale of the properties.[7]

Petitioner moved for reconsideration of the trial courts decision, but its motion was
denied. Hence, this petition.

Petitioner contends that the Court of Appeals erred in finding that there was a
perfected contract of sale between the parties because the March 29, 1994 letter of
respondents, which petitioner accepted, merely resulted in an option contract,
albeit it was unenforceable for lack of a distinct consideration. Petitioner argues
that the absence of agreement as to the mode of payment was fatal to the perfection
of the contract of sale. Petitioner also disputes the appellate courts ruling that
Isidro A. Sobrecarey had authority to sell the subject real properties.[8]
Respondents were required to comment within ten (10) days from notice.
However, despite 13 extensions totalling 142 days which the Court had given to
them, respondents failed to file their comment. They were thus considered to have
waived the filing of a comment.

The petition is meritorious.

In holding that there is a perfected contract of sale, the Court of Appeals relied on
the following findings: (1) earnest money was allegedly given by respondents and
accepted by petitioner through its vice-president and operations manager, Isidro A.
Sobrecarey; and (2) the documentary evidence in the records show that there was a
perfected contract of sale.

With regard to the alleged payment and acceptance of earnest money, the Court
holds that respondents did not give the P1 million as "earnest money" as provided
by Art. 1482 of the Civil Code. They presented the amount merely as a deposit of
what would eventually become the earnest money or downpayment should a
contract of sale be made by them. The amount was thus given not as a part of the
purchase price and as proof of the perfection of the contract of sale but only as a
guarantee that respondents would not back out of the sale. Respondents in fact
described the amount as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of
Appeals,[9] it was held:

. . . While the P5,000 might have indeed been paid to Carlos in

October, 1967, there is nothing to show that the same was in the
concept of the earnest money contemplated in Art. 1482 of the Civil
Code, invoked by petitioner, as signifying perfection of the
sale. Viewed in the backdrop of the factual milieu thereof extant in the
record, We are more inclined to believe that the said P5,000.00 were
paid in the concept of earnest money as the term was understood
under the Old Civil Code, that is, as a guarantee that the buyer would
not back out, considering that it is not clear that there was already a
definite agreement as to the price then and that petitioners were
decided to buy 6/7 only of the property should respondent Javellana
refuse to agree to part with her 1/7 share.[10]

In the present case, the P1 million "earnest-deposit" could not have been given as
earnest money as contemplated in Art. 1482 because, at the time when petitioner
accepted the terms of respondents offer of March 29, 1994, their contract had not
yet been perfected. This is evident from the following conditions attached by
respondents to their letter, to wit: (1) that they be given the exclusive option to
purchase the property within 30 days from acceptance of the offer; (2) that during
the option period, the parties would negotiate the terms and conditions of the
purchase; and (3) petitioner would secure the necessary approvals while
respondents would handle the documentation.

The first condition for an option period of 30 days sufficiently shows that a sale
was never perfected. As petitioner correctly points out, acceptance of this condition
did not give rise to a perfected sale but merely to an option or an accepted
unilateral promise on the part of respondents to buy the subject properties within
30 days from the date of acceptance of the offer. Such option giving respondents
the exclusive right to buy the properties within the period agreed upon is separate
and distinct from the contract of sale which the parties may enter. [11] All that
respondents had was just the option to buy the properties which privilege was not,
however, exercised by them because there was a failure to agree on the terms of
payment. No contract of sale may thus be enforced by respondents.

Furthermore, even the option secured by respondents from petitioner was fatally
defective. Under the second paragraph of Art. 1479, an accepted unilateral promise
to buy or sell a determinate thing for a price certain is binding upon the promisor
only if the promise is supported by a distinct consideration. Consideration in an
option contract may be anything of value, unlike in sale where it must be the price
certain in money or its equivalent. There is no showing here of any consideration
for the option. Lacking any proof of such consideration, the option is
unenforceable.

Equally compelling as proof of the absence of a perfected sale is the second

condition that, during the option period, the parties would negotiate the terms and
conditions of the purchase. The stages of a contract of sale are as follows:
(1) negotiation, covering the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is perfected;
(2) perfection, which takes place upon the concurrence of the essential elements of
the sale which are the meeting of the minds of the parties as to the object of the
contract and upon the price; and (3) consummation, which begins when the parties
perform their respective undertakings under the contract of sale, culminating in the
extinguishment thereof.[12] In the present case, the parties never got past the
negotiation stage. The alleged "indubitable evidence" [13] of a perfected sale cited by
the appellate court was nothing more than offers and counter-offers which did not
amount to any final arrangement containing the essential elements of a contract of
sale. While the parties already agreed on the real properties which were the objects
of the sale and on the purchase price, the fact remains that they failed to arrive at
mutually acceptable terms of payment, despite the 45-day extension given by
petitioner.

The appellate court opined that the failure to agree on the terms of payment was no
bar to the perfection of the sale because Art. 1475 only requires agreement by the
parties as to the price of the object. This is error. In Navarro v. Sugar Producers
Cooperative Marketing Association, Inc.,[14] we laid down the rule that the manner
of payment of the purchase price is an essential element before a valid and binding
contract of sale can exist. Although the Civil Code does not expressly state that the
minds of the parties must also meet on the terms or manner of payment of the
price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc.
v. Court of Appeals,[15] agreement on the manner of payment goes into the price
such that a disagreement on the manner of payment is tantamount to a failure to
agree on the price.[16] In Velasco v. Court of Appeals,[17] the parties to a proposed
sale had already agreed on the object of sale and on the purchase price. By the
buyers own admission, however, the parties still had to agree on how and when the
downpayment and the installments were to be paid. It was held:

. . . Such being the situation, it can not, therefore, be said that a

definite and firm sales agreement between the parties had been
perfected over the lot in question. Indeed, this Court has already ruled
before that a definite agreement on the manner of payment of the
purchase price is an essential element in the formation of a binding
and enforceable contract of sale. The fact, therefore, that the
petitioners delivered to the respondent the sum of P10,000 as part of
the down-payment that they had to pay cannot be considered as
sufficient proof of the perfection of any purchase and sale agreement
between the parties herein under Art. 1482 of the new Civil Code, as
the petitioners themselves admit that some essential matter - the terms
of the payment - still had to be mutually covenanted.[18]

Thus, it is not the giving of earnest money, but the proof of the concurrence of all
the essential elements of the contract of sale which establishes the existence of a
perfected sale.

In the absence of a perfected contract of sale, it is immaterial whether Isidro A.

Sobrecarey had the authority to enter into a contract of sale in behalf of petitioner.
This issue, therefore, needs no further discussion.
WHEREFORE, the decision of the Court of Appeals is REVERSED and
respondents complaint is DISMISSED.

SO ORDERED.

Quisumbing, Buena, and De Leon, Jr., JJ., concur.

Bellosillo, (Chairman), J., on leave.

 THIRD DIVISION

[G.R. No. 103577. October 7, 1996]

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A.

CORONEL, ANNABELLE C. GONZALES (for herself and on behalf
of 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-in-fact,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:

On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter

referred to as Coronels) executed a document entitled Receipt of Down Payment
(Exh. A) in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as
Ramona) which is reproduced hereunder:

RECEIPT OF DOWN PAYMENT

P1,240,000.00 - Total amount

50,000.00 - 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 the P1,190,000.00.

Clearly, the conditions appurtenant to the sale are the following:

1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos upon
execution of the document aforestated;

2. The Coronels will cause the transfer in their names of the title of the property
registered in the name of their deceased father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;

3. Upon the transfer in their names of the subject property, the Coronels will
execute the deed of absolute sale in favor of Ramona and the latter will pay the
former the whole balance of One Million One Hundred Ninety Thousand
(P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz

(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment
of Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh. 2).

On February 6, 1985, the property originally registered in the name of the Coronels
father was transferred in their names under TCT No. 327043 (Exh. D; Exh 4)

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043
to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina)
for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the
latter has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. 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. On March 1, 1989, judgment was handed down by Judge
Roura from his regular bench at Macabebe, Pampanga for the Quezon City branch,
disposing as follows:

WHEREFORE, judgment for specific performance is hereby rendered ordering

defendant to execute in favor of plaintiffs a deed of absolute sale covering that
parcel of land embraced in and covered by Transfer Certificate of Title No. 327403
(now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all
the improvements existing thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of sale to plaintiffs and
upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance
of the 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 documentary
evidence presented by the parties, she is convinced that the Decision of March 1,
1989 is supported by evidence and, therefore, should not be disturbed.

IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or to Annul

Decision and Render Anew Decision by the Incumbent Presiding Judge
dated March 20, 1989 is hereby DENIED.

SO ORDERED.

Quezon City, Philippines, July 12, 1989.

(Rollo, pp. 108-109)

Petitioners thereupon interposed an appeal, but on December 16, 1991, the

Court of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its
decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last
pleading, private respondents Reply Memorandum, was filed onSeptember 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 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.
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.

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.
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 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.

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 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 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,

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 thecondition herein
referred to was actually and indisputably fulfilled on February 6, 1985, when a
new title was issued in the names of petitioners as evidenced by TCT No. 327403
(Exh. D; Exh. 4).
The inevitable conclusion is that on January 19, 1985, as evidenced by the
document denominated as Receipt of Down Payment (Exh. A; Exh. 1), the parties
entered into a contract of sale subject 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 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. 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.

The record of the case shows that the Deed of Absolute Sale dated April 25,
1985 as proof of the second contract of sale was registered with the Registry of
Deeds of Quezon City giving rise to the issuance of a new certificate of title in the
name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of
Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass to
the buyer, the exceptions being: (a) when the second buyer, in good faith, registers
the sale ahead of the first buyer, and (b) should there be no inscription by either of
the two buyers, when the second buyer, in good faith, acquires possession of the
property ahead of the first buyer. Unless, the second buyer satisfies these
requirements, title or ownership will not transfer to him to the prejudice of the first
buyer.
 In his commentaries on the Civil Code, an accepted authority on the subject,
now a distinguished member of the Court, Justice Jose C. Vitug, explains:

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

right). Knowledge by the first buyer of the second sale cannot defeat the first
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 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).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
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.
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
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 co-buyer is not squarely raised in the instant
petition, nor in such assumption disputed between mother and daughter. Thus, We
will not touch this issue and no longer disturb the lower courts ruling on this point.
WHEREFORE, premises considered, the instant petition is hereby
DISMISSED and the appealed judgment AFFIRMED.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., and Francisco, JJ., concur.
Panganiban, J., no part.
 SECOND DIVISION

[G.R. No. 120747. September 21, 2000]

VICENTE GOMEZ, as successor-in-interest of awardee LUISA

GOMEZ, petitioner, vs. COURT OF APPEALS, City of MANILA
acting thru the City Tenants Security Committee now the Urban
Settlement Office, Register of Deeds of Manila, respondents.

DECISION
BUENA, J.:

Sought to be reversed in this petition for review on certiorari under Rule 45 of

the Rules of Court is the decision[1] of the Court of Appeals in C.A. G.R. Sp. No.
32101 promulgated on 22 February 1995 which annulled and set aside the decision
of the Regional Trial Court of Manila, Branch 12 in Civil Case No. 51930.
Impugned similarly is the resolution[2] of the Court of Appeals dated 29 June
1995 denying petitioners motion for reconsideration.
From the records, we find the following antecedents:
Pursuant to the Land for the Landless Program of the City of Manila and in
accordance with City Ordinance No. 6880, the Office of City Mayor issued
Resolution No. 16-A,[3] Series of 1978, dated 17 May 1978, which effectively set
guidelines and criteria for the award of city home lots to qualified and deserving
applicants. Attached to said resolution and made as integral part thereof was a
Contract to Sell[4] that further laid down terms and conditions which the lot
awardee must comply with.
On 30 June 1978, the City of Manila, through the City Tenants Security
Committee (CTSC) presently known as the Urban Settlement Office (URBAN),
passed Resolution 17-78[5] which in effect awarded to 46 applicants, 37 homelots in
the former Ampil-Gorospe estate located in Tondo, Manila. Luisa Gomez,
predecessor-in-interest of herein petitioner Vicente Gomez, was awarded Lot 4,
Block 1, subject to the provisions of Resolution No. 3-78 of the CTSC and
building, subdivision and zoning rules and regulations.
 Consequently, a certificate of award[6]dated 02 July 1978 was granted by the
CTSC in favor of Luisa Gomez, who paid the purchase price of the lot in the
amount of P3,556.00 on installment basis,[7] said payments being duly covered by
official receipts.
In 1979, Luisa Gomez traveled to the Unites States of America but returned to
the Philippines in the same year.
On 18 January 1980, Luisa Gomez finally paid in full the P 3,556.00 purchase
price of the lot. Despite the full payment, Luisa still paid in installment an amount
of P8,244.00, in excess of the purchase price, which the City of Manila, through
the CTSC, accepted. Additionally, the lot was declared for taxation purposes and
the corresponding real estate taxes thereon paid from 1980-1988. In 1982, Luisa,
together with her spouse Daniel, left again for the United States of America where
she died[8] on 09 January 1983. She is survived by her husband and four children,
namely, Ramona G. Takorda, Edgardo Gomez, Erlinda G. Pena, and Rebecca G.
Dizon.[9]
Subsequently, in a memorandum dated 07 February 1984, the Urban
Settlements Officer and Member-Executive Secretary of the CTSC directed the
Western Police District, City Hall Detachment, to conduct an investigation
regarding reported violations of the terms and conditions of the award committed
by the lot awardees.
Thus, on 23 November 1984, a team headed by Pfc. Reynaldo Cristobal of the
Western Police District, proceeded to the former Ampil-Gorospe estate where the
subject lots are located, and conducted an investigation of alleged violations
thereat.
On 19 December 1984, team leader Pfc. Reynaldo Cristobal rendered an
investigation report[10] addressed to the City Mayor of Manila, as Chairman of the
CTSC, stating, among others, the following findings:

X X X After the said operation, it was found out that of all the lot awardees in the
said estate, the following were confirmed to have violated the terms and conditions
of their respective awards as indicated opposite their names, to wit:

X X X 2. Name of awardee : Daniel Gomez

Address : No. 2557-C Juan Luna St. Tondo, Manila

Violation: The place was found actually occupied by Mrs. Erlinda Perez
and her family together with Mr. Mignony Lorghas and family, who are
 paying monthly rentals of P 210.00 each to Vicente Gomez, brother of
awardee. Daniel Gomez is now presently residing in the United States of
America and only returns for vacation once in a while as a Balikbayan X X
X.

Thus, on 01 July 1986, the CTSC, headed by then City Mayor Gemiliano
Lopez, Jr. as Chairman, issued Resolution No. 015-86, [11]adopting the findings of
the investigation report submitted by Pfc. Cristobal, and ordering the cancellation
of the lot awards of Daniel Gomez and other awardees who were found to have
committed violations, and further declaring the forfeiture of payments made by
said awardees as reasonable compensation for the use of the homelots.
In a letter[12] dated 04 August 1986, herein petitioner Vicente Gomez, acting as
attorney-in-fact[13] of his brother Daniel Gomez (spouse of Luisa Gomez) asked for
reconsideration of the CTSC resolution revoking the award of the lot.
On 28 June 1988, Daniel Gomez, spouse of awardee Luisa Gomez, died in the
United States of America. Eventually, on 01 February 1989, the surviving children
of the deceased spouses, who were American citizens and residents of the United
States of America, executed an affidavit of adjudication with deed of
donation[14] disposing gratuitously Lot No. 1, Block 4, in favor of their uncle
Vicente Gomez.
On 20 February 1989, petitioner Vicente Gomez filed a memorandum [15] before
the CTSC praying that Resolution 15-86 be set aside and that the award of the lot
be restored to Luisa Gomez, or her heirs or successor-in-interest , preferably
Vicente Gomez.
Thereafter, two supplemental memoranda, dated 26 July 1989[16] and 10
January 1990,[17] were submitted by petitioner before the CTSC reiterating the
prayer in the initial memorandum.
On 05 February 1990, herein petitioner filed before the Regional Trial Court
(RTC) of Manila, Branch 12, a petition for certiorari, prohibition
and mandamus docketed as Civil Case No. 90-51930, entitled Vicente Gomez, as
successor-in-interest of Awardee, Luisa Gomez, petitioner, versus City Tenants
Security Committee (now Urban Settlement Office) and Register of Deeds of
Manila, respondents.
In an order[18] dated 24 April 1990, the lower court directed the petitioner to
amend its petition so as to implead the proper government agency.
Hence, petitioner filed an amended petition[19] impleading the City of Manila as
respondent, to which the latter submitted an answer.[20]
 Accordingly, after the presentation of evidence, the lower court promulgated its
decision[21] dated 20 January 1993, the decretal portion of which reads:

Wherefore, the petition is hereby granted :

1. Ordering the City of Manila through its agency the City Tenants Security
Committee (now Urban Settlement Office) to set aside the order of cancellation of
the award for Lot No. 4, Block 1 (formerly of the Ampil-Gorospe estate) in favor
of Luisa Gomez, her heirs and successor-in-interest, the herein petitioner;

2. Prohibiting the City of Manila through its agency including the Register of
Deeds of Manila from awarding the same lot and issuing the corresponding
certificate of title therefor to any other person;

3. Ordering the City of Manila through its agency the City Tenants Security
Committee (now Urban Settlement Office) to execute a Deed of Absolute Sale
over the aforementioned lot in favor of the petitioner as successor-in-interest of the
awardee and further ordering them to stop and/or refrain from disturbing the
peaceful physical possession thereof of (sic) the petitioner; and

4. Ordering the City of Manila through its agency the City Tenants Security
Committee (now Urban Settlement Office) to refund to the petitioner his
overpayments amounting to P8,244.00 and to pay the costs of suit.

On appeal, the Court of Appeals reversed the lower courts decision prompting
petitioner to file a motion for reconsideration which the appellate court
denied via its assailed resolution dated 29 June 1995.
Hence, the instant appeal where the core of controversy revolves around the
propriety of CTSCs act of canceling the lot award, through Resolution No. 015-86,
and further declaring the forfeiture of amounts paid by the awardee, as reasonable
compensation for the use of the home lot.
The petition is unmeritorious.
A thorough scrutiny of the records and an even more exhaustive perusal of the
evidence, both documentary and testimonial, would lead to the inevitable
conclusion that the fact of cancellation of the award covering Lot 4, Block 1, by
the City of Manila, acting through the CTSC, was properly exercised within the
bounds of law and contractual stipulation between the parties.
Viewed broadly, petitioner anchors his case on the premise, albeit erroneous,
that upon full payment of the purchase price of the lot in January 1980, Luisa
Gomez, actual awardee, already acquired a vested right over the real property
subject of the present controversy.Thus, according to petitioner, upon the death of
Luisa Gomez on 09 January 1983, the alleged vested right was transmitted by
operation of law to her lawful heirs, pursuant to Article 777 of the Civil
Code. Additionally, petitioner submits that by virtue of the affidavit of adjudication
with Deed of Donation executed on 01 February 1989 in his favor by the surviving
children of Luisa, he, in effect, became the successor-in-interest of Luisa and thus
entitled to whatever rights enjoyed by the latter over the property.
In the light of existing law and jurisprudence and based on the evidence
adduced, this Court finds difficulty giving credence and weight to petitioners
submissions. We therefore rule that the cancellation of the award of Lot 4, Block 1,
through the expediency of Resolution No. 015-86, was proper.
Primarily, it must be stressed that the contract entered into between the City of
Manila and awardee Luisa Gomez was not one of sale but a contract to sell, which,
under both statutory and case law, has its own attributes, peculiarities and effects.
Speaking through Mr. Justice Florenz Regalado, this Court in Adelfa
Properties, Inc. vs. Court of Appeals,[22] mapped out the bold distinctions between
these species of contracts, to wit:

In a contract of sale, the title passes to the vendee upon the delivery of the thing
sold; whereas in a contract to sell, by agreement, the ownership is reserved in the
vendor and is not to pass until the full payment of the price. In a contract of sale,
the vendor has lost and cannot recover ownership until and unless the contract is
resolved or rescinded; whereas in a contract to sell, title is retained by the vendor
until the full payment of the purchase price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that prevents
the obligation of the vendor to convey title from being effective. Thus, a deed of
sale is considered absolute in nature where there is neither a stipulation in the deed
that title to the property sold is reserved in the seller until the full payment of the
price, nor one giving the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period.

To our mind, however, this pronouncement should not curtail the right of the
parties in a contract to sell to provide additional stipulations, nor bar them from
imposing conditions relative to the transfer of ownership.
To be sure, a contract of sale may either be absolute or conditional. One form
of conditional sales is what is now popularly termed as a Contract to Sell, where
ownership or title is retained until the fulfillment of a positive suspensive
condition normally the payment of the purchase price in the manner agreed upon.
[23]
 (Emphasis ours)
From the above disquisition in Galang and applying Article 1306 of the Civil
Code, the contracting parties are accorded the liberality and freedom to establish
such stipulations, clauses, terms and conditions as they may deem convenient,
provided the same are not contrary to law, morals, good custom, public order or
public policy. In the law on contracts, such fundamental principle is known as the
autonomy of contracts.
Under the present circumstances, we see no hindrance that prohibits the parties
from stipulating other lawful conditions, aside from full payment of the purchase
price, which they pledge to bind themselves and upon which transfer of ownership
depends.
In the instant case, we uphold the Contract to Sell, duly annexed and attached
to Resolution 16-A, which explicitly provides for additional terms and conditions
upon which the lot awardees are bound. Although unsigned, the Contract to Sell, in
addition to the provisions of Resolution 16-A, constitutes the law between the
contracting parties. After all, under the law there exists a binding contract between
the parties whose minds have met on a certain matter notwithstanding that they did
not affix their signatures to its written form.[24]
For a contract, like a contract to sell, involves a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or
to render some service. Contracts, in general, are perfected by mere consent, which
is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the
acceptance absolute.[25]
As to the matter of acceptance, the same may be evidenced by some acts, or
conduct, communicated to the offeror, either in a formal or an informal manner,
that clearly manifest the intention or determination to accept the offer to buy or
sell.[26]
In the case at bar, acceptance on the part of the vendee was manifested through
a plethora of acts, such as payment of the purchase price, declaration of the
property for taxation purposes, and payment of real estate taxes thereon, and
similar acts showing vendee's assent to the contract.
Verily, Resolution 16-A and the Contract to Sell which was annexed, attached
and made to form part of said resolution, clearly laid down the terms and
conditions which the awardee-vendee must comply with. Accordingly, as an
awardee, Luisa Gomez, her heirs and successors-in-interest alike, are duty-bound
to perform the correlative obligations embodied in Resolution 16-A and the
Contract to Sell.
Resolution 16-A, Series of 1978, explicitly provides that aside from the
requirement of Filipino citizenship and legal age, the basic criteria for award of the
lot pursuant to the Land for the Landless Program of the City of Manila shall be
the following:

a) Occupancy - The applicant must be the legal and actual or physical occupant of
the lot in question at the time of its acquisition by the City. He must be the owner
of the house and lot, must be using the same for his residential purposes, and must
have had a lessee-lessor relationship with the previous owner of the land or landed
estate of which the subject lot is a part.

b) Non-ownership of land - The applicant and/or his spouse, if he is married, must

not be an owner of any parcel of land in Manila, Metropolitan Manila or elsewhere
in the Philippines. Neither must he and/or his spouse be a prospective owner or a
buyer on installment basis of any lot other than that which he is occupying and for
which he is applying for award from the City.

c) Capacity to pay- The applicant must have such financial means and/or support
as will enable him to make regular payments of amortizations or installments for
the lot if the same is awarded to him.

Of equal importance are the essential terms and conditions embraced in the
Contract to Sell, which awardee Luisa Gomez, her heirs and successors-in-interest,
violated, to wit:

X X X Par.(3). The vendee shall occupy and use the lot exclusively for
his/her residential purpose . X X X

X X X Par. (5). The vendee hereby warrants and declares under oath that he/she is
a bonafide and actual occupant and tenant of the lot; X X X and that he/she fully
understands that any false statement or misrepresentation hereof (sic) shall be
sufficient cause for the automatic cancellation of his/her rights under this
agreement as well as ground for criminal prosecution.

Par. (6). Until complete payment of the purchase price and compliance with all
the vendees obligations herein, title to the lot remains in the name of the
owner. During the effectivity of this agreement, however, the owner may transfer
its title or assign its rights and interest under this agreement to any person,
corporation, bank or financial institution.

Title shall pass to the vendee upon execution of a final deed of sale in his/her
favor. X X X

Par. (8). In order not to defeat the purpose of this social land reform program
of the City of Manila, and to prevent real estate speculationswithin twenty
years from complete payment of the purchase price and execution of the final
deed of sale, the lot and residential house or improvement thereon shall not be
sold, transferred, mortgaged, leased or otherwise alienated or encumbered
without the written consent of the City Mayor.

Par. (9). During the effectivity of this agreement, the residential house or

improvement thereon shall not be leased, sold, transferred or otherwise
alienated by the vendee without the written consent of the owner. X X X

Par. (14). In the event that the vendee dies before full payment of the purchase
price of the lot, his/her surviving spouse, children heirs and/or successors-in-
interest shall succeed in all his/her rights and interest, as well as assume all/his/her
obligations under this agreement.

Par. (15). This agreement shall be binding upon the heirs, executors and
administrators of the vendee. (emphasis ours)

Petitioner urges that awardee Luisa Gomez did not commit any violation of the
lot award. On the contrary, the records would indubitably show that Luisa Gomez,
including her heirs and successors-in-interest, have performed acts that constitute
gross, if not brazen, violation of the aforementioned terms and conditions of the
award, as evidenced by the investigation report submitted by Pfc. Cristobal, dated
19 December 1984.
Results of the investigation conducted on 23 November 1984, reveal that the
lot was actually occupied and leased by a certain Erlinda Perez and Mignony
Lorghas, together with their respective families, who were paying rentals to
petitioner Vicente Gomez for the lease of the subject premises.
Moreover, in a conference held on 13 January 1989 at the Office of the Acting
Urban Settlement Officer, Lorghas admitted that she has been leasing the property
and paying rent to petitioner Vicente Gomez, thus:[27]
Atty. Bernardo: Mrs. Lorghas, how long have you been renting the property?
 Mrs. Lorghas: I was living there since 1960 until today. I was renting a small
room downfloor (sic). When the family of Mr. Gomez died, kami na ang
tumira sa itaas until now.
Atty. Bernardo : Magkano ang upa mo?
Mrs. Lorghas: P300 a month.
Atty. Bernardo: Kanino?
Mrs. Lorghas: Kay Vicente Gomez.
Atty. Bernardo: Meron bang resibo?
Mrs. Lorghas: Wala po.
Atty. Bernardo: Noong 1973, kayo na rin ang nakatira sa lugar ni Gomez.
Mrs. Lorghas: Opo.
Certainly, said acts constitute a brazen transgression of Resolution 16-A and
clear contravention of the Contract to Sell, specifically par. (3), (8) and (9) thereof.
The contract provides in no uncertain terms, that the abovementioned terms
and conditions shall bind the heirs, executors and administrators of the vendee. The
contract further states that breach thereof would result to the automatic cancellation
of the vendees rights thereunder.
Thus, par.(10) (b) (a) of the Contract to Sell, which reads:

X X X any violation of the terms and conditions of this agreement shall

automatically cause the cancellation of the vendees rights under this agreement
without necessity of prior notice or judicial declaration X X X.

Such kind of stipulation was upheld by this Court in the Adelfa case where we
categorically declared that Article 1592 of the Civil Code, which requires
rescission either by judicial action, or notarial act, does not apply to a contract to
sell.[28]
Moreover, judicial action for rescission of a contract is not necessary where the
contract provides for automatic rescission in case of breach, [29] as in the contract
involved in the present controversy.
Likewise, this Court sustains the forfeiture of the payments made by awardee
as reasonable compensation for the use of the lot. At this juncture, par. (1) of the
Contract to Sell furnishes support to this conclusion:
X X X In case of the cancellation of the vendees rights under this agreement as
hereinafter stipulated, all payments made by him/her shall be forfeited and
considered as rentals for the use of the lot X X X.

Further, Article 1486 of the Civil Code provides that a stipulation that the
installments or rents paid shall not be returned to the vendee or lessee shall be valid
insofar as the same may not be unconscionable under the circumstances.[30]
Applying the foregoing, we are of the considered view that the payment of the
purchase price of P3,556.00, constitutes fair and reasonable rental for the period in
which said property was under the control of awardee Luisa Gomez, her heirs and
successors-in-interest. Undeniably, the awardee together with her heirs and
successors-in-interest, have gained benefits, financial or otherwise, for a period of
eight years - from the time of actual award of the lot to the time of cancellation
thereof (1978-1986).
Nonetheless, we ought to stress that in the present case, forfeiture of the
installments paid as rentals, only applies to the purchase price of P3,556.00 and not
to the overpayment of the amount of P8,244.00.
Under these circumstances, the vendor should refund the amount of P8,244.00
representing the overpayment made, plus interest, to be computed in accordance
with the rule of thumb enunciated in the landmark case of Eastern Shipping Lines,
Inc. vs. Court of Appeals[31] and reiterated in the case of Philippine National Bank
vs. Court of Appeals.[32]
For us to uphold the forfeiture of the amount representing the overpayment
would be to revolt against the dictates of justice and fairness. A contrary ruling
would unjustly enrich the vendor to the prejudice of the vendee.
In the same vein, the provisions of Article 777 of the Civil Code
notwithstanding, we hold that the surviving children of awardee Luisa Gomez are
not qualified transferees of Lot 4, Block 1 for failure to conform with the
prerequisites set by Resolution 16-A, to wit, Filipino citizenship and actual
occupancy, which in the present case, are basic criteria for the award of the lot,
pursuant to the Land for the Landless Program of the City of Manila.
The records reveal that the children of Luisa Gomez are American citizens and
permanent residents of the United States of America.Notably, Resolution 16-A
specifically enumerates Filipino citizenship and actual occupancy of the lot for
residential purposes, as qualifications for entitlement to the lot award. For this
court to consider said surviving children as qualified awardee-transferees would
render illusory the purposes for which Resolution 16-A and the Land for the
Landless Program of the City of Manila were adopted.
Even assuming arguendo that the surviving children of Luisa Gomez are
entitled to the lot by virtue of Article 777 of the Civil Code, said heirs nevertheless
abandoned their right when they violated the terms and conditions of the award by
donating the subject property to petitioner Vicente Gomez.
As paragraph (15) of the agreement provides that the heirs of the vendee shall
be bound thereby, it is then incumbent upon said heirs to render strict compliance
with the provisions thereof.
In particular, paragraph (8) of the Contract proscribes the sale, transfer,
mortgage, lease, alienation or encumbrance of the lot, residential house, or
improvement thereon, without the written consent of the City Mayor, within a
period of twenty (20) years from complete payment of the purchase price and
execution of the final deed of sale. The execution of the Deed of Donation by the
surviving children of Luisa Gomez on February 1, 1989, in favor of Vicente
Gomez, was clearly within the prohibited period of 20 years from the full payment
of the purchase price on January 18, 1980.
Without doubt, the prohibition applies to them.
Furthermore, the subject lot and residential house were occupied by, and leased
to, third persons, in crystalline and evident derogation of the terms of the award.
WHEREFORE, premises considered, the instant petition is DISMISSED for
lack of merit, and the assailed decision of the Court of Appeals with respect to the
cancellation of the award of Lot 4, Block 1, is AFFIRMED SUBJECT TO
MODIFICATION as to the forfeiture of amounts paid by the vendee.
As modified, the City of Manila, is hereby ordered to refund with dispatch the
amount of P8,244.00 representing the overpayment made by petitioner plus
interest.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and De Leon, Jr., JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 115307 July 8, 1997

MANUEL LAO, petitioner, 
vs.
COURT OF APPEALS and BETTER HOMES REALTY & HOUSING
CORPORATION, respondents.

PANGANIBAN, J.:

As a general rule, the main issue in an ejectment suit is possession de facto, not
possession de jure. In the event the issue of ownership is raised in the pleadings,
such issue shall be taken up only for the limited purpose of determining who
between the contending parties has the better right to possession. However, where
neither of the parties objects to the allegation of the question of ownership —
which may be initially improvident or improper — in an ejectment suit and,
instead, both present evidence thereon, argue the question in their various
submissions and participate in all aspects of the trial without objecting to the
Metropolitan (or Municipal) Trial Court's jurisdiction to decide the question of
ownership, the Regional Trial Court — in the exercise of its original jurisdiction as
authorized by Section 11, Rule 40 of the Rules of Court — may rule on the issue
and the corollary question of whether the subject deed is one of sale or of equitable
mortgage.

These postulates are discussed by the Court as it resolves this petition under Rule
45 seeking a reversal of the December 21, 1993 Decision  1 and April 28, 1994
Resolution 2 of the Court of Appeals in CA-G.R. SP No. 92-14293.

The Antecedent Facts

The facts of this case are narrated by Respondent Court of Appeals as follows: 3
On June 24, 1992, (herein Private Respondent Better Homes Realty
and Housing Corporation) filed with the Metropolitan Trial Court of
Quezon City, a complaint for unlawful detainer, on the ground that
(said private respondent) is the owner of the premises situated at Unit
I, No. 21 N. Domingo Street, Quezon City, evidenced by Transfer
Certificate of Title No. 22184 of the Registry of Deeds of Quezon
City; that (herein Petitioner Manuel Lao) occupied the property
without rent, but on (private respondent's) pure liberality with the
understanding that he would vacate the property upon demand, but
despite demand to vacate made by letter received by (herein
petitioner) on February 5, 1992, the (herein petitioner) refused to
vacate the premises.

In his answer to the complaint, (herein petitioner) claimed that he is

the true owner of the house and lot located at Unit I, No. 21 N.
Domingo Street, Quezon City; that the (herein private respondent)
purchased the same from N. Domingo Realty and Development
Corporation but the agreement was actually a loan secured by
mortgage; and that plaintiff's cause of action is for accion publiciana,
outside the jurisdiction of an inferior court.

On October 9, 1992, the Metropolitan Trial Court of Quezon City

rendered judgment ordering the (petitioner) to vacate the premises
located at Unit I, No. 21 N. Domingo Street, Quezon City; to pay
(private respondent) the sum of P300.00 a day starting on January 31,
1992, as reasonable rent for the use and occupation of the premises; to
pay plaintiff P5,000.00, as attorney's fees, and costs.

On appeal to the Regional Trial Court of Quezon City, 4 on March 30,

1993, the latter court rendered a decision reversing that of the
Metropolitan Trial Court, and ordering the dismissal of the (private
respondent's) complaint for lack of merit, with costs taxed against
(private respondent).

In its decision, the Regional Trial Court held that the subject property
was acquired by (private respondent) from N. Domingo Realty and
Development Corporation, by a deed of sale, and (private respondent)
is now the registered owner under Transfer Certificate of Title No.
316634 of the Registry of Deeds of Quezon City, but in truth the
(petitioner) is the beneficial owner of the property because the real
 transaction over the subject property was not a sale but a loan secured
by a mortgage thereon.

The dispositive portion of the Regional Trial Court's decision is quoted below: 5

WHEREFORE, judgment is hereby rendered reversing the appealed

decision and ordering the dismissal of plaintiffs complaint for lack of
merit, with the costs taxed against it.

IT IS SO ORDERED.

On April 28, 1993, private respondent filed an appeal with the Court of Appeals
which reversed the decision of the Regional Trial Court. The Respondent Court
ruled:

The Metropolitan Trial Court has no jurisdiction to resolve the issue

of ownership in an action for unlawful detainer (B.P. 129, Sec. 33 [2];
Cf. Alvir vs. Vera, 130 SCRA 357). The jurisdiction of a court is
determined by the nature of the action alleged in the complaint (Ching
vs. Malaya, l53 SCRA 412). In its complaint in the inferior court, the
plaintiff alleged that it is the owner of the premises located at Unit I,
No. 21 N. Domingo Street, Quezon City, and that defendant's
occupation is rent free and based on plaintiffs pure liberality coupled
with defendant's undertaking to vacate the premises upon demand, but
despite demands, defendant has refused to vacate. The foregoing
allegations suffice to constitute a cause of action for ejectment (Banco
de Oro vs. Court of Appeals, 182 SCRA 464).

The Metropolitan Trial Court is not ousted of jurisdiction simply

because the defendant raised the question ownership (Bolus vs. Court
of Appeals, 218 SCRA 798). The inferior court shall resolve the issue
of ownership only to determine who is entitled to the possession of the
premises (B.P. 129, Sec. 33[2]; Bolus vs. Court of Appeals, supra).

Here, the Metropolitan Trial Court ruled that as owner, plaintiff

(herein private respondent Better Homes Realty and Housing
Corporation) is entitled to the possession of the premises because the
defendant's stay is by mere tolerance of the plaintiff (herein private
respondent).
 On the other hand, the Regional Trial Court ruled that the subject
property is owned by the defendant, (herein petitioner Manuel Lao)
and, consequently, dismissed the complaint for unlawful detainer.
Thus, the Regional Trial Court resolved the issue of ownership, as if
the case were originally before it as an action for recovery of
possession, or accion publiciana, within its original jurisdiction. In an
appeal from a decision of the Municipal Trial Court, or Metropolitan
Trial Court, in an unlawful detainer case, the Regional Trial Court is
simply to determine whether the inferior court correctly resolved the
issue of possession; it shall not delve into the issue of ownership
(Manuel vs. Court of Appeals, 199 SCRA 603). What the Regional
Trial Court did was to rule that the real agreement between the
plaintiff and the previous owner of the property was not a sale, but an
equitable mortgage. Defendant was only a director of the seller
corporation, and his claim of ownership could not be true. This
question could not be determined summarily. It was not properly in
issue before the inferior court because, as aforesaid, the only issue
was possession de facto(Manlapaz vs. Court of Appeals, 191 SCRA
795), or who has a better right to physical possession (Dalida vs.
Court of Appeals, 117 SCRA 480). Consequently, the Regional Trial
Court erred in reversing the decision of the Metropolitan Trial Court.

WHEREFORE, the Court hereby REVERSES the decision of the

Regional Trial Court. In lieu thereof, We affirm the decision of the
Metropolitan Trial Court of Quezon City sentencing the defendant and
all persons claiming right under him to vacate the premises situated at
Unit I, No. 21 N. Domingo Street, Quezon City, and to surrender
possession to the plaintiff; to pay plaintiff the sum of P300.00, a day
starting on January 31, 1992, until defendant shall have vacated the
premises; to pay plaintiff P5,000.00 as attorneys fees, and costs.

SO ORDERED. 6

Manuel Lao's motion for reconsideration dated January 24, 1994 was denied by the
Court of Appeals in its Resolution promulgated on April 28, 1994. Hence, this
petition for review before this Court. 7

The Issues

Petitioner Manuel Lao raises three issues:

 3.1 Whether or not the lower court can decide on the
issue of ownership in the present ejectment case.

3.2 Whether or not private respondent had acquired

ownership over the property in question.

3.3 Whether or not petitioner should be ejected from the

premises in question 8

The Court's Ruling

The petition for review is meritorious.

First Issue: Jurisdiction to Decide the Issue of Ownership

The Court of Appeals held that as a general rule, the issue in an ejectment suit is
possession de facto, not possession de jure, and that in the event the issue of
ownership is raised as a defense, the issue is taken up for the limited purpose of
determining who between the contending parties has the better right to possession.
Beyond this, the MTC acts in excess of its jurisdiction. However, we hold that this
is not a hard and fast rule that can be applied automatically to all unlawful detainer
cases.

Section 11, Rule 40 of the Rules of Court provides that "[a] case tried by an
inferior court without jurisdiction over the subject matter shall be dismissed on
appeal by the Court of First Instance. But instead of dismissing the case, the Court
of First Instance, in the exercise of its original jurisdiction, may try the case on the
merits if the parties therein file their pleadings and go to the trial without any
objection to such jurisdiction." After a thorough review of the records of this case,
the Court finds that the respondent appellate court failed to apply this Rule and
erroneously reversed the RTC Decision.

Respondent Court cites Alvir vs. Vera to support its Decision. On the contrary, we

believe such case buttresses instead the Regional Trial Court's decision. The cited
case involves an unlawful detainer suit where the issue of possession was
inseparable from the issue of transfer of ownership, and the latter was determinable
only after an examination of a contract of sale involving the property in question.
The Court ruled that where a "case was tried and heard by the lower court in the
exercise of its original jurisdiction by common assent of the parties by virtue of the
issues raised . . . and the proofs presented by them," any dismissal on the ground of
lack of jurisdiction "would only lead to needless delays and multiplicity of suits."
The Court held:

In actions of forcible entry and detainer, the main issue is

possession de facto, independently of any claim of ownership or
possession de jure that either party may set forth in his pleading. . . .
Defendant's claim of ownership of the property from which plaintiff
seeks to eject him is not sufficient to divest the inferior court of its
jurisdiction over the action of forcible entry and detainer. However, if
it appears during the trial that the principal issue relates to the
ownership of the property in dispute and any question of possession
which maybe involved necessarily depends upon the result of the
inquiry into the title, previous rulings of this Court are that the
jurisdiction of the municipal or city court is lost and the action should
be dismissed.

We have at bar a case where, in effect, the question of physical

possession could not properly be determined without settling that of
lawful or de jure possession and of ownership and hence, following
early doctrine, the jurisdiction of the municipal court over the
ejectment case was lost and the action should have been dismissed. As
a consequence, respondent court would have no jurisdiction over the
case on appeal and it should have dismissed the case on appeal from
the municipal trial court. However, in line with Section 11, Rule 40 of
the Revised Rules of Court, which 
reads —

Sec. 11. Lack of Jurisdiction. — A case tried by an

inferior court without jurisdiction over the subject matter
shall be dismissed on appeal by the Court of First
Instance. But instead of dismissing the case, the Court of
First Instance in the exercise of its original jurisdiction,
may try the case on the merits if the parties therein file
their pleadings and go to trial without objection to such
jurisdiction.

this Court held in Saliwan vs. Amores, 51 SCRA 329, 337, that

dismissal "on the said ground of lack of appellate jurisdiction on the
part of the lower court flowing from the municipal court's loss of
jurisdiction would lead only to needless delay and multiplicity of suits
 in the attainment of the same result and ignores, as above stated, that
the case was tried and heard by the lower court in the exercise of its
original jurisdiction by common assent of the parties by virtue of the
issues raised by the parties and the proof presented by them thereon." 9

This pronouncement was reiterated by this Court through Mr. Justice Teodoro R.
Padilla in Consignado vs. Court of Appeals 10 as follows:

As the MTC of Laguna had no jurisdiction over the unlawful detainer

case in view of the raised question of title or ownership over the
property in dispute, the RTC of Laguna also had
no appellatejurisdiction to decide the case on the merits. It should
have dismissed the appeal. However, it hadoriginal jurisdiction to
pass upon the controversy. It is to be noted, in this connection, that in
their respective memoranda filed with the RTC of Laguna, the
petitioners and private respondents did not object to the said court
exercising its original jurisdiction pursuant to the aforequoted
provisions of Section 11, Rule 40 of the Rules of Court.

xxx xxx xxx

Petitioners now contend, among others, that the Court of Appeals

erred in resolving the question of ownership as if actual title, not mere
possession of subject premises, is involved in the instant case.

The petitioner's contention is untenable. Since the MTC and RTC of

Laguna decided the question of ownership over the property in
dispute, on appeal the Court of Appeals had to review and resolve also
the issue of ownership. . . .

It is clear, therefore, that although an action for unlawful detainer "is inadequate
for the ventilation of issues involving title or ownership of controverted real
property, [i]t is more in keeping with procedural due process that where issues of
title or ownership are raised in the summary proceedings for unlawful detainer,
said proceeding should be dismissed for lack of jurisdiction, unless, in the case of
an appeal from the inferior court to the Court of First Instance, the parties agree to
the latter Court hearing the case in its original jurisdiction in accordance with
Section 11, Rule 40 . . ." 11

In the case at bar, a determination of the issue of ownership is indispensable to

resolving the rights of both parties over the property in controversy, and is
inseparable from a determination of who between them has the right to possess the
same. Indeed, the very complaint for unlawful detainer filed in the Metropolitan
Trial Court of Quezon City is anchored on the alleged ownership of private
respondent over the subject premises. 12 The parties did not object to the
incongruity of a question of ownership being brought in an ejectment suit. Instead
they both submitted evidence on such question, and the Metropolitan Trial Court
decided on the issue. These facts are evident in the Metropolitan Trial Court's
decision:

From the records of the case, the evidence presented and the various
arguments advanced by the parties, the Court finds that the property
subject matter of this case is in the name of (herein private
respondent) Better Homes and Realty Housing Corporation; that the
Deed of Absolute Sale which was the basis for the issuance of said
TCT No. 22184 is between N. Domingo Realty and Development
Corporation and Better Homes Realty and Housing Corporation which
was signed by Artemio S. Lao representing the seller N. Domingo and
Realty Development Corporation; that a Board Resolution of N.
Domingo and Realty and Development Corporation (Exhibit "D"
position paper) shows that the Directors of the Board of the N.
Domingo Realty and Development Corporation passed a resolution
selling apartment units I and F located at No. 21 N. Domingo St.,
Quezon City and designating the (herein petitioner) with his brother
Artemio S. Lao as signatories to the Deed of Sale. The claim therefore
of the (herein petitioner) that he owns the property is not true . . . 13

When the MTC decision was appealed to the Regional Trial Court, not one of the
parties questioned the Metropolitan Trial Court's jurisdiction to decide the issue of
ownership. In fact, the records show that both petitioner and private respondent
discussed the issue in their respective pleadings before the Regional Trial
Court. 14 They participated in all aspects of the trial without objection to its
jurisdiction to decide the issue of ownership. Consequently, the Regional Trial
Court aptly decided the issue based on the exercise of its original jurisdiction as
authorized by Section 11, Rule 40 of the Rules of Court.

This Court further notes that in both of the contending parties' pleadings filed on
appeal before the Court of Appeals, the issue of ownership was likewise amply
discussed. 15 The totality of evidence presented was sufficient to decide
categorically the issue of ownership.
These considerations, taken together with the fact that both the Metropolitan Trial
Court and the Regional Trial Court decided the issue of ownership, justify the
review of the lower courts' findings of fact and decision on the issue of ownership.
This we now do, as we dispose of the second issue and decide the case with finality
to spare the parties the time, trouble and expense of undergoing the rigors of
another suit where they will have to present the same evidence all over again and
where, in all probability, the same ultimate issue of ownership will be brought up
on appeal.

Second Issue: Absolute Sale or Equitable Mortgage?

Private Respondent Better Homes Realty and Housing Corporation anchored its
right in the ejectment suit on a contract of sale in which petitioner (through their
family corporation) transferred the title of the property in question. Petitioner
contends, however that their transaction was not an absolute sale, but an equitable
mortgage.

In determining the nature of a contract, the Court looks at the intent of the parties
and not at the nomenclature used to describe it. Pivotal to deciding this issue is the
true aim and purpose of the contracting parties as shown by the terminology used
in the covenant, as well as "by their conduct, words, actions and deeds prior to,
during and immediately after executing the agreement." 16 In this regard, parol
evidence becomes admissible to prove the true intent and agreement of the parties
which the Court will enforce even if the title of the property in question has already
been registered and a new transfer certificate of title issued in the name of the
transferee. In Macapinlac vs. Gutierrez Repide, which involved an identical
question, the Court succintly stated:

. . . This conclusion is fully supported by the decision in Cuyugan

vs. Santos (34 Phil., 100), where this court held that a conveyance in
the form of a contract of sale with pacto de retro will be treated as a
mere mortgage, if really executed as security for a debt, and that this
fact can be shown by oral evidence apart from the instrument of
conveyance, a doctrine which has been followed in the later cases of
Villa vs. Santiago (38 Phil., 157), and Cuyugan vs. Santos (39 Phil.,
970).

xxx xxx xxx

In the first place, it must be borne in mind that the equitable doctrine
which has been so fully stated above, to the effect that any
 conveyance intended as security for a debt will be held in effect to be
a mortgage, whether so actually expressed in the instrument or not,
operates regardless of the form of the agreement chosen by the
contracting parties as the repository of their will. Equity looks through
the form and considers the substance; and no kind of engagement can
be adopted which will enable the parties to escape from the equitable
doctrine to which reference is made. In other words, a conveyance of
land, accompanied by registration in the name of the transferee and
the issuance of a new certificate, is no more secured from the
operation of this equitable doctrine than the most informal
conveyance that could be devised. 17

The law enumerates when a contract may be presumed to be an equitable

mortgage:

(1) When the price of a sale with right to repurchase is

unusually inadequate;

(2) When the vendor remains in possession as lessee or

otherwise;

(3) When upon or after the expiration of the right

repurchase another instrument extending the period of
redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the

purchase price;

(5) When the vendor binds himself to pay the taxes on

the thing sold;

(6) In any other case where it may be fairly inferred that

the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of
any other obligation.

xxx xxx xxx 18

The foregoing presumption applies also to a "contract purporting to be an absolute

sale." 19
Applying the preceding principles to the factual milieu of this case, we find the
agreement between the private respondent and N. Domingo Realty & Housing
Corporation, as represented by petitioner, manifestly one of equitable
mortgage. First, possession of the property in the controversy remained with
Petitioner Manuel Lao who was the beneficial owner of the property, before,
during and after the alleged sale. 20 It is settled that a "pacto de retro sale should be
treated as a mortgage where the (property) sold never left the possession of the
vendors." 21 Second, the option given to Manuel Lao to purchase the property in
controversy had been extended twice 22 through documents executed by Mr. Tan
Bun Uy, President and Chairman of the Board of Better Homes Realty & Housing
Corporation. The wording of the first extension is a refreshing revelation that
indeed the parties really intended to be bound by a loan with mortgage, not by
a pacto de retro. It reads, "On June 10, 88, this option is extended for another sixty
days to expired (sic) on Aug. 11, 1988. The purchase price is increased to
P137,000.00. Since Mr. Lao borrow (sic) P20,000.00 from me." 23These extensions
clearly represent the extension of time to pay the loan given to Manuel Lao upon
his failure to pay said loan on its maturity. Mr. Lao was even granted an additional
loan of P20,000.00 as evidenced by the above-quoted document. Third,
unquestionably, Manuel Lao and his brother were in such "dire need of money"
that they mortgaged their townhouse units registered under the name of N.
Domingo Realty Corporation, the family corporation put up by their parents, to
Private Respondent Better Homes Realty & Housing Corporation. In retrospect, it
is easy to blame Petitioner Manuel Lao for not demanding a reformation of the
contract to reflect the true intent of the parties. But this seeming inaction is
sufficiently explained by the Lao brothers' desperate need for money, compelling
them to sign the document purporting to be a sale after they were told that the same
was just for "formality." 24 In fact, this Court, in various cases involving the same
situation, had occasion to state:

. . . In Jayme, et al. v. Salvador, et al., this Court upheld a judgment of

the Court of First Instance of Iloilo which found the transaction
between the parties to be a loan instead of a sale of real
propertynotwithstanding the terminology used in the document, after
taking into account the surrounding circumstances of the transaction.
The Court through Justice Norberto Romualdez stated that while it
was true that plaintiffs were aware of the contents of the contracts, the
preponderance of the evidence showed however that they signed
knowing that said contracts did not express their real intention, and if
they did so notwithstanding this, it was due to the urgent necessity of
obtaining fund."Necessitous men are not, truly speaking, free men; but
 to answer a present emergency, will submit to any terms that the
crafty may impose upon them." 25

Moreover, since the borrower's urgent need for money places the latter at a
disadvantage vis-a-vis the lender who can thus dictate the terms of their contract,
the Court, in case of an ambiguity, deems the contract to be one which involves the
lesser transmission of rights and interest over the property in controversy. 26

As aptly found and concluded by the regional trial court:

The evidence of record indicates that while as of April 4, 1988 (the

date of execution of the Deed of Absolute Sale whereby the N.
Domingo and Realty & Development Corporation purportedly sold
the townhouse and lot subject of this suit to [herein private respondent
Better Homes Realty & Housing Corporation] for P100,000.000) said
N. Domingo Realty & Development Corporation (NDRDC, for short)
was the registered owner of the subject property under Transfer
Certificate of Title (TCT) No. 316634 of the Registry of Deeds for
Quezon City, (herein petitioner Manuel Lao) in fact was and has been
since 1975 the beneficial owner of the subject property and, thus, the
same was assigned to him by the NDRDC, the family corporation set
up by his parents and of which (herein petitioner) and his siblings are
directors. That the parties' real transaction or contract over the subject
property was not one of sale but, rather, one of loan secured, by a
mortgage thereon is unavoidably inferrable from the following facts
of record, to (herein petitioner's) possession of the subject property,
which started in 1975 yet, continued and remained even after the
alleged sale of April 4, 1988; (herein private respondent) executed an
option to purchase in favor (herein petitioner) as early as April 2,
1988 or two days before (herein private respondent) supposedly
acquired ownership of the property; the said option was renewed
several times and the price was increased with each renewal (thus, the
original period for the exercise of the option was up to June 11, 1988
and the price was P109,000.00; then, on June 10, 1988, the option was
extended for 60 days or until August 11, 1988 and the price was
increased to P137,000.00; and then on August 11, 1988, the option
was again extended until November 11,1988 and the price was
increased to P158,840.00); and, the Deed of Absolute Sale of April 4,
1988 was registered and the property transferred in the name of
(private respondent) only on May 10, 1989, per TCT No. 22184 of the
 Registry of Deeds for Quezon City (Arts. 1602, nos. 2, 3, & 6, &
1604, Civil Code). Indeed, if it were true, as it would have the Court
believe, that (private respondent) was so appreciative of (petitioner's)
alleged facilitation of the subject property's sale to it, it is quite
strange why (private respondent) some two days before such supposed
sale would have been minded and inclined to execute an option to
purchase allowing (petitioner) to acquire the property — the very
same property it was still hoping to acquire at the time. Certainly,
what is more likely and thus credible is that, if (private respondent)
was indeed thankful that it was able to purchase the property, it would
not given (petitioner) any option to purchase at all . . . 27

Based on the conduct of the petitioner and private respondent and even the
terminology of the second option to purchase, we rule that the intent and
agreement between them was undoubtedly one of equitable mortgage and not of
sale.

Third Issue: Should Petitioner Be Ejected?

We answer in the negative. An action for unlawful detainer is grounded on Section

1, Rule 70 of the Rules of Court which provides that:

. . . a landlord, vendor, vendee, or other person against whom the

possession of any land or building is unlawfully withheld after the
expiration or termination of the right to hold possession, by virtue of
any contract, express or implied, or the legal representatives or assigns
of any such landlord, vendor, vendee, or other person, may, at any
time within one (1) year after such unlawful deprivation or
withholding of possession, bring an action in the proper inferior court
against the person or persons unlawfully withholding or depriving of
possession, or any person or persons claiming under them, for the
restitution of such possession, together with damages and costs . . . .

Based on the previous discussion, there was no sale of the disputed property.
Hence, it still belongs to petitioner's family corporation, N. Domingo Realty &
Development Corporation. Private respondent, being a mere mortgagee, has no
right to eject petitioner. Private respondent, as a creditor and mortgagee, " . . .
cannot appropriate the things given by way of pledge
or mortgage, or dispose of them. Any stipulation to the contrary is null and
void." 28
 Other Matters

Private respondent in his memorandum also contends that (1) petitioner is not the
real party in interest and (2) the petition should be dismissed for "raising/stating
facts not so found by the Court of Appeals." These deserve scant consideration.
Petitioner was impleaded as party defendant in the ejectment suit by private
respondent itself. Thus, private respondent cannot question his standing as a party.
As such party, petitioner should be allowed to raise defenses which negate private
respondent's right to the property in question. The second point is really academic.
This ponencia relies on the factual narration of the Court of Appeals and not on the
"facts" supplied by petitioner.

WHEREFORE, the petition is hereby GRANTED. The challenged Decision of the

Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional
Trial Court of Quezon City ordering the dismissal of the complaint for ejectment is
REINSTATED and AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.

Melo, J., is on leave.

 SECOND DIVISION

[G.R. No. 126444. December 4, 1998]

ALFONSO QUIJADA, CRESENTE QUIJADA, REYNELDA QUIJADA,

DEMETRIO QUIJADA, ELIUTERIA QUIJADA, EULALIO
QUIJADA, and WARLITO QUIJADA, petitioners, vs. COURT OF
APPEALS, REGALADO MONDEJAR, RODULFO GOLORAN,
ALBERTO ASIS, SEGUNDINO RAS, ERNESTO GOLORAN, CELSO
ABISO, FERNANDO BAUTISTA, ANTONIO MACASERO, and
NESTOR MAGUINSAY, respondents.

DECISION
MARTINEZ, J.:

Petitioners, as heirs of the late Trinidad Quijada, filed a complaint against

private respondents for quieting of title, recovery of possession and ownership of
parcels of land with claim for attorney's fees and damages. The suit was premised
on the following facts found by the Court of Appeals, which is materially the same
as that found by the trial court:

"Plaintiffs-appellees (petitioners) are the children of the late Trinidad Corvera Vda.
de Quijada. Trinidad was one of the heirs of the late Pedro Corvera and inherited
from the latter the two-hectare parcel of land subject of the case, situated in the
barrio of San Agustin, Talacogon, Agusan del Sur. On April 5, 1956, Trinidad
Quijada together with her sisters Leonila Corvera Vda. de Sequea and Paz Corvera
Cabiltes and brother Epapiadito Corvera executed a conditional deed of donation
(Exh. C) of the two-hectare parcel of land subject of the case in favor of the
Municipality of Talacogon, the condition being that the parcel of land shall be used
solely and exclusively as part of the campus of the proposed provincial high school
in Talacogon. Apparently, Trinidad remained in possession of the parcel of land
despite the donation. On July 29, 1962, Trinidad sold one (1) hectare of the subject
parcel of land to defendant-appellant Regalado Mondejar (Exh. 1). Subsequently,
Trinidad verbally sold the remaining one (1) hectare to defendant-appellant
(respondent)Regalado Mondejar without the benefit of a written deed of sale and
evidenced solely by receipts of payment. In 1980, the heirs of Trinidad, who at that
time was already dead, filed a complaint for forcible entry (Exh. E) against
defendant-appellant (respondent) Regalado Mondejar, which complaint was,
however, dismissed for failure to prosecute (Exh. F). In 1987, the proposed
provincial high school having failed to materialize, the Sangguniang Bayan of the
municipality of Talacogon enacted a resolution reverting the two (2) hectares of
land donated back to the donors (Exh. D). In the meantime, defendant-appellant
(respondent) Regalado Mondejar sold portions of the land to defendants-appellants
(respondents) Fernando Bautista (Exh. 5), Rodolfo Goloran (Exh. 6), Efren Guden
(Exh. 7) and Ernesto Goloran (Exh. 8).

"On July 5, 1988, plaintiffs-appellees (petitioners) filed this action against

defendants-appellants (respondents). In the complaint, plaintiffs-appellees
(petitioners) alleged that their deceased mother never sold, conveyed, transferred
or disposed of the property in question to any person or entity much less to
Regalado Mondejar save the donation made to the Municipality of Talacogon in
1956; that at the time of the alleged sale to Regalado Mondejar by Trinidad
Quijada, the land still belongs to the Municipality of Talacogon, hence, the
supposed sale is null and void.

"Defendants-appellants (respondents), on the other hand, in their answer claimed

that the land in dispute was sold to Regalado Mondejar, the one (1) hectare on July
29, 1962, and the remaining one (1) hectare on installment basis until fully
paid. As affirmative and/or special defense, defendants-appellants (respondents)
alleged that plaintiffs' action is barred by laches or has prescribed.

"The court a quo rendered judgment in favor of plaintiffs-appellees (petitioners):

firstly because 'Trinidad Quijada had no legal title or right to sell the land to
defendant Mondejar in 1962, 1966, 1967 and 1968, the same not being hers to
dispose of because ownership belongs to the Municipality of Talacogon' (Decision,
p. 4; Rollo, p. 39) and, secondly, that the deed of sale executed by Trinidad
Quijada in favor of Mondejar did not carry with it the conformity and acquiescence
of her children, more so that she was already 63 years old at the time, and a widow
(Decision, p. 6; Rollo, p. 41)."[1]

The dispositive portion of the trial court's decision reads:

"WHEREFORE, viewed from the above perceptions, the scale of justice having
tilted in favor of the plaintiffs, judgment is, as it is hereby rendered:
 1) ordering the Defendants to return and vacate the two (2) hectares of land
to Plaintiffs as described in Tax Declaration No. 1209 in the name of
Trinidad Quijada;
2) ordering any person acting in Defendants' behalf to vacate and restore
the peaceful possession of the land in question to Plaintiffs;
3) ordering the cancellation of the Deed of Sale executed by the late
Trinidad Quijada in favor of Defendant Regalado Mondejar as well as
the Deeds of Sale/Relinquishments executed by Mondejar in favor of the
other Defendants;
4) ordering Defendants to remove their improvements constructed on the
questioned lot;
5) ordering the Defendants to pay Plaintiffs, jointly and severally, the
amount of P10,000.00 representing attorney's fees;
6) ordering Defendants to pays the amount of P8,000.00 as expenses of
litigation; and
7) ordering Defendants to pay the sum of P30,000.00 representing moral
damages.

SO ORDERED."[2]

On appeal, the Court of Appeals reversed and set aside the judgment a
quo  ruling that the sale made by Trinidad Quijada to respondent Mondejar was
[3]

valid as the4 former retained an inchoate interest on the lots by virtue of the
automatic reversion clause in the deed of donation. [4] Thereafter, petitioners filed a
motion for reconsideration. When the CA denied their motion,[5] petitioners
instituted a petition for review to this Court arguing principally that the sale of the
subject property made by Trinidad Quijada to respondent Mondejar is void,
considering that at that time, ownership was already transferred to the Municipality
of Talacogon. On the contrary, private respondents contend that the sale was valid,
that they are buyers in good faith, and that petitioners' case is barred by laches.[6]
We affirm the decision of the respondent court.
The donation made on April 5, 1956 by Trinidad Quijada and her brother and
sisters[7] was subject to the condition that the donated property shall be "used solely
and exclusively as a part of the campus of the proposed Provincial High School in
Talacogon."[8] The donation further provides that should "the proposed Provincial
High School be discontinued or if the same shall be opened but for some reason or
another, the same may in the future be closed" the donated property shall
automatically revert to the donor.[9] Such condition, not being contrary to law,
morals, good customs, public order or public policy was validly imposed in the
donation.[10]
When the Municipality's acceptance of the donation was made known to the
donor, the former became the new owner of the donated property -- donation being
a mode of acquiring and transmitting ownership [11] - notwithstanding the condition
imposed by the donee. The donation is perfected once the acceptance by the donee
is made known to the donor. [12] Accordingly, ownership is immediately transferred
to the latter and that ownership will only revert to the donor if the resolutory
condition is not fulfilled.
In this case, that resolutory condition is the construction of the school. It has
been ruled that when a person donates land to another on the condition that the
latter would build upon the land a school, the condition imposed is not a condition
precedent or a suspensive condition but a resolutory one. [13]Thus, at the time of the
sales made in 1962 towards 1968, the alleged seller (Trinidad) could not have sold
the lots since she had earlier transferred ownership thereof by virtue of the deed of
donation. So long as the resolutory condition subsists and is capable of fulfillment,
the donation remains effective and the donee continues to be the owner subject
only to the rights of the donor or his successors-in-interest under the deed of
donation. Since no period was imposed by the donor on when must the donee
comply with the condition, the latter remains the owner so long as he has tried to
comply with the condition within a reasonable period. Such period, however,
became irrelevant herein when the donee-Municipality manifested through a
resolution that it cannot comply with the condition of building a school and the
same was made known to the donor. Only then - when the non-fulfillment of the
resolutory condition was brought to the donor's knowledge - that ownership of the
donated property reverted to the donor as provided in the automatic reversion
clause of the deed of donation.
The donor may have an inchoate interest in the donated property during the
time that ownership of the land has not reverted to her. Such inchoate interest may
be the subject of contracts including a contract of sale. In this case, however, what
the donor sold was the land itself which she no longer owns. It would have been
different if the donor-seller sold her interests over the property under the deed of
donation which is subject to the possibility of reversion of ownership arising from
the non-fulfillment of the resolutory condition.
As to laches, petitioners' action is not yet barred thereby. Laches presupposes
failure or neglect for an unreasonable and unexplained length of time, to do that
which, by exercising due diligence, could or should have been done earlier; [14] "it is
negligence or omission to assert a right within a reasonable time, thus, giving rise
to a presumption that the party entitled to assert it either has abandoned or declined
to assert it."[15] Its essential elements of:
a) Conduct on the part of the defendant, or of one under whom he claims,
giving rise to the situation complained of;
b) Delay in asserting complainant's right after he had knowledge of the
defendant's conduct and after he has an opportunity to sue;
c) Lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit; and,
d) Injury or prejudice to the defendant in the event relief is accorded to the
complainant."[16]
are absent in this case. Petitioners' cause of action to quiet title commenced only
when the property reverted to the donor and/or his successors-in-interest in
1987. Certainly, when the suit was initiated the following year, it cannot be said
that petitioners had slept on their rights for a long time. The 1960's sales made by
Trinidad Quijada cannot be the reckoning point as to when petitioners' cause of
action arose. They had no interest over the property at that time except under the
deed of donation to which private respondents were not privy. Moreover,
petitioners had previously filed an ejectment suit against private respondents only
that it did not prosper on a technicality.
Be that at it may, there is one thing which militates against the claim of
petitioners. Sale, being a consensual contract, is perfected by mere consent, which
is manifested the moment there is a meeting of the minds [17] as to the offer and
acceptance thereof on three (3) elements: subject matter, price and terms of
payment of the price.[18] ownership by the seller on the thing sold at the time of the
perfection of the contract of sale is not an element for its perfection. What the law
requires is that the seller has the right to transfer ownership at the time the thing
sold is delivered.[19] Perfection per se does not transfer ownership which occurs
upon the actual or constructive delivery of the thing sold.[20] 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; hence, the sale is still valid.
The consummation, however, of the perfected contract is another matter. It
occurs upon the constructive or actual delivery of the subject matter to the buyer
when the seller or her successors-in-interest subsequently acquires ownership
thereof. Such circumstance happened in this case when petitioners -- who are
Trinidad Quijada's heirs and successors-in-interest -- became the owners of the
subject property upon the reversion of the ownership of the land to
them. Consequently, ownership is transferred to respondent Mondejar ands those
who claim their right from him. Article 1434 of the New Civil Code supports the
ruling that the seller's "title passes by operation of law to the buyer." [21] This rule
applies not only when the subject matter of the contract of sale is goods, [22] but also
to other kinds of property, including real property.[23]
There is also no merit in petitioners' contention that since the lots were owned
by the municipality at the time of the sale, they were outside the commerce of men
under Article 1409 (4) of the NCC; [24] thus, the contract involving the same is
inexistent and void from the beginning. However, nowhere in Article 1409 (4) is it
provided that the properties of a municipality, whether it be those for public use or
its patrimonial property[25] are outside the commerce of men. Besides, the lots in
this case were conditionally owned by the municipality. To rule that the donated
properties are outside the commerce of men would render nugatory the
unchallenged reasonableness and justness of the condition which the donor has the
right to impose as owner thereof. Moreover, the objects referred to as outsides the
commerce of man are those which cannot be appropriated, such as the open seas
and the heavenly bodies.
With respect to the trial courts award of attorneys fees, litigation expenses and
moral damages, there is neither factual nor legal basis thereof.Attorneys fees and
expenses of litigation cannot, following the general rule in Article 2208 of the New
Civil Code, be recovered in this case, there being no stipulation to that effect and
the case does not fall under any of the exceptions.[26] It cannot be said that private
respondents had compelled petitioners to litigate with third persons. Neither can it
be ruled that the former acted in gross and evident bad faith in refusing to satisfy
the latters claims considering that private respondents were under an honest belief
that they have a legal right over the property by virtue of the deed of sale. Moral
damages cannot likewise be justified as none of the circumstances enumerated
under Articles 2219[27] and 2220[28] of the New Civil Code concur in this case.
WHEREFORE, by virtue of the foregoing, the assailed decision of the Court
of Appeals is AFFIRMED.
SO ORDERED.
Melo (Acting Chairman), Puno, and Mendoza, JJ., concur.
 THIRD DIVISION

[G.R. No. 112212. March 2, 1998]

GREGORIO FULE, petitioner, vs. COURT OF APPEALS,

NINEVETCH CRUZ and JUAN BELARMINO,respondents.

DECISION
ROMERO, J.:

This petition for review on certiorari questions the affirmance by the Court of

Appeals of the decision[1] of the Regional Trial Court of San Pablo City, Branch
30, dismissing the complaint that prayed for the nullification of a contract of sale
of a 10-hectare property in Tanay, Rizal in consideration of the amount
of P40,000.00 and a 2.5 carat emerald-cut diamond (Civil Case No. SP-2455). The
lower courts decision disposed of the case as follows:

WHEREFORE, premises considered, the Court hereby renders judgment

dismissing the complaint for lack of merit and ordering plaintiff to pay:

1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral
damages and the sum of P100,000.00 as and for exemplary damages;

2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral
damages and the sum of P150,000.00 as and for exemplary damages;

3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as and for
attorneys fees and litigation expenses; and

4. The costs of suit.

SO ORDERED.

As found by the Court of Appeals and the lower court, the antecedent facts of
this case are as follows:

Petitioner Gregorio Fule, a banker by profession and a jeweler at the same time,
acquired a 10-hectare property in Tanay, Rizal (hereinafter Tanay property),
covered by Transfer Certificate of Title No. 320725 which used to be under the
name of Fr. Antonio Jacobe. The latter had mortgaged it earlier to the Rural Bank
of Alaminos (the Bank), Laguna, Inc. to secure a loan in the amount of P10,000.00,
but the mortgage was later foreclosed and the property offered for public auction
upon his default.

In July 1984, petitioner, as corporate secretary of the bank, asked Remelia

Dichoso and Oliva Mendoza to look for a buyer who might be interested in the
Tanay property. The two found one in the person of herein private respondent Dr.
Ninevetch Cruz. It so happened that at the time, petitioner had shown interest in
buying a pair of emerald-cut diamond earrings owned by Dr. Cruz which he had
seen in January of the same year when his mother examined and appraised them as
genuine. Dr. Cruz, however, declined petitioners offer to buy the jewelry
for P100,000.00. Petitioner then made another bid to buy them for US$6,000.00 at
the exchange rate of $1.00 to P25.00. At this point, petitioner inspected said
jewelry at the lobby of the Prudential Bank branch in San Pablo City and then
made a sketch thereof. Having sketched the jewelry for twenty to thirty minutes,
petitioner gave them back to Dr. Cruz who again refused to sell them since the
exchange rate of the peso at the time appreciated to P19.00 to a dollar.
Subsequently, however, negotiations for the barter of the jewelry and the
Tanay property ensued. Dr. Cruz requested herein private respondent Atty. Juan
Belarmino to check the property who, in turn, found out that no sale or barter was
feasible because the one-year period for redemption of the said property had not
yet expired at the time.
In an effort to cut through any legal impediment, petitioner executed on
October 19, 1984, a deed of redemption on behalf of Fr. Jacobe purportedly in the
amount of P15,987.78, and on even date, Fr. Jacobe sold the property to petitioner
for P75,000.00. The haste with which the two deeds were executed is shown by the
fact that the deed of sale was notarized ahead of the deed of redemption. As Dr.
Cruz had already agreed to the proposed barter, petitioner went to Prudential Bank
once again to take a look at the jewelry.
In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the
latters residence to prepare the documents of sale. [2] Dr. Cruz herself was not
around but Atty. Belarmino was aware that she and petitioner had previously
agreed to exchange a pair of emerald-cut diamond earrings for the Tanay
property. Atty. Belarmino accordingly caused the preparation of a deed of absolute
sale while petitioner and Dr. Cruz attended to the safekeeping of the jewelry.
 The following day, petitioner, together with Dichoso and Mendoza, arrived at
the residence of Atty. Belarmino to finally execute a deed of absolute sale.
Petitioner signed the deed and gave Atty. Belarmino the amount of P13,700.00 for
necessary expenses in the transfer of title over the Tanay property. Petitioner also
issued a certification to the effect that the actual consideration of the sale
was P200,000.00 and not P80,000.00 as indicated in the deed of absolute sale. The
disparity between the actual contract price and the one indicated on the deed of
absolute sale was purportedly aimed at minimizing the amount of the capital gains
tax that petitioner would have to shoulder. Since the jewelry was appraised only
at P160,000.00, the parties agreed that the balance of P40,000.00 would just be
paid later in cash.
As pre-arranged, petitioner left Atty. Belarminos residence with Dichoso and
Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr. Cruz also
arrived shortly thereafter, but the cashier who kept the other key to the deposit box
had already left the bank. Dr. Cruz and Dichoso, therefore, looked for said cashier
and found him having a haircut. As soon as his haircut was finished, the cashier
returned to the bank and arrived there at 5:48 p.m., ahead of Dr. Cruz and Dichoso
who arrived at 5:55 p.m. Dr. Cruz and the cashier then opened the safety deposit
box, the former retrieving a transparent plastic or cellophane bag with the jewelry
inside and handing over the same to petitioner. The latter took the jewelry from the
bag, went near the electric light at the banks lobby, held the jewelry against the
light and examined it for ten to fifteen minutes. After a while, Dr. Cruz
asked, Okay na ba iyan? Petitioner expressed his satisfaction by nodding his head.
For services rendered, petitioner paid the agents, Dichoso and Mendoza, the
amount of US$300.00 and some pieces of jewelry. He did not, however, give them
half of the pair of earrings in question which he had earlier promised.
Later, at about 8:00 oclock in the evening of the same day, petitioner arrived at
the residence of Atty. Belarmino complaining that the jewelry given to him was
fake. He then used a tester to prove the alleged fakery. Meanwhile, at 8:30 p.m.,
Dichoso and Mendoza went to the residence of Dr. Cruz to borrow her car so that,
with Atty. Belarmino, they could register the Tanay property. After Dr. Cruz had
agreed to lend her car, Dichoso called up Atty. Belarmino. The latter, however,
instructed Dichoso to proceed immediately to his residence because petitioner was
there. Believing that petitioner had finally agreed to give them half of the pair of
earrings, Dichoso went posthaste to the residence of Atty. Belarmino only to find
petitioner already demonstrating with a tester that the earrings were fake. Petitioner
then accused Dichoso and Mendoza of deceiving him which they, however,
denied. They countered that petitioner could not have been fooled because he had
vast experience regarding jewelry. Petitioner nonetheless took back the US$300.00
and jewelry he had given them.
Thereafter, the group decided to go to the house of a certain Macario
Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking one look
at the earrings, immediately declared them counterfeit. At around 9:30 p.m.,
petitioner went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision
in San Pablo City, complaining about the fake jewelry. Upon being advised by the
latter, petitioner reported the matter to the police station where Dichoso and
Mendoza likewise executed sworn statements.
On October 26, 1984, petitioner filed a complaint before the Regional Trial
Court of San Pablo City against private respondents praying, among other things,
that the contract of sale over the Tanay property be declared null and void on the
ground of fraud and deceit.
On October 30, 1984, the lower court issued a temporary restraining order
directing the Register of Deeds of Rizal to refrain from acting on the pertinent
documents involved in the transaction. On November 20, 1984, however, the same
court lifted its previous order and denied the prayer for a writ of preliminary
injunction.
After trial, the lower court rendered its decision on March 7, 1989. Confronting
the issue of whether or not the genuine pair of earrings used as consideration for
the sale was delivered by Dr. Cruz to petitioner, the lower court said:

The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz
delivered (the) subject jewelries (sic) into the hands of plaintiff who even raised
the same nearer to the lights of the lobby of the bank near the door. When asked by
Dra. Cruz if everything was in order, plaintiff even nodded his satisfaction
(Hearing of Feb. 24, 1988). At that instance, plaintiff did not protest, complain or
beg for additional time to examine further the jewelries (sic). Being a professional
banker and engaged in the jewelry business plaintiff is conversant and competent
to detect a fake diamond from the real thing. Plaintiff was accorded the reasonable
time and opportunity to ascertain and inspect the jewelries (sic) in accordance with
Article 1584 of the Civil Code. Plaintiff took delivery of the subject jewelries (sic)
before 6:00 p.m. of October 24, 1984. When he went at 8:00 p.m. that same day to
the residence of Atty. Belarmino already with a tester complaining about some
fake jewelries (sic), there was already undue delay because of the lapse of a
considerable length of time since he got hold of subject jewelries (sic). The lapse
of two (2) hours more or less before plaintiff complained is considered by the
Court as unreasonable delay.[3]
 The lower court further ruled that all the elements of a valid contract under
Article 1458 of the Civil Code were present, namely: (a) consent or meeting of the
minds; (b) determinate subject matter, and (c) price certain in money or its
equivalent. The same elements, according to the lower court, were present despite
the fact that the agreement between petitioner and Dr. Cruz was principally a barter
contract. The lower court explained thus:

x x x. Plaintiffs ownership over the Tanay property passed unto Dra. Cruz upon the
constructive delivery thereof by virtue of the Deed of Absolute Sale (Exh. D). On
the other hand, the ownership of Dra. Cruz over the subject jewelries (sic)
transferred to the plaintiff upon her actual personal delivery to him at the lobby of
the Prudential Bank. It is expressly provided by law that the thing sold shall be
understood as delivered, when it is placed in the control and possession of the
vendee (Art. 1497, Civil Code; Kuenzle & Straff vs. Watson & Co. 13 Phil.
26). The ownership and/or title over the jewelries (sic) was transmitted
immediately before 6:00 p.m. of October 24, 1984. Plaintiff signified his approval
by nodding his head. Delivery or tradition, is one of the modes of acquiring
ownership (Art. 712, Civil Code).

Similarly, when Exhibit D was executed, it was equivalent to the delivery of

the Tanay property in favor of Dra. Cruz. The execution of the public instrument
(Exh. D) operates as a formal or symbolic delivery of the Tanay property and
authorizes the buyer, Dra. Cruz to use the document as proof of ownership
(Florendo v. Foz, 20 Phil. 399). More so, since Exhibit D does not contain any
proviso or stipulation to the effect that title to the property is reserved with 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. vs. Maritime Building Co. Inc. 86 SCRA 305; Froilan v. Pan
Oriental Shipping Co. et al. 12 SCRA 276).[4]
Aside from concluding that the contract of barter or sale had in fact been
consummated when petitioner and Dr. Cruz parted ways at the bank, the trial court
likewise dwelt on the unexplained delay with which petitioner complained about
the alleged fakery. Thus:
x x x. Verily, plaintiff is already estopped to come back after the lapse of
considerable length of time to claim that what he got was fake.He is a Business
Management graduate of La Salle University, Class 1978-79, a professional banker
as well as a jeweler in his own right. Two hours is more than enough time to make
a switch of a Russian diamond with the real diamond. It must be remembered that
in July 1984 plaintiff made a sketch of the subject jewelries (sic) at the Prudential
Bank. Plaintiff had a tester at 8:00 p.m. at the residence of Atty. Belarmino. Why
then did he not bring it out when he was examining the subject jewelries (sic) at
about 6:00 p.m. in the banks lobby?Obviously, he had no need for it after being
satisfied of the genuineness of the subject jewelries (sic). When Dra. Cruz and
plaintiff left the bank both of them had fully performed their respective
prestations. Once a contract is shown to have been consummated or fully
performed by the parties thereto, its existence and binding effect can no longer be
disputed. It is irrelevant and immaterial to dispute the due execution of a contract if
both of them have in fact performed their obligations thereunder and their
respective signatures and those of their witnesses appear upon the face of the
document (Weldon Construction v. CA G.R. No. L-35721, Oct. 12, 1987).[5]
Finally, in awarding damages to the defendants, the lower court remarked:

The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino
purports to show that the Tanay property is worth P25,000.00. However, also on
that same day it was executed, the propertys worth was magnified at P75,000.00
(Exh. 3-Belarmino). How could in less than a day (Oct. 19, 1984) the value would
(sic) triple under normal circumstances? Plaintiff, with the assistance of his agents,
was able to exchange the Tanay property which his bank valued only at P25,000.00
in exchange for a genuine pair of emerald cut diamond worthP200,000.00
belonging to Dra. Cruz. He also retrieved the US$300.00 and jewelries (sic) from
his agents. But he was not satisfied in being able to get subject jewelries for a
song. He had to file a malicious and unfounded case against Dra. Cruz and Atty.
Belarmino who are well known, respected and held in high esteem in San Pablo
City where everybody practically knows everybody. Plaintiff came to Court with
unclean hands dragging the defendants and soiling their clean and good name in
the process. Both of them are near the twilight of their lives after maintaining and
nurturing their good reputation in the community only to be stunned with a court
case. Since the filing of this case on October 26, 1984 up to the present they were
living under a pall of doubt. Surely, this affected not only their earning capacity in
their practice of their respective professions, but also they suffered besmirched
reputations. Dra. Cruz runs her own hospital and defendant Belarmino is a well
respected legal practitioner.

The length of time this case dragged on during which period their reputation
were (sic) tarnished and their names maligned by the pendency of the case, the
Court is of the belief that some of the damages they prayed for in their answers to
the complaint are reasonably proportionate to the sufferings they underwent (Art.
2219, New Civil Code). Moreover, because of the falsity, malice and baseless
nature of the complaint defendants were compelled to litigate. Hence, the award of
attorneys fees is warranted under the circumstances (Art. 2208, New Civil Code).[6]
From the trial courts adverse decision, petitioner elevated the matter to the
Court of Appeals. On October 20, 1992, the Court of Appeals, however, rendered a
decision[7]affirming in toto the lower courts decision. His motion for
reconsideration having been denied on October 19, 1993, petitioner now files the
instant petition alleging that:
I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS
COMPLAINT AND IN HOLDING THAT THE PLAINTIFF
ACTUALLY RECEIVED A GENUINE PAIR OF EMERALD CUT
DIAMOND EARRING(S) FROM DEFENDANT CRUZ x x x;
II. THE TRIAL COURT ERRED IN AWARDING MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR OF
DEFENDANTS AND AGAINST THE PLAINTIFF IN THIS CASE;
and
III.THE TRIAL COURT ERRED IN NOT DECLARING THE DEED OF
SALE OF THE TANAY PROPERTY (EXH. `D) AS NULL AND
VOID OR IN NOT ANNULLING THE SAME, AND IN FAILING TO
GRANT REASONABLE DAMAGES IN FAVOR OF THE
PLAINTIFF.[8]
As to the first allegation, the Court observes that petitioner is essentially raising
a factual issue as it invites us to examine and weigh anew the facts regarding the
genuineness of the earrings bartered in exchange for the Tanay property. This, of
course, we cannot do without unduly transcending the limits of our review power
in petitions of this nature which are confined merely to pure questions of law. We
accord, as a general rule, conclusiveness to a lower courts findings of fact unless it
is shown, inter alia, that: (1) the conclusion is a finding grounded on speculations,
surmises or conjectures; (2) the inference is manifestly mistaken, absurd and
impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting;
and (6) when the Court of Appeals, in making its findings, went beyond the issues
of the case and the same is contrary to the admission of both parties. [9] We find
nothing, however, that warrants the application of any of these exceptions.
Consequently, this Court upholds the appellate courts findings of fact
especially because these concur with those of the trial court which, upon a
thorough scrutiny of the records, are firmly grounded on evidence presented at the
trial.[10] To reiterate, this Courts jurisdiction is only limited to reviewing errors of
law in the absence of any showing that the findings complained of are totally
devoid of support in the record or that they are glaringly erroneous as to constitute
serious abuse of discretion.[11]
Nonetheless, this Court has to closely delve into petitioners allegation that the
lower courts decision of March 7, 1989 is a ready-made one because it was handed
down a day after the last date of the trial of the case. [12] Petitioner, in this
regard, finds it incredible that Judge J. Ausberto Jaramillo was able to write a 12-
page single-spaced decision, type it and release it on March 7, 1989, less than a
day after the last hearing on March 6, 1989. He stressed that Judge Jaramillo
replaced Judge Salvador de Guzman and heard only his rebuttal testimony.
This allegation is obviously no more than a desperate effort on the part of
petitioner to disparage the lower courts findings of fact in order to convince this
Court to review the same. It is noteworthy that Atty. Belarmino clarified that Judge
Jaramillo had issued the first order in the case as early as March 9, 1987 or two
years before the rendition of the decision. In fact, Atty. Belarmino terminated
presentation of evidence on October 13, 1987, while Dr. Cruz finished hers on
February 4, 1989, or more than a month prior to the rendition of the judgment. The
March 6, 1989 hearing was conducted solely for the presentation of petitioner's
rebuttal testimony.[13] In other words, Judge Jaramillo had ample time to study the
case and write the decision because the rebuttal evidence would only serve to
confirm or verify the facts already presented by the parties.
The Court finds nothing anomalous in the said situation. No proof has been
adduced that Judge Jaramillo was motivated by a malicious or sinister intent in
disposing of the case with dispatch. Neither is there proof that someone else wrote
the decision for him. The immediate rendition of the decision was no more than
Judge Jaramillos compliance with his duty as a judge to dispose of the courts
business promptly and decide cases within the required periods. [14] The two-year
period within which Judge Jaramillo handled the case provided him with all the
time to study it and even write down its facts as soon as these were presented to
court. In fact, this Court does not see anything wrong in the practice of writing a
decision days before the scheduled promulgation of judgment and leaving the
dispositive portion for typing at a time close to the date of promulgation, provided
that no malice or any wrongful conduct attends its adoption. [15] The practice serves
the dual purposes of safeguarding the confidentiality of draft decisions and
rendering decisions with promptness. Neither can Judge Jaramillo be made
administratively answerable for the immediate rendition of the decision. The acts
of a judge which pertain to his judicial functions are not subject to disciplinary
power unless they are committed with fraud, dishonesty, corruption or bad faith.
  Hence, in the absence of sufficient proof to the contrary, Judge Jaramillo is
[16]

presumed to have performed his job in accordance with law and should instead be
commended for his close attention to duty.
Having disposed of petitioners first contention, we now come to the core issue
of this petition which is whether the Court of Appeals erred in upholding the
validity of the contract of barter or sale under the circumstances of this case.
The Civil Code provides that contracts are perfected by mere consent. From
this moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law. [17] A contract of sale is
perfected at the moment there is a meeting of the minds upon the thing which is the
object of the contract and upon the price.[18] Being consensual, a contract of sale
has the force of law between the contracting parties and they are expected to abide
in good faith by their respective contractual commitments. Article 1358 of the
Civil Code which requires the embodiment of certain contracts in a public
instrument, is only for convenience,[19] and registration of the instrument only
adversely affects third parties.[20] Formal requirements are, therefore, for the benefit
of third parties. Non-compliance therewith does not adversely affect the validity of
the contract nor the contractual rights and obligations of the parties thereunder.
It is evident from the facts of the case that there was a meeting of the minds
between petitioner and Dr. Cruz. As such, they are bound by the contract unless
there are reasons or circumstances that warrant its nullification. Hence, the
problem that should be addressed in this case is whether or not under the facts duly
established herein, the contract can be voided in accordance with law so as to
compel the parties to restore to each other the things that have been the subject of
the contract with their fruits, and the price with interest.[21]
Contracts that are voidable or annullable, even though there may have been no
damage to the contracting parties are: (1) those where one of the parties is
incapable of giving consent to a contract; and (2) those where the consent is
vitiated by mistake, violence, intimidation, undue influence or fraud.
[22]
 Accordingly, petitioner now stresses before this Court that he entered into the
contract in the belief that the pair of emerald-cut diamond earrings was genuine.
On the pretext that those pieces of jewelry turned out to be counterfeit, however,
petitioner subsequently sought the nullification of said contract on the ground that
it was, in fact, tainted with fraud[23] such that his consent was vitiated.
There is fraud when, through the 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.[24] The records, however, are bare of any
evidence manifesting that private respondents employed such insidious words or
machinations to entice petitioner into entering the contract of barter. Neither is
there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay
property or that she cajoled him to take the earrings in exchange for said
property. On the contrary, Dr. Cruz did not initially accede to petitioners proposal
to buy the said jewelry. Rather, it appears that it was petitioner, through his agents,
who led Dr. Cruz to believe that the Tanay property was worth exchanging for her
jewelry as he represented that its value was P400,000.00 or more than double that
of the jewelry which was valued only at P160,000.00. If indeed petitioners
property was truly worth that much, it was certainly contrary to the nature of a
businessman-banker like him to have parted with his real estate for half its price. In
short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz
to exchange her jewelry for the Tanay property.
Moreover, petitioner did not clearly allege mistake as a ground for nullification
of the contract of sale. Even assuming that he did, petitioner cannot successfully
invoke the same. To invalidate a contract, mistake must refer to the substance of
the thing that is the object of the contract, or to those conditions which have
principally moved one or both parties to enter into the contract. [25] An example of
mistake as to the object of the contract is the substitution of a specific thing
contemplated by the parties with another.[26] In his allegations in the complaint,
petitioner insinuated that an inferior one or one that had only Russian diamonds
was substituted for the jewelry he wanted to exchange with his 10-hectare
land. He, however, failed to prove the fact that prior to the delivery of the jewelry
to him, private respondents endeavored to make such substitution.
Likewise, the facts as proven do not support the allegation that petitioner
himself could be excused for the mistake. On account of his work as a banker-
jeweler, it can be rightfully assumed that he was an expert on matters regarding
gems. He had the intellectual capacity and the business acumen as a banker to take
precautionary measures to avert such a mistake, considering the value of both the
jewelry and his land. The fact that he had seen the jewelry before October 24, 1984
should not have precluded him from having its genuineness tested in the presence
of Dr. Cruz. Had he done so, he could have avoided the present situation that he
himself brought about. Indeed, the finger of suspicion of switching the genuine
jewelry for a fake inevitably points to him. Such a mistake caused by manifest
negligence cannot invalidate a juridical act. [27] As the Civil Code provides, (t)here
is no mistake if the party alleging it knew the doubt, contingency or risk affecting
the object of the contract.[28]
 Furthermore, petitioner was afforded the reasonable opportunity required in
Article 1584 of the Civil Code within which to examine the jewelry as he in fact
accepted them when asked by Dr. Cruz if he was satisfied with the same. [29] By
taking the jewelry outside the bank, petitioner executed an act which was more
consistent with his exercise of ownership over it. This gains credence when it is
borne in mind that he himself had earlier delivered the Tanay property to Dr. Cruz
by affixing his signature to the contract of sale. That after two hours he later
claimed that the jewelry was not the one he intended in exchange for his Tanay
property, could not sever the juridical tie that now bound him and Dr. Cruz. The
nature and value of the thing he had taken preclude its return after that supervening
period within which anything could have happened, not excluding the alteration of
the jewelry or its being switched with an inferior kind.
Both the trial and appellate courts, therefore, correctly ruled that there were no
legal bases for the nullification of the contract of sale.Ownership over the parcel of
land and the pair of emerald-cut diamond earrings had been transferred to Dr. Cruz
and petitioner, respectively, upon the actual and constructive delivery thereof.
[30]
 Said contract of sale being absolute in nature, title passed to the vendee upon
delivery of the thing sold since there was no stipulation in the contract that title to
the property sold has been reserved in the seller until full payment of the price or
that the vendor has the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period.[31] Such stipulations are not manifest in the
contract of sale.
While it is true that the amount of P40,000.00 forming part of the consideration
was still payable to petitioner, its nonpayment by Dr. Cruz is not a sufficient cause
to invalidate the contract or bar the transfer of ownership and possession of the
things exchanged considering the fact that their contract is silent as to when it
becomes due and demandable.[32]
Neither may such failure to pay the balance of the purchase price result in the
payment of interest thereon. Article 1589 of the Civil Code prescribes the payment
of interest by the vendee for the period between the delivery of the thing and the
payment of the price in the following cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or extrajudicial
demand for the payment of the price.
Not one of these cases obtains here. This case should, of course, be distinguished
from De la Cruz v. Legaspi,[33] where the court held that failure to pay the
consideration after the notarization of the contract as previously promised resulted
in the vendees liability for payment of interest. In the case at bar, there is no
stipulation for the payment of interest in the contract of sale nor proof that the
Tanay property produced fruits or income. Neither did petitioner demand payment
of the price as in fact he filed an action to nullify the contract of sale.
All told, petitioner appears to have elevated this case to this Court for the
principal reason of mitigating the amount of damages awarded to both private
respondents which petitioner considers as exorbitant. He contends that private
respondents do not deserve at all the award of damages. In fact, he pleads for the
total deletion of the award as regards private respondent Belarmino whom he
considers a mere nominal party because no specific claim for damages against him
was alleged in the complaint. When he filed the case, all that petitioner wanted was
that Atty. Belarmino should return to him the owners duplicate copy of TCT No.
320725, the deed of sale executed by Fr. Antonio Jacobe, the deed of redemption
and the check alloted for expenses. Petitioner alleges further that Atty. Belarmino
should not have delivered all those documents to Dr. Cruz because as the lawyer
for both the seller and the buyer in the sale contract, he should have protected the
rights of both parties. Moreover, petitioner asserts that there was no firm basis for
damages except for Atty. Belarminos uncorroborated testimony.[34]
Moral and exemplary damages may be awarded without proof of pecuniary
loss. In awarding such damages, the court shall take into account the circumstances
obtaining in the case and assess damages according to its discretion.[35] To warrant
the award of damages, it must be shown that the person to whom these are awarded
has sustained injury. He must likewise establish sufficient data upon which the
court can properly base its estimate of the amount of damages. [36] Statements of
facts should establish such data rather than mere conclusions or opinions of
witnesses.[37] Thus:
x x x. For moral damages to be awarded, it is essential that the claimant
must have satisfactorily proved during the trial the existence of the factual
basis of the damages and its causal connection with the adverse partys
acts. If the court has no proof or evidence upon which the claim for moral
damages could be based, such indemnity could not be outrightly
awarded. The same holds true with respect to the award of exemplary
damages where it must be shown that the party acted in a wanton,
oppressive or malevolent manner.[38]
In this regard, the lower court appeared to have awarded damages on a ground
analogous to malicious prosecution under Article 2219(8) of the Civil Code [39] as
shown by (1) petitioners wanton bad faith in bloating the value of the Tanay
property which he exchanged for a genuine pair of emerald-cut diamond
worth P200,000.00; and (2) his filing of a malicious and unfounded case against
private respondents who were well known, respected and held in high esteem in
San Pablo City where everybody practically knows everybody and whose good
names in the twilight of their lives were soiled by petitioners coming to court with
unclean hands, thereby affecting their earning capacity in the exercise of their
respective professions and besmirching their reputation.
For its part, the Court of Appeals affirmed the award of damages to private
respondents for these reasons:
The malice with which Fule filed this case is apparent. Having taken
possession of the genuine jewelry of Dra. Cruz, Fule now wishes to return a
fake jewelry to Dra. Cruz and, more than that, get back the real property,
which his bank owns. Fule has obtained a genuine jewelry which he could
sell anytime, anywhere and to anybody, without the same being traced to
the original owner for practically nothing. This is plain and simple, unjust
enrichment.[40]
While, as a rule, moral damages cannot be recovered from a person who has
filed a complaint against another in good faith because it is not sound policy to
place a penalty on the right to litigate,[41] the same, however, cannot apply in the
case at bar. The factual findings of the courts a quo to the effect that petitioner
filed this case because he was the victim of fraud; that he could not have been such
a victim because he should have examined the jewelry in question before accepting
delivery thereof, considering his exposure to the banking and jewelry businesses;
and that he filed the action for the nullification of the contract of sale with unclean
hands, all deserve full faith and credit to support the conclusion that petitioner was
motivated more by ill will than a sincere attempt to protect his rights in
commencing suit against respondents.
As pointed out earlier, a closer scrutiny of the chain of events immediately
prior to and on October 24, 1984 itself would amply demonstrate that petitioner
was not simply negligent in failing to exercise due diligence to assure himself that
what he was taking in exchange for his property were genuine diamonds. He had
rather placed himself in a situation from which it preponderantly appears that his
seeming ignorance was actually just a ruse. Indeed, he had unnecessarily dragged
respondents to face the travails of litigation in speculating at the possible favorable
outcome of his complaint when he should have realized that his supposed
predicament was his own making. We, therefore, see here no semblance of an
honest and sincere belief on his part that he was swindled by respondents which
would entitle him to redress in court. It must be noted that before petitioner was
able to convince Dr. Cruz to exchange her jewelry for the Tanay property,
petitioner took pains to thoroughly examine said jewelry, even going to the extent
of sketching their appearance. Why at the precise moment when he was about to
take physical possession thereof he failed to exert extra efforts to check their
genuineness despite the large consideration involved has never been explained at
all by petitioner. His acts thus failed to accord with what an ordinary prudent man
would have done in the same situation. Being an experienced banker and a
businessman himself who deliberately skirted a legal impediment in the sale of the
Tanay property and to minimize the capital gains tax for its exchange, it was
actually gross recklessness for him to have merely conducted a cursory
examination of the jewelry when every opportunity for doing so was not denied
him. Apparently, he carried on his person a tester which he later used to prove the
alleged fakery but which he did not use at the time when it was most needed.
Furthermore, it took him two more hours of unexplained delay before he
complained that the jewelry he received were counterfeit. Hence, we stated earlier
that anything could have happened during all the time that petitioner was in
complete possession and control of the jewelry, including the possibility of
substituting them with fake ones, against which respondents would have a great
deal of difficulty defending themselves. The truth is that petitioner even failed to
successfully prove during trial that the jewelry he received from Dr. Cruz were not
genuine. Add to that the fact that he had been shrewd enough to bloat the Tanay
propertys price only a few days after he purchased it at a much lower value. Thus,
it is our considered view that if this slew of circumstances were connected, like
pieces of fabric sewn into a quilt, they would sufficiently demonstrate that his acts
were not merely negligent but rather studied and deliberate.
We do not have here, therefore, a situation where petitioners complaint was
simply found later to be based on an erroneous ground which, under settled
jurisprudence, would not have been a reason for awarding moral and exemplary
damages.[42] Instead, the cause of action of the instant case appears to have been
contrived by petitioner himself. In other words, he was placed in a situation where
he could not honestly evaluate whether his cause of action has a semblance of
merit, such that it would require the expertise of the courts to put it to a test. His
insistent pursuit of such case then coupled with circumstances showing that he
himself was guilty in bringing about the supposed wrongdoing on which he
anchored his cause of action would render him answerable for all damages the
defendant may suffer because of it.This is precisely what took place in the petition
at bar and we find no cogent reason to disturb the findings of the courts below that
respondents in this case suffered considerable damages due to petitioners
unwarranted action.
 WHEREFORE, the decision of the Court of Appeals dated October 20, 1992
is hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay petitioner the
balance of the purchase price of P40,000.00 within ten (10) days from the finality
of this decision. Costs against petitioner.
SO ORDERED.
Narvasa, CJ. (Chairman), Kapunan and Purisima, JJ., concur.